How to Win a Tax Appeal

As published by Real Estate New Jersey, July/August 2002, By John Garippa

The April filing deadline has long passed, of course.  For some, however, it may now be necessary to prepare for a successful tax appeal.  There is one truly crucial issue to remember about winning a tax appeal:  Put yourself in a position to settle the case with the taxing authority.  A look at the record over many years demonstrates that the Tax Court makes many inexplicable rulings.  Therefore, any time a taxpayer can get an acceptable settlement, that settlement should be carefully considered.

At the same time, remember this:  Sophisticated taxing jurisdictions will not settle cases unless they believe there is a risk of reduction.  Here, we will focus on how best to emphasize that risk

All of the benefits and liabilities of the property are best understood by competent ownership and management.  It's the responsibility of management to communicate those liabilities so that the professional appraiser can take them into consideration for valuation purposes.  Many times, there are significant operating defects relevant to property that are not properly communicated to the appraiser.  So often, these are the kinds of defects that an appraiser might not necessarily notice without interfacing with management.

The proper preparation of the case during its discovery phase is critically important to its chances for success.  In most significant tax appeals, interrogatories are routinely exchanged.  The purpose of this process is to put all parties on notice as to the relevant issues affecting the property.  It's important that all interrogatories propounded by the taxing jurisdiction be properly answered.  It is of equal significance that your answers be given to your appraiser as well.  To often, a property owner's appraiser is surprised and embarrassed by information that management has provided to the taxing jurisdiction, but has not provided to his or her own appraiser.

Management must meet with the appraiser to review the appraisal before it is exchanged for trial.  The appraisal should be examined for factual errors as well as appraisal errors.  Also, involving an experienced tax attorney in this process is vital to determine whether there are legal issues impacting the appraisal process.

Forensic appraisals are very different from other types of appraisals.  A forensic appraisal must have backup for every significant position.  It is inappropriate for an appraiser to maintain an opinion based on "my experience."  If there is a market analysis, the comparables must be truly comparable from the standpoint of size, use and locale.

The same is true of an income approach:  Any use of comparable income must be based on true comparability.  Also, the appraiser must be fully versed on all details of comparable property.  In many ways, it is as consequential for the forensic appraiser to know as much about the comparables as they know about the subject property.

If all of these steps have been taken carefully, there will probably be an opportunity for settlement.  However, if the appeal has to be tried, it is critical that the appraiser be prepared for cross-0examination.  Every conceivable question should be posed so the appraiser has a chance to think clearly about the issues involved, in advance of the trial.

Also, preparation for direct testimony should also take place.  Many taxpayers make the mistake of thinking all that's necessary in direct is for the appraisal report to be placed in evidence.  Rather, a strong direct presentation should take place where the "story" of the case unfolds in a clear and precise fashion, making reference to the appraisal.

The other half of a successful tax appeal involves undermining the credibility of the opposing appraiser.  This involves the artful preparation of questions.  The focus should be on the key aspects of the opposing appraisal:  Narrow the inquiry to really significant areas in dispute.

Also, if there are factual errors in that report, focus immediately on those areas.  An expert unable to get facts straight never impresses the court.  Additionally, the use of corroborative evidence, either by way of photographs or documentation, is very helpful in undermining an expert's opinion.

In the final analysis, a winning tax appeal is like choreography, with all the pieces telling the same story.

John Garippa is the senior partner of the law firm of Garippa, Lotz & Giannuario, with offices in Montclair, New Jersey and Philadelphia. He is also the president of American Property Tax Counsel, the national affiliation of property tax attorneys.  He can be reached at john@taxappeal.com.