Duane Pankratz v. Comm., TCM 2021-26

In 2008, Duane Pankratz donated his interests in four oil and gas projects, valued at $2 million, to Missionary Church, Inc. and made a large noncash donation of 5.78 acres for road and utility improvements, valued at $1,513,146, to the Church’s Rapid City, South Dakota, campus. In 2009, he donated a conference center to Keystone Project, Inc., another religious organization, leaving the fair market value blank.

The issue before the court. The Form 8283 that Duane Pankratz used stated in plain language on its face that an appraisal is generally required to be attached for donated property worth more than $500,000. Mr. Pankratz didn’t attach appraisals to his returns. The main question presented to the court was whether the failure to attach appraisals can be due to reasonable cause when a taxpayer admits that he did not review his tax returns before filing.

Strangely, Mr. Pankratz conceded that he did not attach a qualified appraisal to his tax returns of either his oil and gas interests, his land, or the conference center. Do we have to go farther? Maybe. Mr. Pankratz argued that he had “reasonable cause” for the position he took on his return because he reasonably relied on a certified public accountant and his oldest employee’s advice. The court found this employee was not a competent tax adviser and his experience was not enough to make him competent to prepare a large and complex tax return. The same was held for the CPA.

To make matters worse, the court found that Mr. Pankratz failed to actively review Form 8283 because the form clearly mentioned that an appraisal was generally required for the donated property. What did Mr. Pankratz do? Mr. Pankratz signed the tax return without the appraisal.

Argument. Section B of Form 8283 has to be completed when a taxpayer donates property worth more than $5,000. The top of section B tells taxpayers that appraisals are generally required for properties that they list. Part I notes again that for deductions of more than $500,000 “you must attach a qualified appraisal of the property.” Question 5(c) asks for the “[a]ppraised fair market value.” Part III is a declaration of an appraiser—and requires the signature of the appraiser used for the listed properties in Part I.

The court sarcastically stated: “We think that four mentions of “appraisal,” “appraiser,” or “appraised” on one page of the form is pretty good notice that substantial noncash donations need to be backed up by an appraisal.” Yet despite all these warning signals, Mr. Pankratz never had a professional appraisal performed or attached one to either his 2008 or 2009 return for any of the large noncash charitable donations that he claimed.

No appraisal, no deduction. Duane Pankratz was denied charitable contribution deductions. In addition, Pankratz substantially understated his tax for both tax years at issue. He argued that he had reasonable cause and acted in good faith in taking the erroneous tax return position. Pankratz lacked reasonable cause for omission of appraisals resulting in penalties being imposed on the disallowed charitable deductions.