The United States Tax Court recently issued an opinion that contains valuable lessons for any forum. Real estate valuation litigation regularly occurs in the Tax Court.
In Boltar LLC v. Commissioner, the Tax Court granted the government’s motion to strike the taxpayer’s appraisal because it was “unrealiable and irrelevant.” In that case, the IRS and the taxpayer disagreed as to the value of a donated conservation easement on real property located in Indiana. The Court ruled that the taxpayer’s appraiser used the wrong facts and standard in appraising the property and, therefore, struck the appraisal. The government’s notice of deficiency was upheld for the amount stated - only $42,400 out of a total $3,245,000 claimed as a charitable deduction on the partnership return.
Of particular interest was the Court’s harsh criticism of experts acting as advocates for their clients. It stated:
In most cases, as in this one, there is no dispute about the qualifications of the appraisers. The problem is created by their willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations
In addition, the cottage industry of experts who function primarily in the market for tax benefits should be discouraged. Each case, of course, will involve exercise of the discretion of the trial judge to admit or exclude evidence. In this case, in the view of the trial Judge, the expert report is so far beyond the realm of usefulness that admission is inappropriate and exclusion serves salutary purposes.
The importance of the credibility of experts – and attorneys – cannot be overstated. It is critical to resist the temptation to push experts to unsupportable positions. This is an important lesson for attorneys, experts and clients.