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CPAs Dabbling is Russian Roulette with 5 Bullets - Part 3


     By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

PhoneCall Lance Wallach, Expert Witness Carl Lloyd Sheeler, PhD, ASA, CBA, CVA at (516) 938-5007


In Part 2: we provided an illustration of what a prudent CPA firm did that outsourced work when it conflicted with their other practice services and the consequences of a CPA who had “followed the steps” in applying a discount, but was nevertheless penalized for dabbling because failed to support the proper level. We demonstrated what was not done and what should have occurred allowing the taxpayer to prevail.
In Part 1, we addressed the woeful inadequacy of education and experience of the accounting professional who chooses to dabble in a niche sector to make a few thousand dollars and why the AICPA, IRS and the Courts have brought the hammer down and the knowing or unwitting practitioner learns s/he is facing penalties, sanctions, fines, lawsuits and no E&O coverage. Game over.

The battle of PhD’s. A recently minted PhD in Accounting was an adjunct NYU professor and provides some tax and compilation services. She decided given several claimed “wins” on minor non-related valuation cases, she was a BV expert. To say her curriculum was embellished would be an understatement. Yet, she convinced an unsuspecting attorney that she was the one to represent his case in an equity value dispute. The contested midmarket company was in metal stamping. There were two dates of value separated by almost 20 years.

If she hadn’t expressed that our report was completely out-of-line, chock full of errors and in the aggregate had woefully undervalued the equity, we would have kept the gloves on. But she did!

During deposition, we (1) She acknowledged she had not valued a manufacturer previously; (2) Had misapplied the Robert Morris Associates comparative data and not used any other companion resources; (3) Ignored the application of the Market Approach (I suspect she did not have access to any of the transactional data databases); (4) Misapplied and incorrectly considered the use of the Treasury/Excess Earnings Method within the Income Approach because she didn’t understand the greater risks associated with goodwill and how it influenced the capitalization rate and that the method is often used when valuing a minority interest; (5) She had not reviewed the company by laws or shareholder agreement; and (6… there was much more) She had not applied a present value to the dollar amounts from 20 years ago. Had she done so, she would have realized the company had not added any new business and was in a slow decline.

The net result was the attorneys for the opposing side stopped the deposition and agreed to a 20% increase of my value. She and I had a three-fold difference in our values. It’s not having the gun; it’s how well you use it. The only wisdom is one borne out of experience. Education is not the same as experience and many legal practitioners have a liberal arts background, but they sure know how to put a hurt to the self-professed expert, when in this case she was anything but. A dabbler goes down. Hard.

ABOUT THE AUTHOR: Lance Wallach, Expert Witness Carl Lloyd Sheeler, PhD, ASA, CBA, CVA
Lance Wallach, National Society of Accountants Speaker of the Year and Member of the AICPA faculty of teaching professionals, is a frequent Speaker on retirement plans, abusive tax shelters, financial, international tax and estate planning.

Dr. Sheeler, National Managing Partner, Business Valuations, Ltd. has 20+ years of full-time BV expertise and is an industry thought-leader having trained thousands of valuation practitioners in complex matters involving discounting of equity interests and valuing larger midmarket companies.

Copyright Lance Wallach, CLU, CHFC

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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