Boltar, LLC v. Comm'r., 136 T.C. No. 14 (4/5/2011)
In Boltar LLC, the Tax Court completely barred the taxpayer's appraisal report from evidence. At issue was the correct value of an income tax charitable deduction for a conservation easement.
In 1996, Boltar LLC ("Boltar") acquired parcels of land in Indiana. In 2003, Boltar granted a conservation easement to a land trust on a portion of one of the parcels. On its 2003 partnership income tax return, Boltar claimed a charitable contribution deduction of $3,245,000, but only $42,400 was allowed by the IRS. The IRS filed a motion to exclude Boltar's expert report and testimony as neither reliable nor relevant under the Federal rules of evidence and under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). The entire Tax Court found significant problems with Boltar's appraisal including: (1) factual errors, such as ignoring a utility easement on the property; (2) errors in identifying the property's location; (3) errors in which zoning rules apply to the easement; (4) the expert continued to assert the appraised value was correct, even after admitting factual errors; and (5) the appraisal was based on a draft of the conservation easement, not on the final conservation easement.
The Tax Court expressed that it was not inclined to guess at how the valuation should be adjusted for the factual errors, and found the report as a whole to be too speculative and unreliable to be useful. The expert's report and opinion was so problematic that the Court granted the IRS's motion to exclude it. The taxpayer argued that the Daubert analysis should only apply in a jury trial and this case was a non-jury trial. The Tax Court rejected this argument and held that a Daubert-type exclusion can apply in a bench trial.