Opinion
17483-21
02-23-2024
ARDAN HOLDINGS, LLC, ARDAN INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Mark V. Holmes Judge
This case arises from a contested donation of a conservation easement. We're set to try it at a special session of the Court starting on February 26, 2024, in Columbia, South Carolina. Both parties have filed motions in limine to attack some of each other's expert witnesses. Petitioner also is trying to strike what it's calling new matters raised by respondent in his pretrial memorandum.
These five motions that were filed on February 12, 2024 are:
• Respondent's motion in limine to exclude the report and proposed testimony of Ted Whitmer;
• Respondent's motion in limine to exclude the report and proposed testimony of Christopher Stallings;
• Respondent's motion in limine regarding reasonable cause defense witnesses;
• Petitioner's motion in limine to preclude testimony from witnesses that were not timely disclosed; and
• Petitioner's first amended motion to strike new matters in respondent's pretrial memorandum or, alternatively, to shift the burden of proof
We'll briefly summarize these motions and explain our rulings. We assume the parties know the background facts will thus omit them.
Respondent's motion to exclude the report and proposed testimony of Ted Whitmer
Petitioner retained Ted Whitmer, an appraiser and real-estate instructor, as an expert. His report concerns USPAP appraisal standards in the "before" value of a conservation easement-specifically whether an appraiser is required to consider potential competition from contiguous properties or nearby noncontiguous properties that may share the same highest and best use as the subject property.
Whitmer also holds a Juris Doctor and is a member of the State Bar of Texas. He discusses in his report how Treas. Reg. § 1.170A-14(h)(3)(i) affects his opinion.
Respondent considers this analysis of the regulation to be an improper legal opinion or conclusion in violation of Rule 143 and Fed.R.Evid. 702 and thus asks us to exclude Whitmer's report and testimony.
We disagree with respondent that Whitmer's report lacks scientific, technical, or specialized knowledge as required by Fed.R.Evid. 702. His qualifications as an appraiser are not in dispute, and whether petitioner received a qualified appraisal of the subject property remains at issue for trial.
Whitmer based his opinions on his extensive knowledge, skills, training, and education. He cites and analyzes USPAP to reach his conclusions, and conformance with USPAP standards may be a very important issue in this case. The value of property for federal tax purposes, often appraised under USPAP standards, is a question of fact. Fish v. Commissioner, 106 T.C.M. (CCH) 608, T.C. Memo 2013-270, at *15 (citations omitted). If so, that might well make Whitmer's opinion an opinion about "an ultimate issue" in these cases. But with the exception of expert testimony in a criminal case about a defendant's mental state, Federal Rule of Evidence 704 allows such opinion testimony about "ultimate issues."
But what are we to do with Whitmer's analysis of the regulation? Like many professionals, appraisers are required to have a bedrock knowledge of the law in their field of choice. At least in this court, though, appraisers serving as expert witnesses aren't qualified to give their legal opinions or conclusions.
We evaluate expert opinions in light of all of the evidence in the record. Helvering v. Nat'l Grocery Co., 304 U.S. 282, 295 (1938); Shepherd v. Commissioner, 115 T.C. 376, 390 (2000), aff'd, 283 F.3d 1258 (11th Cir. 2002). We can reject, in whole or in part, any expert opinion. Estate of Davis v. Commissioner, 110 T.C. 530, 538 (1998). But we have to disregard any opinion of an expert that is nothing more on the expert's legal opinion or conclusion. Alumax, Inc., v. Commissioner, 109 T.C. 133, 171 (1997) (citations omitted).
We don't find that Whitmer's report is nothing more than a legal opinion or conclusion, but we'll grant respondent's motion insofar as it relates to Whitmer's analysis of Treas. Reg. § 1.170A-14(h)(3)(i).
Respondent's motion to exclude the report and proposed testimony of Christopher Stallings
Petitioner retained Colliers International Valuation and Advisory Services to appraise the subject property. Two of Colliers's certified appraisers, Christopher Stallings and Patrick Phipps, signed the report, but petitioner listed only Stallings as a testifying witness.
Respondent moves to exclude the report and Stallings's proposed testimony. He argues that the report doesn't distinguish which author prepared which section of the report, which means that it violates Rule 143(g). We treat expert-witness reports as direct testimony, and if only one co-author testifies, does that not deny the opposing party the opportunity for cross-examination?
We've excluded expert reports from multiple authors in the past. See, e.g., Bank One Corp. v. Commissioner, 120 T.C. 174, 278 (2003) (excluding expert report because expert hadn't established that the words, analysis, and opinions were his own work and because they were tainted by significant participation of taxpayer's counsel). We've also admitted reports signed by multiple authors when those experts are actually available to testify. Carter v. Commissioner, T.C. Memo 2023-133, at *27.
The facts here aren't exactly like either of these examples. Respondent doesn't point to any undue influence of petitioner's counsel as to Stallings's opinions. But Stallings's co-author isn't available to testify.
We think that Stallings's availability to testify and his certification of the report are sufficient under our rules. We generally agree with the analysis in Carter that:
Requiring every word in an expert report to be identified with an individual author who is available to testify would greatly hinder our ability to rely on experts who work in firms. The larger and more complex the matter, and the more participants needed to prepare a report, the less likely its admission into evidence would be.
Id.
So we'll deny this motion. But respondent is of course welcome to conduct a vigorous cross-examination of Stallings regarding his sources and methods during trial.
Respondent's motion to exclude reasonable-cause defense witnesses
In this motion respondent seeks to exclude the testimony of attorneys on whose advice petitioner claims to have reasonably relied. Petitioner disclosed these witnesses in its pretrial memorandum, but respondent argues that it had used attorney-client privilege as both a sword and a shield by both asserting the privilege and then not being forthright during discovery about these attorneys. He seeks an order to either exclude these attorneys from testifying or precluding petitioner from relying on any advice that they gave as part of its reasonable-cause defense.
These are Simon Bloom, Andrea Pearson, Nick Phillips, Bill Sylvester, and Ed White.
Petitioner bears the burden of proving affirmative defense of reasonable reliance on professional advice. See Bebb v. Commissioner, 36 T.C. 170, 173 (1961). It first notes that respondent can question the attorney witnesses at trial and attempt to poke holes in the defense. We understand respondent's frustration with some of petitioner's responses to requests for admissions and discovery. But petitioner hasn't been hiding this defense-it's in its petition and Information Document Request to respondent that preceded this case.
The names of these attorneys' firms are also in the IDR.
We also don't understand respondent's reading of Ad. Inv. 2000 Fund v. Commissioner, 142 T.C. 248 (2014), to require us to preclude the attorneys from testifying. In that case we compelled the production of documents that were claimed to be privileged. Id. at 259. As petitioner noted in its objection, respondent hasn't sought that remedy here-and petitioner did produce the written advice that it claims to have relied on.
So we'll deny this motion.
Petitioner's motion to preclude testimony from witnesses that were not timely disclosed
Like respondent, petitioner has a problem with its counterpart's pretrial memorandum. Petitioner wants us to preclude testimony from a series of entities or government organizations that respondent identified as potential witnesses in his pretrial memorandum and his February 5 status report.
These include Blue Ribbon Quarries, Inc., Georgia Environmental Protection Division, Hillcrest Granite Company, Inc., Keystone Memorials, Inc., Mine Safety and Health Association, Nationale Stone Institute, National Stone Sand and Gravel Association, McCannon Granite Company, Rock of Ages, Ruff Dimensional Stone, and Star Granite & Bronze.
It says this list doesn't disclose the specific individuals that respondent will use as witnesses for these entities and, as a result, it is prejudiced in its trial preparations. It also argues this non-identification violates the pretrial order, which set a February 5 deadline for identification of all witnesses other than rebuttal experts.
Three days after petitioner filed its motion, respondent moved for leave to supplement his witness list. We'll rule on both in a later order.
Petitioner's first amended motion to strike new matters in respondent's pretrial memorandum or, alternatively, to shift the burden of proof
Petitioner filed this motion after respondent filed his pretrial memorandum. In his memorandum, respondent raises what petitioner calls additional issues-the subject property's chain of title, whether the contribution of the property was a disguised sale under section 707, and whether petitioner was a bona fide partnership.
Petitioner wants us to strike these from respondent's memo under Rule 52 and bar respondent from raising them at trial or in post-trial briefing because they weren't in his answer or the FPAA. In the alternative, it wants respondent to bear the burden of proving them.
Our pleading rules are pretty straightforward. Rule 30 says respondent can file an answer, a reply when required, and any other responsive pleadings that we permit. Rule 36 requires respondent's answer to contain a "clear and concise statement of every ground, together with the facts in support thereof on which the Commissioner relies and has the burden of proof." Rule 36(b).
So are disguised sale, chain of title, and bona fide partnership new issues that we must strike? The burden of proof remains with petitioner if respondent merely clarified or developed what he set out in the FPAA, but we may shift the burden if they require different evidence than those issues that were identified in his pleadings. Wolf v. Commissioner, 67 T.C.M. (CCH) 2327, 2329 (1994) (citations omitted).
We're not persuaded that these issues require new evidence. While disguised sale, chain of title, and bona fide partnership may be, as petitioner argues, mixed issues of law and fact, we think that they're just components of the valuation issue because they are logically related to petitioner's basis in the property. They have also been the subject of extensive discovery, so we don't find that petitioner has been surprised or put at a substantial disadvantage. Estate of Horvath v. Commissioner, 59 T.C. 551, 555 (1973) (citations omitted).
It is therefore
ORDERED that respondent's February 12 motion to exclude the report and proposed testimony of Ted Whitmer is granted to the extent that we will strike the section on p. 9 of his report titled "Whether the fact that the Contiguous Parcel Rule in Treas. Reg. § 1.170A-14(h)(3)(i) nor the Enhancement Rule in Treas. Reg. § 1.170A-14(h)(3)(i) applies to the subdivided parcels informs the issue in question 1 above," that Whitmer will not be permitted to testify about his legal conclusions, but the motion is otherwise denied. It is also
ORDERED that respondent's February 12 motion in limine to exclude the report and proposed testimony of Christopher Stallings is denied. It is also
ORDERED that respondent's motion in limine regarding reasonable-cause defense witnesses is denied. It is also
ORDERED that petitioner's February 12 motion in limine to preclude testimony from witnesses that were not timely disclosed is taken under advisement. It is also
ORDERED that petitioner's February 12 motion to strike new matters in respondent's pretrial memorandum or, alternatively, to shift the burden of proof is denied.