20.1.12 Penalties Applicable to Incorrect Appraisals

Manual Transmittal

December 18, 2017

Purpose

(1) This transmits IRM 20.1.12, Penalty Handbook, Penalties Applicable to Incorrect Appraisals.

Material Changes

(1) IRM 20.1.12.1 -Changes made to update IRM in accordance with new internal control rules.

(2) IRM 20.1.12.2 - Clarification and updates to engineering referrals.

(3) IRM 20.1.12.3 - Added a Caution note related to short statutes.

(4) IRM 20.1.12.4 - Clarified the statute of limitations start date in paragraph (1).

(5) IRM 20.1.12.6 - Information related to the statute date in paragraph (2)(g) was updated.

(6) IRM 20.1.12.7 - Retitled and expanded section to provide more in-depth case review procedures. Updates made to contact information and forms.

(7) IRM 20.1.12.7.1 - Section added to provide definitions and roles for agents and appraisers in penalty cases.

(8) IRM 20.1.12.7.2 - Section added to provide procedures for examining IRC 6695A penalty cases.

(9) IRM 20.1.12.7.3 - Section added to provide IMS agent procedures for IRC 6695A penalty cases.

(10) IRM 20.1.12.7.4 - Section added that includes review manager and appraiser procedures.

(11) Exhibit 20.1.12-1 - Updated hyperlinks and removed graphics.

(12) Exhibit 20.1.12-2 - Updated hyperlinks and removed graphics.

(13) Other minor editorial revisions as needed

Effect on Other Documents

This IRM supersedes IRM 20.1.12 dated August 27, 2010.

Audience

SB/SE, LB&I, and TEGE Examiners, and Estate & Gift Tax Attorneys

Effective Date

(12-18-2017)

Adina Leach
Director, Business Support Office
Small Business/Self-Employed

Program Scope and Overview

  1. Purpose: The purpose of this IRM section is to convey policy as set by the Office of Servicewide Penalties (OSP) as it relates to penalties for incorrect appraisals.

  2. Audience: This IRM provides guidelines to be followed by all operational and processing functions, Servicewide.

    Note:

    Some divisional IRMs may provide supplemental guidance that address incorrect appraisals.

  3. Policy Owner: The Business Support Office (BSO) is under Operations Support (OS). SB/SE is responsible for overseeing civil penalties including penalties for incorrect appraisals.

  4. Program Owner: OSP is responsible for incorrect appraisal penalties.

  5. Contact Information: To recommend changes or make any other suggestions to this IRM, e-mail OSP at *Servicewide Penalties Team. Also see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

Background

  1. Section 1219 of the Pension Protection Act of 2006 added IRC 6695A, Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals. This penalty provision allows the Service to assert a penalty against any person who prepared an appraisal of the value of property and who knew, or reasonably should have known, the appraisal would be used in connection with a return or claim for refund and that appraisal results in a substantial valuation misstatement (within the meaning of IRC 6662(e), a substantial estate or gift tax valuation understatement (within the meaning of IRC 6662(g), or a gross valuation misstatement (within the meaning of IRC 6662(h)with respect to such property.

  2. The amount of the IRC 6695A penalty is the lesser of:

    1. The greater of:
      10 percent of the amount of the underpayment (defined by IRC 6664(a)attributable to the misstatement
      or
      $1,000, or

    2. 125 percent of the gross income received from the preparation of the appraisal.

  3. The penalty does not apply if the appraiser can establish that the appraisal value "more likely than not" was correct. Pending further guidance, consult Counsel regarding "more likely than not" determinations.

  4. This penalty applies to appraisals prepared with respect to returns or submissions filed after August 17, 2006. However, if the appraisal relates to a facade easement donation, the penalty applies to returns filed after July 25, 2006.

Authority

  1. The Service has authority to penalize and to seek injunctions against appraisers. Prior to the passage of the Pension Protection Act of 2006 (Pub. L. No. 109-280), appraisers could only be subject to penalties under IRC 6700, Promoting abusive tax shelters, etc., or IRC 6701, Penalties for aiding and abetting understatement of tax liability.

Responsibilities

  1. IRM 20.1.12 provides servicewide policy for the administration of incorrect appraisal penalties.

  2. IRS operating divisions/business unit (OD/BU) functions may develop additional guidance or reference materials for their specific OD/BU functional administrative needs. These reference materials must receive approval from OSP prior to distribution and must remain consistent with the following:

    1. The procedures set forth in this IRM, and

    2. The philosophy of Policy Statement 20-1. See IRM 1.2.20.1.1.

  3. Overall responsibility for the penalty programs is assigned to OSP. OSP is charged with coordinating policy and procedures concerning the administration of penalty programs and ensuring consistency with the penalty policy statement.

  4. Every function in the IRS has a role in proper penalty administration. It is essential that each function conduct its operations with an emphasis on promoting voluntary compliance.

  5. Examiners should keep the following objectives in mind when handling each penalty case:

    1. Provide each taxpayer should have the opportunity to have his or her interests heard and considered.

    2. Strive to make a good determination in the first instance. A wrong decision, even though eventually corrected, has a negative impact on voluntary compliance.

    3. Provide opportunity for incorrect decisions to be corrected.

    4. Treat each case in an impartial and honest way.

    5. Use each penalty case as an opportunity to educate the taxpayer and assist the taxpayer in understanding his or her legal obligations and procedural rights.

    6. Observe the taxpayer’s procedural rights.

    7. Endeavor to promptly process and resolve each taxpayer’s case.

  6. All actions will be done in accordance with the Taxpayer Bill of Rights as listed in IRC 7803(a)(3).

    Note:

    Additional information may be found at http://www.irs.gov/taxpayer-bill-of-rights

Fair and Consistent Approach to Penalty Administration
  1. The IRS’s approach to return preparer, promoter, and material advisor penalty administration must ensure the following:

    1. Consistency: The IRS should apply the incorrect appraisal penalty equally in similar situations. Taxpayers base their perceptions about the fairness of the system on their own experience and the information they receive from the media and others. If the IRS does not administer penalties uniformly (guided by the applicable statutes, regulations, and procedures), overall confidence in the tax system is jeopardized.

    2. Accuracy: The IRS must arrive at the correct determination for each penalty decision. Accuracy is essential. Erroneous penalty assessments and incorrect calculations confuse taxpayers and undermine the overall competency of the IRS.

    3. Impartiality: IRS employees are responsible for administering penalties in an even-handed manner that is fair and impartial to both the government and the taxpayer.

    4. Representation: Taxpayers must be given the opportunity to have their interests heard and considered. Employees need to take an active and objective role in case resolution so that all factors are considered.

Program Management and Review

  1. Every function in the IRS has a role in proper penalty administration. It is essential that each function conduct its operations with an emphasis on promoting voluntary compliance. Appropriate reviews should be conducted to ensure consistency with the penalty policy statement (Policy Statement 20-1) and philosophy.

  2. To promote the goal of consistency and fairness, OSP will review semi-annually a sample of penalty assessments, provided by SB/SE Research & Organizational Accountability (R&OA). See IRM 20.3.1, Civil Penalty Accuracy Review Process. The report of findings is shared with the Director, Business Support, the CFO, and other leadership as needed. The completed report is uploaded to an enterprise shared folder. Other reports may be prepared when a significant issue develops, such as a correction to programming that affects many taxpayers..

Terms/Definitions/Acronyms

  1. Refer to the following exhibits:

    • IRM Exhibit 20.1.1-7, Table of Abbreviations and Acronyms and

    • IRM Exhibit 20.1.1-8, Dictionary of Key Terms

Related Resources

  1. Additional forms and resources include:

    • Form 8278 for assertion of various civil penalties

    • Exhibit 20.1.12-1, IRC 6695A - Pro forma Explanation of Adjustments

    • Exhibit 20.1.12-2, IRC 6695A Job Aids

Who Asserts the Penalty

  1. Examiners and attorneys have responsibility for asserting the IRC 6695A, Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals penalty.

  2. Examiners and attorneys will submit a referral for Engineering Program assistance and/or consultation related to potential penalties, prior to asserting the penalty. Referrals can be made via the Specialist Referral System located athttps://srs.web.irs.gov/ and should specify the case as a 6695A case.

Asserting the IRC 6695A Penalty

  1. An IRC 6695A appraiser penalty case will be conducted as a separate and distinct case from the related tax examination.

  2. During the related tax examination, examiners will , as warranted, develop facts and circumstances to determine whether or not an IRC 6695A appraiser penalty case should be opened. This determination will be documented in the examination workpapers.

  3. All discussions related to appraiser penalties with either the taxpayer, return preparer, or designated power of attorney, will be limited to the development of facts to determine the applicability of a penalty. Penalties under IRC 6695A will not be proposed in the presence of the taxpayer.

  4. Generally, an IRC 6695A penalty against an appraiser will not be proposed until the related tax examination is completed at the group level. The appraiser penalty case can proceed when the related tax examination case is closed agreed, closed no response after default, is in Appeals or is in Tax Court.

    Caution:

    If the statute of limitation on the IRC 6695A penalty will expire within 180 days, then the penalty case file should be worked, or a statute extension should be obtained so that a protective assessment can be made if needed. See IRM 20.1.12.4, Statute of Limitations.

  5. If the claimed value of the property on the return or claim for refund, which is based on an appraisal, results in a substantial valuation misstatement, substantial estate or gift tax valuation understatement, or gross valuation misstatement, with respect to such property, the examiner should open an IRC 6695A penalty case.

    1. Substantial Valuation Misstatement. A substantial valuation misstatement under Chapter 1 (Normal Taxes and Surtaxes) occurs when the claimed value of the property is 150 percent or more of the correct amount of such valuation, IRC 6662(e).

    2. Substantial Estate or Gift Tax Valuation Understatement. A substantial estate or gift tax valuation understatement occurs if the value of the property claimed is 65 percent or less of the amount determined to be the correct amount of such valuation, IRC 6662(g).

    3. Gross Valuation Misstatement. A gross valuation misstatement under Chapter 1 (Normal Taxes and Surtaxes) occurs when the claimed value of the property is 200 percent or more of the correct amount of such valuation, IRC 6662(h).

    4. Gross Estate or Gift Tax Valuation Understatement. A gross estate or gift tax valuation understatement occurs if the value of the property claimed is 40 percent or less of the amount determined to be the correct amount of such valuation, IRC 6662(h).

Statute of Limitations

  1. The statute of limitations on assessment for an IRC 6695A penalty expires three years from the date in which:

    1. The return, with respect to which the penalty is assessed, was filed (a return filed prior to the due date is deemed to be filed on the due date), or

    2. The claim for refund, with respect to which the penalty was assessed, was filed.

  2. The statute on the appraiser penalty case under IRC 6695A can be extended using Form 872-AP, Consent to Extend the Time on Assessment of IRC Section 6695A Penalty.

  3. A transcript of the return on which the appraiser penalty is based should be included in the appraiser penalty case file for accurate monitoring of the statute expiration date.

  4. Signed consents should be obtained when the statute of limitations for assessing the appraiser penalty will expire within 180 days. See IRM 25.6.22.2.1(2), Guidelines for Soliciting Extensions.

Power of Attorney (POA)

  1. If a representative is to be included in correspondence or discussions of the IRC 6695A penalty, a Form 2848, Power of Attorney and Declaration of Representative, will be needed that states "Civil Penalties" in Part 1 item 3.

  2. Form 8821, Tax Information Authorization is used to authorize one or more appointee(s) to inspect and/or receive the appraisers confidential tax information in any office of the IRS. Item 3(a) Tax Matters must designate "Civil Penalty" for the IRC 6695A Civil Penalty.

  3. Additionally, please ensure that:

    1. The applicable "Year(s) or Period(s)" box is complete (i.e., "Dec. 31, 2008" or "12/31/2008," and not merely "2008" or "08" ), and

    2. The forms are processed according to Operating Division procedures in conjunction with IRM 21.3.7.5 guidance.

Field Examination Procedures

  1. If the examiner determines a penalty is warranted, the examiner will prepare Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, and secure the group manager’s approval. ERCS has the capability to request controls on penalty cases; these are not controlled on Audit Information Management System (AIMS).

  2. From the ERCS menu, select "Request Return" , then using submenu # 2, selects "Control Penalty Investigation." Additional form instructions are noted below:

    1. Check One Box Only – Select the "Control Penalty Investigation" box;

    2. Taxpayer Name/Name Control – The name control of the appraiser;

    3. TIN – The TIN of the appraiser who prepared the appraisal used in connection with preparation of the return or claim for refund;

    4. Tax Period – The tax period of the return or claim for refund in which the appraisal was used;

    5. Form Type – Enter "Not applicable" ;

    6. Activity Code – Enter "552" ;

      Note:

      Based on the Activity Code "552," ERCS will automatically enter the MFT "PB" and the Source Code "99"

      ;

    7. Statute Date – Enter applicable date (3 years from the date the related return was filed, unless an extension has been secured, then enter the extension date. If the penalty relates to a claim for refund, the statute date is 3 years from the date the claim was filed). The statute is extended for the appraiser using Form 872-AP;

    8. Project Code – If the appraiser penalty case is related to a project, enter the appropriate project code;

    9. Tracking Code – If the appraiser penalty case is related to a project with a unique tracking code, enter the appropriate tracking code;

    10. Related Return Information - The return or claim for refund that claimed the value of the property based on the appraisal; and

    11. Group Managers will indicate approval for the appraiser penalty case by signing and dating this form.

  3. Form 5345-D is used for ERCS users. Non-ERCS users should use Form 5345-B, Examination Request Non-ERCS Users.

  4. Once managerial approval is secured, the examiner will distribute copies of Form 5345-D or Form 5345-B as follows:

    1. Original – Remains in the penalty case file;

    2. Group Copy – Retained in the group for control purposes.

  5. Examiner time charges for the specific IRC 6695A appraiser penalty case will be charged to the MFT PB record, which applies it to activity code (AC) 552 for the appraiser's TIN. Time charges cannot be charged directly to AC 552.

  6. After securing approval, the examiner will contact the appraiser using Letter 4477, Appraiser Appointment Letter, to schedule an audit appointment. The purpose of this meeting will be to gather sufficient facts to determine whether the appraiser can establish that the value in the appraisal meets the "more likely than not" exception as provided in IRC 6695A(c).

  7. If the appraiser cannot establish that the "more likely than not" exception applies, the examiner must propose an IRC 6695A penalty.

  8. Examiners will make appropriate third party contacts to develop all facts relevant to the determination of the appropriateness of the penalty. IRM 4.11.57, Third Party Contacts, contains the procedures for third party contacts and guidance for examiners making third party contacts (Letter 3164-P (DO), Third party notification for IRC 6700/6701 investigations, can be used for notification).

  9. If the examiner determines no penalty is warranted, Letter 4478, Appraiser Penalty No-Change Letter, will be prepared at the group level and left undated in the file. Technical Services will date and issue the letter if the case is selected for sample review; otherwise, the letter will be issued by Centralized Case Processing. (CCP). Form 3198 is used to alert CCP to issue Letter 4478.

    Note:

    Check the "Other Letter" block within the "Letter Instructions for CCP" section. In the "Other Letter" block the Letter is 4478. Complete the "For Years" line. Form 3198, Special Handling Notice for Examination Case Processing, is attached to the outside of the case file.

  10. After consideration of all facts and circumstances, if the examiner determines an IRC 6695A penalty applies, the examiner will prepare Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, and Form 886-A, Explanation of Items, or its equivalent.

  11. Form 886-A, (or its equivalent), should include the following information:

    1. The basis for asserting of the penalty,

    2. Why the "more likely than not" statutory exception does not apply, and

    3. The appraiser’s position regarding the penalty.

  12. The examiner will prepare Letter 4485, Appraiser Penalty Assessment Notification Letter. This letter will advise the appraiser of the proposed penalty, solicit payment, offer a supervisory conference, and provide an explanation of the dispute process. A copy of Form 886-A, Explanation of Items (or its equivalent) and other pertinent documents or workpapers should be included with this correspondence.

Referrals and Penalty Case Review Procedures

  1. Generally, examiners should exercise discretion when referring an appraiser to the Office of Professional Responsibility (OPR) based upon an assessed IRC 6695A penalty. Discretionary referrals to OPR should be based on a pattern of conduct that is subject to IRC 6695A penalty. However, where there is a willful violation of IRC 6695A, a referral to OPR is mandatory. A referral to the SB/SE Lead Development Center (LDC) is mandatory when a penalty is asserted.

    1. The Office of Professional Responsibility referrals – use Form 8484, Suspected Practitioner Misconduct Report. A copy of Form 886-A, Explanation of Items (or its equivalent), and other pertinent documents or workpapers should also be forwarded. Send the referral Form 8484 via secure e-mail to *OPR referrals.

    2. SB/SE LDC – use the Form 14242. A copy of Form 886-A (or its equivalent) and other pertinent documents or workpapers should be included. Email the Form 14242 using secure e-mail to *LDC.,

  2. Generally, an IRS appraiser or valuation specialist will recommend the IRC 6695A penalty to the examiner or attorney if a valuation issue meets the thresholds for a substantial or gross valuation misstatement as defined in IRC 6662(e) through IRC 6662(h).

  3. An IRC 6695A Penalty Review Team will review penalty recommendations and provide a written recommendation to the examiner or attorney.

  4. This review will occur before the penalty is asserted by the examiner or attorney. The Penalty Review Team, consisting of experienced appraisers and valuation specialists, within the Engineering Program, and one or more review managers, will perform a two-level review.

Definitions and Roles of Examiners, Attorneys, and Appraisers in Penalty Cases

  1. Examination Phase:

    1. The examiner is generally the Revenue Agent assigned to the examination.

    2. The attorney is the Estate and Gift tax attorney assigned to the examination.

    3. The examining appraiser is the IRS appraiser or valuation specialist assigned to the examination.

  2. Penalty Review Phase:

    1. The Penalty Review Team is comprised of a review manager, primary review appraiser, and secondary review appraiser.

    2. The review manager is an engineer manager or appraiser manager.

    3. The primary review appraiser is the review appraiser assigned to perform the first review of the proposed IRC 6695A penalty.

    4. The secondary review appraiser performs a secondary review.

    5. The subject appraiser is the taxpayer's appraiser who is the subject of the penalty case.

    6. The subject appraisal is the appraisal prepared by the subject appraiser.

Examining Appraiser Procedures for Recommending an IRC 6695A Penalty

  1. Examining appraiser procedures apply if there is an examining appraiser assigned to the case to examine the valuation issue.

  2. The examining appraiser will establish whether the taxpayer's appraised value meets the penalty criteria set forth in IRC 6695A, and will obtain his/her manager's approval to notify the examiner or attorney when the case is a potential IRC 6695A case.

  3. If approved, the examining appraiser will prepare a memorandum notifying the examiner or attorney. This memorandum is for internal use only and is not to be disclosed to the taxpayer or the subject appraiser.

  4. This memorandum should include at a minimum:

    1. Statement(s) about why the subject appraiser knew, or should have known, that the subject appraisal would be used for federal income, estate, or gift tax purposes,

    2. Supporting statement as to why the subject appraiser's value is incorrect, and

    3. Type of valuation misstatement (either substantial or gross).

Issue Management System (IMS) Examiner Procedures for Initiating an IRC 6695A Penalty Case

  1. The Issue Management System (IMS) examiner:

    1. Secures management approval to initiate a IRC 6695A appraiser penalty case,

    2. Initiates a penalty case on the subject appraiser, and

    3. Works with the examining appraiser (if assigned) to provide required documents to the review manager. This includes items such as the subject appraisal and the examining appraiser's review (if applicable).

  2. The examiner submits an SRS referral at https://srs.web.irs.gov/ to the Engineering IRC 6695A Program Penalty Review Team indicating a penalty case is to be opened on the subject appraiser.

  3. The examiner receives the names of a primary and a secondary review appraiser from the review manager once the Penalty Referral is assigned.

  4. Examiners using IMS, open the penalty case and assign an issue to the primary review appraiser and secondary review appraiser with the following case information:

    1. Subject appraiser’s name

    2. Subject appraiser’s TIN

    3. Activity code = 552

    4. MFT = PB

    5. Tax year(s) affected by subject appraisal

    6. Statute of limitation (SOL). Enter applicable date (3 years from the date the return was filed (or deemed filed if filed early), or if the penalty relates to a claim for refund, 3 years from the date the claim for refund was filed; unless an extension has been secured, then enter the extension date). The statute is extended for the appraiser using Form 872-AP,

    7. Form type = 8278, and

    8. Issue (UIL) = 06695.00-00

      Note:

      If the case was opened in IMS by the examiner, he or she will be responsible for closing the case in IMS after the penalty portion is closed.

  5. Examiners and attorneys not using IMS follow open case procedures in IRM 20.1.12.6, Field Examination Procedures

Review Manager and Appraiser Procedures for IRC 6695A Penalty Case

  1. A review manager assigns the case to a primary review appraiser.

  2. The primary review appraiser will prepare a supplement to the case file for the penalty review case. If the examiner or attorney is not an IMS user, the primary review appraiser will open a case on IMS with the case information listed in IRM 20.1.12.7.3 paragraph (4).

    Note:

    If the primary review appraiser opens the case in IMS, he/she will be responsible for closing it in IMS once the case is completed.

  3. The primary review appraiser takes the following actions:

    1. Reviews the subject appraiser's report,

    2. Reviews the examining appraiser's review appraisal,

    3. Reviews the examining appraiser's memorandum concerning the penalty,

    4. Determines if the penalty case should go forward, and

    5. Reports his/her determination to the review manager.

  4. If the primary review appraiser determines the penalty case should continue, he/she will assist the examiner or attorney in preparing an Information Document Request (IDR) to the subject appraiser requesting his/her basis for meeting the "more likely than not" exception provided in IRC 6695A. The questions in the IDR will be based on information provided in the examination appraiser's penalty memorandum (if applicable).

  5. The examiner or attorney and the primary review appraiser will meet with the subject appraiser, in person or by conference call, to provide the subject appraiser the opportunity to discuss the IDR response.

    Note:

    The examiner or attorney may disclose the taxpayer's return information contained in the work file but only if the taxpayer's return information relates directly to the proposed penalty determination under IRC 6695A. Any of the related taxpayer's return information not directly related to the determination of the IRC 6695A penalty, such as the taxpayer's current address or employer or the taxpayer's income and deductions unrelated to the appraisal, may not be disclosed to the subject appraiser.

  6. If the primary review appraiser disagrees that a potential penalty case has occurred, he/she will send the review manager a written explanation detailing the reasons for disagreement. The primary review appraiser will return the case file to the review manager.

    1. If the review manager accepts the primary review appraiser's position, the review manager will close the penalty review case and send the case file to the examiner or attorney along with a written explanation stating the reasons for not applying the penalty.

    2. If the review manager disagrees with the primary review appraiser's position, the review manager will forward the case file to a secondary review appraiser for review.

  7. If the primary review appraiser agrees the penalty threshold has been met, the primary review appraiser will:

    1. Prepare a memorandum for the examiner or attorney presenting the basis for the penalty and why the "more likely than not" exception does not apply, and

    2. Forward the memorandum and case file to the review manager.

  8. Upon receipt of the primary reviewer's recommendation, along with the case file, the review manager will assign the secondary review appraiser to review the subject appraisal.

  9. The secondary review appraiser will:

    1. Review the penalty case file, including the memorandum prepared by the primary reviewer,

    2. Prepare a written response agreeing or disagreeing that the penalty is warranted from a valuation standpoint, and

    3. Forward response and case file to the review manager.

  10. The review manager:

    1. Provides the final concurrence, in the form of a cover letter attached to the memorandum, to the examiner or attorney and their respective manager, and

    2. Forwards the case file to the examiner or attorney to be included with the subject appraiser's case file.

  11. The examiner or attorney is responsible for issuing Form 886-AExplanation of Items and applying the penalty based on the information provided in the review manager's memorandum, and then closing the case.

Penalty Case File

  1. Examiners will attach Form 3198, Special Handling Notice for Examination Case Processing, to each penalty case file, identifying it as an IRC 6695A, appraiser penalty case.

  2. Examiners will use the current version of Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, and will enter the following information:

    1. Line 1 – Enter appraiser name;

    2. Line 2 – Enter appraiser address;

    3. Line 3 – Check applicable box;

    4. Line 5 – Enter penalty case year;

    5. Line 6 – Enter the appropriate statute date;

    6. Line 7 – Enter the appraiser SSN or business EIN;

    7. Line 8 – Check applicable function;

    8. Line 9, page 1 column (c) and (d) – Enter the number of violations and the penalty amount (if no penalty is proposed, enter -0-);

    9. Line 10 – Enter examiner signature (originator), the date Form 8278 was completed, organization code, and phone number. ; and

    10. Line 11 – Approver signature and date to indicate approval of the penalty. Both must sign the form in order for it to be valid. If not, the form will be returned to the originator for the signatures using Form 3210 procedures. Statute imminent Forms 8278 will be sent by FAX

  3. Related Income Tax Workpapers - Include the first two pages of the related tax return, any schedules related to the understatement, and any relevant workpapers from the related file:

    1. Copy of the original appraisal prepared by the appraiser;

    2. Copy of the IRS Field Specialist Engineer’s and/or outside fee appraiser’s appraisal or appraisal review report;

    3. Copy of the examiner's examination report;

    4. Any documents, interview notes, or affidavits pertinent to the determination of the appraiser penalty; and

    5. Any other additional information deemed warranted by the examiner or manager.

    Caution:

    All information on the appraiser’s activities and the applicability of any penalties relating to the appraiser should be distinguished or separated from the taxpayer’s case file. If the information were included in the case file, it could be disclosed to the taxpayer if the taxpayer requested a copy of the case file. This could constitute an IRS disclosure violation, since information regarding the appraiser’s liability for penalties is confidential.

IRC 6695A – Case File Assembly

  1. The case file will include the following:

    1. Form 3198, Special Handling Notice, for Examination Case Processing;

    2. Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, using the current version from the Electronic Publishing website;

    3. Form 886-A, Explanation of Items, or its equivalent;

    4. Form 4318, Examination Workpaper Index, used by field examiners or Form 4700, Examination Workpapers used by Tax Auditors;

    5. Form 9984, Examining Officers Activity Record;

    6. Form 5345-D, Examination Request - ERCS (Examination Returns Control System) Users, or Form 5345-B, Examination Request Non-ERCS Users;

    7. Copies of all correspondence to and from the appraiser;

    8. Documentation of the appraiser interview(s);

    9. Taxpayer and other third party contact interviews and affidavits;

    10. Copy of relevant work papers as described in item 3 above (see IRM 20.1.12.8);

    11. Copy of Form 8484, Suspected Practitioner Misconduct Report; and

    12. Copy of the Form 14242, Reporting Abusive Tax Promotions and/or Promoters, (if applicable).

Appeal Rights - IRC 6695A Cases

  1. IRC 6695A penalties have post-assessment (but prepayment) penalty appeal rights.

  2. An appraiser may file a claim for refund utilizing Form 843, Claim for Refund and Request for Abatement. If the claim is denied and the appraiser has not had post-assessment Appeals consideration, administrative appeal rights will be granted by the Area or Campus. Appeals will consider only reasons for disagreement that come within the scope of the tax laws; it will not consider moral, religious, political, constitutional, conscientious, or similar grounds see the Statement of Procedural Rules at 26 CFR 601.106(b)..

  3. If the penalty has been paid in full, the appraiser may bring a refund suit in either the U.S. Court of Federal Claims or in a district court (1) immediately upon denial of the claim or (2) upon the expiration of six months from the date of filing the claim, if the Service has not acted within that time. The appraiser’s refund suit must be within two years of the date of the mailing by certified mail or registered mail of the notice of disallowance.

IRC 6695A - Case Processing and Assessment Instructions

  1. The IRC 6695A appraiser penalty case is not established or controlled on AIMS. The case must be established on ERCS prior to closing to Centralized Case Processing (CCP).

  2. An IRC 6695A appraiser penalty case will not be subject to mandatory review. Groups will close the case to the functional Centralized Case Processing Support following functional guidelines.

  3. An IRC 6695A appraiser penalty case will be assessed using Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, that is used by CCP to make the assessment of this penalty. The assessments will be input to the Penalty Master File through IDRS using Command Code ADJ54, carrier Transaction Code (TC) 290 with a zero amount, penalty reference number (PRN) 581, and the amount of the penalty.

    Reminder:

    Check the block for Civil Penalties (Form 8278), in the Special Features Section of Form 3198, Special Handling Notice for Examination Case Processing, The Form 3198 is attached to the outside of the case file .

  4. A notice to the appraiser (generally, a CP 15) will be generated explaining the assessment and appeal rights.

  5. If a penalty is proposed, the case will be closed from the group via ERCS with Disposal Code "12" and updated to Status Code "51."

  6. If no penalty is proposed, the case will be closed from the group via ERCS with Disposal Code "02" and updated to Status Code "51."

IRC 6695A - Pro forma Explanation of Items

A pro forma Form 886-A, Explanation of Items, can be found at: https://portal.ds.irsnet.gov/sites/vl015/RelatedResources/Appraisers-Form%20886-A%20For%20IRC6695A.pdf

IRC 6695A - Job Aids

A job aid can be accessed at https://portal.ds.irsnet.gov/sites/vl015/RelatedResources/Appraisers-IRC6695A%20JobAid.pdf .

A list of talking points and additional information related to IRC 6695A can be found here: https://portal.ds.irsnet.gov/sites/vl015/RelatedResources/6695A%20Talking%20Points.pdf