Gordon Kaufman and Lorna Kaufman, Ph.D.s both, coming off a First Circuit win (see my blogpost “A Joy Forever? –Maybe Not”, 7/20/12), are back in front of Judge James S. (“Big Jim”) Halpern, playing five-on-two (five lawyers for Gordo and Lorna, and only two for IRS), in 2014 T. C. Memo. 52, filed 3/31/14, and Lorna’s Section 170 facade easement gets blown away to the tune of a 40% substantial understatement chop.
Gordo is “Morris A. Adelman Professor of Management Emeritus of the Sloan School of Management at the Massachusetts Institute of Technology. He specializes in statistical analysis.” 2014 T. C. Memo. 52, at p. 4. Spouse Lorna, a Ph.D. in psychology, has her own business and donated a facade easement on her historic Boston townhouse.
So maybe Gordo should be leery of the valuation of Timothy J. Hanlon, which claims the diminution of value of wife Lorna’s Boston townhouse is 12%, based on the ill-considered Primoli article and one Tax Court case that has no progeny, with some juggling and jiggling of Timothy J.’s own creation.
Gordo is appropriately concerned, and sends an e-mail to Mory Bahar, a representative of the National Architectural Trust, vendor of easement deductions and promoter of this deal. Gordo’s e-mail is distilled by Judge Big Jim: Gordo “expressed his concern that ‘the reduction in the resale value of the property due to the [facade] easement [is] so large as to overwhelm the tax savings that accrue from it.’ He asked Mr. Bahar: ‘[D]o you have statistical documentation that bears on how much of a reduction in resale value takes place for residential properties?’” 2014 T. C. memo. 52, at p. 10.
Although Judge Big Jim takes 86 pages to deconstruct Timothy J.’s appraisal, while lauding the efforts of IRS’s star witness John C. Bowman III, one paragraph of Mory Bahar’s reply e-mail is enough to tell you how this case is going to end.
“One of our directors, Steve McClain, owns fifteen or so historic properties and has taken advantage of this tax deduction himself. He would have never granted any easement if he thought there would be a risk or loss of value in his properties.” 2014 T. C. Memo. 52, at p. 11.
How do you spell “smoking gun”?
Now if a client shows you such an e-mail, what do you do? Well, Gordo’s team apparently introduced this gem into evidence, to show Gordo’s good faith attempt to verify Timothy J.’s appraisal. See 2014 T. C. Memo. 52, at p. 73.
Judge Big Jim: “Gordon Kaufman testified that he found the Bahar email only ‘mildly informative’ because he questioned the statistical basis of Mr. Bahar’s conclusions. It is somewhat odd, and not at all persuasive, that, in support of their argument that Gordon Kaufman verified that the $220,800 value for the facade reached by Mr. Hanlon was correct, petitioners bring to our attention Mr. Bahar’s email, in which, whether Gordon Kaufman accepted it or not, Mr. Bahar expressed his opinion that the conveyance of the facade easement to NAT had little or no effect on the value of the property. Petitioners have not convinced us that they made a good-faith investigation of the value of the facade easement by virtue of Gordon Kaufman’s email correspondence with Mr. Bahar.” 2014 T. C. Memo. 52, at pp. 73-74.
Kind of hard to rely on an appraisal when the promoter of the deal tells you that, no matter what the appraiser said, one of their own principals did this fifteen times and lost nothing. And you put this little gem into evidence.
How do you spell “own goal”?
Anyway, Judge Big Jim goes painstakingly through Timothy J.’s appraisal, notwithstanding his statement that: “(W)hether we exclude his testimony under Fed. R. Evid. 702(c) as not being the product of reliable principles and methods or consider it and give it no weight would seem to make little difference in this bench trial.” 2014 T. C. Memo. 52, at p. 54, footnote 12.
There’s a lot more, but you get the idea.