James Tarpey v. US, CA-9, Doc. No. 22-35208
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Tax Shelter Promoter Penalties Applied Because Of Faulty Appraisals (James Tarpey v. US, CA-9, Doc. No. 22-35208 (Aug. 17, 2023))
James Tarpey, a lawyer, and businessman, formed Project Philanthropy, Inc. d/b/a/ Donate for a Cause (“DFC”) around 2006. DFC facilitated the donation of timeshares for timeshare owners who no longer wanted to pay timeshare fees or otherwise wanted to dispose of their timeshare properties. Tarpey promised potential customers that they could receive generous tax savings from donating their unwanted timeshares to DFC. Tarpey himself appraised the value of some of the properties donated to DFC, and other properties were appraised by his sister, Suzanne Tarpey, and real property appraisers Ron Broyles and Curt Thor.
Tax shelter promoter penalty. 26 U.S.C. §6700 imposes a penalty on promoters and others involved in the organization or sale of tax shelters if they make false statements or exaggerate valuation, in this case, in the form of timeshare appraisals. The Ninth Circuit Court of Appeals upheld the district court’s determination on summary judgment that taxpayer was liable for the appraisals of Broyles and Thor because, as a matter of law, taxpayer knew or had reason to know Broyles and Thor were disqualified as appraisers under the Treasury regulations, and taxpayer forfeited his argument on appeal that he was unaware the appraisals would be imputed to DFC.
Disqualified appraisers. Taxpayers must obtain a “qualified appraisal” of property if a donation of that property results in a claimed deduction of more than $5,000. The Treasury regulations disqualify as an appraiser (i) the donee of the property, (ii) persons related to the donee, and (iii) persons used by the donee whose appraisal practice is not sufficiently diversified by performing the majority of their appraisals for persons other than the donee. (§1.170A-13(c)(5)(iv)(C), (E), (F)). The Appeals Court agreed with the district court that “Tarpey constitutes the donee,” Tarpey and DFC are “related,” and Tarpey, his sister, Broyles, and Thor were all disqualified pursuant to the last exclusion because they did not perform a majority of their appraisals for persons other than DFC.