Woolford v. Virginia Department of Taxation

Supreme Court of Virginia, Record No. 161095, November 22, 2017: Appraiser qualified due to experience with similar properties, even if experience is weak.

At issue was whether the appraiser of a Virginia conservation easement donation was a “qualified appraiser” under relevant Virginia and federal law.

The Woolfords donated a conservation easement to the Virginia Outdoors Foundation. The easement prohibits the Woolfords from mining the sand and gravel on the property, a key factor in the property’s value. The Woolfords applied for land preservation tax credits pursuant to Virginia Code §§ 58.1-512 and 58.1-513. To prepare for the application they used a professional appraiser, Michael J. Simerlein, to appraise the property. The Virginia Department of Taxation at first awarded the Woolfords a tax credit, basing the amount on Simerlein’s assessment. The Tax Department later rescinded the tax credits. When the Woolfords appealed that decision to the circuit court the Department moved for summary judgment arguing, among other things, that Simerlein was not a qualified appraiser under Virginia law and, accordingly, the entire appraisal should be disregarded. At a hearing, evidence concerning Simerlein’s qualifications showed that he was licensed by Virginia as a real estate appraiser, holds a master’s degree in real estate appraisal and investment analysis from the University of Wisconsin-Madison, has appraised commercial and residential properties since 1992, has appraised approximately 100 conservation easement donations and has participated in four prior appraisals involving mineral rights. Simerlein acknowledged, however, that he has not taken any coursework on the subject of mineral appraisals.

The governing statute, VA Code § 58.1-512(B), requires that the fair market value of qualified conservation easement donation must be made by a “qualified appraisal” prepared by a “qualified appraiser,” as those terms are defined under applicable federal law and regulations governing charitable contributions. The relevant federal law definition of “qualified appraiser,” is at 26 U.S.C. § 170(f)(11)(E)(ii), which states:

“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.”

In addition, 26 U.S.C. § 170(f)(11)(E)(iii) specifies that,

“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. . . .”

The circuit court agreed with the Department that Simerlein was not a “qualified appraiser” as defined by the statute.  Citing Simerlein’s acknowledgment he was not formally educated in appraising minerals, and distinguishing his four prior appraisals from the appraisal in contention, the circuit court held that “the Plaintiffs’ appraiser lacks the necessary education and experience, as required by applicable federal law incorporated by. . . . Code § 58.1-512.B, to offer an appraisal of mineral property.”

On appeal, Supreme Court of Virginia disagreed, holding that Simerlein was a “qualified appraiser,” though not for the reasons put forward by the Woolfords. The court found that even if “verifiable education” under 26 U.S.C. § 170(f)(11)(E)(iii)(I) equates to formal classroom education, Simerlein was nevertheless “qualified by virtue of his experience in evaluating properties that contained sand and gravel deposits.” The court reasoned that the appraiser’s “weaknesses in his experience” in this regard did not mean that he was altogether unqualified under VA Code § 58.1-512(B). The court found relevant that he had been involved in a number of prior appraisals where sand and gravel mines or comparable mineral deposits were at issue and that he spoke with colleagues and other relevant professionals in the industry in crafting his appraisal, concluding that the appraiser “expended considerable effort in learning about sand and gravel mines in general and about the local and regional market for those products in particular.” The court also wrote that while a qualified appraiser needed “verifiable education and experience in valuing” the kind of property which was donated, “the property need not be identical, however, to properties appraised in the past. It is sufficient if the appraiser can, from education and/or experience, make an informed and accurate appraisal of the property.”

The court reversed the trial court’s determination that Simerlein was not a “qualified appraiser” of the Woolford’s property and remanded the case for further proceedings.

The court rejected other arguments made by the Woolfords in support of the appraiser being “qualified.” Merely being licensed, the court wrote, does not make him qualified. The court also disagreed with the Woolfords that the reference in federal law, 26 U.S.C. § 170(f)(11)(E)(iii)(I), to “the type of property subject to the appraisal,” simply refers to real property, saying that, “An appraiser who specializes in one particular type of real property may not be in a position to make a knowledgeable appraisal of a completely different kind of property.” Additionally, the Woolfords argued that IRS Notice 2006-96, 2006-2 C.B. 902, 2006 IRB LEXIS 596, at *6 (Oct. 19, 2006, effectively made Simerlein qualified. That Notice said that, “An appraiser will be treated as having met the minimum education and experience requirements [of federal law] if . . . [f]or real property . . . the appraiser is licensed . . . for the type of property being appraised in the state in which the appraised real property is located.” The Woolfords argued that because there is no Virginia licensing subspecialty for appraising real estate, Simerlein’s general license to appraise real property should mean that he is a qualified appraiser. The court rejected this argument, saying that under federal law such guidance does not carry the force of law, and that relevant VA Code does not incorporate such guidance into Virginia law.

The decision also addressed whether the Department may audit an appraisal after the fact even if the appraisal is not false or fraudulent, and held that it may do so.

Decision available at http://www.courts.state.va.us/opinions/opnscvwp/1161095.pdf.

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