Tax Court joins other federal courts in excluding draft reports from discovery

Following the trend in federal district and circuit courts, the U.S. Tax Court recently amended its Rules of Practice & Procedure to exclude the draft of expert reports from discovery, “regardless of the form in which the draft is recorded.”

In addition—and also to align with the federal rules—the Tax Court’s Rule 70 now protects communications between experts and attorneys from discovery, “regardless” of their form, with three important exceptions relating to communications that contain:

  • The expert’s compensation;
  • Facts or data that the attorney identifies for the expert; and
  • Assumptions that the attorney provides to the expert.

The new Tax Court rules also protect the reports and opinions of any consulting (nontestifying) expert. To read all the changes to the rules—which became effective in July 2012 and which the court has made available prior to official publication—click here.

Not surprisingly, the Tax Court has yet to issue any decision interpreting the amended rules, in particular, the two exceptions concerning communications in which the attorney identifies facts or provides assumptions that the expert later uses to form a final opinion. This also follows a trend in federal courts, which have published few cases concerning the revised Rule 26, leaving many unsettled or “gray” areas. Consider, for example, a discussion in which an attorney mentions a fact that the expert might have already gleaned from another source, such as a deposition, but then the two continue to talk about the fact’s significance in the case. Clearly, the second part of the discussion is protected under the revised federal rules—but is the first part?

“That’s slicing the salami pretty thin,” says attorney John Rogers (Perkins Coie), whose overview of the amended federal rules appears in the December Business Valuation Update and provides best practices for BV experts testifying in all federal courts, including now the Tax Court. Our thanks to Brad Pursel (Brown Smith Wallace), who touched on the Tax Court’s amended rules as part of his broader presentation on “Taxes in Valuation: Where Are We?” at the AICPA Forensic & Valuation Services (FVS) Conference this week in Orlando, Fla. More conference highlights to come …