Boltar v Commissioner of Internal Revenue

US Tax Court, 136 T.C. No. 14, April 5, 2011: Holding that that the Tax Court judge has the same discretion as in a jury trial whether to receive evidence using standards of reliability and relevance, the Tax Court agreed with the IRS to entirely exclude taxpayer’s appraisal from trial record as “unreasonable, unreliable, and irrelevant expert testimony”.  The Court found the appraisal failed to determine the value of the donated conservation easement by the appropriate method, failed to value contiguous parcels owned by the taxpayer, and assumed potential development that was not feasible on the subject property.

Boltar, L.L.C. (Boltar) claimed a federal income tax deduction for a conservation easement as a qualified conservation contribution. Boltar reported a fair market value of $3,270,000 for the conservation easement but reduced it by $25,000 as the value Boltar’s appraisal put on enhancement in value to adjacent parcels owned by Boltar. The IRS allowed only a $42,400 deduction. At the Tax Court, the IRS asserted the required appraisal was “neither reliable nor relevant under the Federal Rules of Evidence and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).”

Section 1.170A-14(h)(3)(i) of the Income Tax Regs., says that if comparables aren’t available for the appraisal, “as a general rule (but not necessarily in all cases)” the before and after method of valuation should be used. At trial, the Court found that Boltar did not provide any persuasive reason not to apply that method in this case.

Further, the Court agreed with the IRS that the appraisal assumed, at least in part, potential development of the property that was not feasible. The IRS asserted the appraisal was “based on whatever use generates the largest profit, apparently without regard to whether such use is needed or likely to be needed in the reasonably foreseeable future.”

The Court also agreed with the IRS on a crucial procedural point, namely that the standard of admissibility of the appraisal as evidence in a Tax Court case should not be lower than the admissibility standard at a jury trial – the so-called “Daubert” standard. The IRS and the Court did not dispute the appraiser’s qualifications, but rather “their willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations.” The Court put this appraisal in the category of “unreasonable, unreliable, and irrelevant expert testimony”. The Court evidently was not inclined to admit the appraisal and then weigh its judgments because, “Neither petitioner [Boltar] nor the Integra experts [appraiser] suggested any quantitative adjustment in response to their admitted errors or the problems addressed in respondent’s motion in limine. They simply persist in asserting an unreasonable position. We are not inclined to guess at how their valuation should be reduced by reason of their erroneous factual assumptions. Their report as a whole is too speculative and unreliable to be useful.”

In response to Boltar’s argument that the IRS refusal to consider the appraisal was inconsistent with IRS procedure in other cases, the Court wrote, “What may or may not have occurred in another audit would be relevant only if a penalty were in issue, which it is not in this case ….”

Decision available at

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