Friedberg v. Commissioner (Friedberg II)

U.S. Tax Court, T.C. Memo. 2013-224, September 23, 2013: Appraisal deemed “qualified” on reconsideration, based on Scheidelman II decision.

 This case is a reconsideration of the Tax Court’s decision in Friedberg v. Commissioner, T.C. Memo. 2011- 238 (Friedberg I) in light of the US 2nd Circuit Court of Appeals decision in Scheidelman v. Commissioner, 682 F.3d 189 (2d Cir. 2012) (Scheidelman II). In Friedberg I the Tax Court held that the appraisal by Michael Ehrmann submitted by the taxpayer to substantiate their claim for a deduction was not a “qualified appraisal” as to the donated façade easement, while there remained issues of material fact that prevented the court from deciding (on summary judgment) whether it was a qualified appraisal as to donated development rights.

 On reconsideration, the court decided that the Ehrmann appraisal was indeed a qualified appraisal both as to the façade easement and the development rights. The court understood Scheidelman II to hold that the requirement of Income Tax Regs. section 1.170A-13(c)(3)(ii)(K), is fulfilled if the appraiser’s analysis is present, even if the IRS Commissioner deems it to be unconvincing (Scheidelman II, 682 F.3d at 198) and that any evaluation of the appraisal’s accuracy is irrelevant for purposes of deciding whether the appraisal is qualified pursuant to Income Tax Regs. section 1.170A-13(c)(3)(ii)(J).

 The court found that regardless of whatever doubts it had about the value of the appraisal, the appraisal nevertheless provides sufficient information to enable the IRS to evaluate the appraiser’s methodology and to conclude that it states a method of valuation as required by section 1.170A-13(c)(3)(ii)(J), and a specific basis for valuation as required by section 1.170A-13(c)(3)(ii)(K).

 The IRS also tried to challenge the appraisal of development rights on the basis of the appraiser’s testimony (post-Friedberg I) that he told the petitioner he had never appraised development rights before doing so for the petitioner. The court rejected that challenge. It said that under the plain language of the Regulation in effect at the time the relevant tax return was filed, section 1.170A-13(c)(5), (the relevant section now being section 170(f)(11)(E)(ii)), an appraiser is a qualified appraiser based on whether “he or she makes the requisite declaration that he or she is qualified to appraise the value of the contributed property,” not based on what the IRS thinks of the appraiser’s education, experience, or other characteristics.

 A trial will still be necessary to determine whether the valuations in the appraisal justify the tax deduction claimed by Friedberg.

 Decision available at http://www.ustaxcourt.gov/InOpHistoric/FRIEDBERGMemo.Wells.TCM.WPD.pdf.

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