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In the Daily Tax Report's "IRS Loss in Amazon Case Seen Highlighting a Flawed Approach," John Warner discusses criticism regarding the IRS' litigation strategy.

John P. Warner, a partner at Buchanan Ingersoll & Rooney PC in Washington, told Bloomberg BNA in an email March 23 that "it was a bit much for the IRS to push the discounted cash flow analysis on an enterprise basis" in its attempt to value all of the intangibles transferred.

"Before Amazon's restructuring of its European operations, its European subsidiaries conducted substantial activities, and were pretty clearly not merely ‘cash boxes,'" he said in his email. "But the aggregate discounted cash flow analysis implicitly treated them as little more than that."

Warner also said he took issue with "the use and coordination of the IRS's expert economists." The testimonies of IRS expert economists Frisch and Harlow Higinbotham appeared to have "somewhat-less-than-perfect coordination," Warner said.

For instance, Frisch and Higinbotham had different estimations of the appropriate discount rates to be applied in valuing the buy-in payments for AEHT, Warner said. Frisch concluded that an 18 percent discount rate was appropriate, while Higinbotham calculated a 14 percent discount rate, the opinion noted.

The economists also differed on the assumed revenue growth rate for Amazon's European business, "which had to be taken into account in determining the appropriate buy-in payment," according to Warner.

Warner also said the disconnected testimonies may have raised credibility questions. "Because Tax Court judges have little economic expertise, the lack of coordination between a party's experts often raises a red flag—legitimately or not—that the party's case has some significant holes in it," he said, adding that Amazon's economic testimony "was pretty well coordinated."