United States' Motion to Exclude Expert Testimony of Plaintiffs'

c.v. is attached as Exhibit A. I am being compensated in this matter at my standard rateof $600 per hour.II. Summary of OpinionsThe taxpayers entered into a transaction related to their potential acquisition ofSolution 6, an Australian corporation (the transaction). Counsel has asked me toaddress issues relating to the penalties asserted against the taxpayers regarding thepositions taken on their returns with respect to the transaction. The United States hasasserted four penalties against the taxpayers: (1) the negligence penalty; (2) thesubstantial understatement penalty; (3) the substantial valuation misstatement penalty;and (4) the gross valuation misstatement penalty. Section II below describes thestructure of these penalties. In brief, all of these penalties, or the available defensesagainst the assertion of these penalties, include a requirement that the taxpayer actreasonably. The negligence penalty requires a reasonable attempt to comply with theprovisions of the Internal Revenue Code. In the circumstances of the transactions inthis case, the substantial understatement penalty is reduced to the extent the taxpayerhad a reasonable belief that the tax treatment is more likely than not the propertreatment (as well as had substantial authority). A taxpayer may assert a defenseagainst the gross valuation and substantial valuation misstatement penalties if he hadreasonable cause for the position taken on the returns (and took those positions in goodfaith).These reasonableness defenses are based on the objective behavior of thetaxpayer, and in all cases may be satisfied based on reasonable reliance on advice givenby a tax professionaL. Whether such reliance is reasonable depends on the quality andnature of the advice as well as the facts surrounding the advice (such as whether theprofessional had a conflict of interest, had all the relevant facts, and similar factors).The taxpayers relied on a summary opinion from the accounting firm CosciaGreilch & Company LLP, dated December 31,2001, and a detailed backgroundmemorandum containing the reasoning behind the opinion, dated December 2001 alsoby Coscia Greilch (together, the Opinion). The Opinion analyzed the relevant taxissues involved in the transaction under review and concluded that the taxpayers weremore likely than not to prevail with respect to each item. It is my understanding that in2