IRS & USPAP: Substantially in Accordance with USPAP vs Being USPAP Compliant

Treasury Department & IRS BOTH officially adopted USPAP back in 2009… except when they don’t want to follow it…

The Appraisal Foundation is once again misinterpreting the very regulations they purport to be reporting and telling consumers to be sure to follow.

As a matter of fact by substituting their own verbiage for what Treasury Regulations and IRS (Final Rule) policies actually say, they could be causing extreme harm to untold numbers taxpayers.

The following article includes a link that MUST be read to understand all the nuances, and which should be used as the final determinant of what is and what is not required: Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions.

Don’t mistake the phrase “Substantially in accordance with USPAP” as meaning anything remotely identical to “Being USPAP compliant.” In particular, read the IRS reported objections to using the latter verbiage.

Those ‘other’ also using generally recognized sound appraisal practices refer specifically to Business Valuators (typically NACVA trained & designated) and CPAs (as well as probate referees). I bet that one is coming back to bite TAF on their you know what right now!

For what it’s worth Treasury Department and IRS BOTH officially adopted USPAP back in 2009. (Essentially, that is – except when they don’t want to follow it).

IF there is ever a dispute between USPAP and how an IRS Senior Real Estate Appraiser in the Large Business and International Division’s Engineering & Valuation, Field Service Teams (LB&I/FS) interpret specific Treasury Regulations; Internal Revenue Code (IRC), or Internal Revenue Rules (IRR) they MAY (meaning most probably will) reject the appraisal and conclusion.

They do not ask if the taxpayer had a USPAP compliant appraisal attached. They ask instead “Has the taxpayer met their reporting obligations under (all applicable but very specific) Treasury Regulations?”

The IRS Notice of Proposed Adjustment (NOPA) completed from the Agent’s (appraiser) review may postulate this question in writing and then respond as:

“No. The taxpayer did not meet the requirements under [section]. The Fair Market Value (FMV) as defined in the regulations was not developed or supported.

The taxpayer provided a market Value opinion (MV) derived from a common FNMA definition that varies from the recognized definition.  Therefor, the taxpayer has failed to meet his reporting obligations and the value of the donation is unsubstantiated.”

Folks, don’t scoff. I went through this exact scenario.

As a matter of fact, I (foolishly) reported on other assignments that my work conformed with USPAP and I was specifically directed by a manager to remove ALL references to USPAP because SOME conflict with IRS internal practices, procedures and just plain habits.

As a practical matter, IF a taxpayer goes to tax court the IRS NOPA (deduction rejection) would likely be overturned UNLESS there are other actual exceptions. The most common of which will be in interpretations of highest and best use.

Think your client will forgive you if they have to go to court because IRS rejected your appraisal for any reason in the first place though?

Standards, (and several professional organizations) suggest an arguable, subjective interpretation of “reasonably probable assumptions” may be used. In our appraisers world, that morphs into reasonably POSSIBLE.

IRS says the use must be “Imminently probable.” One (Famous Designation) once postulated the ‘most probable’ H&BU as being a 250 unit townhouse subdivision on a hillside. Deduction was predicated on lot values of about $100,000 for each townhouse or a gross value of about twenty-five million dollars (less ridiculously low & underestimated development ad carrying costs).

IRS conclusion was that it was unreasonable (legal limitations & physical barriers to development that were insurmountable). My recollection is their revised value was under a million dollars.

The unsupported deduction was in the tens of millions of dollars (plus 3 years interest and penalties). Because the appraiser missed the FMV by more than 40% (much more), a referral to the Office of Professional Responsibility of the Federal Government was made with a subsequent referral to the DOJ.

Obviously the appraiser didn’t really follow USPAP but he thought he could ‘argue compliance with it’ like we do with peer groups and each other. Heck he couldn’t even argue substantively in accordance… because he completely failed to follow applicable Treasury Regulations.

In the next few months (October?) a meeting of senior IRS appraisers will take place in Atlanta, Georgia to form a new ‘response committee’ to deal with out of control non cash charitable donations and specifically conservation easements (mostly the latter). Already a target of IRS for over 15 years, conservation easements are going to start getting highly intensified attention.

The few nominal changes in the Final Rule are almost meaningless lip service. Note that MOST policies were in place from 2006 and are STILL in place.

You can read more at IRS and conservation easement pages. They are tied to the value definitions as well. Don’t overlook the ‘contiguous parcels’ issue in the powerpoint presentation. As applied by IRS, it would NOT be a USPAP requirement.

The first link above and in the below TAF’s Press Release have the actual guidance and language. Follow those above anyone else’s.

As an aside if you read between the lines (commenters) you will note AI is still trying to get federal agencies to recognize their designation in lieu of any other requirements; including experience. Sounds a lot like TAF and their proposed practicum courses!

Feel free to contact TAF for ‘help in finding an appraiser’ as urged by them… just be sure to interview them on their knowledge of either the Final Rule or the underlying Treasury Regulations. You may use, copy and refer to my website’s relevant sections without further permission required, BUT ALWAYS USE IRS original source documents first for reliance. Call 1(800) GET-HELP or go to website.

The Appraisal Foundation Press Release

IRS Final Rule Cites the Uniform Standards of Professional Appraisal Practice

For Immediate Release
July 30, 2018

Washington, DC – The Internal Revenue Service (IRS) has issued a new rule which governs how cash and noncash charitable contributions should be valued. The new rule specifically cites the Uniform Standards of Professional Appraisal Practice (USPAP) of The Appraisal Foundation.

Effective today, the new rule, entitled Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions, draws specific parameters around the term qualified appraisal. As stated in Section III (B) of the rule, appraisals are to be performed by a qualified appraiser according to the “substance and principles of the Uniform Standards of Professional Appraisal Practice [USPAP] as developed by the Appraisal Standards Board of the Appraisal Foundation.” This clarification pertains to charitable contributions of all property types.

The Appraisal Foundation’s Appraisal Standards Board (ASB) is responsible for the development and promotion of USPAP, which are the generally accepted ethical and performance standards for the appraisal profession in the United States. Since being recognized by the US Congress in 1989 for real property valuation, USPAP has been widely embraced in numerous landmark court cases in all disciplines of valuation.

President of The Appraisal Foundation David S. Bunton stated, “For the past three decades USPAP has become deeply embedded in our legal and regulatory system. This action by the IRS only underscores its importance and relevance to all valuation issues.”

Consumers wishing to make charitable contributions of property for tax deduction purposes will want to ensure that property appraisals for items worth $5,000 or more are performed by a qualified professional in accordance with USPAP. To learn more about USPAP, The Appraisal Foundation or for help finding an appraiser, visit

Contact: Paula Douglas Seidel

Michael Ford
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Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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by Michael Ford time to read: 5 min