The opinion
United States Tax Court
T.C. Memo. 2023-11
CALVIN A. LIM AND HELEN K. CHU,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 14015-20. Filed January 23, 2023.
—————
Scott B. Burkholder, for petitioners.
Samuel M. Warren, Sarah A. Herson, and Paulmikell A. Fabian, for re-
spondent.
MEMORANDUM OPINION
LAUBER, Judge: This case involves petitioners’ Federal income
tax liabilities for 2016 and 2017. Currently before the Court is a Motion
for Partial Summary Judgment filed by the Internal Revenue Service
(IRS or respondent) concerning petitioners’ entitlement to charitable
contribution deductions. Petitioners allegedly donated to a charitable
organization, at yearend 2016, units in a recently formed limited liabil-
ity company (LLC). They claimed for this alleged gift a deduction of
$1,608,108 for 2016, which generated a carryforward deduction of
$415,711 for 2017. The IRS contends that these deductions were
properly disallowed for two reasons: (1) petitioners did not in fact donate
any LLC units to the charity during 2016 and (2) petitioners failed to
satisfy the substantiation requirements of section 170(f) and the
Served 01/23/23
2
[*2] regulations promulgated thereunder. 1 We will grant the Motion to
the extent set forth in this Opinion.
Background
The following facts are derived from the pleadings, the parties’
Motion papers, and the Exhibits and declarations attached thereto.
They are stated solely for the purpose of deciding respondent’s Motion
and not as findings of fact in this case. See Sundstrand Corp. v. Com-
missioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).
Petitioners resided in California during the tax years at issue and when
they timely petitioned this Court.
During 2016 and 2017 petitioners were the sole shareholders of
Integra Capital Group, Inc. (Integra). Integra was an S corporation do-
ing business in California, with a business address in Irvine, California.
Petitioners served as Integra’s officers and were also its employees.
I. The “Ultimate Tax Plan”
On December 22, 2016, Michael L. Meyer, an attorney, made a
presentation to petitioners regarding a scheme he called “The Ultimate
Plan: the Ultimate Tax, Estate and Charitable Plan.” That same day
petitioners executed an engagement agreement with Mr. Meyer. He
thereby agreed to form a “Charitable Limited Liability Company”
(CLLC) as a charitable giving vehicle. He agreed to create documents
that would transfer assets to the CLLC, to create documents that would
transfer CLLC units to a charity, and to supply an appraisal supporting
the valuation claimed for the gift. He also agreed to represent petition-
ers before the IRS and this Court if the tax return on which petitioners
reported the gift was selected by the IRS for examination.
A. Mr. Meyer’s Fee Pursuant to the Engagement Letter
The engagement letter specified that Mr. Meyer’s fee would be the
greater of $25,000 or an amount calculated by reference to the assets
transferred to the CLLC. In the latter case, his fee was defined as 6%
of the “deductible amount” of assets up to $1 million, plus 4% of the “de-
ductible amount” of assets exceeding $1 million. The engagement letter
1 Unless otherwise indicated, all statutory references are to the Internal Reve-
nue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and all Rule references are to the Tax Court Rules of Practice and Procedure.
3
[*3] contemplated that the assets transferred to the CLLC would be five
promissory notes with an aggregate face amount of $2,008,500. Copies
of the promissory notes were attached to the engagement letter.
The engagement letter stated that “the total fee assessed will be
USD$84,000.00, which will be payable in installments over a six month
period” beginning January 2017. The agreement thus presupposed that
the “deductible amount” of assets transferred to the CLLC would be
$1,600,000 (6% × $1,000,000 + 4% × $600,000 = $84,000). It is not clear
how Mr. Meyer knew, on December 22, 2016, that the assets would be
appraised at $1,600,000. As described below, his “appraisal” reaching
that conclusion was dated January 31, 2017.
B. Formation of CLLC
That same day Mr. Meyer created ABC Foundation Legacy, LLC
(ABC), as the CLLC for the “Ultimate Tax Plan.” ABC was a single-
member LLC incorporated in Indiana. Mr. Meyer listed himself as
ABC’s registered agent.
On December 30, 2016, petitioners and Integra executed with re-
spect to ABC an agreement prepared by Mr. Meyer (ABC agreement).
The ABC agreement named petitioners as ABC’s managers, Integra as
ABC’s single member, and Mr. Meyer as its registered agent. Attached
to the ABC agreement were the five promissory notes referenced in the
engagement letter. Each note is dated December 31, 2016. By these
notes petitioner wife, as payor, promised to pay ABC a total of
$2,008,500 in seven years. Petitioner wife signed each note as payor,
and both petitioners signed each note (on behalf of ABC) as payees.
C. Purported Charitable Donation
The charitable recipient under the “Ultimate Tax Plan” was to be
the Indiana Endowment Foundation, Inc. (Foundation). The Founda-
tion was an Indiana corporation incorporated on June 2, 2016. Mr.
Meyer’s name does not appear on the certificate of incorporation. How-
ever, he is listed as the Foundation’s “registered agent” in a Business
Entity Report filed in April 2017 with the Indiana secretary of state.
Respondent does not dispute that the Foundation was recognized by the
IRS as a section 501(c)(3) organization on December 31, 2016.
Petitioners assert that Integra, ABC’s single member, donated
“units” of ABC to the Foundation on December 31, 2016. But petitioners
have supplied no evidence to establish that any property was actually
4
[*4] transferred to the Foundation during that year. They have sup-
plied no copies of the “units” allegedly donated. They have offered no
explanation as to when or how these “units” were created or what phys-
ical form they took. They have supplied no transmittal letter, email ex-
change, or other form of communication documenting a transfer of prop-
erty.
In his First Request for Admissions respondent asked petitioners
to “[a]dmit that there are no transfer documents effecting a transfer of
ABC Foundation Legacy LLC units to Indiana Endowment Foundation
during the 2016 tax year.” In response petitioners stated: “Deny for lack
of information and knowledge after reasonable inquiry.” Respondent
also asked petitioners to “[a]dmit that there was no transfer of ABC
Foundation Legacy LLC units to Indiana Endowment Foundation dur-
ing the 2016 tax year.” In response petitioners stated: “Deny for lack of
information and knowledge after reasonable inquiry.”
On March 15, 2022, we granted respondent’s Motion to Compel
Production of Documents, directing petitioners to provide (among other
things) “complete copies of all transfer documents, certificates, account
statements, and correspondence showing the transfer of ABC Founda-
tion Legacy LLC units from or on behalf of petitioners and/or Integra to
Indiana Endowment Foundation during the 2016 tax year.” In response
petitioners cited only one document as responsive to this request, stat-
ing: “The transfer of LLC units is documented in the acknowledgement
letter from Indiana Endowment Foundation . . . dated January 1, 2017.”
D. Purported Acknowledgment Letter
The January 1, 2017, letter purports to be a “contemporaneous
written acknowledgement of the contribution” within the meaning of
section 170(f)(8)(A). The letter reads as follows:
We received your non-cash donation of one thousand
(1,000) units in C&H FAMILY LLC in 2016. Indiana
Endowment Foundation, Inc., provided no goods or ser-
vices to you in exchange for your contribution. Please allow
this letter to serve as official receipt of your unrestricted
gift of 1000 units received in 2016. Your support is greatly
appreciated.
This document appears to be a form letter into which were input
the taxpayer-specific items shown in bold. The letter is odd in several
respects. First, it is not addressed to Integra, the alleged donor, at its
5
[*5] address in Irvine, California. Rather it is addressed to petitioner
wife at petitioners’ residence in Encinitas, California. Second, the letter
does not bear the signature of an officer or employee of the Foundation,
or of any human being. Rather, it is signed “Sincerely, Indiana En-
dowment Foundation, Inc.” The record does not disclose who pre-
pared this letter. But the format—a form letter into which the taxpayer-
specific items appear in bold font—is the same format used in other doc-
uments created by Mr. Meyer, including the “appraisal” discussed be-
low.
The third and most suspect feature of the January 1, 2017, letter
is that it does not refer to the property allegedly donated, viz., units of
ABC. Rather, it refers to 1,000 units of “C&H Family LLC,” which did
not exist during 2016 or on January 1, 2017. No entity with that name
existed until February 16, 2017, when ABC filed articles of amendment
with the Indiana secretary of state changing its name to C&H Family
LLC. Mr. Meyer signed that document as ABC’s agent.
E. Mr. Meyer’s Invoice and Purported Appraisal
On January 4, 2017, Mr. Meyer issued an invoice to petitioners
calculating his fee as $84,000, as stated in the engagement letter. The
premise for this calculation was that the “deductible amount” of assets
to which the engagement letter referred was roughly $1.6 million. That
“deductible amount” was based on a purported appraisal prepared by
Mr. Meyer and dated January 31, 2017.
The January 31, 2017, document is captioned “Appraisal of the
Fair Market Value of [the] LLC Interests of ABC” that were allegedly
transferred to the Foundation on December 31, 2016. At that time, the
only assets allegedly possessed by ABC were the five promissory notes
executed by petitioner wife, showing ABC as the payee. Thus, the fair
market value (FMV) of the LLC interests of ABC could be expected to
approximate the value of the notes.
Mr. Meyer’s purported appraisal has the legalistic form of an ap-
praisal but none of the substance. Like the Foundation’s supposed ac-
knowledgment letter, it appears to be a form document into which
taxpayer-specific items have been input in bold font. The appraisal is
addressed to Integra, the alleged donor, at petitioners’ residential ad-
dress. It states (incorrectly) that ABC has “one (1) Manager,” then
states (ungrammatically) that the “Manager of the LLC is Helen Chu
and Calvin Lim.” It asserts that “LLC interests” were donated to the
6
[*6] Foundation in 2016, but it fails to specify, anywhere in the docu-
ment, how many ABC units were donated. It recites that ABC’s only
assets were promissory notes, but it makes no attempt to value the notes
and ignores the fact that they were not due for seven years. It assumes
that the Foundation owned 100% of the ABC units on the valuation date,
but it incoherently applies a discount for lack of control in determining
the value of those units. After many pages of legalese, Mr. Meyer opined
that the deductible value of ABC units allegedly donated to the Founda-
tion on December 31, 2016, was $1,608,808. 2
Mr. Meyer attached to his purported appraisal a one-page “certi-
fication” stating that his compensation as preparer “[was] not contingent
on an action or event resulting from the analysis, opinions, or conclu-
sions in, or the use of, this report.” He averred that he had no “present
or prospective interest or bias with respect to the parties involved,” even
though he had arranged the entire transaction for petitioners and was
the registered agent for ABC. He attached a curriculum vitae stating
that he was a certified public accountant (CPA), a certified valuation
analyst (CVA), and a licensed attorney in Kentucky at that time. 3
II. Tax Return and IRS Examination
Integra timely filed Form 1120S, U.S. Income Tax Return for an
S Corporation, for 2016. Integra attached to its return a copy of Mr.
Meyer’s appraisal and Form 8283, Noncash Charitable Contributions,
prepared and signed by Mr. Meyer. The Form 8283 described the do-
nated property as “LLC units,” without identifying the entity whose
units were being contributed or the number of units contributed. It
stated that Integra’s basis in the donated property was $2,008,500—the
face amount of the five promissory notes executed by petitioner wife—
and incorrectly stated that Integra had acquired the LLC units by “pur-
chase.” It reported the “appraised market value” of the LLC units as
$1,608,808.
2 Mr. Meyer evidently rounded that number down to $1,600,000 in calculating
his fee, given the formula in the engagement letter. See supra p. 3.
3 Respondent contends that Mr. Meyer was not a licensed attorney in Kentucky
and that he had let his CPA and CVA certifications lapse as of January 31, 2017. Pe-
titioners question the timing of the lapse of Mr. Meyer’s CPA license and contend that
he is (and was during 2017) an attorney in good standing in Kentucky. These factual
disputes are not material in deciding whether the engagement letter provided for a
“prohibited appraisal fee” under Treasury Regulation § 1.170A-13(c)(6)(i). See infra
pp. 11–12.
7
[*7] On their joint Federal income tax return for 2016 petitioners re-
ported, among other deductions on Schedule A, Itemized Deductions, a
noncash charitable contribution deduction of $1,608,808 passed through
to them from Integra. See § 1366(a)(1)(A). Because that amount ex-
ceeded the maximum allowable deduction for 2016, see § 170(d)(1)(A),
petitioners claimed a $1,195,073 deduction for 2016 and carried the bal-
ance forward. They claimed a carryforward deduction of $415,711 on
their 2017 return.
The IRS selected petitioners’ 2016 and 2017 returns for examina-
tion. On September 9, 2020, the IRS issued petitioners a timely notice
of deficiency, disallowing the deductions at issue for lack of substantia-
tion. Petitioners timely petitioned this Court for redetermination.
III. Other Judicial Proceedings
In 2018 the U.S. Department of Justice filed a complaint against
Mr. Meyer, alleging that he promoted the Ultimate Tax Plan as a tax
evasion scheme, advising clients to claim unwarranted Federal income
tax deductions for charitable donations. The Government asked that he
be enjoined from promoting this scheme (or similar schemes) and that
he be required to disgorge proceeds he derived. Mr. Meyer eventually
settled with the Government and agreed to a permanent injunction.
On April 26, 2019, the U.S. District Court for the Southern Dis-
trict of Florida entered a final judgment of permanent injunction against
Mr. Meyer, holding that he had engaged in conduct penalizable under
section 6700 by promoting the Ultimate Tax Plan to customers. The
court permanently enjoined him from promoting “the Ultimate Tax Plan
or any plan or arrangement that is substantially similar.” He was also
enjoined from engaging thenceforth in 13 specified tax-related activities,
including preparation of Federal tax returns for clients and furnishing
tax advice regarding charitable contributions.
The court ordered Mr. Meyer to supply the U.S. Department of
Justice, within 30 days, “the names and addresses of all individuals and
entities that participated in the Ultimate Tax Plan since January 1,
2010.” He was ordered to cause the Foundation and “any other tax-ex-
empt entity that [he] controls (directly or indirectly) that accepted inter-
ests in Entities from individuals in connection with the Ultimate Tax
Plan to assign the interests in the Entities back to the individuals who
assigned, donated, contributed, or transferred those interests.” And he
was ordered to cause the Foundation (and other entities he controlled)
8
[*8] to “provide an accounting of any funds remaining in their bank ac-
counts, return the funds retained in their bank accounts in reverse
chronological order to the individuals or Entities from which the funds
originated, close all bank accounts, and dissolve.”
Respondent alleges that Mr. Meyer, as directed by the permanent
injunction, caused the Foundation to return funds to petitioners and to
assign back to them any interests in ABC (renamed C&H Family LLC)
that the Foundation possessed. Petitioners dispute this allegation. The
record does not clearly establish whether Mr. Meyer has in fact returned
property or cash to Integra or petitioners.
In May 2019 petitioners and Integra filed suit against Mr. Meyer,
the Foundation, and other defendants in Orange County Superior Court.
That case was dismissed in September 2019. The record does not clearly
establish the circumstances surrounding this dismissal.
Discussion
I. Preliminary Matters
The purpose of summary judgment is to expedite litigation and
avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.
v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary judg-
ment regarding an issue as to which there is no genuine dispute of ma-
terial fact and a decision may be rendered as a matter of law. Rule
121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). In
deciding whether to grant summary judgment, we construe factual ma-
terials and inferences drawn from them in the light most favorable to
the nonmoving party (here petitioners). Bond v. Commissioner, 100 T.C.
32, 36 (1993); Sundstrand Corp., 98 T.C. at 520. However, where the
moving party properly makes and supports a motion for summary judg-
ment, “an adverse party may not rest upon the mere allegations or de-
nials of such party’s pleading,” but must set forth specific facts, by affi-
davit or otherwise, showing that there is a genuine dispute for trial.
Rule 121(d).
The IRS’s determinations in a notice of deficiency are generally
presumed correct. Welch v. Helvering, 290 U.S. 111, 115 (1933). The
taxpayer bears the burden of proving entitlement to any deductions
claimed and of substantiating the amounts of such deductions. Rule
142(a); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff’d per cu-
riam, 540 F.2d 821 (5th Cir. 1976); see INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992). Petitioners do not contend, and the evidence does
9
[*9] not establish, that the burden of proof as to any issue of fact shifts
to respondent under section 7491(a).
II. Governing Legal Principles
Section 170(a)(1) allows as a deduction any charitable contribu-
tion made within the taxable year. If the taxpayer makes a charitable
contribution of property other than money, the amount of the contribu-
tion is generally equal to the FMV of the property at the time of contri-
bution. See Treas. Reg. § 1.170A-1(c)(1). “A charitable contribution
shall be allowable as a deduction only if verified under regulations pre-
scribed by the Secretary.” § 170(a)(1).
The Secretary has prescribed extensive regulations governing the
verification of noncash charitable contributions. See Treas. Reg.
§ 1.170A-13. In the case of a contribution of property (other than pub-
licly traded securities) valued in excess of $5,000, the taxpayer must ob-
tain a “qualified appraisal” of the property. § 170(f)(11)(C). The tax-
payer must also attach to his return “such information regarding such
property and such appraisal as the Secretary may require,” which in-
cludes a fully completed appraisal summary on Form 8283. Id.; Deficit
Reduction Act of 1984, Pub. L. No. 98-369, § 155(a)(1)(B), 98 Stat. 494,
691; see Costello v. Commissioner, T.C. Memo. 2015-87, 109 T.C.M.
(CCH) 1441, 1445; Jorgenson v. Commissioner, T.C. Memo. 2000-38, 79
T.C.M. (CCH) 1444, 1450; Treas. Reg. § 1.170A-13(c)(2). 4 When a con-
tribution of property is valued in excess of $500,000, the taxpayer must
attach a copy of the qualified appraisal to his return. § 170(f)(11)(D).
Section 170(f)(11)(G) provides that, in the case of a partnership or
S corporation, the qualified appraisal requirements “shall be applied at
the entity level.” We must therefore determine whether Integra met
those requirements for its purported contribution of ABC units.
4 The regulations provide that Form 8283 must include a description of the
donated property “in sufficient detail . . . for a person who is not generally familiar
with the type of property to ascertain that the described property is the contributed
property.” Treas. Reg. § 1.170A-16(d)(3)(iv)(B). Respondent contends that the Form
8283 prepared by Mr. Meyer, which described the donated property as unidentified
“LLC units,” did not satisfy this requirement. Respondent also contends that the “cost
basis” of $2,008,500 shown on the Form 8283 is inaccurate. See Treas. Reg. § 1.170A-
13(c)(4)(ii)(D) and (E) (requiring that a Form 8283 disclose the cost or adjusted basis
of the donated property). Given our disposition, we need not decide whether these
alleged failures would constitute an independent ground for disallowing the charitable
contribution deductions.
10
[*10] III. Analysis
A. Purported Donation
Section 170(a) allows a deduction for a charitable contribution
“payment of which is made within the taxable year.” The amount of the
contribution must be “actually paid during the taxable year.” Treas.
Reg. § 1.170A-1(a). To show that “payment” of the claimed contribution
was made during the taxable year, a taxpayer must establish that he or
she surrendered dominion and control over the property allegedly con-
tributed. See Pollard v. Commissioner, 786 F.2d 1063, 1067 (11th Cir.
1986), aff’g T.C. Memo. 1984-536; Glynn v. Commissioner, 76 T.C. 116,
121–22 (1981), aff’d without published opinion, 676 F.2d 682 (1st Cir.
1982); Strandquist v. Commissioner, T.C. Memo. 1970-84, 29 T.C.M.
(CCH) 387, 396 (noting that “charitable contribution” as used in section
170(a)(1) is synonymous with the term “gift”). Petitioners must there-
fore establish that Integra transferred to the Foundation during 2016,
and that they and Integra relinquished control over, the ABC “units” for
which they claimed a charitable contribution deduction.
Petitioners have conceded that they have no evidence to establish
a physical transfer of property to the Foundation during 2016. They
have supplied no copies of the “units” allegedly donated. They have of-
fered no explanation as to when or how these “units” were created or
what physical form they took. They have supplied no transmittal letter,
email exchange, or other form of communication documenting an actual
transfer of property.
To support their assertion that ABC units were transferred to the
Foundation during 2016, petitioners rely solely on the purported “ac-
knowledgment letter” allegedly issued by the Foundation on January 1,
2017. But this letter suffers from several obvious defects. It is not ad-
dressed to Integra, the alleged donor, at its address in Irvine but to pe-
titioner wife at her residence in Encinitas. The letter does not bear the
signature of an officer or employee of the Foundation but is signed “Sin-
cerely, Indiana Endowment Foundation, Inc.” The format of the
letter—a form letter into which the taxpayer-specific items appear in
bold font—suggests that it may have been prepared by Mr. Meyer, not
by the Foundation.
Most critically, the January 1, 2017, letter fails to describe any
property that existed on that date or during the 2016 tax year. The let-
ter recites that the Foundation received during 2016 “one thousand
11
[*11] (1,000) units in C&H Family LLC.” But no such entity existed
until February 16, 2017, when ABC filed articles of amendment chang-
ing its name to C&H Family LLC. The Foundation could not have
acknowledged receipt, on January 1, 2017, of property that did not exist
on that date.
For these reasons, we conclude that petitioners would face a de-
cidedly uphill task in attempting to prove that Integra actually trans-
ferred ABC units to the Foundation during 2016. However, viewing all
facts in the light most favorable to petitioners, as we must at the sum-
mary judgment stage, we conclude that respondent is not entitled to
judgment as a matter of law on this ground.
B. Qualified Appraisal
Section 170(f)(11) disallows a deduction for certain noncash char-
itable contributions unless specified substantiation and documentation
requirements are met. In the case of a contribution of property valued
in excess of $500,000, the taxpayer must obtain and attach to his return
“a qualified appraisal of such property.” § 170(f)(11)(D). An appraisal
is “qualified” if it is “conducted by a qualified appraiser in accordance
with generally accepted appraisal standards” and meets requirements
set forth in “regulations or other guidance prescribed by the Secretary.”
§ 170(f)(11)(E)(i).
An appraisal is “qualified” only if it is “prepared, signed, and
dated by a qualified appraiser.” Treas. Reg. § 1.170A-13(c)(3)(i)(B). The
regulations specify 11 categories of information that a “qualified ap-
praisal” must include, e.g., a description of the property and its physical
condition, the date of the appraisal and the expected contribution, the
method of valuation used to determine FMV, and the qualifications of
the appraiser including his “background, experience, education, and
membership, if any, in professional appraisal associations.” See id. sub-
div. (ii).
Respondent contends that Mr. Meyer’s appraisal, for numerous
reasons, was not a “qualified appraisal.” Respondent urges that Mr.
Meyer could not be a “qualified appraiser” because he was “[a] party to
the transaction” in which Integra allegedly transferred ABC units to the
Foundation. See id. subpara. (5)(i), (iv)(B). Respondent contends the
appraisal cannot be “qualified” because it did not disclose the number of
ABC units transferred and because Mr. Meyer misrepresented his qual-
ifications. See id. subpara. (3)(ii)(A) (requiring “[a] description of the
12
[*12] property in sufficient detail”); id. subdiv. (ii)(F) (requiring a list of
“[t]he qualifications of the qualified appraiser who signs the appraisal”).
And respondent contends that Mr. Meyer’s appraisal cannot be “quali-
fied” because he prepared it in exchange for a “prohibited appraisal fee.”
See Campbell v. Commissioner, T.C. Memo. 2020-41, 119 T.C.M. (CCH)
1266, 1271; Treas. Reg. § 1.170A-13(c)(3)(i)(D).
We find that we need address only the last of these arguments in
order to decide the qualified appraisal issue. 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. Com-
missioner, 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.
The engagement letter specified that Mr. Meyer’s fee would be the
greater of $25,000 or an amount calculated by reference to the assets
transferred. In the latter case, his fee was defined as 6% of the “deduct-
ible amount” of assets up to $1 million, plus 4% of the “deductible
amount” of assets exceeding $1 million. The engagement letter further
specified that Mr. Meyer’s fee would be $84,000, which presupposes that
the “deductible amount” of the assets transferred would be $1,600,000.
That was the value (rounded down from $1,608,808) at which Mr. Meyer
appraised the ABC units allegedly transferred to the Foundation. Mr.
Meyer’s fee was thus “based, in effect, on a percentage (or set of percent-
ages) of the appraised value of the property.” See Treas. Reg. § 1.170A-
13(c)(6)(i). The regulations unambiguously designate Mr. Meyer’s fee
arrangement as a prohibited appraisal fee, and his appraisal therefore
cannot be a “qualified appraisal.”
Petitioners do not dispute that Mr. Meyer’s fee ($84,000) was cal-
culated as a percentage of the appraised value he placed on the ABC
units allegedly donated to the Foundation (roughly $1,600,000). But
they note that the engagement letter defined the “deductible amount”
by reference to “the net total assets transferred to the CLLC . . . calcu-
lated upon the date of the transfer.” The assets transferred to the
CLLC—i.e., to ABC—were the five promissory notes executed by peti-
tioner wife with a face amount of $2,008,500. Petitioners assert that
Mr. Meyer appraised the promissory notes, not the ABC units, and
hence that his fee was not a prohibited fee.
13
[*13] 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 cap-
tioned, “Appraisal of the Fair Market Value of [the] LLC Interests of
ABC.” That he was appraising ABC 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 market-
ability, which he derived from closed-end investment funds. This is not
how one would value promissory notes.
In any event, we would reach the same conclusion even if Mr.
Meyer had appraised the promissory notes. ABC was a paper corpora-
tion on December 31, 2016. It had no assets apart from the five notes
executed by petitioner wife, and it had no liabilities. The value of ABC—
before applying any discounts—was thus equal to the value of the notes.
If Mr. Meyer had appraised the notes, he would in effect have been de-
termining the value of the ABC units. The regulations explicitly cover
this scenario, because they prohibit any fee arrangement “based, in ef-
fect, on a percentage (or set of percentages) of the appraised value of the
property.” Treas. Reg. § 1.170A-13(c)(6)(i) (emphasis added).
In sum, Mr. Meyer’s fee was clearly based, directly or indirectly,
on the appraised value of the ABC units allegedly donated to the Foun-
dation on December 31, 2016. His agreement with petitioners thus con-
stituted a prohibited fee arrangement. For that reason alone, his pur-
ported appraisal was not a “qualified appraisal” within the meaning of
section 170(f)(11)(D).
C. Reasonable Cause
Section 170(f)(11)(A)(ii)(II) excuses failure to satisfy the substan-
tiation requirements of section 170, including requirements related to
qualified appraisals, if “it is shown that the failure to meet such require-
ments is due to reasonable cause and not to willful neglect.” This “rea-
sonable cause” defense may enable a taxpayer to avoid disallowance of
a charitable contribution deduction. See Belair Woods, LLC v. Commis-
sioner, T.C. Memo. 2018-159, 116 T.C.M. (CCH) 325, 330. The determi-
nation of whether a taxpayer acted with reasonable cause and in good
faith is made on a case-by-case basis, taking into account all pertinent
facts and circumstances. Treas. Reg. § 1.6664-4(b)(1); see Belair Woods,
116 T.C.M (CCH) at 330 (explaining that this “reasonable cause” defense
14
[*14] has been construed similarly to the reasonable cause defense that
relieves a taxpayer from the imposition of penalties).
Petitioners assert that they relied on the advice of Thomas Mon-
aghan, a CPA, and Jeffrey M. Verdon, an attorney, regarding the appro-
priateness of the charitable contribution deductions at issue. Conceiva-
bly, petitioners may be able to show that they received, and reasonably
relied on, professional advice specifically directed to the “qualified ap-
praisal” issue. Because the existence of such advice (if any) and the rea-
sonableness of petitioners’ reliance would involve disputes of material
fact, we find that the availability of a “reasonable cause” defense would
require the presentation of evidence at trial.
To reflect the foregoing,
An order will be issued granting in part and denying in part re-
spondent’s Motion for Partial Summary Judgment.