Kaufman v. Commisioner of Internal Revenu
784 F.3d 56
1st Cir.2015Background
- Kaufmans donated a facade easement on their Boston home to the Trust for Architectural Easements and claimed a $220,800 charitable deduction for 2003 and 2004.
- IRS disallowed the deduction as a matter of law and later sought accuracy-related penalties for a gross valuation misstatement.
- Tax Court initially disallowed the deduction and then, on remand, found the easement value to be zero and imposed a 40% penalty for gross valuation misstatement.
- On appeal, the First Circuit affirmed the penalties, holding the taxpayers did not perform a good faith investigation and that § 6751(b)(1) issues were waived by failure to raise them below.
- Throughout, the regulatory framework for reasonable cause and good faith requires more than reliance on an appraisal; it requires a reasonable, independent investigation when red flags appear.
- Key prior proceedings included Kaufman I (T.C. disallowance on legal grounds), Kaufman II (trial on remaining issues), Kaufman III (1st Cir. remand and guidance), and Kaufman IV (Tax Court remand findings).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Penalty under 26 U.S.C. 6662(h) | Kaufmans contend value was zero, so no gross valuation misstatement. | IRS價值 zero supports 400% overstatement per regulation; penalty appropriate. | Penalty sustained; value zero supports 40% penalty. |
| Reasonable cause and good faith | Reliance on a qualified appraisal and accountant supports reasonable cause/good faith. | Taxpayers failed to conduct a good faith investigation beyond reliance on the appraisal. | Tax Court's finding unsupported; taxpayers did not act with reasonable cause/good faith. |
| § 6751(b)(1) preservation | Argument about § 6751(b)(1) was not properly preserved below. | Record should address the element, but issue was not raised below. | Waived; not considered on appeal. |
Key Cases Cited
- Scheidelman v. Comm'r, 755 F.3d 148 (2d Cir. 2014) (easement value may have no material effect on value)
- Whitehouse Hotel Ltd. P'ship v. Comm'r, 755 F.3d 236 (5th Cir. 2014) (good faith investigation standards; reliance on appraisals)
- Chandler v. Commissioner, 142 T.C. 279 (2014) (distinguishes reliance on appraisal with red flags present)
- Kaufman III, 687 F.3d 21 (1st Cir. 2012) (remand and guidance on value and penalties)
- Frank Sawyer Trust of May 1992 v. Comm'r, 712 F.3d 597 (1st Cir. 2013) (credibility and fact-finding in tax disputes)
- United States v. Boyle, 469 U.S. 241 (Supreme Court 1985) (scope of reasonable cause and good faith inquiries in penalties)