T.C. Memo. 2020-3
UNITED STATES TAX COURT
CHAD LOUBE AND DANA M. LOUBE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5092-17. Filed January 8, 2020.
Chad Loube and Dana M. Loube, pro sese.*
Scott A. Hovey and Deborah Aloof, for respondent.
MEMORANDUM OPINION
COPELAND, Judge: In a notice of deficiency dated December 2, 2016,
respondent determined a deficiency of $117,612 in Federal income tax for
petitioners’ 2013 taxable year. Pending before this Court is respondent’s motion
* Brief amici curiae was filed by Thomas J. O’Rourke and Derek P. Roussillon as attorneys for Second Chance, Inc. -2-
[*2] for summary judgment filed pursuant to Rule 121.1 Respondent has moved
for summary judgment on the grounds that, by operation of the documents so far
contained in the record, there are no genuine disputes as to material facts and this
case should therefore be ruled on now as a matter of law.
Petitioners filed both a response to the motion for summary judgment and a
first supplement to their response.
Because we find no genuine dispute as to any material fact, and because we
find that petitioners neither strictly nor substantially complied with the
requirements of section 155 of the Deficit Reduction Act of 1984 (DEFRA), Pub.
L. No. 98-369, 98 Stat. at 691, we will grant respondent’s motion.
Background
Petitioners resided in Maryland when they filed their petition. On or about
July 1, 2013, petitioners purchased real property in Potomac, Maryland. The
property was purchased for $795,000 and consisted of 0.38 acres of land and a
single-family house. Petitioners desired to demolish the house and construct in its
place a new residence of their own design.
1 Unless otherwise indicated, rule references are to the Tax Court Rules of Practice and Procedure and section references are to the Internal Revenue Code in effect for the year in issue. -3-
[*3] Second Chance, Inc. (Second Chance), is incorporated under the laws of
Maryland and qualifies as a charitable organization under section 501(c)(3).
Second Chance performs deconstruction, which is something less than demolition.
Where demolition typically results in annihilation of a structure, deconstruction
might involve only the removal of furniture, appliances, fixtures, lumber, and
other materials. Second Chance sells salvageable material from deconstruction on
the open market through its warehouse. But Second Chance’s raison d’être is to
use the deconstruction process to teach marketable skills to persons facing barriers
to employment ranging from limited education to criminal records while
environmentally reusing materials that would otherwise end up as landfill debris.
Typically, at the stage where the decision has been made to demolish a
structure, the owner will enter into an agreement with Second Chance to allow
Second Chance to use the structure for deconstruction. The owner will also make
a cash contribution to Second Chance, which covers the upfront costs of Second
Chance’s deconstruction. Once Second Chance has finished its training and
removed salvageable materials, the owner will engage a third party to demolish the
structure.
Second Chance contacted petitioners via email on May 3, 2013, explaining
its deconstruction program. The email noted that a contribution would generate a -4-
[*4] tax deduction and included a “Tax Strategy Planning Worksheet”. It further
noted that a demolition company would still have to be engaged and that the
demolition company’s cost would be constant in the project.2
On July 1, 2013, petitioners engaged an appraiser, Patrick M. Smith, Sr., of
NoVaStar Appraisals, Inc.
On or about July 16, 2013, petitioners and Second Chance entered into an
“Agreement for Charitable Contribution”, relating to deconstruction, and
petitioners signed a “Charitable Pledge Agreement”, relating to making a cash
contribution. The agreement incorporated by reference the pledge and included
the following terms:
WHEREAS, Owner desires to contribute to Second Chance the existing improvements, buildings, and fixtures upon such Premises (collectively the “Improvements”), which such Improvements shall be treated as personally severed from the Premises, for the express purpose of Second Chance using the Improvements in its charitable operations[.]
* * * * * * *
2. Donation; Conveyance of Improvements. Owner hereby donates, conveys and gives to Second Chance all of the Owner’s right, title and interest in the Improvements and Second Chance hereby accepts such Improvements. The parties intend for the Improvements to be
2 The parties in this case appear to agree that Second Chance’s deconstruction did not appreciably reduce petitioners’ demolition costs. -5-
[*5] treated as personalty and desire by this Agreement to effectuate a constructive severance of the Improvements from the Premises.
Aside from the “Improvements” referenced above, the agreement did not
specify what items, objects, or property were being donated. The agreement was
not recorded. The pledge included petitioners’ commitment to donate to Second
Chance $27,500 on or before December 31, 2013. The pledge was marked with a
handwritten slash across the front with the word “Renegotiated” underlined and in
all caps in its upper right hand corner.
Mr. Smith sent petitioners an appraisal for the property by letter dated
July 17, 2013. The appraisal had an effective date of July 1, 2013, and used a
“Cost Approach to Value”, which involved estimating “the current costs to
reproduce or create a property with another of comparable use and marketability.”
The appraisal included 99 detailed photos of the home and personal property
inside the home before removal through deconstruction. The appraisal used data
from the R.S. Means Co., which specializes in construction cost estimating data, in
order to calculate that the current cost to reproduce the house would be $674,000.
The appraisal then reduced that amount for the costs of labor, architectural fees,
the general condition of the house, and the overhead and profit for a hypothetical
construction company, which resulted in a “new materials cost” for the house of -6-
[*6] $330,453. The new materials cost of $330,453 was then reduced by 10% for
depreciation (i.e., a reduction of $33,045.30). The new materials cost, less the
total depreciation, resulted in a rounded fair market value for the deconstructed
house of $297,000. To come to the initial value of $674,000, the appraisal listed
categories of donated items as follows:
Site work $1,750 Foundations 34,700 Framing 48,616 Exterior walls 55,378 Roofing 11,100 Interiors 97,360 Specialties 182,718 Mechanical 25,073 Electrical 11,025 Subtotal $467,720 General conditions 46,500 G.C. O&P 77,000 Architectural fee 35,500 Contractor fee $47,000 Estimate total $673,720 (rounded) $674,000 -7-
[*7] Each of the categories above had detailed component valuations such as that
for the category labeled “specialties”, which included:
Ext. Total incl Description O&P Refrigerator, no frost, 21-29 C.F $3,350 Garbage disposal 278 Garage door opener 580 Gable dormer, 2’ x 6’ roof frame 57,000 Water heater, gas, glass lined 50 gal. 1,500 Microwave oven 650 Range 30” free standing, 1 oven 1,876 Heating systems, hot water 5,300 Fireplace & chimney 8,925 Smoke detector 700 Half bath – including plumbing, wall and floor finishes 5,428 Full bath – including plumbing, wall and floor finishes 19,000 Upgrade kitchen cabinets 27,600 Two car attached garage 28,100 Dishwasher, built-in, 4 or more cycles 1,378 Kitchen, custom grade 16,900 Sinks, porcelain on CI single bowl, double bowl, 20” x 32” 1,800 Water heater, gas, 75 gal. 1,975 Medicine chest with mirror, 36” x 24” 378 Totals for 07 Specialties $182,718 -8-
[*8] In addition, appendix E of the appraisal listed the most recent tax
information for the property, which included a total assessed value for 2013 of
$759,400, consisting of a land value of $451,200 and an improvements value of
$308,200.
On or about December 23, 2013, petitioners issued a check to Second
Chance for $15,000.
Petitioners contracted with Design-Tech Builders, Inc. (Design-Tech), on
January 10, 2014, for the construction of a new single-family house on the
property. That contract authorized Design-Tech to subcontract for the demolition
of the house and construction of a foundation for a new house. On or before
February 24, 2014, Design-Tech hired Modern Foundations, Inc., to demolish and
remove the existing structure at a bid price of $14,500.
Petitioners timely filed their 2013 Federal income tax return, claiming a
$297,000 noncash charitable contribution deduction for their donation of the
improvements to Second Chance. Petitioners attached to their 2013 return a Form
8283, Noncash Charitable Contributions (appraisal summary). On the appraisal
summary, Section B, Part I, Block 4(j) is checked, identifying the type of property
donated as “Other”. Block 5(a), which asks for a description of the donated
property, states “House Imporvements [sic]”. Block 5(b) says “Excellent” where it -9-
[*9] asks for a summary of the overall physical condition of the property, if
tangible property was donated. Block 5(c) appraises the improvements at a fair
market value of $297,000. Blocks 5(d) through 5(i), which provide critical
information related to the donation, are all blank. In particular, Block 5(d), which
asks for the date that the donated property was acquired, is blank; and Block 5(f),
which asks for the donor’s cost or adjusted basis, is blank. Part III, Declaration of
Appraiser, is not signed by the appraiser but is dated and shows the appraiser’s
address and his identifying number. Second Chance is listed under Part IV, Donee
Acknowledgment; its address and identifying number are reported, but the
“Authorized signature” block is blank.3 The only other information in the
appraisal summary is petitioners’ names and identifying numbers at the top of each
page. Petitioners did not provide any explanation for the blank portions of the
appraisal summary, but they did attach the appraisal to the return.
Respondent issued the notice of deficiency, determining that petitioners
were not entitled to the $297,000 noncash charitable contribution deduction. The
Internal Revenue Service (IRS) examiner’s Form 886-A, Explanation of
Adjustments, stated that the reason the noncash charitable contribution deduction
3 Respondent indicates that petitioners filed their 2013 return electronically and at some point appear to have provided respondent with a Form 8283 that was properly signed and dated. - 10 -
[*10] was being disallowed was that there were “no official appraisals for the
individual items that were donated after the deconstruction of the house once the
individual components were taken apart.” Quoting section 1.170A-1(c)(2),
Income Tax Regs., the examiner pointed out that the fair market value of a
noncash charitable contribution is “the price at which the property would change
hands between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of relevant
facts.” Therefore, “[t]he appraisal should have been done for each individual item
that was donated after it was detached from the home contemporaneously, since
that would be the true value of the piece that is being donated.”
Petitioners then instituted this action for redetermination by timely filing
their petition.
Discussion
I. Burden of Proof
Summary judgment serves to “expedite litigation and avoid unnecessary and
expensive trials.” Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). It
is not, however, a substitute for trial and should not be used to resolve genuine
disputes over issues of material fact. See Vallone v. Commissioner, 88 T.C. 794,
801-805 (1987). The Court may grant summary judgment when there is no - 11 -
[*11] genuine dispute as to any material fact and a decision may be rendered as a
matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). The moving party has the burden of
showing the absence of a genuine dispute as to any material fact. FPL Grp., Inc. v.
Commissioner, 115 T.C. 554, 559 (2000); Bond v. Commissioner, 100 T.C. 32, 36
(1993); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). For these purposes we
afford the party opposing the motion the benefit of all reasonable doubt, and we
view the material submitted by both sides in the light most favorable to the
opposing party. Sundstrand Corp. v. Commissioner, 98 T.C. at 520. That is, we
resolve all doubts as to the existence of a dispute as to any material fact against the
movant. Id.; see, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).
However, where the moving party properly makes and supports a motion for
summary judgment, the opposing party “may not rest upon the mere allegations or
denials of such party’s pleading” but must set forth specific facts showing that
there is a genuine dispute for trial. Rule 121(d).
II. Respondent’s Arguments
Respondent makes three principal arguments for why he should be granted
summary judgment. First, respondent argues that petitioners are barred from
deducting a charitable contribution for 2013 because their appraisal summary - 12 -
[*12] omitted information required by DEFRA sec. 155(a)(1) and (2).
Specifically, respondent cites the appraisal summary’s failure to include the date
the donated property was acquired or its cost basis, as well as its purporting to
donate items of tangible property yet valuing the entire house (less certain
construction, overhead, profit, and depreciation costs).
Second, respondent argues that the appraisal is not a qualified appraisal
within the meaning of section 170(f)(11)(E) because it did not appraise the
property that petitioners actually donated. According to respondent, even if
petitioners had complied fully with the DEFRA sec. 155 appraisal summary
requirements, the appraisal itself nevertheless failed because it determined a
depreciated cost for rebuilding the entire house rather than valuing the individual
items actually removed by Second Chance. That is, according to respondent, the
appraisal fails because it valued the house while petitioners donated only some
parts of the house--the parts removed and taken to Second Chance’s warehouse.
According to respondent, section 170(f)(11)(E)(i) provides that “[t]he term
‘qualified appraisal’ means, with respect to any property, an appraisal of such
property” (emphasis added), and petitioner’s appraisal fails to identify such
property donated. - 13 -
[*13] Respondent further contends that petitioners can never identify the specific
property donated because “[n]o record exists indicating the scope of Second
Chance’s deconstruction work on the property or what specific items Second
Chance salvaged therefrom” and “[n]o witness is available to testify that can
explain what items were actually salvaged from the property.” The only evidence
currently supporting respondent’s third claim appears to be respondent’s citation
of the declaration of Scott A. Hovey in support of respondent’s motion for
summary judgment. Mr. Hovey, who is respondent’s counsel, based his
declaration on his own review of respondent’s administrative files.
Lastly, respondent alternatively argues that even if the appraisal is qualified,
petitioners gave a partial interest in property, for which a deduction is generally
prohibited under section 170(f)(3).
III. Petitioners’ Arguments
Petitioners argue that they engaged a professional third-party appraiser,
attached the appraisal summary to their return, and attached the actual appraisal to
their return. Furthermore, petitioners contend they were merely trying to value the
house in a way that appeared consistent with IRS policy at the time and that any
disagreement over the valuation method selected by a professional appraiser does
not change the identity of the property donated. Petitioners have not raised, and so - 14 -
[*14] we do not address, reasonable cause under section 170(f)(11) as a defense
for failure to satisfy regulatory reporting requirements.
Petitioners also argue that respondent’s declaration, which claims that the
actual property donated can never be identified, is inadmissible because Rule
121(d) requires that “[s]upporting and opposing affidavits or declarations shall be
made on personal knowledge, shall set forth such facts as would be admissible in
evidence, and shall show affirmatively that the affiant or declarant is competent to
testify to the matters stated therein.” (Emphasis added.) Petitioners assert that
respondent fails to identify with specificity what provisions of DEFRA were not
satisfied, and they point to the generality of respondent’s assertion that the “lack
of clarity in the Appraisal as to what property was donated has a cascading effect
on the other appraisal requirements.” Petitioners also cite, as evidence for
specificity, the 60-plus page appraisal.
Lastly, petitioners argue that they did not give a partial interest to Second
Chance but rather that they gave an entire interest in the improvements to the land.
Petitioners rely primarily on two Maryland cases to support this position. The first
is cited for the proposition that parties are permitted to agree to sever fixtures,
including buildings, from real property. Walker v. Schindel, 58 Md. 360, 368
(1882). The second is cited for the proposition that “a person who owns both - 15 -
[*15] realty and fixtures upon the realty may effect a constructive severance of the
fixtures”. Bohle v. Thompson, 554 A.2d 818, 824 (Md. Ct. Spec. App. 1989).
IV. Analysis
Because we will rule on the basis of DEFRA, we need not and do not
address respondent’s second and third arguments or petitioners’ associated
rebuttals.
A. Whether Petitioners Complied With DEFRA Sec. 155
Section 170(a)(1) allows as a deduction any charitable contribution made
within the taxable year. If the taxpayer makes a charitable contribution of
property other than money, the amount of the contribution is generally equal to the
fair market value of the property at the time of contribution. See sec. 1.170A-
1(c)(1), Income Tax Regs.
Where a contribution of property (other than publicly traded securities) is
valued in excess of $5,000, the taxpayer must “obtain[] a qualified appraisal of
such property and attach[] to the return * * * such information regarding such
property and such appraisal as the Secretary may require.” Sec. 170(f)(11)(c).
The required information includes “an appraisal summary” that must be attached
“to the return on which such deduction is first claimed for such contribution”.
DEFRA sec. 155(a)(1)(B); see sec. 1.170A-13(c)(2), Income Tax Regs. - 16 -
[*16] Specifically, DEFRA sec. 155(a)(1) directed the Secretary to promulgate
regulations requiring a taxpayer claiming a deduction for a noncash charitable
contribution
(A) to obtain a qualified appraisal for the property contributed,
(B) to attach an appraisal summary to the return on which such deduction is first claimed for such contribution, and
(C) to include on such return such additional information (including the cost basis and acquisition date of the contributed property) as the Secretary may prescribe in such regulations.
Section 1.170A-13(c)(4), Income Tax Regs., then defines the necessary
elements of an “appraisal summary”. Those elements include, among others, “[a]
description of the property in sufficient detail for a person who is not generally
familiar with the type of property to ascertain that the property that was appraised
is the property that was contributed”, “[t]he manner of acquisition (e.g., purchase,
exchange, gift, or bequest) and the date of acquisition of the property by the
donor”, and “[t]he cost or other basis of the property”. Sec. 1.170A-
13(c)(4)(ii)(B), (D), (E), Income Tax Regs. The “appraisal summary” is a
summary of a qualified appraisal which must be made on a Form 8283, and that
form must be attached to the return. Sec. 1.170A-13(c)(4)(i)(A), Income Tax
Regs. Failure to meet the required elements of an appraisal summary generally - 17 -
[*17] results in a disallowed deduction unless a taxpayer “has reasonable cause for
being unable to provide the information * * * relating to the manner of acquisition
and basis of the contributed property” and attaches “an appropriate explanation” to
the appraisal summary. Id. subdiv. (iv)(C)(1).
We conclude that petitioners failed to strictly comply with DEFRA sec. 155
and the regulations thereunder because they failed to provide, among other
information, the basis and the acquisition date of the contributed property on the
appraisal summary. Petitioners also failed to attach to the appraisal summary an
explanation of reasonable cause for their inability to provide the basis, acquisition
date, or other information related to the contributed property.
B. Whether Petitioners Substantially Complied With DEFRA Sec. 155
Petitioners contend that while they may not have strictly complied with the
requirements of DEFRA sec. 155, they nevertheless substantially complied with
its requirements. This Court recognizes the doctrine of substantial compliance.
See RERI Holdings I, LLC v. Commissioner, 149 T.C. 1, 15-16 (2017), aff’d sub
nom. Blau v. Commissioner, 924 F.3d 1261 (D.C. Cir. 2019). Under that doctrine
the key question is whether the requirements relate “to the substance or essence of
the statute.” Bond v. Commissioner, 100 T.C. at 40-41 (quoting Taylor v.
Commissioner, 67 T.C. 1071, 1077 (1977)). If the requirements do relate to the - 18 -
[*18] substance or essence of the statute, then strict adherence to the statutory and
regulatory requirements is mandatory. See Dunavant v. Commissioner, 63 T.C.
316, 319-320 (1974). If the requirements are instead procedural or directory, then
the requirements may be fulfilled by substantial compliance. RERI Holdings I,
LLC, v. Commissioner, 149 T.C. at 15-16.
We held in Bond v. Commissioner, 100 T.C. at 41-42, that some of the
reporting requirements of section 1.170A-13, Income Tax Regs., are directory and
require only substantial compliance. Because the reporting requirements are
directory, a taxpayer who fails to strictly comply but “substantially complies” with
section 1.170A-13, Income Tax Regs., is still entitled to the deduction.
Nevertheless, there may still be an element(s) which is so essential to the purpose
of the regulation that one can never fail to comply with it in form and still comply
in substance with the regulation. See Bond v. Commissioner, 100 T.C. at 41; see
also Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, at *15-*17.
Substantial compliance is not meant to excuse all failures. Instead, it is used
where “the taxpayers had provided most of the information required” or made
omissions “solely through inadvertence.” Hewitt v. Commissioner, 109 T.C. 258,
265 & n.10 (1997), aff’d without published opinion, 166 F.3d 332 (4th Cir. 1998);
see Durden v. Commissioner, T.C. Memo. 2012-140, 2012 WL 1758655, at *2 - 19 -
[*19] (“The doctrine of substantial compliance is designed to avoid hardship in
cases where a taxpayer does all that is reasonably possible, but nonetheless fails to
comply with the specific requirements of a provision.”). Thus, it is a doctrine that
is not “liberally applied.” Costello v. Commissioner, T.C. Memo. 2015-87, at *23
(quoting Alli v. Commissioner, T.C. Memo. 2014-15, at *54); see, e.g., Mohamed
v. Commissioner, T.C. Memo. 2012-152, 2012 WL 1937555, at *10 (“[T]he
problems of misvalued property are so great that Congress was quite specific
about what the charitably inclined have to do to defend their deductions[.]”); see
also Kaufman v. Shulman, 687 F.3d 21, 29 (1st Cir. 2012) (stating that the
substantial compliance doctrine may be used to forgive “minor discrepancies” in
the taxpayer’s reporting), aff’g in part, vacating and remanding in part 136 T.C.
294 (2011), and 134 T.C. 182 (2010); Prussner v. United States, 896 F.2d 218, 224
(7th Cir. 1990) (stating that the substantial compliance doctrine “should be
interpreted narrowly”).
If petitioners can substantially comply with section 1.170A-13, Income Tax
Regs., then we must decide whether they did. We have stated that the test for
substantial compliance is whether the donors “provided sufficient information to
permit * * * [the Commissioner] to evaluate their reported contributions, as
intended by Congress.” Smith v. Commissioner, T.C. Memo. 2007-368, 2007 WL - 20 -
[*20] 4410771, at *19, aff’d, 364 F. App’x 317 (9th Cir. 2009). Petitioners’
appraisal summary omitted much of the required information and provided no
reasonable cause explanation for the omissions.
We have recently held that a taxpayer who fails to disclose “cost or adjusted
basis” on its appraisal summary has failed to substantially comply with section
1.170A-13, Income Tax Regs. RERI Holdings I, LLC v. Commissioner, 149 T.C.
1. We decided so because Congress specifically enacted DEFRA’s heightened
reporting requirements in order to combat inflated charitable deductions by
requiring, where reasonably obtainable, the disclosure of “cost or adjusted basis”
to “facilitate the Commissioner’s efficient identification of overvalued property.”
Belair Woods, LLC v. Commissioner, at *17. Thus, a taxpayer’s failure to provide
the “cost or adjusted basis” on an appraisal summary is a failure to substantially
comply with DEFRA sec. 155 because it is a failure to “provide[] sufficient
information to permit * * * [the Commissioner] to evaluate the[] reported
contributions, as intended by Congress.” Smith v. Commissioner, 2007 WL
4410771, at *20; see also Belair Woods, LLC v. Commissioner, at *15-*20.
In RERI Holdings I, LLC v. Commissioner, 149 T.C. at 2-3, a partnership
acquired and donated a future interest in commercial property to a university. The
partnership claimed a $33,019,000 charitable contribution deduction on its - 21 -
[*21] informational return. Id. The partnership attached to its return a complete
appraisal as well as an appraisal summary. Id. at 7. However, the appraisal
summary left blank the space for the donor’s cost or adjusted basis and provided
no explanation for the omission. Id. We held in RERI that the omission of basis
from an appraisal summary prevents the appraisal summary from achieving its
intended purposes and cannot be excused by substantial compliance. Id. at 16-17.
In Belair Woods, LLC v. Commissioner, at *3-*5, a limited liability
company (Belair) entered into a deed of conservation easement with a land trust.
The easement covered 141.15 acres of land. Id. Belair claimed a resulting
charitable contribution deduction of $4,778,000 on its tax return. Id. at *5-*6.
Belair attached an appraisal summary which did not state the cost or the adjusted
basis of the property contributed. Id. at *6-*7. Belair also attached a letter
indicating that it did not state the basis because “the basis of the property is not
taken into consideration when computing the amount of the deduction.” Id. at *7.
The Court found that Belair did not strictly comply with the regulatory
requirement because the appraisal summary did not report the basis and the
attached letter failed to provide a sufficient explanation showing why Belair was
unable to provide that information. Id. at *11-*12. - 22 -
[*22] Belair’s tax matters partner argued that the disclosure in the return had
substantially complied because Belair’s cost basis in the conservation easement
could be effectively derived from several attachments to its partnership tax return:
(1) a Schedule L, Balance Sheets per Books; (2) a Schedule M-1, Reconciliation
of Income (Loss) Per Books With Income (Loss) Per Return; (3) a section 743(b)
election and calculation sheet; and (4) the attached appraisal. Id. at *19. We
rejected the tax matters partner’s argument because supplying the cost or adjusted
basis on the appraisal summary goes directly to the essence of statute. Id. at
*15-*16 (citing Bond v. Commissioner, 100 T.C. at 41).
Petitioners contend that attaching the full appraisal to their return provided
the necessary information such that they substantially complied. We are not
swayed. While it may have been possible for the Commissioner to glean sufficient
information from the purchase price and tax information listed in the appraisal,
that does nothing to change the fact that Congress specifically passed DEFRA’s
heightened substantiation requirements so that the Commissioner could efficiently
flag properties for overvaluation from the face of appraisal summaries. In so
doing, Congress wanted precisely to prevent the Commissioner from having to
sleuth through the footnotes of millions of returns. “The IRS reviews millions of
returns each year for audit potential, and the disclosure of cost basis on the Form - 23 -
[*23] 8283 itself is necessary to make this process manageable. Revenue agents
cannot be required to sift through dozens or hundreds of pages of complex returns
looking for clues about what the taxpayer’s cost basis might be.” Belair Woods,
LLC v. Commissioner, at *20. “If cost basis is not explicitly disclosed where it is
required to be disclosed, the Commissioner will be handicapped in identifying
suspicious charitable deductions and deterring taxpayers from ‘continu[ing] to
play the “audit lottery.”’” Id. (quoting S. Prt. No. 98-169 (Vol. 1), at 444 (1984)).
That is why we ruled as we did in RERI and Belair Woods and why we rule as we
do now.
To reflect the foregoing, respondent’s motion for summary judgment will be
granted.
An appropriate order and
decision will be entered.