Asa nyc 5 7-2012

For American Society of Appraisers NYC, May 7, 2012
By Michael Gregory
Michael Gregory Consulting LLC
mg@mikegreg.com

 Opened Michael Gregory Consulting LLC
September 2011
 28 years at IRS as engineer
valuator, manager, operations team
lead, controller, acting assistant
director, territory manager
 Championed IRS DLOM Job Aid, 6695A
Penalty on Appraisers, Sub S, Reasonable
Compensation, 409A, Family Limited
Partnerships
 mg@mikegreg.com 651-633-5311
 ASA, AVA, MBA, Qualified Neutral
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com May 7, 2012 2

 Business Valuation Review
 Risk Management
 Alternative Dispute Resolution - Mediation
 Will Go Over Some Examples
 Could be of Service to You and Your Clients
 mg@mikegreg.com
 651-633-5311

Consulting LLC

The opinions presented here are those of Michael
Gregory. Michael Gregory does not represent the
IRS. Any opinions presented in this seminar are
those of the author and do not represent an
official position of his current or previous
employers. This material is offered for
educational purposes only. The author and his
employer expressly disclaim any
liability, including incidental or consequential
damages, arising from the use of this material or
any errors or omissions that may be contained in
it.
Consulting LLC

 Working with the IRS
◦ Organization
◦ Raise Issues in Management
 Some Key Issue Areas
◦ Issue Resolution
◦ Discount for Lack of Marketability
◦ Potential Penalties
◦ Reasonable Compensation
◦ 409A and Valuator
◦ Common Errors
◦ Strategic Growth Areas for Appraisers
 Observations Since Joining the Private Sector

Consulting LLC

 Eleven Divisions
 Compliance – Four Divisions
 Appeals
 Counsel – IRS and DOJ Tax Litigation Division
 Your Primary Interest as Valuators
◦ Large Business and International (LB&I)
◦ Small Business and Self Employed (SBSE)
◦ Tax Exempt and Governmental Entities (TEGE)

Consulting LLC

 Good Source of Information for
◦ Businesses
◦ Starting a Business
◦ Operating a Business
◦ Closing a Business
◦ Employer ID Numbers
◦ Small Business Events
◦ Industry Professions
 “Audit Techniques Guides (ATGs)”
◦ Over 50 topics
◦ Aerospace to Wine
Consulting LLC

 Six Industries and One Support Function
 CTM, FS, HMT, NRC, RFPH, GHW,
 Field Specialists
◦ Engineering IRM 4.4.48 [4.4.48.4 (BV Guidelines)]
◦ Employment Tax
◦ Computer Audit Specialists
◦ Financial Products
 Counsel

Consulting LLC

 Internal Consultants to All Divisions
 Four Territory Managers
 32 Managers
 300 Technical Employees (approx. 180
Credentialed Valuators)
 Managers Locally in NYC (3), Hartford
(1), Newark (2)
 Valuators Locally – Real Property and BV

Consulting LLC

 George Mathew (Acting)
Territory 4 Engineering
290 Broadway-Foley Square
New York City, NY 10007
TEL: (212) 436-1170
FAX: (908) 301-2192

Consulting LLC

 Examination
◦ General
◦ Estate and Gift (E&G) IRM 4.4.425
 Classification Process
 Owner (E&G Tax Attorney and E&G Manager)
 Collection
 Counsel

Consulting LLC

 Business Valuator Issues
◦ ESOP’s
◦ Related for Profit Entities
◦ Gifts in Kind
◦ Services Provided
◦ Reasonable Compensation
 Initiatives

Consulting LLC

 Case Closes Out of Examination Unagreed
and Goes to the Internal IRS Appeals Division
 Goal to Settle Cases Due to Hazards of
Litigation
 Targets
 Independent
 Ex Parte Rules

Consulting LLC

 IRS Office of Chief Counsel
◦ Operations
◦ Technical
 All Non Litigation Work
(legislative, regulation, interpretation)
 Corporate
 International
 Technical Advice
 IRS Division Counsel
 IRS Special Trial Counsel
 DOJ Tax Litigation Division
Consulting LLC

 Who Owns the Case?
 Who Manages the Case?
 What is the Role of the Valuator?
 Who can Resolve a Case?
 Who can Settle a Case?
 If you have a Frustration on a Case Who Do
Contact?
 Let’s Discuss Some Key Issue Areas

Consulting LLC

 Issue Resolution
 Discount for Lack of Marketability
 Potential Penalties
 Reasonable Compensation
 409A and Valuator
 Common Errors
 Strategic Growth Areas for Appraisers

Consulting LLC

 SBSE
◦ Mediation Formal Process [not working]
◦ Informal Issue Resolution [ask for valuator]
 LB&I
◦ All Engineers “Trained” in Mediation
◦ Work with Business Valuator and Engineering
Manager
◦ Elevate as Needed
◦ Other Initiatives

Consulting LLC

 Appeals
◦ Hazards of Litigation
◦ Ex Parte
 Litigation
◦ US Tax Court IRS Attorneys
◦ US District Court (DOJ Tax Lit Div)
 Judge
 Jury
◦ US Court of Claims (DOJ Tax Lit Div)

Consulting LLC

 DLOM Job Aid for IRS Professionals
◦ http://www.irs.gov/pub/irs-utl/dlom.pdf
◦ Read It
◦ Use Best Practices [33
Factors, IDR, Review, Report, Critiques]
◦ Make Sure to Note Caveats – Don’t Skip
 In Addition
◦ Espen Robak – Pluris DLOM
◦ John Finnerty – Asian Options Method

Consulting LLC

 On Appraisers 6695A
◦ Follow Your Standards
◦ Explain Why
 On Tax Return
◦ Overvaluation
◦ Substantial Understatement
 Who is Client Going to Go After?
 Have Good Insurance

Consulting LLC

 Over Compensation Privately Held Companies
◦ Compensation Compared with Firm Performance
◦ Data Sources
◦ Independent Analysis
 Subchapter S Under Compensation
◦ Avoid Employment and Other Taxes
◦ Growing Initiative at IRS

Consulting LLC

 Practice Aid from AICPA Under Review
◦ Good Source
◦ How to Allocate Stock
 Preferred
 Common Voting
 Common Non Voting
◦ How to Value Stock Options
 Black Sholes
 Lattice Methods – Bi-Nomial Most Common

Consulting LLC

 Math
 Logic
 Standards
 Documentation - Why
 Written to Audience
◦ Court
◦ Client
◦ IRS
◦ Lay Person

Consulting LLC

 Issue Resolution
 Calculation Reports
 Expert Witness
 Intangibles
 International Issues
 Consultations

Consulting LLC

Consulting LLC

 Sources: BV Wire, NACVA Ambassador Quick
Read and Valuation Examiner, ASA BV
Conference in Chicago, Networking with
Valuators and Their Clients
 John Finnerty Asian Option Model Big 4
 Pluris Espen Robak Secondary Markets
 Valuation Advisors Largest Data Base and Int’l
 Ashok Abbott Liquidity Analysis from Public
Markets

Consulting LLC

 John Paglia Pepperdine Private Capital
Markets
◦ Revenue Successful Loans
◦ $1 - $5 Mil 44%
◦ $5 - $25 Mil 72%
◦ >$25 Mil 90%
 Question – Where Does Your Client Obtain
Funds and Where Is FMV Source for Funds?

Consulting LLC

 Know Who to Work With at the IRS
 Raise Issues in Management as Appropriate
 Issue Resolution – Mediation – Litigation
 IRS Job Aide on DLOM’s Worth Reading
 Appraiser Penalties 6695A – Standards
 Reasonable Compensation
 409A and Valuator
 Courts More Analytically Oriented Avoid Common
Errors
 Think Strategically About What You Want to Do

Consulting LLC

 “How to Work with the IRS: Strategies for
Attorneys, Accountants, and Appraisers”
 Three Parts
◦ How to Work with the IRS
◦ Field Specialist Engineering and Valuation Key
Issues
◦ Strategic Thinking with Do’s and Don’ts
 Analogy with International Examiners and
Economists

Consulting LLC

 Business Valuation Review
 Working with E&G on Valuation Issues
◦ CA, NC, PA, TX
 SBSE Reasonable Comp Closely Held Co
 SBSE DOJ
 SBSE Appeals
 TEGE with Related Entities
 LB&I 409A
 LB&I Transfer Pricing

Consulting LLC

 Know Who Your Working with at the IRS
 Understand the Role of Participants
 Seek to Understand Interests
 Do Not Be Afraid to Ask Questions
 Consider Options
◦ Ask for a Valuator
◦ Ask to Elevate in Management as a Neutral Party
Given Ownership of the Issue by the RA or ETA

Consulting LLC

Consulting LLC

Asa nyc 5 7-2012

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