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Semelhante a Mn soc of cpa's 11 15- 2012 - revised (1) (20)
Mn soc of cpa's 11 15- 2012 - revised (1)
- 1. For MN Society of CPAs November 15, 2012
By Michael Gregory
Michael Gregory Consulting LLC
mg@mikegreg.com
- 2. 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 and Lead
Initiatives on Other Areas Such As R&E Credit,
Transfer Pricing, Cost Segregation and Others
ASA, AVA, MBA and a Qualified Neutral with the
Minnesota Supreme Court
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 2
- 3. 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.
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 3
- 4. Understanding The IRS and Issue Resolution
Estate and Gift Tax Classification
Valuation Issues
◦ Family Limited Partnerships
◦ Discounts for Lack of Marketability
◦ Reasonable Compensation
◦ Common Errors Investigated at the IRS
◦ Review with an Opinion of Value at the IRS
Take Away Key Points
In Short Time Together - Key Practical Pointers
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 4
- 5. Eleven Divisions – Need to Understand Stove
Pipes and Culture Since 2000
Compliance – Four Divisions
Your Primary Interest as Accountants
◦ Large Business and International (LB&I)
◦ Small Business and Self Employed (SBSE)
◦ Tax Exempt and Governmental Entities (TEGE)
Appeals
Counsel – IRS and DOJ Tax Litigation Division
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 5
- 6. 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
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 6
- 7. Six Industries (Updated 10-1-2012)
CTM, FS, HMP, NRC, RFTH and GHW
Case Manager and Team Coordinator Control
Specialists Are Consultants and Do NOT Control
Case
◦ Engineering IRM 4.4.48 [4.4.48.4 (BV Guidelines)] in NRC
◦ Employment Tax to SBSE
◦ Computer Audit Specialists in RFTH
◦ Financial Products in FS
◦ Economists and International Examiners in “I” of “LB&I”
Counsel
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 7
- 8. Internal Consultants to All Divisions
Four Territory Managers
34 Managers
320 Technical Employees (approx. 180
Credentialed Valuators)
Manager Locally in Bloomington – Christine
Harwood
Valuators Locally – Real Property and BV
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 8
- 9. Examination
◦ General Program: Team Manager and Revenue
Agent Control
◦ Estate and Gift (E&G) IRM 4.4.425
Classification Process Joint E&G and Valuators
E&G Manager and E&G Attorney Control
Collection
Counsel
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 9
- 10. Team Manager and Revenue Agent Control
Business Valuator Issues
◦ ESOPs
◦ Related for Profit Entities
◦ Gifts in Kind
◦ Services Provided
◦ Reasonable Compensation
Initiatives
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 10
- 11. 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
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 11
- 12. 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 for Refund Cases)
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 12
- 13. Regarding Examination Divisions, Appeals
and Council
◦ Who Owns the Case in Exam?
◦ Who Manages the Day to Day Operations on the
Case in Exam?
◦ What is the Role of the Valuator?
◦ Who can Resolve a Case on Examination?
◦ Who can Settle a Case in Appeals?
If you have a Frustration on a Case on a
Valuation Issue Who Do You Contact?
Let’s Discuss Some Key Issue Areas
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 13
- 14. ◦ Family Limited Partnerships in E&G
◦ Discounts for Lack of Marketability
◦ Reasonable Compensation
◦ Common Errors Investigated at the IRS
◦ Review with an Opinion of Value at the IRS
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 14
- 15. Understand the Process
◦ Know What It Is You Are Valuing
◦ Obtain the Necessary Documents
◦ Review and Analyze Agreements
◦ Review and Analyze the Financial Data
◦ Determine the Appropriate Approach(s)
◦ Apply the Appropriate Approach(s)
◦ Determine the Appropriate Discounts and Premiums
of What You Are Valuing
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 15
- 16. Business Purpose
Contributions
Management Prerogatives Distance Limited
Partners from Assets of FLP
Distributions
Term of Partnership
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 16
- 17. Approval Rights of Limited Partners Required
for Major Decisions or Limited Partners
Excluded from all Decisions
Right of First Refusal
Transferability of Rights Approved by All
Limitations on Withdrawal
Dissolution Provisions
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 17
- 18. Asset Based Approach
Income Approach
◦ Discount Rate
◦ Cash Flows
Market Approach – Generally Similar to Asset
Based Approach in This Instance
Valuation Adjustments
◦ Marketable Securities
Closed End Funds from Barron’s, Wall Street Journal,
Morningstar, Closedendfunds.com
Choose Appropriate Funds (Bonds, Domestic, etc.)
◦ Real Estate
NAV REITS and Closed End Funds
Match Funds with Land, Commercial Type, etc.
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 18
- 19. Generally Not Adjusted
Could Be Based on Fact Pattern
◦ Example Restriction on Sale to Charity
◦ Example Income Only
For Example Reports Go To Partnership
Profiles: Real Estate, Marketable Securities,
Mixed Assets, Non-income Producing Real
Estate
Will Discuss DLOM Separately
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 19
- 20. 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, Report Language]
◦ 18 Approaches Critiqued with
Background, Summary, Strengths, Weaknesses, Importan
t Parameters, Prevalence in the Profession, Court
Comments
◦ Make Sure to Note Caveats – Don’t Skip
In Addition
◦ Espen Robak – Pluris DLOM
◦ John Finnerty – Asian Options Method
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 20
- 21. Over Compensation Privately Held Companies
◦ Compensation Compared with Firm Performance
(RMA, Bizminer, Integra, Fintel, Dun and Bradstreet)
◦ Types of Compensation - & Areas
◦ Data Sources (Watson
Wyatt, ERI, RMA, BVR, RIA, Troy, Dunn and
Bradstreet, Trade Associations and Others)
◦ Independent Analysis
◦ Exempt Organizations (GuideStar and ERI)
Subchapter S Under Compensation
◦ Avoid Employment and Other Taxes
◦ Growing Initiative at IRS
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 21
- 22. Math
Logic
Standards SSVS – Know and Follow
Documentation – Explain Why
Written to Audience
◦ Client
◦ Lay Person
◦ IRS Exam
◦ New Report For Litigation Tailored to Audience
◦ US Tax Court – IRS Attorneys (90% of Fed Tax Cases)
◦ Refund Cases – US District Court and US Court of Claims
– Note Judge, Jury, Depositions and DOJ Attorneys
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 22
- 23. Start with the Report and Valuer
Certified Valuator Credential and Meet
Standards of Society
Engagement Letter and Limiting Conditions
Overview of Report
Clear and Concise with Logical,
Mathematically Correct Tables and
Appendices
Discounts, Discount Rates, Adjustments to
Income Statement and Balance Sheet
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 23
- 24. Broad Error Categories
◦ Definition of Value - Standards
◦ Communication – Written for Audience Clear and
Concise
◦ General – Val Date, Logical, Control or Minority
Valuation, Comprehensive, Reasonableness of Variables,
and Reconciliation
◦ Income Approach – Adjustments, Discount Rate, Cash
Flow
◦ Market Approach – Guideline Co’s vs. Transactional Data
Bases, Adjustments to the Subject Company
◦ Asset Based Approach – Expertise
◦ Reconciliation of Approaches and Method
◦ Discounts and Premiums
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 24
- 25. Write a Report for the Court and Judge
Read Court Cases by Judge on Topic
What Did Judge Halpern Have to Say?
◦ Report is Testimony Have to Work with What I Have
◦ Should NOT Have Used WACC in This Instance
Not Going Public and Do Not Meet Assumptions for
WACC
Use Equity Approach
◦ Do Not Use CAPM or Modified CAPM for the
Discount Rate
Same Concerns As Above
Use Build Up Method
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 25
- 26. ◦ Gross Still Governs – “We Will NOT Impose an
Unjustified Fictitious Corporate Tax Rate” – IRS is 6
for 6 in Court
◦ Don’t Assume Judge Understands Valuation
Concepts
◦ Understand Discovery Rules and Process and Work
with Attorney
◦ Have a Third Party Review Your Report
◦ Provide Court with Evidence: If It Is Not In Evidence
It Does Not Exist - Valuation Text Book for Example
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 26
- 27. © 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 27
- 28. 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
Reasonable Compensation
409A
Courts More Analytically Oriented
◦ Avoid Common Errors
◦ Use Facts of Case and Data to Drive Decisions
Appraiser Penalties 6695A – Standards
Think Strategically About What You Want to Do
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 28
- 29. Know Who Your Working with at the IRS
Understand the Role of Participants
Seek to Understand Interests –Listen and
Answer What Was Asked
Do Not Be Afraid to Ask Questions
Consider Options
◦ Ask for a Specialist
◦ Ask to Elevate in Management as a Neutral Party
Given Ownership of the Issue by the RA or ETA
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 29
- 30. © 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 30
- 31. IRS Official and Unofficial Rules of Engagement
IRS Organization
My History and Best Practices
Issue Resolution and Mediation at the IRS
Classification in General and Estate and Gift in Particular
Potential Penalties on Appraisers
Reasonable Compensation in Corporations
Discounts for Lack of Marketability
Most Common Errors in Valuations
Strategic Growth Areas of Business Valuation Appraisers
Other Engineering Issues and Valuation Related Issues
Strategic Thinking
Overall Commentary and “Do’s and Don’ts”
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 31
- 32. Michael Gregory Consulting, LLC
mg@mikegreg.com
www.mikegreg.com
651-633-5311
1945 Sharondale Ave.
Roseville, MN 55113
Contact me with any questions or concerns
I Will Stick Around Outside for Questions and to
Autograph Book if You Are Interested
© 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 32
- 33. © 2012 Michael Gregory
Consulting LLC
www.mikegreg.com November 15, 2012 33