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Impacts on Valuation Professionals

What Valuation Professionals Need to Know

The IRS is proposing new amendments to Circular 230 that could change the landscape for appraisers and valuation professionals involved in IRS proceedings. While the goal is to promote standardization and accountability, the changes bring both potential benefits and challenges. Here’s a breakdown of the key points:

Key Changes at a Glance

The amendments introduce a new section (Subpart D) to clarify expectations for appraisers, including the requirement for appraisals to follow the Uniform Standards of Professional Appraisal Practice (USPAP) or the International Valuation Standards (IVS). Additionally, the IRS can now disqualify appraisers for misconduct without waiting for penalties to be assessed.

Potential Benefits

Consistency and Clarity: Standardizing practices under USPAP or IVS could improve the reliability of valuations and provide clearer benchmarks for compliance.
Stronger Oversight: Removing penalty prerequisites gives the IRS more flexibility to address substandard practices promptly, reinforcing accountability.
Global Alignment: Recognizing IVS helps adapt to the international nature of modern valuation practices, potentially boosting credibility on a global scale.

Concerns and Challenges

Overreach and Practical Challenges: The regulations could impose a one-size-fits-all standard, disrupting harmony among existing professional organizations like NACVA, ASA, and AICPA.
Disqualification Without Penalties: Allowing appraisers to be disqualified without assessed penalties could lead to legal ambiguities and extend IRS authority beyond its intended limits.
Administrative Burden: Smaller firms may face higher compliance costs, discouraging new entrants and shrinking the pool of available valuation professionals.
Oversight Issues: Strict compliance with USPAP or IVS could lead to entire reports being dismissed due to minor deviations, risking unnecessary dismissals of otherwise compliant reports.
Existing Harmonization: Many valuation standards are already harmonized across professional organizations, suggesting that rigid conformity to USPAP or IVS may be unnecessary.
Increased Costs: Compliance with IVS training and quality standards could significantly raise costs for smaller firms.
Scope of Work Issues: USPAP’s Scope of Work Rule and IVS 101 emphasize tailoring methods to assignments. Rigid rules could limit flexibility and undermine professional judgment.
Valuation Methodologies: No guidance is provided on adapting unique or evolving methodologies, which may limit innovation in valuation practices.

Recommendations for Moving Forward

Credentialed Oversight: Ensure IRS agents have valuation credentials to improve oversight quality.
Flexible Compliance: Allow appraisers to follow any established standard that aligns with core valuation principles rather than mandating USPAP or IVS adherence.
Innovation-Friendly Standards: Encourage the use of evolving methodologies to ensure valuations remain relevant for modern industries like renewable energy and digital assets.
Leverage Existing Harmonization: Work with professional organizations to build supplemental IRS-specific guidelines that avoid duplication and maintain flexibility.

Conclusion

While the proposed changes aim to enhance the credibility of IRS proceedings, they also risk alienating competent professionals and increasing complexity. A more flexible, collaborative approach would help balance the IRS’s goals with the needs of the broader valuation community.

Valuation professionals should stay informed and vigilant as these regulatory changes evolve.

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