n-06-96.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions

Notice 2006-96

SECTION 1. PURPOSE
This notice provides transitional guidance relating to the new definitions of
“qualified appraisal” and “qualified appraiser” in § 170(f)(11) of the Internal Revenue
Code, and new § 6695A of the Code regarding substantial or gross valuation
misstatements, as added by § 1219 of the Pension Protection Act of 2006, Pub. L. No.
109-280, 120 Stat. 780 (2006) (the “PPA”).
The Service and the Treasury Department expect to issue regulations under
§ 170(f)(11). Until those regulations are effective, taxpayers may rely on this notice to
comply with the new provisions added by § 1219 of the PPA.
SECTION 2. BACKGROUND
A deduction for charitable contributions is generally permitted under § 170(a),
subject to certain limitations depending on the type of taxpayer, the nature of the
property contributed, and the type of donee organization. Section 170(f)(11), as added
by § 883 of the American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat.
1418 (2004), contains reporting and substantiation requirements relating to the
allowance of deductions for noncash charitable contributions. In particular, under
§ 170(f)(11)(C), taxpayers are required to obtain a qualified appraisal for donated

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property for which a deduction of more than $5,000 is claimed. Under § 170(f)(11)(D),
in certain cases the qualified appraisal must be attached to the tax return. For
appraisals prepared with respect to returns filed on or before August 17, 2006, existing
Treasury Regulations provide a definition of the terms “qualified appraisal” and “qualified
appraiser” for purposes of § 170(f)(11).
Section 1219 of the PPA amends § 170(f)(11)(E) and provides statutory
definitions of a qualified appraisal and qualified appraiser for appraisals prepared with
respect to returns filed after August 17, 2006.
Section 170(f)(11)(E)(i) provides that the term “qualified appraisal” means an
appraisal that is (1) treated as a qualified appraisal under regulations or other guidance
prescribed by the Secretary, and (2) conducted by a qualified appraiser in accordance
with generally accepted appraisal standards and any regulations or other guidance
prescribed by the Secretary.
Section 170(f)(11)(E)(ii) provides that the term “qualified appraiser” means an
individual who (1) has earned an appraisal designation from a recognized professional
appraiser organization or has otherwise met minimum education and experience
requirements set forth in regulations prescribed by the Secretary, (2) regularly performs
appraisals for which the individual receives compensation, and (3) meets such other
requirements as may be prescribed by the Secretary in regulations or other guidance.
Section 170(f)(11)(E)(iii) further provides that an individual will not be treated as a
qualified appraiser unless that individual (1) demonstrates verifiable education and
experience in valuing the type of property subject to the appraisal, and (2) has not been

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prohibited from practicing before the Internal Revenue Service by the Secretary under
§ 330(c) of Title 31 of the United States Code at any time during the 3-year period
ending on the date of the appraisal.
Section 1219 of the PPA also adds a new penalty provision. If the claimed value
of property based on an appraisal results in a substantial or gross valuation
misstatement under § 6662, a penalty is imposed by new § 6695A on any person who
prepared the appraisal and who knew, or reasonably should have known, the appraisal
would be used in connection with a return or claim for refund.
SECTION 3. TRANSITIONAL GUIDANCE
.01 In general
The Service and the Treasury Department expect to issue regulations under
§ 170(f)(11), as amended by the PPA. The terms in section 3 of this notice apply to
contributions of property (other than readily valued property within the meaning of
§ 170(f)(11)(A)(ii)(I)) by individuals, partnerships, or corporations for which a deduction
of more than $5,000 is claimed on returns filed after August 17, 2006, and before the
effective date of the regulations that the Service and the Treasury Department expect to
issue. Until regulations are effective under § 170(f)(11), as amended by the PPA, an
appraisal that meets the requirements of this notice shall be treated as a qualified
appraisal for purposes of § 170(f)(11). The determination of whether an appraiser is
qualified under section 3.03 of this notice must be based on the appraiser’s
qualifications as of the date the appraisal is made.
.02 Transitional terms-qualified appraisal

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(1) Qualified appraisal. An appraisal will be treated as a qualified
appraisal within the meaning of § 170(f)(11)(E) if the appraisal complies
with all of the requirements of § 1.170A-13(c) of the existing regulations
(except to the extent the regulations are inconsistent with § 170(f)(11)),
and is conducted by a qualified appraiser in accordance with generally
accepted appraisal standards. See sections 3.02(2) and 3.03 of this
notice.
(2) Generally accepted appraisal standards. An appraisal will be
treated as having been conducted in accordance with generally accepted
appraisal standards within the meaning of § 170(f)(11)(E)(i)(II) if, for
example, the appraisal is consistent with the substance and principles of
the Uniform Standards of Professional Appraisal Practice (“USPAP”), as
developed by the Appraisal Standards Board of the Appraisal Foundation.
Additional information is available at http://www.appraisalfoundation.org
.
.03 Transitional terms – qualified appraiser
(1) Appraisal designation. An appraiser will be treated as having
earned an appraisal designation from a recognized professional appraiser
organization within the meaning of § 170(f)(11)(E)(ii)(I) if the appraisal
designation is awarded on the basis of demonstrated competency in
valuing the type of property for which the appraisal is performed.
(2) Education and experience in valuing the type of property. An
appraiser will be treated as having demonstrated verifiable education and

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experience in valuing the type of property subject to the appraisal within
the meaning of § 170(f)(11)(E)(iii)(I) if the appraiser makes a declaration in
the appraisal that, because of the appraiser’s background, experience,
education, and membership in professional associations, the appraiser is
qualified to make appraisals of the type of property being valued. See

also § 1.170A-13(c)(5).
(3) Minimum education and experience. An appraiser will be
treated as having met minimum education and experience requirements
within the meaning of § 170(f)(11)(E)(ii)(I) if –
(a) For real property
(i) For returns filed on or before October 19, 2006,
the appraiser is qualified as a “qualified appraiser” within the
meaning of § 1.170A-13(c)(5) to make appraisals of the type
of property being valued.
(ii) For returns filed after October 19, 2006, the
appraiser is licensed or certified for the type of property
being appraised in the state in which the appraised real
property is located.
(b) For property other than real property –
(i) For returns filed on or before February 16, 2007,
the appraiser is qualified as a “qualified appraiser” within the
meaning of § 1.170A-13(c)(5) to make appraisals of the type

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of property being valued.
(ii) For returns filed after February 16, 2007, the
appraiser has (A) successfully completed college or
professional-level coursework that is relevant to the property
being valued, (B) obtained at least two years of experience
in the trade or business of buying, selling, or valuing the type
of property being valued, and (C) fully described in the
appraisal the appraiser’s education and experience that
qualify the appraiser to value the type of property being
valued.
.04 Applicability of reporting and substantiation regulations
(1) In general
The requirements of § 1.170A-13(c) of the existing regulations concerning
qualified appraisals and qualified appraisers continue to apply to all taxpayers, including
those to whom the transitional guidance in this section may apply, except to the extent
the regulations are inconsistent with the provisions of § 170(f)(11). In particular, all
taxpayers are required to comply with §§ 1.170A-13(c)(3), (c)(5), (c)(6) and (c)(7).
(2) Revision to appraiser declaration
For returns filed after February 16, 2007, the declaration required under
§ 1.170A-13(c)(5)(i) must include an additional statement that the appraiser
understands that a substantial or gross valuation misstatement resulting from an
appraisal of the value of property that the appraiser knows, or reasonably should have

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known, would be used in connection with a return or claim for refund, may subject the
appraiser to a civil penalty under § 6695A. See also § 1.170A-13(c)(3)(iii).
SECTION 4. REQUEST FOR COMMENTS
The Service and the Treasury Department invite comments containing
suggestions for future guidance under § 170(f)(11), including regulations. In
particular, comments are requested concerning the definition of the following
terms: (1) "generally accepted appraisal standards” in § 170(f)(11)(E)(i)(II); (2)
"appraisal designation from a recognized professional appraisal organization” in
§ 170(f)(11)(E)(ii)(I); (3) "minimum education and experience requirements” in
§ 170(f)(11)(E)(ii)(I); and (4) “verifiable education and experience in valuing the
type of property subject to the appraisal” in § 170(f)(11)(E)(iii)(I). Comments also
are requested on the potential impact any guidance under § 170(f)(11) may have
on small businesses. Comments should refer to Notice 2006-96 and be
submitted by January 17, 2007, to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Attn: CC:PA:LPD:PR
Room 5203

Alternatively, comments may be submitted electronically via e-mail to the following
address: Notice.Comments@irscounsel.treas.gov. All comments will be available for
public inspection and copying.
SECTION 5. PAPERWORK REDUCTION ACT
The collections of information in this notice have been reviewed and approved by

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the Office of Management and Budget (OMB) in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under control number 1545-1953.
An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid OMB
control number.
The collections of information in this notice are in section 3 of this notice. The
collections of information are required from donors to satisfy the substantiation
requirements of § 170(f)(11). The collections of information are required from donors to
obtain a benefit. The likely respondents are individuals, partnerships, and corporations.
The estimated total annual reporting burden is 161,571 hours.
The estimated annual burden per respondent varies from 5 minutes to 5 hours,
with an estimated average of approximately 3.5 hours. The estimated number of
respondents is 46,285.
The estimated annual frequency of responses (used for reporting requirements
only) is once per year.
Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and return information are confidential, as required by § 6103.
SECTION 6. DRAFTING INFORMATION
The principal author of this notice is Susan J. Kassell of the Office of Associate
Chief Counsel (Income Tax & Accounting). For further information regarding this notice
contact Susan J. Kassell at (202) 622-5020 (not a toll-free call).