Wednesday, April 28, 2010

IRC 409A tax court cases

With some of the first court cases appearing in the 409A area (See Slater vs Commissioner of Internal Revenue at, it is time to assume that the IRS is auditing 409A provisions and associated valuations. It is in this background we have to note the mushrooming of firms in this area. It has come to our notice that several firms are getting the work done overseas and in fact there are foreign firms offering these services in the US. One of the main issues with working in an outsourced manner is the lack of an expert that can be relied upon as expert testimony in such cases. As we all know, the IRS imposes penalties if the tax liabilities have not been measured under a fair market value standard under the 409A regulations. Given the size of IRS penalties and the nature of add-on penalties, it is important to work with US based firms that have a good understanding of the legal systems here, an understanding of what it takes to be an expert witness and have solid relationships with audit firms. We have been concerned a bit by the outsourced model, where foreign analysts compute and calculate the valuations with no experts out here to back such values. While costs are a major factor for start-up companies in getting this work done, firms such as ours have used technology extensively to negate the cost savings arising from an outsourced model. Given that we fully back our valuations and our principals have been subject to audit processes,  we believe that we offer the best possible affordable service in this area.

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