CCH Tax Day Report
A limited liability company (LLC) was entitled to a charitable contribution deduction for the discounted sale of real property. The taxpayer purchased land it intended to develop into residential lots, in the vicinity of a major dam near Phoenix, Arizona. After encountering difficulties in obtaining access to the land due to concerns by the local flood control district, the taxpayer reached an agreement to sell the land to the flood control district for price based on an appraisal that concededly undervalued the land. The LLC would then deduct the difference between the sale price and the “true” appraised value of the land, as a charitable contribution. The IRS determined that the appraisals at issue (two were submitted with the taxpayer’s return, and a third appraisal, with the highest amount, was introduced at trial) were not “qualified appraisals” under Reg. §1.170A-13(c), and disallowed the claimed deduction in its entirety.
The taxpayer submitted a qualified appraisal that substantially complied with the regulations. It complied with Reg. §1.170A-1(c)(5)(iii) by including one of the two appraisers’ signatures on Form 8283, Noncash Charitable Contributions. The description of the property by address and characteristics was sufficient to strictly comply with Reg. §1.170A-13(c)(3)(ii)(A). The wording in the appraisal report that it was conducted to value the property for “filing with the IRS” complied, substantially if not strictly, with the requirement under Reg. §1.170A-13(c)(3)(ii)(G) that the report state that it is being filed for income tax purposes. A difference between the dates of valuation and contribution of between 11 and 21 days, absent any significant events affecting the land, substantially complied with Reg. §1.170A-13(c)(3)(ii)(I). The appraisal report’s definition of fair market value substantially complied with Reg. §1.170A-1(c)(2).
The court accepted the valuation of the property contained in the final appraisal submitted at trial. Contrary to the determination of the IRS appraiser, the taxpayer had access to the property through both an implied and an express easement, as well as a strong claim to access through other means. After a lengthy analysis of the valuations submitted by both parties, the court concluded that the IRS’s appraiser made several unreasonable assumptions, while the taxpayer’s trial appraisal was “entirely reasonable.” The higher value determined in the trial appraisal was therefore adopted.
Cave Buttes, L.L.C., 147 TC —, No. 10, Dec. 60,700
Code Sec. 170
CCH Reference – 2016FED ¶11,660.555
CCH Reference – 2016FED ¶11,700.10
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CCH Reference – TRC INDIV: 51,458