What kinds of actions are the IRS taking against appraisersThere are none against business appraisers as this date, under the vague and far reaching terms of Circular 230. ”Most are against real property people, doing conversation easements,” said Karen Hawkins, head of the IRS’ Office of Professional Responsibility. “We have appraisers doing creative things with hunting trophies and things like that.” Hawkins says that OPR’s benchmark is “willful conduct.” ”We have not seen a single 6695-A referral from the field,” she says, and these actions are supposed to be negotiated between field agents and the OPR. There’s a change in IRS language in 2011. As of next year, anything that involves submission to the IRS is “practice,” and subject to the impact of disqualifications that might be issued by OPR. “We have not taken an appraisal case to completion,” says Hawkins. ”The service often uses its engineers to resolve things like this because they can’t afford to bring in expensive experts. But, I believe, if we went into a hearing against an appraiser, I would try to have the opinion of a reputable subject matter expert.” Hawkins recognizes that she’d be unlikely be able to support a strong case against an appraiser without this kind of expert support. Hear Hawkins speak on the subject here. Determining FMV in light of Stark II important for medical practice valuations“When valuing a medical practice, how do you determine fair market value in light of recent Stark II regulations?” asks Reed Tinsley CPA, CVA, CFP in a recent NACVA Ambassador QuickREAD article. “Some of it depends on the definition of the term “commercially reasonable.” And a lot also depends on accurate assessment of future revenues, as well as expense assumptions,” he answers. Tinsley reports:
For the complete article click here. Valuing healthcare AR: Can you spot the errors? The owner of several dialysis centers in San Antonio sold to a national provider in 2006. But the parties couldn’t account for the pre-sale accounts receivables (AR) and wound up in front of a jury, which awarded the plaintiff/seller $750,000 based on expert testimony (that calculated damages as high as $2.8 million). The defendant’s challenged the expert under the state’s six-factor, Daubert-type test, claiming his method was unreliable. In particular, the expert “just took a percentage of what’s been paid on the amount billed in the past and applied that percentage to the amounts outstanding.” For example, the expert assumed that private patients who had paid the entire amount of their bill in the past were insured by companies that did not have a contract with the dialysis center; and further, that all of these patients would continue to pay their entire accounts. He applied a similar approach to Medicare and Medicare patients, without reviewing the underlying data or verifying the accuracy of his averages. For example, one contract-patient had not paid any of his six bills, but the expert still assumed a 29% collection, because that was the company’s average rate for such patients. By contrast, the defendants’ rebuttal expert (a healthcare specialist) pulled eight Medicare patient files: Seven posted the secondary insurance payment as a primary Medicare payment, “which basically created the zero balance on the secondary side,” he said, causing the plaintiff’s expert to inflate retained AR. The eighth file contained a handwritten note indicating no secondary insurer, but the plaintiff’s expert categorized him as private. Ultimately, this lack of review rendered his conclusions “extremely unreliable,” the defendants’ expert said—and the Texas Court of Appeals agreed, finding “not a scintilla of evidence” to support the jury award. Look for digest of U.S Renal Care v. Jaafar, 2010 WL 3405831 (Tex. App.)(Aug. 31, 2010) in the Nov. 2010 Business Valuation Update™ and the court’s opinion at BVLaw™. Confirm your credible healthcare valuations: Order your copy of The AHLA/BVR Guide to Healthcare Valuation, 2010 Edition, available now in book and electronic form. Edited by Mark Dietrich and co-published with the American Health Lawyers Association (AHLA), this newly updated edition includes the latest industry specific information and insight along with eight new chapters, written by top healthcare appraisal experts. Check out the Table of contents here. Global perspectives on growing your business valuation businessLast week over 80 delegates attended the International BV Conference, co-sponsored by ASA and CICBV: 30 were from the US, 16 from Canada, 16 from the UK and Europe, and the remainder from 13 different countries. The first panel on growing international BV practices ever brought together practice leaders from Duff & Phelps, Deloitte, and KPMG to talk about how they’ve succeeded and grown internationally. Jeff Harder (National Valuation Services Leader for Canada, Deloitte and Touche) began by commenting on the differences between open markets like the US, or closed markets like Germany, where other professions own the valuation market. Frank Bollman, who began the valuation practice for Duff & Phelps in Germany, “was in Silicon Valley during the time that 141 came into being, and then in Europe when IRFS started, so I followed the changes in business combination across continents.” He finds more resistance to third party advice in Europe than he does in the US. Second, the US market is more diverse–compared in particular to Germany where “the valuation practice is dominated by the big accounting firms.” There isn’t as much room for independent consultants, he believes. Kevin Moss (Deloitte Financial Advisory) agrees. ”You can’t assume that markets behave the same. In Australia, there’s a lot of work for business combinations. In Europe, we do more work for business modeling,” he reports. Doug McPhee (Deputy Chair of KPMG’s Global Valuation Service) commented on some of the risk issues that occur. One simple issue is whether a qualified partner-in-charge can even sign off on his work in a new country. ”I ran across this with a Johannesburg regulator on a project initiated in London,” he recalls. ”I think representational risk is probably bigger than litigation risk,” he concluded. ”As much as possible, we try to standardize practice no matter where it’s delivered.” Is tax policy redefining reasonable compensation? In his recent blog post “Reasonable Compensation and Soaking the Rich,” Raymond J. ("RJ") Dragon (Rotenberg Meril Solomon) analyzes the concept of reasonable compensation in the context of a tax policy aimed to “soak the rich.”Says Dragon:
Read the complete blog post here.Appraisal hurdles unique to promissory notes At the recent Arizona Society of CPAs Business Valuation Conference Suzanne Daggert (Kotzin Valuation Partners) outlined several challenges to valuing promissory notes:
“These factors make it difficult for appraisers to find appropriate proxies,” added Daggert. Look for an article on the subject by Daggert in a future issue of Business Valuation Update™ IP value is context specificThere are many reasons for valuing IP. But regardless of the scenario, “the most important underlying concept in all IP valuation is that it is very much context-specific,” says Weston Anson (CONSOR) in "When IP Valuation Is Necessary: The Sales/ Commercial Transaction.” Anson outlines eight different situations or contexts:
“The contextual environment can change how an asset is valued, for what period of time the asset is valued, whether the asset is valued at today’s value or under some other scenario, etc.,” says Anson. Click here for the article, which is an excerpt from Anson’s recent book IP Valuation and Management, Five concerns when valuing illiquid securitiesLarry Levine (McGladrey) outlined the key valuation drivers for a fixed income security
“One of the biggest challenges is the discount rate, Levine said. “With a large public company you can find the discount rate on Capital IQ. But for private companies there isn’t a similar database.” Updates to BVMarketData
Lost Profits & Shareholder Dissent ahead in BVR’s Webinars This Friday, October 15, BVR’s Webinar Series on Damages Essentials continues with “Reasonable Certainty and Lost Profits in Early Stage Companies,” featuring attorney Robert Lloyd (University of Tennessee College of Law) and expert appraiser Neil Beaton (Grant Thornton). The second installment in our four part series, this program will examine the divide between a burden to prove lost profits within “reasonable certainty” and the absence of any definition of those terms. For more information on this program, or any other in our Series, click here. Two CPE credits are available. The webinar series continues on October 21 with “Valuation Issues in Shareholder Dissent & Oppression,” featuring two of the best minds on this topic: Jay Fishman (Financial Research Associates) and Gil Matthews (Sutter Securities). In this 100-minute presentation, Fishman and Matthews will discuss how fair value standards, discounted cash flow analysis, and case law all have slight – but crucial - variations in shareholder dissent and oppression cases. This program is a must for anyone even thinking about working this valuation area. For more information click here. Two CPE credits are available. What’s the new Congress going to do with “Sunset”? The adjournment of the 111th Congress last week was marked by one noticeable omission: a lack of action of estate tax reform. For business appraisers, attorneys, estate planners, and other professionals this gap continues the speculation that began last winter when provisions were allowed to lapse. At the Advanced Summit on Business Valuation: Resolving Tax & Legal Issues, attorney Ron Aucutt (McguireWoods), a well-known and highly respected specialist in estate planning, will discuss the current state of affairs with regard to this legislation and look to the future to make sense of future actions or inactions in our nation’s capital. The Advanced Summit on Business Valuation: Resolving Tax & Legal Issues, presented by BVR and Georgetown School of Law, takes place on November 10 at the Georgetown School of Law in Washington, D.C. To find more information or to register click here. See you in Washington, DC for the AICPA annual BV meeting The last of the “big-three” valuation conferences, the AICPA National Business Valuation Conference, features a great program with emphasis on both valuation fundamentals and valuation for financial reporting. It’s coming up in just under a month November 7-9 at the Washington Hilton. Register here. We hope to see you there—and there’s the advanced BVR Tax and Valuation Summit in DC the following day—November 10th—as an added incentive to join us there. And, for new staff looking for certification: ASA announces new BV201 course The American Society of Appraisers announces the new BV201 course, Introduction to Business Valuation - Part I, and encourages attendance at the forthcoming course in Chicago (Skokie, IL) November 11 – 14. The course, written by Gary Trugman, deals with valuation theory and the market approach, including guideline public companies and transactional analysis. This course is designed for students seeking a better understanding of market evidence in business valuation assignments as well as for those seeking the premier accreditation in business valuation. Click here for more information or call ASA at 800.ASA.VALU. Members $995, non-member $1,195. Finally…last chance to complete the 2010 BV Firm Best Practices survey! The only survey of business valuation firm management is going on right now and the deadline for participating is October 20th. Results will be available for participants in the next 45 days to help with year-end planning Complete the survey questionnaire now by clicking here to receive all the participant benefits.
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