Gleaning IRS guidance.

• Author: Reilly, Robert F.
• Position: Internal Revenue Service - Professional guidance for certified public accountants

Valuing assets for a client? Here's part I of a primer on IRS pronouncements that may provide guidance

CPAs who practice in the litigation support-expert testimony arena often seek professional guidance with regard to valuing unique assets, properties, or business interests. Sometimes, the guidance they seek relates to applying unusual valuation adjustments (discounts and premiums); adjustments for special market conditions; or preferred approaches, methods, and procedures in special circumstances. Typically, CPAs first research the relevant professional appraisal standards, appraisal literature, and appraisal organization publications and course materials. If these sources are insufficient, CPAs may next research the relevant statutory authority, judicial precedent, and administrative rulings, particularly if the valuations will be subject to judicial scrutiny.

When seeking professional guidance regarding litigation-related valuation, CPAs first consider statutory authority and judicial precedent regarding the specific litigation matter. However, if this guidance is still insufficient, CPAs may look to Internal Revenue Service (IRS) pronouncements. Even though such pronouncements may have no legal standing with regard to the subject litigation matter, numerous IRS pronouncements and publications provide professional guidance concerning preferred valuation methodologies, procedures, data sources, and reporting.

To use these pronouncements and publications effectively, CPAs need to understand the relationship and relative authority of IRS pronouncements, as well as their relative precedent value (or lack thereof) with regard to federal taxation valuation matters.

Federal tax law

The authorities that constitute "the law" with regard to federal taxes are the Internal Revenue Code (IRC) and the Code of Federal Regulations (CFR). The IRC codifies all federal tax laws including income, estate, stamp, gift, excise, and other taxes. To implement the IRC, the federal government designated the Treasury Department to supervise administration and enforcement of the federal tax laws and created the IRS. The IRC is the final statutory authority on federal taxation issues.

The current codification of the U.S. tax laws is the IRC of 1986. The IRC is divided into subtitles, chapters, subchapters, parts, subparts, sections, subsections, paragraphs, subparagraphs, and clauses. Subtitle A includes the tax law related to income taxes. Subtitle B includes the...