For the third year, the Los Angeles Chapter of the American Society of Appraisers presented its National IRS Symposium in Los Angeles.  This is a program designed by IRS and supported as part of their outreach program.  Its focus is valuation issues that are of interest to appraisers, lawyers, estate planners and the U.S. Tax Court.

I provided a short overview of the day, and of the underlying situation with IRS.  It was definitely the elephant in the room; namely, that IRS has had ongoing problems with valuations, they have been accumulating tools to go after tax dodges since 1982.  The fact that problems have not gone away is emphasized by their asking for and getting new powers to deal with appraisers from Congress, now codified at §6695A.  How bad does it have to get?  If we keep doing what we’re doing, we will continue to get the same result we’ve been getting… nothing will change… and clearly, something needs to change.

According to Albert Einstein, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”  I think it’s fair to say that, if we stay at the same level, audits will continue, appraisers will be sanctioned, and IRS will prevail.

Personally, I would hate to see what the sequel to the Pension Protection Act of 2006 might look like.  I care about the valuation profession and what it has to offer to the public, but I would be surprised if Congress wants to hear about this any further.  And my worry is that parts of the profession will be crushed out of existence if this continues.  It is time for us to change our thinking.

I’ve practiced discount valuation for 15 years, and during that time I have had very successful dealings with the IRS, as have many of my colleagues.  I have written and taught quite a lot on the subject.  And time and time again, I’ve observed that tax benefits don’t have to be sacrificed for the system to work.

The sort of thinking got us here might be related to some kind of taxpayer v IRS opposition, or egregious claims for undeserved benefits, or simply issuing tax-dodge valuations.  From the point of view of the ASA, I would like to think not, but maybe we are tempted to think in these ways.  There are certainly a few bad actors, but this is too big to be their fault alone.

What if we changed our thinking – what would it look like?  It might look like understanding what IRS valuers want to see.  It might look like regarding IRS and the Court as appraisal users and more due diligence on the part of appraisers.  It might even look like lawyers stepping in when they read the appraisal and it doesn’t make any sense.  Changing our thinking would certainly require a cooperative approach across the board.  And clearly, it would not occur at the level that created the problem.

So we know that IRS has ongoing problems with valuations, and we also know IRS is the intended user of all the stuff we (appraisers and practitioners) generate.  Therefore, knowing how the IRS system works is vital.  What if the appraisals sent to IRS all made sense?  What if attorneys and accountants were able to count on values being accepted as their clients are led to expect?  What if, when it comes to it, the Court gets to work with nice clear, persuasive evidence from both sides?

The Symposium offered a chance to become more aware of what IRS is looking for.  They were there to tell us.  They didn’t have to be there, but they were.  This is a very good sign…  Still, it will take many steps to move to a different level of thinking than the one that created the problem.