The Tax Authority's Limits on Adjusting the Appraisal of Property
The tax authorities have the power to adjust the assessed value of a property if they believe it is lower than its actual market value. To do so, they must provide solid evidence. Case law favors the comparative approach, based on properties that are intrinsically similar.
A recent case highlights the importance for tax authorities to justify their assessments based on relevant comparables. Taxpayers must also be able to prove the accuracy of their valuations to avoid unjustified adjustments.
Background of the Case
The Court thus ruled that the tax authorities had not taken sufficient account of the factors contributing to the decrease in value. Mrs. O, widow of Mr. R, who died in 2013, had named her three young nephews by marriage as universal legatees. She owned her primary residence, which was valued at 2,370,000 euros in the estate declaration. This property was sold on June 10, 2014, for 2,920,000 euros.
Following a review of the estate tax return, the tax authorities determined that the declared value of this property was 2,827,000 euros. A proposed assessment adjustment was sent to Ms. C. M. The conciliation board upheld the value proposed by the tax authorities. Ms. C. M. filed an appeal, which was denied. She then sued the Regional Directorate of Public Finance in the Paris Civil Court.
The Paris Judicial Court ruled that the market value of the property should be set at 2,600,000 euros. It dismissed the remaining claims and ordered the Director General of Public Finance for the Île-de-France and Paris regions to pay the costs and to pay Ms. C. M. the sum of 1,000 euros pursuant to Article 700 of the Code of Civil Procedure.
The Tax Administration's Argument
The tax authorities may adjust the assessed value of a property when they determine that it is lower than the property’s actual market value as of the date of death. To do so, they use the method of comparing intrinsically similar properties, as permitted by case law.
Mr. M. maintains that he has provided evidence of the accuracy of the valuation.
The Court's Decision
In the court’s view, it is up to the tax authorities to substantiate the valuation based on sufficient comparative data pertaining to intrinsically similar properties. The tax authorities determined, by comparing the taxpayer’s proposed valuation—which pertained to six sales—with three sales of similar properties, that the taxpayer’s valuation was not relevant.
According to the appraisal report, the property, built in 1959, is in need of some updates. The high-quality fixtures and fittings show signs of wear, and the electrical and plumbing systems need to be modernized. The last renovations were done in 1976. As for the outbuildings, the studio located in the semi-basement has neither a private bathroom nor a kitchen and is not rentable in its current condition.
The right to exclusive use of the roof is limited by the condominium bylaws and does not constitute a property right. The location is on the outskirts, which means heavy traffic and no unobstructed view.
The administration presented three comparables. Two of these are located in more sought-after neighborhoods. The apartment in question is located near the ring road (which is covered at that location). The first comparable selected by the administration is a prestigious address with an exceptional view, a location that is objectively not similar to that of the apartment in question. The second comparable property is an apartment located in the heart of a shopping street, far from the ring road. Only the third property can be considered similar.
Market value depends on physical factors such as floor area, date of construction, architectural quality, and the condition and level of wear and tear. In its ruling, the court found that Ms. C. M. had demonstrated the accuracy of the value declared in Ms. R.’s estate declaration, namely 2,370,000 euros.
On these grounds, the court upheld the decision under review insofar as it found that the administration had not sufficiently taken into account the factors reducing the property’s value. It set the market value of the property at 2,370,000 euros, dismissed all claims brought by the Regional Director of Public Finance for Île-de-France and Paris, and ordered the full waiver of the tax assessments imposed on the taxpayer by the tax authorities.
