In Uncategorized on 06/27/2018 at 02:52

Val Lanes Recreation Center Corporation, 2018 T. C. Memo. 92, filed 6/26/18, concerns Sub S corporate earnings passing through to an employee stock ownership trust {ESOT]. Because this is fact-bound, I’m skipping that part of Judge Paris’ prose.

IRS yanked their approval of Val’s ESOT because of the passthrough Sub S income being deemed a contribution from the owner-beneficiary and exceeding applicable limits, failure to amend timely (except it did, finds Judge Paris, not being bound by the record rule and holding a hearing, which establishes the amendment was timely made), and that Mr T, Val’s trusty CPA, wasn’t a qualified appraiser to value the Sub S stock when contributed, and therefore flunked Section 401(a)(28)(C), which in turn incorporates Section 170(a)(1) regs.

I focus today on the last point.

Mr T had been up to Tax Court before on a different ESOT, and been shot down. But in that previous case: “…the Court first found that the administrative record contained insufficient evidence as to Mr. T’s background, education, and experience in valuing the type of business at issue in the case even before stating that Mr. T was not independent. The Court…therefore, did not analyze section 1.170A-13(c)(iv), Income Tax Regs., excluding certain persons as ‘qualified appraisers’, nor did it ultimately rely on its statement regarding Mr. T’s involvement in the plan and trust.” 2018 T. C. Memo. 92, at p. 22 (Name omitted).

This time, with the benefit of experience, Mr T lays out his qualifications in extenso.

“In the…protest to respondent’s proposed revocation of the FDL [Favorable Determination Letter, IRS’ approval of Val’s ESOT], petitioner explained Mr. T’s background and education. Petitioner also specified that Mr. T taught courses on the appraisal of closely held corporations and performed ‘literally thousands of appraisals of all sorts.’ During the hearing petitioner introduced evidence that Mr. T annually performed approximately 40 appraisals of ESOT-owned closely held business stock. The Court finds that Mr. T did have the appropriate background, education, and experience to value petitioner’s stock….” 2018 T. C. Memo.92, at pp. 21-22.

And although Mr T didn’t advertise, his firm’s Yellow Pages listing (what an old case this is!) did say they did estate and business appraisals. That’s enough “holding out” for Judge Paris.

Mr T did do all the returns, set up corporations and for a time was their registered agent with the State. So is he “independent”?

He is for Judge Paris.

“Here, the Court reviews the additional exhibits and testimony petitioner introduced in this case and finds that Mr. T was qualified to value petitioner’s stock…. Therefore, the Court must consider whether section 1.170A-13(c)(iv), Income Tax Regs., excludes persons beyond those specifically listed and finds that it does not. Section 401(a)(28)(C) provides that the term ‘independent appraiser’ is similar to the requirements of the regulations for section 170(a)(1), which in turn define ‘qualified appraiser’. Section 1.170A-13(c)(iv), Income Tax Regs., excludes certain persons from being appraisers because of their inherent lack of independence. Petitioner has established that Mr. T was not disqualified under any of the exclusions.” 2018 T. C. Memo. 92, at p. 23.

Takeaway- Get those credentials into evidence, and get them into the administrative record.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: