Section of Taxation Publications
  VOL. 57
NO. 3
SPRING 2004
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
 
 Twelfth Annual Griswold Lecture Before The American College of Tax Counsel: "Expert Testimony on the Law"
Bernard Wolfman*

*Fessenden Professor of Law, Harvard Law School. University of Pennsylvania, A.B. 1946, J.D. 1948; Jewish Theological Seminary of America, LL.D. 1971; Capital University, LL.D. 1990. The author would like to thank Afshin Beyzaee, a former student who is now an associate with Covington & Burling, Washington, DC, for his very fine research assistance.

This article is based on the Twelfth Annual Erwin N. Griswold Distinguished Lecture that I was privileged to present to the American College of Tax Counsel at its annual meeting on January 31, 2004. Its purpose is to elicit thought and discussion on an important issue-the propriety and admissibility of expert testimony on questions of tax law in litigation between private parties.

Readers should know that I have served, and am currently serving, as an expert witness in cases involving the liability of a Big Four accounting firm that rendered tax opinions to clients who made investments usually referred to as "tax strategies." In the typical case, professional advisers, accountants and lawyers, urged their clients to purchase the investments so that the clients would thereby gain the tax benefits that the professionals said the strategies would generate for them. The Service, however, correctly denied the tax benefits.

Historical custom and the black letter rule of today provide that the witness stand is the place for facts to be adduced and presented to the trier of fact (whether jury or judge), and that opinions on questions of domestic law are to be presented by way of counsel's argument to the judge at the bar of the court. It has been and is the law, however, that a party may prove the law of a foreign country by the testimony of an expert witness.

The rule as to domestic law takes as its predicate the proposition that facts, to be established by testimony from the witness stand, are separate and distinct from law. All of us who are in the law know, however, that the facts and the law are often intertwined, often inseparably so. At times lawyers find it virtually impossible to address the jury without discussing the law, although it is supposedly the exclusive function of the judge to state and explain the law to the jury. Sometimes lawyers in argument to a judge find it necessary to refer to undecided facts that the lawyers expect the judges to take for granted as they often do.

As an aid to the fact finders (whether juries or judges), one side or the other or both sides will often call expert witnesses to testify to their opinions on specialized, usually technical, subjects outside the presumed ken of the typical lay juror or the judge. Ordinarily, fact witnesses may not express an opinion when they testify, but expert witnesses have the expression of their opinion as their principal function. For example, in a malpractice action against a doctor, the plaintiff, a former patient, will introduce testimony by a cardiologist that the defendant, his former doctor, negligently failed to take into account data showing that the patient's condition called for the implant of a pacemaker.

The cardiologist's testimony is specialized and comprises both fact and opinion, but it is not legal, or so it is said, and it is both necessary to the plaintiff's case and admissible. However, that testimony is relevant and probative only to the extent that it is based on a legal rule that establishes the standard of care to which doctors are held and states how the standard and its breach are to be presented in court.

The expert's testimony will refer directly to the standard. Tradition-the law-calls for the expert to testify that the defendant doctor violated the legal standard of care, that his failure to take the relevant data into account was a breach of a standard requiring careful attention to such data because it is the standard customarily observed by doctors in the field of practice in the community served by the defendant. Indeed, a plaintiff's case cannot make it to the jury unless he produces evidence of a breach of that standard, one the witness will refer to and counsel will refer to in his closing argument, as he probably also did in his opening statement. And so the expert's testimony is necessarily and inextricably a mix of fact (specialized, expert data) and opinion that the legal standard has been breached.

In the arena of tax practice a taxpayer will have received and paid handsomely for an opinion from a tax adviser, lawyer or CPA, advising him of the favorable tax consequences of a tax strategy the adviser encouraged him to buy. The taxpayer makes the investment; the Service denies the tax benefits; the courts sustain the Service, and the taxpayer incurs a tax deficiency, interest, perhaps penalties, and substantial legal and related expenses in the course of the controversy. The taxpayer sues his adviser, now having been correctly advised by adviser #2 that the original advice he received from adviser #1 was fatally flawed, and that adviser #1 should have known so, and indeed may have known so, because the flaw would have been clear to a careful, attentive tax professional.

The taxpayer will testify as to the advice he received, to the Service's rejection of it, and to the huge tax deficiency that was assessed and the expenses he incurred as a result. All of that testimony, if it is by itself without more, will not be sufficient for his case to go to the jury, and a motion for dismissal will be granted. The taxpayer needs testimony that adviser #1 was not only wrong, but that he was careless, negligent, or perhaps motivated by financial self-interest or the interest of another client. The taxpayer requires this in light of the fact that adviser #1 should have known, or he did know, that his opinion was wrong, and that competent, independent tax advisers in the community would not have given that advice because they would have realized that such an investment as adviser #1 recommended would not yield any of the tax benefits that he said it would.

So far all sounds so simple and so right. But when adviser #2 comes to serve as the taxpayer's expert witness and testifies to the standard he has based his advice on, and he states it is the applicable and appropriate standard, is he not testifying to law? Is he not doing so when he testifies as to what was wrong with adviser #1's opinion and also when he explains that the governing ethical standards require the undivided loyalty of the adviser?


 
 

Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center

 

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