IRS tax appraisals

[rbrienza]

Remember in the scope of work to find out if they need a retrospective value (as the date of gift) and to name the IRS as an Intended User.

 

[Eli Weiss]

Remember in the scope of work to find out if they need a retrospective value (as the date of gift) and to name the IRS as an Intended User.

Yes, they do, as of 09/2008 date of the gift.

And thank you Howard Klahr for your behind the scenes assistance.

 

[DWiley]

IRS Publication 561 addresses Determining the Value of Donated Property. An often overlooked element is that the proper standard of value is Fair Market Value rather than Market Value.

 

[Eli Weiss]

In current stressed markets, aren't FMV and MV ultimetly equal?

 

[Scott Lanz]

I would be interested in a discussion of FMV vs. MV, or a link if this topic has already been covered for some additional insight.

 

[Eli Weiss]

Wiki says, there is no such thing as fair market value in real estate appraising....

Fair Market Value (FMV) is a term in both law and accounting that is based on the economics term of "market value." It is also a common basis for assessing damages to be awarded for the loss of or damage to the property, generally in a claim under tort or a contract of insurance.
A fair market value is often an estimate of what a willing buyer would pay to a willing seller, both in a free market, for an asset or any piece of property. If such a transaction actually occurs, then the actual transaction price is usually the fair market value. Note that the opinion of people that are not interested in buying or selling an asset has little meaning, because they are not active in the market. Thus, "market value" (which is the same for everyone in the market) is not identical to the "intrinsic value" that different individuals may place on the same asset based on their own preferences and circumstances.
However, market transactions are often not observable for assets such as privately-held businesses and most personal and real property. Thus, FMV must be estimated. An estimate of Fair Market Value is usually subjective due to the circumstances of place, time, the existence of comparable precedents, and the evaluation principles of each involved person. Opinions on value are always based upon subjective interpretation of available information at the time of assessment. This is in contrast to an imposed value, in which a legal authority (law, tax regulation, court, etc.) sets an absolute value upon a product or a service.
An example of the relativity of Fair Market Value is when people buy or sell things above or under the price paid locally for similar items. This often happen in auctions, or when people simply don't take third party advice into consideration.


Definitions

There are numerous definitions of fair market value for various purposes and jurisdictions. A highly general definition is:

• It is the most probable price at which a good or service will exchange, expressed in terms of cash or equivalent, in a free market assuming:
  • A knowledgeable and willing seller unencumbered by undue pressure to sell and acting in his own best interest
  • A knowledgeable and willing buyer unencumbered by undue pressure to buy and acting in his own best interest
  • A reasonable time for exposure in a free and open market.

Under this concept, a real estate sale in lieu of an eminent domain taking would not be considered a fair market transaction since one of the parties (i.e., the seller) was under undue pressure to enter into the transaction. Other examples of sales that would not meet the test of fair market value include a liquidation sale, deed in lieu of foreclosure, distressed sale, and similar types of transactions. There is no longer any such value in real estate appraising as Fair Market Value, the correct term is Market value.

Interpretation

Fair Market Value is applicable upon services and goods that are offered in series/quantities. Simply, because FMV is based on comparison with identical or similar past, actual or expected service and goods. Briefly, Fair Market Value is an opinion. The acceptance of which determines price, which is a fact. Fair Market Value is also a frequent standard of value used in appraising a business or professional practice. The FMV standard of value is presumed to be established by a sufficient number of arms-length transactions conducted in an appropriate secondary market. Careful comparison of the actual selling prices observed in such businesses sale transactions may provide a basis for the Fair Market Value estimation for the subject business.[1]

http://en.wikipedia.org/wiki/Fair_market_value

Or read this
http://www.ipmetrics.cc/Value%20vs%20FMV.PDF

 

[The Warrior Monk]

The IRS has it's own definition of Fair Market Value. I believe it is included in Publication 561 that Mr. Wiley referenced. That publication can be found on the IRS website:

http://www.irs.gov/

Besides including the definition, cite its source.

 

[Terrel L. Shields]

Correct, I understood it to be a charitable gifting. I do a lot of appraisals for a University that are for gifting.

There are several available formats. You can pretty much write your own or use the GRAP. Again, there is some liability regarding any IRS appraising. And you, the appraiser can be held accountable, so I would want the value to be correct for sure..i.e.-I want to do an interior inspection...what (i think) my peers would do.
Attached for some samples - one is an outline for a rural narrative the other was a class exercise by the instructor -

 

[PropertyEconomics]

Wiki says, there is no such thing as fair market value in real estate appraising....



http://en.wikipedia.org/wiki/Fair_market_value

Or read this
http://www.ipmetrics.cc/Value vs FMV.PDF

Wiki isnt the authority on definitions of value that is apparent.
Fair Market Value is defined by the IRS and can be different depending on whether its for estate taxes, charitible contributions, or other purposes and one must be very careful.

Frankly I have not found there to ever be a difference between market value and Fair Market Value as defined by the IRS, however, that is not to say that some differences may not occurr. The major difference and the most important part of doing work that may go to the IRS is that you use their definitions and guidelines. They are assignment conditions and must be adhered to and included in your scope of work.

With reference to someone eariler that said they would name the IRS as an intended user, I personally would not. My client can rely upon the report for the purposes they have had me appraise the property for, however, the IRS has not engaged my services and uses the report at their own risk. They are not an identified user in reports I do for estates or for contributions.

 

[Howard Klahr]

Although Fair Market Value is referenced in Publication 561 the definition is actual in the Code of Federal Regulations. There are slight differences in the wording and I prefer to use the one from the Code of Federal Regulations.

Electronic Code of Federal Regulations

Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1

However, I am curious as to how the concluded Fair market Value would be different if the assignment was for estate settlement versus charitable contribution versus a gift.

I also do not include the IRS as an intended user, but I do include for example on estates, the executor, other individuals with an interest in the estate as well as their respective legal and financial advisers.