IRS Symposium Proceedings Summary for ASA Chapter —Primus Valuations Blog

Solid Background on Recent Court Decisions, Valuation in US Tax Court, Estate & Gift Tax, Pension Protection, More

The Primus Valuation blog offers an in-depth summary of  the proceedings of last year’s ASA IRS Symposium in Los Angeles.   Although a bit more than a year old, there’s very solid detail here and extensive coverage of issues still very relevant to today’s practitioners.  Here’s an excerpt from a section describing a panel with questions fielded by Judge Halpern, Mel Abraham, Miles Friedman, and Guy Glaser:

A panel on recent court decisions featured Miles Friedman, SBSE Associate Area Counsel, Guy Glaser, JD, Area Counsel LB&I, and The Honorable James S. Halpern, Judge U.S. Tax Court, and Mel H. Abraham, CPA, ASA.  Please note that the views and opinions expressed are those of the presenters and do not necessarily reflect the views and opinions of the IRS.

Miles Friedman introduced the panel’s discussion of the Boltar case, which is citeable and rumbles the ground regarding rules of evidence and expert reports.  Some valuations can’t even get out the gate.   Taxpayer expert report had significant [actually, mind-boggling] errors that affected reliability (relevant and reliable).  The Court applied Daubert and established the court’s role as gatekeeper to keep out “junk science,” i.e., any expert testimony that is not relevant and reliable.  Thus, petitioner’s report did not even get considered.

Miles questioning Mel Abraham:  What if appraiser writes report and other side files a motion in limine to exclude report?  Mel answered that the motion would be rebutted simply because reliability is part of our Standards.  We as appraisers create the relevancy.  Get it in and let it be determined at trial.  However, there is a difference between reliable vs. Errors.  Miles then asked Judge Halpern:  Who bears the risk of failure if the report is excluded?  The Judge answered:  The taxpayer attorney.  With a 30-day limit, the party will not have enough time for a new report and there will be no grounds for continuance.  The attorney needs to review report to have confidence that it will not be subject to a motion in limine.  

Miles’ advice to appraisers:  Make sure you know what counsel wants you to do.  It should be in the contract.  Get all the facts; you need to talk, decide if you need formal discovery to get all the facts and information you need.  We will see more motions in limine, and should expect the quality of reports to increase as a result.  Guy Glaser added that when he gets a report, the first thing he does is review it to see if it can be excluded via a motion in limine for not complying with the principlesset forth in Daubert.

Audience question:  How much weight is put on credentials alone?  Judge Halpern answered that experience alone can qualify an expert without formal training or credentials.  He commented that USPAP compliance is not a condition precedent to acceptance of an appraisal report; appeals have affirmed that USPAP isn’t a precondition to acceptance, but its adherence does go to the weight given to the appraiser’s opinion.

Audience question:  What about “more likely than not” standard of proof?  Judge Halpern described the burden of proof as a particular “measure of persuasion.”  In fraud cases in tax court, the measure of persuasion is “clear and convincing evidence.”  If fraud is not an issue, the measure is a “preponderance of evidence,” which is the case if there is a scintilla over 50% likelihood, depending on constituent facts; is it an ultimate fact (i.e., value of property), or a subsidiary fact (i.e., cost to dispose, commissions, etc.)?  And is one party’s evidence more likely to be true (more persuasive)?

When asked about the Court’s role in establishing evidence, Judge Halpern likened his job to “holding coats” (while the parties duke it out).  It is the obligation of counsel to bring evidence and object to evidence.  It the case of reports, they are either excluded or are in evidence.

Guy Glaser began a new discussion of  U.S. vs. Richey [9th Circuit 1/2011].  Please note that the views and opinions expressed are those of the presenters and do not necessarily reflect the views and opinions of the IRS.  In Richey, the district court quashed a summons issued by the IRS to an appraiser seeking his workfiles in connection with an appraisalhe had prepared at the request of an attorney and whichwas attached to afiled return to substantiatea donation of a conservation easement. The district court concluded theappraiser’s work file was protected by both the attorney-client privilege as well asthe work product doctrine. The IRS filed an appeal to the Ninth Circuit, where the court held that attorney client privilege did not apply to an appraiser’s work files, since an appraisal is valuation advice and not legal advice.  His observation is that an appraiser’s work filesmay be summoned by the IRS and are not protected by the attorney-client privilegeif the appraiser’s report isattached to a filed return even if the report wasprepared at the request of an attorney.  The work product argument was also reversed since the report was not strictly in preparation for litigation.  (Since the report was attached to a tax return, a dual purpose existed.)

According to Miles Friedman, if the appraisal had to be attached to a tax return, it was out there for a third party, and privilege would not exist.

Built-in capital gains was addressed in context of Davis.  The case says that the taxpayer should not get a dollar-for-dollar reduction, but issues of value (and gain) growth over time, the realization event and discounting back to present value remain unclear.  This remains a heavily technical, fact-dependent situation with inconclusive case guidance.

Tax-affecting S-Corporations was addressed, but again it’s a heavily technical issue, this time with extensive works by prominent valuers to contend with (as Chris Treharne addressed in a later panel).  Miles Friedman didn’t have a big problem with the subject, though:  “I can answer this in a second. The cases say no, the IRS says no.”

Read the full summary at the Primus site. 

Last Year’s ASA IRS Symposium Offered Advice and Insight.  Primus Valuation Provides a Summary.