Asa nyc 5 7-2012

Effective Strategies for Avoiding and Resolving or Settling IRS Audits Out of

CourtFor American Society of Appraisers NYC, May 7, 2012

By Michael GregoryMichael Gregory Consulting LLC

[email protected]

mailto:[email protected]

© 2012 Michael Gregory Consulting LLC www.mikegreg.com

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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

[email protected] 651-633-5311 ASA, AVA, MBA, Qualified Neutral

May 7, 2012

Michael Gregory



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Business Valuation Review Risk Management Alternative Dispute Resolution - Mediation Will Go Over Some Examples Could be of Service to You and Your Clients [email protected] 651-633-5311

May 7, 2012

Michael Gregory Consulting LLC



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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.

May 7, 2012

Disclaimer


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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

May 7, 2012

Introduction


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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)

May 7, 2012

Understanding the IRS


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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

May 7, 2012

Look at www.irs.gov


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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

May 7, 2012

Large Business and International Division


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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

May 7, 2012

Engineering Program


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George Mathew (Acting)Territory 4 Engineering290 Broadway-Foley SquareNew York City, NY 10007TEL: (212) 436-1170FAX: (908) 301-2192

May 7, 2012

Engineering Territory Manager


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Examination◦ General ◦ Estate and Gift (E&G) IRM 4.4.425

Classification Process Owner (E&G Tax Attorney and E&G Manager)

Collection Counsel

May 7, 2012

Small Business and Self EmployedDivision


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

Initiatives

May 7, 2012

Tax Exempt and Governmental Entities Division


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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

May 7, 2012

Appeals Division


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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

May 7, 2012

IRS Counsel


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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

May 7, 2012

Quick Review


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

May 7, 2012

Some Key Issue Areas


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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

May 7, 2012

Issue Resolution


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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)

May 7, 2012

Issue Resolution


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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

May 7, 2012

Discount for Lack of Marketability

http://www.irs.gov/pub/irs-utl/dlom.pdf


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On Appraisers 6695A◦ Follow Your Standards◦ Explain Why

On Tax Return◦ Overvaluation◦ Substantial Understatement

Who is Client Going to Go After? Have Good Insurance

May 7, 2012

Potential Penalties


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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

May 7, 2012

Reasonable Compensation


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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

May 7, 2012

409A and Valuator


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Math Logic Standards Documentation - Why Written to Audience

◦ Court◦ Client◦ IRS◦ Lay Person

May 7, 2012

Common Errors


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Issue Resolution Calculation Reports Expert Witness Intangibles International Issues Consultations

May 7, 2012

Strategic Growth for Appraisers


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Life In New Venture


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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

May 7, 2012

Observations Since Joining the Public Sector


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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?

May 7, 2012

Observations Since Joining the Public Sector Continued


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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

May 7, 2012

Observations


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“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

May 7, 2012

New Book


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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

May 7, 2012

Some Examples As Time Allows


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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

May 7, 2012

Important Take Away Information


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Questions

Asa nyc 5 7-2012

Business

Transcript of Asa nyc 5 7-2012