The questions and answers below are a continuation of the interview between Howard Lewis, the Executive Director of Institute of Business Appraisers (IBA) and Jim Hitchner, editor in chief, of the Financial Valuation and Litigation Experts newsletter. The culmination of this dialog portrays IBA Headquarters vision on the Future of Business Valuation in the United States.

1.     In the interview Howard Lewis was asked to provide a short summary of what is currently going on in your organization and then a short summary of what you intend to do in the future.�
      a. Standards – IBA created joint task force with NACVA to explore the unification of IBA and NACVA standards, as the first step toward a profession-wide unification effort. Task force drafted completely new principles-based standards, currently in exposure draft within the organizations.
      b. Certifications/accreditations – IBA’s ABAR credential and the workshop course (1044) was reintroduced in February, 2009. It has received the highest customer satisfaction scores of any course in IBA’s history. In that short period of time, over 75 members and non-members have completed the requirements and been accredited. IBA reviewed and revised the requirements for its CBA – Certified Business Appraiser – credential, especially for candidates who hold a BV credential from a peer association. IBA will soon announce the succession plan for its Qualifications Review Committee for the CBA, introducing a new Chair, a new process, and the continued commitment to the highest peer review standards in the BV profession. IBA announced the sun setting of its “junior” “AIBA” credential – Accredited by the IBA, and developed procedures to support the development of AIBA holders to the CBA credential.

2. Same question. What is currently going on in your organization and then a short summary of what you intend to do in the future?
      a. Organizational structure – IBA completely reengineered its member governance structure and all elements of the related processes. We created four new Boards and four new Committees. We established elections for the Board positions and have held two elections in the past year and a half. Committees are volunteer groups and all four are fully staffed and all Boards and Committees are actively engaged in improving IBA member services. IBA introduced organization-wide voting for its Board of Governors. Three-quarters of the Governors (as of June, 2008) have retired and been replaced by Governors elected by membership or appointed, per the governing rules, by the Executive Director. IBA’s Board of Governors elected a Chair (for the first time in IBA’s history), and the Board now includes a significant percentage of women Governors (again, for the first time in IBA’s history).
      b. Services – IBA completely reengineered the Sales Transaction Market Database, the largest and oldest in the BV profession. We introduced a web application, providing access to members and subscribers on a 24/7 basis, and added 3,000 new transactions in the past six months alone.
      c. Other – We moved into our new headquarters on NW 5th Street in Plantation, hired several new staff members, and look forward to continuing to serve all our members in the fine fashion for which IBA has always been known.

3.   At the leadership/committee level, what do you believe the relationship is amongst the four groups?
      IBA has a strong alliance with NACVA, as a result of the reorganization of IBA in June, 2008. NACVA provides administrative support, facility planning, education support, and several other services to IBA, in exchange for appropriate compensation. IBA and NACVA have joined together to produce annual conferences in 2009 and 2010, and are currently working on the 2011 conference. Members of both organizations report the highest customer satisfaction with the joint conference. IBA communicates regularly with all peer BV associations in an effective manner.

4.   Do you believe there will ever be convergence in the four BV standards of all four groups? This is the number one challenge facing our profession. IBA and NACVA decided in late 2009 to form a joint task force to study the issue of standards unification. IBA believes that a successful effort in this initial endeavor will stimulate the rest of the profession to join the effort towards convergence.

5. Mr. Lewis was asked to provide a short summary of what is currently going on in the organization and a short summary of what is intend for the future of IBA.
      a. Membership growth – IBA membership overall is stable. IBA’s most significant growth is in the ABAR credential (see 1(b)).
      b. Education – IBA thoroughly reviewed every core and advanced course in its curriculum in 2010, completely revising and replacing the following major courses: 8002A/B with 8003/4 (core business appraisal courses – previously mostly lecture, now highly interactive); 1010 (report writing) – completely revised the content and the approach; this course is now hands-on, interactive; 1044 (ABAR – Business Appraisal Review Accreditation Workshop) – replace the former 2-day course with the present 4-day course, thoroughly revamping the material, case studies, approaches, examination and peer review studies; 1006 – Exam Preparation for the CBA credential – converted to distance-learning, thereby saving students considerable travel, lodging, and tuition expense; 7100 (BVAL – Business Valuator Accredited for Litigation) – completely revised the course, using a team of five subject matter experts – leading practitioners from the profession.

6.   What is your view on international BV standards? IBA monitors the IVSC activities and annual releases. IBA recently appointed one of its members to a task force whose charter includes reviewing FASB and IASB standards for valuation implications.

7. Do you believe any BV service line areas have become more commoditized? What about in the future? Yes and no! The body of knowledge and range of applications, while vast, is still finite and all the associations participate in many related aspects of the profession’s service lines. That said, the cultures, histories and areas of focus of each of the associations is significantly different and, where different, represents a continuing specialization, not commoditization.

8.   What do you believe the growth service areas in the BV profession are currently? (a) Appraisal quality and therefore the increasing importance of review appraisers. (b) Valuation forensics. (c) Damages evaluations. (d) Financial accounting valuation.

9.   What do you believe the growth service areas in the BV profession will be in the future? Same as #8.

10. Will BV continue to grow at the same rapid pace as in the last ten years or so? I doubt it. In the next ten years, additional specialization will be the focus of many practitioners.

11. It is often heard that the BV profession is, unfortunately, a bad mouth business? In other words many individual BV analysts seem to have, let’s just say, very strong opinions about certain other BV analysts. What is your view on this? I’ve worked in manufacturing, education, engineering, government, the private sector and the BV member services environments. I see no significant difference between any of these environments. People are people.

12. What do you believe are the best reasons to do volunteer work for BV Groups? Why do people donate hundreds, and sometimes thousands of hours to a BV group or multiple BV groups?
      The best way to learn is by association. The more involved members are in the governance of their association, the more there is to learn from others. It also builds character to assume leadership roles in any organization, and name recognition in the profession is a giant “plus” that results from dedicated service of this nature.

13. What do your members complain the most about concerning your group?
      Too many emails. Confusing standards across the profession.

14. What do you think your members like the most about your group?
      The willingness to “share the wealth,” that IBA has always been known for. Also, members are enthusiastic about recent changes at IBA, especially the commitment to member satisfaction and the opportunities now afforded to affect the association’s future direction.

15. What do you believe are the top three or so issues/challenges that are confronting BV analysts and the profession?
      1 – the “competition” from BV practitioners, who are less qualified, less educated, and compete on a low-bid basis
      2-  the proliferation of confusing, and complex models (such as DLOM) that are so hard to comprehend and explain to others
      3 – standards confusion – see above comments on unification efforts

16. Do you think the BV profession is getting more specialized and, if so, how? Has the sun set on BV generalists?
      As I’ve said previously, complexity and specialization are two issues confronting the profession. There will be more specialization. That said, generalists are vital parts of the profession and always will be. The sun will set on BV generalists when there are no more general practitioner MDs.

17. What is the biggest change you have seen in the BV profession during your tenure and what is the biggest change you anticipate in the profession going forward?
      The biggest change is a negative one. Some, not all, of the organizations have reduced their standards for accreditation, making it easier to qualify but weakening the very strength of the profession we have always been known for. Organizations that maintain their qualification standards or seek recognition for their credentials in the broader industry will continue to be known as the organizations with the greatest commitment to quality and standards.

18. What advice would you give to someone who is thinking about getting into the BV business?
      Find a mentor. Plan your education. Choose areas of interest. Investigate all training and networking opportunities. Make a lot of money.

Mark S. Farha

06-02-2010

A lack of formal business training may adversely impact recent legal graduates’ practices in two ways. Lawyers entering solo practices or small firms that must manage their own practices will lack the knowledge base to do so effectively. Lawyers representing businesses will be less effective representing and developing clients. The information below is a quick introduction to what recent law graduates should know about accounting, finance, marketing and management.

• Accounting and finance. Lawyers managing solo or small firm practices must develop procedures to account for client billing, collections and expenses and to ensure their records will withstand an Internal Revenue Service audit.

With regard to billing, attorneys may opt to simply keep track of hours, and bill clients manually, using a typical word processing program. However, there are other software solutions specifically for billing, such as Timeslips. Typically, multiple billing parties with different rates will need specialty billing software, whereas a solo may not.

To maintain records of expenses and revenues, it is important for an attorney to consult with a CPA to determine items that may be deductible expenses for IRS purposes. A CPA will often work with a bookkeeper who will maintain accounting records for the law practice, typically using QuickBooks. The attorney may transmit monthly statements and receipts to the bookkeeper, who will maintain records. Another alternative is for attorneys to purchase QuickBooks and maintain records themselves or through an office administrator. Again, billing clients accurately and regularly while ensuring compliance with IRS rules is the goal.

A lawyer managing a solo practice or a small firm should consult a CPA to understand the advantages of tax-deferred retirement accounts such as a SEP-IRA. If a lawyer works for a firm that has its own internal procedures, these internal management principles are nonissues. However, if an attorney lacks tax and accounting expertise, that attorney must involve a CPA or tax attorney to make sure that transactions are handled in a manner that is tax efficient.

A firm is no different than its clients: Tax considerations drive many decisions, such as choice of entity and the manner of structuring a transaction. Business lawyers would benefit from taking CLE courses or night classes at a local college that address basic accounting and financial issues, to allow them to identify issues they should delegate to other professionals.

Appraising the value of a business is an issue that pervades many business transactions. Business lawyers and litigators who handle commercial matters should learn the basic precepts of business valuation. It is not uncommon for a less sophisticated client who is buying or selling a business to ask his lawyer to advise him of the appropriate sales price. While giving a precise answer may be unadvisable, a lawyer should at least be able to describe various methods of valuation, such as book value, discounted cash flow analysis, comparables and multiples of earnings per share. Again, CLE, college courses, and various books and articles can give attorneys a basic introduction to key concepts. For those willing to invest the time, a few hours in finance and accounting at any local college is very valuable.

• Marketing and management. To represent a business client effectively, a lawyer should understand the client’s product or services, how the client markets those products or services, and how the clients manages the business. Indeed, it is paramount that a lawyer takes the time to learn the client’s business early in the engagement. Oftentimes, a chalkboard session with the client to learn more about her company’s products or services is most beneficial.

Additionally, a lawyer should learn client development skills to ensure long-term success. For solo and small firm lawyers, developing a well-optimized website is important; optimization means key word searches will bring the lawyer’s website to the top of the lists resulting from Internet searches. Television and other forms of advertising may also be effective primarily for lawyers that represent individuals in divorce, bankruptcy, personal injury and other matters where the prospective clients are likely to turn to advertisements to locate a lawyer.

Many lawyers believe networking is the cheapest and most effective form of “advertising” because they prefer referrals as their primary source of business. The following are sample activities that may serve this function: attending local and state bar functions; serving on local and state bar committees; drafting CLE articles and giving CLE presentations; becoming involved in civic organizations, such as local charities, the chamber of commerce or other organizations; and becoming involved in a local alumni association.

For lawyers working for firms with existing infrastructure, the management component will be largely preordained. However, small firm or solo lawyers must address numerous practice management issues such as hiring, supervising and possibly terminating administrative staff; setting up filing systems; and choosing and maintaining IT systems. The solo and small firm sections of the Texas and local bar associations provide resources, as does the State Bar of Texas’ website.

Mark S. Farha is a Dallas solo. He holds an M.B.A from Southern Methodist University Cox School of Business and a J.D. from Vanderbilt University Law School. He focuses on business law. His e-mail address is mark@businesslawyer.net.

Posted with permission from Mark S. Farha and Law.com

Law.com: Accounting, Finance, Marketing and Management for Recent Law Grads 6/1/10 10:50 PM

http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202459061250

The business appraisal profession is growing rapidly, and with these changes comes the requirement for frequent and dynamic education that meets the needs of our ever-changing business landscape.

Featured in Wall Street Journal’s MarketWatch News site and CBS’ Money Watch, IBA’s new certification workshops, 8003 Introduction to Business Appraisal and 8004 comprehensive Certified Business Appraiser, are receiving accolades nationwide. In every profession there are noted practitioners whose quality and competence stand out from the rest. In the field of business appraisal, these “stand-outs” are Certified Business Appraisers (CBA).

Effective August 1, 2010, all new business appraisers applying for IBA’s Certified Business Appraiser (CBA) designation will be required to complete IBA’s newly developed accreditation workshops 8003 Introduction to Business Appraisal and 8004 comprehensive Certified Business Appraiser (CBA) Workshop (accredited member exemptions may apply). These workshops have been redesigned By KC Conrad, CBA, CBI, CMEA, ASA and Dennis Bingham, MCBA, CFM, CMA, BVAL to enable CBA candidates to succeed in both IBA’s accreditation examination and peer review processes, as well as in the development of their appraisal practices.

Who Should Attend? The CBA credential’s reputation of excellence is unrivaled, and is sought by ABVs, ASAs, AVAs, CPAs, CFAs, CVAs, business brokers, business consultants, financial analysts, real estate appraisers, real estate brokers, and investment bankers all over the world.

Course Dates and Locations
The 8003 Introduction to Business Appraisal will be held in:

August 9–13, Newport Beach, CA at the Island Hotel
October 25–29, Washington, DC, at the Marriott Wardman Park Hotel November 8–12, Chicago, IL, the Hotel Monaco
December 6–10, Las Vegas, NV, the Mirage Hotel

The 8004 comprehensive Certified Business Appraiser (CBA) Workshop will be held in:

September 20-24, Dallas, TX, CA at the Fairmont Hotel
October 25–29, Washington, DC, at the Marriott Wardman Park Hotel
December 6–10, Las Vegas, NV, the Mirage Hotel

Throughout the new 8003 and 8004 workshops, students build a full business appraisal skills inventory through the integration of financial modeling, interactive valuation simulations, and small group think tanks. The new 8003 and 8004 workshops will supersede IBA’s Essentials of Business Appraisal Workshops 8002A and 8002B after July 30, 2010. (IBA 8002B will be offered once more July 26-29 in Orlando, FL for those who have taken IBA 8002A.) Additionally, CBA candidates are encouraged, but are not required to attend IBA’s 1010 Advanced Report Writing and Analysis Workshop and the 1006 Preparation for the CBA Examination course or webinar. Please visit www.go-iba.org to review a list of all CBA accreditation requirements or contact IBA headquarters at (800) 299-4130.

The Pioneer of Business Appraisal
The Institute of Business Appraisers was the first organization to adopt business appraisal standards and ethics. Established in 1978, the Institute is the pioneer in business appraisal education and professional accreditation. IBA offers four business appraisal certifications which include the Certified Business Appraiser (CBA), the Accredited in Business Appraisal Review (ABAR), the Business Valuator Accredited in Litigation (BVAL), and the highly-acclaimed Master Certified Business Appraiser (MCBA) designations. 

About IBA —The Institute of Business Appraisers is the oldest professional society devoted solely to the appraisal of closely-held businesses.  IBA’s education focuses on showing students “how to” perform the work. Our education courses provide a unique, hands-on, interactive approach to learning. IBA measures success by the professional advancement of its members. Headquartered in Fort Lauderdale, FL, and the Institute’s members receive free technical support and FREE access to IBA’s Market Database, the industry’s largest database of closely-held comparable business sales. To learn more about the benefits of an IBA membership, visit www.go-iba.org or call 800-299-4130.

The United States Tax Court, in a memorandum decision (Scheidelman v. CIR, T.C. Memo. 2010-151, No. 15171-08), dated July 14, 2010, sustained deficiencies and penalties assessed against the taxpayer, disallowing deductions claimed for charitable contributions of an historic façade easement. Most tax valuation disputes center on the value of the property. The IRS rarely asserts deficiencies and even more rarely tries cases on the basis of the qualifications of the appraiser or the quality of the appraisal. I believe Scheidelman is an important signal, from the IRS and the Tax Court, and the appraisal community is well advised to take heed.

     Notwithstanding the memorandum nature of the decision, the IRS and its appraisers will understandably see this decision as further reason to inquire deeply and analyze critically both appraiser qualifications and appraisal quality. In this instance, the IRS argued that the taxpayer’s appraisal did not satisfy the requirements of Regulation Section 1.170A-13(c), which specifies the elements required to be contained in a qualified appraisal. The fact that this matter involves a charitable contribution deduction is less important than the understanding that comes from an analysis of the Service’s approach to appraiser qualifications and appraisal quality. Most of the evidence at trial dealt with the valuation of the property. The Court opined, “Because we conclude that the Drazner report is not a qualified appraisal, we do not discuss this evidence or reach a conclusion as to the value of the easement.” I admit that I argued for years that the IRS should pay more attention to the rules governing appraiser qualifications and appraisal quality and, I admit, I am glad they are doing so. It makes the value of our profession’s education and accreditations more important than ever, and IBA is uniquely positioned to address the specific issue of “what constitutes a qualified appraisal?”

  Appraisers interested in learning some of the ways that IRS appraisers review appraisal reports can attend IBA’s course Business Appraisal Review (ABAR) Accreditation Workshop held in Newport Beach California on August 9-12, 2010 and Washington, D.C. on October 25-28, 2010.

   Course 1044 and the associated ABAR accreditation ensures that practitioners and firms are equipped to optimize the quality of business appraisals produced by firm associates by teaching a 5 step process for reading and critically evaluating the quality of a business appraisal report. Avoid potential penalties by ensuring that your reports meet a strict quality assurance protocol as demonstrated in IBA’s ABAR accreditation workshop. You and your taxpayer can both be penalized if your appraisal is determined to be disqualified.

   Appraisers interested in distance learning can now attend the Accredited in Business Appraisal Review (ABAR) Designation Available via Distance Learning- A Four Part Webinar Series held on September 13, 2010, October 12, 2010, November 05, 2010, and December 03, 2010. Contact IBA at 800-299-4130 for details or to receive a personal consultation on how your firm can benefit from the ABAR workshop.

On July 29, 2010 the Institute of Business Appraiser (IBA) will co-host a cutting edge two hour webinar to address the economic loss claims that inundate the gulf coast region as a result of the BP Oil Spill. Businesses throughout the gulf coast region have already felt the impact of the Deepwater Horizon Oil Spill. However, there is no estimate that can predict how far reaching of an economic impact the BP Oil Spill will have on small businesses around the country. 

On May 27 at a Senate hearing in Washington, D.C., Small Business Development Center director, Carmen Sunda, testified as to how the spill is affecting businesses, such as fishermen, seafood processors, used car dealership owners, and construction contractors in the gulf coast region. 

In her testimony Mrs. Sunda stated, “The worst part is that it has no foreseeable end. People can’t estimate the value of their long-term losses or the long-term impact, because they can’t define ‘long-term’ – does it mean this season, a few years, or a life-time?”  Every day, more businesses will be impacted by the spill. Unlike other catastrophes, there is a system in place to file claims for businesses and individuals that have incurred losses. 

IBA’s webinar, Loss Claims Resulting from the Deepwater Horizon Oil Spill and the BP Claims Process, will help business appraisers, financial professionals, legal professionals, and business owners understand the claims process. The webinar presented by, M. Jason Weil, Esq. and moderated by IBA Governor, Marcie D. Bour CPA/ABV, ABAR, CVA, CFE, BVAL, CFFA, will cover the legal basis for claims and cover the claims process. Attendees will learn when it is appropriate to file claims and which damages should be included in separate claims. The webinar will also address which documents are required to support claims and what options are available to a business when its claim is denied.

The webinar presenter, M. Jason Weil, holds a law degree from Nova Southeastern University, Sheppard Broad School of Law, a graduate degree in Computer Science from Harvard University, and a Bachelors of Arts degree majoring in Psychology from the University of Colorado in Boulder, Colorado. Prior to his legal career, Mr. Weil worked in several industries, including health care, telecommunications, and the internet as a business analyst and technology developer. Prior to joining Krupnick Campbell Malone Buser Slama Hancock Liberman & McKee as an associate in the areas of international and environmental law, he practiced in the areas of bankruptcy, probate, and commercial litigation. Jason is a member of the American Bar Association and is an admitted member of the Florida Bar, and the United States District Courts for the Southern and Middle Districts of Florida.

The webinar moderator, Marcie D. Bour, is President of the Florida Business Valuation Group and a member of the American Business Appraisers National Network. She provides business appraisal services, forensic accounting and litigation consulting services. She has over 25 years of professional experience. She has extensive experience in preparing business damages and has worked on a number of claims and has lead a team of experts in developing a three day, Business Interruption Losses and Claims, workshop.  Marcie is an IBA Governor and was IBA’s Chair of the NACVA/IBA 2010 Consultants Conference. More 

Click here to learn more and register for this important webinar. Financial professionals interested in learning how to calculate damages are encouraged to attend, Business Interruption Losses and Claims, a three day workshop scheduled in Newport Beach, California on August 9-11 and Atlanta, Georgia on November 15-17, 2010.

 This Loss Claims Resulting from the Deepwater Horizon Oil Spill and the BP Claims Process two-Hour Live Webinar Presentation was developed in partnership with the Institute of Business Appraisers, the Consultants Training Institute, and the National Association of Certified Valuation Analysts. 

Mr. Fox’s presentation focuses on the technical use of regression analysis to determine the validity of various valuation methods. With his classic New Orleans sense of humor, Mr. Fox began the talk with the following quote:

“Statistics show that teen pregnancy drops off significantly after age 25.”
-Colorado Springs State Senator MaryAnne Tebedo

Mr. Fox’s goal of showing the quote from MaryAnne Tebedo most likely was to impress upon the audience the need for business appraisers to understand the validity of their conclusions. For example, if an appraiser relies upon the direct market data method to value a company, the market data sample should be analyzed to determine if any conclusions can be drawn from the market multiples. To perform a regression analysis, certain assumptions must be made, such as that the relationship between the independent variable, “x”, and the dependent variable, “y”, is linear in nature. The assumptions vary based on the type of regression performed.

When using the ordinary least squares method of regression, the independent (x) and dependent (y) variables are plotted on a traditional graph. A line is drawn on the graph that minimizes the differences between the observations (i.e., the plot of the x and y coordinates) and the corresponding points on the regression line (i.e., predicted values). The “differences” between the line and the observations are often called residuals. 

One of the key assumptions of a valid regression analysis is that the residuals are independent of each other. If the residuals are related in some manner, then autocorrelation may be an issue. Autocorrelation can cause the results of the regression to seem more reliable than they actually are. Another tongue-twister of a statistical word was that for linear regression analysis to be valid the residuals must be homoskedastic. Homoskedasticity means that the actual y values (dependent variables) have the same probability of occurring, regardless of the x values. Mr. Fox provided real-world examples of how these issues arise in the course of a business appraisal. 

Mr. Fox downloaded market data from the IBA Market Database on Standard Industrial Classification code 5962 (automatic merchandising machine operators). He began his analysis by observing the data and ensuring that there are no nonsensical data points (e.g., price or sales are negative numbers). He used Microsoft Excel’s regression analysis add-in to regress a scatter plot of sales (x variable) and the corresponding prices (y variable). The R Square statistic from his presentation slides was 64%, which indicated that sales may be a good predictor of the price paid for a company. However, the standard error of the estimate was large, which could be an issue for an expert witness if a Daubert motion is raised by opposing counsel. Mr. Fox further analyzed the regression analysis with various other tests, such as the Durbin-Watson statistic, F-test, and T-Test. The intricacies of these tests should be understood by the appraiser to determine if his or her conclusions are valid. 

In addition to performing a regression analysis on the IBA market data, Mr. Fox also presented examples of how a regression analysis can be used to forecast sales or earnings, determine the cost of capital, and to determine non-controlling interest discounts. His primary assertion throughout the presentation was that a business appraiser must understand not only the assumptions and complexities of a regression analysis, but how a regression analysis can be challenged by an opposing professional. In some cases, regression analysis creates a perception of high analytical rigor, when in reality a ruler would have sufficed. Richard Fox is president of Fox Business Appraisals, LLC, deals primarily in business valuations for estate planning, marital dissolution, mergers& acquisitions, and litigation support. He is an active Lifetime member of the Institute of Business Appraisers, holding the designations of Certified Business Appraiser (CBA) and Business Valuator Accredited for Litigation (BVAL). He is a member of the CFA Institute and the CFA Society of Louisiana. Mr. Fox is a qualified expert witness for the U.S. Bankruptcy Court, Eastern District, and his work has been submitted to the IRS, US Bankruptcy Courts, and local courts. Mr. Fox holds a B.S. in Mathematics and an M.B.A. in Finance from Tulane University, and currently teaches Finance at the Southeastern Louisiana University School of
Business.

In his presentation entitled What Next- An Economic Update from the Federal Reserve Bank of Atlanta, Dr. Altig described the current “Alice Cooper” labor markets, referring to a Cooper song about a guy who needed a car to get a girl, a job to get a car and a car to get a job, so he was looking for a girl with a job and a car. On a more serious note, the civilian unemployment rate was 9.9% for April 2010. Actual unemployment is much higher. Once the marginally attached employees and the part time employees, due to economic reasons, are added to the unemployed, the rate climbs to 17.1% for the same period. 

The Federal Open Market Committee projects that the civilian unemployment rate is expected to improve slightly to 9.0% by the end of the year. The FOMC expects the labor market to recover slowly, with unemployment declining to somewhere between 8.1% and 8.5% in 2011, and between 6.5% and 7.5% in 2012.

As part of the larger picture, the US labor market declined more than any other developed country. In contrast, GDP losses were less severe in the US when compared to other developed countries. According to Dr. Altig, this could be due largely to the differences in the employment environment in the US as compared to other developed countries. US employees appear to be bearing more of the economic impact of the downturn than employees in other countries where the labor markets have been more stable. In other developed countries, it appears that businesses have been forced to absorb the brunt of the economic downturn, explaining their higher losses in GDP. Other factors could be at play in the labor markets, including a change in business models towards cross training and efficiency.

The leaner labor markets in the US have resulted in higher productivity. It is possible that the “normal” in the US labor market has changed. In the long run, these changes in employment could allow growth to progress at a faster pace in the future. For the time being, the first quarter of 2010 GDP is expected to be 3%. 

MISSED THE 2010 NACVA/IBA CONSULTANTS’ CONFERENCE?
The conference sessions are now available as video broadcasts-click here to view of list of over a dozen of sessions available on video or here to register now!

VIEWING THE VIDEO BROADCASTS
The link to the video broadcast will be emailed to you in a separate follow-up email on Friday, June 28. Watch the video broadcasts anytime before Friday, July 2.

IBA’s major recommendations were:

IRS should, at a minimum, develop a set of objective standards by which the “more likely than not” exception to the penalty can be evaluated. These standards may include a presentation of the appraiser’s experience, accreditation, training and other measurers of knowledge, skill, and ability to be used as a temporary safe harbor from imposition of the penalty.

 IRS staff members authorized to assert the penalty must be fully trained as appraisers and should be accredited and held to the same standards to which the IRS now holds private sector appraisers.

 IRS should consider creating a panel of professional appraisers, representing the major appraisal organizations, to evaluate the credibility of the work of appraisers against whom an assertion of the penalty is being considered. 

IRS letter 4477, currently proposed to be issued to appraisers notifying them of the penalty examination, should be replaced with a less formal contact to address the potential for misuse of the notification process. 

IRS should consider using business appraisers holding a credential in appraisal review, such as the IBA’s ABAR accreditation, to assist in the determination of the applicability of the penalty, especially under the “more likely than not” exception.

Click “here” for a link to the original IBA eNews article.

 IBA received the IRS’ response to the recommendations. As a result, IRS is revising the Letter 4477, and reviewing issues involving the “more likely than not” standard. The text of IRS’ letter follows: 

The IRS Office Servicewide Penalties met with you in February to talk

about IRC Section 6695A, Penalty for the Substantial and Gross Valuation

Misstatements Attributable to Incorrect Appraisals. This included a

discussion about what is working and what needs improvement relating to

field examiner procedures for implementing IRC Section 6695A.

I would like to update your organizations about two of the issues we are

currently working on as a result of this meeting.

We are revising the Appraiser Appointment Letter 4477. This is

taking longer than expected because this letter has to go through a new

IRS review process designed to simplify correspondence.

Some of the eight Appraiser Organizations requested that the IRS

to suspend enforcement until the phrase “more likely than not” is

defined. The phrase “more likely than not” relating to assessing the

penalty is contained in IRC 6695A(c) Exception. It states: “No penalty

shall be imposed under subsection (a) if the person establishes to the

satisfaction of the Secretary that the value established in the

appraisal was more likely than not the proper value.” The IRS is

reviewing this request. 

Thank you for your continued support as we review your concerns and work

towards resolution of issues. I look forward to working with your

organizations to refine and improve our processes.

Susan Deidrich
SB/SE Exam Policy: Sr Mgr Servicewide Penalty Program
IRS

Fort Lauderdale, FL —June 5, 2010—The Institute of Business Appraisers is very pleased to announce the electees for each of our four IBA Boards. They are as follows: 

It is in IBA membership’s interest to provide for member oversight of critical IBA activities. IBA’s leadership supports this by our Board and Committee structures. Boards and Committees work to support innovative member services through course and product development, research, authorship, instruction and setting the highest example of ethical conduct and standards.

Congratulations to all newly elected IBA Board members. IBA members who are interested in becoming active in an IBA committee are encouraged to contact IBA Headquarters at 800-299-4130 to learn more.

The Pioneer of Business Valuation
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APPRAISAL FALLOUT

STAN POLLOCK, DMD, MS, PHD, JD, MCBA, BVAL, ABAR, CMEA 

            Dentists were deeply affected by the recession last year, 2009 was a difficult year for dentists and dentists are cautious about the year ahead.  The American Dental Association (ADA) reported these findings in its new Quarterly Survey of Economic Confidence.  The survey revealed that the net incomes of dentists declined more than 5%. Respondents to the Survey were less optimistic about future economic conditions and future gross billings than they had been previously. Despite these findings, more than 25% of the responding dentists expect to purchase new equipment and 14% expect to reduce staff this year.  Other important findings indicate that 56% of respondents reported that net income was down, 50% indicated that gross billings (the total amount of fees charged by the entire practice) were lower and that patient acceptance rates for treatment were 47% lower durng the fourth quarter of 2009.

            Our government accumulated pertinent data relative to dentistry and dentists.  Recent data disclosed that the growth in overall health care spending slowed in 2008, the slowest rate of growth in 48 years. However, the data projected a 3.3% for 2010. Dental service expenditures for 2010, interestingly, are projected to be $107.9 billion (3.3% increase) and $135.7 billion for 2014 (5.9% increase).   

            Over the years, economic factors affecting dental practices have flucuated according to geographic areas and unemployment in them.  There are pockets of the country that are doing well and others that are not.  By way of example, Michigan’s 12.8%+ and California’s 11%+ unemployment rates have greatly and negatively affected the economy of dental practices whereas Iowa’s 5.7% has shown little affect. Dentists in Florida, wihich experienced significant downturns in the financial and real estate markets and an aging population, have also experienced considerable reduction in dental services and revenues.  Practice brokers in certain areas of the country have experienced some decrease in practice sales and practice values while others have not and have seen values remain steady and even increase.  Most mature specialists (ages 45 to 59) have seen the value of their practices remain stable or even slightly increase although orthodontists, to some extent in certain areas, have experienced a decrease in their earnings due to the elective and expensive character of the services which they provide.               

            In contrast to the experience of the business communities across the country, bank and third party lending for all types of dental practice transition has never been better.  Lenders are eager to lend up to 100% of the requested loans plus amounts for working capital.  Rates are reasonably low, involved times are low and there is less reliable for complicated and expensive Small Business Administration participation.  Large educational debt does not seem to matter; good credit does.             

            Another Survey, the American Dental Association’s 2008 Survey of New Dentists, reports that 24.5% of new dentists purchased an existing practice as a partner, 37.7% as a sole owner and 37.7% started a new Practice.  There was little variation in the amount spent to establish or purchase a practice.  Among new dentists who purchased an existing practice as a partner, the mean amount spent for the purchase was $472,390, the mean amount was $471,930 for those who purchased an existing practice as a sole owner and $457,600 for those who had started a new one.  These are astounding but pertinent data.

          The rate of female dentists is rapidly increasing and relevant.  Demonstrating the gender shift within the dental profession, for independent dentists as a whole, 12.5% are female.  For new independent dentists, the increase to 22.9% is dramatic.  In general, female dentists are working less hours per week than male dentists.  The American Dental Association’s 2008 Survey of New Dentists (1998-2007) lists 59.9% of new dentists were males and 40.1% were female.  

           Economic conditions, especially local ones, are vital factors in the valuation process and valuators, more than ever, must consider them in great detail in determining the approaches, forecasts and final estimates of value.  

Source: 

1.  ADA Quarterly Survey of Dental Economic Confidence.  American Dental Association,       

     Chicago, IL 2010 

2.  Centers for Medicare andMedicaid Services.  Office of the Actuary, National Health Statistics

     Group

3.  U. S. Department of Commerce, Bureau of Economic Analysis and Bureau of the Census

4.  2008 Survey of New Dentists, American Dental Assaociation, Chicago, IL

5.  Kenny Jones, President, Doctors Choice, Jupiter, Florida.  Personal communication