Valuation Expert Carl Sheeler Laments the Careless Manner of Advisers Who Failed to Properly Prepare Their Wealthy Clients for Inevitable IRS Audits When tens of thousands of wealthy citizens rushed to transfer funds by Dec. 31, 2012, in expectation of the end of the Bush-era lifetime gift exclusion, to avoid millions in taxes, they were not advised that more than one in three is likely to be audited by the IRS, mainly due to poorly supported entity and equity level valuations
SAN DIEGO, May 8, 2013 /PRNewswire/ -- Many attorneys, CPAs, trust officers, insurance and wealth advisors encouraged their affluent clients to transfer equity in their holdings to minimize future tax liabilities. However, the exclusion was extended by Congress on January 2, 2013. "The second shoe will be dropping. There's not enough aspirin for this mother of all headaches. Either it will be an IRS audit or for the 75% who did not transfer wealth, the real possibility of the elimination of future discounts," stated Carl Sheeler, PhD, ASA, CBA, CVA, National Managing Partner of Business Valuations Ltd. These "discounts" are reductions of privately held company equity value due to a limited market and little control. By applying these discounts, more equity can be transferred without taxes. Their elimination would be for two reasons: (1) Lack of support by the taxpayer and (2) Lost tax revenues and politics.
"Most business owners concentrated their risk worked a lifetime in order to become wealthy. Some owners and advisors cut corners to save time and money in the rush to transfer wealth. By failing to obtain a qualified business appraisal that empirically supported the company's value of the company and the discounts applied to equity, they're going to get audited. Many of these appraisals were performed by CPAs who are inexperienced. The American Institute of Certified Public Accountants (AICPA) refers to this as 'dabbling.' It is a violation of AICPA's competency standards and not covered by errors and omissions insurance. Many of these appraisals are unlikely to be considered 'qualified' by the IRS."
Sheeler, who is a member of two national valuation association boards and authored the valuation chapters for both the AICPA's "Team Approach to Succession, Estate and Business Planning" as well as the California Bar's "2010 Succession Planning Manual," has testified as a valuation expert 160+ times and completed over 1,000 business valuation engagements with over half for IRS-related purposes, challenged: "When a client is being audited or undergoing a full exam, it's as invasive and as lonely as it gets." Sheeler reminisces, "This issue is akin to the S&L banking industry failure in the late 1980s, which was blamed on the real estate appraisers, when there was too little regulation and too much greed."
Sheeler, a self-professed valuation warrior, laments, "Private companies are not seen as sexy as their publicly traded cousins, so they and their owners seldom get the same level of media coverage; yet, these companies are the backbone of the U.S. economy and targeting their owners for higher taxes is wrong. Inexperience and ignorance is going to cost untold hours and billions of dollars in unnecessary legal and accounting fees, taxes, penalties and interest in order to avoid higher appraisal fees to have done the job right. Expert fees can easily triple this amount, if the IRS examination is contested and it goes to court. Seasoned advisors see retaining a qualified valuation firm as an investment. Given the amount of private equity transitioning in the next several years, the last thing an owner should have to worry about is whether they'll get hammered on their taxes."
Business Valuations Ltd. has seven offices nationwide. Since 1954, it has served the legal and tax profession as well as business owners and affluent clients for tax, transaction and transfer purposes as well as disputes. Dr. Sheeler has been the firm's steward since 1992 and was the 2012 Worth Magazine's Leading Advisor. His doctoral dissertation is on private company illiquidity. As a valuation pit-bull, he is a published author on valuation, equity discounting and concentrated risk issues.
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SOURCE Business Valuations Ltd.