Click HERE for a link to the Accounting Today article, and Click HERE to open the PDF of the GAO report.This is a 50 page report, and it contains some really interesting statistics and conclusions. The recommendations of the GAO on appraisal issues and loss of tax revenue is more training for IRS appraisers to stay current with appraisal principles and methodology and raising the dollar threshold amount for requiring appraisals.
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I have read the full report and there really is some good information in it on how appraisals impact audits and tax returns. It gives further information penalties for appraisers (only 6 since the pension protection act, although we do know more are in the pipeline) and that there is a higher likelihood for audits on gift returns with appraisals connected to them then on charitable donations or estate returns. Also, appraisal use in the prevalent in estate tax returns, with 90% of estate tax returns in 2009 had assets, deductions or exclusions of more than $50,000 in categories where the return was likely to require an appraisal, while only 20% with the gift tax, and less than 1% for individual returns with non cash charitable contributions.
The introduction of the GAO reports states
Click HERE for a link to the Accounting Today article, and Click HERE to open the PDF of the GAO report.What GAO Found
Appraisers’ most prominent role relative to the three types of tax returns GAO studied is in the valuation of estates. In the most recent years for which GAO had data, appraisers were likely involved in the valuation of property worth from $75 billion to $167 billion reported on estate tax returns in 2009. In contrast, less than $17 billion worth of gifts in 2009 and less than $10 billion in noncash contributions in 2008 likely involved an appraiser. Gift tax returns that likely used appraisers had higher audit rates than gift returns that were unlikely to have appraisers. The use of appraisers was not associated with higher audit rates for estate tax returns and individual returns with noncash contributions.
The Internal Revenue Service’s (IRS) procedures for selecting returns to audit do not specifically target noncash contributions or gift or estate tax returns supported by appraisals. Nevertheless, returns with appraisals do get included in the population of audited returns because certain types of returns on which IRS does focus, such as higher-income ones, are also the most likely ones to have noncash charitable contributions that require appraisals. The current appraisal threshold for certain contributions over $5,000 has existed since 1984. The absence of an inflation adjustment over the past 25 years means that many contributors who pay for appraisals would not have needed to do so when the current threshold was first introduced. IRS seldom takes issue with appraisals for noncash contributions. Consequently, there seems to be little risk in Congress raising the $5,000 dollar threshold.
IRS appraisal experts in one division met standards for ensuring that they were qualified. However, art appraisal experts in another division are not subject to either a comprehensive quality review program or continuing education requirements specific to appraising art. The lack of comprehensive quality reviews and mission-specific continuing education requirements could make the art appraisers less effective than they otherwise would be. Appraisers’ most prominent role relative to the three types of tax returns GAO studied is in the valuation of estates. In the most recent years for which GAO had data, appraisers were likely involved in the valuation of property worth from $75 billion to $167 billion reported on estate tax returns in 2009. In contrast, less than $17 billion worth of gifts in 2009 and less than $10 billion in noncash contributions in 2008 likely involved an appraiser. Gift tax returns that likely used appraisers had higher audit rates than gift returns that were unlikely to have appraisers. The use of appraisers was not associated with higher audit rates for estate tax returns and individual returns with noncash contributions.
The Internal Revenue Service’s (IRS) procedures for selecting returns to audit do not specifically target noncash contributions or gift or estate tax returns supported by appraisals. Nevertheless, returns with appraisals do get included in the population of audited returns because certain types of returns on which IRS does focus, such as higher-income ones, are also the most likely ones to have noncash charitable contributions that require appraisals. The current appraisal threshold for certain contributions over $5,000 has existed since 1984. The absence of an inflation adjustment over the past 25 years means that many contributors who pay for appraisals would not have needed to do so when the current threshold was first introduced. IRS seldom takes issue with appraisals for noncash contributions. Consequently, there seems to be little risk in Congress raising the $5,000 dollar threshold.
IRS appraisal experts in one division met standards for ensuring that they were qualified. However, art appraisal experts in another division are not subject to either a comprehensive quality review program or continuing education requirements specific to appraising art. The lack of comprehensive quality reviews and mission-specific continuing education requirements could make the art appraisers less effective than they otherwise would be.
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