The Tax Court weighs in on expert declarations and access to Airbnb’s source code in a multibillion-dollar transfer-pricing dispute.
September 3, 2026. Airbnb Inc., the online marketplace connecting users with hosts for short-term stays, is in a dispute with the IRS over the value of software that Airbnb transferred to a foreign affiliate. Airbnb says the value is $35 million; the IRS says the value is $4.2 billion, with a tax deficiency of $1.33 billion and penalties of $570 million.
The parties dispute the circumstances under which the IRS may view Airbnb’s source code. Airbnb says the IRS can view it only in a clean room established by Airbnb or its counsel. (A “clean room” is a secure room with limited access where documents and materials can be removed only in limited circumstances.) The IRS wants the clean room in Austin where its expert is and also wants to limit the information subject to the clean-room protocol.
In support of its filings, the IRS submitted declarations of its expert. In them, the expert stated he has been an expert in 20+ software cases and stated his view about clean-room protocols (i.e., how they should operate, the scope of information subject to it). Airbnb moved to strike the declarations as improper expert testimony under Rule 143(g) and as impermissible legal opinions under Rule 702 of the Federal Rules of Evidence.
The Tax Court denied Airbnb’s motion. Airbnb, Inc. v. Commissioner, 167 T.C. No. 9 (2026). The court started by outlining the standard for motions to strike under Rule 52, which is that they are disfavored: they should be granted only when the allegations have no possible relation to the controversy and are usually not granted unless there is prejudice to the moving party.
Then the court rejected Airbnb’s argument that Rule 143(g) applied because that rule applies at trials. Because there has been no trial (and because the IRS has not identified the expert as a testifying expert) and because the declarations focus on pretrial matters, the court held that Rule 143(g) did not apply. In addition, the court noted that under Rule 143(g), ex parte declarations are not evidence. Further, the court stated that even if Rule 143(g) applied, it explicitly states that a party can request that its provisions do not apply, and furthermore, it explicitly exempts from the requirement of a written report testimony about industry procedures (which the court concluded this was).
The court also rejected Airbnb’s argument that the declarations contained impermissible legal opinions. Even if the expert’s opinions were legal opinions, the court could give them no weight. The court also offered to Airbnb that it could request an evidentiary hearing to cross-examine the IRS’s expert and offer competing declarations from its own experts.
Given the Tax Court’s opinion, expect that Airbnb will weigh seeking an evidentiary hearing (one of the “pros” being to assess how the IRS’s expert will perform at trial, which likely outweighs the “con” that if the witness does well, the judge is also seeing it), and will offer one or more competing expert declarations. Also anticipate that the IRS will, if it has not already, procure additional experts for a deeper bench of testifying v. (solely) consulting experts. A deeper bench also expands the possibility of different experts testifying solely in rebuttal. Given the stakes of the litigation, one can assume that the litigation budgets fall into “the sky’s the limit” category.
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If you need assistance to resolve a tax dispute with the IRS (including litigating a tax case) or need co-counsel experienced in litigating tax cases, please reach out to our team at K. Tyson Law. This alert should not be construed as legal advice, does not create an attorney-client relationship, and reflects the state of the law as of the date of this notice. Subsequent developments in the law can affect the conclusions in this alert.Â
Written by Kim Tyson, J.D., LL.M.