Gemperle v. Commissioner

U.S. Tax Court, T.C. Memo. 2016-1, January 4, 2016: No preservation easement tax deduction unless appraisal filed with tax return.

Gemperle, the taxpayer (petitioner), claimed a federal income tax deduction for 2007 and 2008 for the contribution of a historic preservation easement on the façade of a Chicago home. Contrary to the requirements of the Internal Revenue Code and Treasury Regulations, they did not submit an appraisal (qualified or otherwise) with their tax return even though they claimed a deduction in excess of $5,000. The IRS denied their deduction based on several grounds including the failure to file a qualified appraisal.

At the tax court, the taxpayers represented themselves. They and IRS agreed that no qualified appraisal was filed with the return. Accordingly, the court agreed that the IRS was right to deny the claimed deductions. The court therefore did not discuss the alternative denial grounds asserted by the IRS.

The court also agreed with the IRS that a 40% substantial valuation misstatement penalty should be imposed. The court first found that a 20% accuracy related penalty under Code section 6662(a) on the whole of the underpayments was appropriate because the failure to file a qualified appraisal was at least a careless, if not reckless, disregard of the Code and Regulations. The court said the Gemperles did not present evidence on which they might have based a Good Faith Defense of adequate disclosure of their position or reasonable cause for the resulting underpayments acting in good faith. The court went on to find that the taxpayers’ claimed valuation of the easement was more than 200% of the amount determined to be the correct valuation (based on admissible evidence), and thus the claimed deduction triggered the 40% gross valuation misstatement penalties under Code section 6662(e)(1)(A) and (h). The court therefore agreed with the IRS and imposed the 40% penalty.

The decision is available at http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=10668.

Thanks to Jess Phelps for bringing this to my attention.

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