In an “open letter to the judiciary concerning the damage that it is doing to business valuation,” attorney Paul Hood has some “acerbic words” for the judges that preside over tax disputes, with its implicit assumptions about the work of some BV appraisers. The damage “has to stop now,” Hood says, primarily by increasing Daubert exclusions:
“The U.S. Supreme Court made you the ‘gatekeepers’ of expert evidence,” Hoods tells the tax bench. This does not mean that but for “your hallowed robes, [you should] also be passing through the same gate.” Judges should stop taking on “the cloak of superior appraiser, divining between theories and conclusions . . . to reach your own conclusions, usually cherry-picked from bits and pieces of the work [by] opposing experts,” which sometimes results in “highly nonsensical, Frankensteinesque” opinions, Hood writes, citing the Gallagher decision as one recent example.
“You are the gatekeepers,” he says. “Then keep the gate.” Instead of admitting what the judge suspects is a biased report (and then taking out the resulting “resentment” on the appraiser in the opinion), he or she should “simply refuse the evidence and testimony under Daubert.” The alleged biases in the BV profession would soon “disappear,” Hood promises. Otherwise, BV experts will continue to play to the court’s “out of tune” appraisal practice rather than compose their own “melodic” (and reliable) versions. Read the rest of Hood’s outspoken observations—including how the Tax Court has come to resemble the “Flat Earth Society” on tax-affecting, and how it should “resist simplicity” on other issues, such as embedded capital gains discounts—by clicking here.