Page 24 - Business Valuation for Estates & Gift Taxes

randum opinion does not involve any new legal issues and generally addresses cases in which the law is
settled or the facts are not unusual. It is appealable and can be cited as legal authority; however, it does
not create precedent.

The Tax Court can also issue Tax Court opinions. These are issued when the court believes that an im-
portant legal issue has not been previously decided, in which a judge proposes to overrule a prior case,
or when a case has been reversed by a court of appeals. This type of opinion is also used if the Tax
Court proposes to invalidate an IRC Regulation. The chief judge will call for a court review when the
result may be controversial, or when the chief judge is made aware of differences of opinion among the
judges. Tax Court opinions are appealed and can be cited as precedent.

If U.S. Tax Court, U.S. District Court, or U.S. Court of Claims cases are appealed, they are appealed to
the U.S. Court of Appeals where either the taxpayer lives or the business is domiciled. There are 11 re-
gional courts of appeal, a D.C. Circuit Court of Appeals, and the U.S. Court of Appeals for the federal
circuit, which has jurisdiction over certain appeals based on the subject matter of the case. U.S. Court of
Appeals decisions serve as precedent only in that circuit. They do not bind Tax Court judges or U.S.
Court of Appeals judges in other circuits.

Valuation Analysts Use of Court Cases

Court cases are legal decisions that are based on the facts and circumstances presented to the court at the
time of the trial. Under Tax Court Rule 143G, an expert’s report is generally the expert’s direct testimo-
ny which is then subject to cross-examination. It is rare that the reader of a court case, regardless of the
jurisdiction, will have access to the valuation reports submitted to the court by the valuation expert(s). It
is important that the valuation analyst who reviews a legal decision for guidance on how to conduct a
valuation engagement be cognizant of the fact that the court’s decision has more than likely summarized
the expert’s assumptions, approaches, methodologies, and so on, and included only the relevant portions
of the expert’s report. As a result, the valuation analyst reading the court decision will have only partial
insight into the procedures used by the valuation expert and facts and circumstances used by the court to
render the decision. Although valuation issues arise in many court cases, the issues argued in these cases
are primarily legal ones. Most valuation analysts do not have the requisite training to thoroughly evalu-
ate the legal positions presented and how the valuation evidence relates to it. Therefore, valuation ana-
lysts must be cautious and not place too much reliance on court cases at the risk that the case may not be
appropriate for the specific facts and circumstances of the specific engagement.

That said, it is important that the valuation analyst working in the estate and gift tax arena read court
cases as they are issued and, at a minimum, understand the issues that the IRS believes are important
enough to audit. In many cases though, the valuation issue is tangential to legal arguments (such as IRC
Section 2036 issues where the valuation becomes important only if the taxpayer prevails on this legal is-
sue).

Valuation analysts must also be mindful of how courts may respond to significant use of citation and re-
liance on case law by a valuation analyst. An example of how the use of case law can be perceived by a
court is best illustrated by comments from Judge Laro of the Tax Court. He has said on numerous occa-
sions that he does not like when valuation analysts cite court cases; he believes it is inappropriate for in-
dividuals who are not attorneys to be seen as "practicing law." However, he has also said that valuation
analysts should be aware of his cases and, when appropriate, consider them, in particular, the factors he
provides in Bernard Mandelbaum, et al. v. Commissioner, T.C. Memo 1995-255 (see chapter 7, “Dis-
count for Lack of Marketability,” for further analysis of this decision).

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