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Oconee Landing Prop. v. Comm'r of Internal Revenue

United States Tax Court
Nov 15, 2022
No. 11814-19 (U.S.T.C. Nov. 15, 2022)

Opinion

11814-19

11-15-2022

OCONEE LANDING PROPERTY, LLC, OCONEE LANDING INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent


ORDER

Albert G. Lauber, Judge.

This case is calendared for trial at a two-week special session in Atlanta, Georgia, beginning November 14, 2022. On September 30, 2022, respondent lodged with the Court the reports of two proposed expert witnesses, Robert E. Driggers and Bruce W. Landis. On October 31, 2022, petitioner filed Motions in Limine to preclude any testimony from these witnesses at trial. In the first Motion, filed at docket entry #324, petitioner contends that Mr. Driggers's report should be excluded on the ground that it is unreliable. In the second Motion, filed at docket entry #325, petitioner contends that Mr. Landis's report should be excluded on the grounds that it is unreliable and irrelevant. On November 10, 2022, respondent filed Objections to the Motions in Limine. For the following reasons, we will deny the Motions.

Proceedings in the Tax Court are conducted in accordance with the Federal Rules of Evidence (FRE). See I.R.C. § 7453; Tax Court Rule 143. Testimony by expert witnesses is governed by FRE 702 and 703. FRE 702 provides that a witness who is "qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion" if (1) he has "scientific, technical, or other specialized knowledge" that will help the trier of fact; (2) "the testimony is based on sufficient facts or data"; (3) "the testimony is the product of reliable principles and methods"; and (4) he "has reliably applied the principles and methods to the facts of the case." FRE 703 provides that "an expert may base an opinion on facts or data . . . that the expert has been made aware of or personally observed."

Under FRE 702 and 703, Mr. Driggers's report is plainly admissible. Mr. Drig-gers is a professional real estate appraiser. His report contains an appraisal of the conservation easement covering the 355-acre property in Greene County, Georgia (subject property) that is at issue in this case. Mr. Driggers has performed a detailed real estate appraisal, chiefly using the comparable sales method of valuation. He concludes that the highest and best use (HBU) of the subject property at year-end 2015 was as a "speculative hold for future mixed-use development," and he values the property on the basis of comparable sales. He also performed, as a back-up alternative to the comparable sales method, a discounted cash flow analysis, which he based on the assumption that the property could be developed as a mixed-use residential community. We conclude that the Driggers report meets the criteria of FRE 702 and 703.

Petitioner contends, citing the opinions of its own experts, that the Driggers report is "unreliable" because his comparable sales are not truly comparable. The degree to which proposed comparable transactions are appropriate is clearly a subject on which experts may disagree and is therefore one for resolution by the Court. See, e.g., Estate of Hillebrandt, T.C. Memo. 1986-560 (describing Court's role in property valuation cases involving "battle of the experts"). Petitioner also contends that Mr. Driggers erred in certain aspects of his analysis. Petitioner's cross-examination of Mr. Driggers at trial may bear out that assertion, but allegations of methodological error cannot justify exclusion of the entire Driggers report at this stage. Cf. Sells v. Commissioner, T.C. Memo. 2021-12 (excluding expert's report only after cross-examination corroborated material errors).

Mr. Landis's report is also admissible under FRE 702 and 703. Mr. Landis is a civil engineer specializing in land use and development. He was engaged to provide Mr. Driggers with "an assessment of factors affecting a potential mixed use development of the subject property." Mr. Landis's report accordingly discusses factors that would affect the feasibility of constructing a residential mixed-use development on the subject property. These factors include (1) regulatory constraints (e.g., zoning classification, local restrictions on future development and design, and rules governing stormwater management, wetlands, and riparian buffers), (2) physical constraints imposed by the property itself (e.g., topography, natural drainage features, wetlands, floodplains, and soil characteristics), and (3) infrastructure support (e.g., external roadways, traffic volume, availability of utilities, and availability of access to Lake Oconee). Mr. Driggers explains that he relied on the Landis report for evaluation of these factors and explicitly incorporates by reference (on pages 26-27) the Landis report into his own.

Petitioner complains that the Landis report does not offer a bottom-line "opin-ion" on the valuation or HBU of the subject property. But an expert witness need not himself render such an opinion. Testimony of an expert witness is generally admissible if his specialized knowledge will assist the trier of fact to understand the evidence or decide a fact in issue. Hospital Corp of Am. v. Commissioner, 109 T.C. 21, 59 (1997). In the Tax Court experts routinely prepare reports on technical subjects that are in turn relied upon by other experts in the preparation of their own reports, as occurred here. The Court often receives testimony from "industry experts" who may not offer bottom-line opinions but rather help the Court understand how specialized industries work. Cf. Rule 143(g)(3) (permitting the Court to receive testimony on "industry practice" from experts without a written report). It is also generally acceptable for two experts to prepare a joint report. See, e.g., Plateau Holdings, LLC v. Commissioner, T.C. Memo. 2020-93 (discussing joint report submitted by two appraisers). Though Messrs. Driggers and Landis did not file a joint report, we would have permitted them to do so. As with the Driggers report, petitioner finds flaws with certain aspects of the Landis report. But that again is a proper subject for cross-examination, not a reason to exclude the report from evidence before trial.

In consideration of the foregoing, it is

ORDERED that petitioner's Motions in Limine, filed October 31, 2022, at docket entries #324 and #325, are denied.


Summaries of

Oconee Landing Prop. v. Comm'r of Internal Revenue

United States Tax Court
Nov 15, 2022
No. 11814-19 (U.S.T.C. Nov. 15, 2022)
Case details for

Oconee Landing Prop. v. Comm'r of Internal Revenue

Case Details

Full title:OCONEE LANDING PROPERTY, LLC, OCONEE LANDING INVESTORS, LLC, TAX MATTERS…

Court:United States Tax Court

Date published: Nov 15, 2022

Citations

No. 11814-19 (U.S.T.C. Nov. 15, 2022)