THEODORE R. ROLFS AND JULIA A. GALLAGER, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Docket No. 9377-04.
United States Tax Court
Filed November 4, 2010.
135 T.C. 471
GALE, Judge
There is, however, another remedy (i.e., the filing of an amicus curiae brief) available to movant through which it may adequately represent its interest in the outcome of this case. Thus, as an alternative to intervention, we will permit movant to file an amicus curiae brief in order to enable us to view the matter from its perspective.
An appropriate order will be issued.
James E. Schacht and Mark J. Miller, for respondent.
GALE, Judge: Respondent determined a deficiency of $19,940 in petitioners’ Federal income tax for 1998 and an accuracy-related penalty equal to 20 percent of the underpayment under
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated facts and attached exhibits are incorporated in our findings
The Lake Property
On November 27, 1996, petitioners paid $600,000 for a fee simple interest in a 3-acre lakefront property at 5892 Oakland Road in the Village of Chenequa, Wisconsin (lake property). The lake property was on Pine Lake in an area known locally as “lake country“—a desirable residential area where lakefront houses have historically commanded premium prices. The lake property was accessed by a private road owned by an association, the members of which were the homeowners living on the road.
At the time of purchase there were several improvements on the lake property including a house (lake house), a detached garage, a boathouse, and a well and septic system. The lake house, originally built in approximately 1900, was a 1 1/2-story structure with 3,138 square feet of living space, including a stone facade addition that was constructed in the 1950s. The lake house was in good condition and habitable, though in need of remodeling in petitioner‘s view.
For 1998 the Village of Chenequa, Waukesha County, Wisconsin, assessed the lake property at $460,100, allocating $323,000 to the land and $137,100 to the improvements, for local property tax purposes.
After acquiring the lake house, petitioners were initially undecided regarding whether to remodel it or tear it down. Their deliberations were resolved when petitioner Julia A. Gallagher‘s mother, Beatrice Gallagher (Mrs. Gallagher), suggested in late 1997 that petitioners demolish the lake house, build a new house to her specifications as her residence in its place, and then exchange the lake property for her existing residence. Petitioners agreed to Mrs. Gallagher‘s proposal, and they carried out the plan as described below.
Petitioners had a cordial relationship with Mrs. Gallagher during the periods relevant to this case.
Demolition of the Lake House
Sometime in the latter part of 1997 petitioner determined that it would cost $10,000 to $15,000 to demolish the lake house and remove the debris. Around the same time, petitioner learned from his brother of an individual who had claimed a charitable contribution deduction for donating a residence to a local fire department to be burned down. Petitioner decided to donate the lake house to the Village of Chenequa Volunteer Fire Department (VFD) for firefighter training exercises and demolition in a controlled burn and to claim a charitable contribution deduction for the value of the lake house.
In early October 1997 petitioner obtained the necessary approval for the burn from the Wisconsin Department of Natural Resources (DNR), subject to petitioner‘s notifying the DNR of the actual date of the burn.
On February 10, 1998, petitioner sent a letter to Gary Wieczorek, the chief of the VFD and of the Chenequa Police Department (Chief Wieczorek), which stated:
As we have discussed, I would like to donate our house located at 51922 Oakland Road in the Village of Chenequa to the Fire and Police departments of the Village for training and eventually demolition. This letter shall serve as an acknowledgment that it is my intention to donate the house for such purposes. The house is available immediately. If any further approvals are needed please contact me.
Chief Wieczorek understood that petitioners donated the lake house to the Village of Chenequa for the limited purpose of using the structure for training exercises of firefighters and police, and with the ultimate aim of having the VFD burn it down. He also understood that petitioners expected that the lake house would be destroyed within “the first part of that year [1998]“. Chief Wieczorek further understood that the VFD could not use the lake house for any other purpose than training exercises that would include its destruction by fire.
Sometime shortly before February 18, 1998, the Chenequa Police Department used the lake house for a training exercise. On February 18, 1998, the VFD conducted an initial training exercise at the lake house. On February 21, 1998, 11
The firefighter training exercises at the lake house allowed the VFD to satisfy monthly training requirements imposed under Wisconsin State law. Chief Wieczorek believed the firefighter training exercises conducted at the lake house were superior to the training exercises otherwise available to the VFD.
On April 1, 1998, Chief Wieczorek sent a letter to petitioner which stated:
This letter is in receipt of your donation to the Village of Chenequa and its Fire Department in the amount of $1,000, check #4820 and the donation of the use of your home at 5892 Oakland Road for training purposes. The home at 5892 Oakland Road was used during the month of February for training by the Critical Incident Team and the Police Department and for further training by the Fire Department in roof ventilation and smoke drills. On February 21, 1998, the home was destroyed at a practice fire with our mutual aid fire departments in which we practiced using water supply in a non-hydranted area.
Chief Wieczorek solicited the $1,000 payment from petitioners (referred to in the letter quoted above) to defray the costs that the Village of Chenequa otherwise would incur in connection with the training exercises the VFD conducted at the lake house.
On March 30, 1998, approximately 5 weeks after the destruction of the lake house, petitioners entered into a contract to have a new residence constructed on the lake property at a cost of approximately $383,000. The construction contract did not itemize the costs of construction.
Petitioners’ 1998 Income Tax Return
Petitioners timely filed a joint Federal income tax return for the taxable year 1998. Petitioners attached to the return a Form 8283, Noncash Charitable Contributions, reporting that the lake house had a cost or adjusted basis of $100,000, and that the lake house was appraised at a fair market value of $76,000. The Form 8283 included a “Declaration of Appraiser” signed by Richard S. Larkin and a “Donee Acknowledgment” signed by Chief Wieczorek. Petitioners claimed on Schedule A, Itemized Deductions, a deduction of $12,626 attributable to charitable contributions by cash or
Respondent‘s Examination and the Notice of Deficiency
For their 1998 taxable year petitioners retained all documentation that a taxpayer exercising ordinary care and prudence in claiming a charitable contribution deduction would normally keep, and they maintained all records required under the Internal Revenue Code. The parties have stipulated that petitioners cooperated timely with all of respondent‘s requests for witnesses, information, documents, meetings, and interviews during the examination of their 1998 return. During the examination, respondent did not request access to the lake property.
Respondent issued to petitioners a notice of deficiency for 1998 disallowing the charitable contribution deduction of $76,000 claimed with respect to the donation of the lake house. The notice of deficiency stated in pertinent part:
On Schedule A, line 18 of your return for the year ended December 31, 1998, you claimed an itemized deduction of $96,258.00 for Gifts to Charity. It has not been established that any amount more than $7,632.00 qualifies for deduction under any section of the Internal Revenue Code. Therefore, your taxable income for the year ended December 31, 1998 is increased by $76,000.
A schedule of examination adjustments attached to the notice of deficiency shows that respondent actually determined that petitioners were entitled to a deduction for charitable contributions totaling $20,258 for 1998 (rather than the $7,632 referred to in the statement quoted above).
The Pleadings
Petitioners filed a timely petition for redetermination alleging that they were entitled to a charitable contribution deduction of $76,000 related to their donation of the lake house. Petitioners subsequently filed an amended petition in which they averred that they were entitled to a charitable contribution deduction for their donation of the lake house of at least $235,350, the reproduction cost of the house, resulting in an overpayment of their 1998 tax liability by $39,672. Respondent filed an answer to amended petition denying the averments summarized above and asserting that, as an alternative to the determination in the notice of deficiency, petitioners were liable for a penalty for a gross valuation misstatement equal to 40 percent of the underpayment under
Pretrial Proceedings
As part of the pretrial proceedings, respondent requested permission for his expert witness to visit the lake property. On September 19, 2005, petitioners’ counsel informed respondent‘s counsel that the lake property was then owned by Mrs. Gallagher. That same day, respondent‘s counsel contacted Mrs. Gallagher and requested that respondent‘s expert witness be permitted to enter the private road leading to the lake property for the purpose of viewing the site to aid in the preparation of a valuation report. Mrs. Gallagher denied the request. Respondent‘s counsel informed petitioners’ counsel of this development, and petitioners’ counsel subsequently informed respondent‘s counsel that petitioners were unable to arrange for respondent‘s expert to gain access to the lake property. Respondent never made a request pursuant to Rule 72 for permission to visit the lake property.4
Valuation Experts
A. Richard S. Larkin
Petitioners’ expert witness, Richard S. Larkin, is president of Larkin Appraisals, Inc., and he prepared the summary appraisal report attached to petitioners’ 1998 return. Mr.
In his original report Mr. Larkin used the so-called before and after approach to determine the value of the lake house; that is, treating the fair market value of the lake house as equal to the difference between fair market value of the lake property with the lake house and the fair market value of the lake property without the lake house. More specifically, Mr. Larkin determined the value of the lake property with all improvements to be $675,000, on the basis of a comparison to the direct sales of comparable properties. He then subtracted from this amount: (i) The value of the land (estimated at $550,000 on the basis of direct sales of comparable vacant land), (ii) the value of the structural improvements other than the lake house (estimated at $29,000 on the basis of their replacement cost less physical depreciation) and (iii) certain site improvements estimated at $20,000. By subtracting the value of the land and improvements other than the lake house (totaling $599,000) from the “direct sales” market value of the lake property with all improvements ($675,000), Mr. Larkin arrived at what he considered the “contributory value” of the lake house: $76,000, as of December 20, 1997.5 As part of his analysis, Mr. Larkin also estimated that the reproduction cost of the lake house was $235,350.
Mr. Larkin later supplemented his original report to acknowledge that during the period in question there existed in Wisconsin what he considered a submarket in which single-family residences were sold for the purpose of moving them to other locations. Mr. Larkin concluded that this market was not relevant to the valuation exercise he performed with regard to the lake house because the lake house was not going to be moved.
B. Robert A. George
Respondent‘s expert Robert A. George is a professional “house mover“. Mr. George has contracted to move numerous houses throughout Wisconsin, and he is qualified to give an
C. Marcia Solko
Respondent‘s expert Marcia Solko is a real estate specialist employed by the Wisconsin Department of Transportation. Her primary responsibilities were to arrange for the clearing or removal of all improvements (including houses) from real estate designated by the State of Wisconsin for highway construction projects. Ms. Solko is qualified to give an opinion as to the value of houses that are sold for the purpose of moving them to other locations.
Taking many factors into account, including the height of the lake house, the stone facade addition, and the fact that the house sat on a concrete slab foundation, Ms. Solko concluded that it would be very costly to attempt to move the lake house, and she doubted that anyone would buy the lake house in order to move it to another property.
OPINION
I. Charitable Contribution Deductions
The Supreme Court has defined “contribution or gift” for purposes of
The legislative history of the “contribution or gift” limitation [of section 170], though sparse, reveals that Congress intended to differentiate between unrequited payments to qualified recipients and payments made to such recipients in return for goods or services. Only the former were deemed deductible. The House and Senate Reports on the 1954 tax bill, for example, both define “gifts” as payments “made with no expectation of a financial return commensurate with the amount of the gift.” * * * [Hernandez v. Commissioner, 490 U.S. 680, 690 (1989).]
Thus, “A payment of money generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return.” United States v. Am. Bar Endowment, 477 U.S. 105, 116 (1986); see also Transam. Corp. v. United States, 902 F.2d 1540, 1543-1546 (Fed. Cir. 1990); Singer Co. v. United States, 196 Ct. Cl. 90, 449 F.2d 413 (1971).
The Supreme Court has further instructed that in ascertaining whether a given payment or property transfer was made with the expectation of any return benefit or quid pro quo, we are to examine the external, structural features of the transaction, which obviates the need for imprecise inquiries into the motivations of individual taxpayers. Hernandez v. Commissioner, supra at 690-691.
If a charitable contribution is made in property other than money, the amount of the contribution is generally the fair market value of the property at the time of the contribution.
II. The Parties’ Arguments
A. Respondent‘s Position
Respondent contends that petitioners are not entitled to a deduction for a charitable contribution in connection with their donation of the lake house to the VFD because they anticipated and received a substantial benefit in exchange for the contribution; namely, demolition services. Petitioners therefore did not make a charitable contribution within the meaning of
B. Petitioners’ Position
Petitioners first contend that the burden of proof on all issues is shifted to respondent pursuant to
III. Section 7491(a) Shift in the Burden of Proof
We consider as a preliminary matter petitioners’ contention that the burden of proof has shifted to respondent pursuant to
In general, the Commissioner‘s determination as set forth in a notice of deficiency is presumed correct. Welch v. Helvering, 290 U.S. 111, 115 (1933). Rule 142(a)(1) sets forth the general rule that the burden of proof shall be on the taxpayer, except as otherwise provided by statute or determined by the Court, and except that the burden of proof shall be upon the Commissioner in respect of any new matter, increases in deficiency, and affirmative defenses.
Petitioners contend that they have satisfied the requirements of
A taxpayer bears the burden of proving that he or she has met the requirements of
the taxpayer must cooperate with reasonable requests by the Secretary for meetings, interviews, witnesses, information, and documents (including providing, within a reasonable period of time, access to and inspection of witnesses, information, and documents within the control of the taxpayer, as reasonably requested by the Secretary). Cooperation also includes providing reasonable assistance to the Secretary in obtaining access to and inspection of witnesses, information, or documents not within the control of the taxpayer (including any witnesses, information, or documents located in foreign countries). * * * [H. Conf. Rept. 105-599, supra at 240, 1998-3 C.B. at 994.]
We first observe that petitioners’ contention that the
We likewise are not persuaded that petitioners have met their burden of proving that they fully cooperated with respondent‘s reasonable requests during the pretrial phase. The parties stipulated in pertinent part that after respondent‘s counsel informed petitioners’ counsel that Mrs. Gallagher had denied respondent‘s request for access to the lake property, “Petitioners’ counsel subsequently advised Respondent‘s counsel that no arrangements could be made by the Petitioners to have Respondent‘s expert witness see the Property.” What is lacking in this record is any evidence of what effort, if any, petitioners undertook to assist in securing Mrs. Gallagher‘s cooperation to permit respondent‘s expert to visit the lake property. As reflected in the legislative history, Congress intended that the duty of cooperation extend to
In view of this evidentiary vacuum, petitioners have failed to show what “reasonable assistance” they offered, if any, with respect to respondent‘s effort to obtain access to information from a person not within petitioners’ control. As a result, they have not satisfied the cooperation requirement of
IV. Analysis
A. Respondent‘s Quid Pro Quo Argument
1. Status as New Matter
We must first decide whether respondent is allowed to raise his quid pro quo argument, premised on United States v. Am. Bar Endowment, 477 U.S. 105 (1986), to the effect that petitioners are not entitled to any charitable contribution deduction because the fair market value of the property they donated did not exceed the fair market value of the benefit they received in exchange. Petitioners contend that the issue was untimely raised and therefore its consideration would be prejudicial to them.
We have refused to consider an untimely raised issue when the opposing party is unfairly surprised and prejudiced because his defense against the issue requires the presentation of evidence different from the evidence relevant to the identified issues in the case. See Leahy v. Commissioner, 87 T.C. 56, 64-65 (1986); Fox Chevrolet, Inc. v. Commissioner, 76 T.C. 708, 733-736 (1981); Estate of Horvath v. Commissioner, 59 T.C. 551, 555-557 (1973). However, we are not persuaded that petitioners were unfairly surprised or prejudiced
By virtue of their reliance on Scharf from the outset, it is petitioners, not respondent, who first raised the quid pro quo issue. Petitioners cannot claim to have been unfairly surprised when respondent further developed the quid pro quo theory on brief, including analyzing post-Scharf developments in the caselaw such as the Supreme Court‘s decision in United States v. Am. Bar Endowment, supra. Given petitioners’ reliance on Scharf, their contention from the outset that the benefit they received was “small” or “incidental“, and Scharf‘s characterization of the issue as a close one, we believe it was incumbent upon petitioners to proffer whatever evidence they had bearing upon the benefit they received from the donation of the lake house; and we conclude that petitioners were not unfairly surprised or prejudiced by respondent‘s quid pro quo argument.10 See Smalley v. Commissioner, 116 T.C. 450, 456-457 (2001); Ware v. Commissioner, 92 T.C. 1267, 1268 (1989), affd. 906 F.2d 62 (2d Cir. 1990); Pagel, Inc. v. Commissioner, 91 T.C. 200, 211 (1988), affd. 905 F.2d 1190 (8th Cir. 1990). In addition, Scharf sustained a charitable contribution deduction for the
2. Development of the Quid Pro Quo Test
Respondent argues that petitioners are not entitled to a charitable contribution deduction for their donation of the lake house because they anticipated and received a substantial benefit in exchange for the donation; namely, the demolition of the lake house on a site where they intended to rebuild. Respondent contends that the value of the demolition services received exceeded the value of the property petitioners transferred, eliminating any charitable intent from the transaction. As noted, respondent relies on United States v. Am. Bar Endowment, supra, and on
In United States v. Am. Bar Endowment, supra at 116, the Supreme Court set forth the principle that a payment of money generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return. “The sine qua non of a charitable contribution is a transfer of money or property without adequate consideration.” Id. at 118. However, the Court also recognized that a taxpayer‘s payment to a charitable organization that is accompanied by his receipt of a benefit may have a “‘dual character’ of a purchase and a contribution” if the payment exceeds the value of the benefit received in return. Id. at 117. The Court consequently adopted a two-part test (first articulated in Rev. Rul. 67-246, 1967-2 C.B. 104) for determining when part of a dual payment is deductible. “First, the payment is deductible only if and to the extent it exceeds the market value of the benefit received. Second, the excess payment must be made with the intention of making a gift.” Id. (internal quotations omitted). The Am. Bar Endowment test has since been incorporated into the regulations. See
Petitioner had decided to demolish the lake house and construct another residence on the site when he contacted the VFD about donating the lake house to be burned down for training purposes. Consequently, examining the external features of the transaction, as we must, see Hernandez v. Commissioner, 490 U.S. at 690-691, we find that petitioner anticipated a benefit in exchange for the contribution: demolition of the lake house. On similar facts, this Court decided in a Memorandum Opinion, Scharf v. Commissioner, T.C. Memo. 1973-265, that the taxpayer was entitled to a charitable contribution deduction for the donation of a structure, equal to its value for insurance purposes. We reasoned in Scharf as follows:
we conclude * * * that the benefit flowing back to petitioner, consisting of clearer land, was far less than the greater benefit flowing to the volunteer fire department‘s training and equipment testing operations. * * * We think the petitioner benefited only incidentally from the demolition of the building and that the community was primarily benefited in its fire control and prevention operations. Consequently, on balance, we hold that the petitioner is entitled to a charitable contribution deduction.
The test applied in Scharf, which examines whether the value of the public benefit of the donation exceeded the value of the benefit received by the donor, differs from the Supreme Court‘s test announced 13 years later in United States v. Am. Bar Endowment, 477 U.S. 105 (1986). The Am. Bar Endowment test examines whether the fair market value of the contributed property exceeded the fair market value of the benefit received by the donor. The test applied in Scharf has no vitality after Am. Bar Endowment.12 Instead, we
3. Application of the Quid Pro Quo Test
a. Value of the Benefit Received
Petitioner testified that his investigation revealed that it would cost approximately $10,000 to $15,000 to have the lake house demolished and the debris removed. This estimate is consistent with those of both of respondent‘s experts, who put the figure at approximately $10,000 to $12,000 (Ms. Solko) and $10,000 (Mr. George).
Petitioners nonetheless dispute the conclusion that they saved demolition costs of at least $10,000 by virtue of their donation of the lake house to the VFD. Petitioner claimed in his testimony that the cost of the contract to construct the new house for Mrs. Gallagher included “$10,000 to $15,000” in excavation charges for clearing the remnants of the burn and the concrete foundation of the lake house. Petitioners argue on brief that these additional excavation costs demonstrate that petitioners did not save anything from the demolition resulting from the burning and therefore received no benefit from their donation of the lake house to the VFD.
We reject this contention. First, the documentary evidence tends to undermine the claim that the construction contract for the new residence included $10,000 or more for excavation charges associated with clearing the remnants of the burn. The construction contract for the new house, as included in the record, does not contain any allocation of the total contract price for any specific cost—excavation, debris removal, or otherwise. Moreover, a preprinted portion of the contract covering “Building Site Conditions” has been lined through by the parties to the contract, creating an inference that the contract price did not cover any significant debris or foundation removal services. Second, two experts, plus
b. Value of the Property Donated
Because petitioners received a substantial benefit in exchange for their donation of the lake house, their entitlement to any charitable contribution deduction under the Am. Bar Endowment test depends upon whether the value of the lake house as donated exceeded the value of the demolition services. As noted, the lake house‘s value for this purpose is its fair market value at the time of the donation, as measured by the willing buyer/willing seller standard in
Petitioners contend, and we agree, that their donation of the lake house to the VFD, without their conveyance of the underlying land on which it was sited, effected a “construc-
Petitioners attached two additional restrictions or conditions on the lake house incident to its donation; namely, the permissible use of the lake house was restricted to firefighter and police training exercises and there was a condition that the lake house be burned down relatively soon after the conveyance. Petitioner‘s letter memorializing the transfer, though informal, stated that the lake house was to be used by the VFD “for training and eventually demolition“, and VFD Chief Wieczorek testified that he understood he could not use the lake house for any other purpose and that the burndown was to take place during the first part of 1998.15 Thus, in addition to being severed from its underlying land, the lake house as donated could not be used for residential purposes and was subject to a condition that it be promptly burned down.
Petitioners offered the appraisal of their expert, Mr. Larkin, in support of their claim that the lake house had a fair market value of at least $76,000 when donated. In his appraisal Mr. Larkin opined that the lake house had a “contributory value” of $76,000 on the basis of a “before and
We find the Larkin appraisal to be unpersuasive evidence that the lake house had a fair market value of $76,000 as donated. While the “before and after” method used by Mr. Larkin has been accepted as an appropriate measure of the fair market value of donations of restrictive covenants on real property such as conservation easements, see, e.g., Symington v. Commissioner, 87 T.C. 892, 895 (1986); Schwab v. Commissioner, T.C. Memo. 1994-232;
The Larkin appraisal states that “The interest valued is fee simple and unencumbered.” Mr. Larkin contends that the value of the lake property for the “donation purposes” to
Petitioners alternatively contend that the fair market value of the lake house as contributed to the VFD was $235,350, its reproduction cost as estimated by Mr. Larkin. Petitioners offer no expert testimony in support of this proposition. Mr. Larkin did not so opine; petitioners merely borrow his estimate of reproduction cost and assert on brief, relying on Estate of Palmer v. Commissioner, 839 F.2d 420 (8th Cir. 1988), revg. 86 T.C. 66 (1986), and First Wis. Bankshares Corp. v. United States, 369 F. Supp. 1034 (E.D. Wis. 1973), that because the lake house was “unique” and was “special use” property in the hands of the donee, reproduction cost is the appropriate measure of its value.17
Instead, the circumstances of this case bring it squarely within the Cooley line of cases which require that restrictions or conditions affecting the marketability of donated property be taken into account in determining the value of the donated property. See Cooley v. Commissioner, supra; Deukmejian v. Commissioner, supra; Dresser v. Commissioner, supra; see also Rev. Rul. 85-99, supra. “[P]roperty otherwise intrinsically more valuable which is encumbered by some restriction or condition limiting its marketability must be valued in light of such limitation.” Cooley v. Commissioner, supra at 225.
We consider first the impact of the severance of the lake house structure from the underlying land. The price at which the lake house would change hands would undoubtedly be affected by the condition that the structure could not remain affixed to its underlying land indefinitely. Petitioners offered no evidence concerning the impact of this condition. Respondent offered the testimony of two experts in the field of house moving regarding the price at which the lake house would likely sell if required to be moved from its existing site. Both house moving experts concluded that the likelihood of a buyer‘s purchasing the lake house to move it from the site was virtually nil, because the characteristics of the lake house and its site rendered a relocation of the structure infeasible. We are persuaded that the expert testimony con-
As for the impact on the lake house‘s fair market value of the remaining conditions petitioners imposed incident to the donation (the restriction of use to firefighter and police training exercises and the condition that the structure be promptly burned down), there is insufficient evidence in the record to support anything beyond speculation. We are persuaded, however, that the impact on fair market value of the foregoing encumbrances would be adverse rather than beneficial. Finally, as for the possibility that the lake house as encumbered by petitioners’ restrictions had a fair market value equal to its salvage value, respondent‘s expert Mr. George provided expert testimony to the effect that the lake house‘s salvage value was zero. On the basis of his examination of photographs and a video of the lake house, and a description of its features, Mr. George opined that the value of any salvageable materials would be offset by the costs of removing them.18 As a consequence, we are persuaded by the evidence that the lake house had no salvage value.
4. Conclusion
On the basis of the entire record, we conclude that respondent prevails on his quid pro quo argument. We are persuaded by the evidence that petitioners anticipated a substantial benefit in exchange for their donation of the lake house, in the form of demolition services worth approximately $10,000, and that the fair market value of the lake house as donated did not exceed that figure. Petitioners have failed to prove the lake house had a fair market value exceeding $10,000, because the expert testimony they offered to prove value failed to account for substantial conditions and restrictions imposed on the property incident to its donation, including in particular its severance from the under-
B. Accuracy-Related Penalty
Respondent determined that petitioners are liable for an accuracy-related penalty under
Under
The determination 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.”
An appropriate decision will be entered.