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The GAO has found that gift tax returns with appraisals were twice as likely to be audited as those without appraisals.

Tax Returns Involving Appraisals Under Scrutiny

  • 7/18/2012

Tax Returns Involving Appraisals Under Scrutiny

The U.S. Government Accountability Office (GAO) recently reviewed the IRS’s oversight of income, estate, and gift tax returns that involved appraisals. The GAO found that gift tax returns with appraisals were twice as likely to be audited as those without appraisals, but did not find significant differences in audits of estate tax returns and income tax returns with and without appraisals.

CCH take away: An IRS study on taxpayer noncompliance found a 45 percent error rate on noncash charitable deductions, totaling $4.6 billion in lost revenue. The IRS did not determine the impact of appraisals on this error rate. However, the Joint Committee on Taxation has identified overvalued donations of conservation easements as a problem. Senate tax leaders asked the GAO to review the IRS’s enforcement efforts with respect to appraisals. The GAO focused on estates, gifts, and noncash charitable contributions.

Comment: Congress addressed appraisal-related noncompliance in 2006 and 2007 legislation, where it lowered the thresholds for misstated appraisals, established civil penalties for misstated appraisals, and defined qualifications for appraisers of charitable deductions.


Ninety to 95 percent of all estate tax returns filed in 2009 included assets, deductions, or exclusions of more than $50,000 that were likely to require the use of an appraiser, the GAO determined. This amounted to 30,000 or more returns and total property worth an estimated $75 – 167 billion. For gift tax returns filed in 2009, the GAO estimated that 14 – 19 percent of the returns may have involved an appraiser, for property worth an estimated $13 – 17 billion. However, for income tax returns filed in 2008, the GAO indicated that less than one percent were likely to involve an appraiser, for property worth less than $10 billion.

For gift tax returns filed in 2007 – 2009, filers who may have needed an appraiser were at least twice as likely to be audited as other gift tax filers. While the overall audit rate for estate tax returns was typically higher than the rates for gift and income tax returns (ranging from 8 – 10 percent), the use of an appraiser was not associated with higher audit rates.

Appraiser penalties

As of March 2012, the IRS had levied penalties on appraisers only six times, for total penalties of approximately $160,000. Penalties ranged from several hundred dollars to tens of thousands of dollars. Because the penalties did not take effect until returns were filed after August 17, 2006, the IRS reported that it had targeted 2009 to issue guidance and make computer adjustments. The IRS does not target appraisals in selecting returns for exam by its audit staff and does not staff exam teams with experts on appraisal techniques.

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