Estate appraisals play a crucial role in estate planning and tax reporting. Accurate fair market value (FMV) appraisals help ensure compliance with IRS rules and protect estates from costly penalties, interest, and audits. Unfortunately, many estate appraisals contain common mistakes that can create unnecessary risks.
In this post, we’ll walk through the five most frequent IRS errors in estate appraisals and share practical tips to avoid them.
1. Submitting a Non‑Qualified Appraisal
One of the biggest mistakes is relying on a non-qualified appraisal. The IRS requires a qualified appraisal prepared by a credentialed appraiser. Using informal opinions, online estimates, or tax assessments can result in reports being challenged or rejected.
How to avoid this:
Work with a USPAP-compliant appraiser who has experience with the specific asset type.
Make sure the report includes intended use, intended user, scope, and a clear narrative explaining how the valuation was determined.
2. Using the Wrong Valuation Date
Estate assets must be valued as of the decedent’s date of death, or an alternate valuation date if properly elected. Using a different date, such as the probate date or a recent sale date, can misstate value and create compliance issues.
How to avoid this:
Confirm the effective date with your appraiser before the valuation begins.
Clearly document the valuation date in the appraisal report.
3. Reporting Sale Price Instead of Fair Market Value
Many people assume that the sale price equals the FMV, but that isn’t always true. Sale prices can reflect negotiations, concessions, or special circumstances that do not represent true market value at the time of death.
How to avoid this:
Use a formal appraisal that compares recent sales of similar properties and makes appropriate adjustments.
Include explanations for any adjustments in the report to clearly support the FMV conclusion.
4. Inadequate Documentation of Property Condition
Appraisals that don’t provide sufficient information about property condition are often questioned by the IRS. Missing photographs, descriptions of deferred maintenance, or unaddressed improvements can undermine the credibility of a valuation.
How to avoid this:
Include interior and exterior photos of the property.
Provide details about the condition, maintenance issues, and any improvements that affect value.
5. Insufficient Report Detail and Transparency
Reports that are unclear, incomplete, or lacking methodology, assumptions, or narrative explanation leave estates vulnerable to IRS scrutiny. Inadequate documentation can lead to adjustments, penalties, or audits.
How to avoid this:
Ensure the appraisal explains scope, methodology, assumptions, and adjustments clearly.
Include the appraiser’s credentials and the intended use of the appraisal.
Why Avoiding These Errors Matters
Errors in estate appraisals can result in:
IRS valuation misstatement penalties
Interest on underpaid estate taxes
Increased audit risk
Following IRS rules, USPAP standards, and proper documentation practices protects estates, fiduciaries, and advisors from unnecessary exposure.
Stay Up to Date with Estate Appraisal Best Practices
Avoid costly mistakes and stay informed on estate appraisal compliance. Subscribe to the OnPoint Appraisals newsletter at OnPointAppraisals.com for the latest guidance, updates, and expert insights delivered directly to your inbox.