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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
mg@mikegreg.com
© 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
mg@mikegreg.com 651-633-5311 ASA, AVA, MBA, Qualified Neutral
May 7, 2012
Michael Gregory
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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 mg@mikegreg.com 651-633-5311
May 7, 2012
Michael Gregory Consulting LLC
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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Math Logic Standards Documentation - Why Written to Audience
◦ Court◦ Client◦ IRS◦ Lay Person
May 7, 2012
Common Errors
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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Issue Resolution Calculation Reports Expert Witness Intangibles International Issues Consultations
May 7, 2012
Strategic Growth for Appraisers
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
25May 7, 2012
Life In New Venture
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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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
© 2012 Michael Gregory Consulting LLC www.mikegreg.com
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Questions
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