IRS clarifies 6695A ‘exceptional’ investigations

This special supplement to the BVWire™ includes a more complete statement by Brenda Woolbert, Team Manager for IRS engineers and appraisers, who spoke at the recent AICPA National BV Conference in New Orleans.  With regard to the extension of § 6695A penalties to estate and gift tax returns and the “exceptional” case when an investigation could proceed against appraisers without their ability to support their work at the examination level, Woolbert explains:

The exception to the 6695A penalty is based on a standard of ‘more likely than not’ the proper value.  As a practical matter, there exists the potential for IRS valuators to resolve valuation issues directly with the taxpayer and never discuss the valuation issues directly with the appraiser.  In some instances, a significant adjustment could result in the valuator referring the case for penalty investigation or directly to the Office of Professional Responsibility (OPR).  In such a case, the first opportunity that the appraiser has to defend his/her work is once a penalty investigation begins or OPR contacts the appraiser. This is an unfortunate instance where the appraiser has not been afforded the opportunity to discuss the subject appraisal at the examination level.  However, penalties and sanctions will not be imposed without a comprehensive investigation, which will include the opportunity for the appraiser to discuss his/her work.

We appreciate Woolbert’s prompt response to this week’s BVWire and her clarification—which consist of her opinions, not those of the IRS.

Fishman appointed to IRS advisory group

Jay Fishman, who chairs the Government Relations Committee for the American Society of Appraisers (ASA), just received notice of his appointment to the Internal Revenue Service Advisory Council (IRSAC) for a three-year term.  “IRSAC is a very prestigious committee that advises the IRS Commissioner on all hot-button tax issues, substantive and procedural,” says Peter Barash (Peter Barash Associates), the Government Relations Consultant to the ASA.  “Jay's appointment was due overwhelmingly to his credentials and distinguished work on behalf of the appraisal profession,” Barash explains.  “But, clearly, his appointment was greatly assisted by official ASA support for his candidacy,” including a letter sent to the IRS Commissioner and the Treasury Secretary and signed by Les Miles, ASA's International President.

That letter also supported the candidacy of Will Frazier to another important advisory group, the IRS Information Reporting Program (IRPAC).  IRPAC has established a unit to advise the Service on a wide range of important tax-related appraisal policies, and should release news regarding Frazier’s proposed appointment before the end of the year.

Dedicated issue to expanding fair value comments

The comments by Michael Mard as presented in this week’s BVWire were a partial and incomplete summary of the relationship between the BV profession and the Financial Accounting Standards Board (FASB).  Mard has offered to provide further context and explanation for our readers.  Accordingly, next week’s issue will provide a special report on the work that Mard and other members of the Valuation Resource Group have done—with particular focus on the Board's current relations with its valuation advisors.  “The FASB has bent over backwards,” Mard says, to accommodate input from the appraisal community as well as the public company, auditing, and corporate financial fields.  Look for Mard’s comments and more in the next BVWire.

Get fair value answers straight from the experts  

With crisis comes opportunity (or says the Chinese symbol for “danger”).  With all the questions and controversy surrounding fair value for financial reporting comes great opportunity for the business valuation community to advance and its professionals to develop their firm practices.  What better way to enhance and expand fair value expertise than to attend the first-ever National Summit on Fair Value for Financial Reporting, co-sponsored by BVResources and the ASA.  To register for the New York City gathering, February 5-6, 2008, go here.

What will be the hot button BV issues of 2008?

Clearly, compliance issues with the IRS, the FASB, the SEC, and international standard-setting authorities are creating vigorous debate in and among the BV profession and its practitioners.  The creation/enforcement of standards for the profession is another hot topic—but some BV leaders caution valuators not to lose sight of the discrete analytical issues which courts and clients care most about.   “Premiums, discounts, and cap rates seem to be the greatest area of concern for the judges,” comments Gary Trugman.  “Many state courts are moving away from discounts because they are not happy with the experts.  Our data stink and we are unable to convince a judge that a discount should be applied when we cannot support it." They question the company-specific risk because traditionally, it’s been a plug number, he says.

What’s your opinion?  In our annual, online survey of the year’s hot issues, we’ve supplied five choices—but also a category for write-in responses and ample room for comment on any particular issue(s), anonymously or with full attribution.  To complete the survey—which just takes a few seconds, click here.



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