News

Given the recent downturn in the real estate markets due to COVID-19, many property owners are accelerating their plans for gifting due to the market volatility, which leads to increased discounts for partial ownership interests in real estate holding entities. Clients often question the value of obtaining a good quality appraisal report for submission to the IRS for gifting, estate taxes, or other purposes. Why should they pay a premium for a well-written report when they can get a cheaper, less robust alternative valuation? After all, aren’t most appraisals the same?

The IRS defines a “Qualified Appraisal” in loose terms; however, the following quote from an IRS representative at a recent Appraisal Institute seminar speaks volumes about the value of a quality appraisal:

“If the appraisal is well written and easy to follow, if it logically leads the reader from the initial presentation of the data to the value conclusion, and if conclusions are supported by facts and the analysis of facts, the appraisal will probably not be challenged by the IRS.”

In short, it is abundantly clear that a good, well-supported appraisal is essential in order to minimize audit issues with the IRS. Some common IRS appraisal red flags include:

• The report is poorly written or confusing;
• The reader is not logically led from the initial presentation of the data to the value conclusion;
• Conclusions are not supported by the facts and the analysis of the facts;
• Opinions are not supported by facts and analysis; and
• There is a lack of a thorough discussion of Highest and Best Use.

Joseph J. Blake & Associates, Inc. has performed hundreds of such Qualified Real Estate appraisals for the IRS, as well as specializing in valuations of partial ownership interests in real estate or real estate holding entities. Our discount valuations for lack of control and marketability are thoroughly supported with several approaches to value and are among the most credible in the industry. Most importantly, our appraisals have consistently passed the muster of IRS review. For more information regarding valuation for estate or gift taxes, or any other IRS-related purpose, please contact Brian Rapela, MAI, MRICS at (925) 482-1370 or by email at brapela@josephjblake.com.