In Uncategorized on 05/29/2012 at 16:25

Or, No Good Deed

You know the rest. Now so do Joseph Mohamed, Sr. and Shirley Mohamed, generous of spirit but failures at tax preparation, in the eponymous case, 2012 T.C. Memo. 152, filed 5/29/12. And this follows up on a current discussion in one of the LinkedIn tax blogs I subscribe to.

Joe and Shirl generously funded a Charitable Remainder Unit Trust (CRUT), properly set up and compliant. Instead of paying a few bucks to an EA or a CPA, they funded the CRUT over two tax years with $20 million worth of property (which the CRUT sold at arms’-length, and which yielded prices above what Joe and Shirl claimed on their 8283s), and prepared their own tax returns, with home-made 8283s.

Like my old law school icon, “the jolly testator who makes his own will”, Joe was a do-it-yourselfer and only read the 8283 form, never bothering to read the instructions. The Form 8283 in use for each of those years only spoke about appraisals for works of art in excess of $20K. OK, says Joe, I don’t need no stinkin’ appraisals, I’ll just be conservative in my guesses on the 8283s.

Judge Holmes delivers the bad news. The regulations are clear, the statutory delegation to the Sec’y of the Treasury to make regulations is clear, and the instructions are clear; reliance on the form alone won’t help you, and Joe, you’re not in substantial compliance. Your appraisals are too late, and one of them would be insufficient even if it were timely. That the properties sold in the aggregate at more than you claimed is great for the CRUT, but helps you not at all for the current deductions.

Judge Holmes, The Great Dissenter, the Judge who writes like a human being, and lately the Terror of the D.C. Circuit (see my blogpost “Judge, He Didn’t Mean It”, 5/17/12), tells the sad tale: “The Mohameds make one last-ditch effort to save their deductions. They point out that the Commissioner’s Form 8283 for 2003 and 2004 didn’t indicate anywhere on it that a taxpayer had to get an independent appraisal for contributions worth more than $5,000 and presented conflicting messages about what could be filled out by the taxpayer and what required an appraiser’s signature. We won’t try to explain away these difficulties, and note that the Commissioner has since changed his form to reduce confusion. Although sympathetic to the Mohameds’ cause, we can’t hold the form’s failings against the Commissioner here, because ‘the authoritative sources of Federal tax law are in the statutes, regulations, and judicial decisions and not in such informal publications.’ A taxpayer relies on his private interpretation of a tax form at his own risk.” 2012 T. C. Mem. 152, at p. 25 (Citations omitted).

So Joe and Shirl saved maybe a grand or two in tax prep fees, and lose deductions for $20 million worth of property demonstrably donated to a bona fide CRUT at FMV, plus legal fees, plus interest.

Pay me now or pay me later.

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