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For the Estate Planning Council of Central Florida November 14, 2013 Michael Gregory Michael Gregory Consulting LLC.

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Presentation on theme: "For the Estate Planning Council of Central Florida November 14, 2013 Michael Gregory Michael Gregory Consulting LLC."— Presentation transcript:

1 For the Estate Planning Council of Central Florida November 14, 2013 Michael Gregory Michael Gregory Consulting LLC

2  Michael Gregory, Chief Manager, Michael Gregory Consulting LLC since September 12, 2011  Formerly 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 © 2013 Michael Gregory Consulting LLC

3  Risk Management, BV Review, and IRS Assistance  Alternative Dispute Resolution  Strategic Planning and Value Added Services  Will Go Over Some Examples  Could be of Service to You and Your Clients   November 14, 2013 © 2013 Michael Gregory Consulting LLC

4  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 © 2013 Michael Gregory Consulting LLC

5  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 © 2013 Michael Gregory Consulting LLC

6  IRS Background  Estate and Gift Tax at the IRS  IRS Classification and Processing  Steps You Can Take  Working With the IRS on Valuation Issues  Issue Resolution  Three Technical Areas November 14, 2013 © 2013 Michael Gregory Consulting LLC

7  Historical Perspective  Today Eleven Divisions with External Stakeholders  Compliance Divisions-Since 2000-Different Cultures  Appeals  Counsel – 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 Engineering November 14, 2013 © 2013 Michael Gregory Consulting LLC

8  “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 Book  What’s New in Estate and Gift  Audit Technique Guides – Aerospace to Wine with over 50 Topic Areas (See auditing Attorneys) November 14, 2013 © 2013 Michael Gregory Consulting LLC

9  Examination and Collection Functions  Examination ◦ General  Team Manager and Revenue Agent ◦ Estate and Gift (E&G)  Classification Process (Cincinnati and Ogden Service Centers)  706 and 709 to Cincinnati  Certain Projects Ogden  E&G Manager with Estate Tax Attorney  Information Document Requests  Counsel November 14, 2013 © 2013 Michael Gregory Consulting LLC

10  Case Manager and Team Coordinator  Six Industries and One Support Function  CTM, FS, HMT, NRC, RFPH, and GHW  Specialists – Internal Consultants ◦ Engineering and Valuation  Note Geographic Location  Note Specialization ◦ Computer Audit Specialists ◦ Financial Products ◦ Economists ◦ International Examiners  Counsel November 14, 2013 © 2013 Michael Gregory Consulting LLC

11  Why Engineering Title?  Internal Consultants to All Divisions  Four Territory Managers  34 Front Line Managers  320 Technical Employees  Valuators Locally – Real Property and Business Valuation  Know Who They Are and Invite Them to Professional Meetings November 14, 2013 © 2013 Michael Gregory Consulting LLC

12  Case Closes Out of Examination Unagreed and Goes to the Internal IRS Appeals Division  Goal to Settle Cases  Independent  Ex Parte Rules  Ways to Approach November 14, 2013 © 2013 Michael Gregory Consulting LLC

13  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 November 14, 2013 © 2013 Michael Gregory Consulting LLC

14  Issue Resolution ◦ Lowest Level ◦ Emphasis on Timeliness, Understanding, Enforcement, Integrity, Fairness ◦ Factually Oriented – Resolution; not Hazards of Litigation  Division Dependent  What Level and With Whom are the Key? November 14, 2013 © 2013 Michael Gregory Consulting LLC

15  Managers and Employees “Trained”  Awareness There  Recent Commissioner Report on the Process ◦ More Authority Needed at Front Line Level ◦ More Training Needed  242 Cases with 572 Returns  124 Cases or 51% Fully Resolved  Average 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 © 2013 Michael Gregory Consulting LLC

16  Field Specialists Engineers and Valuators Trained in Mediation ◦ Informal Process ◦ Model – FIFI  What are the Facts?  What are the Issues?  How do you Feel about this?  What are your Interest?  Now lets explore solutions. November 14, 2013 © 2013 Michael Gregory Consulting LLC

17  Employees Trained in the Process of Mediation  DVD 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 © 2013 Michael Gregory Consulting LLC

18  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 © 2013 Michael Gregory Consulting LLC

19  Discount for Lack of Marketability -Job Aid for IRS Professionals 9/25/2009 published 8/22/2011  Data Sources ◦ Private Placement  Step 1Pluris  Step 1 Fair Market Value Opinions ◦ Pre-IPO  Recommended Approaches ◦ Restricted Stock Studies and Factors ◦ Private Placements Step 1 and Factors ◦ Third Method and Reconcile November 14, 2013 © 2013 Michael Gregory Consulting LLC

20  Six Court Cases ◦ Key Findings from the Estate of Louise Paxton Gallagher TCM ◦ Take Away Information  Prominent Methods  Suggestion on Approach for IRS Purposes  Work with Your Business Valuation Appraiser November 14, 2013 © 2013 Michael Gregory Consulting LLC

21  Read the Document  Have Attorney Provide Opinion on Limited Interest Ownership Rights  Consider Approval Rights for Major Decisions ◦ Unanimous Decisions ◦ High Percentage Decisions ◦ Majority Decisions  Business Purpose, Contributions, Distributions, Term, Withdraw, Right of First Refusal, Transferability, Fire General Partner, Dissolution, Restructure Agreement  FMV and Discounts November 14, 2013 © 2013 Michael Gregory Consulting LLC

22  Legal Requirement for an Appraisal  When 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 Appraisal  Implications on Classification November 14, 2013 © 2013 Michael Gregory Consulting LLC

23 November 14, 2013 © 2013 Michael Gregory Consulting LLC

24  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 DOJ ◦ Understand Roles of Attorney and Appraiser ◦ Work to Resolve – Prepare Report for Judge  SBSE Case at Appeals ◦ Understand ExParte ◦ Understand New Information and Mediation November 14, 2013 © 2013 Michael Gregory Consulting LLC

25  SBSE Examination Case with a Business Valuation Issue ◦ 6 months on Statute ◦ No IRS Valuator/Appraiser ◦ DLOM only Issue ◦ DLOM Paper Applied to Facts  Issue Resolution – High Wealth Example ◦ Three Siblings and Charities ◦ Resolve with All November 14, 2013 © 2013 Michael Gregory Consulting LLC

26  LB&I and SBSE Planning ◦ Initiate Process with High Wealth Individuals Ahead of Time ◦ Family Issues – Mediation Approaches ◦ Plan Out Company and Wealth Transfer  6695A Appraiser Penalties Impact on Appraisers ◦ Know the Rules ◦ Appraisers Need to Follow Standards  6661 Overvaluation and Substantial Understatement Penalty on Return November 14, 2013 © 2013 Michael Gregory Consulting LLC

27  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 Business Valuator or an Appraiser ◦ Ask to Elevate in Management as a Neutral Party Given Ownership of the Issue by the RA or ETA November 14, 2013 © 2013 Michael Gregory Consulting LLC

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29  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” November 14, 2013 © 2013 Michael Gregory Consulting LLC

30 November 14, 2013 © 2013 Michael Gregory Consulting LLC

31  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 © 2013 Michael Gregory Consulting LLC

32 November 14, 2013 © 2013 Michael Gregory Consulting LLC

33  From Chapter 5 in Business Appraisals and the IRS  Pulled 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 © 2013 Michael Gregory Consulting LLC

34 November 14, 2013 © 2013 Michael Gregory Consulting LLC

35  Uses the Discount for Lack of Marketability Job Aid for IRS Valuation Professionals Published August 2011  Supplemented 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 © 2013 Michael Gregory Consulting LLC

36  Michael Gregory Consulting, LLC     1945 Sharondale Ave.  Roseville, MN  Contact me with any questions or concerns November 14, 2013 © 2013 Michael Gregory Consulting LLC

37 November 14, 2013 © 2013 Michael Gregory Consulting LLC

38 November 14, 2013 © 2013 Michael Gregory Consulting LLC


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