Tax Court allows curious charitable contribution valuation dispute to go to trial

RERI Holdings I, LLC v. Comm’r., 2014 U.S. Tax Ct. LEXIS 34 (Aug. 11, 2014)

How did this happen? To the surprise of many Tax Court observers, including Prof. John Bogdanski (Lewis & Clark Law School), an unusual—to put it mildly—charitable contribution case that makes novel use of the present-value tables promulgated under the Tax Code’s section 7520 is headed for trial in April 2015.

Bogdanski, in a recent BVR webinar, Business Valuation in the Federal Tax System in 2014, explained that this was essentially a tax shelter case with fairly “convoluted” facts. The donor, a short-lived partnership for tax purposes, had a partial temporal interest in an LLC whose only asset was the sole membership interest in another LLC that owned property. The donor pledged to transfer its successor interest to a university provided the university agreed to hold the interest for at least two years and then sell it, with the proceeds to be credited against the donor’s pledge. Although the interest was sold numerous times for no more than $3 million, the donor claimed a charitable contribution value of nearly $33 million based on an appraisal for the property underlying the donated interest. The appraisal exploited a feature of section 7520, Bogdanski observed.

In an effort to end the controversy swiftly, the IRS filed for summary judgment, arguing the donor’s use of section 7520 was improper and the appraisal did not meet the regulations’ requirement of a “qualified appraisal.”  The Tax Court saw it differently.

To read about the case and Prof. Bogdanski’s take on it, click here.