2014 Tax Ct. Memo LEXIS 15
Tax Ct.2014Background
- Petitioners Ben Alli and Shaki Alli contributed an apartment building (Gladstone) to Volunteers of America in 2008 and claimed a $499,000 noncash charitable deduction, carried to 2009.
- BSA Corp. (a Michigan corporation) owned Pingree and Gladstone; Dr. Alli became BSA’s sole shareholder and reported BSA rental income and depreciation on their joint return.
- HUD program issues and later litigation revealed significant property deficiencies and enforcement actions, culminating in a 2007 judgment that BSA owned and operated the properties.
- In 2008 Petitioners donated Gladstone to VOAMI for $1; VOAMI sent a donation receipt stating no goods/services were received.
- Respondent disallowed the deduction and carryover in full, treating BSA as an S corporation for purposes of the deduction, and contesting the appraisal qualifications and documentation under section 170(f)(11).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioners owned Gladstone at contribution. | Petitioners argue personal ownership via Good Faith Agreement and Discharge of Regulatory Agreement. | Respondent cites BSA as owner at the time. | BSA was the owner; Petitioners’ evidence insufficient. |
| Whether petitioners may claim a deduction through the corporation’s contribution when the corporation is treated as an S corporation. | Deduction should flow through to shareholders if requirements met. | S-corporation deductions flow to shareholders but require 170(f)(11) compliance. | Yes, but only if qualified appraisal and documentation requirements are satisfied. |
| Whether the qualified appraisal and other documentation requirements of 170(f)(11) were satisfied by the appraisals used (Sanna/Jones) and summary. | Petitioners rely on Sanna and Jones appraisals to support value. | Neither appraisal meets the qualified appraisal requirements; multiple deficiencies exist. | Neither Sanna nor Jones is a compliant qualified appraisal. |
| Whether noncompliance should be excused under substantial compliance or reasonable cause. | Petitioners rely on professional advice to excuse noncompliance. | Noncompliance is not excused; substantial compliance not satisfied given omissions and misstatements. | No substantial compliance or reasonable cause; deduction denied. |
Key Cases Cited
- Bank One Corp. v. Commissioner, 120 T.C. 308 (2003) (D.C. Cir. 2003) (defines fair market value and valuation approaches cited in context of appraisal)
- Estate of Newhouse v. Commissioner, 94 T.C. 193 (1990) (Trial Court 1990) (fair market value concepts and valuation methodologies)
- Hewitt v. Commissioner, 109 T.C. 258 (1987) (Tax Court 1987) (substantial compliance principles in charitable contribution reporting)