IRS taking a closer look at USPAP certifications
The BV community has been buzzing about the recent Kohler case (Kohler v. Commissioner, U.S. Tax Court, July 25, 2006). In particular, the valuation reports by Robert Schweihs, ASA, CBA (Willamette Management Associates, Chicago) and Roger Grabowski, ASA (Duff & Phelps, Chicago) for the taxpayer have received “glowing tributes,” according to a BVWire™ subscriber.
The IRS report didn’t fare so well. “[The expert’s] report…was not submitted in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP),” the Tax Court said, and “did not provide the customary USPAP certification.”
“You can bet the IRS is reading that case, too,” said Carla Glass, CFA, FSA (American Appraisal Associates, Dallas) at the most recent public meeting of the Appraisal Standards Board in Denver. Odds are that after Kohler, the IRS has added “USPAP certification” to its review checklist of all valuation reports. For a free copy of the case abstract, originally appearing in the Business Valuation Update™, click here.
And on tax-affecting, the Commissioner wins again…
Just last week, the Tax Court decided Dallas v. Commissioner (September 28, 2006), in which a father transferred over half of the non-voting shares in an S Corporation to his sons’ trusts. The taxpayer’s trial appraiser had tax-affected the transfers, claiming that: (1) he’d always done it that way; (2) an informal conference poll showed that 90-95% of attendees did it that way; (3) the ASA rejects certification unless applicants do it that way; and (4) in submitting ESOP valuations to the Department of Labor, his company had always done it that way.
But as savvy S Corporation appraisers know—there’s far more to tax-affecting than simply doing it and expecting the Tax Court to accept it—even in light of the recent Delaware Open MRI Radiology case, which is a “must-read” on the issue, according to Nancy Fannon, ASA, CPA*ABV (see BVWire #45-4). The Dallas Court declined to apply the Delaware rationale, which concerned fair value pricing for a merger, concluding that in a fair market value context, no hypothetical buyer and seller would tax affect this transaction. (For a copy of the full-text opinion, click here.)
So what is an appraiser to do? Try listening to the experts on BVR’s most recent Tax Affecting telephone conference, featuring panelists Nancy Fannon, George Hawkins, Michael Paschall, and Dan Van Vleet. To order a CD and/or transcript, click here.
Last chance to register for CICBV/ASA confab in Canada
Every four years, the Canadian Institute of Chartered Business Valuators (CICBV) and the BV Committee of the American Society of Appraisers (ASA) present their Joint Business Valuation Conference; this year’s confab—the 6th in the series—takes place October 19-20th in Toronto.
Already, current registration has “exceeded our expected attendance,” says Kitty Jones, Conference Coordinator. One reason: The program is rich with such hot topics as Fair Value and FASB issues; private equity and M&A valuation; IRS oversight, and more. The multi-national conference also provides a unique opportunity for discussion and exchange between the two professional organizations—and promises a specific update on the North American Business Valuation Standards Council’s efforts to promulgate a common set of BV standards. To register, go to the CICBV or ASA web site.
Update on the AICPA BV Standards
The AICPA is still hard at work on issuing the last Exposure Draft of its AICPA BV Standards. It has successfully negotiated the draft Standards through two committees, and is “getting close” to its second exposure period, according to Ed Dupke, CPA/ABV (Clifton Gunderson, LLP, Phoenix). Dupke, who chairs the AICPA BV Standards Task Force, is admittedly “gun shy” about giving any firm publication dates, but adds that he would be “very disappointed” if the latest draft wasn’t out by mid-October. With a 60-day comment period, followed by internal analysis (and then tax season), the best-guess at a final effective date is Summer 2007.
Exclusive BVWire™ survey: What size business do most BV professionals appraise?
At conferences over the summer, we kept hearing business appraisers preface their comments on certain valuation approaches or data with the disclaimer, “keeping in mind that the average size of business we appraise is…” That got us wondering: Just what size business do appraisers most commonly valuate? Help us find the answer by completing a quick, one-question survey here. It won’t take but a second—and we’ll publish the results in the next BVWire™.
Look for the first-ever BV Firm Best Practices & Economics Survey
This November, Business Valuation Resources, LLC will be publishing its first annual Report on Business Valuation Firm Best Practices and Economics Survey. BVR will create this special report directly from data input by the BV community—including the latest benchmarks on compensation and benefits, practice specializations, billable hours and project fees, marketing and technology spending, and much more. Look for a chance to participate in an upcoming BVWire™ and also in specially-addressed e-invitations.
SEC releases letter on stock option accounting
Most business appraisers have been simply watching the recent regulatory storm over stock option pricing and accounting, awaiting further guidance from the SEC as well as the Big Four auditors. Just two weeks ago, the SEC issued its official views on the “appropriate application of the stock option accounting literature,” including the application of Accounting Principles Board Opinion 25 (the applicable standard prior to FASB’s adoption of Statement No. 123). The SEC’s letter primarily addresses “questions about whether a company’s determination of the measurement date of past stock option awards was appropriate.”
For a copy of the letter and a summary by FEI (Financial Executives International), whose Chairman is one of the addressees, click here; the site also contains a link to a comprehensive response by Deloitte & Touche.
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