Whether you are an owner of a horse or not, you probably recognize that horse sense equates to common sense.
If you are an appraiser of business interests or personal property, horse sense, in the practical application of the term, is logical and necessary. An appraiser needs to apply levelheadedness and support to any opinion of value and not just an unsupported opinion of value.
In T.C. Memo. 2019-64 Skolnick v. Commissioner the Court hears from an expert testimony on the value of a stable of horses. The case deals with a Section 183 deduction and whether the horse related activity of a taxpayer was engaged in a “for profit” motive.
In the instant case the expert, with years of experience as an agent for sellers and sometimes for buyers of standard bred horses, submits a 3+ page report with two attached spreadsheets for support in his appraisal.
His opinion states “the appraisal of horses is not an exact science and is greatly influenced by numerous economic and social factors”. Their value “can be affected in a volatile way as a result of any natural disaster, disease outbreak, global crisis or governmental actions”.
Seems fair, as this applies to just about every asset category. While the text of the report does not illuminate the appraisal process, the two spreadsheets attached provided a listing of the horses by category and other characteristics important in the determination of the value of these horses.
With no explanation of how the values were arrived at, the opinion is based on “values assigned on our experience in the marketplace for the past 25 years along with our sales database from previous sales within the industry”. Unfortunately, he does not include in the report the data and how it was applied.
The Court indicates that a written report serves as direct testimony of an expert witness and must comply with the requirements for expert testimony set forth in Fed. R. Evid. 702. Accordingly, the report should provide among other things “a complete statement of all opinions the witness expresses and the basis and reasons for them; the facts or data considered by the witness…and any exhibits used to summarize or support” the opinion(s).
There are numerous omissions in the report which the Court goes on to describe but importantly the lesson learned is that while an expert can provide an opinion using the argument “its my opinion” or “based on my experience” does not tip the scale and provide a defensible opinion of value.