14A — September 12 - 25, 2014 — M id A tlantic
Real Estate Journal
www.marejournal.com
A ppraisal
By Robert E. Dietrich, MAI, CRE, Colliers International The Judicial Appraiser
O
ver the past 20 years, I have watched a number of Tax Court decisions
of both experts and develops an independent conclusion of value. It provides a few lessons for appraisers. The Palmer Ranch case in- volved the donation of a con- servation easement of approxi- mately 80 acres zoned for low density residential development with environmental constraints in Florida. The taxpayer’s ap- praiser valued the easement at $23,942,500 based on a before and after analysis. The IRS appraiser valued the same easement at $6,977,500. The Court ruled the correct value to
be $19,955,014. What lead the court to appraise the easement at that value? The foundation of any ap- praisal is the opinion of “High- est and Best Use” and in this case represents the difference between the two expert ap- praisers. The Court devoted 14 pages (one-third of the decision) to highest and best use with the key focus on legally permissible use. The property was zoned for low density residential devel- opment but had a general plan over-lay for higher density de-
velopment with a cluster option available. The IRS appraiser stated a number of reasons why the property could not be developed to a greater density including a failed rezoning on an adjoining property, lack of multiple access routes, and neighborhood opposition. The Court ruled there was a reason- able probability of rezoning as a basis of adopting the taxpayer appraiser’s opinion of highest and best use for multifamily housing. The Court then turned to the valuation. Available sales used
by both appraisers and the Court were from $237,000 to $511,000 per acre. The taxpay- er’s appraiser was $307,000 per acre while the IRS appraiser was $94,000 per acre. The Court noted the IRS appraiser’s value opinion was outside the range indicated by the sales and found the taxpayer’s appraiser to be more accurate as the sales were thoroughly analyzed andwithin the range indicated by sales. At the same time, the Court noted that the taxpayer’s ap- praisal was not without fault. The Court pointed to an adjust- ment made to a sale requiring an upward adjustment for a period of over two years. While the Court agreed with the adjustment, it felt values began to stabilize later in the period and therefore moder- ated the upward adjustment. This resulted in a slightly lower value than estimated by the taxpayer’s appraiser, while es- sentially disregarding the IORS appraiser’s work. This case offers a few lessons to be learned for appraisers: • It is important as a tax- payer’s appraiser to build a solid case for highest and best use. Assuming the IRS review- ers were objective, they did not see the issue the same as the taxpayer’s appraiser resulting in a donation that wound up in court. • Prepare a thorough analysis of highest and best use to assure a better appraisal opinion. In the case of the IRS appraisers highest and best use analysis, the Court rejected it noting it several aspects were wrong or not convincing. • Make sure all adjustments to sales are reasonable and thoroughly supported. If your conclusion of value is outside the range indicated by the sales, it is imperative to provide more extensive support for adjust- ments than might be otherwise required. • Learn what the Court and IRS look for in valuations in support of tax matters, know relevant tax issues and learn from court rulings. Note, the October 21st IRS Valuation Summit in Washington, D.C. will cover these topics with panels including Tax Court judges and IRS attorneys and appraisers. Bob Dietrich is the leader of the Specialty Valuation Practice for Colliers Inter- national. n
on real estate valuation like t h e r e c e n t Palmer Ranch c a s e wh i c h highlights a vexing issue: the Court is not bound by the opinion of
Robert Dietrich
an expert witness. The Palmer Ranch case demonstrates what can occur when the Court dis- agrees with the conclusions
QUALIFY TO ASSURE YOUR SUCCESS BEFORE THE IRS &COURTS
Attend the 2014 IRS VALUATION SUMMIT October 21, 2014—GrandHyatt inWashington, D.C. In Tax Court appraisals are too often rejected. How can you avoid having your work rejected by the IRS and the courts? Join US Tax Court Judges, IRS Appeals Officers, IRS Appraisers, Attorneys, CPAs, MAIs and other experts involved in Fair Market Values to learn answers and explore solutions. And, earn 7 hours for credentialing or licensing. Learn more: www.appraisalinstitutedc.org/summit
Hosted by the Southern California and Washington DC Metro Area Chapters of the
Made with FlippingBook - professional solution for displaying marketing and sales documents online