An appraisal is an expert assessment of the value of a particular asset at a
given time. Many factors involved in the appraisal of a property can easily
distort its value--overvaluing or undervaluing it. The IRS uses
appraisals in the process of assessing property taxes, which requires the appeal
of experts in the subject. As such, the IRS's Art Appraisal Services' (AAS) job
consists of assessing the value of works of art for tax purposes.
A recent article in Accounting Today discusses the IRS' need to improve
its appraisal of the value of art and the Government Accountability Office (GAO)
report on the matter. The GAO report set the spotlight on the lack of
comprehensive quality review and continuing education requirement for the IRS'
appraisers, which consistently result in a misstated and most times unfavorable
appraisal for the taxpayer.
The report examined not only the appraised
values of artwork but also other categories of property such as real estate,
automobile and businesses, reaching the conclusion that the burden on taxpayers
could be reduced and selected practices improved.
Concerning art
appraisals, the report found that the valuation of the property has a huge
impact on the tax liabilities of individuals who make non-cash charitable
donations or who receive inheritances or gifts of property. Appraisers' task
requires them to be familiar with the subject matter and be able to note any
factors that may affect the value of the property (e.g., location, surrounding
area and condition of the property). But, some properties such as art, real
estate, businesses and easements have very unique characteristics, making an
independent appraisal essential to determine exactly how much the taxpayer
should report to the IRS.
The GAO recommended that the IRS offer a
continuing education program to its appraisers, along with a comprehensive
quality review program, specifically for the AAS staff. They also suggested that
Congress should consider raising the dollar threshold at which qualified
appraisals are required for noncash contributions to reflect inflation.