“Why would a wealthy elderly lady willingly destroy half the value of her estate,” Judge Mark Holmes
of the U.S. Tax Court asked 200 appraisers at the L.A. Chapter of the Appraisal Institute’s IRS Valuation Summit last week. “That’s the question you have to ask yourself when you’re trying to explain the transfer of hard assets” to legal structures such as limited partnerships and corporations. ”You’d better have a good story to describe why a discount is valid,” he concluded.
Ron Cerruti (IRS Field Service Territory Manager) agreed with the Judge—with a major point of emphasis. “You need to write well,” he said (offering his own opinions, not those of the IRS). Reading poorly written reports “starts to piss us off after a while,” he quipped, before reading five excerpts from valuation report language that literally made no sense. “We have lots of time,” Cerruti added, in all seriousness. “And if you get past us, you don’t have to worry about Tax Court. So put in the effort to make a good argument for your position.”
Paul Frederic Marx (Rutan & Tucker), a leading trust and estate lawyer, admitted that he’s particularly wary of appraisers who “cherry-pick methods to get desired results.” His solution? ”Fire the appraiser and hire a new appraiser. There’s a higher standard of professionalism here,” he warned, citing the standard of care that’s necessary to determine highest and best use in real estate, for example. “Advocate [for your opinion] and explain why you choose the methods that work in each particular case.”
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