Mart D. Green et al. v. Commissioner; No. 19634-19

THE DAVID AND BARBARA GREEN 1993 DYNASTY TRUST, MART D. GREEN, TRUSTEE, ET AL. Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

UNITED STATES TAX COURT

MEMORANDUM OF LAW IN SUPPORT OF RESPONDENT'S OBJECTION TO PETITIONERS' MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING FORM 8283

DRITA TONUZI

Deputy Chief Counsel (Operations)

Internal Revenue Service

OF COUNSEL:

ROBIN L. GREENHOUSE

Division Counsel

(Large Business & International)

JOHN M. ALTMAN

National Strategic Litigation Counsel (LB&I)

NASEEM J. KHAN

Strategic Litigation Counsel (LB&I)

CONTENTS

PRELIMINARY STATEMENT

RESPONDENT'S RESPONSES TO PETITIONERS' RESPONSES TO RESPONDENT'S STATEMENT OF MATERIAL FACTS

RESPONDENT'S RESPONSES TO PETITIONERS' ADDITIONAL FACTS

ARGUMENT

I. The 2011 and 2012 Forms 8283 did not comply with DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii).

A. The 2011 Form 8283 and the 2012 Form 8283 do not comply with substantiation requirements because an aggregate basis, a range of dates of acquisition, and aggregate fair market values is not permitted even if items are similar items of property pursuant to Treas. Reg. § 1.170A-13(c)(7)(iii).

B. Substantial compliance is inapplicable here, but even if it were, petitioners have failed to substantially comply.

C. The 2012 Form 8283 failed to include the signature of the appraisers that described and determined the value of artifacts contributed by HLSI.

II. The S Corporation's taxes are part of petitioners' shareholder-level proceeding and the Court has jurisdiction to see if the S Corporation has the documentation required for a charitable contribution.

A. Charitable deductions claimed by shareholders of a passthrough entity are properly disallowed at the shareholder level.

B. DEFRA and the Treasury Regulations apply to ESBT shareholders in this case because the deduction was flowed-through from the S-Corporation.

III. Petitioners' Reasonable Cause Defense

A. DEFRA does not have a Reasonable Cause Defense.

B. Evidence produced by petitioners does not support a finding of reasonable cause as a matter of law.

1. HLSI did not rely on professional advice.

2. HLSI did not provide necessary and accurate information to a tax professional.

CONCLUSION

CITATIONS

Cases

Alii v. Commissioner, T.C. Memo. 2014-15

Bond v. Commissioner, 100 T.C. 32 (1993)

Cave Buttes, LLC v. Commissioner, 147 T.C. 338 (2016)

Chiarelli v. Commissioner, T.C. Memo. 2021-27

Crimi v. Commissioner, T.C. Memo. 2013-51

Dunn v. Commissioner, T.C. Memo. 2010-198

Estate of Chamberlain v. Commissioner, T.C. Memo. 1999-181

Estate of Clause v. Commissioner, 122 T.C. 115, 122 (2004)

Estate of Evenchik v. Commissioner, T.C. Memo. 2013-34

Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974)

Hewitt v. Commissioner, 109 T.C. 258 (1997), aff'd, 166 F.3d 332 (4th Cir. 1998) (per curium)

Isaacs v. Commissioner, T.C. Memo. 2015-121

Klauer v. Commissioner, T.C. Memo. 2010-62

Mohamed v. Commissioner, T.C. Memo. 2012-152

Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43 (2000), aff'd, 299 F.3d 221 (3d Cir.2002)

Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24

Powell v. Commissioner, T.C. Memo. 2016-111

Presley v Commissioner, 790 Fed. Appx. 914 (10th Cir. 2019)

Prussner v. United States, 896 F.2d 218 (7th Cir. 1990)

Rogers v. Commissioner, T.C. Memo. 2018-53

Rothman v. Commissioner, T.C. Memo. 2012-218

Rovakat, LLC v. Commissioner, T.C. Memo. 2011-225

Taylor v. Commissioner, 67 T.C. 1071 (1977)

Winter v. Commissioner, 135 T.C. 238 (2010)

Woodsum v. Commissioner, 136 T.C. 585, 593 (2011)

Zarlengo v. Commissioner, T.C. Memo. 2014-161

Statutes and Treasury Regulations

§ 155(a)(1)(C) (DEFRA)

§ 170

§ 170(f)(11)(A)(ii)(II)

§ 170(f)(11)(G)

Treas. Reg. § 1.170A-13(c)(4)

Treas. Reg. § 1.170A-13(c)(5)(iii)

Treas. Reg. § 1.6664-4(c)(2)

Miscellaneous

Small Business Job Protection Act of 1996, Pub.L. 104-188

PRELIMINARY STATEMENT

On February 25, 2022, respondent filed a motion for partial summary judgment (“the Motion”) as to petitioners in these consolidated cases seeking judgment as a matter of law that the defects, either individually or collectively, in the Forms 8283 appraisal summary attached to petitioners' returns violate DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii)1 to preclude the deductibility of petitioners' respective shares of Hobby Lobby Stores, Inc.'s (HLSI) charitable contribution deduction for the taxable years ending December 31, 2011 and December 31, 2012.

On April 29, 2022, petitioners filed a motion for partial summary judgment (“the cross-motion”) objecting to the Motion and seeking judgment as a matter of law that: (1) the 2011 and 2012 Forms 8283 at issue complied with DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii); (2) DEFRA does not apply to Trust Shareholders; and (3) shareholders of the HLSI S-Corporation cannot be held responsible for the defects of the Forms 8283.

Petitioners also argue that there remains an issue of material fact as to whether petitioners had “reasonable cause” to believe that the Forms 8283 complied with DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii).

Respondent objects to petitioners' cross-motion, the reasons for which are set forth below. Furthermore, petitioners' admissions in their objection and cross-motion affirm that there remains no issue of material fact with respect to respondent's motion for partial summary judgment.

RESPONDENT'S RESPONSES TO PETITIONERS' RESPONSES TO RESPONDENT'S STATEMENT OF MATERIAL FACTS

Respondent hereby responds to petitioners' responses to respondent's statement of material facts, as follows:

1. Through 3. Petitioners admitted respondent's statement of fact.

4. Petitioners deny, in part, respondent's statement of fact that, the Dynasty Trust, the Delta Trust, and the Management Trust are collectively referred to herein as the “Trust Shareholders” for which respondent cited Stip. ¶¶ 15 through 30, relating to the David and Barbara Green 1992 Dynasty Trust, the Green Stewardship Trust f/k/a Green Management Trust, and Green Family Delta Trust. To the extent that petitioners object based on the term used to describe the three Trust petitioners as the “ESBT Shareholders” as defined in the Stip. ¶ 30 there is no objection.2

5. Petitioners deny, in part, respondent's statement of fact that, petitioners Mart D. Green and Diana K. Green and Steven T. Green and Jackie D. Green are collectively referred to herein as the “Individual Shareholders” for which respondent cited Stip. ¶¶ 31 through 33. Petitioners elaborate the definition of Individual Shareholders as defined in Stipulation ¶ 33 by further explanation contained in the Stipulation ¶¶ 31 and 32. No objection.

6. through 8. Petitioners admitted respondent's statement of fact.

9. Petitioners deny, in part and as incomplete, respondent's statement of fact that HLSI reported a charitable contribution in the combined amount of $23,038,000 on its Form 1120S for tax year 2011 for the transfer of Hebrew scrolls to the MOTB (the “2011 Contribution”) for which respondent cited Stip. ¶ 35. Petitioners admit that $23,038,000 of non-cash contributions were reported for the donation of Hebrew biblical scrolls.3 Respondent continues the statement of fact that HLSI reported that it had acquired the transferred scrolls during a period from December 2009 through September 2010, at a combined cost or adjusted basis of $1,753,432 and cite to Stip. ¶ 53; Exhibit 99-J (IRS_00003315). Petitioners state that the artifacts were acquired during the period from December 2009 through December 2010 and cite to Exhibit 90-J. Respondent objects, the Form 8283 for tax year 2011 is at Exhibit 99-J (IRS_00003315) and section 5(d)A claims the date acquired by the donor as “12/09 - 9/10.” Petitioners cite further paragraphs from the parties First Stipulation of Facts to which there is no objection.

10. Petitioners deny, in part and as incomplete, respondent's statement that HLSI reported a charitable contribution in the “combined” amount of $61,633,000 on its Form 1120S for tax year 2012 for the transfer of Hebrew scrolls and ancient and medieval manuscripts to the MOTB (the “2012 Contribution”) for which respondent cited to Stip. 37. Petitioners admit that the 2012 contribution consists of $61,633,000 for the donation of Hebrew biblical scrolls and ancient and medieval transcripts but add additional qualifiers from the First Stipulation of Facts. No objection. Respondent continues the statement of fact that HLSI reported that it had acquired the transferred scrolls and manuscripts during a period from December 2008 through August 2011, at an aggregated cost or adjusted basis of $18,749,758 for which respondent cited to Stip. 58; Exhibit 101-J (IRS_00016126). Petitioner admits that the basis reported for the donation was $18,749,758 and includes additional facts from the parties' First Stipulation of Facts. No objection.4

11. Petitioners admitted respondent's statement of fact.

12. Petitioners admitted in part respondent's statement of fact and recited the facts contained in paragraph 13. Petitioners do not object to the fact that HLSI's 2011 and 2012 contributions were passed through as separately stated items to HLSI's shareholders.

13. Petitioners admitted in part respondent's statement of fact. It appears the only difference between the two statements of fact is petitioners use of the term “ESBT” shareholders compared to respondent's use of the term “Trust” shareholders. No objection.

14. Through 27. Petitioners admitted respondent's statement of fact.

28. Petitioners deny, in part, respondent's statement of fact that the 2011 Form 8283 states, in Section 5(b), as a summary of the overall physical condition of the property at the time of the gift, a “Full USPAP-compliant Self-Contained Appraisal Report attached, with individual descriptions, photos, condition reports, and FMV appraised values of each of the scrolls” for which respondent cited Exhibit 99-J at IRS_00003315. Petitioner states that Section 5(b) requests the taxpayer to “give a brief summary of the overall physical condition of the property at the time of the gift.” Respondent admits that petitioners cite to the instructions for Section 5(b) of the Form 8283, while respondent cites to what was reported by HLSI in Section 5(b) of the 2011 Form 8283. Petitioners do not object to the content of Section 5(b) as stated by respondent.

29. Petitioners deny, in part, respondent's statement of fact that the 2012 Form 8283 states, in Section 5(b) as a summary of the overall physical condition of the property at the time of the gift, a “full descriptions, photographs, and market comparables in the attached USPAP-compliant self-contained Appraisal Report” for which respondent cited Exhibit 101-J at IRS_00016126. Petitioners' state that Section 5(b) requests the taxpayer to “give a brief summary of the overall physical condition of the property at the time of the gift.” Respondent admits that petitioners cite to the instructions for Section 5(b) of Form 8283 while respondent cites to what was reported by HLSI in Section 5(b). Petitioners do not object to the content of Section 5(b) as stated by respondent.

30. Petitioners deny, in part, respondent's statement of fact that the 2011 Form 8283 also reported the “bulk” donation to the MOTB as having a “collective value” of $23,038,000 for which respondent cited Exhibit 99-J. Petitioners appear to object to respondent's use of the words “bulk” and “collective,” while petitioners do not object to the reported total fair market value for all contributed items reported on the 2011 Form 8283 as $23,038,000. No objection.

31. Petitioners deny, in part, respondent's statement of fact that all 431 biblical scrolls contributed in bulk to the MOTB as part of the 2011 Contribution had a collective basis of $1,753,432 for which respondent cited Stip. ¶ 53; Exhibit 99-J at IRS_00003315. Petitioners object to respondent's use of the words “bulk” and “collective,” while petitioners do not object to the reported basis of $1,753,432. Petitioners include additional facts in sentences four through six from the Form 8283 and the parties First Stipulation of Facts. No objection. Sentences seven through ten reference HLSI's examination that led to the issuance of the notices of deficiency. Respondent objects as it is irrelevant and immaterial. Petitioners allege facts relating to what transpired with respondent's Examination Division and Office of Appeals before the issuance of the notices of deficiency, including a referenced spreadsheet dated March 21, 2015, almost 3 years after the 2011 Form 8283 was prepared.

32. Petitioners deny respondent's statement of fact that the Limiting Conditions and Assumptions section of the 2011 Biondi Appraisal states that the appraisal “neither researched nor confirmed” title or ownership for which respondent cited Exhibit 17-J at IRS_00019581. Petitioners cite to the full paragraph from Exhibit 17-J. No objection.

33. Petitioners deny respondent's statement of fact as containing typographical errors. No objection. Petitioners expand on the use of the Wikipedia article. No objection.

34. Petitioners admitted respondent's statement of fact.

35. Petitioners deny, in part, respondent's statement of fact as containing typographical errors. No objection.

36. Petitioners deny, in part, respondent's statement of fact that the specific names, qualifications, expert reports, or any other identifying information of these “professional scholars of Hebrew, certified Rabbinical experts, Hebrew script paleographers” or “Sofer STaM Rabbis” were not included in Biondi's 2011 Appraisal. Petitioner's claim that information was provided during the examination of HLSI's tax return. Respondent objects as it is irrelevant and immaterial. Petitioners do not deny that the specific names or qualifications of the Rabbinical experts were not included in Biondi's 2011 Appraisal, rather petitioners refer to a letter dated February 10, 2014 — almost 2 years after the date of the 2011 Appraisal and filing of Form 8283.

37. Petitioners deny, in part, respondent's statement of fact that the 2012 Form 8283 also reported the bulk donation to the MOTB as having a collective value of $61,633,000 for which respondent cited Exhibit 101-J. Petitioners object to respondent's use of the words “bulk” and “collective” petitioners do not object to the reported fair market value reported on the 2012 Form 8283 as $61,633,000. No objection. Petitioners further cite to paragraphs from the parties First Stipulation of Facts. No objection.

38. Petitioners deny respondent's statement of fact that the 29 manuscripts included as part of the “over 800 artifacts” are comprised of unique items of various age and origin, that are only identified in the attached appraisal and not on the 2012 Form 8283. Petitioners cite to the Form 8283 to correct that it was not over 800 “artifacts” rather it was over 800 “Ancient and Medieval biblical manuscripts in Hebrew, Greek, Latin, and Aramaic, in [sic] printed books and bibles (1455-1782).” Respondent has no objection except to petitioners' typo. Sentences three through five refer to Mr. Biondi's appraisal as stipulated in the parties First Stipulation of Facts. No objection. Sentences six and seven. No objection. Respondent agrees that one single basis was listed on the Form 8283 for the over 800 “Ancient and Medieval biblical manuscripts in Hebrew, Greek, Latin, and Aramaic, in [sic] printed books and bibles (1455-1782).”

a. Admits. Supplements that petitioners still have not identified where the basis for the Dead Sea Scroll was reported on the Form 8283 or attached 2012 Appraisal.

b. Admits. Supplements that petitioners still have not identified where the basis for the Papyrus Bodmer XXIV was reported on the Form 8283 or attached 2012 Appraisal. Further supplements that petitioners' “spreadsheet”, Exhibit 3 at IRS_00000665 attached to the Jeffrey Williams Unsworn Declaration lists a fair market value of $9,000,000 for this artifact rather than the $9,500,000 reflected in Exhibit 83-J.

c. Admits. Supplements that petitioners still have not identified where the basis for the Codex Climaci Rescriptus was reported on the Form 8283 or attached 2012 Appraisal.

d. Admits. Supplements that petitioners still have not identified where the basis for the Foljambe Wycliffite was reported on the Form 8283 or attached 2012 Appraisal. Further supplements that petitioners' “spreadsheet”, Exhibit 3 at IRS_00000665 attached to the Jeffrey Williams Declaration lists a fair market value of $2,600,000 rather than $2,900,000 reflected in Exhibit 86-J.

e. Admits. Supplements that petitioners still have not identified where the basis for the Santa Cecilia Bible was reported on the Form 8283 or attached 2012 Appraisal.

39. Petitioners deny, in part, respondent's statement of fact. Sentences two and three. No objection. Sentences four through six. Respondent objects as it is irrelevant and immaterial. Petitioners allege facts relating to what transpired with respondent's Examination Division and Office of Appeals before the issuance of the notices of deficiency, including a referenced undated spreadsheet submitted to respondent at the same time as the March 21, 2015 spreadsheet, almost 2 years after the 2012 Form 8283 was prepared. Petitioners did not identify the basis, purchase price, or date of acquisition for each artifact that was reported on the 2012 Form 8283.

40. Petitioners deny respondent's statement of fact that Section 16 of the 2012 Biondi Appraisal includes the description and fair market value determination of 12 different printed books, fragments, or leaves. (Stip. ¶ 45.m). However, petitioners do not comment on the contents of Section 16 of the 2012 Biondi Appraisal. Sentence two. Respondent's statement of fact also references 11 artifacts to which Michael Thompson and Carol Sandberg signed an appraisal report and identified each page of the 2012 Appraisal that contains a description, value determination, and signature of Carol Sandberg and Michael Thompson. Petitioners deny these pages of the 2012 Biondi Appraisal constitute an “appraisal report.” Petitioners do not deny that the referenced portions of the 2012 Biondi Appraisal include a description of property and value determination which was signed by Michael Thompson and Carol Sandberg. Sentence three. No objection. Sentence four. Denies for lack of sufficient knowledge and as immaterial. Sentence five. No objection. Sentence six. Petitioners admit that Mr. Biondi used information gathered by Thompson and Sandberg in his Appraisal; denies the remaining allegations for lack of sufficient knowledge and as immaterial. Sentence seven. Petitioners admit that Thompson and Sandberg provided Mr. Biondi bibliographical and valuation services; respondent objects to the remaining allegations as irrelevant and immaterial. Sentences eight and nine. Denies for lack of information and as immaterial. Whether the 2012 Appraisal prepared by Mr. Biondi met USPAP or constituted a “qualified appraisal” for purposes of I.R.C. 170 is not at issue in respondent's Motion and respondent reserved the right to raise these issues at trial. Sentence ten. Denies as irrelevant and immaterial. Sentence eleven. Denies. The pages cited in respondent's Motion show that the valuations for the referenced artifacts were determined by Michael Thompson and Carol Sandberg. Sentence twelve. Denies. Whether Mr. Biondi is a “qualified appraiser” is not at issue in this motion. Sentence thirteen. Denies. Respondent accurately cited to the pages of the 2012 Biondi Appraisal where the value of the contributed property was determined by someone other than Mr. Biondi.

41. Petitioners deny respondent's statement of fact that Michael Thompson and Carol Sandberg appraised the fair market value of 11 of the 29 books and manuscripts contributed to MOTB in 2012 but did not sign the 2012 appraisal summary. (Exhibits 90-J, and 101-J). Petitioners' denial is unsupported and conflicts with their admission that Michael Thompson and Carol Sandberg provided valuations and descriptions of 11 artifacts identified in the 2012 Appraisal. Respondent further objects to the use of the terms “qualified appraisal” and “qualified appraiser.” Those terms are legal conclusions which are not the subject of respondent's Motion pending before the Court.

42. Petitioners deny respondent's statement of fact that Michael Thompson and Carol Sandberg were responsible for valuing $6,050,000 of the total claimed fair market value of artifacts contributed to MOTB but did not sign the 2012 Form 8283. (Exhibits 90-J, and 101-J). Petitioners admit that Michael Thompson and Carol Sandberg did not sign the Form 8283. Petitioners claim Thompson and Sandberg were not “responsible” for valuing “any of the items donated as part of the 2012 Contribution,” in contradiction with their admission that Thompson and Sandberg provided valuations and bibliographical property descriptions for 11 contributed items. Petitioners also claim Thompson and Sandberg's signatures were unnecessary, in conflict with the evidence cited in respondent's Motion. Petitioners' objections are immaterial to resolution of this issue. Respondent further objects to the use of the term “qualified appraisal” as that is not at issue in this Motion and respondent has not waived his right to raise the issue in this case.

43. Petitioners deny respondent's statement of fact, as written, that as with 2011 Biondi Appraisal, the 2012 Biondi Appraisal contains similar attestations in the Limiting Conditions and Assumptions section. (Exhibit 44-J at IRS_00021142-21143, disclaiming warranty as to ownership, and authenticity). Petitioners incorporate their responses in paragraphs 32 through 36. No objection except to the extent that petitioners rely on any evidence that was provided during the examination of HLSI's tax return, respondent objects as it is irrelevant and immaterial. Petitioners allege facts relating to what transpired with respondent's Examination Division and Office of Appeals before the issuance of the notices of deficiency. See Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974).

44. Petitioners deny respondent's statement of fact that in the 2012 Biondi Appraisal, Mr. Biondi similarly attests that he relied on “a variety of sources . . . assumed to be reliable and accurate;” “Expert Reports of highly qualified Hebrew scholars, the certified Rabbinical experts, and Hebrew script paleographers hired to professionally analyze and describe the scrolls;” and “Expert Reports of highly qualified professional papyrologists and their submitted papyrological reports.” (Exhibit 44-J at IRS_00021143). Petitioners quote the entirety of the paragraph. No objection.

45. Petitioners deny respondent's statement of fact as incomplete that in the Certification of the 2012 Biondi Appraisal, Mr. Biondi again states he relies on “expert certified Sofer STaM Rabbis.” (Exhibit 44-J at IRS_00021145). Petitioners do not deny this fact but add another sentence from the 2012 Appraisal. No objection.

46. Petitioners admitted respondent's statement of fact.

47. Petitioners admit the first sentence and the last sentence. Petitioners object that the values determined by Michael Thompson and Carol Sandberg were in the form of a “qualified appraisal.” Petitioners' objection is immaterial to resolution of this issue. Respondent further objects to the use of the term “qualified appraisal” as that is not at issue in this Motion.

RESPONDENT'S RESPONSES TO PETITIONERS' ADDITIONAL FACTS

48. No objection. See ¶ 1 of Respondent's facts.

49. No objection.

50. No objection.

51. No objection.

52. No objection. See ¶ 11 of Respondent's facts.

53. No objection. See ¶¶ 24 and 25 of Respondent's facts.

54. No objection.

55. No objection. See ¶ 13 of Respondent's facts.

56. No objection.

57. No objection.

58. No objection.

59. Objects as irrelevant.

60. No objection.

61. Denies. Petitioners do not define the term “responsible.” Further, this finding is inconsistent with petitioners' admission that Thompson and Sandberg provided bibliographical descriptions and valuations of 11 of the 29 books and manuscripts comprising a portion of the 2012 Contribution.

62. Denies. Mr. Thompson and Ms. Sandberg provided valuations and descriptions of 11 of the artifacts included in the 2012 Contribution, which were copied verbatim by Mr. Biondi and subsumed in his Report. See Respondent's statement of facts ¶ 40 and Exhibit A to Farrior Declaration.

63. Denies. There is no evidence of Mr. Biondi's independent review of the 11 artifacts contained in the 2012 Appraisal. See Respondent's statement of facts If ¶ 40 and the First Stipulation of Facts Exhibits 83-J, 85-J, 86-J, and 87-J. Further denies the appraisal attached to the 2011 and 2012 Forms 8283 met USPAP standards.

64. Denies for lack of sufficient information and as irrelevant and immaterial to the issues pending in these motions. Additionally, there is no evidence of Mr. Biondi's independent review of the 11 artifacts contained in the 2012 Appraisal. See Respondent's statement of facts ¶ 40 and the First Stipulation of Facts Exhibits 83-J, 85-J, 86-J, and 87-J.

65. Denies to the extent the 2012 Appraisal includes Thompson and Sandberg's value determination and description as to 11 of the 29 books and manuscripts that made up a part of the 2012 Contribution. No objection that Thompson and Sandberg did not value the other items composing the 2012 Contribution.

66. Denies to the extent this is in direct conflict with petitioners' statement of fact at paragraph 65 that Thompson and Sandberg inspected a portion of the artifacts in the 2012 Contribution.

67. Denies there is evidence that Mr. Biondi made an independent determination as to the value of the 11 artifacts contained in the 2012 Appraisal.

68. Objects as irrelevant and immaterial; Thompson and Sandberg did sign their fair market value determinations and property descriptions; they failed to sign the Form 8283.

69. Denies. The term “responsible” is not a defined term and it is not clear what petitioners mean from the fact as stated.

70. Objects as irrelevant. Petitioners allege facts relating to what transpired with respondent's Examination division and Office of Appeals before the issuance of the notices of deficiency. Petitioners impermissibly seek to “look behind the notice of deficiency,” contrary to Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974). Petitioners are required to report the basis of each item contributed on the Form 8283 or the appraisal summary. Petitioners cannot rely on an examination to comply with return reporting requirements.

71. Denies as immaterial and irrelevant.

72. Denies as immaterial and irrelevant.

73. Denies as immaterial and irrelevant.

74. Denies as immaterial and irrelevant.

ARGUMENT

Respondent's Motion asks the Court to find that the errors contained on the Form 8283 (otherwise known as the appraisal summary) do not strictly or substantially comply with DEFRA and Treasury Regulation § 1.170A-13(c)(2)(i) requiring a fully completed appraisal summary. Respondent identified several errors contained in the 2011 and 2012 Forms 8283 including: (1) petitioners reported an “aggregate” basis for the property contributed in tax years 2011 and 2012;5 (2) petitioners reported a range of acquisition dates for the property contributed in tax years 2011 and 2012; (3) petitioners reported an “aggregate” fair market value for the property contributed in tax years 2011 and 2012; and (4) two other appraisers contributed to the appraisal for the 2012 Contribution, but they did not sign the Form 8283.6

I. The 2011 and 2012 Forms 8283 did not comply with DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii).

Petitioners erroneously assert that because HLSI “obtained qualified appraisals” (which it didn't), attached a “fully completed Form 8283 appraisal summary” (which it wasn't), and the items contributed were “similar items property” (which is irrelevant), that the Forms 8283 complied with the substantiation requirements of DEFRA and Treas. Reg. § 1.170A-13(c)(2) when they reported an aggregate basis, a range of dates of acquisition, and an aggregate fair market value for the contributions. However, the law is clear: where a taxpayer has failed to provide the individual basis and date of acquisition of each item of property contributed as part of group or collection of donated items, and where there is a complete dearth of information attached to the return that would substantiate these figures, the Court should disallow the claimed deductions for failing to comply with the statutory requirements of DEFRA and regulatory requirements of Treas. Reg. § 1.170A-13(c)(2).

A. The 2011 Form 8283 and the 2012 Form 8283 do not comply with substantiation requirements because an aggregate basis, a range of dates of acquisition, and aggregate fair market values is not permitted even if items are similar items of property pursuant to Treas. Reg. § 1.170A-13(c)(7)(iii).

In 2011, HLSI reported an aggregate basis for the 431 Hebrew scrolls of $1,753,432 and an aggregate fair market value of $23,038,000 on the Form 8283. In 2012, HLSI reported an aggregated basis for over 800 artifacts of $18,749,758 and an aggregated fair market value of $61,633,000 on the Form 8283. It is undisputed that the aggregate value of the items exceeded $500 in both the 2011 and 2012 Contributions. It is also undisputed that neither Forms 8283 nor the attached Biondi Appraisals provided the basis or date of acquisition of each item of property comprising the 2011 and 2012 Contributions.

The parties agree that Treas. Reg. § 1.170A-13(c)(4)(iv)(B) states that if a donor contributes items of similar property to the same donee, a single appraisal summary may be attached. Respondent does not take issue with the attachment of a single appraisal summary. Rather, respondent takes issue with petitioners' convenient failure to address the remaining portion of Treas. Reg. § 1.170A-13(c)(4)(iv)(B) that states in the case of a single appraisal summary, the Form 8283 must still provide the information required by paragraph (c)(4)(ii) “for each item of property,” unless the items' aggregate value is appraised at $100 or less — which is not the case here. The information required by paragraph (c)(4)(ii) — which are also statutory requirements under DEFRA § 155(a)(1)(C) — includes basis and date of acquisition.

Petitioners fail to distinguish Chiarelli v. Commissioner, T.C. Memo. 2021-27 from the facts here. First, it is immaterial whether the property in Chiarelli constituted similar items of property because Treas. Reg. § 1.170A-13(c)(4)(iv)(B) provides that where the aggregate value of the property exceeds $100 — as it does here, and as it did in Chiarelli — the Form 8283 must still provide the basis and date of acquisition for each item of property.7

Second, as with the taxpayer in Chiarelli, HLSI claimed an aggregated basis in the donated property but provided no information as to how it determined this figure. HLSI also provided a range of dates of acquisition, but again, provided no information as to the specific month and year of acquisition of each item comprising the 2011 and 2012 Contributions. Petitioners attempt to distinguish providing a range of dates on the Form 8283, as they did, and simply writing “various,” as the taxpayer did in Chiarelli. These entries are functionally equivalent and provide no assistance to respondent where there is no information attached to the return to support or corroborate the information contained in the appraisal summary as to each item of donated property. As in Chiarelli, petitioners here do not have any written records attached to the return to substantiate the aggregate basis figure or the range of dates of acquisition reflected on the Forms 8283. Neither the 2011 nor 2012 Biondi Appraisals contained any information regarding basis and dates of acquisition. Furthermore, petitioners cannot rely on information provided to Exam and Appeals more than three years after the returns were filed to satisfy their substantiation requirements under the statute and regulations. See Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24 at *15. Finally, petitioners have not cited any support for the aggregate reporting used on the 2011 and 2012 Forms 8283.

Petitioners argue that HLSI provided the cost basis information on the 2011 and 2012 Forms 8283, and that the IRS had the information it needed to decide whether to commence an examination and indeed did commence an examination — thus satisfying their obligations under the statute and regulations. However, petitioners fail to appreciate the importance of the particular facts of this case which are undisputed: that the number of individually contributed items in 2011 was over 400; in 2012, over 800; that hiding within those over 400 items in 2011 were 27 items alleged to have fair market values of over $100,000; and in 2012, among those 800 artifacts were significant items with purported values of over $8 million dollars; that also among those contributed artifacts were items determined to be worthless. Aggregating basis and fair market values on the Form 8283 without providing the individual basis and date of acquisition of each contributed item enables taxpayers to effectively hide high-value artifacts amongst otherwise worthless ones and results in potential overvaluations going undetected. Further, where there is no additional information attached to the return to substantiate those figures from the appraisal summary for each item contributed, the deduction must be disallowed for failing to comply with DEFRA and the Treasury Regulations.

B. Substantial compliance is inapplicable here, but even if it were, petitioners have failed to substantially comply.

In this case, the 2011 Form 8283 and the 2012 Form 8283 are defective for multiple reasons: (1) an aggregated basis was reported; (2) a range of dates are reported as the acquisition date; (3) an aggregated fair market value is reported; and (4) as to the 2012 Contribution, not all the appraisers who contributed to the 2012 Appraisal signed the Form 8283. Petitioners attempt to rely on the doctrine of substantial compliance to claim that the 2011 and 2012 Forms 8283 should be accepted despite any defects.

Section 170(f)(11) mandates that no deduction shall be allowed under I.R.C. § 170(a) for any contribution of property for which a deduction of more than $500 is claimed unless the taxpayer meets the substantiation requirements with respect to such contribution. Certain categories of information require strict compliance with the substantiation requirements found in Treas. Reg. § 1.170A-13(c). See Taylor v. Commissioner, 67 T.C. 1071 (1977). Furthermore, the Tenth Circuit, to which these cases would be appealed, has not decided whether the doctrine of substantial compliance remains viable. Presley v Commissioner, 790 Fed. Appx. 914, 992 (10th Cir. 2019).

The substantial compliance doctrine should not be liberally applied. Mohamed v. Commissioner, T.C. Memo. 2012-152 (“[T]he problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions[.]”); see also Prussner v. United States, 896 F.2d 218, 224 (7th Cir. 1990) (the substantial compliance doctrine “should be interpreted narrowly * * * [and] should not be allowed to spread beyond cases in which the taxpayer had a good excuse (though not a legal justification) for failing to comply with either an unimportant requirement or one unclearly or confusingly stated in the regulations or the statute”). The defects at issue here — basis, date of acquisition, fair market value — are neither unimportant nor confusingly stated in the regulations or statute. They are essential elements of DEFRA. As respondent stated in its Motion, these are not discretionary categories of information which respondent chose to require for administrative convenience. Oakhill Woods, T.C. Memo. 2020-24, at *18 (citing Estate of Evenchik v. Commissioner, T.C. Memo. 2013-34, (quoting Estate of Clause v. Commissioner, 122 T.C. 115, 122 (2004)).

Petitioners argue that they substantially complied with the statute and regulations by supplying aggregate basis and fair market values and providing a range of dates of acquisition. However, these are the same critical errors present in Chiarelli where the Court disallowed the taxpayer's charitable deduction. Chiarelli v. Commissioner, T.C. Memo. 2021-27 at *17-19. In support of their argument, petitioners lean heavily on Bond v. Commissioner, 100 T.C. 32 (1993). In Bond, the Court expressed the view that the reporting requirements of Treas. Reg. § 1.170A-13 “do not relate to the substance or essence of whether or not a charitable contribution was actually made,” and therefore concluded “that the reporting requirements are directory and not mandatory.” Bond, 100 T.C. at 41. However, the only substantiation requirement the Bond taxpayers failed to comply with in that case was to provide the appraiser's qualifications. Id. at 41-42. Substantial compliance cannot be applied if to do so would defeat the policies of the underlying statutory provisions, as here, where the information required goes to essential elements of the statute. See Estate of Chamberlain v. Commissioner, T.C. Memo. 1999-181.

Petitioners claim that the disparity reported between the aggregated basis and aggregate fair market value on the 2011 and 2012 Forms 8283 should be sufficient to satisfy substantially complying with the requirements of Treasury Regulation § 1.170A-13(c). They fail to cite to case law for support of this proposition. As stated above, the 2011 Form 8283 groups 431 Hebrew Scrolls together that individually have values ranging from $1,000 to $295,000 (with some potentially having zero basis).8 Further, the 2012 Form 8283 groups millions of dollars of manuscripts together with Hebrew scrolls, hiding a Dead Sea Scroll petitioners valued at $1.3 million dollars among 42 Hebrew scrolls that were given zero value. The information necessary for the 1RS to evaluate the reported charitable deductions was simply not included on either the 2011 Form 8283 or the 2012 Form 8283, nor in any of the information petitioners attached to their returns. Petitioners cannot have substantially complied where critical information such as basis and date of acquisition for each item of contributed property was entirely omitted. Also, petitioners have cited no caselaw to support their argument that so long as they didn't leave any box entirely blank on the Form 8283, that they have substantially complied with the requirements under DEFRA and the Treasury Regulations.

C. The 2012 Form 8283 failed to include the signature of the appraisers that described and determined the value of artifacts contributed by HLSI.

Petitioners argue that Thompson and Sandberg's contributions did not necessitate their signatures on the Form 8283 because their reports were not “qualified appraisals” (because they did not comply with USPAP) and were instead incorporated in Mr. Biondi's report and adopted by him. Petitioners attempt to create a dispute fails. These facts are immaterial, and these issues are not currently before the Court.

Most damaging to petitioners' argument is the undisputed fact that Thompson and Sandberg indeed signed the valuation determinations contained in Biondi's 2012 Appraisal. The regulation and instructions to the Form 8283 are clear: where one or more appraisers contribute to a single appraisal, all must sign the appraisal summary. The issue is not whether Thompson and Sandberg were “qualified appraisers” or provided a “qualified appraisal” in their own right; the issue is whether they contributed to the appraisal provided to HLSI by Mr. Biondi. And it is undisputed that they did.

Petitioners do not dispute that Thompson and Sandberg provided valuation and bibliographical descriptions of 11 of the 29 donated books and manuscripts comprising a portion of the 2012 Contribution. They also do not dispute that these items were appraised for a total value of over $6 million — i.e. not a de minimis contribution. Therefore, there is no reasonable dispute that Thompson and Sandberg contributed to the 2012 Biondi Appraisal, and moreover, that the nature of their contributions — consisting of valuations and property descriptions — was not merely clerical. See Zarlengo v. Commissioner, T.C. Memo. 2014-161, at *41 (expressing that the nature of the contribution would dictate whether the additional appraisers were required to sign the Form 8283 and finding for the taxpayer because there was “no indication in the record that any of the figures in the appraisal report were [the other appraiser's”]).

The issue raised in respondent's Motion is that the 2012 Biondi Appraisal contained valuation determinations and property descriptions by contributing appraisers who did not sign the Form 8283. These descriptions and valuations were copied verbatim. The pages containing the property descriptions, valuations, and signatures of the appraisers, were buried within Biondi's voluminous 2012 Appraisal. Petitioners argue that Mr. Biondi's use of the values determined by Thompson and Sandberg were his own determinations. First, this is not supported by anything in the 2012 Appraisal. Second, it is immaterial whether Mr. Biondi conducted essentially a proofreading of Thompson and Sandberg's values and descriptions, and petitioners have cited to no authority to support that Biondi's purported action with respect to these 11 outsourced valuations displaces the clear language of Treas. Reg. § 1.170A-13(c)(5)(iii).

Petitioners' reliance on USPAP rules to support their position does not obviate the requirements contained in Treasury Regulations. Petitioners attempt to cite Zarlengo v. Commissioner, T.C. Memo. 2014-161 as an opinion to be used in petitioners' favor as the adoption of facts by the signing appraiser. Petitioners' Brief P. 31. However, petitioners' analysis omits a significant factor in the Court's determination: namely, that in Zarlengo there was no indication in the record that any of the figures in the appraisal report were that of the second appraiser. Zarlengo, at * 41. Here, there is clear evidence that Thompson and Sandberg made a determination as to value and signed a report, analysis, statement, letter (however the petitioners would like to phrase it) to attest to that value. Petitioners concede this fact. Petitioners' Brief P. 33.

Petitioners further argue that Cave Buttes, LLC v. Commissioner, 147 T.C. 338 (2016) also points to the conclusion that there remains taxpayer confusion with respect to which appraisers should sign the Form 8283. However, as pointed out by petitioners, the instructions as to the number of appraisers that need to sign the Form 8283 was updated in 2012. Petitioners' Brief P. 32. Accordingly, the confusion was cleared up by 2013 when petitioners filed the returns for tax year 2012.

II. The S Corporation's taxes are part of petitioners' shareholder-level proceeding and the Court has jurisdiction to see if the S Corporation has the documentation required for a charitable contribution.

Petitioners cross-moved for summary judgment in their response to respondent's Motion and argue that neither DEFRA nor the Treasury Regulations apply to the three ESBT Shareholders and that the substantiation requirements of the Forms 8283 attached to the S-Corporation's returns are not properly at issue in a case brought by the S-Corporation's shareholders. These arguments are both legally incorrect.

A. Charitable deductions claimed by shareholders of a passthrough entity are properly disallowed at the shareholder level.

Generally, an S corporation is not subject to tax at the corporate level. I.R.C. § 1363(a). Rather, pursuant to section 1366(a), the S corporation's income or loss flows through to its shareholders and is taxed at the shareholder level. Certain items of income, loss, deduction, or credit flow through separately to the shareholders, I.R.C. § 1366(a)(1)(A), whereas others are included in the S Corporation's non-separately computed income or loss, which in turn flows through to the shareholders, I.R.C. § 1366(a)(1)(B). Deductions for charitable contributions pursuant to section 170 flow through separately to the shareholders, see I.R.C. § 1366(a)(1), and are not allowed to the S corporation, see I.R.C. § 1363(b)(2).

Congress originally included S corporations in the TEFRA unified audit procedures but eliminated them in 1996 when they adopted section 6037(c) in the Small Business Job Protection Act of 1996, Pub.L. 104-188, sec. 1307(c), 110 Stat. 1781. Congress determined S corporations should not be treated the same as partnerships in adding section 6037(c). It is inconsistent with this legislative history to presume that Congress intended to eliminate S corporation items from the deficiency jurisdiction of this Court involving shareholders, because there is no provision for a separate judicial determination of the reported item in the case of an S corporation. See Winter v. Commissioner, 135 T.C. 238 (2010).

There is a long history of caselaw that supports this Court's jurisdiction over substantiation of a S Corporation's tax compliance issues by requiring the shareholders, rather than the entity, to show they meet the substantiation requirements. See Klauer v. Commissioner, T.C. Memo. 2010-62 (taxpayer must satisfy certain requirements for charitable contribution under Section 170); Rogers v. Commissioner, T.C. Memo. 2018-53 (taxpayer failed to substantiate travel expenses relating to S Corporation); Powell v. Commissioner, T.C. Memo. 2016111 (taxpayer is subject to strict substantiation requirements for S Corporation's deduction of vehicle expenses); Isaacs v. Commissioner, T.C. Memo. 2015-121 (taxpayer bore the burden of proof on substantiation of S Corporation's expenses); Dunn v. Commissioner, T.C. Memo. 2010-198 (taxpayer bore the burden of proof with respect to income liability arising from S Corporation.) The HLSI S-Corporation was the subject of the audit, out of which the Notices of Deficiency were issued to the shareholders in these cases. HLSI's compliance with the substantiation requirements of I.R.C. § 170, including the qualified appraisal requirements which are the subject of respondent's Motion, are properly determined at the shareholder level.

B. DEFRA and the Treasury Regulations apply to ESBT shareholders in this case because the deduction was flowed-through from the S-Corporation.

Petitioners' argument that the language of the statute and regulations fails to explicitly list Trusts, and therefore excuses the Trust shareholders from the requirements of the statute and regulations, is meritless.9 I.R.C. § 170(f)(11)(G) provides that “[i]n the case of a partnership or S corporation, * * * [the qualified appraisal and other documentation requirements] shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.” This gives the Court jurisdiction in the partner/shareholder cases to consider whether the partnership/S Corporation has satisfied the substantiation requirements. See also Alii v. Commissioner, T.C. Memo. 2014-15. Accordingly, the shareholders, both individual and Trusts, have the burden to prove that HLSI complied with the regulations and substantiation requirements for the charitable contributions claimed on the HLSI S Corporation's return for tax years 2011 and 2012.

III. Petitioners' Reasonable Cause Defense

Petitioners claim that any failure to report the specific bases, dates acquired, fair market values for each item of contributed property, and all relevant signatures on the Form 8283 is due to reasonable cause, and thus their deductions should not be disallowed pursuant to Section 170(f)(11)(A)(ii)(II). Petitioners are wrong that they are entitled to avail themselves of this defense.

In Oakhill, this Court explained that “the formulation of the section 170(f)(11)(A)(ii)(II) defense — referring to the existence of “reasonable cause” and the absence of “willful neglect” — resembles that appearing in numerous Code provisions that impose penalties or additions to tax.” Oakhill Woods, LLC v. Commissioner, 119 T.C. Memo. 1144 (2020) (citing, e.g., secs. 6039G(c) (flush language), 6704(c)(1), 6652(f)-(j), 6709(c)). “Code provisions generally are to be interpreted so congressional use of the same words indicates an intent to have the same meaning apply.” Elec. Arts, Inc., 118 T.C. at 241. Thus, “although the section 170(f)(11)(A)(ii)(II) 'reasonable cause' defense relieves the taxpayer from disallowance of a deduction rather than from imposition of a penalty, we have construed these defenses similarly.” Id. (citing Alii, 107 T.C. Memo, at 1096; Crimi v. Commissioner, T.C. Memo. 2013-51 at 1353.

A. DEFRA does not have a Reasonable Cause Defense.

The defects of petitioners' Forms 8283 for tax years 2011 and 2012 are all elements required by Congress in DEFRA. While the requirements of DEFRA § 155(a) were not codified in I.R.C. § 170, Congress intended these requirements to deter taxpayers from claiming excessive deductions for charitable contributions by requiring them to disclose on their return information that would alert the Commissioner to a potential overvaluation. S. Prt. No. 98-169, Vol. 1, at 444-445 (Comm. Print 1984); Staff of S. Comm, on Finance, 98th Cong., Deficit Reduction Act of 1984, Explanation of Provisions Approved by the Committee on March 21, 1984, vol. I, at 444; Hewitt v. Commissioner, 109 T.C. 258, 264 & 265 (1997), aff'd, 166 F.3d 332 (4th Cir. 1998) (per curium). Further, Congress intended that the failure to comply with the substantiation requirements it mandated would result in the disallowance of the claimed deduction. Id. DEFRA does not contain a reasonable cause defense; it requires strict compliance.

While Congress subsequently enacted the AJCA and added to the Code section 170(f)(11), which included, in subparagraph (A)(ii)(II), a new “reasonable cause” defense for failure to obtain a qualified appraisal and “a description of such property and such information as the Secretary may require,” it did not negate the strict compliance elements at issue as required by Congress in DEFRA.

B. Evidence produced by petitioners does not support a finding of reasonable cause as a matter of law.

If the Court finds that the reasonable cause exception of Section 170(f)(11)(A)(ii)(II) is available for the multiple failures to comply with DEFRA, the evidence does not show that petitioners meet the elements of reasonable cause.

Generally, if a taxpayer-donor claimed a deduction for a charitable gift of property worth more than $500,000 but failed to comply with the reporting requirements included in section 170 on its return, the deduction would not be disallowed if the taxpayer could show the failure was “due to reasonable cause and not willful neglect.” Section 170(f)(11)(A)(ii)(II). Likening the definition of reasonable cause to the familiar language in Treasury Regulations § 1.6664-4, this Court has explained that “reasonable cause requires that the taxpayer have exercised ordinary business care and prudence as to the challenged item.” Oakhill, 119 T.C. Memo. 1144 (2020) (citing Crimi, 105 T.C.M. (CCH) at 1353 (citing United States v. Boyle, 469 U.S. 241 (1985)). “The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances.” Oakhill, 119 T.C. Memo. 1144 (2020) (citing Treas. Reg. §1.6664-4(b)(1)).

A taxpayer's reliance on the advice of a professional, such as a certified public accountant, would constitute reasonable cause and good faith if the taxpayer could prove by a preponderance of the evidence that: (1) the taxpayer reasonably believed the professional was a competent tax adviser with sufficient expertise to justify reliance; (2) the taxpayer provided necessary and accurate information to the advising professional; and (3) the taxpayer actually relied in good faith on the professional's advice. Crimi v. Commissioner, T.C. Memo. 2013-51; See also Rovakat, LLC v. Commissioner, T.C. Memo. 2011-225 (citing Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98-99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002)).

Petitioners claim that HLSI exercised reasonable cause because HLSI relied on a tax professional to review its tax forms. Petitioners' arguments for reasonable cause fail for two reasons: 1. HLSI did not rely on the advice of a professional, and 2. HLSI did not provide necessary and accurate information to the tax professional.

1. HLSI did not rely on professional advice

The IRS's regulations define “advice” as follows:

(2) Advice defined. — Advice is any communication, including the opinion of a professional tax advisor, setting forth the analysis or conclusion of a person, other than the taxpayer, provided to (or for the benefit of) the taxpayer and on which the taxpayer relies, directly or indirectly, with respect to the imposition of the section 6662 accuracy-related penalty. Advice does not have to be in any particular form.

Treas. Reg. § 1.6664-4(c)(2) (emphasis added). In order to constitute “advice” within the definition of the regulation, the communication must reflect the adviser's analysis or conclusion. Woodsum v. Commissioner, 136 T.C. 585, 593 (2011). Reliance on the mere fact that a certified public accountant has prepared a tax return does not mean that he “opined on any or all of the items reported therein.” Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43 at 100 (2000).

Here, HLSI relied upon Grant Thornton to “review” its work. See Jeffery Williams Declaration ¶ 7. Only if Grant Thornton had questions would they be discussed with HLSI. See Jeffrey Williams Declaration ¶ 8. Grant Thornton did not prepare the Forms 8283 or advise HLSI on how to prepare the Forms 8283 at issue, nor did they provide any analysis or conclusion. Accordingly, this defense is not available as a matter of law because petitioners did not rely on “advice” of a tax professional to prepare the forms at issue here.

2. HLSI did not provide necessary and accurate information to a tax professional

The evidence produced by petitioners show that HLSI did not provide necessary or accurate information to the advising professional as required for relying on a reasonable cause argument based on advice from a CPA or other professional.

Petitioners rely heavily on certain “spreadsheets” prepared in 2015 in support of their position that providing the necessary information to complete the Forms 8283 during the examination should rise to the level of substantial compliance. Exhibit 2 of the Jeffery Williams Declaration contains a spreadsheet with details regarding the 2011 Contribution. (JW Exhibit 2). Exhibit 3 of the Jeffery Williams Declaration contains a spreadsheet with details regarding the 2012 Contribution. (JW Exhibit 3). However, these spreadsheets were not provided to HLSI's tax professionals to obtain advice on how to prepare the Forms 8283, nor do they contain necessary and accurate information.

JW Exhibit 2 is dated March 21, 2015, almost 3 years after the 2011 return would have been prepared. JW Exhibit 3 is not dated, but it is reasonable to believe it was prepared around the same time as JW Exhibit 2 — in response to respondent's exam of HLSI. Because these forms were prepared well after the 2011 and 2012 returns were filed, HLSI could not have provided JW Exhibit 2 or JW Exhibit 3 to its tax professional to review along with consideration of the Forms 8283. Basis and dates of acquisition are clearly required by statute and regulation, and are therefore necessary items of information for a tax advisor. HLSI did not give all necessary information to their tax professional.

Further, JW Exhibit 2 includes several references to “N/A” as the “invoice price” — reflecting no amount for the basis in the artifacts. There is a group of artifacts with “MISC” listed as the “payment date,” “invoice price,” and “vendor,” suggesting there are no records for how or when these artifacts were acquired, but together account for almost $100,000 in contributions. See JW Exhibit 2, page IRS_00003129.10 In JW Exhibit 3, the fair market value listed for several artifacts does not match the amounts reported in the 2012 Appraisal, notably the Papyrus Bodmer is valued at $9,500,000 in the 2012 Appraisal but listed as $9,000,000 in JW Exhibit 3; the Folijambe Wycliffite New Testament is valued at $2,900,000 in the 2012 Appraisal but listed as $2,600,000 in JW Exhibit 3. But the most significant difference is the Hebrews 11 Papyrus valued at $150,000 in the 2012 Appraisal and is listed as $600,000 in JW Exhibit 3. In total, 12 of the 29 manuscripts included in JW Exhibit 3 have a different fair market value than that reported in the 2012 Appraisal. JW Exhibit 3 also has entries that include blank cells for the “Inv. Price” and “N/A” for the invoice. As with JW Exhibit 2, there are several entries of “Miscellaneous Purchases” that do not have a purchase date or basis listed but account for $120,000 in charitable contributions. Accordingly, assuming arguendo that something similar to JW Exhibit 2 and JW Exhibit 3 was provided to a tax professional in preparation of the Forms 8283, it is clear that HLSI did not provide accurate information as required.

Finally, should the Court find that there remains a factual dispute regarding petitioners' reasonable cause argument, the Court is not prevented from ruling on the merits of the Motion as it relates to whether petitioners complied with DEFRA § 155(a)(1)(C) and the requirements prescribed by the Secretary in Treasury Regulations §§ 1.170A-13(c)(4) and 1.170A-13(c)(5)(iii). See Rothman v. Commissioner, T.C. Memo. 2012-218.

CONCLUSION

It follows that respondent's motion should be granted and that petitioners' cross-motion should be denied.

DRITA TONUZI
Deputy Chief Counsel (Operations)
Internal Revenue Service

Date: July 5, 2022

By: VASSILIKI ECONOMIDES FARRIOR
Special Trial Attorney (LB&I)
Tax Court Bar No. EV0019
55 N. Robinson Ave., Ste. 275
Oklahoma City, OK 73102-9233
Telephone: (405) 982-6620
[email protected]

Date: July 5, 2022

By: KRISTEN I. NYGREN
Senior Attorney (SB/SE)
Tax Court Bar No. NK0041
600 S. Maestri Place
New Orleans, LA 70130-3413
Telephone: (504) 434-6454
[email protected]

Date: July 5, 2022

By: WILLIAM F. CASTOR
Senior Counsel (SB/SE)
Tax Court Bar No. CW0627
55 N. Robinson Ave., Suite 275
Oklahoma City, OK 73102-9233
Telephone: (405) 982-6742
[email protected]

OF COUNSEL:
ROBIN L. GREENHOUSE
Division Counsel
(Large Business & International)
JOHN M. ALTMAN
National Strategic Litigation Counsel (LB&I)
NASEEM J. KHAN
Strategic Litigation Counsel (LB&I)

FOOTNOTES

1. Unless otherwise indicated, section references are to the Internal Revenue Code and Treasury Regulations, as amended an in effect for the tax years before the Court, and all rule references are to the Tax Court Rules of Practice and Procedure.

2. To the extent that respondent referred to the Trust Shareholders in the Motion, respondent now refers to those same shareholders as the ESBT Shareholders to avoid confusion.

3. Petitioners appear to take issue with the term “combined” to explain that all 431 scrolls were reported with one number on the Form 8283 but use the term “aggregate” to explain how the cost basis was reported. See Petitioners' Brief page 35.

4. Petitioners appear to take issue with the term “combined” to explain that there was one number used to report over 800 artifacts on the Form 8283 but use the term “aggregate” to explain how the cost basis was reported. See Petitioners' Brief page 35.

5. The petitioners have taken issue with the use of the word “cumulative” as used in the Motion. Instead, petitioners have used the word “aggregate” in their motion — a synonym of cumulative. To present the facts in a way petitioners may deem more palatable, respondent is using the word “aggregate” in this Response.

6. Respondent expressly rejects petitioners' arguments that Mr. Biondi is a “qualified appraiser” and that the 2011 and 2012 Appraisals constituted “qualified appraisals.” Indeed, respondent reserved the right, should his Motion be denied, to advance all other theories supporting the adjustments in the Notices of Deficiency at issue in these cases, including that Mr. Biondi was neither a “qualified appraiser,” nor were his reports “qualified appraisals.” See R. Motion at para. 15.

7. Treas. Reg. § 1.170A-13(c)(4)(iv)(B) further allows the appraiser to select “any items whose aggregate value is appraised at $100 or less and provide a group description for such items.” The regulation does not displace the requirement that basis and date of acquisition must be provided for each item of donated property, consistent with the requirements of Treas. Reg. § 1.170A-13(c)(4)(ii).

8. Petitioners have attached a spreadsheet for which they rely upon to cure defects in the Forms 8283. This spreadsheet has listed “N/A” in many areas for the basis of the scrolls contributed.

9. Respondent, however, has concurrently filed a second motion for partial summary judgment that the deductions flowed-through to the three Trust shareholders in this matter should be disallowed pursuant to I.R.C. §§ 642(c), 681, and by reference to 512(e).

10. Respondent is in the process of cross referencing the spreadsheet with the 2011 and 2012 Appraisals to determine if the fair market value as reflected on the spreadsheets is the same as the amount reported in the Appraisals.