IRS says appraiser penalties apply to estate/gift returns

The question has been hanging over the appraisal community since the Pension Protection Act of 2006 added section 6695A penalty provisions to the Internal Revenue Code: Do these same penalties apply to an appraiser who prepares an appraisal used in connection with an estate or gift tax return?  (See BVWire™ # 53-2.)   In a legal memorandum released just before the holidays, the IRS Office of Chief Counsel provides the answer:

The Service may assess a section 6695A penalty against an appraiser for appraisals prepared after May 25, 2007 that are used in connection with an estate or gift tax return or claim for refund or credit that results in a gross valuation misstatement.

Further, “there is no period of limitations applicable to the assessment of a penalty under section 6695A….The section 6695A penalty may be assessed at any time.”  To minimize the appraiser’s ability to argue that an assessment has not been made on a timely basis, however, “the Service should assess the section 6695A penalty, to the extent practicable, within three years after the filing of the return or claim for refund on which the penalty is based.”  To read memorandum AM 2007-17, click here.  Expect additional updates from the IRS presentation on “Appraiser Professional Responsibility” at the AICPA BV conference in New Orleans next week.  “Pretty big news,” comments Warren Miller (Beckmill Research), “especially to the part-time valuators lollygagging their way through BV minefields on pogo sticks.”

SEC shortens Rule 144 holding period

In an open meeting on November 15th, the Securities and Exchange Commission unanimously adopted three measures to “modernize and improve its capital-raising, reporting and disclosure requirements for smaller companies,” including significant changes to Rule 144 holding period provisions, according to a current press release. The final rules:

  • make scaled disclosure regulations available to an additional 1,500 smaller companies; 
  • shorten the holding periods under Rule 144 for restricted securities of public companies from one year to six months to reduce the cost of capital and to increase access to capital; and 
  • create two new exemptions for compensatory employee stock options so that the Exchange Act registration requirements will not be triggered solely by a company's compensation decisions.

The amended rules do not change the current one-year holding period for restricted securities of non-reporting companies, according to follow-up remarks by the Commission’s corporate finance division, and—despite approval by public commentators—they do not toll the holding period for up to six months while a security holder is engaged in hedging transactions.  Effective sixty days after publication, the new rules “will certainly provide much needed relief in terms of liquidity for those purchasing restricted securities,” says (Nov. 16, 2007), but “the opening up of the rules may also potentially increase the possibility for non-compliance.  As a result, issuers, brokers and transfer agents will need to significantly change—and tighten—their procedures.”

Door remains open to unification efforts

Our last report on unification efforts by the American Society of Appraisers (ASA), the American Society of Farm Managers and Rural Appraisers (ASFMRA), and the Appraisal Institute (AI) indicated that while the ASA and ASFMRA agreed on an interim plan, the AI rejected the proposal “as presented” at the recent (November 6th) New Orleans meeting of the respective boards.  (See BVWire #62-2.)  Appraisers were understandably confused when, two days after the meeting, the AI sent an e-update to members saying that its board had reviewed the plan and would “continue to work on unification with the teams from ASA and ASFMRA.”

Last week the AI clarified its position.  In a letter to members, President Terry Dunkin, MAI, SRA confirmed that while the AI board did not approve the plan—finding some elements acceptable but others not—it adopted a motion to continue to work on the issues.  Since departing New Orleans, Dunkin has “already reached out” to ASA and ASFMRA leaders to confirm that the AI is still committed to unification efforts.  Notably, “recent discussions between the AI and the National Association of Realtors regarding possible affiliation played no role in our deliberations or decision on unification with ASA and ASFMRA,” he says, but is an independent issue. 

Going forward, the AI Executive Committee will meet with the unification team to discuss proposals and “formulate alternatives that we think are acceptable to all three organizations.”   Comments ASA BV Committee Chair Terry Allen, “the door is left open” to unification talks.

Fishman encourages appraisers to get involved with TAF

“I think it is important to comment on the discussion…concerning the departure of a member of the Appraisal Standards Board (ASB) of The Appraisal Foundation (TAF),” writes Jay Fishman, responding to a recent BVWire item.  As a former TAF trustee and chair of the Standards and Appraiser Qualification Board (AQB) nominating committee, Fishman is “intimately aware” of the nomination and appointment processes.

Departures from the ASB are uncommon but do occur…for a myriad of reasons, but none related to a member’s appraisal designation. TAF considers discipline diversity a priority but allocates no ‘seats’ to real property or business valuation per se.  Over the years a number of individuals from BV have had leadership positions at TAF and its boards, including Mike Hill, Mary McCarter, and Carla Glass.

TAF and its boards have “considerable credibility in the appraisal community,” Fishman adds, as evidenced by Glass’ recent appointment to the FASB’s Valuation Resource Group and TAF’s continuing work with the International Valuation Standards Committee.  “I think TAF and its Boards are our best hope of bringing leadership to what you’ve called the standards ‘quagmire.’  I encourage BV appraisers to get involved and apply as Trustees or members to the ASB or AQB.”  For more information on The Appraisal Foundation and its boards, click here.


FetchXL Announces the Screen Builder for Guideline Company Searches

The new FetchXL Screen Builder allows you to search for guideline companies by SIC, NAICS, keyword, industry, revenue, assets, or any other data point available in the FetchXL database. Once you've located your guideline comps, simply enter the ticker symbols and valuation date into your guideline template—FetchXL does the rest, locating and returning with the exact data you requested. The guideline approach valuations that once took days can now be created in less than a minute.

To learn more or for a demonstration of how FetchXL is being used to automate guideline approaches, stop by their booth at the AICPA National Business Valuation Conference in New Orleans. If you can't make it to New Orleans,
contact them today at 1-877-FetchXL (1-877-338-2495).

Click here to view the FetchXL web site.

FASB rejects deferral of 157 effective date,
but final release of 141R may be delayed

At its meeting on November 14, 2007, the Financial Accounting Standards Board (FASB) reaffirmed its vote against a blanket deferral of Statement 157, Fair Value Measurements.  “For fiscal years beginning after November 15, 2007, companies will be required to implement the standard for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in financial statements,” says a recent FASB release.  “As a result, Statement 157 becomes effective as originally scheduled in accounting for the financial assets and liabilities of financial institutions.”  

The Board did provide a one-year deferral for the implementation of Statement 157 for other nonfinancial assets and liabilities, and promises to issue an exposure draft “in the near future” on this partial deferral.  In the meantime, its release of SFAS 141R, Business Combinations: Applying the Acquisition Method, the joint project of the IASB and FASB may be encountering delays.  While the Technical Plan still schedules the final release of 141R for the fourth quarter of this year, the most recent project update (as of November 19, 2007) merely indicates that “the next step is for the FASB and the IASB to issue their final business combinations and noncontrolling interest standards.  The issuance date has not been determined.”

BVLibrary bests the competition by up to 300%

Which BV research database has the broadest content and most robust functionality?  We decided to take on the claim by KeyValueData that there is “no other” comparable on-line research platform for BV professionals. According to a recent release, a search of KeyValueData sources turned up just thirty-five results for “Laro” (referring to the Hon. David Laro of the U.S. Tax Court).  But compare this to a search of BVLibrary—which called up over 120 results, from the most recent, notable cases citing decisions by Judge Laro to a book that he authored with Shannon Pratt.  Further, anyone—not just subscribers—can use the state-of-the art search engine at BVLibrary to cull the various databases, including BVLaw™—which currently boasts over 2,000 state and federal valuation cases, compared to only 1050 at…the other place.

Take the challenge yourself: The next time you need to find a valuation-specific article, presentation, court decision, or news announcement, try out the site-wide search engine at BVResources.  It’s fast, free—and it's by far the best data platform available to BV professionals, attorneys, and analysts.

Preview: Trugman evaluates BPModel for AICPA

“Valuation literature states over and over again that discount rates are determined by the market,” says Gary Trugman, in a current article for the AICPA ABV e-Alert, which evaluates the new Butler Pinkerton Model (BPM) for quantifying company-specific risk. “In fact, I have taught for years that fair market value comes from the market.”  Objective, comparable data is the “very essence of the market approach,” he says, just as it is for the BPM.  “What…Butler and Pinkerton have done for the valuation community is to create a model…to determine the TCOE [total cost of equity] of our guideline companies. We can then adjust this information to make it applicable to the subject company,” giving a market approach twist to developing the discount rate.

“You have to have good guideline companies for this to work properly,” Trugman adds. “Once you determine the TCOE of your guideline companies, you adjust the TCOE to make it applicable to the subject,” using the same type of analysis as in adjusting pricing multiples.  “However, you do not have to worry about adjusting the TCOE for the difference in size…because the size premium is calculated separately,” using Duff & Phelps data, for example. 

The authors could have explained the model a bit more clearly, he says—and in response, they have helped create an extensive, on-site help page and FAQ for the Butler Pinkerton ModelCompany-Specific Risk and TCOE Calculator™.   “I believe it is a tool that is a must-have for all of us,” Trugman concludes.  “This is perhaps one of the best contributions to our profession in a long time. I encourage you to check it out for yourself.”   Try it here.  And don’t miss Trugman’s presentation on quantifying company-specific risk at the upcoming AICPA BV Conference.  We’ll be covering his session, the latest updates from the IRS, and more.  Stay tuned…


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