Mitchell Est. v. Comr. is the second case recently in which the Tax Court has disregarded the work of a valuation expert. The Tax Court is getting very serious about appraisal reports.
In Mitchell Est. v. Comr., T.C. Memo 2011-94, a valuation case, the Tax Court rejected the work of the IRS appraiser, who utilized a valuation method that had not been accepted by any court. The Tax Court noted:
We further find [the IRS appraiser’s] lease buyout analysis speculative at best. Expert testimony must be the product of reliable principles and methods. Fed. R. Evid.702. [The IRS appraiser’s] lease buyout method has not been accepted by any court or generally recognized by real property appraisers. In applying his lease buyout method, he estimated that the Schwartzes’ advance rent payment, security deposit and moving expenses would total between $250,000 and $2 million, which is far from an exact amount. Moreover, he had no basis for assuming that the Schwartzes would be willing to take a lease buyout. We reject the application of this method in this case. Accordingly, we find that the income capitalization method is the best method for determining the value of the 100-percent leased-fee interest of the Beachfront Property.[Emphasis added]
This is the second case recently in which the Tax Court has disregarded the work of a valuation expert. The Tax Court is getting very serious about appraisal reports. Query whether a losing side in a disregarded appraiser case will get assessed attorney’s fees next?