Appraiser interview is not required before Section 6695A assessment

Plain-English summary

Chief Counsel considered whether an IRS penalty examiner must send a particular letter or information document request, or interview the appraiser, before assessing the Section 6695A penalty. It found no legal requirement to complete those steps, although following them might be good administrative policy. The Internal Revenue Manual does not legally bind the IRS, and the exception in Section 6695A(c) is a defense rather than a prerequisite to assessment. The IRS may assess the penalty if it can establish the statutory facts, including preparation of the appraisal, knowledge of its intended tax-return use, a resulting substantial valuation misstatement, and gross income needed to calculate the penalty.

Ruling snapshot

• Question: Must the IRS send Letter 4477, issue an IDR, or interview an appraiser before assessing a Section 6695A penalty?
• Outcome: Advice given: no, those steps are not legal prerequisites to assessment.
• Key authorities: IRC § 6695A(a), (c); United States v. Horne; First Federal Savings & Loan Association of Pittsburgh v. Goldman

Full text (IRS public release)

ID: CCA_2020042414021012
UILC: 6695A.00-00

Number: 202129009
Release Date: 7/23/2021
From: ------------------
Sent: Friday, April 24, 2020 2:02:10 PM
To: ----------------------
Cc: ---------------------
Bcc:
Subject: RE: 6695A question

Hi ------

Thank you for your question: Can Penalty Examiners assess the section 6695A penalty
without having sent the L4477/IDR and not conducted an interview? (e.g. short statute
but we may be able to assess penalty through CCP)

There is no case law or guidance on the issue, but our position is that, in order to
assess the 6695A penalty, the IRS is not legally required to send the L4477, to send an
IDR, or to conduct an interview with the appraiser, but it may be a good policy decision
to do so. As I’m sure you’re aware, the IRM is not legally binding on the IRS. See e.g.
United States v. Horne, 714 F.2d 206, 207 (1st Cir. 1983); First Fed. Sav. & Loan Ass'n
of Pittsburgh v. Goldman, 644 F. Supp. 101, 103 (W.D. Pa. 1986). And our reading of
section 6695A is that the exception in subsection (c) is a defense to the penalty, not a
prerequisite to assessing it. So as long as the IRS is able to establish the facts
necessary to meet the requirements of 6695A(a), then the IRS can assess the penalty.
Thus, the IRS needs to establish that the person prepared an appraisal, the person
knew or should have known it would be used in connection with a return, the reported
amount resulted in at least a substantial valuation misstatement, and, for purposes of
calculating the penalty, the person received some gross income.

Please let us know if you have any further questions. Thanks.