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Whitehouse Limited Partnership and the Gross Overstatement Penalty

Posted on July 8, 2014 at 5:05 PM

http://www.ca5.uscourts.gov/opinions%5Cpub%5C13/13-60131-CV0.pdf


The Whitehouse case is a case that has been in the news for years and one where the AVW 90 team has discussed in webinars over the past few years.  By way of background, the taxpayer sought a deduction for a conservation easement an the U.S. Tax Court severely criticized the underlying work and assessed the 40% overstatement penalty.  The taxpayer had two experts in the case --one that came up with the value of the easement, and  a subsequent expert that coincidentally (?) arrived at a value close to the initial expert.  They appealed to the 5th Circuit since the penalty was high and the U.S. Tax Court essentially said that their opinion was not changed.  In other words, pay the penalty, since there were grounds to impose the same.  The case went back to the 5th Circuit and the court concluded that the 40 penalty did no apply.


So, the taxpayer, in my opinion, got a break.  Is the lesson here effectively that notwithstanding that an aggressive position is taken and you have two or more expert almost concur, that the 40 percent penalty will not apply?  The cost is to hire an "unbiased" expert as part to the cost of doing business?  I do not know. The U.S. Tax Court and other courts are concenred with the lack of impartiality on the expert's part and have started to recommend "hot tubbing" them, are these judges being unfair to parties exercisihg their rights?  As an aside, how likely is an expert that comes up with a way lower value than that of the initial expert  going to be hired by the law firm or client the next time there is adispute?  Call me cycnical, but I doubt that expert will be called or foremost in the mind of the client the next time around.  


The link above is to the case, I will talk about this when I do the NACVA Federal and State Case Law Update later this year.  Your thought on the case are welcome and with regard to the questions asked, I am just stirring up the pot stirred by the U.S. Tax Court judges.

Categories: Business Valuation, Litigation Support: Cases, Commercial Real Estate - Finance

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