4.48.3  Tangible Personal Property Valuation Guidelines

4.48.3.1  (07-01-2006)
Introduction

  1. The purpose of this document is to provide guidelines applicable to all IRS personnel that are engaged in valuation practice (hereinafter referred to as valuators) relating to the development, resolution and reporting of issues involving tangible personal property valuations and similar valuation issues. Within these guidelines the term personal property refers to tangible personal property. Valuators must be able to reasonably justify any departure from these guidelines.

  2. Personal property includes but is not limited to paintings, watercolors, prints, drawings, sculpture, ceramics, furniture, decorative arts, antiques, textiles, carpets, silver, rare manuscripts, historical memorabilia, antiquities, ethnographic art, collectibles, gems and jewelry. Machinery and equipment and other items classified as personal property are all intended for inclusion. The guidelines provided here regarding identifying, documenting and analyzing the property are applicable to all types of personal property. The information cannot provide specific details for every type of personal property, but a similar detailed breakdown can be outlined for any kind of property.

  3. IRM 4.48.2, Valuation Assistance for Cases Involving Works of Art, which requires all taxpayer cases selected for audit with taxpayer claimed values of $20,000 or more per item of art to be sent to Art Appraisal Services for review by the Commissioner’s Art Advisory Panel is still applicable.

  4. This document incorporates by reference the ethical and conduct provisions, contained in the Office of Government Ethics (OGE) Standards of Ethical Conduct, applicable to all IRS employees.

  5. Valuation of assets owned and/or transferred by or between controlled taxpayers (within the meaning of Treasury Regulation section 1.482–1(i)(5)) may present substantive issues that are not addressed in these guidelines.

4.48.3.2  (07-01-2006)
Development Guidelines

  1. Successful completion of a valuation assignment includes planning, identifying critical factors, documenting specific information, and analyzing the relevant information. All relevant activities will be documented in the workpapers.

  2. A review appraisal may be the best approach to the assignment.

4.48.3.2.1  (07-01-2006)
Planning

  1. Valuators will adequately plan the valuation assignment. Their managers will supervise the staff involved in the valuation process.

  2. Quality planning is a continual process throughout the valuation assignment.

4.48.3.2.2  (07-01-2006)
Identifying

  1. To determine a valuation conclusion, valuators should define the assignment and determine the scope of work necessary by identifying the following:

    1. Property to be valued

    2. Interest to be valued

    3. Effective valuation date

    4. Purpose of valuation

    5. Use of valuation

    6. Statement of value

    7. Standard and definition of the value

    8. Assumptions

    9. Limiting conditions

    10. Scope limitations

    11. Restrictions, agreements and other factors that may influence value

    12. Sources of information

  2. The interest to be valued includes:

    1. Fee simple, leased fee, etc.

    2. Fractional interest

    3. Personal property held in partnerships, corporations and trusts

4.48.3.2.3  (07-01-2006)
Documenting

  1. In developing a valuation conclusion, valuators should obtain the relevant information necessary to accomplish the assignment.

  2. Personal property items should include, where applicable;

    • Name of the artist, culture, maker or place or origin

    • Title, type or subject matter

    • Medium, such as oil on canvas, or material, such as silver, porcelain, oak, etc.

    • Age or date created

    • Size/dimensions or weight if applicable

    • Any marks, signatures, distinguishing features or labels on the item

    • History (provenance) of the item

    • A record of any exhibitions at which the item was displayed

    • Any reference source citing the item

    • The physical condition of the item

    • A professional quality photograph of a size and quality fully showing the item

    • Other information deemed to be relevant to the specific property being valued

  3. The photograph should be an 8x10 inch color photograph or a color transparency not smaller than 4x5 inches.

  4. Machinery and equipment should include:

    • Manufacturer, model and serial number of equipment

    • Age and condition of equipment

    • Legal description

    • Description of property, including name, physical features, dimensions, capacity access, etc.

    • Description of improvements and modifications, including features, condition, and any forms of physical, functional or economic obsolescence

    • Use(s) to which the property is being put, including but not limited to value as a stand-alone or as part of an entire plant or larger manufacturing, research or development system

    • The owner of record and, if practical or available, copies of bill of sale, blueprints and placed in service date

    • The history of the property, including any sales in the five (5) years preceding the valuation date or any sales since the valuation date to the present; both periods of sales should include the sales dates, prices and the names of the sellers and buyers

    • If during either of the two preceding periods, the property was rented, then the dates when the property was leased, rental terms, copies of leases, rent rolls and a history of income and expenses

    • Quality photograph of the subject property showing the item and improvements and modifications

  5. Regardless of the type of property, additional information should be obtained:

    • The valuation date

    • The cost, date and manner of acquisition

    • The appraised fair market value

    • The date (or dates) on which the property was appraised

    • Information of any agreements or understandings entered into (or expected to be entered into) that relates to the use, sale or other disposition of the property, including for example the sales of property since the valuation date

    • The economic outlook of the market in general and the outlook of the specific property in particular

    • Such other factors which, in the opinion of the valuator, are appropriate for consideration

4.48.3.2.4  (07-01-2006)
Analyzing

  1. In developing a valuation conclusion, valuators should analyze the relevant information necessary to accomplish the assignment.

  2. All factors that affect the value should be considered.

  3. The specific valuation approach, such as the market approach, the income approach, the replacement/reproduction cost approach or the liquidation value should be considered for relative propriety of its application. Professional judgment should be used to select the approach(es) ultimately used and the method(s) within such approach(es) that best indicate the value of the property. When valuing personal property the income approach is often not applicable. The relationship between these approaches and fair market value must be demonstrated.

  4. The specific basis for the valuation, such as relevant public and/or private sales (ideally complete descriptions and illustrations should be included), particularly around the valuation date and the analysis of these specific sales and relevance to the item being valued.

  5. The market conditions near the valuation date should be considered.

  6. The market demand for the subject property and the importance of the property and its relationship to its relevant artist/type/group etc. should be considered.

  7. The effects of condition, style, quality, medium, artist or culture, provenance, restorations, rarity should be considered.

  8. The effects of relevant contractual or legal restrictions should be considered.

  9. The valuator should clearly explain and provide reasoning for the value conclusion.

  10. Any additional information or special circumstances that may affect the fair market value of the property.

    Note:

    While the foregoing items listed represent the ideal information required, it is understood that each item of information will not be readily available in every case.

4.48.3.2.5  (07-01-2006)
Workpapers

  1. Workpapers should document the steps taken, techniques used, and provide the evidence to support the facts and conclusions in the final report.

  2. Valuators will maintain a detailed case activity record (Form 9984 Examining Officer's Activity Record) which:

    • Identifies actions taken and indicates time charged

    • Identifies contacts, including name, phone number, subject, commitments, etc.

    • Documents delays in the examination

  3. The case activity record, along with the supporting workpapers, should justify that the time spent is commensurate with work performed.

4.48.3.2.6  (07-01-2006)
Reviewing

  1. In reviewing a personal property valuation and reporting the results of that review, a valuator should form an opinion as to the adequacy and appropriateness of the report being reviewed and clearly disclose the scope of work of the review process undertaken.

  2. In reviewing a personal property valuation, a valuator should

    1. Identify the taxpayer and intended use of the opinions and conclusions, and the purpose of the review assignment.

    2. Identify the report under review, the property interest being valued, the effective date of the valuation, and the date of the review.

    3. Identify the scope of the review process conducted.

    4. Determine the completeness of the report under review.

    5. Determine to the adequacy and relevance of the data and the propriety of any adjustments to the data.

    6. Determine to the appropriateness of the comparables and/or valuation methods and techniques used and develop the reasons for any disagreement.

    7. Determine whether the analyses, opinions, and conclusions in the report under review are appropriate and reasonable, and develop the reasons for any disagreement.

  3. In the event of a disagreement with the report’s factual representations, underlying assumptions, methodology, or conclusions, a valuator should conduct additional fact-finding, research, and/or analyses necessary to arrive at an appropriate value for the property.

4.48.3.3  (07-01-2006)
Resolution Guidelines

  1. Valuators will make efforts to obtain a resolution of the case after fully considering all relevant facts.

4.48.3.3.1  (07-01-2006)
Objective

  1. The objective is to resolve the issue as early in the examination as possible. Credible and compelling work by the valuator will facilitate resolution of issues without litigation.

  2. The valuator will work in concert with the internal customer and taxpayer to attempt to resolve all outstanding issues.

4.48.3.3.2  (07-01-2006)
Arriving at Conclusions

  1. Once the valuator has all the information to be considered in resolving the issue, the valuator will use his/her professional judgment in considering this information to arrive at a specific value conclusion.

  2. Valuators may not have all of the information they would like to have to definitively resolve an issue. Valuators, therefore, should decide when substantially enough information is available to make a proper determination.

  3. Valuators will employ independent and objective judgment in reaching conclusions and will decide all matters on their merits, free from bias, advocacy, and conflicts of interest.

4.48.3.4  (07-01-2006)
Reporting Guidelines

  1. Valuators should prepare reports of their findings

  2. This section requires specific information to be included or addressed in each report.

4.48.3.4.1  (07-01-2006)
Overview

  1. The primary objective of a valuation report is to provide convincing and compelling support for the conclusions reached.

  2. Valuation reports should contain all the information necessary to allow a clear understanding of the valuation analyses and demonstrate how the conclusions were reached.

4.48.3.4.2  (07-01-2006)
Report Contents

  1. The extent and content of the report prepared depends on the needs of each case.

  2. Valuation reports should clearly communicate the results and identify the information relied upon in the valuation process. The report should effectively communicate the methodology and reasoning, as well as identify the supporting documentation.

  3. Subject to the type of report being written, valuation reports should generally contain sufficient information relating to the items in Identifying, Documenting, and Analyzing above, to ensure consistency and quality.

  4. Reports written with respect to Reviewing shall contain, at a minimum, information relating to those items in Identifying and Analyzing necessary to support the revised assumptions, analyses, and/or conclusions of the valuator.

4.48.3.4.3  (07-01-2006)
Statement

  1. Each written valuation report should contain a signed statement that is similar in content to the following:
    To the best of my knowledge and belief:

    • The statements of fact contained in this report are true and correct.

    • The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions.

    • I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest with respect to the parties involved.

    • I have no bias with respect to the subject of this report or to the parties involved with this assignment.

    • I have (or have not) made a personal inspection of the property that is the subject of this report.

    • My compensation is not contingent on an action or event resulting from the analyses, opinions or conclusions in, or the use of, this report

    • My analyses, opinions and conclusions were developed, and this report has been prepared in conformity with the applicable Internal Revenue Service Valuation Guidelines.


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