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The IRS has long required taxpayers to provide an appraisal to support deductions claimed for larger non-cash charitable donations. Prompted (at least in part) by complaints that some of the values being claimed for patents and other intangible business assets in connection with charitable donations were running past the far side of reasonable, Congress made revisions to the Code as part of the 2006 Pension Protection Act. The revisions tightened the requirements for appraisals used in this context, explicitly requiring for the first time that business or intangible asset appraisals be prepared by credentialed professionals according to recognized standards. The law also made it easier for the IRS to seek sanctions and penalties against abusive valuation experts (that is, in addition to the penalties applicable to the taxpayer).

The revision to the Code has significance for non-profit organizations and tax advisors, and is good news for professional valuation practices like Amper's Litigation and Valuation Services, whose officers and managers are experienced and credentialed valuation experts. Its significance may be broader still, since IRS representatives speaking to professional organizations this year have indicated that they believe the IRS will come to consider the requirements stated here for non-cash charitable donations to be applicable generally to appraisal reports used in connection with all Federal tax filings.

Given this background, there was some excitement surrounding the issuance by the IRS earlier this year of implementation guidelines, in Notice 2006-96. (Full text available at http://www.irs.gov/pub/irs-drop/n-06-96.pdf.) One surprise in the Notice was its mention, howsoever nuanced, of a specific set of valuation standards, the Uniform Standards of Professional Appraisal Practice, or "USPAP."

Here are the details: PPA-2006 Section 1219 tightens requirements for appraisals by providing a new definition of "qualified appraisal," specifying that it be "conducted by a qualified appraiser in accordance with generally accepted appraisal standards…." The qualified appraiser, in turn, is a person who "has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum educational experience requirements."

Specialists wondered, at this point: How specific is the IRS willing to be about which professional appraiser designations and which generally accepted standards are recognized? In its Notice, the IRS tacitly acknowledges these questions, but with reference to appraiser designations, it does not mention any names. (It does strongly suggest, however, that qualified designations are those given specifically for valuation disciplines: "CPA/ABV and ASA would certainly do it, but I don't think CPA or CFA alone would qualify" one IRS person told me, speaking on her own behalf, not officially.) With regard to standards, however, USPAP is named specifically. This is interesting, because in the past the IRS has avoided blessing any particular association or standard. But perhaps it is not too surprising. USPAP are the standards promulgated by the Appraisal Standards Board of the Appraisal Foundation, a non-profit, professional organization authorized by Congress in response to abusive real estate appraisals that came to light in the Savings & Loan scandals of the 1980s. They were first issued in 1987 and are regularly updated. For detail, go to http://www.appraisalfoundation.org. USPAP standards were established for real estate, personal property and business appraisals, but in the past the Congress and IRS had stopped short of requiring these standards for business appraisals. With PPA-2006 and Notice 2006-96, they have all but done so.