I am a valuation expert who specializes in negotiation and mediation. I receive calls weekly from people seeking advice on various valuation issues. Recently, I received a call from an individual who had a credential in personal property valuation. He asked me if I thought he was qualified to prepare an appraisal with a specific application in mind. He informed me that the client required a fair market value determination for federal gift tax purposes. I would like to share useful information with you that may be beneficial, regardless of your area of expertise in valuation. Additionally, I will provide extra information on business valuation.

As a mediation and negotiation specialist that worked for the IRS at all levels for over 28 years, I want to share with you how conflict resolution and mediation works at the IRS . It was my pleasure in 2020 to bring mediation to the large case business program (at the time LMSB – Large and Mid-Size Business and later LB&I Large Business and International). Over time 2,500 field specialists were trained in mediation while I worked at the IRS. What follows is commentary to explain various stages of issue resolution at the IRS and how an expert in this area can help navigate these processes.

In negotiations, mediations, and conflict resolutions emotions can be difficult to manage. Emotional intelligence has to do with your ability to be aware of, control, and express your emotions appropriately. The commentary that follows explores how emotions and displays of anger can work both for you and against you in a negotiation and as a participant in a negotiation or other forms of conflict resolution.

When preparing for a negotiation, mediation, or conflict resolution session usually significant effort may be applied to determine the facts, the issues, the prioritization of the issues, and your interests. Similarly, you may have attempted to explore what the other party’s perceptions compared  to these same items.

However, typically little attention is paid regarding your and their emotions that may play out during the interaction.

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

“attitude.”

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

The IRS has many challenges and some real opportunities in FY 2023 (October 1, 2022 to September 30, 2023) with the Inflation Reduction Act signed into law August 18, 2022. That law includes as part of the Act $80 billion and potentially 87,000 additional employees to the IRS over the next 10 years. A question arises as to what that means for the Engineering Program where IRS business valuers are located.  This article takes a look at this question and provides some insights and recommendations for those working in this area. This includes business valuers, accountants, attorneys, and others that may have issues related to fair market value with the Internal Revenue Code

One of the fundamentals of business valuation training is Revenue Ruling 59-60. Although published in 1959 with the express purpose to “outline and review in general the approach, methods and factors to be considered in valuing shares of the capital stock of closely held corporations for estate tax and gift tax purposes” it has been accepted by the federal courts in applications of fair market value across the board. This commentary introduces the main points of the revenue ruling, provides some insights from a historical perspective and comments on a recent publication regarding Revenue Ruling 59-60 and its application to Subchapter S corporations, limited liability corporations, and partnerships.

When you are involved in a multi-issue negotiation you may have asked yourself whether you should make the first offer and if so on which issue? Should you offer something significant on a major issue? Should you offer a token offer on a minor issue? There are different schools of thought on this. Recent research from the Harvard Program on Negotiation at Harvard Law School offers some good insights for you to take advantage of this multi-issue negotiation. Additional insights are provided based on real world negotiations between a major taxpayer and the IRS.

The IRS valuers identified reasonable compensation as one of the top issues for audit. Differences of opinion by valuers in the private sector and IRS valuers could lead to conflict and disputes on examination, leading to Appeals, and potentially to litigation. This commentary defines reasonable compensation, introduces the IRS Job Aid and Appendix, provides links to some recent IRS papers related to reasonable compensation, introduces how various levels at the IRS look at the issue, provides links to relevant court cases and key factors for consideration from those court cases, and provides a source for contemporary commentary on this topic.

It was my pleasure to be interviewed by Melissa Gragg, the Managing Partner at Bridge Valuation Partners, LLC, via her pod cast on this topic. For those not interested in listening to a nearly 90 minute podcast with lots of details, here is a much shorter seven minute version sound bites on LinkedIn. However, for those looking for a quick read on some of the key points this may help. We discussed over a dozen questions and additional follow up questions, but here are some of the key points.

When you think of negotiations, do you think about the IRS? With all of the negatives on TV about the big bad IRS it is important to realize they are people with a job to do, and they are indeed people. As with any organization there can be zealots that are over the top. Depending on your experiences you may have met one, and that person may have set your bias on the IRS. However, the vast majority of IRS examiners are reasonable people. if you are open to resolving issues with the IRS, here are two key elements to consider. Before proceeding, reflect and remember your ethical principles and values to be true to yourself. If what you want to do is do the right thing, do what it takes and have closure these ideas can help you with the IRS. Let’s look at token concessions first.

In an experiment by neuroscientists participants were given $10 dollars and were told they needed to share the amount with another party. If the other party accepted the offer they could keep the difference. This resulted in some interesting findings that were found to tie directly into negotiations. The commentary that follows could be used in any negotiation including those with the IRS and in other venues where one party seems to have an upper hand.