IRS continues outreach efforts with BV while gearing up for 409A oversight

BVWireIssue #76-4
January 28, 2009

“I want to outreach with you and my colleagues want to outreach with you,” Michael Gregory, an IRS Territory Engineer, told some 1400 attendees at the 2008 AICPA/ASA National Business Valuation Conference in Las Vegas. Important: Gregory offered his own opinions, not those of the IRS. To fulfill these efforts, the IRS is currently beefing up its team of engineers and appraisers, adding two territory managers in the west and two more in the east. The managers network every month, according to Gregory, talking about “what we can do to strengthen our partnerships with the private sector.” If [the IRS isn’t doing its] job, then “you need to come and tell us that we’re not.”

What about appraisers who may not be doing their jobs? The IRS continues to use the penalty provisions in IRC Sec. 6695A as a key enforcement tool to curb appraisal abuses. In addition, as of the conference date, the Service had asserted 146 penalties in the estate and gift arena, charitable deductions, conservation easements, and pension fund (ESOP). Review of Sec. 409A is another area where the IRS is reportedly beefing up its oversight. Gregory chairs the team on 409A appraisals, who will be “off and running” in the spring of 2009. (At the meeting, Gregory suggested that appraisers refer to the AICPA’s practice guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.)

In his AICPA/ASA presentation, which we’ve outlined in an article in the January 2009 Business Valuation Update™, Gregory also offered suggestions on how to avoid the top valuation-related missteps—including the valuator’s use of aged data, improper discount and cap rates, and inappropriate discounts for lack of marketability and minority interests. Overall, Gregory suggested making sure that your valuation conclusion passes the “common sense” test. Ask yourself: Would I be willing to pay that amount if I had the money to buy this company?” For a full accounting, you can access a Free Download of the article, “22 Ways to Avoid Appraisal Missteps.”

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