How to Work with IRS: Strategies for Estate and Gift Tax Purposes - PowerPoint Presentation

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How to Work with IRS: Strategies for Estate and Gift Tax Purposes - PPT Presentation

For the Estate Planning Council of Central Florida November 14 2013 Michael Gregory Michael Gregory Consulting LLC Michael Gregory Chief Manager Michael Gregory Consulting LLC since September 12 2011 ID: 793506

michael 2013 mikegreg gregory 2013 michael gregory mikegreg consulting llc november irs business valuation tax amp process estate case

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Slide1

How to Work with IRS: Strategies for Estate and Gift Tax Purposes

For the Estate Planning Council of Central Florida

November 14, 2013

Michael Gregory

Michael Gregory Consulting LLC

Slide2

Michael Gregory, Chief Manager, Michael Gregory Consulting LLC since September 12, 2011Formerly IRS 28 Years as Engineer and Valuer, Manager, Operations Team Lead, Controller, Acting Assistant District Director, Territory Manager

Qualified Neutral Supreme Court in MN, ASA, CVA, and MBA

November 14, 2013

Presenter

Slide3

Risk Management, BV Review, and IRS AssistanceAlternative Dispute Resolution

Strategic Planning and Value Added Services

Will Go Over Some ExamplesCould be of Service to You and Your Clients

mg@mikegreg.com651-633-5311

November 14, 2013

Michael Gregory Consulting LLC

Slide4

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.

November 14, 2013

Disclaimer

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How to Work with the IRS: Strategies for Attorneys, Accountants and Appraisers (June 2011)Business Appraisals and the IRS (May 2013)

Valuing Interests in S-Corps (July 2013)

DLOMs and the IRS (September 2013)

November 14, 2013

Relevant Books

Slide6

IRS BackgroundEstate and Gift Tax at the IRS

IRS Classification and Processing

Steps You Can Take Working With the IRS on Valuation IssuesIssue Resolution

Three Technical Areas

November 14, 2013

Today’s Presentation

Slide7

Historical PerspectiveToday Eleven Divisions with External Stakeholders

Compliance Divisions-Since 2000-Different Cultures

AppealsCounsel – IRS and DOJ Tax Litigation Division

Your Primary Interest is with Estate and Gift (E&G)Tax Attorneys in the Small Business and Self Employed Division, (

SBSE) but could relate to the Large Business and International (LB&I) and Business Valuators in

EngineeringNovember 14, 2013

IRS

Slide8

“Estate and Gift”Forms and Publications

Pub 950 Intro to E&G Taxes – Marketing Information

From 709 US Gift (and Generation Skipping Transfer) Tax Return

SOI Statistics – 18% of Estates and 1.2% of Gifts Audited in the Field from the 2011 Data BookWhat’s New in Estate and GiftAudit Technique Guides – Aerospace to Wine with over 50 Topic Areas (See auditing Attorneys)

November 14, 2013

www.irs.gov

Slide9

Examination and Collection FunctionsExamination

General

Team Manager and Revenue AgentEstate and Gift (E&G)

Classification Process (Cincinnati and Ogden Service Centers)706 and 709 to CincinnatiCertain Projects Ogden

E&G Manager with Estate Tax AttorneyInformation Document RequestsCounsel

November 14, 2013

Small Business Self Employed Division

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Case Manager and Team CoordinatorSix Industries and One Support Function

CTM, FS, HMT, NRC, RFPH, and GHW

Specialists – Internal ConsultantsEngineering and Valuation

Note Geographic LocationNote Specialization

Computer Audit SpecialistsFinancial ProductsEconomistsInternational Examiners

CounselNovember 14, 2013

Large Business and International Division

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Why Engineering Title?Internal Consultants to All Divisions

Four Territory Managers

34 Front Line Managers320 Technical EmployeesValuators Locally – Real Property and Business Valuation

Know Who They Are and Invite Them to Professional Meetings

November 14, 2013

Engineering Program

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Case Closes Out of Examination Unagreed and Goes to the Internal IRS Appeals DivisionGoal to Settle Cases

Independent

Ex Parte RulesWays to Approach

November 14, 2013

Appeals Division

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IRS Office of Chief CounselOperations

Technical

All Non Litigation Work (legislative, regulation, interpretation)Corporate

InternationalTechnical AdviceIRS Division Counsel

IRS Special Trial CounselDOJ Tax Litigation Division

November 14, 2013

Counsel

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Issue ResolutionLowest Level

Emphasis on Timeliness, Understanding, Enforcement, Integrity, Fairness

Factually Oriented – Resolution; not Hazards of LitigationDivision Dependent

What Level and With Whom are the Key?

November 14, 2013

Issue Resolution at the IRS

Slide15

Managers and Employees “Trained”Awareness There

Recent Commissioner Report on the Process

More Authority Needed at Front Line LevelMore Training Needed

242 Cases with 572 Returns124 Cases or 51% Fully ResolvedAverage Time Frame 86 Days – Goal 60 Days – Now at 104 Days

Normal Case Not in Formal Mediation – When to Elevate and to What Level?

November 14, 2013

Formal Process in Mediation in SBSE General Program

Slide16

Field Specialists Engineers and Valuators Trained in MediationInformal Process

Model – FIFI

What are the F

acts?What are the Issues?

How do you Feel about this?What are your I

nterest?Now lets explore solutions.

November 14, 2013

Informal Process in LB&I

Slide17

Employees Trained in the Process of MediationDVD Made for New Hires

Elevation in Management is Sometimes Needed to Explore the Process

Elevating in Management is Encouraged When Differences Are Associated with Other Than The Technical Issue

If Not Resolved When to Elevate and to What Level?

November 14, 2013

LB&I Specialists Informal Process in Mediation

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Who Owns the Case?Who Manages the Case?

What is the Role of the Valuator?

If you Have Frustrations with the E&G Attorney Who Should You Contact?If you Need a Real Property Appraiser or Business Valuator What Should You Do? Coming up Next…

November 14, 2013

Let’s Go Over Some Review Questions

Slide19

Discount for Lack of Marketability -Job Aid for IRS Professionals 9/25/2009 published 8/22/2011

Data Sources

Private PlacementStep 1PlurisStep 1 Fair Market Value Opinions

Pre-IPO Recommended Approaches

Restricted Stock Studies and FactorsPrivate Placements Step 1 and FactorsThird Method and Reconcile

November 14, 2013

Discount for Lack of Marketability

Slide20

Six Court CasesKey Findings from the Estate of Louise Paxton Gallagher TCM 2011-148

Take Away Information

Prominent MethodsSuggestion on Approach for IRS Purposes

Work with Your Business Valuation Appraiser

November 14, 2013

S- Corp Valuations

Slide21

Read the DocumentHave Attorney Provide Opinion on Limited Interest Ownership Rights

Consider Approval Rights for Major Decisions

Unanimous Decisions

High Percentage DecisionsMajority DecisionsBusiness Purpose, Contributions, Distributions, Term, Withdraw, Right of First Refusal, Transferability, Fire General Partner, Dissolution, Restructure Agreement

FMV and Discounts

November 14, 2013

Family Limited Partnership’s (FLP’s

Slide22

Legal Requirement for an AppraisalWhen Might a Calculation Report Be Acceptable on Audit?

Does Your Client Need a Real Property Appraisal?

What a Business Appraiser Needs to State in Limiting Conditions without a Real Property AppraisalImplications on Classification

November 14, 2013

Some Final Thoughts

Slide23

November 14, 2013

Let’s Have Fun with Some

Real World Examples as Time Allows

Slide24

SBSE Examination Case with a Business Valuation Issue-Publication 1 Concerns

Boston, Denver, Florida, Georgia, New York, North Carolina, Philadelphia, San Francisco, San Antonio

SBSE Examination Case with IRS Counsel or DOJUnderstand Roles of Attorney and Appraiser

Work to Resolve – Prepare Report for JudgeSBSE Case at Appeals

Understand ExParteUnderstand New Information and Mediation

Examples for Discussion

Slide25

SBSE Examination Case with a Business Valuation Issue

6 months on Statute

No IRS Valuator/AppraiserDLOM only IssueDLOM Paper Applied to Facts

Issue Resolution – High Wealth ExampleThree Siblings and Charities

Resolve with AllNovember 14, 2013

Examples for Discussion Continued

Slide26

LB&I and SBSE PlanningInitiate Process with High Wealth Individuals Ahead of Time

Family Issues – Mediation Approaches

Plan Out Company and Wealth Transfer

6695A Appraiser Penalties Impact on AppraisersKnow the RulesAppraisers Need to Follow Standards

6661 Overvaluation and Substantial Understatement Penalty on Return

Examples For Discussion Continued

Slide27

Know Who Your Working with at the IRSUnderstand the Role of Participants

Seek to Understand Interests

Do Not Be Afraid to Ask QuestionsConsider Options

Ask for a Business Valuator or an AppraiserAsk to Elevate in Management as a Neutral Party Given Ownership of the Issue by the RA or ETA

November 14, 2013

Important Take Away Information

Slide28

November 14, 2013

www.mikegreg.com

Slide29

IRS Official and Unofficial Rules of EngagementIRS Organization

My History and Best Practices

Issue Resolution and Mediation at the IRSClassification in General and Estate and Gift in Particular

Potential Penalties on AppraisersReasonable Compensation in CorporationsDiscounts for Lack of Marketability

Most Common Errors in ValuationsStrategic Growth Areas of Business Valuation AppraisersOther Engineering Issues and Valuation Related Issues

Strategic ThinkingOverall Commentary and “Do’s and Don’ts”

November 14, 2013

Summary of Chapters

Slide30

November 14, 2013

www.mikegreg.com

Slide31

1. Overview of Chapter Contents 2. Classification in General and in Estate and Gift Tax in Particular

3. Writing a Business Valuation Report for IRS Tax Purposes

4. Potential Penalties on Appraisers

5. Considerations in Valuing Interests in Subchapter S Corporations 6. How to Address Reasonable Compensation in Corporations 7. Code Section 409A and Valuators

8. Discount for Lack of Marketability and How to Approach the Issue 9. Most Common Errors in Valuations and How to Avoid Them 10. Potential Growth Areas for Business Valuation Appraisers

11. How to Work with the IRS to Resolve Differences in Valuation 12. Key Take-Away Items for Business Valuation Appraisers

November 14, 2013

Business Appraisals and the IRS

Slide32

November 14, 2013

www.mikegreg.com

Slide33

From Chapter 5 in Business Appraisals and the IRSPulled This Chapter from the Book Given Customer Feedback

Covers the Material in This Presentation with 2 Example Comparisons

Sixty Three Pages in Length

November 14, 2013

Valuing Interests in S-Corps

Slide34

November 14, 2013

www.mikegreg.com

Slide35

Uses the Discount for Lack of Marketability Job Aid for IRS Valuation Professionals Published August 2011Supplemented With Commentary from Modelers Critiqued in the Original Job Aid

Michael Gregory’s Commentary Based on IRS and Private Sector Reviews of Scores of Reports for Expert Witnesses

Specific Recommendations

November 14, 2013

Discount for Lack of Marketability and the IRS

Slide36

Michael Gregory Consulting, LLCmg@mikegreg.com

www.mikegreg.com

651-633-53111945 Sharondale Ave.

Roseville, MN 55113Contact me with any questions or concerns

November 14, 2013

Contact Information

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