The Internal Revenue Service’s Office of Professional Responsibility has entered into a settlement agreement with a group of appraisers from the same firm who were accused of aiding in the understatement of federal tax liabilities by overvaluing facade easements for charitable donation purposes.
Under the settlement agreement, the appraisers admitted to violating relevant sections of Circular 230 related to due diligence and submitting accurate documents to the government. The OPR has barred them from valuing building facade easements for federal tax purposes for five years.
The appraisers agreed to the OPR’s five-year suspension of valuing facade easements and undertaking any appraisal services that could subject them to penalties under the Tax Code. The appraisers also agreed to abide by all the applicable provisions of Circular 230.
“Appraisers need to understand that they are subject to Circular 230, and must exercise due diligence in the preparation of documents relating to federal tax matters,” said OPR director Karen L. Hawkins in a statement. “Taxpayers expect advice rendered with competence and diligence that goes beyond the mere mechanical application of a rule of thumb based on conjecture and unsupported conclusions.”
Failure to comply with terms of the settlement would result in the appraiser’s disqualification, which would include a ban from presenting any evidence or testimony in administrative proceedings before the Treasury Department, and render any appraisal given after disqualification without probative effect.
The appraisers prepared reports valuing facade easements donated over several tax years. On behalf of each donating taxpayer, an appraiser completed Part III, Declaration of Appraiser, of Form 8283, Noncash Charitable Contributions, certifying that the appraiser did not fraudulently or falsely overstate the value of such facade easement. In valuing the facade easements, the appraisers applied a flat percentage diminution, generally 15 percent, to the fair market values of the underlying properties prior to the easement’s donation.
Specifically, the appraisers admitted to violating Section 10.22(a)(1) of Circular 230, failing to exercise due diligence in the preparation of documents relating to IRS matters, and Section 10.22(a)(2) for failing to determine the correctness of written representations made to the Treasury Department.
At least one valuation expert thought the penalty was overly harsh. “What is the ghastly crime that these appraisers are accused of committing and that would cause them to lose their livelihood and the ability to support their families?” said Lance Hall, managing director of FMV Opinions, Inc., a national valuation and investment banking firm, in an email alert to clients. “It is interesting that, to deprive these individuals of their livelihood, the IRS did not even have to show that there was a gross or substantial valuation misstatement. Following on the heels of last year’s disbarment of Michael Ehrman for the same issues, valuation professionals are on notice.”