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So, You Think You’re an Appraiser!

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

Appraisals long have been a staple for antiquarian booksellers. After all, appraising books is a natural extension of the bookseller’s core activity of pricing inventory. Thus, when collectors express a need for an appraisal for tax or insurance purposes, booksellers believe they can provide that service relatively easily. By doing so, the bookseller may help build a relationship with a new customer or strengthen bonds with an existing one, and, perhaps makes a little money in the bargain. Certainly many booksellers are reluctant to perform appraisals for a variety of reasons including the time and effort involved, the challenge of charging fees commensurate with the time required, the need to become familiar with the formalities necessary to prepare an appraisal suitable for its intended purpose, and, in some cases, the anxiety associated with unknown risks of a potential future challenge to the appraisal results. Nonetheless, most booksellers would undertake a requested appraisal rather than risk losing a customer should another bookseller accept the assignment. This state of affairs has prevailed for decades, i.e., the antiquarian bookseller conducted appraisals, often reluctantly, with little concern about her ability to do so. But, in recent years, Congress has introduced constraints that dramatically change the landscape and in the process has eradicated the choice for some booksellers to decide whether to perform an appraisal; now they’ll be prohibited from doing so. 

The Need for an Appraisal

Appraisals often are conducted for insurance purposes. Owners want to protect valuable properties against loss but, if lost, they expect compensation for their value. Insurance, of course, provides the platform for that compensation. Both owners and insurers need appraisals. Owners want to know current values to select the appropriate amount of insurance and insurers want evidence of value to confirm that the amount of insurance requested by the insured correlates to the true value of the property. Since insurance is a contract between private parties, the federal government has not intervened by imposing appraisal standards. Owners are free to select an appraiser for their property and, in most cases, the insurer will not object. There are cases; of course, where the insurer will care about the appraiser, and the quality of the appraiser sometimes will be called into question should a claim result in a dispute between the parties. 

Support for positions taken on a tax return represents the other common need for an appraisal. Most frequently, appraisals are needed to sustain either a claim for a tax deduction attributable to a non-cash contribution to charity or a value claimed on an estate or gift tax return. 

Within limits, taxpayers are entitled to an income tax deduction for donations of property to recognized charities. To illustrate, a donation of books worth $100,000 to Chicago’s famed Newberry Library allows the donor to claim an income tax deduction on her tax return and thereby save up to $35,000 in federal taxes and sometimes additional amounts in state taxes. Usually, the higher the value of a charitable donation, the greater the tax benefit to the donor. 

By contrast, in the estate and gift tax realm, high value translates into high tax. The reason is that these taxes are imposed directly upon the value of the property and therefore, the greater the value, the greater the tax. To illustrate, assume the books worth $100,000 are not donated to the Newberry but still are owned by the collector at the time of her death. The federal estate tax on these books could be as high as $46,000 and there could be additional estate taxes imposed by the states. By way of further illustration, the federal estate tax would be halved to no more than $23,000 if the books were worth $50,000. Gift taxes similarly are imposed upon the value of the property transferred and again, the lower the value of the property, the less gift tax due. 

Unlike the case of insurance, the federal government has a direct interest in the value of property claimed on tax returns and therefore is increasingly active in setting standards for supporting those values. 

2004 Tax Changes

In an earlier, less regulated and perhaps less sophisticated time in our nation’s history, the federal government employed a laissez faire attitude towards property valuation, i.e., values could be claimed without any particular support and the parties wrangled only if an IRS audit ensued. Later, the government required values to be supported by appraisals if large enough, and still later, the government dictated the standards to be employed in those appraisals. The growing role of government in this area sprouted from a perceived ongoing pattern of abuse by taxpayers, mostly by overstating the value of property contributed to charities but also by understating the value of property included on estate and gift tax returns. Some of these abuses were heavily publicized such as the frequent overstatement of values of automobiles contributed to charity that resulted in recent tax law modifications. 

The most recent salvos aimed at valuation abuse were fired by the federal government in 2004 and again in 2006. Legislation in those years severely tightened appraisal rules and altered the playing field to such an extent that some former appraisers no longer are able to conduct appraisals for tax purposes. 

The American Jobs Creation Act of 2004 introduced new standards for appraisals that, if not followed, deny an income tax deduction for an otherwise perfectly legal and legitimate charitable donation. Adding to an already lengthy list of demands, the 2004 law required an appraiser to either regularly perform appraisals or hold herself out to the general public as an appraiser. Thus, an appraiser whose website advertised her availability to perform appraisals was qualified to conduct them for tax purposes provided she conformed to all other government standards. One such standard required the appraiser to include her credentials in the appraisal. Despite the recent amendments introduced by the 2004 Act, worries about valuation abuse persisted and new requirements were added just two years later. 

2006 Tax Changes

The Pension Protection Act of 2006 introduced a host of revisions to the appraisal provisions. That legislation added, for the first time, penalties directed solely at appraisers who substantially misstate the value of appraised property. In brief, the new provisions impose a penalty of up to 125 percent of the compensation received by an appraiser for appraisal services. For example, an appraiser who received $10,000 for conducting an appraisal may face a penalty of up to $12,500. The penalty is particularly worrisome given the dynamics of tax audits that oftentimes result in taxpayers conceding some points in exchange for IRS concessions on others. One can easily imagine a taxpayer under audit who concedes a valuation issue in exchange for an unrelated issue of greater monetary value. In such a case, the appraiser may face a penalty triggered by the taxpayer’s failure to vigorously contest an IRS challenge. Also troubling is the possibility that the appraiser may be barred from future IRS work. 
The 2006 Act also increased penalties imposed upon taxpayers for valuation misstatements. These penalties can be as much as 40 percent of the additional tax attributable to valuation misstatements identified via IRS audit. To illustrate, if the value of a charitable contribution of a book collection to charity is found to be $500,000 after an IRS audit rather than the $2,000,000 claimed on the income tax return, the valuation penalty imposed upon the donor would be roughly $210,000 (adjustment of charitable deduction equals $1,500,000 x 35% tax rate = $525,000 of additional tax x 40% penalty = $210,000). 

Aside from new and increased penalty provisions, the 2006 Act introduced a host of new standards applicable both to the appraisal and the appraiser. One unprecedented new appraisal provision mandates the use of “generally accepted appraisal standards (GAAS).” While GAAS is not defined, an example provided by the IRS can be found in the Uniform Standards of Professional Appraisal Practice that were developed by the Appraisal Standards Board of the Appraisal Foundation. Those Standards can be reviewed on the internet at Additional new appraisal requirements will be detailed in future regulations to be issued by the IRS. 

To be acceptable to the IRS, appraisals must be performed by “qualified appraisers.” The 2006 Act severely curtails the universe of qualified appraisers by introducing new mandatory criteria. These new requirements were intended to reduce valuation abuse and while certain to do so, have the unintended consequence of dropping many competent antiquarian booksellers from the ranks of qualified appraisers and preventing most new booksellers from ever achieving that status. These requirements are spelled out at two levels that I call the initial threshold and the secondary threshold. 

The initial threshold is intended to ensure that the appraiser possesses the basic credentials to perform appraisals acceptable to the IRS. One new requirement is that the appraiser must either have been designated as a qualified appraiser by a recognized appraiser organization or meet minimum education and experience requirements. Another is that an appraiser must regularly conduct appraisals for pay. Additionally, the individual will have to satisfy other requirements that will be spelled out in future IRS regulations. 

Even if the initial threshold requirements are met, the new rules establish secondary threshold tests to ensure that the appraiser is competent to value property of the type included in a specific appraisal. One of these secondary threshold tests is that the appraiser must not have been barred from practicing before the IRS for the preceding three years. Another 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. 

Some initial and secondary threshold requirements pose difficult challenges for the antiquarian bookseller considering undertaking an appraisal. For example, most antiquarian booksellers cannot satisfy the initial threshold requirement of having been designated by a recognized appraisal organization as a qualified appraiser. Fortunately, this failure should easily be overcome via reliance upon the alternative education and experience test that ABAA members, in all likelihood, should be able to satisfy. 

A more troublesome initial 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 makes it far more difficult for appraisers to qualify. To date, no guidance has been provided by the IRS in defining regularly but if it eventually comes to mean frequently, e.g., at least monthly, most booksellers will struggle to satisfy that critically important test. As matters now stand, those who cannot satisfy the requirement of regularly performing appraisals for pay simply will not be considered qualified appraisers and therefore will be unable to submit appraisals acceptable to the IRS. 

New booksellers will face particularly onerous obstacles in becoming qualified appraisers. Taxpayers needing a tax appraisal will not employ a new bookseller since she will not be a qualified appraiser and yet she will be unable to qualify for failure to regularly conduct appraisals for pay. Only bold action by the IRS can repair this anti-competitive “Catch 22” and new legislation ultimately may be the only way to undo this tragic inequity. 

Since few antiquarian booksellers have been barred from practicing before the IRS, the only secondary threshold test of concern is demonstrating that the bookseller has verifiable education and experience in valuing the type of property that is the subject of the appraisal. Again, however, many uncertainties surround the meaning of these terms. 

Notice 2006-96

In an effort to provide guidance until new regulations further explaining the new 2006 Act standards are published, the IRS issued Notice 2006-96 in November of 2006. This Notice generally is appraiser friendly by 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 simply by satisfying the following requirements: conforming to GAAS, complying with pre-existing appraisal requirements and being performed by a qualified appraiser. 

Also liberally treated is the secondary threshold test of relevant education and experience that, according to Notice 2006-96, is satisfied so long as the appraiser claims to be qualified and supports that claim by including in the appraisal a description of her background, education, experience and membership in professional level organizations. It seems a safe bet that membership in the ABAA would go a long way to establishing the requisite credentials. 

More difficult under Notice 2006-96 are the initial threshold education and experience requirements. To satisfy these tests, an appraiser must have at least two years experience in buying, selling or valuing property. The vast majority of ABAA members pass this test. But, Notice 2006-96 also requires the appraiser to have successfully completed relevant college or professional level coursework. Additional IRS guidance is required to interpret this test. For example, it seems obvious that a bookseller specializing in English modern first editions would pass the relevant education test if she majored in English literature in college. But, what if that bookseller’s specialty was English history or American poetry? And while a college American history major seemingly would qualify to appraise Americana, is she qualified to appraise global voyages and travels, the history of science or architecture? These examples are intended to highlight some of the difficulties appraisers face until more definitive guidance comes from the IRS. 

Finally, Notice 2006-96 provides no additional guidance to help appraisers determine whether they pass the initial threshold test of regularly appraising for pay. I have submitted comments to the IRS proposing that regularly be defined by the norms within a particular industry. Thus, for example, perhaps real estate appraisers conduct two appraisals per week whereas antiquarian book appraisers conduct one every two years. My proposal would cause the IRS to define regularly as two per week in the real estate industry and one every two years in the antiquarian book trade. Time will tell whether the IRS is receptive to this proposal. If not and if the IRS cannot craft another way for legitimate appraisers to meet this criterion, new legislation may be necessary to overturn this unintentionally harsh result. Whether lawmakers would be willing to invest the time and effort to do so is questionable. 


The standards for tax appraisals have substantially increased over the years. Revisions in 2004 were the most rigorous to date and even those pale in comparison to the 2006 amendments that added new and enhanced penalties for valuation misstatements and carved back the universe of appraisers qualified to perform appraisals for tax return use. In light of these new strictures, it is important that antiquarian booksellers understand both their increased penalty exposure and the new appraisal standards to ascertain whether they even are qualified to conduct tax appraisals. Many issues remain unanswered and only time and additional IRS guidance will clear the uncertainty. While much material has been discussed above, this is a complicated and evolving area and much has not been addressed. Therefore, when considering conducting a tax appraisal, a bookseller should speak with her tax advisor.

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