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VALUE REVIEW™
Published by Semler Appraisals & Estate Liquidations
A Professional Service for the Valuation of Personal Property
Spring 2000 Vol. 2, No. 2
Federal Estate Tax Appraisals
Until Congress passes a repeal, federal estate tax applies to the
transfer of property at death. The decedent's estate is liable for
tax on the entire taxable estate, including all property, real and
personal, tangible and intangible. At Semler Appraisals, we are
often called on to prepare the inventory and valuation of the tangible
personal property in estates.
The value of the decedent's property
for estate tax purposes is the fair market value on the date of
death, or an alternate valuation date that is six months after the
date of death. The alternate date election is allowed if it decreases
the value of the gross estate and the net estate tax liability.
The purpose of this election is to provide tax relief for estates
that experience a decline in value shortly after death.
The executor
of the estate must file a federal estate tax return if the value
of the gross estate at the date of death exceeds the allowed unified
credit exception (currently $675,000). The value of the estate is
reported on Schedule F-Other Miscellaneous Property on Form 706
(U.S. Estate and Generation Skipping Transfer Tax Return). If the
value of the estate is less than the threshold, the estate may still
file Form 706 to establish a new basis for the property and/or to
start the clock on the three-year statue of limitations for the
IRS to challenge the estate.
Appraisers of personal property must follow certain guidelines when
preparing an appraisal for estate taxes. On IRS Form 706, Schedule
F, the first question asked is "Did the decedent at the time
of death own any articles of artistic or collectible value in excess
of $3,000 or any collections whose artistic or collectible value
combined at date of death exceed $10,000? If 'Yes', submit full
details on this schedule and attach appraisals."
These appraisals
are governed by Treasury Regulation Section 20.2031-6. The general
rules stress:
• A room-by-room itemization of household and personal effects is
desirable.
• All articles should be specifically named. However, items in the
same room, each of which is valued individually at $100 or less,
may be grouped.
• If the decedent owned articles with artistic or intrinsic value
(such as jewelry, furs, silverware, paintings, etchings, engravings,
antiques, books, statuary, vases, oriental rugs, coin or stamp collections),
with a total value in excess of $3,000, then a qualified appraisal
is required. {Note: This conflicts with the instructions of Form
706 Schedule F. The Form requires an appraisal if one article is
valued in excess of $3,000 and the Treasury Regulation requires
an appraisal if the total value of artistic or intrinsic articles
exceeds $3,000.}
• Books in sets by standard authors should be listed in separate groups.
• For paintings having artistic value, list the size, subject, and
artist's name.
• For oriental rugs, list the size, make, and general condition.
Groups or individual pieces of silverware should be weighed and
reported in Troy ounces.
Treasury Regulation Section 20.2031-1(b) also provides the definition
of fair market value used in estate tax appraisals: "The fair
market value is the price at which the property would change hands
between a willing buyer and a willing seller, neither being under
any compulsion to buy or sell and both having reasonable knowledge
of relevant facts. The fair market value of a particular item of
property includible in the decedent's gross estate is not to be
determined by a forced sale price. Nor is the fair market value
of an item to be determined by the sale price of the item in a market
other than that in which such item is most commonly sold to the
public, taking into account the location of the item wherever appropriate.
Thus, in the case of an item of property includible in the decedent's
gross estate, which is generally obtained by the public in the retail
market, the fair market value of such an item of property is the
price at which the item or a comparable item would be sold at retail.
Section
3 of Revenue Procedure 65-19 addresses the issue of items commonly
sold at auction or through classified ads:
"Where there is a bona fide sale of tangible personal property
as the result of an advertisement in the classified section of a
newspaper and the property is of the type often sold by owners by
such means, or there is a bona fide sale of an item of tangible
personal property at a public auction, the price for which it sold
will be presumed to be the retail sales price of the item at the
time of sale."
For estate tax purposes, if the decedent's property
is sold at public auction or through classified ads, the resulting
prices realized are acceptable as fair market values, providing
the sale is completed within a reasonable time and assuming that
no dramatic change in the market occurs between the effective date
of the appraisal and the date of sale.
For additional information
on estate tax appraisals, or appraisals for non-tax charitable contribution,
divorce, insurance coverage, damage claim settlement, division of
an estate by the heirs, or confirmation of purchase price, please
call the office.
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