Auto Auction Group Cites Concerns With Appraisal Compliance Guidance for Charitable Contributions

I am writing to express my concerns, and those of the 360 member auctions of the National Auto Auction Associations (NAAA), regarding the above referenced request for comments.

NAAA is a trade association for wholesale motor vehicle auctions headquartered in suburban Washington, DC. The 360 NAAA member auctions are from throughout the United States, Canada, Australia, Europe and Asia. In 2006, it is estimated that NAAA member auctions in North America handled more than 16 million motor vehicles of which more than 10 million were sold with a gross wholesale value exceeding $83 billion dollars.

The wholesale motor vehicle auction industry is unique, and its function in the marketplace is frequently misunderstood by those not familiar with it. Often times, laws have been passed and regulations have been enacted which are detrimental to the wholesale motor vehicle auction industry simply because that industry was not understood and was thought to be nothing more than a motor vehicle dealer which sells motor vehicles by the auction process. These laws and regulations have been changed almost without exception when the wholesale motor vehicle auction industry has been adequately explained and understood and the adverse impact on the industry has been recognized.

Wholesale motor vehicle auctions have become the primary means of used motor vehicle distribution in the United States. Sellers include not only used vehicle dealers, but also new vehicle dealers, manufacturers, leasing companies, daily rental companies, fleet operators, and secured lenders. The industry is truly an interstate industry, with both buyers and sellers frequently using auctions in many different states in an effort to stay on top of the ever- changing wholesale motor vehicle market.

This letter focuses on NAAA's concerns regarding the following sections of the Internal Revenue Code: (1) "generally accepted appraisal standards" in § 170(f)(II)(E)(i)(II); (2) "appraisal designation from a recognized professional appraisal organization" in § 170(f)(II)(E)(ii)(I); (3) "minimum education and experience requirements" in § 170(f)(II)(E)(ii)(I);and (4) "verifiable education and experience in valuing the type of property subject to the appraisal" in § 170(f)(II)(E)(iii)(I).

As indicated in the above-referenced Notice, the IRS intends to issue guidance or other regulatory statement on the definitions and applications of these phrases. We have reviewed a draft of comments which will be submitted by Patrick Anderson, a member of the National Association for Business Economics, and NAAA fully supports those comments, however, they go in to detail regarding a broad range of economic appraisals whereas NAAA's comments are limited to donated vehicles which are frequently sold through NAAA member auctions by or on behalf of charitable organizations.

We recognize that the purported intent of the law was to reduce the abuses caused by poorly done or exaggerated appraisals done for property that was to be contributed to a charity for which the donor intended to claim an income tax deduction. The projected public policy purpose which is intended to address those concerns relating to charitable deductions tied to personal property, including examples such as artwork or residential real estate, is sound.

The impact of the proposed guidelines, however, will have an unintended effect on the ability to properly value donated vehicles.

The sections dealing with "appraiser guidance" could be used (or misused) as a qualifications test for permitting individuals whose market and industry experience has previously been accepted as a qualification for performing valuations of personal property such as vehicles. Under these guidelines, a licensed auctioneer or employee of an NAAA member auction, whose valuation of the vehicle is based on sales information drawn from instant market updates and experience in the automobile auction field could be deemed to be unqualified to provide a valuation of a vehicle to be donated. There are a number of vehicle auctioneers and auction employees with demonstrated expertise in vehicle valuation, who would not meet certain of the "credential" requirements suggested. Adoption of a narrow "credentialism" in the "guidance requirements" would have the effect of disqualifying some of the most knowledgeable authorities on the subject of motor vehicle valuations.

While NAAA concurs that an auctioneer or employee of a member specializing in vehicle sales would be unqualified to provide an analysis of artwork, businesses, real estate, other items of personal property, etc., if the "appraiser guidance" provided for in this proposal are adopted, there is a high likelihood that well-qualified experts in the vehicle auction industry could be disqualified from serving as an expert regarding donated vehicles, based on a misuse of the "guidance standards." Creating another level of "qualification" or through a "certifications" has the effect of creating a "barrier" to otherwise qualified individuals who do not possess the "certification" and also has the very real impact of raising the costs to the consumer seeking the valuation of the personal property at issue. Further, by substituting an "accreditation"/"certification" for actual experience when determining whether the individual would be a "qualified appraiser" would invariably result in poorly-done business valuations, done by persons whose training and experience was almost entirely in other fields, such as accounting, real estate or economics. An alternative possible under the projected guidelines could also encourage the use of pre-formatted "reports." These reports may meet "the paperwork requirements" of "standards" but could create the very abuse that the new law was intended to prevent.

In determining the value of a vehicle, auctioneers and employees of NAAA member auctions have access to a variety of appraisal guides, which are uniformly recognized and used by the motor vehicle industry. These appraisal guides have values based on significant amounts of actual sale data for vehicles in a wide variety of conditions. Even if a donated vehicle does not neatly fit within one of those categories, the guides are an accurate starting point from which an experienced auctioneer or NAAA member auction employee can make adjustments.

NAAA member auctions are in the business of not only knowing, but establishing the value of vehicles. Our industry determines true vehicle values because at our auctions prices are a pure reflection of open, competitive bidding and are not influenced by direct or indirect incentives. Our industry is an elaborate network and businesses and individuals who work together to facilitate the exchange of used vehicles and used vehicle information, including the value of those vehicles.

There really isn't a school someone could go to or a textbook someone could read to learn how to value vehicles other than the school of experience where a person learns true values by actually dealing with many thousands of vehicles that could never be made available in a traditional school setting. Industry experience, not formal schooling, is the most important criteria for determining used vehicle values.

To the extent that the guidance or regulation specifically recognizes certain professional associations, NAAA should be included in the list of "recognized professional appraisal organizations" or organizations that include qualified appraisers.

We hope you find these comments useful.

If you would like additional information or comments, please contact me.