IRS hits taxpayer with gross valuation misstatement penalty
Easement cases before the Tax Court can offer some interesting insights and guidance to BV professionals.
Brooks v. Comm’r
The IRS disallowed carryover charitable deductions for donation of a conservation easement by taxpayers’ family LLC to the county where the property lies. In addition to the disallowance of the donation deductions, the IRS assessed gross overvaluation penalties. The Tax Court denied the deductions in part for lack of following regulations and procedures. Additionally, the court found that the value determined by the taxpayers’ appraiser was filled with errors and had basic incorrect assumptions resulting in a gross misstatement of value. Thus, taxpayers were liable for the 40% accuracy-related penalty resulting from a gross valuation misstatement pursuant to section 6662(h) as determined for each of the years in issue.
Taxpayer Is Denied Charitable Deduction for a Conservation Easement, and Gross Valuation Misstatement Penalties Are Applied
The IRS disallowed carryover charitable deductions for donation of a conservation easement by taxpayers’ family LLC to the county where the property lies. In addition to the disallowance of the donation deductions, the IRS assessed gross overvaluation penalties. The Tax Court denied the deductions in part for lack of following regulations and procedures. Additionally, the court found that the value determined by the taxpayers’ appraiser was filled with errors and had basic incorrect assumptions resulting in a gross misstatement of value. Thus, taxpayers were liable for the 40% accuracy-related penalty resulting from a gross valuation misstatement pursuant to section 6662(h) as determined for each of the years in issue.
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Court upholds Section 1031 tax ruling, affirming appraisals were unreliable
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U.S. Tax Court Judge David Laro frequently has cautioned experts not to give in to hiring attorneys who want to shape the appraisal. Although federal and state discovery rules offer some protection for attorney-expert communication, there is a risk of exposure and with it a risk of damage to the expert’s work product and reputation. A recent Section 1031 case, which Judge Laro handled, illustrates what happens when the communication is discovered.