Opinion
24703-21
09-05-2024
NORTH DONALD LA PROPERTY, LLC, NORTH DONALD LA INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber Judge
This case is calendared for trial at an initial session of the Court beginning September 9, 2024, and a second session beginning October 7, 2024, both in New Orleans, Louisiana. This case involves a charitable contribution deduction claimed by North Donald LA Property, LLC (North Donald), for a conservation easement.
On August 15, 2024, respondent filed, at docket entry #309, a Motion in Limine to Exclude Evidence of Respondent's Motives and, at docket entries ##310 and 311, Motions in Limine to Exclude Expert Reports and Proposed Testimony of Ted Whitmer. On August 30, 2024, petitioner filed a Response to the three Motions.
1. Motion in Limine to Exclude Evidence of Respondent's Motives
The IRS determined in the FPAA that a penalty for civil fraud was warranted. See § 6663. In his Motion, filed at docket entry #309, respondent seeks an order ruling that the Commissioner's motivations (or those of his employees) for determining the fraud penalty are not relevant in this case.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C, in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Proceedings in the Tax Court are conducted de novo, and we will generally not look behind the FPAA to examine the propriety of the IRS's motive, administrative policy, or procedure involved in making the adjustments at issue. Genecure, LLC v. Commissioner, T.C. Memo. 2022-52, at *9 n.23 (citing Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 327-28 (1974)). This principle remains true in cases where respondent has alleged the penalty for civil fraud. See Muhammad v. Commissioner, T.C. Memo. 2023-124, at *9 n. 2; Anaya v. Commissioner, T.C. Memo. 1991-91, 61 T.C.M. (CCH) 2040, 2047.
Several paragraphs of petitioner's pretrial memorandum are devoted to speculation about the conduct and possible motives of IRS employees for asserting the civil fraud penalty. It appears that petitioner may be intending to call at least one IRS employee who was involved in the examination of North Donald to testify about "why she determined fraud was applicable." The answer to that question, or any other evidence concerning the Commissioner's motives for determining a fraud penalty, have no relevance to this de novo proceeding. See Genecure, LLC, T.C. Memo. 2022-52, at *9 n.23. Accordingly, we will grant respondent's Motion and will exclude from evidence any documents or testimony adduced by petitioner to support its speculations about respondent's motives.
2. Motions in Limine to Exclude Expert Reports and Proposed Testimony of Ted Whitmer
Petitioner has offered the expert reports and proposed testimony of Ted Whitmer, whom petitioner has presented as a land valuation expert. Respondent's Motions, filed at docket entries ##311 and 310, seek an order excluding those reports, which are marked for identification as Exhibits 4003-P and 4004-P, respectively. Exhibit 4003-P ("Standards Report") discusses the appraisal that was attached to North Donald's 2017 return and its alleged compliance with recognized standards for appraisals. Exhibit 4004-P ("Bank Appraisal Report") addresses what Mr. Whitmer supposes to be the differences between "bank appraisals and conservation easement appraisals." Respondent contends that both reports "fail[] to offer opinions that will help the Court to understand the evidence or to determine a fact in issue" and thus should be excluded. See Fed. R. Evid. 702.
Proceedings in the Tax Court are conducted in accordance with the Federal Rules of Evidence (FRE). See Rule 143; § 7453. FRE 702 provides that a witness qualified as an expert may testify only if four conditions are met: (1) the expert's specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (2) the testimony is based on sufficient facts or data; (3) the testimony is the product of reliable principles and methods; and (4) the expert's opinion reflects a reliable application of the principles and methods to the facts of the case. "Testimony based on scientific, technical, or other specialized knowledge is subject to the Court's gatekeeping function, which forecloses expert testimony that does not rest on a reliable foundation or is not relevant to the task at hand." Skolnick v. Commissioner, T.C. Memo. 2019-64, 117 T.C.M. (CCH) 1319, 1321 (citing Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993)). Whether to admit expert testimony is a matter within the sound discretion of this Court. See Fed. R. Evid. 104(a).
A. "Standards Report"
To substantiate the value it claimed for the conservation easement, North Donald attached to its return an appraisal signed by Claud Clark, III (Clark Appraisal). Petitioner contends that the Clark Appraisal was a "qualified appraisal" under section 170 because it allegedly "compl[ies] with the Uniform Standards of Professional Appraisal Practice [(USPAP)] and recognized methods and techniques." Petitioner offers the "Standards Report" as evidence in support of this view. Respondent contends that the "Standards Report" should be excluded on the grounds that it (i) im-permissibly advocates for petitioner's position that the Clark Appraisal is a "qualified appraisal," (ii) merely restates facts from that appraisal as opposed to demonstrating compliance with USPAP, and (iii) impermissibly opines on Clark's state of mind when he prepared the appraisal.
Having considered the arguments advanced in the Motion and in petitioner's Response, the Court is convinced that several portions (at least) of the "Standards Report" must be excluded from evidence. We will hear oral argument at trial as to whether the report must be excluded in its entirely or (if not) which portions must be excluded.
B. "Bank Appraisal Report"
In March 2016 an entity purchased the tract of land that included the acreage over which North Donald granted the easement. The entity financed the purchase of that larger tract using two bank loans. Two appraisals were secured by the bank in connection with each loan, and those appraisals determined per-acre values that were orders of magnitude lower than the corresponding values determined in the Clark Appraisal. Petitioner contends that "that bank appraisals and appraisals of conservation easement[s] . . . are fundamentally different, and thus, their valuation determinations are not properly comparable." In support of that contention petitioner offers the "Bank Appraisal Report," which makes essentially the same point.
Expert testimony about what the law is or that directs the finder of fact on how to apply the law does not assist the trier of fact in "determin[ing] a fact in issue. Fed.R.Evid. 702; Feinberg v. Commissioner, T.C. Memo. 2017-211, aff'd on other grounds, 916 F.3d 1330 (10th Cir. 2019). It is the Court's role (and not that of experts) to determine whether evidence is relevant. Fed.R.Evid. 401; Reitz v. Woods, 85 F.4th 780, 789 (5th Cir. 2023). Expert opinions that invade the province of the Court are inadmissible. Ibid.
The "Bank Appraisal Report" essentially concludes that appraisals prepared by or for banks are not relevant in valuing land for conservation easement purposes. But it is for the Court to decide what evidence is relevant for what purposes. Because Mr. Whitmer's report improperly invades the province of the Court and constitutes mere advocacy for petitioner's position, it must be excluded from evidence in its entirety.
In consideration of the foregoing, it is ORDERED that respondent's Motion in Limine filed at docket entry #309 is granted. It is further
ORDERED that respondent's Motion in Limine filed at docket entry #310 is granted, and the "Bank Appraisal Report" marked as Exhibit 4004-P will be excluded from evidence. It is further
ORDERED that respondent's Motion in Limine filed at docket entry #311, directed to the "Standards Report" marked as Exhibit 4003-P, is held in abeyance. The Court will hear argument on the Motion at an appropriate time during the trial.