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ASA, Others Send Letter to IRS and Treasury Questioning Recent Changes in 6695A Prepenalty Review Process

by Todd Paradis | May 18, 2020
On May 18, ASA and ten other appraisal organizations sent a letter to the Internal Revenue Service and the Treasury Department regarding a recent change to the Internal Revenue Manual affecting the way IRS reviews appraisals prior to imposing a civil money penalty for valuation misstatements under Section 6695A of the Internal Revenue Code. This change reduces the number of individuals involved in the decision to impose a 6695A penalty, and could result in a penalty being imposed without the appraisal in question being reviewed by an individual with valuation training or expertise.

ASA and its partners expressed concern this change could lead to several distinct outcomes:

First, that the reduction in the number of individuals involved in the process (previously, no less than five individuals were involved, including three with valuation training or expertise) could lead to an increase in the number of non-meritorious cases being brought against appraisers.

Second, that the cost of defending against a 6695A penalty and, potentially, lodging an appeal should IRS ultimately impose the penalty, could place appraisers in the difficult position of having to bear significant financial costs or face the reality of no longer performing tax-related appraisal work and the ripple effect such an outcome would have.

Third, that the new process increases the likelihood of factors outside of the appraisal – such as previous interactions or a sense of personal ownership – could drive the imposition of penalties even where there was not sufficient basis in the appraisal itself to support the penalty.

Finally, that the process by which IRS made this change – using a temporary process that did not involve outside stakeholder engagement – failed to take into consideration the potential impact of the change and overlooked the significant collaborative effort that went into crafting the original review process in the first place.

ASA and its partners look forward to engaging with IRS to find a fair solution to this issue that works for everyone, and ensures critical protections for appraisers remain in place.

ASA wishes to thank its partners who signed onto this important letter:

To read the full text of the letter, click here. To read the January 22 memo announcing the change, click here.