As a continual learner, mediator, and negotiation specialist, I am always looking to enhance my skills and experiences. Recently I was involved in a negotiation assisting my client in a dispute with the IRS. A very wealthy client had a dispute with the IRS on a valuation. The IRS estate and gift tax attorney had a difficult time with an extraordinarily complex transaction associated with an estate, gift, and redemption. When I received the contact from the team of attorneys involved,

the proposal from the IRS resulted in an adjustment of $400 million. After nine months and multiple iterations the client agreed to a tax adjustment of $400,000.

The story of how we were able to address this issue can be summed up in one word. That one word is


The facts have been simplified and changed, but the concepts are on point.


After an estate by the primary shareholder, a complex redemption involving a team of attorneys and with multiple entities, and a gift the IRS pulled multiple entities for audit. The taxpayer’s representative brought me on board when the dispute had a proposal from the IRS estate and gift tax attorney (agent) resulting in a $400 million dollar adjustment. The three attorneys representing the taxpayer wanted to know if they should hire an aggressive attorney who would fight the IRS in an aggressive manner. My suggestion was the opposite.

My suggestion was to work with the IRS agent to help the agent understand, appreciate where he was coming from and work with him to resolve any concerns.

The attitude had to change from adversarial to collaborative focusing on common values and interests. We needed to have an attitude to help the agent and listen to his concerns. This is hard to do in an adversarial situation like this. It took some convincing.

The first and second iterations

There were many iterations over the course of 9 months, but I want to focus on three primary iterations. The commentary here focuses on the first two iterations. On the first iteration the agent wrote up a two page commentary, asserted a legal theory and proposed a $400 million adjustment. The attorneys representing the  taxpayer were beside themselves. The agent clearly did not understand why the reorganization took place, the rationale behind it, and that it had nothing to do with the estate or the gift. Those estate and gift tax matters were not even considered with the reorganization.

Instead of a lengthy and complex response with why the agent was wrong, it was suggested to explain in writing what took place, why it was structured that way, why the appraiser took the approach he did, and work with the agent to help him understand. With follow up conversations with the agent the proposal was eventually dropped by the IRS.

Surprising the taxpayer, the agent produced a second proposal with a similar dollar adjustment, but with a new legal theory. The taxpayer’s attorneys were upset and irritated at this second proposal. Similarly, an approach was taken to write up commentary to explain why the theory proposed was not on point to the facts and educate the agent. A written commentary was sent to the agent. My role again was to help the taxpayer’s attorneys write a de-escalated, more neutral response to the agent. There were follow up conversations and eventually the issue was dropped.

The third iteration

The third iteration addressed the taxpayer’s business valuation appraisal. The agent made suggestions addressing discounts associated with the valuation and there were concerns with the computation including the stock starting fair market value.

The resulting adjustment was approximately $120 million.

The entity was large enough that the stock traded in an open market although members of the family are the primary shareholders. The taxpayer stood by their qualified appraisal by a qualified appraiser but went over the recommended changes proposed by the agent. The appraiser had used a stock valuation within 60 days of the date of valuation. However, on the date of valuation the stock was actually trading at about a 20% lower value than the value determined by the appraiser when the report was finalized. The stock often fluctuated in price. Using the stock price on the date valuation rather than the appraised value essentially made the agent’s adjustment mute.

However, the agent had a discussion with the lead attorney for the taxpayer and the taxpayer agreed to a proposal resulting in approximately a difference in value of $1 million resulting in additional tax of approximately $400,000. This was deemed acceptable to the taxpayer and the case was closed agreed.

Key points for a negotiated agreement with the IRS and others

Both sides started out far apart and were in conflict with each other. However, by appreciating each other’s perspective, making an emotional connection with the agent, really listening to the IRS with where the agent was coming from and why, made a real difference. Instead of firing back and telling the agent why the agent was wrong, and the taxpayer was right a different approach was used. The approach applied was one of:

  1. Enter the negotiation with an open mind and an attitude to help the other party understand
  2. Appreciate and listen to the other side. Let them talk and try to understand where they are coming from
  3. Build an emotional connection, find common ground, focus on interests, and work towards closure

This takes a strong emotional intelligence, listening intelligence, and communication intelligence By taking this approach the parties were able to work together, respect each other, and reach an agreement that both parties could live with for a conclusion. The taxpayer is of the opinion that this should have been a no change case. I tend to agree with the taxpayer since the IRS does not make de minimis adjustments. On a case in the hundreds of millions an adjustment of $1 million is de minimis to that taxpayer. In my opinion the IRS should not have made this adjustment. On the other hand, the agent spent considerable time on this case and a no change adjustment would have been hard for the agent to explain to his manager. The result was the $400,000 tax adjustment as a way to close out the case.

Understanding the other party, respecting the other party, and really listening to the other party are all keys to a successful negotiation.

About the author

Mike Gregory is a professional speaker, an author, and a mediator. You may contact Mike directly at 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]