Credible data, well-supported conclusions, compliance with applicable professional standards: It almost goes without saying that these are the minimal qualities that any business appraisal must meet to support estate and gift tax planning. But what’s the first thing that happens after a field agent refers an appraisal to an IRS BV specialist? “We will read it,” said Ron Cerruti, Field Service Territory Manager for the IRS, who spoke last week to the Colorado Coalition of Appraisers (CCA) in Denver, CO. “And you may not believe this, but the writing is important to us. I’m particularly interested in it,” Cerruti added (noting also that any views he expressed to CCA attendees were his own, not that of the Service). What does Cerruti look for?
- Does the report read well; is it easy to follow? (Just one example, taken from a conservation easement appraisal: “The residence was a merely composed of homesteaders, miners, loggers, and cattle and sheep ranchers.”)
- Does the report logically lead the reader from the initial presentation of the data to the value conclusions? (Another example: “As mentioned several times throughout this review, the valuation of the subject property consisting of 40 acres and should have concluded from the fee simple valuation on page 155 at a value of $110,000 based on the appraiser’s calculations.”)
Such errors can “drive me nuts,” Cerruti said, noting that the IRS has put together writing classes for its own people, in addition to emphasizing compliance with internal standards. (Reminder: The IRS BV Standards are available as a free download from BVR.) What besides a poorly written appraisal might raise a red flag for the IRS? Is there a “magic” minimal threshold for discounts? Is there a preferred methodology in E&G appraisals? We will have a complete, special report in the July 2011 Business Valuation Update on the CCA meeting as well as the 3rd Annual IRS Symposium, sponsored by the ASA LA Chapter on May 18, 2011. Featured speakers include Judge James Halpern of the U.S. Tax Court, IRS Senior Appraisers and Field Managers, and Mel Abraham. For more information, click here.