§754 without an appraisal?

Technical topics regarding tax preparation.
#1
gusser  
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§754 without an appraisal?

Tax attorney for the estate wants me to use a realtor's estimate of market value for 2 commercial pieces to do the §754 election (It included comps and opinion letters for both properties). He used that for the CT estate tax return. The original cost basis is around 800k and the new value is 3.2 mil. Since the executor husband is refusing to pay 3k for an appraisal I think I have no choice but to not do the election and have him sign off that he does not want the step up now. Am I wrong to refuse to do it without an appraisal? What's my liability if I use the existing reports?
Last edited by gusser on 30-May-2023 1:59pm, edited 1 time in total.
 

#2
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Do the values seem reasonable?
If they are unreasonable, I wouldn't use them, but what is your hesitation if they are reasonable?
~Captcook
 

#3
gusser  
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CaptCook wrote:Do the values seem reasonable?
If they are unreasonable, I wouldn't use them, but what is your hesitation if they are reasonable?


The market analysis was 3.2 mil and that's what the attorney closing probate used. The town values the property @ 1.7 mil as of 10-1-22. That's my concern. If I can use the comp with the backup without worrying as the preparer then I am OK. This is my 1st §754.
 

#4
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Be mindful of the purpose of values...

You used the term "The town values the property...", which is a misnomer. The town's tax assessment is $1.7M. That's not a valuation for anything other than assessing taxes. Tax Assessments are commonly undervalued in a rising market, as much as 40%, in my experience.
~Captcook
 

#5
gusser  
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So you would have no issues using the comps/CT 706? I've never had a penalty in 50 years and don't want to start now. Thanks.
 

#6
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You're saying for Probate $3.2 million was used and for the 706 $4.3 million?

EDIT: Or, was $3.2 million the discounted or fractional share value of decedent's interest in a partnership that owned the commercial real estate valued at $4.3 million?
Last edited by sjrcpa on 30-May-2023 2:00pm, edited 1 time in total.
 

#7
gusser  
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sjrcpa wrote:You're saying for Probate $3.2 million was used and for the 706 $4.3 million?


Sorry, my op included another property and I wasn't aware of it. I am edited op to reflect.
 

#8
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gusser wrote:So you would have no issues using the comps/CT 706? I've never had a penalty in 50 years and don't want to start now. Thanks.


If that's the value the client has provided from a professional and I have no reason to believe it is unreasonable, then, yes. I would have no problem using the value.
I would also be clear to explain to the client the value in having a higher level of evidence (appraisal) and that without an appraisal the value could be challenged and would have a higher likelihood of being changed. From a practical standpoint, though, being consistent between the estate tax and income tax returns is also an important dynamic.
~Captcook
 

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I've never had a penalty in 50 years and don't want to start now. Thanks.


Maybe you’re being too conservative. Anyway, I’m pretty sure the 754 rules don’t require an appraisal. What’s required is FMV. Sure, an appraisal might be “better” evidence of FMV, but that doesn’t mean the existing evidence isn’t evidence…and it doesn’t mean the existing evidence isn’t reliable evidence.

Do you also examine every one of the client’s receipts for business expenses? If not, then why do you insist on seeing the highest level of evidence for some things, but not others? And if you say something like, “Well, the client signed an engagement letter saying his business expenses were all legit,” then, if this is really bothering you, insert some language into your engagement letter that says something like, “We understand there was a partner death during the year and a Sec 754 election might be contemplated. In the event such an election is made, you agree that the information you are supplying to us, in terms of property fair market value as of date of death, is correct and accurate to the best of your knowledge.”
 

#10
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Remember that appraisals, too, can and have been challenged by the IRS.

Now that the facts are clearer, I would have no problem using the probate and 706 value for the 754 election.
 

#11
gusser  
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Capt, SJR and Jeff thank you all for your quick and meaningful responses. Having never done a §754 I was concerned about some special requirement regarding values. Thanks again.
 


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