IRS wants to reargue George Fakiris, 2017 T. C Memo. 126, filed 6/28/17, which I hadn’t blogged. So I’m grateful that IRS is giving me a chance to catch up. The last two days have been brutal; there were about 250 orders today, to say nothing of opinions, and I haven’t blogged but a couple.

George was here before, but it was a joust about Boss Hossery. See my blogpost “Being and Nothingness – Part Deux,” 7/20/18.

George wanted to give away a dilapidated theatre in Our Fair City after his plans to tear it down and build a high-rise got scuttled by what my clients used to call the Landmarxists. Problem was, the object of his bounty wasn’t 501(c)(3) qualified yet, and he didn’t feel like sitting while they sorted it out, so he gave it to an already 501(c)(3), subject to mandatory put to the first object if, within five (count ’em, five) years they could make the cut for 501(c)(3). That made the gift not a gift, as too much control in donor.

So now chops. IRS claims Judge Gale needs to try the value of the theater at date of failed contribution to determine 40% chops. Judge Gale says Woods makes that unnecessary in cases where the donation was worth zero to begin with. Here’s George Fakiris, 2020 T. C. Memo. 157, filed 11/19/20.

The cases where valuation was at issue were those where there was a gift, but there was want of substantiation of value. See RERI and my blogpost  “Don’t Give a Sham – Redivivus,” 7/3/17.

“In our view, the determination that a donor has not relinquished dominion and control over the subject of a claimed gift is conceptually analogous to the determination that a partnership is a sham and therefore does not exist for tax purposes. Both present instances where parties attempt, by adhering to formalities, to create significant tax benefits without a corresponding effect to their underlying economic positions. That is the case here. Petitioner attempted to claim significant tax benefits for a charitable contribution, but [his outfit] never ceded dominion and control over the [theatre] to the claimed donee.

“We therefore conclude that our holdings that [his outfit] did not relinquish dominion and control over the [theatre] and that the property actually contributed (of which there was none) had a value of zero for purposes of determining the applicability of the section 6662(h) are ‘inextricably intertwined’ within the meaning of Woods. To paraphrase: Petitioner underpaid his tax because he overstated the value of the property claimed to have been contributed, and he overstated that value because no gift was actually made; that is, the gift was a sham. See Woods, 571 U.S. at 47. Thus, the ‘gift’, in that there was not one, reflected property with no value and any underpayment of tax resulting from the disallowance of petitioner’s claimed charitable contribution deduction is ‘attributable to’ a valuation misstatement within the meaning of section 6662.” Order, at pp. 14-15.

When the transaction is a sham, the value of what was transferred is zero. To value transferred property, it must be transferred. The cases IRS cites are all cases where something was transferred; it wasn’t worth what the transferor claimed it was worth, but it was transferred. Maybe its worth when transferred was zero, like some of the façade cases where local law already protected the façade, but something was transferred.

OK, IRS, you anted analysis. Here it is, but the result is the same.