RCL Properties, Inc. et al v. U. S. A.

A magistrate judge in the U.S. District Court for Colorado granted a motion to compel the IRS to produce its valuation matrix. This matrix has been the subject of Freedom of Information Act requests which were rebuffed by the Service. The matrix has also been a source of contention in recent Tax Court cases, particularly in Colorado such as the Hughes case. The Matrix is thought to be a compilation of valuation data on dozens of sales of real property subject to conservation easements.

Taxpayer attorneys and conservationists believe that the matrix and identity of the additional properties would reveal the analysis and methodology used by the IRS to determine easement values. The hope is that a better understanding of the IRS perspective will be gleaned from the matrix allowing taxpayers to better rebut the valuation made by the IRS. The decision has an interesting footnote from the IRS perspective that has not been borne out in recent tax court cases. The IRS is considering an appeal.

Holding: The court held that the IRS must produce the entire matrix data to plaintiffs, as well as the data on the additional 200 properties.

Analysis and Notes: Although discovery rulings usually are not of great precedential value because of the particularized nature of the dispute, this case is a potential exception, given that the IRS has used the matrix in its handling of many Colorado easement challenges. In their motion to compel, plaintiffs accused the IRS of adopting a cookie-cutter approach to easement valuations, in order to reach a predetermined finding of zero value.