Treasury Department Circular No. 230 contains regulations governing the practice of accountants, appraisers, and others before the Internal Revenue Service. (Full text is available in pdf format here.)
Aside from adding to the endless disclaimers at the end of every business email, there are important items related to business valuation.
- § 10.22 Diligence as to accuracy. (b) Reliance on others. Except as provided in §§ 10.34, 10.35 and 10.37, a practitioner will be presumed to have exercised due diligence for purposes of this section if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between the practitioner and the person.
- § 10.50 Sanctions. (b) Authority to disqualify. The Secretary of the Treasury, or delegate, after due notice and opportunity for hearing, may disqualify any appraiser for a violation of these rules as applicable to appraisers.
- (1) If any appraiser is disqualified pursuant to this subpart C, the appraiser is barred from presenting evidence or testimony in any administrative proceeding before the Department of the Treasury or the Internal Revenue Service, unless and until authorized to do so by the Director of the Office of Professional Responsibility pursuant to §10.81, regardless of whether the evidence or testimony would pertain to an appraisal made prior to or after the effective date of disqualification.
- (2) Any appraisal made by a disqualified appraiser after the effective date of disqualification will not have any probative effect in any administrative proceeding before the Department of the Treasury or the Internal Revenue Service. An appraisal otherwise barred from admission into evidence pursuant to this section may be admitted into evidence solely for the purpose of determining the taxpayer’s reliance in good faith on such appraisal.
Many appraisers are concerned about an apparent lack of due process safeguards if the IRS chooses to challenge an appraisers’ work, as indicated in a recent letter (pdf) to the IRS.
My main takeaway is that accountants and appraisers should be extremely cautious about the quality of valuations submitted for tax purposes. Particularly for accountants that occasionally “dabble” in valuations, the risk includes not only monetary penalties, but also the possibility of being barred from future practice before the IRS! In addition, the requirement for diligence as to accuracy precludes a tax preparer from “turning a blind eye” to the quality of third-party valuations.
Whether you run a service business or any other kind of business, it’s important to focus on your target market.