The Estate or Gift Tax Return is Filed with the IRS – Then What?

Posted on November 3 2015 by admin

I attended the American Society of Appraisers Advanced Business Valuation Conference a couple of weeks ago and had the opportunity to attend a session presented by an IRS attorney, Theresa Melchiorre. I always jump at the chance to hear an IRS presenter, as I like to get a glimpse of what goes on behind the scenes at the IRS, particularly as it relates to estate and gift taxes. Ms. Melchiorre provided a brief overview of how the estate and gift tax filing process works.

  1. The taxpayer files estate and gift tax returns (Form 706 & Form 709) in Cincinnati, Ohio.
  2. Each return is reviewed by the estate and gift tax staff. Based on certain criteria, it is determined whether the return will be selected to be sent to Examination.
  3. If selected, Examination decides if the return will be audited, and if so, assigns the return to an examiner.
  4. If the return has a business valuation appraisal attached, the examiner determines whether to send the appraisal on for review by an engineer (an engineer is an appraiser). The examiner can request a limited review or a full review of the appraisal.

Statute of Limitations

A statute of limitation is defined by the IRS as a time period established by law to review, analyze and resolve taxpayer and/or IRS tax related issues.

Estate Tax: In general, IRC 6501(a) requires the IRS to assess an estate tax liability within three years after the filing date (or due date, if later) of the estate tax return. The statute of limitations on assessment of estate tax cannot be extended. A deficiency must either be assessed, or a statutory notice of deficiency mailed to the taxpayer, prior to the expiration of the statute of limitations.

Gift Tax: In general, IRC 6501(a) requires the IRS to assess a gift tax liability within three years after the due date of the gift tax return, or three years after the gift tax return was filed, whichever is later. The statute of limitations on assessment of gift tax can be extended, if both the Secretary of the Treasury and the taxpayer agree in writing to do so.

Disagreements Between the Taxpayer and IRS

If the taxpayer wants to appeal an IRS decision and sufficient time remains on the statute of limitations, the taxpayer may go to the Office of Appeals. The Office of Appeals is an independent organization within the IRS whose mission is to help taxpayers and the Government resolve tax disagreements without going to Tax Court.

If there is not enough time left on the statute of limitations, the IRS will issue a notice of deficiency. Once the notice is issued, the taxpayer has the following options:

  1. Pay the deficiency;
  2. Pay the deficiency then apply to the IRS for a refund of taxes paid. If the IRS denies the refund, the taxpayer can sue in District Court or the Court of Claims; or
  3. Do not pay the deficiency and sue in Tax Court.

Chief Counsel attorneys defend the IRS in cases before the Tax Court. Department of Justice attorneys defend the IRS in cases before all other courts.

I hope this article provides some useful information regarding IRS policies and procedures associated with the filing of Forms 706 and 709. For more details on the process, refer to Article 26 §6501 of the Internal Revenue Code and Section 4.25.1 of the Internal Revenue Manual.

By Cindy Andresen, ASA


Appraisers and Their Responsibilities: An IRS Perspective by Theresa Melchiorre, ASA Advanced Business Valuation Conference, October 19, 2015

Internal Revenue Manual, Section 4.25.1. –

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Valuation Services as a Management Tool

Posted on October 21 2015 by admin

Most clients come to us for business valuation services because of outside requirements. They need an independent appraisal for tax compliance, financial reporting, marital dissolution or estate and gift planning, among other reasons. But even if you don’t have any of these needs, you might want to obtain an appraisal. Why would you want an appraisal?

Knowing the value of your business is essential to intelligent planning. Valuing the company is one of the most fundamental and important challenges faced by business owners as they consider transition plans. To execute a business succession in the most financially lucrative way, while preserving value and future growth prospects, they must know what the business is really worth. If your business were publicly owned, a value would be easy to calculate based on the price of its stock in the market. However, a private business requires a specialized understanding to determine value.

In many cases, owners believe that they have a strong understanding of the value of their business, based on their unique experience over the years with the company. Unfortunately, all too often this personal valuation does not consider certain market conditions and other key factors, and as a result, it does not represent what prospective buyers would be willing to pay. This can be attributed to a variety of factors, including the emotional attachment of an owner who developed the business. Additionally, “rule of thumb” values (e.g. 2 times revenues) provided by business brokers or hearsay about the sale of a similar business may distort the business owner’s perception of the company’s value.

As part of the appraisal process, a valuation analyst must gain an understanding of the many aspects of a business – in effect we strive to become as knowledgeable about your company as a potential buyer would be. You’ll be challenged to answer a number of questions about your company and its operations, and often the questions start with “why.” This can be a process of discovery for both you and the appraiser. We are asking questions to understand the value drivers in your business model (what drives cash flow and creates value), and you are taking a step back from your routine and refocusing your attention on the same topic: what drives value.

Another procedure in the valuation of a business is a comprehensive analysis of historical trends in business operations, along with a comparison of your company’s results to industry trends and benchmarks. Perhaps there’s a reason for your existing costs and capital structure, or perhaps there are other opportunities to explore that can result in greater value. A valuation analyst can bring those topics to light, and illustrate for you the impact of certain hypothetical conditions or changes, all else being equal.

Ultimately, you may choose to implement changes after consulting with an appraiser, or you may keep everything exactly as is for now. Either way, you’re refocused on what drives value in your business. That is one great reason why you should want appraisal services.

By Lynne Bouvea, CPA/ABV/CFF, ASA, CFE

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No More Swiping Means Safer Transactions, at Least in Person

Posted on October 14 2015 by admin

Many of you may have received new credit cards recently which contain a small metallic square on the left front of the card. These are new EMV (Europay, Mastercard and Visa) cards which are being used to authenticate card transactions with computer chips and related technology. If you are like me, you didn’t even pay much attention when the new card came in the mail since your old one was expiring. When I went to swipe it at the store, the cashier had to show me how to insert the card into the bottom of the terminal.


The new technology is being implemented to improve payment security by making it harder for fraudsters to counterfeit cards. The magnetic strips on our previous cards contained unchanging data which if obtained by a fraudster could be easily replicated. The new chips create a new transaction code for each purchase which cannot be used again. A fraudster who tries to duplicate the transaction code will find him/herself being denied when they try to use the counterfeited card.

The use of the new EMV technology won’t eliminate data breaches but experts are hopeful it will significantly reduce them, at least from in store breaches. Online retailers will still be vulnerable as many fraudsters will switch focus from in person data breaches to online. Great Britain began using the chip technology in 2001. According to the UK Cards Association, online fraud rose 55%t between 2005 and 2008.

Small businesses may be most vulnerable due to limited resources to use sophisticated software to quickly determine whether or not a transaction is fraudulent. The software can analyze a number of factors in a transaction including matching shipping and billing addresses, whether the transaction is placed from an unfamiliar computer or whether the email provided is unfamiliar.

As always, remain vigilant in checking your personal credit card statements and credit history.

By Melissa Loughlin-Sines, CPA, CFE, CVA, CFF, ABV

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Life Expectancy – Best and Worst States to Live In

Posted on September 29 2015 by admin

Hour GlassIf I am preparing a report on lost earnings in a wrongful death litigation matter, I will need to know what the expected remaining life would have been for the deceased subject involved with the lost earnings claim. I will use authoritative tables from government and private research sources to make the life expectancy determination.

Recently, I was perusing the internet searching for other sources for life expectancy tables and came across a website entitled USA LifeExpectancy. The site caught my eye because of the many statistics it had on living long in America. For example, the site indicates the state where white American males live, on average, the longest is the District of Columbia, at 82.07 years (okay, I know D.C. is not technically a state). Who would have thought with all of the stresses of political debate and argument going on in Washington D.C. that it would be conducive to long lives for white American males.

The state with the worst life expectancy statistic for white American males is West Virginia at 72.64 years.

I was curious how my own state, Arizona, stacked up to the other states in the site’s analysis. Arizona’s white American males have an average life expectancy of 77.31 years. It ranked 20th out of 51 USA states (including the District of Columbia) analyzed.

USA LifeExpectancy also showed those states where white American females lived the longest – and where they had the shortest life expectancy among the US states. Here again, they live longest in D.C. at 86.65 years and have the shortest life span in the state of Michigan at 77.05 years. In Arizona, a white American female lives an average of 82.26 years, with the state ranking 14 out of 51 states.

USA LifeExpectancy also showed life expectancy averages for males and females classified as Asian American, Hispanic American, African American and Native American. A comparison of the states where these races have the longest average life expectancy years and those with the shortest is shown below in Table 1. I’ve also shown the average life expectancy years for Arizona in Table 2.

Table 1



Table 2


The USA LifeExpectancy website does not indicate why some states have higher life expectancies than others. I have not verified the accuracy of the website’s statistical data. However, I do find the information presented at the website to be interesting. As Star Trek’s Spock would say, “Live long and prosper.”

By Don Bays, CPA, ABV, CVA, CFF

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Detection and Prevention of Fraud Schemes

Posted on September 15 2015 by admin

Do you worry about the potential for fraud in your company? There is a fairly simple and affordable way to help prevent and detect fraud – through implementation of a “tip line.” Because tip lines encourage and facilitate anonymous reporting, they are a proven fraud deterrent that can be successfully implemented without burdensome effort or expense.

The fraud triangle theory states that those who commit occupational fraud tend to have (1) a perceived financial need; (2) opportunity; and (3) rationalization. The threat of likely detection is one of the most powerful factors in fraud prevention because it all but eliminates the fraudster’s perceived opportunity. According to the 2014 Report to the Nations on Occupational Fraud and Abuse, which contains the findings of a biennial survey conducted by the Association of Certified Fraud Examiners (“ACFE”), the most common detection method in cases of occupational fraud is through tips, with over 42% of cases uncovered through tips.

It is not surprising that employees were the source of almost half of all tips that led to the detection of fraud in the ACFE survey, since the occurrence of fraud can have a negative impact on an organization – including those who work for it. At the same time, there is often a risk of backlash for whistleblowers, which likely explains why a substantial amount of tips were reportedly from anonymous parties (14.6%). The ACFE survey also found that over 21% of tips regarding fraud came from customers, and almost 10% came from vendors. Therefore, it is important that vendors and customers are also aware of options for reporting suspicions of fraud.

The overwhelming evidence in support of tip lines has spawned the development of several third-party tip line options. Tip line companies typically provide anonymous, 365/24/7 access and a variety of means of accessing the tip line. Costs are generally reasonable considering the risk of loss: minimum annual fees range from $500 for up to 100 employees to $2,000 for a cloud-based software solution. Different pricing options frequently exist for not-for-profits. Functionality ranges from companies that simply provide hotlines to those that provide tip lines in addition to a full governance, risk, and compliance program.

A good tip line can help a company defend against lawsuits, provide employees and others with an outlet for reporting ethical misconduct, and emphasize fairness in an organization. Tip lines are one of the most effective tools organizations possess for detecting and preventing fraud, and are well worth the cost of implementation.

By Lynne Bouvea, CPA/ABV/CFF, ASA, CFE

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Market Perspective

Posted on September 1 2015 by admin

The markets have been extremely volatile in the past few weeks. We saw sharp declines in the markets in the beginning of last week only to turn around and end the week with a slight increase in the S&P 500 and Nasdaq indices and a slight decline in the Dow Jones Industrial Average. The S&P 500 and Dow Jones are both down year to date.

Michael Carlin, Managing Member of Wealth Management and valued team member of Henry & Horne, LLP, provided a calming perspective to his Clients last week which I found to be helpful personally as an investor in the markets and when talking to Clients. Below are excerpts from Michael’s commentary that I hope you find useful (statistics shown are as of August 24, 2015).

“Even with the market turmoil, I want to point out a few salient facts that should help maintain perspective and understanding, and start with a quick note first: Since March of 2009, the stock market has been on a long, sustained secular bull market, meaning the market rolls higher. Another way to look at it – we had the 4th longest stock market run higher in history.

Let’s review the fact set that is providing the fuel for this downturn:

  • There is concern the Federal Reserve will increase interest rates in September. Important to note, the Fed typically increases interest rates to normalize our economy, so inasmuch as it is viewed as a negative, a rate increase indicates our economy could/should handle a move higher. So even if the Fed increases rates in September (feels unlikely) it should come with the sense that our total economic outlook is better than reflected in the stock market. As we sit now, jobs look well, inflation remains low and under control, and U.S. Growth estimates still fall in the range of 2% to 2.5% for the year.
  • China, it’s all about China to some pundits. Today China is down 8%+. Since June, China is down 33%+. However, these move lower take back gains in the Chinese market earned early in the year. As of now, including this move lower, the Chinese market is actually up for the year by more than 8%+. Right now, there are fears that China is slowing which is proven by much slower economic numbers coming out of Shanghai over the past few weeks. The weakened growth in China lead some to ponder whether it was possible for China’s robust annual growth to slim down from its +6% growth prediction to maybe a contraction or negative growth figure. The only way to know for sure the extent of China’s stagnation will be to know the numbers as they come out over the coming months. The reality is that China’s middle class is supposed to reach 340 million people in China by 2016 which is about the size of the total U.S. population. Those people are going to have money to spend and will find ways to use their funds and keep economic activity moving forward. So, when things go bad in China, it certainly has an effect on our market, but let’s keep in perspective that it will not take the U.S. down to the same degree.
  • The world is experiencing a currency crisis as the U.S. Dollar strengthens. For nearly 40 years the U.S. dollar gradually endured a decade by decade weakness against the major currencies of the world. This trend halted suddenly as European countries experienced renewed fears over Greece on year ago. Since then, the U.S. Dollar moved 14% higher versus the Euro. Yet it wasn’t just the Euro, when the world experienced turbulence and turmoil they turned to the U.S. Dollar for stability. In turn, the U.S. Dollar moved higher by 20% to the Canadian dollar over the past year, and up 10% compared to most emerging countries like the Indian Rupee and Thai Baht. The last time we experienced a currency meltdown similar to this was the 1997 Asian currency crisis. At that time, the U.S. Stock market dropped about 15% feeling the effects of contagion that started in East Asia. Once the U.S. stock market found a bottom around October of 1998, the market was up another 20% in the year following.
  • When markets drop 10% or more, statistics show that it usually takes about 5 months to complete the slide lower. Our hyper sensitive market dropped this amount in a few weeks. It makes some feel it could get much worse quickly which is not based on fact. What the timing does indicate is that it could be a sustained uneasy market for a period of the next few months.”

In summary, while a volatile market environment can create anxiety, it can also be an opportunity to find value in markets or stocks that have gone down too much. It’s important to be patient, not panic, and maintain a long-term perspective.

By Cindy Andresen, ASA

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Sales of New Homes in Metro Phoenix Surge in July

Posted on August 26 2015 by admin

Many economists believe this year’s surge in homebuilding is beginning to look more and more like a real recovery of the Valley’s new-home market.

New Home Permits Issued in July 2015 are 55% Higher than Prior Year

The Phoenix Housing Market Letter published by RL Brown and Greg Burger reports that:

  • New home sales were up 10% in July 2015 versus July of 2014.
  • 1,592 permits were issued in July 2015 for new houses compared with 1,024 in July 2014, reflecting an increase of 55%.
  • Year-to-date new home construction permits were up 39% compared to the same seven month period in 2014.

The newsletter attributes the recent increase in new-home construction and sales to improvements in the region’s economy, more existing homeowners able to sell and buy a new house, and boomerang buyers who lost houses to foreclosure who are now able to qualify for mortgages again.

Median Price of New Homes in July 2015 is 28% Higher than Median Price for Existing Homes

The median price of new houses sold in metro Phoenix during July reached almost $300,000, which is about $83,000 more than the median price for an existing Valley house.

  • Is it Time to Celebrate a Local and National Housing Recovery?

According to an August 18, 2015 CNBS article, U.S. housing starts rose to an eight year high in July of 2015. Housing starts have now been above a one million-unit pace for four straight months.

With that said, the recent plummet of stock prices will definitely affect consumer confidence and could tighten bank’s lending criteria. Let’s hope that new construction will continue to outperform last year’s numbers and contribute to the recovery of the local and national economy.

By Gary Ringel, CGREA

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Forensic Accountants: What Makes Them Effective – or Not?

Posted on August 11 2015 by admin

ForensicI have been performing forensic accounting services for clients since 1984. During that time, I have heard many definitions of “forensic accounting services” from other CPAs, seminar instructors, and attorneys. The American Institute of CPAs (“AICPA”) has a practice aid[1]  (“Practice Aid”) which gives the following definition of forensic accounting services:

“Forensic accounting services generally involve the application of specialized knowledge and investigative skills possessed by CPAs to collect, analyze, and evaluate evidential matter and to interpret and communicate findings in the courtroom, boardroom, or other legal or administrative venue. More simply, in a litigation context, the term forensic means to be suitable for use by a court of law.”

The Practice Aid states the following about the different types of forensic accounting services:

Forensic accounting services include dispute resolution, litigation support, bankruptcy support, and fraud and special investigations, among many other services. Forensic accounting services utilize the practitioner’s specialized accounting, auditing, economic, tax, and other skills to perform a number of consulting activities. The provision of forensic accounting services often requires the practitioner to serve as an expert or fact witness, depending on the assignment.”

In a white paper published by the AICPA[2], the following key observations regarding forensic accountants were stated in the Executive Summary of the white paper:

  1. The authors surveyed and received responses from 126 attorneys, 603 CPAs and 50 accounting/auditing professors in June 2009 to better understand the current perceptions of what it means to be an effective forensic accountant.
  2. The survey found that 60% or more of the attorneys ranked being analytical, detailed-oriented and ethical as essential traits and characteristics. All three respondent groups agreed that being analytical was the most essential characteristic for the forensic accountant to possess.
  3. Despite common traits and characteristics identified by all three respondent groups, only attorneys ranked effective oral communication as their top core skill for forensic accountants and that was followed by the forensic accountant’s ability to simplify the information. Auditing skills were ranked fifth, in a top-five (“Top 5”) ranking, by the attorneys, and ranked second by the academics but were not ranked in the Top 5 by the CPAs.
  4. More than 80% of the attorney respondents identified inability to simplify the information and ineffective oral communication skills as the top-two reasons why forensic accountants are ineffective, which is consistent with their Top 5 ranking of core skills for forensic accountants. The CPAs, on the other hand, identified inability to identify key issues and lack of investigative intuitiveness as the most common reasons for a forensic accountant’s ineffectiveness.

As a testifying expert, I have found that demonstrating effective oral communication skills includes having the ability to teach in the courtroom. For example, the forensic accountant must have a knack for taking very complex financial data and explaining it to those listening – judge or jury, in a manner that they easily understand. If the testifying forensic accountant notices a jury member or two starting to doze off while they are speaking, this may not be a good sign that they are getting their message across.


[1] Practice Aid 10-1, Serving as an Expert Witness or Consultant; American Institute of Certified Public Accountants, Inc., 2010

[2] White paper: Characteristics and Skills of the Forensic Accountant; authors: Charles Davis, Ramona Farrell and Suzanne Ogilby; published by the AICPA FVS Section

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Depositing Checks Remotely – The Banks are on Top of this, Right?

Posted on July 28 2015 by admin

Ah, the convenience of depositing a check right from my phone. How much easier could it get? Log onto my account, choose remote deposit, snap a picture of the front and back of the check and ABRACADABRA my check is deposited. No getting out to the bank or finding a deposit slip. Once I receive notification from my bank that the deposit has been accepted, I will typically write a note on the check indicating when and how I deposited it. Because frankly, I can’t remember what I had for breakfast this morning let alone whether or not a particular check has been deposited.

And apparently others can’t remember either. Individuals are finding that checks they have written for services are being cashed more than once. This is generally an honest mistake. The younger generations don’t typically balance their checkbooks as so many of us have been taught to do. And rather than combing through statements online, when they find a check that they can’t remember if they deposited or not, they just deposit it. This is known as double presentment. An area that some predict is ripe for fraud.

The banks are doing a pretty good job at catching most double presentments. But some smaller amounts have slipped through the cracks. And, if the check is presented via different channels (mobile deposit, ATM deposit, teller deposit) or at different institutions, it gets more difficult to catch a double presentment.

Be kind to those from whom you accept checks. If you deposit remotely, once you have confirmation from your bank that the deposit has been accepted, write on the check or simply destroy it. Don’t just throw it away for someone to find in the trash. And keep an eye on your own bank account if you still write checks.

Let’s stop the fraudsters before they can get started.

By Melissa E. Loughlin-Sines, CPA, CVA, CFE, CFF

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Mitigation – A Key Issue in the Assessment of Damages

Posted on July 21 2015 by admin

A damages award must consider steps the plaintiff took, or reasonably could have taken, to mitigate the alleged losses. The defendant has the burden to prove that losses could have been avoided by reasonable efforts of the plaintiff without causing undo expense or risk.

Duty to Mitigate

One of the principles limiting recovery of damages is a plaintiff’s duty to mitigate, that is, avoid or minimize damages. This requires that a plaintiff take appropriate actions to overcome the damages allegedly caused by the defendant. This principle is summarized in the Restatement (Second) of Contracts: (*)


(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

The duty to mitigate applies in virtually every type of litigation. For example:

  • In a breach-of-contract case, a plaintiff should make reasonable efforts to replace lost business.
  • A manufacturer that suffers a business interruption should minimize the impact by resuming operations at a temporary location or outsourcing production if possible.
  • An antitrust plaintiff prevented from entering a particular market should explore opportunities to invest in alternative markets.
  • A wrongfully terminated employee should make reasonable efforts to find other employment.

Burden of Proof

A Plaintiff’s failure to mitigate is an affirmative defense – that is, the defendant, as the party responsible for any losses, has the burden to prove that such losses have been, or could have been, reduced or avoided through mitigation. It is important that a damages expert understand what steps, if any, were taken by the plaintiff to mitigate its losses so the financial impact can be measured.

Evaluating Mitigation Opportunities

Evaluating mitigation opportunities can be every bit as challenging as measuring alleged losses. This is particularly true when the plaintiff purportedly failed to fulfill its duty to mitigate.

Estimating the impact of mitigation alternatives requires considerable professional judgment by the damages expert. Both the plaintiff’s business and industry must be understood to determine whether a mitigation opportunity is reasonable. And if so, the expert must estimate its impact on alleged losses.

The expert must also consider whether income earned subsequent to the wrongful act is the result of mitigation efforts, or is income that would have been earned in addition to the alleged losses in the ordinary course. It should be noted that a plaintiff is entitled to recover any expenses incurred in its effort to mitigate – even if unsuccessful.

Damages Assessment

The plaintiff’s duty to mitigate is an important issue that can have a significant impact on a damages award. It is, therefore, important for attorneys on both sides, along with their financial experts, to address this issue early in the litigation process.

By Lynne Bouvea, CPA/ABV/CFF, ASA, CFE

(*) Published by the American Law Institute, the Restatement of the Law is a set of treatises on legal subjects that seek to inform judges and lawyers about general principles of common law, and is one of the most respected and well-used sources of secondary authority.

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