Numerous tax consequences flow from the value of property. Principal examples include charitable contribution deductions, estate taxes, and gift taxes. Absent a contemporaneous sale of the subject property to unrelated persons, an appraisal will usually be needed to compute the relevant tax. If the IRS disputes the value and the matter ends up in court, an expert will be needed to sustain the taxpayer’s valuation. The government will often offer up its own competing appraisal, although it may instead be content with only attacking the taxpayer’s expert and report.
A recent Tax Court case demonstrates the hazards of relying on a suspect expert or appraisal in tax litigation. In Boltar LLC et al v. Comm., the issue was the valuation of a conservation easement for charitable deduction purposes. During trial, the Tax Court noted a host of problems with the valuation opinion of the taxpayer’s expert. The government moved to exclude the expert’s report and testimony as neither reliable nor relevant, under the authority of the Federal Rules of Evidence and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). The expert’s report and opinion was so problematic that the Court granted the motion.
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