Tax Court Rules that IRS Too Aggressive in Applying Qualified Appraisal and Qualified Appraiser Standards


In Friedberg v. Comm’r, T.C. Memo 2011-238, the Tax Court granted summary judgment for the IRS, holding that an appraisal used to substantiate a facade easement donation amount was not a qualified appraisal because it determined that the appraiser, although purporting to employ comparable sales method for easement's post-donation valuation, didn't actually use that or any other sanctioned method. The court determined that the appraiser used what appeared to be flawed percentage diminution method that looked at eased properties located in cities other than where subject property was located. Because the Tax Court believe that the appraiser did not properly apply the stated methodologies, the Tax Court opined that the façade easement appraisal was not a qualified appraisal.

In Friedberg v. Comm’r, T.C. Memo 2013-224 (“Friedberg II”), issued this week, the taxpayer filed a motion for reconsideration after the Second Circuit’s decision in Scheidelman v. Comm’r, 682 F.3d 189, 196-197 (2d Cir. 2013), holding that for purposes of determining compliance with the qualified appraisal rules “it is irrelevant that the ***[Commissioner] believes that the method employed was sloppy or inaccurate, or haphazardly applied… The regulation requires only that the appraiser identify the valued method “used”; it does not require that the method adopted be reliable.” After considering the Scheidelman decision, the Tax Court applied the Scheidelman standard that to be considered a qualified appraisal, the appraisal must give the Commissioner the information relevant to evaluate the appraiser’s methodology, regardless of its accuracy.

In Friedberg II, the Tax Court ruled that the appraisal was a qualified appraisal because by stating the appraisal included a description of the methodology used and the analysis of value based on that methodology and therefore the appraisal contained enough information for the Commissioner to evaluate the methodology used.

The IRS also argued in Friedberg II that the appraiser was not a qualified appraiser because he did not have any prior experience appraising transferable development rights, also at issue in the case. On that issue, the Tax Court determined that “an appraiser is a qualified appraiser if he or she makes the requisite declaration [required under Treas. Reg. sec. 1.170A-13(c)(5)] that he or she is qualified to appraise the value of the contributed property; the regulation does not direct the Commissioner to analyze the appraiser’s qualifications to determine whether he or she has sufficient education, experience, or other characteristics.”


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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