In a recent legal memorandum, the IRS stated that it can assess, under IRC Sec.
6695A, a gross valuation misstatement penalty against an appraiser for preparing
erroneous estate- and gift-tax appraisals after May 25, 2007. The Pension
Protection Act of 2006 (P.L. 109-280) added IRC Sec. 6695A to the tax law.
Generally, it states that if (1) a person prepares an appraisal and knows, or
reasonably should have known, that it will be used in connection with a return
or a claim for a refund, and (2) the claimed value of the property based on the
appraisal results in a substantial or gross valuation misstatement within the
meaning of IRC Sec. 6662(h), then a penalty should be assessed against the
appraiser. Under IRC Sec. 6695A, the penalty to be assessed is the grater of
$1,000 or 10% of the amount of the underpayment attributable to the misstatement
– but in no event can it be more than 125% of the gross income received by the
appraiser for the appraisal. The IRS noted that it wasn’t until the Small
Business and Work Opportunity Tax Act of 2007 (P.L. 110-28) amended the law that
the income tax preparer penalties under the Pension Protection Act applied to
the preparation of estate- and gift-tax returns as well. In short, the
reference in IRC Sec. 6695A regarding a “claim for refund” and a “return” were
expanded to clarify their application to the imposition of any tax. Also,
though no statute of limitations exists under IRC Sec. 6695A and therefore, a
penalty can be assessed at any time, as a practical matter, the memorandum
indicates that the IRS should assess any penalty – to the extent practicable –
within three years of the filing of the return or claim for refund at issue. (AM
2007-0017).
