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Giving Is Easy; Valuing is Hard So, You Think You’re an Appraiser!
IRS Proposed Regulations on Appraisals of Charitable Contributions
The Dance of Death  

IRS Proposed Regulations on Appraisals of Charitable Contributions
– The Rules Continue to Evolve

Bruce H. Barnett, J.D., LL.M. (Taxation)
Palm Beach County, Florida


Antiquarian booksellers frequently are asked to value books. The requests generally are for a single book or a small group, and in those cases, no more than a verbal estimate of value is expected. From time to time, however, booksellers are asked to appraise a collection, and oftentimes a written estimate is requested. In those cases, booksellers must clearly understand the purpose of the appraisal, and if it is to support a value for a charitable contribution, knowledge of the relevant IRS requirements is essential. With increasing rapidity, those requirements have changed over the years. Below are a brief explanation of those changes and a description of where matters stand today.


Generally, an appraisal is required whenever a tax deduction is claimed on a federal income tax return for a contribution to charity of property worth greater than $5,000. Since tax deductions reduce the amount of tax collected by the federal government, Congress has tightened the rules governing appraisals in recent years in quest of discouraging valuation abuse, i.e., overstating the value of the contributed property. 

Most booksellers avoid formal appraisals owing to the combination of the enormous time that must be expended to perform a proper appraisal and the difficulty of charging a fee large enough to adequately compensate the appraiser for the effort. Such aversion is particularly acute when the appraisal is required for tax purposes, since the prospect of a potential review by the IRS is intimidating. The most recent IRS pronouncements have upped the ante again, and unless the IRS changes its position, many booksellers very likely will be disqualified from conducting appraisals for income tax purposes, unless corrective action, described more fully below, is undertaken. 

Early in the history of the US tax law, few rules applied to the valuation of property contributed to charity. As just one example, in those early days, no particular support for the value of contributed property was required, and only in the relatively infrequent case of IRS audit would that value be disputed. Later, appraisals were required for sizable contributions, and later still, standards were developed for those appraisals. The growth of regulation stemmed from a perceived pattern of tax abuse in the form of taxpayers claiming exorbitant values for donated property. As just one well publicized recent example, some unscrupulous taxpayers vastly overstated the value of used cars donated to certain charities. 

2004 Tax Law Changes

The American Jobs Creation Act of 2004 introduced new standards for an appraisal used to support an income tax deduction for a charitable contribution. Among the new conditions was a requirement that the appraiser must either regularly perform appraisals or hold herself out to the general public as an appraiser. This requirement narrowed the population able to perform an appraisal but still enabled virtually anyone to be an acceptable appraiser, e.g., by simply representing appraisal capabilities on a website. Another new condition added by the 2004 law was a requirement that the appraiser include her credentials in the appraisal. Despite the 2004 changes, valuation abuse concerns remained, and additional requirements were added just two years later.

2006 Tax Law Changes

New appraisal restrictions were added by the Pension Protection Act of 2006 including the first ever penalties imposed solely upon appraisers for substantially misstating the value of appraised property. These new provisions impose a penalty of up to 125 percent of the compensation received for appraisal services. For example, an appraiser who is paid $10,000 for providing an appraisal could face a penalty as high as $12,500. This penalty is worrisome, particularly since the appraiser may have no opportunity to dispute it. Tax audits often give rise to a number of potential changes proposed by an IRS agent. The taxpayer faced with a variety of changes often will settle with the IRS by conceding some issues in exchange for others being dropped. Should one of the conceded issues be the value of a charitable contribution supported by an appraisal, the appraiser may face a penalty without an opportunity to defend the valuation, since the audited taxpayer may not even notify the appraiser of the dispute. Compounding the problem is the possibility that the appraiser may be barred from future IRS work without ever having a chance to defend her work. 

The 2006 Act also increased penalties imposed upon taxpayers for valuation misstatements. In some cases, the penalty may be as much as 40 percent of the additional tax due as a result of a valuation misstatement that is identified via IRS audit. To illustrate, if the value of a contribution of a book collection to charity is determined to be $500,000 after an IRS audit rather than the $2,000,000 claimed on the original income tax return, the taxpayer would face a penalty of roughly $210,000 ($1,500,000 x 35% tax rate x 40%). 
In addition to these new and increased penalty provisions, the 2006 Act introduced a host of standards applicable both to the appraisal and the appraiser. One unprecedented new provision mandates the appraiser’s use of “generally accepted appraisal standards (GAAS).” While GAAS is not defined, the IRS points to the Uniform Standards of Professional Appraisal Practice that were developed by the Appraisal Standards Board of the Appraisal Foundation. 

According to the 2006 Act, only appraisals by “qualified appraisers” are acceptable to support the value of property deducted as a charitable contribution on an income tax return. The 2006 Act introduced new criteria for determining who can be a qualified appraiser. These new qualified appraiser requirements are found at two levels that could be described as the “general threshold” and the “specific threshold.”

The general threshold is designed to ensure that the appraiser possesses basic capabilities to perform appraisals. One new requirement is that the appraiser must (1) be designated as a qualified appraiser by a recognized appraiser organization or (2) meet minimum education and experience requirements. Another is that the appraiser must regularly conduct appraisals for pay. Additionally, the 2006 Act provides that an individual must satisfy other requirements that will be described in future IRS regulations. 

Even if the general threshold requirements are met, the appraiser still must satisfy the specific threshold tests designed to ensure competence in valuing the type of property included in the appraisal. One specific threshold test is that the appraiser must be able to demonstrate verifiable education and experience in valuing the type of property that is the subject of the appraisal. Another is that the appraiser must not have been barred from practicing before the IRS for the preceding three years. 

Some of the new threshold requirements will challenge even experienced booksellers. For example, few can satisfy the general threshold requirement of having been designated by a recognized appraisal organization. On the other hand, it would seem that the alternative education and experience test is more easily satisfied. 

Another seemingly troublesome general threshold requirement is that the appraiser must regularly conduct appraisals for pay. Recall that the 2004 Act allowed qualified appraisers either to regularly perform appraisals or to hold themselves out to the public as appraisers. By dropping this latter standard, the 2006 Act eliminates an easy method for appraisers to qualify. 

The 2006 Act seems to create extraordinary obstacles for new booksellers to become qualified appraisers. Donors requiring a qualified appraisal cannot employ a new bookseller, since she will not be qualified by virtue of not having previous appraisal experience, and yet without the ability to perform appraisals, she would be unable to become qualified for failure to regularly conduct appraisals for pay. 

Since few antiquarian booksellers have been barred from practicing before the IRS, the only specific threshold test of concern is demonstrating verifiable education and experience in valuing the type of property that is the subject of the appraisal.

Notice 2006-96

To provide guidance before the publication of regulations explaining the 2006 changes in greater detail, the IRS issued Notice 2006-96 in November of 2006. This Notice generally was helpful in resolving a number of concerns in favor of the appraiser. For example, an appraisal is deemed to be qualified and therefore acceptable to the IRS provided the appraisal (1) conforms to GAAS, (2) complies with existing requirements, and (3) is conducted by a qualified appraiser. 

Also helpfully treated is the specific threshold test of relevant education and experience. Notice 2006-96 provides that this test is satisfied via the appraiser’s claim to be qualified, which is supported by inclusion in the appraisal of a description of the appraiser’s background, education, experience, and membership in professional level organizations. 

More difficult are the general threshold education and experience requirements. The experience test is satisfied simply by having at least two years of experience in buying, selling or valuing property, and therefore should be of little concern to booksellers. But, a qualified appraiser must have successfully completed relevant college or professional level coursework. The boundaries of this test are not defined. 

Finally, Notice 2006-96 provided no guidance in helping appraisers determine the standards for the general threshold test of regularly appraising for pay.

Proposed Regulations

In August of 2008, the IRS issued Proposed Regulations that sweep away much of the uncertainty left by Notice 2006-96. In some cases, however, the decisions reflected are not helpful to booksellers. The Proposed Regulations are not binding, and, therefore, the rules found in them are not effective. Final Regulations will be published in the future and will be effective upon issuance. Those Final Regulations will reflect IRS consideration of comments submitted by interested parties, as well as testimony received at a public hearing in late January. Although neither binding nor final, the Proposed Regulations offer insight into IRS thinking on some of the troublesome remaining issues. 

One clarification provided by the Proposed Regulations is that to be acceptable for US income tax purposes, an appraisal must comply with the “substance and principles” of USPAP. This broad interpretation is helpful to booksellers seeking qualified appraiser status. 

Another important decision found in the Proposed Regulation is the merging of the general and specific experience and education thresholds into a single test. Thus, an appraiser must satisfy only the requirement of verifiable education and experience in valuing the type of property subject to the appraisal. The experience requirement continues to be two years in valuing the property subject to the appraisal, and few booksellers should face problems meeting this requirement.

More troubling, however, for booksellers is the education requirement. The Proposed Regulations continue allowing the requirement to be satisfied by receipt of a designation from a recognized professional appraisal organization. As previously mentioned, this path to qualified appraiser status will be of very limited value to booksellers. 

In the absence of a designation from a recognized professional appraiser organization, the education requirement is satisfied by having successfully completed professional or college-level coursework in valuing the category of property that is customary in the appraisal field for an appraiser to value. The definition of “successfully completed” is uncertain. The Proposed Regulations state that receiving a passing grade on a final examination constitutes successful completion, but no other way of satisfying this standard is mentioned. Thus, for example, does mere attendance at a professional level program fulfill the requirement? 

While the parameters of successful completion are not described, the Proposed Regulations are clear in defining the nature of the institution that must be attended. Thus, a generally recognized appraisal organization that regularly offers educational programs in the principles of valuation is satisfactory. Also satisfactory are professional or college-level educational organizations whose primary function is the presentation of formal instruction, provided they normally maintain a regular faculty and curriculum, and a regularly enrolled body of students where the educational activities are conducted. Most universities clearly satisfy these requirements. Some, however, are less certain. Consider, for example, an institution that normally delivers instruction on-line such as the University of Phoenix. 


Standards for appraisals prepared to support charitable contributions have tightened over the years. Important revisions in 2004 added significant rigor, and 2006 changes were even more comprehensive. Those provisions increased penalties for valuation misstatements, and effectively reduced the universe of qualified appraisers. To be confident of their ability to prepare appraisals acceptable to the IRS for income tax purposes, prudent booksellers must understand the new appraisal standards, and it is in their best interest to consider their increased exposure to penalties. 

Recently issued Proposed Regulations clear up some lingering uncertainty, but important issues remain unanswered. While the Proposed Regulations have no binding effect, they suggest approaches that the IRS is likely to follow when binding Final Regulations are published sometime in the future. 

Should the Final Regulations remain unchanged from the Proposed Regulations, most booksellers will discover that they are not qualified appraisers, and therefore they are unable to provide appraisals useful for federal income tax purposes. The most glaring deficiency for most booksellers is the lack of formal education in valuation, which can be cured by attendance at a local university that offers classes containing a final examination. Other methods of acquiring education are available, but there is no guarantee that they will be adequate to satisfy IRS standards. Moreover, there is no certainty that the Final Regulations will mirror the Proposed Regulations, and for that reason, booksellers should carefully consider the merits of waiting to take corrective educational action until Final Regulations are issued. 

Appraisals for income tax purposes raise many complicated and weighty issues, only some of which have been touched upon above. Since the area is evolving, a bookseller should not rely upon any material contained herein but should consult her tax advisor whenever considering undertaking an appraisal that will be used for income tax purposes. 

Bruce H. Barnett is the owner of The Book Block, an antiquarian book business located in Lake Forest, Illinois. Trained in law and finance, he holds a J.D. and Master of Laws in Taxation from the NYU School of Law and studied at the Graduate Business School at Columbia, the University of Connecticut, NYU and Michigan. He practiced finance and tax law for over 30 years and has written and lectured extensively on taxation. Contact him at