Just the subject of business valuation issues and the IRS tends to raise the stress level of participants in the process. Today I am going to focus on my strength of helping parties to understand multiple perspectives, overcome conflicts and enhance effectiveness focusing on business valuation conflicts with the IRS. As an ASA, CVA and mediator with the Minnesota Supreme Court coupled with my 28 years at the IRS (heading up business valuation 2000- 2011) and now over 5 years in the private sector, I am drawing on that experience to help you. One of my continuing market segments since joining the private sector is on business valuation issues and the IRS. That is the focus of this article.
A recent article in the Harvard Business Review addresses what you can do when you are involved with stressful situations. If you have been an expert witness as I have then you know you have to:
Be cool under pressure;
Be an open communicator; and
Be an active problem solver.
These elements all tie into your Emotional Intelligence.
When working with the IRS on a business valuation issue it is important to realize that the IRS is made of people with varying interests and understanding of the issue. In order to understand where the IRS is coming from, it is very important to listen, listen and listen. Withhold judgment. Try to understand where the agent (not a business valuer) and where the IRS valuer (may be an engineer with a CVA credential, valuation specialist or financial analyst) are coming from.
Keep in mind that the IRS has had its training budget cut 95% since 2010. That means no conferences, essentially no continuing CPE and no updates in the field. I just provided NACVA Quick Read with a critique of the new DLOM Guide and Toolkit by Hitchner, Alerding, Angell and Morris. This is an example of a current item that is a must for a valuation firm. The IRS will likely not be able to buy it or be able to use the toolkit and consider what these authors are providing as the most current commentary on this issue. This text has over 800 pages of great material. As a business valuer you are adding these types of references to your toolbox as they become available. At the IRS that may very well not be the case.
With that in mind there will be a need to educate the IRS. However, working with neuroscientists they know that before someone can be receptive to learning in a confrontational situation it is very important that the other party feel as if they have been listened to and to develop a relationship with the other party. Do not underestimate how important that is to working on the issue. Learning about the other party personally with small talk is very important in conflict situations. It is important that the parties see themselves and the other party as people and not adversaries.
Work to understand the perspective of the IRS. I realize in this situation it is very hard to withhold judgment when you disagree, but that is what I am asking you to do. Do you want to work towards an amicable solution? Then it behooves you to listen, engage in small talk and develop a relationship. Not all clients are amenable to this and at time neither are some at the IRS, but you have to try.
The business valuers are consultants to the various divisions of the IRS. The business valuers are not the ultimate decision maker. The agent’s manager is the ultimate decision maker. The area that most private sector business appraisers encounter most frequently is the Small Business Self Employed (SBSE) Division of the Estate and Gift Tax program within this division. IRS employees have been taught that their role is to audit and determine the appropriate amount of tax fairly and consistently for all taxpayers. At the same time SBSE in under pressure from Congress to close more cases quickly and to remove themselves from no-change cases as soon as possible. This can cause some problems with competing priorities.
If significant time has been expended on a case (including the IRS valuer’s time that is added to the agent’s time) and there is no adjustment, this can reflect negatively on the agent. As such the agent may hold out for an adjustment to justify the time on the case. That can be a problem. So what do you do? You need to elevate the situation to the agent’s manager, where hopefully a fresh look and an impartial analysis will lead to a way to resolve the issue. This works in many cases, but not always.
The IRS has a host of cultures within the IRS. These may be by division such as SBSE, Large Business and International (LB&I), Tax Exempt and Governmental Entities (TEGE), and Wage and Investment (W&I) for example. The culture varies by geography such as the NE, New York City metropolitan area, Mid Atlantic, SE, MW, far West and various subgroups within these areas. From experience I can tell you geography matters. So what is that you need to do?
Listen, build a relationship, try to understand, be empathetic and then work on education.
The purpose of this article was to provide you with some thoughts on how to address conflicts with the IRS on business valuation issues. Hopefully this will give you some ideas on how to proceed in the future.
Michael Gregory, NSA, ASA, CVA, MBA is an international speaker, that helps organization understand multiple perspectives, address conflict and enhance effectiveness. Mike is dedicated to making individuals, organizations, thought-leading entrepreneurs and executives more successful. Michael’s books, including The Servant Manager, How to Work with the IRS, Second Edition and his most recent book, now also available as an eBook, Peaceful Resolutions are available at this link. On point resources are available online at www.mikegreg.com and check out the blog. Contact Mike directly at firstname.lastname@example.org or call (651) 633-5311.
About the author
Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at email@example.com and at (651) 633-5311. Mike has written 12 books (and co-authored two others) including his latest book, The Collaboration Effect: Overcoming Your Conflicts, and The Servant Manager, Business Valuations and the IRS, and Peaceful Resolutions that you may find helpful. [Michael Gregory, ASA, CVA, MBA, Qualified Mediator with the Minnesota Supreme Court]