part8-39

8.18.1 
Valuation Assistance Procedures – Overview

8.18.1.1 
(10-01-2005)
Valuation Assistance Procedures – Overview

  1. Instructions and procedures are provided for Service personnel of the
    Internal Revenue Service and other Government agencies requiring
    valuation assistance    .

  2. This material may provide assistance to the following personnel within
    and outside the Service:

    • Appeals managers,

    • Appeals officers,

    • Appeals auditors,

    • LMSB, SBSE and TEGE managers,

    • Revenue agents and tax auditors,

    • Criminal investigators

    • Chief Counsel attorneys, and

    • Employees in the Tax Division of the Department of Justice (DOJ)

  3. The Appeals Appraisal Services and the Office of Art Appraisal Services
    provide advice and assistance within the Service and to other Government agencies
    on valuation questions arising in financial, real estate, personal property,
    works of art and other commercial transactions. They also assist the Office
    of Chief Counsel and DOJ, in the development of cases involving valuation
    issues for trial or pretrial settlement.

  4. Requesters are encouraged to contact the valuation specialists for Appeals
    Appraisal Services and/or the Office of Art Appraisal Services by telephone
    to informally discuss a valuation problem in order to determine the type of
    assistance required. It will then be decided whether or not a formal written
    request is needed.

    1. Real Estate Investment Trusts (REITS) at (202) 874–5620;

    2. Business and Finance at (202) 874–5620 or 4292;

    3. Art at (202) 435–5609; or

    4. Via FAX (202) 435–5624

    Requests for art assistance that are made in writing
    or for submitting all reports, referrals, etc. should be directed to:
    Internal
    Revenue Service Appeals Art Appraisal Services
    Suite 4200E, 1099 14th
    St. NW
    Washington, DC 20005

    Requests for business, financial or REIT valuation
    assistance should be directed to:
    Appeals Appraisal Services at:IRS Appeals
    Appraisal Services
    Room 5020, South Bldg.
    950 L”"
    Enfant
    Plaza, SW
    Washington, D.C. 20024

8.18.1.1.1 
(10-01-2005)
Business and Real Estate Valuation Assistance

  1. The services of a qualified valuation specialist are frequently required
    in connection with the examination of federal tax returns involving valuation
    issues. If a qualified valuation specialist is not available within a local
    office conveniently located near the property or the point of the conference
    or examination, necessary valuation assistance may be
    requested from Appeals Appraisal Services. In those instances, an Appeals
    Appraisal Services valuation specialist will be assigned to the requesting
    office to furnish expert assistance.

  2. Although there are no minimum criteria to enable a requester to determine
    whether to seek valuation assistance, the following
    list contains some examples of areas where assistance is available.

    1. Valuation of closely held securities, partnerships, proprietorships and
      other business interests;

    2. Valuation of patents, copyrights, and other intangibles;

    3. Determination of discounts for blockage or restricted securities;

    4. Valuation of real estate;

    5. Selected allocation issues;

    6. Allocation of a lump sum among assets acquired by purchase;

    7. Reasonable compensation;

    8. Accumulated earnings (IRC 531);

    9. Real Estate Investment Trusts (REITS) critical analyses;

    10. Discounted Cash Flow critical analyses;

    11. Marketability Discount critical analyses.

  3. Valuation specialists in this office provide valuation
    assistance     upon receipt of formal as well as informal inquiries. They
    can recommend expert witnesses and furnish technical expertise in the negotiation
    of trial and pre-trial settlements. They are available to assist at settlement
    conferences on the issues of valuation.

  4. In instances where a taxpayer has secured opinions or appraisals from
    outside experts, a valuation specialist can assist by preparing a critique
    of the documents.

  5. Valuation specialists will recommend acceptance or adjustments to the
    value claimed by the taxpayer on the return.

  6. The valuation specialists will also work closely with other Operating
    Divisions (LMSB, SBSE, TE/GE and W&I) to develop, review, present and
    furnish professional and technical valuation training and material.

  7. The valuation specialists can be made available to participate in field
    conferences. These conferences serve to acquaint field engineers and specialists
    with recent developments in these areas and serve to alert the Appeals representatives
    of potential problems and/or the need for further action or published positions
    in troublesome areas.

8.18.1.1.2 
(10-01-2005)
Expert Assistance in Litigation

  1. Appeals Appraisal Services furnishes expert assistance in litigation
    matters in response to requests from the Office of Chief Counsel when cases
    are being considered by Government attorneys for trial, during preparations
    for trial, at court proceedings, in studies of transcripts for briefing, and
    in connection with subsequent procedures related to final disposition of litigation
    including contemplations for appeal or judicial decisions.

  2. Requests for assistance in litigation are received from the Tax Litigation
    Division of the Office of Chief Counsel, District Counsel and Regional Counsel
    and the Tax Division of the DOJ. Requests are also received from General Litigation
    Division and Disclosure Division.

  3. Assistance requested in litigating activities applies to data and information
    required to properly present and interpret factual matters at issue in litigation
    in the U.S. Tax Court, U.S. Claims Court, U.S. Bankruptcy Court, the various
    U.S. District Courts and U.S. Courts of Appeals. The assistance relates, but
    is not confined to matters at issue involving valuation, and related accounting
    features. Government attorneys generally seek help that can be given by specialists
    who are professionally qualified as economists, valuation specialists, real
    estate appraisers, art appraisers, financial analysts, accountants, and in
    various specialized areas.

  4. When expertise on factual matters is not available within Appeals Appraisal
    Services, specialists may be asked to assist Government attorneys in obtaining
    help from other Service personnel or from experts outside the Service.

  5. Generally, the requested assistance requires review, analysis, and,
    when necessary, enlargement of the factual background found in the files reflecting
    Service action prior to litigation. Independent investigation and research
    often are necessary for preparing an unbiased analytical report containing
    appropriate findings and recommendations. The report may be used by Government
    counsel in an overall evaluation of the settlement potential of a case in
    relation to the litigation hazards of the valuation issues involved. The initiator
    of the report is available to Government counsel for participation in settlement
    conferences that may or may not be attended by experts representing taxpayers.

  6. In the event that settlement is not obtained and trial is necessary,
    Valuation specialists may be presented to the courts as expert witnesses to
    explain and clarify the findings in their reports.

  7. After a trial, Government counsel may request further assistance in
    studying transcripts of the court records and in preparing factual information
    and analyses for use in briefs. This work is not limited to initial trial
    courts but extends to subsequent courts of appeal.

8.18.1.1.3 
(10-01-2005)
Disclosure of Valuation Requests

  1. There are no restrictions on disclosing to the taxpayer that assistance
    has been requested.

  2. In cases involving valuation problems, it will be necessary to inform
    the taxpayer that assistance has been requested because the Office specialist
    may have to contact the taxpayer.

8.18.1.2 
(10-01-2005)
Valuation Requests

  1. A request for valuation assistance by Service
    personnel should be made on Form 13381 or Form 5202, Request for Valuation
    Services. Non-Service personnel should submit a written request.

    The request should be mailed to:
    Internal Revenue
    Service Attn.: Appeals Appraisal Services
    Room 5020, South Bldg.
    950
    L”"
    Enfant Plaza, SW
    Washington, DC 20024

8.18.1.2.1 
(10-01-2005)
Estate and Gift Tax Cases Over $ 10 Million

  1. Valuation issues in estate and gift tax cases with tax of $ 10 million,
    or more, are required to be submitted to the Appeals Appraisal Services in
    for consultation. It is important that these issues be identified and submitted
    at the earliest possible time during the Appeals process.

  2. The Appeals Appraisal Services will recommend values, identify strengths
    and weaknesses in both the governments and taxpayers expert report or position,
    and provide any other assistance that will bring about final resolution of
    the valuation issues.

8.18.1.2.2 
(10-01-2005)
Information for Valuation Requests Involving Closely Held Securities

  1. If the requested assistance involves the valuation of closely held securities,
    the requester should discuss with the specialist what data should accompany
    the formal written request for assistance.

  2. The following is a recommended list of information that should be sent
    with the request for valuation assistance on a closely
    held security issue:

    1. A copy of any valuation analysis prepared for the taxpayers valuation
      of the closely held security;

    2. Detailed annual and interim financial statements (balance sheets and income
      statements) for five years prior and one year subsequent to the valuation
      date (if possible, certified or audited financial statements);

    3. A schedule of the dividend record of the corporation and any of its subsidiaries
      for five years preceding the valuation date;

    4. Statements of rights and preferences of all senior securities of the corporation
      and a list of any preferred dividend arrearages;

    5. A complete description of the type of business of the corporation and
      a brief history of the company;

    6. Financial data pertaining to all subsidiary entities;

    7. A list of the shareholders including their interests and family relationships
      (only the major shareholders are necessary if there are over fifty shareholders);

    8. A statement and description of the sales of any shares of the stock which
      occurred within a ten-year period prior to the valuation date;

    9. A detailed description of the terms of any stock option and a copy of
      any restrictive sales agreement applicable to the shares of stock to be valued;

    10. An indication of the fair market value of all investments of the company
      in such non-operating assets as marketable securities, real estate, etc.;
      and

    11. Copies of published financial information of possible comparable companies.

8.18.1.2.3 
(10-01-2005)
Information for Valuation Requests Involving Intangibles, etc.

  1. If the requested assistance involves the valuation of intangibles or
    the allocation of a purchase price of a business interest among the assets
    acquired, the requestor should discuss with the specialist what data should
    accompany the formal written request for assistance.

  2. The following is a recommended list of information that should be sent
    with the request for valuation assistance of tangible
    or intangible assets:

    1. Date of acquisition;

    2. Purchase price;

    3. Liabilities assumed;

    4. Date of liquidation;

    5. Description of tangible and intangible assets together with depreciation
      schedules;

    6. Copies of patents and copyrights together with financial data on which
      contended values are based; and

    7. Copies of appraisals or other data submitted in support of contended asset
      values and useful lives.

8.18.1.2.4 
(10-01-2005)
Information for Valuation Requests Involving Real Estate Investment
Trusts

  1. If the requested assistance involves the valuation of real property,
    the requester should discuss with the specialist what data should accompany
    the formal written request for assistance.

  2. The following is a recommended list of information that should be sent
    with the request for valuation assistance of REITS:

    1. An identification of the owner and interest to be appraised;

    2. The valuation date;

    3. A general description of the properties and its locations;

    4. Balance sheets , for prior three years;

    5. The income and expenses for the year of the valuation date, the prior
      three years; and

    6. Any appraisal submitted by the taxpayer to support the value proposed
      by the taxpayer.

    7. Copy of prospectus filed with Securities and Exchange Commissioner.

8.18.1.2.5 
(10-01-2005)
Appeals Appraisal Services Follow-up Procedure

  1. The manager of any Service requester who has received assistance from
    Appeals Appraisal Services should insure that a feedback report is prepared
    at the time of case disposition. Since the report does not require a specific
    form there should be appropriately sufficient information to identify the
    case. The report should clearly explain whether or not the
    valuation assistance     aided in resolving the issue. The report should
    be mailed to:
    Internal Revenue Service Appeals Appraisal Services
    Room
    5020, South Bldg.
    950 L”"
    Enfant Plaza, SW
    Washington,
    DC 20024

  2. To further enhance the valuation assistance provided
    by Appeals Appraisal Services, requesters are encouraged to include comments
    and attach any supporting statements that would be beneficial to the viability
    of this program.

8.18.1.3 
(10-01-2005)
Art Appraisal Services Assistance

  1. The Office of Art Appraisal Services (under the Chief Appeals) is available
    to provide appraisal service on works of art including paintings, drawings,
    prints, sculpture, antiques, ceramics, decorative arts, textiles, carpets,
    silver, rare manuscripts and historical memorabilia.

    If a Service employee has a case that involves a
    taxpayers appraisal of a single work of art with a claimed value of $ 20,000
    or more, it must be referred to Art Appraisal Services for review by the Commissioners
    Art Advisory Panel. Requests for assistance in art valuation matters should
    follow local procedures and be addressed to:
    Internal Revenue Service
    Office of Art Appraisal Services
    Suite 4200E, 1099 14th St. NW
    Washington,
    DC 20005

  2. Art Appraisal Services is also available to provide assistance in determining
    the fair market value of many objects of art that have returned values of
    less than $ 20,000.

  3. See also, IRM 4.48.2, Valuation Assistance for
    Cases Involving Works of Art, for procedures relating to requesting art valuation assistance from Art Appraisal Services and the Commissioners
    Art Advisory Panel.

8.18.1.3.1 
(10-01-2005)
Information Needed for Art Valuation Requests

  1. Requests for valuation assistance on works of
    art should include the following information and items necessary for determining
    the fair market value of each object.

    1. A professional quality 8 by 10 inch color photograph or a 4 by 5 inch
      color transparency of the object. The donor, donee, appraiser or executor
      of the estate generally has a photograph of the item;

    2. A complete description of the item, indicating the: size (cite actual
      dimensions for paintings); title or subject matter; medium and ground, (e.g.
      oil on canvas, watercolor on paper, etc.); name of artist, (sculptor, etc.);
      date created; and any marks, symbols or labels on the back or bottom of the
      object;

    3. Cost, date and manner of acquisition;

    4. Claimed value and a copy of the appraisal material filed with the return;

    5. History (provenance) of the item;

    6. A record of exhibitions at which the work of art was displayed;

    7. Sales prices of other comparable works of art sold by the artist;

    8. The present location of the art object if it becomes necessary to arrange
      an inspection;

  2. Any pertinent factors or knowledge gathered as to the accuracy of the
    claimed value should be set out on a separate page in the request.

  3. While the items listed in a. – h. above represent the ideal informational
    background required for valuation determinations by Art Appraisal Services,
    it is understood that each item of information may not be readily available
    in every case. However, the validity of the value findings and recommendations
    by the Art Advisory Panel is greatly enhanced and facilitated by complete
    and accurate information on each object of art to be reviewed.

8.18.1.3.2 
(10-01-2005)
Commissioners Art Advisory Panel and Additional Assistance

  1. The Commissioner maintains an Art Advisory Panel of nationally prominent
    art museum directors, curators and art dealers to aid the Service in the review
    of Service-selected cases involving valuations by the taxpayer of major art
    objects — principally American and European paintings and sculpture, Decorative
    Arts and Antiques. Art Appraisal Services provides staff support for the Panel
    and also provides valuation assistance on other art
    objects.

  2. If the Panel members question the taxpayers value, they will so indicate
    and recommend a specific valuation. Such recommendations become the position
    of the IRS. Later, if agreement with a taxpayer is not secured at the Panels
    recommended value, Art Appraisal Services may be contacted to provide additional
    information and valuation data in support of the Panels recommended value.

  3. When necessary, Art Appraisal Services will arrange with prominent art
    authorities to make detailed appraisals for cases which involve significant
    indications of tax abuse or where a wide divergence of fair market value opinion
    exists. This appraisal program supplements the Art Advisory Panel review when
    case facts warrant this action.

  4. Art Appraisal Services is also available to provide telephone assistance
    to requesters in determining the fair market value of many objects of art
    that have return values of less than $ 20,000. Requesters are encouraged to
    take advantage of this expert advice for such items as paintings, watercolors,
    prints, lithographs, etchings, drawings and sculpture. An Art Appraisal Services
    appraiser can be reached at 202-435–5609. However, prior to making a
    telephone call to the Art Office to discuss the value of any item, the requester
    should ascertain as many as possible of the following essential facts necessary
    for determining its fair market value:

    1. Name of artist;

    2. Description of item indicating: (the medium, title, size, date created,
      and any distinguishable marks, symbols or labels;

    3. Date acquired by taxpayers;

    4. Valuation date;

    5. Cost of acquisition; and

    6. Claimed fair market value.

8.18.1.3.3 
(10-01-2005)
Art Appraisal Services Coordination

  1. The complete referral file (request for valuation assistance
     with the essential information and material identified above) will
    be reviewed and additional research will be conducted by Art Appraisal Services
    prior to referral to the Art Advisory Panel or an outside appraiser.

  2. A fixed schedule of meeting dates for the Art Advisory Panel has not
    been established. However, in recent years it has become the practice of the
    Panel to meet approximately twice in each specialty area (Paintings and Sculpture;
    Decorative Arts and Antiques) in each calendar year. Notice of these closed
    meetings are published in the Federal Register usually six weeks prior to
    each meeting date. Accordingly, requests for valuation assistance should be
    initiated as early as possible in the examination of returns involving works
    of art in order to allow sufficient time for Art Appraisal Services review
    procedures (by February 15th for Spring meeting and August 15th for Fall meeting).

    Note:

    Under Delegation Order 193, as revised, the Chief Appeals is authorized
    to sign on the Commissioners behalf the notice to the Federal Register of
    such meeting of the Art Advisory Panel.

  3. To assist in case planning and control, Art Appraisal Services will
    advise the requester of estimated completion dates especially when facts and
    circumstances in specific cases indicate any abnormal delay in the completion
    date.

  4. In the final disposition of a case by Art Appraisal Services, recommendations
    for acceptance or rejection of claimed values will be made to the requester
    based primarily on the Panels conclusions.

  5. Due to the unique nature of the subject matter reviewed by the Art Advisory
    Panel and their extraordinarily high degree of expertise, appeals officers
    contemplating substantial concessions to values recommended by the Panel should
    first consult with the Chief of Art Appraisal Services at 202-435–5609.

  6. Requests for information regarding the status of specific cases referred
    for art valuation assistance may be obtained by contacting Art Appraisal Services.

8.18.1.3.4 
(10-01-2005)
Art Appraisal Services Follow-Up Procedures

  1. A closing memorandum report of findings and recommendations is prepared
    on each case referred to the Office of Art Appraisal Services for
    valuation assistance    .

  2. Form 8256, Art Valuation, will be used on requests from Service personnel
    on cases referred for assistance by the Art Appraisal Services or the Commissioners
    Art Advisory Panel. The appraisal specialist will complete Part I of Form
    8256 and attach it to the Office of Art Appraisal Services closing memorandum
    report which will be forwarded to the manager of the requester employee.

  3. The manager of any Service requester who has received assistance from
    Art Appraisal Services will ensure that the information found in Part I of
    Form 8256 is updated by completing the applicable portions of Part II immediately
    upon closing the case.

    1. The updated original Form 8256 with Art Appraisal Services closing memorandum
      report will remain in the case workpaper file after being indexed on Examination
      Workpapers Form 4318 or on Estate Tax Preplanning and Audit Workpaper Cover
      Sheet Form.

      A copy of the updated Form 8256 should be mailed
      to:
      Internal Revenue Service Office of Art Appraisal Services
      Suite
      4200E, 1099 14th St. NW
      Washington, DC 20005

Law Offices of Darrin T. Mish, PA

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