Appraiser Penalties for All? The New and Troubling IRS Code Provision

William S. Forsberg (Attorney at Law at Leonard, Street & Deinard) and Hugh F. Drake (Attorney at Law at Brown, Hay & Stephens, LLP) have recently published an article entitled The New IRS Appraiser Penalties Under Code § 6695A, Prob. & Prop., Sept./Oct. 2007, at 46.

Here is an excerpt from the introduction to their article:

The Pension Protection Act of 2006 (PPA) imposes new penalties under Internal Revenue Code (“Code”) §6695A for substantial or gross valuation misstatements.

Without question, the need for property to be valued properly is critical under our current transfer tax and income tax system. Estate and trust attorneys often must obtain appraisals of property or property interests when making strategic lifetime gifts for clients as well as on a client’s death. Common lifetime gifting strategies that require an appraisal include transfers to grantor retained annuity trusts and transfers to qualified personal residence trusts. Sales of property to grantor trusts, or gifts of family limited partnership interests, also require an appraisal. Asset transfers to certain types of charitable trusts require appraisals for both income and transfer tax purposes.

The American Bar Association Section of Real Property, Probate and Trust Law has submitted comments to the Internal Revenue Service on the issues surrounding new Code § 6695A. The uncertainties surrounding the new Code section are troubling not only for professional appraisers but for any person involved in the appraisal process, including attorneys and CPAs. This article will discuss the questions raised by the task force about new Code § 6695A and provide some insight into the concerns the task force raised regarding the ability of the IRS to implement its provisions fairly and equitably.