In Uncategorized on 06/19/2014 at 16:36

It is often very hard to convince clients, especially sophisticated clients, that you, their tax adviser, actually know what you’re talking about and why they should follow your advice (for which, maybe, they’re actually paying you).

But clients sophisticated and otherwise should read and heed Judge Marvel’s opinion in Seventeen Seventy Sherman Street, LLC, Martin Wohnlich, Tax Matters Partner, 2014 T. C. Memo. 124, filed 6/19/14.

Mr Wohnlich and his copartners claimed they listened to Karl Leppman, Esq., a tax attorney they retained, when Mr Leppman told them they had to reduce the charitable deduction they were claiming for the granting of a façade easement in favor of Historic Denver, Inc., a 501(c)(3) dedicated to protecting, preserving and defending what remains of the history of the Mile-High City.

Unfortunately, Historic Denver, Inc., was, at the relevant time, a toothless tiger, so Mr Wohnlich and his copartners struck a tough deal with the City of Denver in exchange for granting the aforesaid easement, which had actual teeth.

The deal involved the façade and interior of the celebrated Mosque of the El Jebel Shrine of the Ancient Arabic Order of Nobles of the Mystic Shrine (El Jebel Shrine), which Mr Wohnlich and copartners wanted to turn into a high-priced condominium, and for which they got major concessions from the municipality. My kind of guys.

Well, Mr Wohnlich sent in the 1060 and 8283 claiming the deduction, backed up with appraisals, but IRS ripostes with its own hotshots, so Judge Marvel, invoking the mix-and-match rules, throws them all out and opines that, because Mr Wohnlich didn’t prove that the worth of what he got from the City was less than what he gave by way of the easement, there is no deduction.

Now for the penalty shots, which include the 40% substantial overvaluation chop.

Judge Marvel: “Petitioner contends that Seventeen Seventy acted with reasonable cause and good faith through its reliance on professional advice and therefore no section 6662(a) accuracy-related penalty is applicable. With regard to its compliance with section 170, Seventeen Seventy sought the advice of Mr. Leppman. Petitioner contends that Seventeen Seventy provided Mr. Leppman with all necessary and accurate information, and that it reasonably relied in good faith on the advice of Mr. Leppman. See Freytag v. Commissioner, 89 T.C. at 888. However, Mr. Leppman testified that he advised Seventeen Seventy that it had to reduce the value of the claimed charitable contribution deduction by the consideration received in the quid pro quo exchange. Seventeen Seventy did not follow Mr.Leppman’s advice to reduce the value of its deduction by the consideration it received. It would be unreasonable for us to believe that at the time of the contribution and at the time of filing Seventeen Seventy’s return, either Seventeen Seventy or its advisers believed that the contribution of the easements was an unrequited contribution or that the consideration received had no value. Consequently, Seventeen Seventy’s disregard of Mr. Leppman’s advice was not reasonable and in good faith, and therefore Seventeen Seventy cannot rely on the professional advice of Mr. Leppman to negate the section 6662(a) penalty. ” 2104 T. C. Memo. 214, at pp. 43-44. (Footnote omitted, but read it. Mr Wohnlich’s appraiser seems to be talking at cross-purposes).

So the deduction goes down the drain. But the substantial overvaluation 40% chop does also, because IRS introduces that post-answer, has the burden of proof, and its hotshots don’t carry it.

Finally, Mr Wohnlich and his copartners have four (count ‘em, four) trial lawyers trying this case, whereas, if they had listened to one tax lawyer, Mr Leppman, they would have saved themselves a lot of trouble.

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