In Uncategorized on 06/04/2020 at 17:46

Judge Mary Ann (“S.E.C.” = She Eschews Cognomens) Cohen also eschews trying to turn a dubious (to be generous) expert’s report into a proper valuation. Especially of water storage rights. I blogged the prelude to this back in February, in my blogpost “The Counter to the Valuation Blocker,” 2/7/20.

Brannan Sand & Gravel Co., LLC, J. Curtis Marvel, Tax Matters Partner, 2020 T. C. Memo. 76, filed 6/5/20, is fighting over a $200K charitable deduction for some pits they were giving to a local water district in a convoluted three-way swapmeet, which would have gotten them inside Section 170. They claim they were giving 5000 acre-feet of storage.

The 8283 that accompanied Brannan’s 1065 was remarkably scanty.

“Form 8283, Noncash Charitable Contributions, was attached without ‘Page 1’ but included two ‘Page 2’ pages. The second ‘Page 2’ includes a handwritten note to ‘see attached appraisal’ under part III, declaration of appraiser, and an undated donee signature under part IV, donee acknowledgment. The two copies of ‘Page 2’ are otherwise identical. Brannan Sand claimed a $200,000 charitable contribution deduction. The Form 8283 reported that the ‘[d]onor’s cost or adjusted basis’ was ‘None’, that $200,000 was the appraised fair market value, and that the donor purchased the property. The reported ‘[d]escription of donated property’ was “Silver Peaks Property”. The Form 8283 reported ‘VAR’ for the date acquired and left blank whether the charitable contribution was made by means of a bargain sale.

“In part III, declaration of appraiser, the signature, title, date, identifying number, city, State, and ZIP Code spaces were left blank, but ‘See attached appraisal’ was inserted under the business address section. In part IV, donee acknowledgment, the employer identification number, authorized signature, and date spaces were left blank. However, there is a signature in the ‘[t]itle’ space.” 2020 T. C. Memo. 76, at p. 8.

Attached to this form is a two-page letter from one who admits that he has no appraisal qualifications, but has acted as a litigator in some similar transactions, which he does not enumerate. “Missing from the … letter was the method of valuation or the specific basis for determining the fair market value of the property, the physical condition of the property, or a statement that the purported appraisal was prepared for Federal income tax purposes. There was no explanation comparing the transactions that he observed with the property in the Brannan Sands transactions. [He] gave no indication that he was familiar with the terms of the purchase agreement, the contribution agreement, or the MOU entered into by the donor, the donee, and [third-party] B relating to the conveyance of the property contributed. There was no comparison to the alleged comparables or explanation of whether they involved a willing buyer and a willing seller or were simply a way to resolve litigated disputes. There was no justification for choosing the high end of the range that [he] identified.” 2020 T. C. Memo, 76, at p. 10. (Names omitted).

Judge S.E.C. is pardonably not amused.

“Brannan Sands does not dispute that it has the burden of proof but ignores the absence of expert testimony in the record. Instead, it argues that the ‘comparable sale’ of an additional undivided interest in the water storage easement that entitled B to store an additional 250 acre-feet of water in the North Cell when completed for $480,000, or $1,920 per acre-foot, justifies, at a minimum, a value of $96,000. Of course there is no explanation of the discrepancy between this amount and the amount claimed on the… partnership return. That discrepancy highlights the lack of credibility of the claimed deduction.” 2020 T. C. Memo. 76, at p. 12.

Maybe if the author of the letter “…had explained how his experience in litigation related to agreed values between a willing buyer and a willing seller and compared the three-party circumstances under which the transfer to the District occurred in this case, but he did not. He described asking prices but did not describe completed transactions. The purported appraisal is not qualified regardless of [his] qualifications.” 2020 T. C. Memo.76, at p. 16. (Name omitted).

But there’s just too much missing here even to characterize the letter as substantial compliance.

No evidence of value, no deduction.

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