On October 19, 2015, Theresa Melchiorre, chief counsel for the IRS, gave a presentation at the American Society of Appraisers’ 2015 BV Conference, entitled “Appraisers and their Responsibilities : An IRS Perspective.”  As part of the presentation, she discussed seven common reasons for auditing a business appraisal associated with a gift tax or estate tax return.

  1. The appraisal does not address the applicable Code and Regulations.
  2. The appraisal does not conform to generally accepted standards and procedures.
  3. The appraisal relies on unconventional analysis (i.e., not widely used or accepted).
  4. The analysis is not thorough, explained or consistent with the valuation conclusion.
  5. The conclusions are based on unsupported opinion and not facts.
  6. The assumptions made in the appraisal are not reasonable and supported by evidence.
  7. The appraisal is poorly written. It is not easy to follow, does not answer potential questions or does not lead to a reasonably supported value.

For many estate and gift tax attorneys (and their financial advisors), most of the following “red flags” will not be cause for surprise but should underscore the importance of issues that require continued professional oversight and appraisal expertise. Tax rules, regulations and compliance are constantly evolving. With South Park Advisors, you can be assured you’ll receive a professional business valuation that can withstand scrutiny and review.