Another Tax Court Daubert Decision


In Mitchell Est. v. Comr., T.C. Memo 2011-94, a valuation case, the Tax Court rejected the work of the IRS appraiser, who utilized a valuation method that had not been accepted by any court.  The Tax Court noted:

We further find [the IRS appraiser’s] lease buyout analysis speculative at best. Expert testimony must be the product of reliable principles and methods. Fed. R. Evid.702. [The IRS appraiser’s] lease buyout method has not been accepted by any court or generally recognized by real property appraisers. In applying his lease buyout method, he estimated that the Schwartzes’ advance rent payment, security deposit and moving expenses would total between $250,000 and $2 million, which is far from an exact amount. Moreover, he had no basis for assuming that the Schwartzes would be willing to take a lease buyout. We reject the application of this method in this case. Accordingly, we find that the income capitalization method is the best method for determining the value of the 100-percent leased-fee interest of the Beachfront Property.[Emphasis added]

Comment: This is the second case recently in which the Tax Court has disregarded the work of a valuation expert.  The Tax Court is getting very serious about appraisal reports.  Query whether a losing side in a disregarded appraiser case will get assessed attorney’s fees next?

About lpaulhoodjr

I am an inactive lawyer who practiced almost 20 years as a tax and estate planning lawyer. Today, I am the Director of Planned Giving for The University of Toledo Foundation. I am the co-author of four books, the sole author of another book and a frequent speaker and writer on estate planning, planned giving and business valuation.
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