Comments wanted on proposed IRS regs regarding appraiser disqualification

The IRS is proposing changes to its Circular 230 that will strengthen its ability to disqualify appraisers who do tax-related valuations. The changes are in proposed regulations that were published Dec. 26, 2024, in the Federal Register that update the rules for certain tax professionals (click here to access—see Paragraph L for the appraiser provisions).

USPAP/IVS: Under the proposed regulations, “all appraisals submitted in an administrative proceeding should 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.”

Appraisers who fail to meet these standards through willful, reckless, or grossly incompetent conduct could face disqualification under the new rules. The proposed regulations also provide that an appraiser may show adherence to USPAP standards when issuing an appraisal, which will be considered as a defense in determining whether an appraiser has engaged in misconduct.

Also, the proposed regulations would classify certain contingent fee arrangements by practitioners as disreputable conduct subject to sanctions.

Another change says that the IRS can determine appraiser misconduct even though the agency has not assessed a penalty—or when no penalty is even applicable. (See Jim Alerding’s BVWire News blog for some details on the proposed regs.)

The valuation professional organizations (VPOs)—the AICPA, ASA, and NACVA—are reviewing the proposed regs and will likely submit comments. BVR’s recently formed Leadership Council will be issuing some talking points for valuation practitioners to consider when submitting comments.

Submit your comments: February 24 is the deadline for comments (electronic or written), and that is also the deadline for requests to speak at a public hearing, which will be March 6. Details on submitting comments and requests to speak are in the Federal Register document, which is available if you click here.

Most BV firms see higher revenue in 2024—and even more so in 2025

Increased volume and fee increases have driven revenue at most business valuation firms higher in 2024 than 2023 levels, according to December’s “Two-Minute Practice Builder” survey. The same drivers are expected to boost 2025 revenue to even higher levels.

Well over half (62%) expect 2024 revenue to be higher than 2023, mostly due to increased volume, cited by 70% of those respondents. Fee increases also contributed to the increase, with 40% citing that reason. About a quarter (23%) of respondents expected lower revenue in 2024, and 15% expected revenue to be about the same as 2023.

Looking forward to 2025, the same percentage (62%) of respondents expect higher revenue than 2024, again from increased volume and fee increases, although a higher percentage (63%) cite fee increases as driving revenue up. About a third (38%) say they will add a new service line to their practice, and others will add headcount or make an acquisition to boost revenue. The same percentage of respondents who expected flat or lower revenue in 2024 have the same outlook for 2025 (15% expect no growth in 2025 and 23% expect revenue to be lower). One commenter noted that his practice is driven by estate and gift work, “which is expected to decline with the potential extension of the TCJA.”

This was our final practice-related survey for 2024, and we thank everyone for participating. This year, we’ll focus surveys on some valuation-related matters, so stay tuned.

Skyrocketed but forgotten crypto figures in divorce case

In an Indiana divorce case, the couple operated a cryptocurrency business, and, after they split up, they entered into a mediated property settlement that awarded “all assets” of the business to the husband. The trial court incorporated the property settlement into the divorce decree, which was granted in 2016.

Overlooked: In 2017, the ex-husband informed the ex-wife that he discovered some cryptocurrency in the company’s accounts that both had forgotten about. At the time of their mediation, the crypto was worth $18,000. The couple spent several years negotiating about it, and, in the meantime, the crypto shot up in value to about $450,000.

The ex-wife filed a motion and asked the court to divide the forgotten crypto, arguing that the oversight made their property settlement agreement ambiguous regarding who owned the crypto. The court concluded the agreement was ambiguous and awarded the ex-wife half the crypto based on the post-dissolution appreciated value. The ex-wife appealed, and the appellate court reversed the trial court’s decision, holding that the property settlement agreement was not ambiguous and awarded the crypto to the ex-husband. The case then went to the Indiana Supreme Court.

All means all: The property settlement agreement said “all assets” go to the ex-husband, which is not ambiguous, the state Supreme Court ruled, so the crypto was awarded to him. A dissenting opinion disagreed that “all” meant “all” and felt the agreement was ambiguous but noted that the trial court had correctly valued the crypto at its appreciated value and not its value at the time of the marital dissolution.

The case is Wohlt v. Wohlt, 2024 Ind. LEXIS 701, Indiana Supreme Court Case No. 24S-DR-385, and a case analysis and full court opinion are available on the BVLaw platform.

New AI for BV newsletter debuts today

Artificial intelligence is showing great potential for business valuation practitioners and their firms. But many are struggling to figure out where AI fits in with their teams and workflow. Fortunately, there is a new resource especially for valuation experts: AI for BV, a newsletter designed to explain how AI can be used to improve your practice, including marketing, selling, and the valuation process itself. Written by Rod Burkert (Burkert Valuation Advisors), a veteran valuation expert who now devotes his time to helping BV firms build their practices, AI for BV will be delivered to you twice a month on Wednesday mornings. Plus, you’ll have access to in-depth video tutorials, a library of featured prompts, curated resources and tools, IRL events at BV conferences, and more. To start a free 30-day free trial, click here. The first issue went out today, January 8. After 30 days, the free trial will be converted to a paid subscription: $18 a month or $180 a year (two months free). You can cancel anytime, so why not check it out?

BVR Pro now includes on-demand training library

Subscribers to the BVResearch Pro platform now have unlimited access to BVR’s entire on-demand training library, a powerful resource of hundreds of BVR’s on-demand webinars, workshops, and exclusive webinar series led by the top minds in business valuation. If you are a subscriber, just log into your “My BVR” and click on “On-Demand Training” underneath your BVResearch Pro (please note that CPE is not available with on-demand training).

Next week: BVR’s Cost of Capital Virtual Conference

Mark down January 16 on your calendar for BVR’s live virtual conference devoted to the cost of capital. There will be six sessions starting at 8:00 a.m. PST/11:00 a.m. EST. You’ll hear all the latest news, research, theories, and applications on cost of capital during these sessions:

• Current Environment and State of Cost of Capital (William Harris);

• New Research on Decile 10 Firms (Dr. Michael Crain);

• Methods and Models to Support Unsystematic Risk Estimates in Cost of Capital (Ron Seigneur);

• Understanding IPCPL Theory (Malcolm McLelland);

• Advisory on Company-Specific Risk Premium (Danielle Goedert); and

• BVR’s Cost of Capital Professional Platform (Dr. Michael Crain and Adam Manson).

For more information and to register, click here. Note: If you are a BVR Passport Pro subscriber, you are automatically registered for this very special event.

ASA’s ARM discipline tops 100 members

The Appraisal Review and Management (ARM) Discipline of the American Society of Appraisers (ASA) has proudly surpassed 100 members, marking a historic achievement for the discipline. For a release on this achievement, click here.

Since its establishment in the early 1990s, ARM has played a critical role in setting high standards for appraisal review and management practices.

The ARM Discipline was introduced during Frederick L. Iusi’s presidency in 1990-91 and formalized as a discipline in 1992. Over the years, it has grown steadily, becoming a key pillar of ASA. Notable advancements include the development of specialized education and the continuous support of its members through programs designed to elevate their skills.

IFRS 17 creates new analysis for insurance companies

The implementation of IFRS 17 has introduced a new way to analyze the earnings of insurance companies, known as the “source of earnings” analysis, according to the folks at The Footnotes Analyst. This approach disaggregates operating profit into two distinct components: the insurance service result and the insurance net financial result.

The insurance service result reflects the profit generated from providing insurance services and is primarily derived from the release of unearned profit over time, which includes the contractual service margin (CSM) and a risk adjustment for nonfinancial risks. On the other hand, the insurance net financial result captures the spread between investment income earned on assets backing insurance liabilities and the associated finance expenses. This includes returns on surplus investments that provide a capital buffer.

The IFRS 17 discount rate plays a central role in this analysis, influencing the timing and classification of profit recognition. A higher discount rate increases the service result by reducing the present value of future claims and expenses, while simultaneously lowering the net financial result due to higher interest accretion on liabilities. This nuanced breakdown of earnings provides a clearer understanding of the drivers of profitability, enabling investors to evaluate the operational efficiency and risk characteristics of insurance companies better.

To read the full article, click here.

BV movers . . .

People: Andy Clausen, ASA, has joined Tampa, Fla.-based LCG Advisors as managing director of the firm’s Business Valuation Division where he will lead the division’s growth, enhance service offerings, and strengthen the firm’s capabilities in providing expert valuation services for a variety of industries; he is based in LCG’s Western Regional Headquarters in Denver … Bethany Hearn, CPA, ABV, CFF, has joined MH CPA LLC as a partner who will lead the firm’s new Transaction Services line; she has over 30 years of experience in assurance, tax, business valuation, litigation support, and transaction services … Zaher Basha has been promoted to principal at Saginaw, Mich.-based Yeo & Yeo CPAs & Advisors; his experience includes tax planning and preparation, business advisory services, business valuation, and mergers and acquisitions across a range of industries, especially healthcare, and midsize businesses.

Firms: Portland, Maine-based BerryDunn has expanded into the veterinary practice market and adds to its existing construction practice by adding East Haven, Conn.-based accounting, tax, and advisory firm Burzenski & Co. … Columbus, Ohio-based GBQ Partners LLC has acquired Lillie & Co. and Lillie Resource Group, a strategic deal that complements GBQ’s existing credit union and financial services practice and expands the firm’s capabilities to empower growth … Seattle-based Moss Adams has acquired Yurgosky Consulting Limited LLC, a technology, strategy, and analytics company; the deal expands Moss Adams’ technology offerings and services, entering the Salesforce consultancy marketplace … Two more firms have joined the Salt Lake City-based Platform Accounting Group: Midwest Advisors (formerly known as Philip+Rae & Associates), headquartered in Naperville, Ill., and Crossroads Advisors (formerly Peachin Schwartz + Weingardt), based in Indianapolis; in 2024, 12 firms joined Platform and founder, and CEO Reyes Florez was named to Accounting Today’s list of “2024 Top 100 Most Influential People in Accounting” … Minneapolis-based DSB Rock Island has acquired CPA firm Meuwissen Flygare Kadrlik and Associates PA (MFK); the combined firm has 110 employees and 16 partners.

CPE events

Reasonable Compensation, A Specialist’s Approach, January 14, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Edward R. Rataj (CBIZ Human Capital Services). CPE credits: 2.0.

Evaluating reasonable compensation goes beyond simple data entry into a software program. Join us for this insightful program that will delve into the methodologies specialists use to assess compensation, highlighting unique scenarios and providing multiple examples of common pitfalls and flawed approaches.

Cost of Capital Virtual Conference, January 16, 8:00 a.m.-1:30 p.m. PST/11:00 a.m.-4:50 p.m. EST. Up to 6 CPE credits available.

This is a half-day virtual conference that will present the latest news, research, theories, and applications on cost of capital. Featuring sessions led by industry experts William Harris, Dr. Michael Crain, Ron Seigneur, Malcolm McLelland, and Danielle Goedert, the conference covers topics from the current state of cost of capital (post-U.S. elections) to new research and the resurgence of IPCPL theory.