Patrick Urda of the USA Tax Court docket dives into the technicalities of charitable contributions of property in Janet R. Braen et.al. It’s about deduction for a cut price sale of land to a municipal authorities. As is common, the story behind the story might be extra fascinating than the tax points. A number of dockets are coated within the opinion because it includes a charitable contribution by an S company owned by a household that has been quarrying to offer the fabric to construct the infrastructure of Northern New Jersey since 1904. You may study in regards to the fascinating historical past of Braen Stone on this video.

I discover the story that the founder received his first quarry as cost on a playing debt irresistible, however I am right here to inform you the tax story.

The Land In Ramapo

In 1998 Braen Business Holdigs Corp (Holdings) acquired a 505-acre plot of land within the City of Ramapo, NY. Ramapo is on the border of New Jersey. The Palisades Interstate Parkway goes by way of a portion of it. The plan was to develop a granite quarry. Holdings had optioned the property for $3,500,000 in 1996.

Relying on site visitors you possibly can drive to Occasions Sq. from Ramapo in as little as an hour. This isn’t an space of the nation the place it’s straightforward to get permits to do something, so I am pondering a quarry could be additional difficult. What adopted the acquisition was years of delay and litigation. There have been a variety of group considerations, however when it got here to getting a mining allow the most important points had been native water sources and timber rattlesnakes. Timber rattlesnakes are an endangered species

There was a 2004 zoning change that was a part of the litigation. Lastly there was a settlement in 2010 through which Holdings offered the city 425.5 acres of the parcel for $5,250,000.

The Deduction

Right here we should allude to Reilly’s Fourth Regulation of Tax Planning – Execution is not all the pieces, nevertheless it’s a lot. This isn’t an instance of excellent execution.

“The property sale closed on September 29, 2010. Earlier than the closing, Holdings’ licensed public accountant, Rachel Votto, suggested {that a} Ramapo consultant would wish to signal Kind 8283, Noncash Charitable Contributions, in order that Holdings may declare a charitable contribution deduction. Holdings accordingly despatched Ramapo a Kind 8283, which was clean aside from the phrase “see hooked up certified appraisal report” within the “description of donated property” part. Though no appraisal was hooked up, Ramapo’s then metropolis supervisor signed Kind 8283 at closing.”

In fact they’re attempting to get an advanced cope with a variety of shifting elements achieved. Comply with-through on the charitable contribution tax compliance was most likely not on the entrance burner at that time. When it got here to doing the 2010 tax return for Holdings, they introduced in RSM McGladrey. You’ve heard of the Huge 4. Nicely McGladrey is at the moment quantity 5.

In April 2011 McGladrey submitted a request for a prefiling settlement with the IRS with “questions for dedication”. One query was whether or not Holdings had the requisite donative intent and that the worth of the transferred property was $26,245,000. I’ve to admit I used to be right now years outdated after I first discovered in regards to the Pre-Submitting Settlement Program. This can be a stage of execution I’ve by no means aspired to.

Within the strategy of making ready for the prefiling settlement it was decided that the clean signed 8283 was most likely lower than snuff, In order that they put in a request to the city to “present and acknowledgment that [Holdings] offered the heaps to the City for the said value and that no different items or companies was [sic] offered for the sale”. (Actually recognize Decide Urda’s consideration to grammar with the “[sic]”.) The lawyer for the city revised the assertion to make it clear that “it wasn’t only a buy of property, it was a purchase order of property as a part of the negotiated settlement of the lawsuit”. There are occasions after I actually do not recognize additional thoroughness.

That bought the IRS excited about questions in regards to the rezoning and mineral values and whether or not the value determinations had been certified. The IRS withdrew from contemplating the problems within the PFA request.

The return as filed had an advanced story in regards to the deduction. It asserted a price of over $17 million which made for a cut price sale of over $12 million. The valuation included mineral worth. Holdings solely claimed a deduction of $5,222,000 to keep away from a dispute over valuation and publicity to gross valuation misstatement penalty. The person returns claimed every shareholder’s proportionate share of the deduction. There have been unsigned and in some fully clean Varieties 8283 hooked up. The directions say that the company is meant to provide a replica of its 8283 to the shareholder and they’re supposed to connect it to the person return.

The Opinion

The company return for 2010 was audited by the IRS. Ms. Votto dealt with it so I suppose the trial of the not fairly Huge 4 McGladrey was over. The opinion has some dialogue about how the penalties had been arrived at. On the finish of the day there have been deficiency notices and petitions to Tax Court docket.

It finally ends up not being that difficult. While you take a deduction for a cut price sale you must think about all the pieces that you just acquired not simply the money. In figuring the deduction Holdings didn’t put a valuation on the zoning change that it acquired that was an integral a part of the settlement. They argued that they had been entitled to the change and would have received on the litigation, however that didn’t wash.

The opposite drawback was with the contemporaneous written acknowledgment. Though there was an allusion to the litigation there was not an specific sufficient assertion of that being one thing that was acquired. Failure to have an excellent contemporaneous written acknowledgement means no deduction.

Decide Urda nonetheless needed to deal with valuation in an effort to decide whether or not there can be substantial underpayments. He threw out the valuation based mostly on the minerals, due to the obstacles to allowing. That left residential use and the worth ended up at $5.845,000 which makes for a considerable misstatement evaluate to the $10,472,000 claimed as the worth of the property offered.

The Braens bought nowhere in arguments towards the penalties for cheap trigger and points with supervisory approval.

The Pre-Submitting Settlement Program

I’ve gotten over my embarrassment about not figuring out in regards to the Pre-Submitting Settlement Program. In response to the Truth Sheet on this system, there have been solely 20 filings from 2019-2022. The person payment to take part in this system is $181,500. It was a lot much less again in 2010. I did a search and decided that this case is the primary time that the Tax Court docket has ever talked about this system in an opinion, which I suppose is smart provided that the purpose of this system is to keep away from the necessity to go to Tax Court docket. Primarily based on how this case turned out, I am pondering I’m unlikely to ever suggest to anyone that they need to strive it, however it’s all the time good to study one thing new.

Different Protection

Bryan Camp has Lesson From The Tax Court docket: Measurement Does Not Matter on the TaxProf Weblog.

“Lesson I see within the case is that this: even an enormous cut price sale to a charity requires donative intent. And not using a donative intent, there isn’t any §170 deduction, irrespective of how huge the cut price. Intent is decided by goal details surrounding the transaction. Right here, these details confirmed that the taxpayers’ intent was to not be charitable; their intent was to settle a lawsuit that they had filed towards the city.”

Lew Taishoff coated one of many procedural steps on the case in 2021 with DISCOVERY TOHUBOHU. He initially took it as a conservation easement case, however later corrected his error. He additionally coated the opinion with SETTLE YOUR CASE AND SETTLE YOUR HASH.

“I received’t go into the battling value determinations, besides to state that Excelsiorland boondockery takes second place to nobody, definitely not Dixieland boondockery.”

“In fact, however a pair CPAs in attendance (hello, Decide Holmes), Janet and the als get the Kind 8283 fallacious, and the post-event Contemporaneous Written Acknowledgement from the city lawyer spills the beans on the settlement.

Quid professional quo means no deduction. “