Attorney-at-Law

“I CAN GET IT FOR YOU WHOLESALE”

In Uncategorized on 04/07/2020 at 16:39

Roderick M. Campbell and C. Sandra Campbell, 2020 T. C. Memo. 41, filed 4/7/20, needed a big write-off in Year One to offset big gain in Year Two, so they took the advice of their trusty CPA, who steered them into a buy-wholesale-donate-retail deal run by another client (hereinafter “Z”) of said trusty CPA. Hence my allusion to Jerome Weidman’s 1962 vehicle that lifted Barbra Streisand to stardom.

Rod and CSan bought 3,432 eyeglass frames from Z for $50K, got an appraisal (whose defects Judge Ashford carefully exposes; see infra, as my high-priced colleagues would say from their Hamptons lockdowns), and donated same to Lions in Sight, a genuine 501(c)(3) whose motives were to provide eyeglasses for the impoverished but whose CWA (Contemporaneous Written Approval) fell as far short as IRS’ Section 6751(b) Boss Hoss sign-off (see infra). Only after the one-year hold, Rod and CSan claimed deduction of $225K.

The problem is the valuation. The initial appraiser appraised Z’s entire 340,000 eyeglass frames. Rod and CSan only bought 3,432 thereof. Rod’s and CSan’s were undifferentiated. The aim of Reg. Section 1.170A-13(c)(2)(i)(A) is to require an appraisal of the exact goods that Rod and CSan donated. But there was no way of telling from the appraisal of the whole what the part was worth, as there were different brands with different values, and no statement of which ones were in Rod’s and CSan’s bundle.

“Tellingly, the 349,629 eyeglass frames that [initial appraiser] valued varied in price between $37 and $80, yet petitioners could not discern whether Mr. Campbell’s 3,432 frames are from the low end of the price spectrum, the high end, or some varying combination. Indeed, the [post-contribution] appraisal highlights the primary defect of the [initial] appraisal. In the [post-contribution] appraisal, 39,709 of the 349,629 eyeglass frames were assigned a value of zero as of [initial appraisal date]. Might Mr. Campbell’s 3,432 frames been a part of the 39,709 frames?” 2020 T. C. Memo. 41, at p. 20.

“Tellingly?” Inventive, but a wee bit neologismical and Tom Swiftian.

And the argument that Rod and CSan had an undivided interest in the whole falls short. “…the offering memorandum does not reflect that prospective buyers will have a fractional interest; instead it recites that prospective buyers will have the opportunity to purchase one or more allotments of 3,432 eyeglass frames from a collection of 171,600 frames in [Z’s] possession. The bill of sale between Mr. Campbell and [Z] also does not memorialize the purchase of a fractional interest and it references an itemized inventory or merchandise list (although such a list is not attached to the bill of sale). Moreover, if Mr. Campbell indeed had a fractional interest he would not have had the unfettered right as the offering memorandum provided to (1) inspect or remove his frames and (2) donate his frames before the one-year holding period even to another charitable organization besides Lions in Sight.” 2020 T. C. Memo. 41, at pp. 21-22.

“We also agree with respondent…that the [initial] appraisal fails to provide ‘[a] description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property that was appraised is the property that was (or will be) contributed’. Sec. 1.170A-13(c)(3)(ii)(A), Income Tax Regs.” 2020 T. C. Memo. 41, at p. 22.

And substantial compliance doesn’t help, because IRS needs to know that the exact property being appraised is identical to what is being donated. That’s essential.

The Lions, pure of heart and clear of sight, didn’t say that no goods or services were provided. So the CWA is not a CYA.

Finally, Rod’s and CSan’s trusty CPA also participated in the deal that Z, also a client of trusty CPA, put together; trusty CPA wrote the offering memo, therefore is a promoter, so no good faith reliance.

But IRS stumbles at the last fence. The CPAF (Civil Penalty Approval Form) was too hastily prepared. “The Civil Penalty Approval Form, although properly signed and dated before the issuance of the notice of deficiency (the first formal communication of penalties to petitioners), does not show separate approval for the section 6662(a) and (h) penalties. The one-page form fails to state with any degree of specificity which penalties should be asserted (and are approved); indeed, all that the form states is that a ‘[p]enalty will be asserted with the … [y]ear.’ Section 6751(b)(1) would be meaningless if written supervisory approval of an unspecified penalty was sufficient; examining agents would be free to assert any type of penalty after written supervisory approval was given, an action that section 6751(b)(1) was designed to prevent. Consequently, since respondent has not proffered any other evidence that he complied with the procedural requirements of section 6751(b), petitioners are not liable for the section 6662(a) and (h) accuracy-related penalties.” 2020 T. C. Memo. 41, at pp. 32-33.

CPAFs can’t be issued on a wholesale basis either.

 

 

 

 

 

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