For MN Society of CPAs November 15, 2012                        By Michael Gregory           Michael Gregory Consulting LL...
   Opened Michael Gregory Consulting LLC    September 2011   28 years at IRS as engineer valuator, manager,    operation...
The opinions presented here are those of MichaelGregory. Michael Gregory does not represent theIRS. Any opinions presented...
   Understanding The IRS and Issue Resolution   Estate and Gift Tax Classification   Valuation Issues    ◦   Family Lim...
   Eleven Divisions – Need to Understand Stove    Pipes and Culture Since 2000   Compliance – Four Divisions   Your Pri...
   Good Source of Information for    ◦   Businesses    ◦   Starting a Business    ◦   Operating a Business    ◦   Closing...
   Six Industries (Updated 10-1-2012)   CTM, FS, HMP, NRC, RFTH and GHW   Case Manager and Team Coordinator Control   ...
   Internal Consultants to All Divisions   Four Territory Managers   34 Managers   320 Technical Employees (approx. 18...
   Examination    ◦ General Program: Team Manager and Revenue      Agent Control    ◦ Estate and Gift (E&G) IRM 4.4.425  ...
   Team Manager and Revenue Agent Control   Business Valuator Issues    ◦   ESOPs    ◦   Related for Profit Entities    ...
   Case Closes Out of Examination Unagreed    and Goes to the Internal IRS Appeals Division   Goal to Settle Cases Due t...
   IRS Office of Chief Counsel    ◦ Operations    ◦ Technical      All Non Litigation Work (Legislative, Regulation,    ...
   Regarding Examination Divisions, Appeals    and Council    ◦ Who Owns the Case in Exam?    ◦ Who Manages the Day to Da...
◦   Family Limited Partnerships in E&G◦   Discounts for Lack of Marketability◦   Reasonable Compensation◦   Common Errors ...
   Understand the Process    ◦   Know What It Is You Are Valuing    ◦   Obtain the Necessary Documents    ◦   Review and ...
   Business Purpose   Contributions   Management Prerogatives Distance Limited    Partners from Assets of FLP   Distri...
   Approval Rights of Limited Partners Required    for Major Decisions or Limited Partners    Excluded from all Decisions...
   Asset Based Approach   Income Approach    ◦ Discount Rate    ◦ Cash Flows   Market Approach – Generally Similar to A...
   Generally Not Adjusted   Could Be Based on Fact Pattern    ◦ Example Restriction on Sale to Charity    ◦ Example Inco...
   DLOM Job Aid for IRS Professionals    ◦ http://www.irs.gov/pub/irs-utl/dlom.pdf    ◦ Read It    ◦ Use Best Practices [...
   Over Compensation Privately Held Companies    ◦ Compensation Compared with Firm Performance      (RMA, Bizminer, Integ...
   Math   Logic   Standards SSVS – Know and Follow   Documentation – Explain Why   Written to Audience    ◦   Client ...
   Start with the Report and Valuer   Certified Valuator Credential and Meet    Standards of Society   Engagement Lette...
   Broad Error Categories    ◦ Definition of Value - Standards    ◦ Communication – Written for Audience Clear and      C...
   Write a Report for the Court and Judge   Read Court Cases by Judge on Topic   What Did Judge Halpern Have to Say?   ...
◦ Gross Still Governs – “We Will NOT Impose an  Unjustified Fictitious Corporate Tax Rate” – IRS is 6  for 6 in Court◦ Don...
© 2012 Michael Gregory        Consulting LLC    www.mikegreg.com     November 15, 2012   27
   Know Who to Work With at the IRS   Raise Issues in Management as Appropriate   Issue Resolution – Mediation – Litiga...
   Know Who Your Working with at the IRS   Understand the Role of Participants   Seek to Understand Interests –Listen a...
© 2012 Michael Gregory        Consulting LLC    www.mikegreg.com     November 15, 2012   30
   IRS Official and Unofficial Rules of Engagement   IRS Organization   My History and Best Practices   Issue Resoluti...
   Michael Gregory Consulting, LLC   mg@mikegreg.com   www.mikegreg.com   651-633-5311   1945 Sharondale Ave.   Rose...
© 2012 Michael Gregory        Consulting LLC    www.mikegreg.com     November 15, 2012   33
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Mn soc of cpa's 11 15- 2012 - revised (1)

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Mn soc of cpa's 11 15- 2012 - revised (1)

  1. 1. For MN Society of CPAs November 15, 2012 By Michael Gregory Michael Gregory Consulting LLC mg@mikegreg.com
  2. 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. 3. The opinions presented here are those of MichaelGregory. Michael Gregory does not represent theIRS. Any opinions presented in this seminar arethose of the author and do not represent anofficial position of his current or previousemployers. This material is offered foreducational purposes only. The author and hisemployer expressly disclaim anyliability, including incidental or consequentialdamages, arising from the use of this material orany errors or omissions that may be contained init. © 2012 Michael Gregory Consulting LLC www.mikegreg.com November 15, 2012 3
  4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 27. © 2012 Michael Gregory Consulting LLC www.mikegreg.com November 15, 2012 27
  28. 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. 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. 30. © 2012 Michael Gregory Consulting LLC www.mikegreg.com November 15, 2012 30
  31. 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. 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. 33. © 2012 Michael Gregory Consulting LLC www.mikegreg.com November 15, 2012 33

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