BVWire Issue #172-3 | January 25, 2017

IVSC releases final global valuation standards

The International Valuation Standards Council (IVSC) has released the final version of its 2017 Standards (IVS 2017) that incorporates comments from over 100 stakeholders, including valuation profession organizations (VPOs), individual professionals, and academics. The organization will push for worldwide adoption. IVSC chairman Sir David Tweedie has said, bluntly, that “valuation is not a profession. If valuers wish to become a profession, and continue with self-regulation, then VPOs must adopt IVS and enforce compliance—no exceptions.” IVS 2017 adoption becomes mandatory this July, according to the IVSC website.

New board structure: The IVSC has also created a new Standards Review Board that will amend and approve the international valuation standards going forward. The new board will have two focused subject matter expertise boards reporting to it: a Tangible Assets Standards Board (covering real estate, plant and machinery, and personal property) and a Business Valuation Standards Board. Now that IVS 2017 has been finalized, the new boards are now operational, and it is expected that the first meetings will take place this March.

In its efforts to promote worldwide adoption, the IVSC and the World Association of Valuation Organisations (WAVO) strengthened their ties by signing a memorandum of cooperation (MOC) in 2016 to jointly promote the importance of adopting the standards. Also, The Appraisal Foundation released a document “A Bridge From USPAP to IVS” that connects the two sets of standards to help make appraisals compliant with both sets of standards. This was a significant step toward establishing a set of globally accepted ethical and professional standards for valuation.

The final published version of IVS 2017 has been made available to members and sponsors. Others can access it through IVSonline (subscription required). You can access a redlined version of the draft standards if you click here (no subscription required).

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Taxpayers can rebut IRS expert valuation, appeals court says

One of the most notorious tax cases in 2014 involved hardworking family business owners who had relied on the dubious estate tax advice of lawyers and faced serious gift tax exposure as a consequence. But a recent appeals court ruling throws the taxpayers a lifeline. The crux of the matter now is whether the expert valuation on which the Internal Revenue Service built its case can hold up under close scrutiny from the Tax Court.

Tech transfer: The parents owned Knight Tool Co. (Knight), a business that developed an automated liquid-dispensing machine—CAM/ALOT. In 1987, their sons formed a separate company, Camelot, to refine and market the technology. In 1994, the taxpayers hired experienced accountants and lawyers to determine which entity owned the value of the CAM/ALOT technology and come up with a strategy of how to pass the value on to the sons in a way that minimized estate tax liability. The lawyers fashioned a merger based on the premise that no gift tax was due because, in 1995, on the merger date, Camelot already owned the CAM/ALOT technology. According to the lawyers’ narrative, the technology was transferred to Camelot years earlier. This version of events had no support in the record.

In its deficiency notices, the IRS claimed on the merger date Camelot had zero value and the merger resulted in a gift of $23 million from each parent to the sons. The taxpayers petitioned the Tax Court for review. By the time of trial, the IRS had obtained an expert valuation and reduced the taxpayers’ liability to $29.6 million. The taxpayers claimed the IRS’s expert valuation was unsound because the expert proceeded from the wrong assumption (that Knight owned the technology) and his income-based analysis had serious methodological flaws. The taxpayers offered two expert appraisals, both of which assumed that Camelot owned the technology at the time of merger.

The Tax Court found Knight, not Camelot, owned the technology. Since the taxpayers had the burden of showing the proper amount of their tax liability and their valuations were based on the wrong assumption, they had no evidence to do so. Accordingly, the Tax Court, without more evidence, adopted the IRS’s deficiency finding, while allowing the IRS’s finding was based on “an arguably flawed [valuation] analysis.”

Remanded: The Court of Appeals (1st Circuit) found the Tax Court misstated the law on the taxpayers’ burden and was wrong not to explore the taxpayers’ numerous criticisms of the IRS’s expert valuation in detail. It remanded for another hearing on the valuation issue. Stay tuned.

The case is Cavallaro v. Commissioner, 2016 U.S. App. LEXIS 20713 (Nov. 18, 2016) (Cavallero II). A digest and the court’s opinion will be available at BVLaw.

A digest of the earlier decision, Cavallaro v. Commissioner, 2014 Tax Ct. Memo LEXIS 189 (Sept. 17, 2014), and the Tax Court’s opinion are already available at BVLaw.

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The inauguration is over, so what’s next for tax reform and 2704?

The law firm Baker Donelson provides a good summary of the impact of the Trump Administration’s significant tax reform proposals. Here’s what it says about the estate tax: “The Trump plan and the House Republicans' plan each propose an elimination of the federal estate tax. Under the Trump plan, however, estates would instead be subject to a capital gains tax on any unrealized appreciation in excess of $10 million. It should be noted that this is not the first attempt at eliminating the estate tax. Even with the Republican-controlled White House and Legislature, there still exists a strong possibility that the estate tax will continue. Neither plan is clear on whether the existing step-up in tax basis in estate assets would remain or how it might otherwise be affected. Likewise, the future of the federal gift tax is uncertain.”

2704 update: Of course, what happens to the estate tax will impact what happens to the controversial proposed Section 2704 estate tax rules seeking to curb valuation discounts. Some observers believe they will get pulled now that Trump is in office, but it is unclear whether they will vanish forever. In the new 115th U.S. Congress, bills were introduced in the House and the Senate to prevent the Treasury and the IRS from finalizing the proposed regs. The House bill (H.R. 308), introduced by Rep. Warren Davidson (R-Ohio) and referred to the House Committee on Ways and Means, prohibits funds from being used to finalize, implement, administer, or enforce the regs. The related Senate bill (S. 47) was introduced by Sen. Marco Rubio (R-Fla.) and has been referred to the Senate Finance Committee.

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Most family firms need a good succession plan

Less than a quarter (23%) of family businesses have a robust succession plan in place, according to a new report from PricewaterhouseCoopers. What’s more, less than half (46%) of the family businesses polled said they are reluctant to pass the business on to the next generation.

Succession and exit planning were in the top five fastest growing areas of valuation practice over the past year, according to BVR polls. To succeed in this area, appraisers will also need good coaching skills and probably some knowledge of psychology, given how dysfunctional some families can be.

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Sample chart of accounts for a legal marijuana business

During a recent free webinar, Jim Marty (Bridge West CPAs and Consultants) offered attendees a sample chart of accounts for a legal cannabis firm, and he is generously offering it to anyone who is interested. Marty’s firm was the first accounting firm in the world to focus solely on the cannabis industry and now has over 150 clients in this sector. His practice is based in Colorado, which allows medical marijuana and was one of the first states to legalize adult recreational marijuana. Marty and Ed Keating (Cannabiz Media) conducted the webinar Marijuana: Value Drivers and Valuation Issues to Know in 2017, and you can watch a replay of it free of charge.

Extra: Marty offers his marijuana business valuation expertise as a contributor to the BVR special report, What It’s Worth: Value and Business Challenges in the Budding Cannabis Industry. Keating’s company Cannabiz Media co-published the Marijuana Licensing Reference Guide with BVR. This guide provides the most comprehensive look at state-by-state marijuana licensing along with in-depth analysis of 10 critical factors that affect businesses in the cannabis industry.

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Want to learn about forensic accounting and the Bank Secrecy Act?

Then head to sunny Florida for the Forensic Accounting and the Bank Secrecy Act Conference in Deerfield Beach on February 9-10. Sponsored by the U.S. Department of the Treasury, Office of Inspector General, and Florida Atlantic University, Center for Forensic Accounting, this conference will focus on the Bank Secrecy Act as related to forensic accounting and the importance of the forensic financial and law enforcement communities working together to combat fraud and conduct anti-money laundering activities. Speakers will include members from components of the U.S. Department of the Treasury and private-sector forensic accountants. The conference culminates in case studies of high-profile cases. For the agenda and registration form, please click here.

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Updated Business Reference Guide available

Now in its 27th year, the Business Reference Guide has been updated for 2017. It contains the latest industry-related information including “rules of thumb,” pricing tips, benchmarking information with comparison data, industry resources, and general industry data on over 700 types of businesses. There’s also an online version with a fully searchable database, and it includes the print version of the guide.

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Global BV News
An insider’s view of IVS 2017

Two more videos are now available in which Michael Badham, executive director of the International Institute of Business Valuators (iiBV), interviews Adam Smith, technical director of business valuation standards at the International Valuation Standards Council (IVSC). Smith talks about his role in the IVS process and what it means for the valuation profession. IVS 2017 has recently been finalized, and worldwide adoption is being urged.

Three little words: One of the changes in IVS 2017 is in response to commenters who wanted a clarification of the words “must,” “should,” and “may,” which are used often within the standards, Smith says. “Must” is used to mean that a particular action or task is required in order to say you are in compliance with the standards. “Should” is a presumptive requirement, Smith says. That is, you must do something unless you meet a relatively high bar to show you have achieved the objective of the standard without taking that particular action. “May” is defined as something that must be considered but you don’t have to do it in order to be compliant, and you don’t have to justify not doing it (as you do with something that “should” be done).

Similar words such as “shall” and “might” were used in the draft standards, but they were dropped to avoid confusion. Smith also points out that the IVSC will now take a more flexible approach with regard to updating IVS. Instead of doing a substantial rewrite every few years, the standards will undergo changes in a more targeted and ongoing way.

You can view the videos on the iiBV website.

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The Appraisal Foundation’s officers and boards for 2017

The Appraisal Foundation has announced 2017 officer elections and appointments to its boards: the Board of Trustees, the Appraiser Qualifications Board (AQB), and Appraisal Standards Board (ASB). The organization’s board members practice in various areas of appraisal, including real property, personal property, business valuation, and mass appraisal.  

Elected as officers of The Appraisal Foundation Board of Trustees: Chair Tom Boyer (Coalville, Utah); Vice Chair Adam Johnston (Raleigh, N.C.); Secretary Leila Dunbar (Washington, D.C.); Treasurer Ronny W. Johnson (New Braunfels, Texas); and Immediate Past Chair David Layne (New York Mills, N.Y.).

The following individuals have been appointed or reappointed to the Board of Trustees via sponsoring organizations or advisory councils: Thomas E. Allen (Tulsa, Okla.); Jeff Dickstein (Lake Forest, Calif.); Richard Edmunds (Delevan, N.Y.); Phyllis Lilly (Prince George, Va.); and Susan Martins-Phipps (Warwick, R.I.).

The following individuals were appointed or reappointed to the Appraiser Qualifications Board: Chair Joseph C. Traynor (Indianapolis); Vice Chair Mark Lewis (Lufkin, Texas); Adam A. Alessi (Buffalo, N.Y.); and Katherine Kelton (Long Beach, Calif.).

The following individuals were appointed or reappointed to the Appraisal Standards Board: Chair Maggie Hambleton (Columbus, Ohio); Vice Chair R. Lee Robinette (Charlotte, N.C.); Wayne R. Miller (Tampa, Fla.); and Shawn Telford (Oxford, Mich.).

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BV movers . . .

People: David Eckstein and Tom Berg Jr. have joined Deloitte Advisory’s San Francisco office as managing directors focusing on estate and gift tax valuations … Valuation Research Corp. has hired Matthew McCloskey as a financial analyst in its Princeton office … John Ramirez has rejoined Willamette Management Associates as a vice president in the Portland, Ore., office … Jill Weise has been promoted to practice leader of Duff & Phelps’ Transfer Pricing Group. Weise is resident in Duff & Phelps’ Boston office.

Firms: AKT CPAs, headquartered in Salem, Ore., has changed its name to The Aldrich GroupBoles Metzger Brosius & Emrick of Susquehanna Township, Pa., has acquired Harrisburg, Pa., firm Walborn Naugle Associates and changed its name to Boles Metzger Brosius & Walborn. Acquired staff is moving to Susquehanna Township … Haefele Flanagan of Maple Shade, N.J., has added Ratner and Associates, a CPA firm in Bala Cynwyd, Pa. … McCahan, Helfrick, Thiercof & Butera of San Jose, Calif., has launched a new website at to accompany a new name, MHTB Accountancy GroupRRBB Accountants and Advisors is adding Olsson & Co. Both firms are based in Somerset, N.J. … Sikich LLP has opened a new office in White Pond Office Park in Akron, Ohio … Smith Elliott Kearns & Co. has added the professionals of Klingler & Associates to its Carlisle, Pa., and Camp Hill, Pa., offices.

Please send your professional and firm news to us at

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CPE events

The Double Dipping Debate (January 25), with Donald DeGrazia (Gold Gerstein Group), Robert Levis (Levis Consulting), and Kim Willoughby (Willoughby & Associates).

Valuation of Investment Advisory Firms (January 26), with Warren Burkholder. Part 1 of BVR's Special Series on Banking and Financial Services.

BVLaw Case Update: A One-Hour Briefing (February 7), with R. James Alerding (Alerding Consulting LLC) and Sylvia Golden (Business Valuation Resources).

How Repurchase Obligations Impact Valuation (February 9), with Chuck Coyne (Empire Valuation Consultants), Tabitha Croscut (Steiker, Greenapple & Croscut), and Joseph Marx (Principal).

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
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In this issue:

Final IVS 2017

Rebuttal of IRS

Tax reform

Succession plans

Cannabiz COA

Bank Secrecy Act

2017 BRG

Global BV news

TAF boards

BV movers . . .

CPE events


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