The Use of Forensic Accounting Experts in Tax Cases as Identified in Court Opinions

Abstract

This paper presents the first comprehensive analysis of what judges have written about forensic accounting experts in federal and state court decisions. The earliest opinion was issued in 1982, but the majority of the cases (31 out of 40) were decided by federal and state courts during the decade from 2001 to 2010. This gives an indication of the emerging role of forensic accounting expert witnesses in tax cases. Understanding the past involvement of forensic accounting experts will assist taxpayers and their legal counsel in evaluating the need for forensic accounting expertise when disputes arise in the future. The results may be summarized as “80-80-80-80-80.” A tax issue was the primary reason for involving a forensic accounting expert in nearly 80% of the cases and 80% of the identified cases related to income tax disputes. The issues were of procedural or administrative nature in over 80% of the cases. The court proceedings were civil in more than 80% of the cases. More than 80% of the forensic accountants served as experts for the taxpayers or third parties. Judges evaluated about half of the forensic accountants’ performance as effective, which signals a potential for substantial improvement. The expert witnesses were not considered to be effective by the judge in the majority of the cases that were decided for the government. When a case was decided for the taxpayer, the expert testimony was always considered to be effective by the judge. The paper also provides insights into the underlying tax issues, the assignments performed by forensic accountants, reasons for ineffective testimony and favorable attributes of forensic accounting experts.

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