As we noted last month, (BVWire Issue 72-1) it is certainly a case of BV analysts beware. Tax litigator Charles Rettig (Hochman Salkin Rettig Toscher & Perez, Beverly Hills, CA.) explained at last month’s Summit on Discount for Lack of Marketability (DLOM), co-sponsored by BVResources and the University of San Diego School of Law, that if you do an appraisal and information ends up in any tax return, and is a substantial portion of a position in the return, then you are a non-signing return preparer” (no open quote) for purposes of Internal Revenue Code Sec. 6694 and its possible imposition of penalties. In fact, you never even have to see the tax return, he says.

According to Rettig, there is a reasonable reliance/good faith exception, but given the technical aspects of valuation analysis (especially in such complicated, and controversial, areas as marketability discounts) an analyst’s “reasonable belief” may be difficult and costly to defend, he told attendees.  After all, he says, “can you have that [reasonable belief] in light of the five models for DLOM?”  What’s the bottom line? Rettig cautions that you should be concerned, but not panicked.  “Do your homework, keep your documentation, and be sure to talk to everyone involved” in the subject entity.  IRS regulations and notices are “incredibly user-friendly,” he adds.  For example, see IRS Notice 2007-54 regarding the preparer return penalties and a related FAQ.