Last reviewed: July 2026 | IRC 6695A, as amended through OBBBA 2025

IRC 6695A Appraiser Penalty: Valuation Misstatements and the "More Likely Than Not" Standard

1. What IRC 6695A Does

Congress enacted IRC 6695A to impose direct civil liability on appraisers whose overvalued appraisals cause underpayments of federal tax. Before IRC 6695A existed, the penalty for a valuation misstatement fell entirely on the taxpayer who claimed the inflated deduction. The statutory scheme now splits responsibility: the taxpayer who claimed the wrong value faces the accuracy-related penalty under IRC 6662; the appraiser who provided the wrong value faces IRC 6695A. (See our IRC 6662 accuracy-related penalty guide for the taxpayer-side exposure.)

The penalty applies when (1) the appraiser prepared a qualified appraisal, (2) the appraiser knew or reasonably should have known the appraisal would be used in connection with a federal tax return or refund claim, and (3) a substantial or gross valuation misstatement on that return resulted in an underpayment. The key structural point: the appraiser faces personal liability for penalties calculated as a percentage of the taxpayer's underpayment. The appraiser does not have to file the return or even be aware of the specific amount claimed; knowledge that the appraisal would be used on a return is sufficient. Verify current statutory scope at IRC 6695A(a).

2. Penalty Amounts and Tiers

IRC 6695A(b) establishes two penalty tiers based on the severity of the misstatement. Verify all current thresholds and amounts at IRC 6695A(b).

Substantial Valuation Misstatement (10% Tier)

When the value claimed on a return is 150% or more of the correct value (as of the date of this guide; verify current threshold at IRC 6695A and the cross-referenced definitions in IRC 6662(e)), the appraiser penalty is the greater of:

• 10% of the underpayment of tax attributable to the misstatement, OR
• $1,000 per return

Gross Valuation Misstatement (20% Tier)

When the value claimed is 200% or more of the correct value for income tax purposes (or 400% or more for estate and gift tax purposes), the penalty doubles to the greater of:

• 20% of the underpayment attributable to the misstatement, OR
• $1,000 per return

3. Covered Appraisals

IRC 6695A applies to appraisals prepared in connection with any federal tax return or refund claim where a valuation misstatement is possible. The primary categories of covered appraisals in active practice are:

• Charitable contribution appraisals (Form 8283, Section B): Noncash charitable contributions exceeding the applicable threshold require a qualified appraisal signed by a qualified appraiser. These are the most common IRC 6695A context, particularly in conservation easement cases.
• Estate tax appraisals (Form 706): Valuations of real property, closely held business interests, artwork, jewelry, and other hard-to-value assets included in the gross estate.
• Gift tax appraisals (Form 709): Valuations supporting reported gift values, including transfers of closely held interests and fractional interests in real property.
• Other income tax appraisals: Any return position involving property value where a substantial or gross valuation misstatement is possible, such as like-kind exchange valuations, casualty loss appraisals, or business-interest valuations supporting deductions.

Appraisers who focus primarily on one asset class (real estate, fine art, business interests) often assume IRC 6695A is someone else's problem. It is not: the statute covers any qualified appraisal used on a federal return. Verify current covered-appraisal scope at IRC 6695A(a).

4. The Reasonable Cause Exception: A Higher Bar

IRC 6695A(c) provides an exception to the penalty, but it is critical to understand that this is not the standard "reasonable cause and good faith" defense available under IRC 6664. The appraiser must establish that:

"It was more likely than not that the value of the property (or the adjusted basis of property) as determined pursuant to such appraisal was not less than the correct value."

"More likely than not" means greater than 50% probability. This is a substantive question about whether the appraisal reached a correct result, not merely whether the appraiser used a diligent methodology. An appraiser who performed impeccable work but arrived at a value that the IRS demonstrates was materially wrong can still fail the IRC 6695A(c) test. The burden is on the appraiser to make this affirmative showing; it does not shift to the IRS simply because the appraiser claims competence.

Compare this to IRC 6664(c): under ordinary reasonable cause, the taxpayer must show they acted in good faith and had reasonable cause. Those are procedural and intent elements. IRC 6695A(c) goes further: it demands substantive correctness, not just careful process. That is the asymmetry that catches appraisers and their advisors off guard. Verify current statutory text at IRC 6695A(c).

5. OBBBA 2025 and Conservation Easement Enforcement

The One Big Beautiful Budget Act of 2025 (OBBBA) made targeted amendments to the IRC 170 qualified appraisal requirements, specifically in the conservation easement context. OBBBA amended IRC 170(f)(11) and the related qualified appraisal standards to impose additional substantiation requirements on donors claiming conservation easement deductions. The practical effect: appraisals that would have technically met prior-law Form 8283 requirements may no longer qualify under post-OBBBA standards. Verify current OBBBA amendments at IRC 170(h) and IRC 170(f)(11) as amended.

For IRC 6695A purposes, the OBBBA changes matter in two ways. First, an appraisal that fails the strengthened qualified appraisal requirements correlates with documentation failures that weaken the more-likely-than-not defense. Second, the IRS has identified syndicated conservation easements as a 2025-2026 enforcement priority: active examinations of donor returns lead directly to IRC 6695A referrals against the appraisers who signed the Form 8283. Practitioners advising conservation easement appraisers should review the OBBBA amendments closely and assess whether prior appraisals meet current standards. (See our OBBBA IRC 170 charitable deduction guide for the amended substantiation requirements.)

The listed-transaction status of syndicated easements under Notice 2017-10 and TD 10022 independently exposes participants to IRC 6707A disclosure penalties. Appraisers who signed appraisals in listed transactions should also assess whether the listed-transaction penalty framework affects their exposure. See our IRC 6707A listed transaction penalty guide for the disclosure-failure analysis.

6. Coordination with IRC 6662: Two Penalties, One Appraisal

The same overvalued appraisal can produce penalties against two entirely different parties simultaneously:

• The taxpayer (donor, estate, transferor): Faces the IRC 6662(b)(3) or (e)/(h) accuracy-related penalty for the substantial or gross valuation misstatement on their return. The taxpayer's defense runs under IRC 6664(c) reasonable cause and good faith.
• The appraiser: Faces IRC 6695A for providing the inflated appraisal. The appraiser's defense runs under IRC 6695A(c) more-likely-than-not, which is a higher standard.

The two assessments are procedurally independent. The IRS may settle, abate, or litigate each penalty on its own timeline, against separate parties, with separate administrative records. When a practitioner represents both the taxpayer and the appraiser (or when the same firm handles both), conflict-of-interest analysis is mandatory from day one: the taxpayer's strongest defense (denying the valuation was wrong) may conflict with the appraiser's strongest defense (arguing the valuation was justified given available market data).

7. The IRS Examination Process for IRC 6695A

IRC 6695A penalties are not self-assessed. They arise from the IRS examination process and follow a specific sequence:

1. Taxpayer return examination: The IRS begins with an examination of the taxpayer's return (income tax, estate tax, or gift tax) and identifies the valuation claimed on the return.
2. IRS valuation determination: The IRS obtains its own appraisal or engineering analysis (often through IRS Art Advisory Panel for artwork, or IRS engineers for conservation easements) and determines the correct value.
3. Misstatement determination: If the IRS-determined correct value is materially lower than the claimed value, the IRS calculates whether the misstatement meets the substantial (150%) or gross (200%/400%) threshold.
4. Appraiser referral: The examining agent or penalties coordinator identifies the appraiser from the signed Form 8283, Form 706, or Form 709, and refers the matter for appraiser penalty consideration.
5. Separate appraiser notice: The appraiser typically receives a separate contact from the IRS, distinct from the taxpayer examination. The IRS must provide the appraiser with an opportunity to respond to the proposed penalty before assessment.
6. Penalty assessment: If the appraiser's response does not satisfy the IRC 6695A(c) more-likely-than-not exception, the IRS assesses the penalty. The appraiser may then pursue administrative appeal and, if necessary, judicial review.

A critical practical point: the appraiser's notice often arrives after the taxpayer's examination is well advanced. Appraisers who receive IRS inquiries about their work product should engage counsel immediately, before the taxpayer examination concludes, because the factual record developed in the taxpayer examination will significantly influence the IRC 6695A proceeding. Verify current procedural rules under applicable IRM provisions.

8. Practitioner Defense Checklist

The IRC 6695A(c) more-likely-than-not defense is built on contemporaneous documentation. Retroactive reconstruction is weak. The following elements should be assembled and assessed as early as possible in any IRC 6695A matter:

• Obtain the complete appraisal report and all working papers, including drafts, comparable selection notes, and correspondence with the client.
• Verify USPAP compliance: confirm the appraisal was conducted under applicable USPAP standards for the asset class and date of value. Document which edition of USPAP applied at the time of the appraisal.
• Reconstruct the market data available to the appraiser as of the effective date of value (not today's data). The more-likely-than-not test is evaluated as of the date of the appraisal, not the date of the examination.
• Identify and document the comparables relied upon. For real property: sales of comparable parcels within a reasonable time and distance. For conservation easements: sales of comparable easement encumbered properties or the before-and-after method with supporting data. For business interests: guideline public company or transaction data as of the valuation date.
• Assess whether the appraiser relied on representations from the taxpayer or promoter (such as acreage, development entitlements, or property characteristics). Document what representations were made, whether they were reasonable to rely on, and what independent verification the appraiser performed.
• Obtain the IRS's appraisal or engineering analysis (through examination file or Freedom of Information Act request) and analyze its methodology, comparable selection, and adjustments. Errors in the IRS's analysis are as relevant as errors in the original appraisal.
• Retain a qualified independent appraiser to review the original appraisal and opine on whether, in light of market data available as of the valuation date, the original appraiser's value was within a supportable range.
• Review the Form 8283 (Section B) for technical compliance: qualified appraiser signature, timely execution, required declarations. Technical defects in the Form 8283 may complicate the taxpayer's deduction without independently triggering IRC 6695A, but they weaken the evidentiary foundation.
• Assess whether the syndicated conservation easement listed-transaction framework applies; if so, evaluate IRC 6707A disclosure exposure separately from IRC 6695A.
• Evaluate whether the promoter's conduct (overstating acreage, misrepresenting highest-and-best-use, providing false baseline documentation) constitutes a separate penalty under IRC 6700. See our IRC 6700 promoter penalty guide.

9. Form 8283 Filing Requirements and Their Relationship to IRC 6695A

Form 8283, Section B, is required for noncash charitable contributions exceeding the applicable threshold (verify current threshold at IRC 170(f)(11)). The form requires the donor to report the donee organization, the date of contribution, the date acquired, the cost or adjusted basis, and the fair market value claimed. Critically, the appraiser must sign the form with a declaration that the appraisal was performed in accordance with the qualified appraisal requirements.

The Form 8283 signature is not a formality: by signing, the appraiser makes a representation to the IRS that the appraisal meets the statutory requirements for a qualified appraisal and that the reported value reflects the appraiser's professional determination. That signature also identifies the appraiser to the IRS for purposes of any IRC 6695A referral.

A defective Form 8283 does not by itself trigger IRC 6695A. The penalty requires a valuation misstatement that causes an underpayment, and a technical Form 8283 defect (such as a missing signature or a late appraisal) more typically results in disallowance of the donor's deduction for lack of substantiation rather than a valuation misstatement penalty. However, appraisals associated with defective Form 8283 submissions often also have substantive valuation issues, and IRS examiners treat technical noncompliance as a marker pointing toward deeper review. Verify current Form 8283 requirements under Treas. Reg. 1.170A-17 and IRC 170(f)(11).

For the charitable contribution framework underlying these appraisal requirements, including OBBBA 2025 changes to the AGI limitation and qualified appraisal standards, see our OBBBA IRC 170 charitable deduction practitioner guide.

Where the erroneous claim involves a refund or credit (rather than a deduction reducing tax), practitioners should also consider IRC 6676, which imposes a separate 20% penalty on excessive refund and credit claims. See our IRC 6676 guide for that analysis.

IRC 6695A Penalty Reference Table

The following table summarizes the penalty tiers, thresholds, and applicable standards as of the date of this guide. Verify all current thresholds and standards at IRC 6695A and cross-referenced provisions.

Verify all thresholds, rates, and minimum amounts at IRC 6695A as currently in effect. Thresholds may be adjusted. Estate and gift tax thresholds differ from income tax thresholds.

Frequently Asked Questions

What is IRC 6695A?

IRC 6695A is a civil penalty that falls on the appraiser personally when a qualified appraisal they prepared resulted in a substantial or gross valuation misstatement on a federal return that caused an underpayment. Unlike IRC 6662, which penalizes the taxpayer, IRC 6695A targets the professional who provided the inflated value.

Who does the IRC 6695A penalty apply to?

Any person who prepares a qualified appraisal for use on a federal tax return or refund claim and who knew or reasonably should have known the appraisal would be used that way. This includes real estate appraisers, business valuators, conservation easement appraisers, art appraisers, and other professionals whose valuations support deductions, credits, or estate and gift positions.

What is the penalty amount under IRC 6695A?

For a substantial valuation misstatement: the greater of 10% of the underpayment attributable to the misstatement, or $1,000 per return. For a gross valuation misstatement: the greater of 20% of the underpayment, or $1,000 per return. Verify current amounts at IRC 6695A(b).

How does the "more likely than not" standard differ from ordinary reasonable cause?

Ordinary reasonable cause (IRC 6664) requires good faith and reasonable cause for the position taken -- a procedural and intent inquiry. IRC 6695A(c) requires the appraiser to affirmatively establish that it was more likely than not (greater than 50% probability) that the claimed value was correct -- a substantive correctness standard. An appraiser can be diligent, well-credentialed, and USPAP-compliant and still fail the IRC 6695A(c) test if the value reached was wrong.

Can the taxpayer's reasonable cause defense help the appraiser?

No. The taxpayer's IRC 6664(c) defense and the appraiser's IRC 6695A(c) exception are evaluated independently by the IRS. A taxpayer who wins on reasonable cause provides no automatic benefit to the appraiser. The IRS may waive the IRC 6662 penalty against the donor while simultaneously sustaining the IRC 6695A penalty against the appraiser.

How is the IRC 6695A penalty assessed procedurally?

The penalty is identified through the taxpayer's examination, where the IRS determines the correct value and computes the misstatement. The IRS then contacts the appraiser separately, provides an opportunity to respond, and assesses the penalty if the IRC 6695A(c) exception is not established. Appraisers should engage counsel immediately upon receiving any IRS inquiry about an appraisal, well before the taxpayer's examination concludes.