But It Helps To Get The Paper Right

Michael L. Meyer, now or formerly an attorney, should’a heeded the abovestated. Even though he managed to get Calvin A. Lim and Helen K. Chu, T. C. Memo. 2023-11, filed 1/23/23, tossed when they sued him in Orange County Superior Court for reasons unclearly stated (T. C. Memo. 2023-11, at p. 8), Cal’s and Helen’s $1.6 million charitable deduction in Year One, and the Year Two carryover of $415K, bite the dust, despite Mike’s claim of “The Ultimate Plan: the Ultimate Tax, Estate and Charitable Plan.”

Mike creates an LLC, whose only assets are some promissory notes from Helen, payable to Helen and Cal. The LLC’s sole member is Cal’s and Helen’s Sub S, apparently operating a valid business; Cal and Helen are managers. Cal and Helen donate “units” (apparently membership interests in the LLC) to a 501(c)(3) charitable foundation created and run by Mike. Mike does all the paperwork, appraises the units (or maybe the notes; his paperwork isn’t of the best), issues the 107(f)(8)(A) contemporaneous written acknowledgment.

Except there is no documentation for the transfer of anything. And Mike gets paid a piece of the action (the tax savings).

Of course IRS enjoins Mike and grabs his client list, so Cal and Helen get an invitation to the party via a SNOD.

First, was there a transfer of something to Mike’s charity? Cal and Helen have only Mike’s form unsigned acknowledgment letter. But IRS wants summary J, Cal and Helen get every favorable inference. And Judge Albert G (“Scholar Al”) Lauber is lavish therewith.

“… we conclude that petitioners would face a decidedly uphill task in attempting to prove that [Sub S] actually transferred [LLC] units to [Mike’s charity] during [Year One]. However, viewing all facts in the light most favorable to petitioners, as we must at the summary judgment stage, we conclude that respondent is not entitled to judgment as a matter of law on this ground.” T. C. Memo. 2023-11, at p. 11.

Next, Mike’s “appraisal.” I use the quote marks advisedly.

“The regulations provide that ‘no part of the fee arrangement for a qualified appraisal can be based, in effect, on a percentage (or set of percentages) of the appraised value of the property.’ Treas. Reg. § 1.170A-13(c)(6)(i); see Alli v. Commissioner, T.C. Memo. 2014-15, 107 T.C.M. (CCH) 1082, 1087 n.14. We agree that Mr. Meyer’s fee was a prohibited appraisal fee within the meaning of this regulation.” T. C. Memo. 2023-11, at p. 12.

Cal’s and Helen’s trusty attorney plays the only card left. He argues Mike appraised the notes, not the LLC “units,” so he wasn’t appraising the “property transferred.” He gets a Taishoff “Good Try, Desperation Class.”

But Judge Scholar Al boots that one into touch.

“This argument does not pass the straight-face test. First, Mr. Meyer did not appraise the promissory notes. His appraisal contains no discussion of the factors that would affect the FMV of the notes, e.g., the seven-year term, the specified interest rate, prevailing market interest rates, and petitioners’ creditworthiness. His appraisal is explicitly captioned, ‘Appraisal of the Fair Market Value of the [LLC] Interests….” That he was appraising [LLC] units, not promissory notes, is plain from his methodology (if it can be called that). He reached his valuation conclusion by applying discounts for lack of control and lack of marketability, which he derived from closed-end investment funds. This is not how one would value promissory notes.” T. C. Memo. 2023-11, at p. 13.

And in any case, all the LLC had was the notes. Whatever the LLC was worth depended solely upon the worth of the notes.

Cal and Helen claim reasonable cause, based on advice from a different attorney and a different CPA. That’s all fact questions, and maybe these two can rescue Cal and Helen from the Section 6662 chops on the trial.

But read Judge Scholar Al deconstructing Mike’s paperwork. If you’re trying to pull a fast one, go slow with the paper.