Government's Statements About Easements Appraiser Held Not Return Information Disclosures

Date01 November 2020
Published date01 November 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
securities were “exclusively owned and controlled” by
the fund and that the fund “maintains full discretion” as
to subsequent sale of the securities. Shortly after each
contribution, the fund redeemed the securities for cash.
The IRS took the position that these transactions
should be treated in substance as a taxable redemption of
the securities by the donor, followed by a charitable con-
tribution of the redemption proceeds, and sought pen-
alties. The US Tax Court disagreed with the government,
by decision dated September 3, observing that the donor
“sought the tax advantages of donating appreciated
property rather than cash proceeds” (Dickinson v. Com-
missioner). Indeed, the court proclaimed that “[d]onating
appreciated property to a charity allows the taxpayer to
avoid paying tax that would arise if the taxpayer instead
sold the property and donated the cash proceeds.”
The court respected the form of these transactions.
First, the court found that the donor contributed the prop-
erty “absolutely” and parted with title to it. This finding
was based on the text of the letters. The government’s
effort to “make much” of the fund’s redemption policy
was dismissed by the court, which wrote that a “pre-
existing understanding among the parties that the donee
would redeem donated stock does not convert a post-
donation redemption into a predonation redemption.”
Second, the court held that the donor made the
contributions before the securities gave rise to income
by way of sale, thus avoiding application of the assign-
ment-of-income doctrine. The court explained that
“[w]here a donee redeems shares shortly after a dona-
tion, the assignment of income doctrine applies only if
the redemption was practically certain to occur at the
time of the gift, and would have occurred whether the
shareholder made the gift or not.” [3.1(i)]
Commentary: This opinion makes it clear (although
no additional clarity was needed) that transfers into
donor-advised funds are authentic contributions. DAF
critics clamor that these transfers are not really gifts
because the donor retains the ability to advise as to sub-
sequent grantmaking and/or investment. This argument
fails because exclusive right, title, and interest to and in
the contributed property are transferred to the sponsor-
ing organization. Period.
The IRS granted recognition of tax-exempt status as
a charitable entity to an organization, only to, years
later, revoke that status. The IRS initially determined this
organization was exempt because it provided funding
of funeral costs for members of a charitable class —
namely, families of deceased seniors. A subsequent IRS
examination led to the agency’s conclusion that this
entity’s actual operations differed from its initial rep-
resentations in significant ways, in that it was not serving
a charitable class (it assisted merely its members), it was
operating in a commercial manner (it charged fees), and
it is serving private interests (rather than providing bene-
fits to the community).
The US Tax Court, by decision dated September 9,
agreed with the IRS, writing that the organization’s “pri-
mary activity was not directed towards meeting the spe-
cial needs of the charitable class, the elderly, by relieving
distress or providing a community benefit,” but instead
provided benefits only to its dues-paying members (The
Korean-American Senior Mutual Association, Inc. v.
Commissioner). Moreover, the “amount of the burial
payment was calculated on the basis of the number
of years the deceased member had paid the other fees
rather than the inability of the deceased member to pay
burial expenses.”
The court also rejected the organization’s argument
that the IRS should be equitably estopped from revoking
its tax-exempt status. The court stated that the IRS’s
decision to recognize this exemption at the outset was a
“mistake of law” by the IRS and held that the doctrine
of equitable estoppel does not prevent the IRS from cor-
recting these mistakes. [27.3]
In connection with one of the high-profile syndi-
cated conservation-easement transactions cases being
litigated (United States v. Zak (see the February 2020
issue)), an individual who is accused of providing false
(read, inflated) appraisals for clients in the case filed a
counterclaim alleging that the United States improperly
disclosed his tax return information (in violation of IRC
§ 6103). The ostensible impermissible disclosures were
made by IRS and Justice Department officials in press re-
leases, in other comments to the media, and at speaking
The US District Court for the Southern District of
Georgia, on August 26, dismissed this claim without
prejudice, relying largely on an exemption concerning
data that cannot be associated with, or otherwise iden-
tify, a particular taxpayer (IRC § 6103(b)(2)). Also, certain
information may be revealed where the disclosure is nec-
essary in obtaining information not otherwise reasonably
available (IRC § 6103(k)(6)). The court concluded that

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