Homebuyer, (seller in this case),
The problem with using tax valuation is one thing: Did an appraiser ever come out to your house to do the tax appraisal? The answer is no. They use a system where they value everything virtually the same based off of their information.
Your real estate agent as well as the buyers agent should have printed out numerous comparible properties to provide to the appraiser. Did your agent or the buyer agent meet with the appraiser and give them this information?
If the foreclosures are in your neighborhood and are comparible to your property, then yes the appraiser has every right to use these homes. However, you said that your home has had multiple upgrades so I would then ask if either your agent or the buyers agent printed out the photographs of the sold foreclosures and provided those to the appraiser. Condition of the property is an important aspect of an appraisal.
You have every right to dispute the appraisal. Often what happens is they will go back to the appraiser and tell him that you are disputing the appraisal based on what ever reason you give. You (and your agent) have to provide these comps and pictures now to the bank with a detailed statement as to why you are disputing the appraisal, why you feel that the comps that the appraiser used were not appropriate for your home, and why these other comps that justify a higher price would be more appropriate. They then ask the appraiser to review the information and then give a second opinion.
A dispute can be resolved very quickly, or it can take a lot of time. If the appraiser stands by his original valuation, you might be out of luck, especially if this is an FHA loan.
Sorry for the bad luck, but tax value is almost ALWAYS incorrect anyways. I hope you were not using that as your basis for a selling price. Surely your agent pulled the comparibles for you, right?