A Federal Estate Tax is imposed on the transfer of the taxable estate of every citizen or resident of the United States. Estates whose gross assets exceed a minimum level must file a listing of these assets, and their values, with the IRS.
An estate appraisal is the result; it lists the tangible assets of an estate, including art, antiques, real estate, automobiles, boats, and household furnishings. These appraisals must be effected according to a strict set of IRS standards and rules, and filed as part of the estate tax documents. Estates are appraised at Fair Market Value (see sidebar).
The basis of a correct FMV estate appraisal is a first-hand inspection of the property and its evaluation based on “fair market” standards, memorialized in a properly-executed document, by an appraiser judged by the IRS to be qualified.
Mistakes in Estate Filings Can Be Costly
An IRS panel in Washington reviews each year’s estate and gift tax filings of certain art, antiques, coins, and related categories. In the 2007 review process, the IRS accepted just 39% of the appraisals as filed. The rest of the applications were adjusted, or rejected. Penalties for incorrectly filed appraisals can run as high as 40%.
Six of the most common grounds for IRS rejection of estate appraisals are: the absence of required documentation, incorrect or insufficient cataloguing content, incomplete price level comparisons, price levels determined through incorrect methodology, improper format, or the execution of the appraisal by an appraiser who has been “disqualified” by the IRS, a penalty paid by some irresponsible appraisers who have accumulated a history of erroneous submissions.