IRS Issues New “Regulations Governing Practice Before the Internal Revenue Service” (Circular 230) Alert!
The Internal Revenue Service (IRS) has published (Federal Register, Dec. 26, 2024) new proposed regulations on practice before the Internal Revenue Service. Of particular interest to the business valuation community is Paragraph L. Entitled “Appraiser Standards,” this section, among other things, uncouples determinations of appraiser misconduct, noting that “[a]n appraiser’s conduct may be disreputable or fail to conform to appraisal standards even when the IRS has not assessed a penalty or when no penalty under the Code is applicable.” Further complicating the situation, especially for business valuation professionals, is the statement that:
Proposed §10.61, under new subpart D, would require appraisals submitted in an administrative proceeding before the IRS to conform to the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation or the International Valuation Standards (IVS) promulgated by the International Valuation Standards Council. Proposed §10.61 would thus ensure that appraisals submitted in an administrative proceeding generally conform to broadly applicable standards without requiring strict compliance with such standards.
As many of us know, this issue of compliance with USPAP, and now including the IVS Standards, has been a subject of discussion within the BV profession for some time. If the changes go through as currently written, it might cause CPAs and CVAs to be required to comply with USPAP when preparing a business valuation for IRS compliance purposes.
The IRS is receiving comments, favorable and unfavorable, until the middle of February and will hold a hearing on the proposal on March 6. While many organizations, including the AICPA, will be submitting comments, I would urge members of the BV community to write letters commenting specifically on Paragraph L, and, if you are so disposed, comment to ask for a change in language to make it clear that compliance with the SSVS and NACVA standards will be considered appropriate compliance for business valuations.
Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at regulations.gov (indicate IRS and REG-116610-20) by following the online instructions for submitting comments. I suggest all comments be submitted by February 15 to avoid being too late to be received.