In recently published IRS Advisory Council Report there are some interesting recommendations and suggestions about personal property appraising, using USPAP standards for IRS appraisals and the art advisory panel. It references some interest court cases, and at the end of the section compares how closely USPAP and the IRS appraisal guidelines are.
The full document applies to many IRS topics and covers about 150 pages, but starting on page 118 is the content which is of interest to personal property appraisers. we have been discussing this document in the TAFAC Personal Property Issues Committee and believe appraisers and personal property appraisers should be aware of the IRS Advisory Report's content as it relates to the personal property profession.
The full document is available online at https://www.irs.gov/pub/irs-utl/2017-irsac-public-report.pdf
I recommend you take a few minutes to read the section Generally Accepted Appraisal Standards In IRS Valuations starting on page 118. It also might be wise to bookmark it or print it out.
Bear in mind, this is only an IRS Advisory Panel and makes recommendations. Change happens slowly with government agencies, but it is certainly interesting and a positive recommendation for appraisal standards in general, and USPAP in particular.
The report continues in the Recommendation and Suggestion SectionsThe IRSAC believes that the appraisal standards that taxpayers must follow when submitting valuations for charitable contributions, known as the Uniform Standards of Professional Appraisal Practice (USPAP), provide a generally accepted standard of care that, where appropriate, should be followed in other valuation contexts and by taxpayers and the IRS alike.99 Specifically, to improve the credibility, efficiency, and cost effectiveness of IRS valuations, the IRSAC recommends that the IRS evaluate whether and where it should follow the principles of the USPAP.
Source: IRS1. Consider Whether Following USPAP Guidelines Would be Beneficial
USPAP is a longstanding and carefully developed set of appraisal standards familiar to the appraisal community that has been adopted by the IRS and other federal agencies in various contexts. To align IRS appraisal procedures and standards with those required of taxpayers, and to ensure that the IRS remains up-to-date with respect to industrywide appraisal standards, we recommend that the IRS examine all of its appraisal procedures to determine whether they meet the standards reflected in USPAP.
Furthermore, to the extent existing IRS procedures do not meet the standards reflected in USPAP, we recommend that the IRS consider modifying its procedures so that those procedures equal or exceed the standards and principles contained in USPAP. Finally, where IRS appraisal procedures do not currently comply with USPAP standards, and the IRS decides not to bring them in compliance with USPAP after conducting the recommended evaluation described above, we recommend that the IRS announce where and why its appraisal practices and procedures deviate from USPAP.
2. The IRS Should Consider Whether Compliance with USPAP Would Be Helpful in Identifying Expert Witnesses. To be consistent and to help avoid unnecessary challenges, the IRS should consider whether outside valuation experts comply with USPAP.
3. Art Advisory Panel
For the past two years, the IRSAC has delved into the development and reporting of valuation opinions by the Art Advisory Panel (AAP). To advance this process, we have identified the following questions and suggestions.
Questions
1. Do the Art Advisory Panel recommendations constitute appraisals? If so, should generally accepted appraisal standards apply?
2. While AAP panelists’ knowledge of private sales is no doubt helpful in valuing works of art, we believe greater transparency into the panel’s work would be beneficial.
3. Does the high acceptance rate of AAP evaluations by Art Appraisal Services indicate that the process is working well and that the AAP recommendations are well-supported determinations of value? Alternatively, does the high acceptance rate of AAP recommendations by the IRS indicate that the AAP—which, again, does not necessarily follow industry-recognized appraisal standards in making determinations of value—exerts too much influence over IRS valuations of artwork?
4. Is the need that prompted the establishment of the Art Advisory Panel half a century ago—i.e., providing unique knowledge of the art market and of current art valuation—still relevant and helpful to IRS administration today?
5. Given today’s communications technology, is it still necessary to wait for a biannual meeting to seek input from experts?
Suggestion
The IRSAC suggests that it would be beneficial to consider restructuring and revising the operating procedures for the Art Advisory Panel. For example, rather than waiting for biannual AAP meetings, should the process be streamlined to allow IRS staff art appraisers within AAS to consult directly with individual panel members, as needed, on questions related to a panelist’s particular area of expertise?122 Seeking expert opinion about, for example, a particular condition issue or marketability question is common practice in the appraisal profession and permitted by USPAP as long as any significant appraisal assistance is disclosed.
The streamlined process could lead to resource savings. While Art Advisory Panel members serve without compensation, the current biannual meeting process for gathering their opinions involves administrative costs, including: preparing, compiling, redacting, and shipping materials for hundreds of items to panel members; travel, per diem and lodging expenses for panel meetings; staff time and expenses to attend and report on panel meetings; and staff time to prepare the annual panel report. Regular, less formal communications (such as conference calls and emails) and continuous availability of materials to panel members could conceivably reduce these costs significantly.
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