It was my pleasure to be interviewed by Melissa Gragg, the Managing Partner at Bridge Valuation Partners, LLC, via her pod cast on this topic. For those not interested in listening to a nearly 90 minute podcast with lots of details, here is a much shorter seven minute version sound bites on LinkedIn. However, for those looking for a quick read on some of the key points this may help. We discussed over a dozen questions and additional follow up questions, but here are some of the key points.
1. What is The Collaboration Effect® and how does it relate to how to avoid and what to do if audited by the IRS for Estate Planning Councils?
The Collaboration Effect® is all about connecting relationships, listening actively, and educating judiciously in order to build bridges to negotiate closure. On IRS audits of Estate and Gift (E&G) tax returns that have valuations of closely held businesses this is particularly important. Often experts are involved that are passionate about their conclusions. The key is to research all of the IRS participants and their managers ahead of time with social media and your network in order to work on building a relationship. When you do meet with IRS representatives, really listen actively with open ended questions. Try summarizing even better than how the IRS presented their analysis. Really listen to understand and not to judge. When it is your time to address your concerns do this with the intention of helping the IRS to understand. Don’t condemn. Rather provide your information and back up information to the IRS. They may not have the same tools as you. Provide yours.
2. What does your book entitled, Business Valuations and the IRS: Five Books in One cover?
This is the most comprehensive and up to date topic on this area. Check it out on Amazon.com. It is 852 pages with 38 examples and over 180 practical pointers.
3. The most common adjustment on an estate or gift tax valuation case is the Discount for Lack of Marketability. Do you have a story you want to share?
That is to long for this blog, but in essence, using The Collaboration Effect® it was possible to really work with the IRS to resolve a very complex issue that was very material. Based on a series of actual successful cases a commentary is presented on how The Collaboration Effect® worked. As a result of this case example based on real world cases, it has been my pleasure to make presentations twice to the Harvard Club in Boston on this topic.
4. You have worked with estates of up to $1 billion and 100 appraisals, what advice do you have regarding how to avoid an audit by the IRS?
A critique should take place of any appraisal going before the IRS as to how the IRS may view the appraisal. This is not a formal review as in the case of an Accredited Review Appraiser. Rather this is a review that would take into account how classification at the IRS would review the appraisal with the intention of avoiding an audit. A qualified appraisal by a qualified appraiser meeting professional standards with due diligence is required. In addition, include a one-page summary of key components of the appraisal inside the front cover of the report to aid classifiers in making decisions. For the case associated with your question I reviewed eight appraisals from eight different appraiser to assist them with the case. In the end the IRS never audited the estate.
5. How does classification work at the IRS – can you share a simplified example related to an estate or gift tax return? Other returns?
National classification takes place in Kansas City. National classification is a process that is continually changing based on the number of returns being submitted and the nature of demand by E&G tax groups. This involves attorneys and valuers periodically making use of the IRS data warehouse with dozens of databases, and the appraisals attached to the returns. After national classification, returns are shipped to local E&G tax groups. Here local classifying E&G tax attorneys often with IRS appraisers review the national classification criteria and also consider the appraiser, CPA, tax attorney and other local information on deciding which cases to potentially audit.
6. What’s the role of the IRS agent and a specialist on an audit?
The IRS appraiser or valuer is a specialist at the IRS. IRS specialists are consultants on the case. The case is controlled by the E&G Tax Group. They control the statute on the case. They have ultimate decision making on the case. Typically, the agent is the decision maker. However, on potentially unagreed cases, the real ultimate decision maker is the Manager of the E&G Tax Group. This means that if an agreement cannot be made at the agent level with the IRS appraiser or valuer, then a second level set of meetings with the E&G agent and the agent’s manger may be in order. If this still does not result in an agreement, consider contacting the agent’s manager before the case closes. Sometimes this manager would rather have a closed case to enhance closures and reduce the need for the extra work associated with a closed case.
7. Do you have any summary comments regarding this presentation and your pocket guide?
If you send me an email, I will be happy to send you and electronic copy of The Collaboration Effect ® pocket guide. This guide introduces you to an overview of The Collaboration Effect with three key elements to consider regarding connecting relationships, listening actively and educating judiciously, respectively. Six helpful questions are presented for collaboration on both connecting relationships and listening actively to help you to ask the right questions to promote engagement and listening, the ten steps to Interest-Based Solutions is provided to help you sort out how to approach different situations. Some technical term definitions are provided. Finally, key points regarding people versus problems, positions versus interests, and two additional resources are provided to assist you going forward.
These are some of the key points from the podcast. Clearly, these are only some of the major questions and with only broad commentary, Hopefully these will give you some indication of what could help you with a conflict and to promote collaboration Whether this is with the IRS on an Estate and Gift tax case, another issue with the IRS or in some other venue very similar issues need to be addressed.