Tax Court Adopts Daubert Standard for Expert Witnesses in Tax Court Trials

Apr 06, 2011   

On April 5, 2011, the Tax Court in BOLTAR, L.L.C., JOSEPH CALABRIA, JR., TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, 136 T.C. No. 14 (April 5, 2011) held in a conservation easement donation case, where the IRS moved to exclude the taxpayer’s experts report as unreliable and irrelevant under Fed. R. Evid. 702 and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), that the standards of reliability and relevance apply in trials without a jury, including Tax Court trials, and are subject to the discretion of the trial Judge to receive evidence. The full opinion can be found here.

Although the reach of the Boltar decision is debatable for the majority of Tax Court cases, in the current economic landscape the decision has substantial ramifications for those Tax Court cases where valuation is at issue. In particular, valuations of real property (especially in those locations that saw the greatest appreciation and subsequent depreciation of real property values, e.g. Florida) as it relates to cancellation of indebtedness income and/or bad debt deductions often are dependent on appraisals. The appraisals that are being used, and the correspondent testimony from the same appraisers or independent appraisers that are being offered into evidence before the Tax Court now must withstand judicial scrutiny under Federal Rule of Evidence 702 and as developed by the Supreme Court in Daubert v. Merrell Dow Pharm., Inc.. The full decision can be found here.

The lesson learned from Boltar is that an expert that a taxpayer attempts to use must be fully vetted and his/her methodology must be appropriate for the analysis that is being conducted.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating tax cases against the IRS and the U.S. Department of Justice – Tax Division before the Tax Court, U.S. District Courts, and U.S. Courts of Appeal. You can reach an attorney at Fuerst Ittleman by email us at contact@fidjlaw.com.