§1219. Provisions relating to substantial and gross overstatements of valuations

Pension Protection Act of 2006

Title XII Provisions Relating to Exempt Organizations

Subtitle B Reforming Exempt Organizations

Part 1 General Reforms

(a) MODIFICATION OF THRESHOLDS FOR SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS.-

(a)(1) SUBSTANTIAL VALUATION MISSTATEMENT.-

(a)(1)(A) INCOME TAXES.-Subparagraph (A) of section 6662(e )(1) (relating to substantial valuation misstatement under chapter 1) is amended by striking "200 percent" and inserting "150 percent".

(a)(1)(B) ESTATE AND GIFT TAXES.-Paragraph (1) of section 6662(g) is amended by striking "50 percent" and inserting "65 percent".

(a)(2) GROSS VALUATION MISSTATEMENT.-

(a)(2)(A) INCOME TAXES.-Clauses ( i) and (ii) of section 6662(h )(2)(A) (relating to increase in penalty in case of gross valuation misstatements) are amended to read as follows:

"( i) in paragraph (1 )(A), '200 percent' for '150 percent',

"(ii) in paragraph (1)(B)( i)-

"(I) '400 percent' for '200 percent', and

"(II) '25 percent' for '50 percent', and".

(a)(2)(B) ESTATE AND GIFT TAXES.-Subparagraph (C) of section 6662(h )(2) is amended by striking " '25 percent' for '50 percent' " and inserting " '40 percent' for '65 percent' ".

(a)(3) ELIMINATION OF REASONABLE CAUSE EXCEPTION FOR GROSS MISSTATEMENTS.-Section 6664(c )(2) (relating to reasonable cause exception for underpayments) is amended by striking "paragraph (1) shall not apply unless" and inserting "paragraph (1) shall not apply. The preceding sentence shall not apply to a substantial valuation overstatement under chapter 1 if".

(b) PENALTY ON APPRAISERS WHOSE APPRAISALS RESULT IN SUBSTANTIAL OR GROSS VALUATION MISSTATEMENTS.-

(b)(1) IN GENERAL.-Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by inserting after section 6695 the following new section:

"SEC. 6695A.SUBSTANTIAL AND GROSS VALUATION MISSTATEMENTS ATTRIBUTABLE TO INCORRECT APPRAISALS.

"(a) IMPOSITION OF PENALTY.-If-

"(1) a person prepares an appraisal of the value of property and such person knows, or reasonably should have known, that the appraisal would be used in connection with a return or a claim for refund, and

"(2) the claimed value of the property on a return or claim for refund which is based on such appraisal results in a substantial valuation misstatement under chapter 1 (within the meaning of section 6662(e)), or a gross valuation misstatement (within the meaning of section 6662(h)), with respect to such property, then such person shall pay a penalty in the amount determined under subsection (b).

"( b) AMOUNT OF PENALTY.-The amount of the penalty imposed under subsection (a) on any person with respect to an appraisal shall be equal to the lesser of-

"(1) the greater of-

"(A) 10 percent of the amount of the underpayment (as defined in section 6664(a)) attributable to the misstatement described in subsection (a )(2), or

"(B) $1,000, or

"(2) 125 percent of the gross income received by the person described in subsection (a )(1) from the preparation of the appraisal.

"(c) EXCEPTION.-No penalty shall be imposed under subsection (a) if the person establishes to the satisfaction of the Secretary that the value established in the appraisal was more likely than not the proper value. ".

(b)(2) RULES APPLICABLE TO PENALTY.-Section 6696 (relating to rules applicable with respect to sections 6694 and 6695) is amended-

(b)(2)(A) by striking "6694 and 6695" each place it appears in the text and heading thereof and inserting "6694, 6695, and 6695A", and

(b)(2)(B) by striking "6694 or 6695" each place it appears in the text and inserting "6694, 6695, or 6695A".

(b)(3) CONFORMING AMENDMENT.-The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6696 and inserting the following new items:

"Sec. 6695A. Substantial and gross valuation misstatements attributable to incorrect appraisals.

"Sec. 6696. Rules applicable with respect to sections 6694, 6695, and 6695A. ".

(c) QUALIFIED APPRAISERS AND APPRAISALS.-

(c)(1) IN GENERAL.-Subparagraph (E) of section 170(f )(11) is amended to read as follows:

"(E) QUALIFIED APPRAISAL AND APPRAISER.- For purposes of this paragraph-

"( i) QUALIFIED APPRAISAL.- The term 'qualified appraisal' means, with respect to any property, an appraisal of such property which-

"(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and

"(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).

"(ii) QUALIFIED APPRAISER.- Except as provided in clause (iii), the term 'qualified appraiser' means an individual who-

"(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,

"(II) regularly performs appraisals for which the individual receives compensation, and

"(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.

"(iii) SPECIFIC APPRAISALS.- An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless-

"(I) the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and

"(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c) of title 31, United States Code, at any time during the 3-year period ending on the date of the appraisal.".

(c)(2) REASONABLE CAUSE EXCEPTION.-Subparagraphs (B) and (C) of section 6664(c )(3) are amended to read as follows:

"(B) QUALIFIED APPRAISAL.-The term 'qualified appraisal' has the meaning given such term by section 170(f )(11)(E)( i).

"(C) QUALIFIED APPRAISER.-The term 'qualified appraiser' has the meaning given such term by section 170(f )(11)(E)(ii).".

(d) DISCIPLINARY ACTIONS AGAINST APPRAISERS.-Section 330(c) of title 31, United States Code, is amended by striking "with respect to whom a penalty has been assessed under section 6701(a) of the Internal Revenue Code of 1986".

(e) EFFECTIVE DATES.-

(e)(1) MISSTATEMENT PENALTIES.- Except as provided in paragraph (3), the amendments made by subsection (a) shall apply to returns filed after the date of the enactment of this Act.

(e)(2) APPRAISER PROVISIONS.-Except as provided in paragraph (3), the amendments made by subsections (b), (c), and (d) shall apply to appraisals prepared with respect to returns or submissions filed after the date of the enactment of this Act.

(e)(3) SPECIAL RULE FOR CERTAIN EASEMENTS.-In the case of a contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in section 170(h )(4)(C)(ii) of the Internal Revenue Code of 1986, and an appraisal with respect to the contribution, the amendments made by subsections (a) and (b) shall apply to returns filed after July 25, 2006.