September, 2006 | Issue 8
Current law provides for heavy penalties for taxpayers who “substantially” or “grossly” misstate the value of property given in a charitable donation or reported in a gift or estate tax return. There’s a 20% penalty for a substantial valuation misstatement and a 40% penalty for a gross misstatement.
Definitions Tightened
The Pension Protection Act of 2006, signed August 17, 2006, tightens up the definitions of “substantial” and “gross” for purposes of determining whether these penalties apply. Under the new law, for income tax purposes, if you overstate the property’s value by 200% or more (instead of 400% as before), you have committed a gross misstatement. For estate and gift tax purposes (where people are tempted to understate values) a reported value of 65% or less of correct value is a substantial misstatement (the old limit was 50%) and a reported value 40% or less of correct value (rather than 25%), is a gross misstatement.
Good Appraisals are Important
These changes take effect for returns filed and appraisals submitted after August 17, 2006. Need it be said that it is more important than ever that taxpayers employ experienced and competent appraisers to help them to accurately determine these values.
