Judge Elizabeth A. (“Tex”) Copeland has another Fidelity Charitable eve-of-sale offload of appreciated interests in David Hazan and Grace Hazan, Docket No. 35190-21, filed 1/17/25. For background on this dodge, see my blogpost “A Real Gift,” 3/15/23.*

IRS claims “the Hazans anticipatorily assigned expected income from the sale of [their LLC’s] assets to Fidelity Charitable (Fidelity) and thus failed to report the income from the subsequent sale of [their LLC’s] assets.” Order, at p. 2.

IRS also claims that the Hazens’ failure to object to IRS’ Rule 90(c) Request For Admissions, wherein IRS asserted that the sale of the LLC interests that the Hazens claimed they donated was a done deal prior to donation means they’ve given up the issue.

No, says Judge Tex Copeland.

“During the hearing on this matter, Mr. Hazan argued that he had contacted the attorneys that handled the… transaction, and they indicated that the [Asset Purchase Agreement] was signed after the charitable donation was made and that the closing of the transaction did not occur ‘until over 30 days later.’ Such attorneys could be called as witnesses at trial. Furthermore, if such statements are true, Mr. Hazan is effectively denying deemed admissions 20 and 21. While Respondent’s proposed stipulations have previously been deemed admitted, see Rule 90(c), withdrawal or modification may be permitted if the presentation of the merits of the case will be promoted thereby. See Rule 90(f). Here, in the interest of justice, we will deem the Hazans to have made an oral motion to withdraw these two admissions and will deem them denied.” Order, at p. 5. (Footnote omitted).

OK, so maybe there was a pre-sale donation, if the facts adduced at trial show the sale of the LLC’s assets wasn’t a done deal when Dave uploaded to Fidelity. If the facts don’t match, then there was a taxable sale and a post-sale contribution, which might or might not be deductible.

But Judge Tex Copeland erases the question of whether the contribution was deductible, whenever it happened. Check out Order at p. 2 for the appraisal story.

Now Judge Tex Copeland’s take. She finds the appraisal the Hazens attached to their Form 8283 didn’t strictly comply with Section 170. But of course Section 170 in that regard is directory, not mandatory, so substantial compliance can save the day.

Unhappily, “(S)ubstantial compliance can save a taxpayer from minor or technical defects, but not from errors that go to the heart of the statute. The Hazans’ appraisal is riddled with flaws: The property valued is not the same as the property donated, see Treas. Reg. 1.170A-13(c)(3)(ii)(A); the appraisal summary is not signed by appraisers who contributed to the appraisal, see Treas. Reg. § 1.170A-13(c)(4)(i)(C); the appraisal does not provide a valuation as of the date of contribution, see Treas. Reg. § 1.170A-13(c)(3)(ii)(I); and the appraisal does not list the actual or expected date of contribution, see Treas. Reg. 1.170A-13(c)(3)(ii)(I). Taken together, the sum of these flaws in the appraisal amount to substantial noncompliance with section 170.” Order, at p. 4. (Citation omitted).

The appraisal values the entire LLC’s interest, but the Hazens only contributed 5.75%.

Thus “the value of the contributed 5.75% of the equity interests cannot be derived using a straight percentage because it represents a minority, rather than a controlling, interest in HSA.” Order, at p. 4. (Citation omitted).

If the appraisal is toast, doesn’t much matter when the contribution was made.

Taishoff thinks this one settles.

* https://taishofflaw.com/2023/03/15/a-real-gift/