- 5.10.9 Property Appraisal and Liquidation Specialists (PALS) Valuation Standards and Guidelines
- 18.104.22.168 Definition and Purpose
- 22.214.171.124 Value Estimates
- 126.96.36.199 Equity determination examples
- 188.8.131.52 Information required for valuation
- 184.108.40.206 PALS Time and Case Code Reporting
- 220.127.116.11 Planning and Identifying
- 18.104.22.168 Intangible Property
- 22.214.171.124 Analysis
- 126.96.36.199 Value conclusions
- 188.8.131.52 Written reports
Part 5. Collecting Process
Chapter 10. Seizure and Sale
Section 9. Property Appraisal and Liquidation Specialists (PALS) Valuation Standards and Guidelines
June 19, 2014
(1) This transmits revised IRM 5.10.9, Property Appraisal and Liquidation Specialists (PALS) Valuation Standards and Guidelines
(1) IRM 184.108.40.206(1), caution regarding county tax records added.
(2) IRM 220.127.116.11, Planning and Identifying; amended to specifically identify the priority of judicial action sales.
(3) IRM 18.104.22.168(1), clarification added to include limitations of property valuations in the valuation report when property information is limited.
(4) Editorial changes in various sections.
Rocco A. Steco
Acting Director, Collection Policy
This IRM establishes valuation standards to facilitate a consistent, professional-quality work product among all IRS valuation personnel. These standards represent the minimum requirements for all appraisal work performed by Property Appraisal and Liquidation Specialists (PALS). The results of PALS appraisals will be documented in the ICS case file history. This documentation should be concise yet complete.
PALS generally complete appraisals to:
value assets for the purpose of liquidation after enforcement or redemption
assist the field in making an equity determination for potential enforcement and estimate expenses associated with such action, or
assist the Department of Justice in settlement discussions and other litigation issues, including judicial sales of property.
PALS are available to discuss the valuation of assets but a formal appraisal is not necessary on every case. If equity is already well established there is no need for a pre-seizure appraisal. For additional guidance regarding pre-seizure valuations seeIRM 22.214.171.124.3(2), Equity Determination.
Requests for valuation work are made through the PALS group manager, who will review the appraisal request and open an appraisal case if pre-seizure valuation work is warranted. These requests can be made via memorandum, secure E-mail or telephonically. If the PALS manager determines a formal appraisal is not necessary, the manager will return the request to the originator with an explanation documented in the ICS history. If a formal valuation is warranted, the PALS should contact the originating RO and discuss at a minimum:
What and where are the assets?
Is a NFTL properly recorded?
What is the purpose of the appraisal?
Has the RO viewed the assets? Are they still available for observation?
Are other appraisals, pictures or purchasing information available?
Is the taxpayer trying to sell the assets? If so, at what price?
If the taxpayer does not own the premises, has a copy of the lease been secured?
What is the level of cooperation from the taxpayer?
If the asset is real estate, what is its current use (e.g., commercial, residential)?
Generally the RO should have the results of public records checks, Form 433A/B, Collection Information Statements, for individuals and business respectively, any prior appraisals and updated balances due on senior encumbrances available for the discussion.
Example 1: A revenue officer contacts a PALS to request an appraisal of a single-family residential property and conveys the following information:
Fair market value per county tax records is $129,000.00
The RO has viewed the property and noted some minor deferred maintenance but nothing significant
The only known encumbrance is delinquent property tax in the amount of $5,837.25
In this case, the equity is well established and no appraisal is necessary.
Example 2: A revenue officer contacts a PALS to request an appraisal of a duplex for possible enforcement and provides the following information:
Fair market value per county tax records is $285,500.00
The RO viewed the property and it is in good to average condition.
Both sides of the duplex are currently occupied and copies of the lease agreements are available
The senior encumbrance is a mortgage with a current balance of $205,000.00
There are no other known encumbrances
In this case the equity is not well established because reduced forced sale value, based on 60 % of fair market value (FMV) is less than the amount due on the senior encumbrance. The county valuation does not consider the revenue stream produced by this property and an appraisal is warranted to determine the value.
The PALS should secure the following information from the RO for appraisals of personal property as applicable:
Copy of UCCs (security interests filed per the Uniform Commercial Code and held by other persons)
Copy of titles/DMV research
Directions to location of property
Information on access/availability including the contact name and telephone number
Copy of lease or information on realty ownership
Storage and Vendor Information
Copies of prior appraisals
Form 433A/B,Collection Information Statements and Tax Returns
Draft Form 2434-B, Notice of Encumbrances Against or Interests in Seized Property
Current balances on prior encumbrances
The PALS should secure the following information from the RO for appraisals of real property as applicable:
Copy of tax assessor’s valuation
Copy of deed/mortgages or Deeds of Trust
Directions to property
Information on access
Current balance on priority encumbrances
Copy of any prior appraisal
Draft Form 2434-B or list of encumbrances
PALS should report their time on cases as follows:
Time/Case Code Definition Description 151 PALS Appraisals Time spent on appraisals other than judicial appraisals which are reported as 157. 157 Judicial Appraisals Time spent on appraisals requested by the Department of Justice in support of litigation 122 Oral Opinions Time spent answering general questions from revenue officers on non-assigned cases concerning the value of property.
Specialists will adequately plan and schedule valuation work based upon the priority of cases in their inventory.
Work priorities are:
Seizure Sale Case—Expenses are accruing
Other Sale Cases—Expenses are accruing
Judicial Sale Cases—Expenses are accruing or not accruing
Appraisal & logistical work on potential perishable goods cases
Appraisal Work—Redemption Investigations
Seizure Sale Case—Expenses are not accruing
Appraisal and Logistics Work on Potential Seizure Cases
Other Sale Cases—Expenses are not accruing
The importance of executing judicial sales with expediency, especially judicial sales resulting from IRS initiated actions, should be a factor for the PALS (and the PALS GM) to consider when determining work priority. The PALS should recognize the court, and in some cases the IRS, has spent valuable resources in bringing a case to judgment, therefore the PALS should take action on these cases as quickly as inventory constraints allow.
In developing an appraisal, the PALS will determine the scope of work necessary depending on the facts of the case. At a minimum the following will be identified:
Subject of appraisal
Interest to be valued
Effective date of appraisal
Statement of Value
Estimate of expenses of seizure and sale
Statement of estimated net proceeds if seizure is made
Descriptions of machinery and equipment should include:
Model and Serial Numbers
Age and Hours
Descriptions of automobiles should include:
Vehicle Identification Number (VIN)
Descriptions of real property should include:
Legal and physical description, including address
Description of improvements
Intangible property can assume many different forms, refer to IRM 126.96.36.199.3.2 for more information. To have economic value, intangible property should be:
specifically identified and described
subject to legal existence and protection
privately owned and legally transferable
capable of generating some measurable economic benefit
Examples of intangible property include:
Patents, inventions, formulas, processes, designs, patterns, know-how
Copyrights and literary, musical or artistic compositions
Trademarks, trade names, or brand names
Methods, programs, systems, procedures, surveys, studies, forecasts, customer lists, or technical data
Franchises, licenses, or contracts
Other similar items of value based on intellectual content
In developing valuations, the PALS should obtain and analyze all relevant information readily available.
In valuing real estate, a specific valuation approach (e.g., comparable sales, income, or cost) should be used as appropriate. Good judgment should be used to select the approach that most accurately defines the value of the subject property.
When appraising personal property, the income and cost approaches rarely apply. The general market conditions near the valuation date should be considered as well as the market demand for the property. The appraiser should clearly identify and explain the data analyzed and conclusions reached. Specific data analyzed should be identified, such as:
Comparable sales of like property from the internet, newspapers, or periodicals
Information from an expert in the field
Discussion with a dealer of similar properties
In developing a valuation for a business, the PALS should obtain and analyze relevant information including:
The nature and history of the business
The general economic outlook and that of the specific industry
The book value of the stock or interest
The financial condition of the business
Any goodwill or other intangible value including a leasehold interest
The size of the stock holding or interest to be valued
The market price of stocks or interests of entities engaged in a similar line of business traded in an open market
Historical financial statements
Ownership control or interest in the asset to be sold
Value of tangible assets
The three generally accepted valuation methods for businesses are the asset-based, market, and income approaches. Consideration should be given to all three provided enough relevant data is available. Good judgment should be used to select the approach and methods that best indicate the value of the business interest.
The PALS will determine an appropriate discount and/or capitalization rate after considering all relevant factors, such as:
the nature of the business
the risk involved
the stability or irregularity of earnings
As appropriate, the PALS should consider the following factors in reaching a final conclusion of value:
Marketability attributable to the nature of the business, business ownership interest or security, the effect of relevant contractual and legal restrictions, and the condition of the markets
Ability of the appraised interest to control the operation, sale, or liquidation of the relevant business
PALS may not have all information desired to reach a value conclusion. The PALS must make a proper determination based on the information available and indicate any limitations in the report.
PALS value estimates are not for the purpose of determining tax or for potential tax litigation cases. They are used to assist the field, Counsel, and Department of Justice with equity determinations and to arrive at forced sale value for liquidation. Taxpayers may appeal PALS seizure and sale value conclusions through administrative procedures.
Some types of business valuations may exceed the expertise of the specialist. After consultation with the PALS manager, a professional appraisal may be obtained from a qualified third party or a referral made to the appropriate function within the Internal Revenue Service.
Valuation reports should contain all information necessary to ensure a clear understanding of the analyses. In addition, the report should establish a framework for the logistical issues associated with seizure and sale. The report should address estimated expenses and a statement as to the anticipated net proceeds if applicable.
There is no standard report format that applies to all cases. The format will vary depending on the assignment.
Reports should be well written, communicate the results and identify the information relied upon in the valuation process. The report should effectively communicate methods and reasoning and identify supporting documentation in a concise manner.
PALS value estimates are prepared in a restricted use format and are not qualified appraisals.
Specialists will follow the short form appraisal guidelines and all appraisal reports will contain the following:
Name, address and TIN of taxpayer
Purpose of the appraisal
Description of property or interest to be valued
Effective date of appraisal
Approaches to value
Reconciliation and final value estimate
Logistics and anticipated expenses of seizure and sale
Expected net proceeds statement
Statement certifying the report was prepared without bias
Signature and date
Photos of subject property, if available
Any other relevant information such as aerial photographs, plat maps, applicable zoning ordinances, crop subsidy information, minerals or mineral production
PALS appraisals should contain the following statements, as applicable:
The appraisal is based on a limited, exterior drive by viewing of subject property
An assumption is being made that the property rights of the comparable sales used were fee simple, all transactions were in cash or cash equivalents and all transactions were arm’s length unless otherwise stated
Information relied upon for this report was furnished by other individuals or gathered from previously existing records or documents. Unless otherwise indicated, such information is deemed reliable. No responsibility is assumed for errors or omissions, or for information not disclosed which might otherwise affect said value estimate.
No opinion as to the title of subject property is rendered. Data related to ownership and legal description was obtained from public records and is considered reliable. Title is assumed to be marketable.
No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether property is subject to surface entry for the exploration of such materials unless otherwise stated.
No responsibility is assumed for hidden or unapparent conditions of the property. No information was provided regarding the presence of any material or substance which would prove to be hazardous or toxic. The value estimate is predicated on an assumption that no such material or substances are present. Unless otherwise stated, this report assumes subject is in compliance with all federal, state and local environmental laws. Subject is also assumed to be in compliance with all zoning and land use regulations.
No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers.
This report has been prepared in a restricted use format for internal use in determining value for the purpose of liquidation of the subject property pursuant to seizure or redemption. This is not a qualified appraisal.
This report is intended to be used in its entirety and not in part. Reproduction of this report requires written permission from the author.
This report is an internal use only document and the only intended user is the Internal Revenue Service and Department of Justice, if applicable.
Each written valuation report prepared by PALS should contain a signed statement that is similar in content to the following:
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
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.