If the IRS handles a valuation matter as a “consultation,” as opposed to an examination, neither the appraiser nor the taxpayer has the right to discuss the case with the IRS business valuer. An IRS agent or estate and gift tax attorney can simply disallow something without you being able to discuss this with the IRS valuer who made the recommendation for the adjustment. How frustrating is that?

What to do: Consider requesting a “limited scope examination” so that you can discuss the issue with the IRS business valuer involved, advises Michael Gregory (Michael Gregory Consulting LLC), who spent 28 years at the IRS on business valuation issues. That way, you can hear the full arguments and be able to present your perspective. You may even find that the IRS will simply drop the matter altogether. The agency may be overloaded with cases, or it may not be able to appropriately develop an issue.

“Also, the IRS’s track record on appeals is not good with consultation work, so the agency may prefer to drop the matter rather than escalate it,” says Gregory. He knows of one party who has been sustained three different times in full on an appeal when this has happened. However, Gregory says you should be aware that the IRS could escalate the matter to a full examination rather than proceed with a limited scope examination.

Gregory has written an article, “20 Ideas to Help Your IRS Dealings Go Smoother,” which will appear in the April issue of Business Valuation Update.