T.C. M em o . 2 0 2 0 -4 1

UNITED STATES TAX COURT

RODERICK M . CAM PBELL AND C. SANDRA CAM PBELL, Pet i t io n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 3 0 2 24 -1 2
. Fi l edAp ri l 7 , 2 0 2 0
.

St ev enR. M ath er, fo r p et i t i o n ers . M i ch ael W . Berwi n dan dCh ri s to p h er J . Ri ch m o n d, fo r res p o n d en t
.

M EM ORANDUM FINDINGS OF FACT AND OPINION ASHFORD, J u d g e: By

s t atu to ry n o t i ce o f d efi ci en cy d at edSep t em b er 1 2 , 2 0 1 2 , res p on den td et erm i n eda d efi ci en cy i n p et i t i o n ers ’ Fed eral i n co m e t ax o f- 2
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[* 2 ] $ 2 8 6 ,9 4 9 an d accu racy -rel at edp en al t i es p urs u an t t o s ect i o n 6 6 6 2 (a) an d(h ) 1
o f $ 4 5,9 3 5 an d$ 2 2 , 9 1 0 , res p ect i v el y , fo r t he 2 0 0 8 t ax ab l e y ear. Aft er co n ces si o ns , 2 th e i s s u es rem ai n i n g fo r d eci s i o n are wh et h er p et i t i o n ers (1 ) are en t i t l edt o a carry o v er ch ari t ab l e co n tri b u t i o n d edu ct i o n wi th res p ectt o a 2 0 0 7 d o n at i o n o f 3 ,4 3 2 n ew d es i g n er ey eg l as s fram es t o Li on s i n Si gh to f Cal i fo rn i a an d Nev ad a (Li o n s i n Si g h t ) an d(2 ) are l i ab le fo r s ect io n 6 6 6 2 (a)
an d (h ) accu racy -rel at edp en al t i es . 3 W e res o l v e t h e fi rs t i s su e i n fav o r o f
res p o n d en t an d t h e s eco n di s su e i n fav o r o f p et i t i o n ers . FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Th e s t ip u l at i o n o f fact s an dth e at t ach ed ex h i b i ts are i n co rp o rat ed h erei n b y th i s referen ce.

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de (Co d e) i n effect fo r t h e y ear at i ss u e, an dal l Ru l e referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re. So m e m o net ary am o u n t s are ro u n dedt o th e n eares td o ll ar.

2 Th e n o ti ce o f d efi ci en cy i n p ert i n en tp artad

ju s t ed(1 ) p et i t i on ers ’ rep o rt ed l o s s o n th ei r Sch edu l e E, Sup p l em en t al In co m e an dLo s s , b y $ 70 4 ,6 8 2 an d (2 ) p et i t i o n ers ’ rep o rt edn eto p erat i n g l o ss carry fo rwardb y $ 1,0 19 ,8 9 6 . Th e p art i es n o w ag ree t h at th e co rrect Sch edu l e E ad ju s t m en tan d t h e co rrect n et o p erat i n g l o s s carry fo rwardad ju s t m en ts h o u ldb e $ 4 9 3 , 2 7 7 an d$ 7 1 3 ,9 2 7 , res p ect i vel y .

3 Th e s ec. 6 6 6 2 (a) p en al ty ap p li es t o p et i t i o n ers ’ Sch edu l e E l o s s an d n et o p erat i n g l o s s carry fo rward . Th e s ec. 6 6 6 2(h ) p en al ty ap p l i es t o th ei r carry o v er ch ari t ab le co n tri b u t i on d educt i o n .- 3
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[* 3 ] Pet i t i o n ers res i d edi n Cal i fo rn i a wh en th ei r p et i t i o n was t i m el y fi l edwi th th e Co u rt
. I. Pet i t i o ners ’ Part i ci p at i o n i n an Ey ewear Ch ari t ab l e Co nt ri b u t i on Pro g ram In Decem b er 2 0 06 M r. Cam

p bel l l earn edo f an ey ewear ch ari tab l e
co n tri b u t i o n p ro g ram

th ro u g h cert i fi edp ubl i c acco u n tan tVi ct or Kawan a, a o n eth i rd o wn er (an datthe t i m e o f t ri al th e m an ag i n g p art ner) o f Kru s e M en n il l o , LLP (Kru s e M en n i l l o ), an acco u n t i n g an dm an ag em en tco n s ul t i n g fi rm wi th o ffi ces i n Cerri t o s , Cal i fo rn i a, an dKan s as Ci ty , M i s s ou ri . Si nce ap pro x i m at el y 2 0 0 0 Kru s e M en n i l l o h adb een p ro v i d i ng acco u n t i n g , es t at e p lan n i ng , an dretu rn p rep arat i o n
s erv i ces t o p et i t io n ers . Th i s ey ewear ch ari t ab l e co n tri b u ti o n p ro g ram i n v o l v edZD Pro duct s, In c. (ZD Pro du ct s ), co n so l id at i ng o v er 1 7 0 ,0 0 0 d es i g n er ey eg l as s fram es i t po s s es s edi n t o u n i t s o f ap p ro x i m at el y 3 , 4 3 2 fram es each an ds el l i n g thes e u n it s t o 5 0 b u y ers fo r $ 5 0 , 0 0 0 p er u n i t ; each b u y er wo u l dth enp u rp o rt ed l y b e el i g i b l e t o d o n at e h i s o r h er fram es aft er a m i n i m u m o n e-y ear h o l di n g p eri odt o Li o n s i n Si g h t, a s ect io n 5 0 1 (c)(3 ) n onp ro fi to rg an i zat io n 4 (o r t o a d i fferen t qu al i fi ed ch ari t ab le o rg an i zat i on o f t he b u y er’ s ch o o s i n g ), an dcl ai m a ch ari t ab l e

4 Li o n s i n Si g h t i s affi l i at edwi th th e Li o ns Cl ub In t ern at i o n al , a co m m u n i t y s erv i ce o rg an i zat i on ; i ts m i ss i o n i s t o p ro m o t e t h e co ll ect i on o f u s edey eg las s es fro m th e g en eral p ub l i c fo r recy cl i n g an d u s e wo rl dwi d e an dt o p ro v i d e n o-co s t ey e care as s i s t an ce t o n eed y an dl o w-i n co m e i nd i v i du al s .- 4
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[* 4 ] co n tri b ut i o n d edu ct i o n atth e ap p rai s edfai r m ark etv al ue at th e t im e o f d o n at i o n . As d i scu ss edb el o w, M r. Cam pb el l recei v eda co p y

o f an o fferi n g
m em o ran du m

d at edNo vem

b er 3 0 , 2 0 0 6 , d et ai li n g th e p ro g ram an di t s t ax i m p l i cat i o n s , al o n g wi th o th er d o cu m en t s th at th e o fferi n g m em o ran du m referen ced
. Th e o fferi n g m em o ran du m was p rep aredb y

M r. Kawan a (an dtwo o th er Kru se M en n i l l o p art n ers ) atZD Pro du ct s’ req u es t
. 5 It reci t edth atZD Pro du ct s (1 ) was i n p o s s es s i o n o f 1 7 1 ,6 0 0 d es i g n er ey eg l as s fram es an d (2 ) “ wi l l s el l al l o t m en t s o f ap p ro x i m at el y 3 , 4 3 2 u n i t s t o 5 0 p ro s p ect i ve b u y ers fo r $ 5 0 ,0 0 0 p er
u n i t ”, an dth at“ [q ] u al i fi edi n d i v i du al s , i f d es i red , are el ig ib l e t o d on at e t h e fram es t o qu al i fi edch ari t i es atfai r m ark etv al u e, $ 2 2 5 , 3 22 aft er a o n e-y ear h o l d i n g p eri o d ”, t h us b eco m i n g el i g i b l e fo r a t ax d edu ct i o n atap p rai s edfai r m ark etv al u e. It al s o reci ted th at , i f d es i red , ZD Pro du ct s “ w i l l t ak e care o f al l arran gem en t s reg ard i n g s t orag e o f th e fram es fo r t h e n eces s ary t i m e p eri o d , i n su ran ce atco s t b as i s , dro p s h i p m en t t o a qual i fi edch ari ty , an dco m pl et i o n o f IRS fo rm

8 2 8 3
s i gn edb y a qu al i fi edap p rai s er t o b e at t ach edt o p u rch as er’ s i n co m e t ax retu rn [fo r] th e y ear o f d edu ct i on .” Acco rd i ng t o the o fferi n g m em o ran du m th e p u rch as er wo u l db e al lo w edt o i n s p ect o r rem o v e h i s o r h er u n itatan y t i m e.

5 Th e p res i d en t o f ZD Pro du ct s was al so l i st edo n the o fferi n g m em o ran du m .- 5
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[* 5 ] Fu rt h erm o re, al th o u g h th ere was n o res tri ct i o n o n th e u se o r d i s p o s i t i o n o f t h e p u rch as er’ s u n i tdu ri n g t h e o n e-y ear h o l d i n g p eri o d , th e o fferi n g m em o ran du m i d en t i fi edLi o n s i n Si g h tas th e t arg et edd o nee an dex pl ai n ed wh y , i n cl ud i n g i n d i cat i n g t h at ZD Pro du ct s h adal read y m ad e arran g em en t s wi th Li o n s i n Si g h tt o
s h i p th e fram es t o i t
. Th e o fferi n g m em o ran du m al so s t at ed th atZD Pro duct s h ad ret ai n ed M ars h al l & St ev en s , In c. (M ars h al l & St ev en s ), a Lo s An g el es , Cal i fo rn i a-b as ed
v al u at i o n co n s u l t in g fi rm , t o m ak e anan al y s is an dv al u at i on o f t h e fram es o n th e b as i s o f “ th e as s u m

p t i on o f a d o n ee co n tri b ut i n g th e p ro p erty fo r t h e fu nct i o n o f
an i n co m e t ax d edu ct i o n .” 6 Ad d i t i o n al ly , th e o fferi n g m em o ran du m s t at edth at M ars h al l & St ev en s wo u l dco n du cta fo l l o wup ap p rai s al atth e t i m e o f t h e d o n at i o n , p ro v i d e an d s i g n a Fo rm 8 2 8 3 , No n cas h Ch ari t ab l e Co n tri b u t i o n s , an d d efen d i t s ap prai s al i f ch al l en g edb y th e In t ern al Rev en u e Serv i ce (IRS). Th e i n it ial wri t t en ap p rai s al p rep aredb y M ars h al l & St ev en s an dd at ed No v em b er 2 7 , 2 0 0 6 (2 0 0 6 M ars h al l & St ev en s ap p rai s al ), was i n cl u d edwi th th e
o fferi n g m em o ran du m . Th e 2 0 0 6 M ars h al l & St ev en s ap p rai s al d es cri b edth e

6 W e n ot e thatth e o fferi n g m em o ran du m i nco rrect l y

refers t o “ d o n ee” h ere wh en i n s t eadth e referen ce s h o u l db e “ p urch as er” o r “ d o n o r”.- 6
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[* 6 ] p ro p ert y

th at ZD Pro du ct s req u es t edi tv al u e an dth e p ro p ert y ’ s p h y s i cal
co n di t i o n as fo l l o ws : 1 .3 Des cri pti o n o f the Do na ted Pro perty Th e p ro p erty t o b e co n tri b u t edco n s is t s o f n ew (u n u s ed ) Des i g n er Ey ewear Pro du ct s (“ Des i g n er Ey ewear Pro du ct s ” o r “ d o n at ed p ro p ert y ”). Th e s ub

ject p ro p ert y

l i s twi th d es cri p t i on , co u n tan d wh o les al e p ri ce o ri gi n at edfro m Ey ewear Des ig n s LTD. Lo cat edi n Sy o s s etNY. Th e s ub

jectp ro p ert y

co n s i s t s o f v ari ou s s ty l es an d d es i gn er b ran dn am es . Th es e d es i g n er b ran dn am es i ncl u d e Bi l l Bl as s, El i zab et h Ard en , PerryEl l i s , an dPi erre Card i n . Th e t o t al qu an t i ty i s 1 7 1,6 0 0 . A s am

pl i n g o f t h e v ari o us b ran dn am es an d m o d el s s h o w th at th e ey ewear b ran d s are s t i l l act i v e i n t h e m ark etp lace. Th es e p art i cu l ar d es ig n er ey ewear p ro du ctb ran dn am es are s o m e o f t h e m o s twel l kn o wnan dl o n g s t an d i ng ey ewear p ro du ct s i n th e d es ig n er ey ewear m ark etp l ace. Th ey h av e h o wev er h av e [s i c] b een d i s co u n t edo v er t i m e an dare n o l on g er th e m o s t cu rren t p o p ul ar s ty l es an db ran d s . 1 .4 Phy s i ca l Co ndi ti o n o f the Pro perty W e h av e n o tm ad e a p ers o n al v i ewi n g o f t he s ub jectp ro p ert y . Iti s o u r u n d ers t an d i n g th atth e s ubjectp ro p ert y an al y zedi s i n n ew (u n u s ed ) co n d i t i o n an d t h at th e am o u n to f p ro p ert y o r “ co u n t ” i s co rrect . Th e cu rren t l o cat i o n o f th e s ub jectp ro pert y

i s n o tkn own . Th e referen ced“ s ub

jectp ro p ert y

l is t ” (wh i ch was at t ach edt o th e 2 0 0 6 M ars h al l & St ev en s ap p rai s al ) s t at edth atth e “ d o n at edp ro pert y ” co n s i s t edo f 3 1,9 50 Bi l l Bl as s fram es , 2 3 ,1 50 El i zab et h Ard enfram es , 1 3 ,2 00 El i zab et h Ard en “ Pet i t es ” fram es , 3 3 ,1 5 0 Pi erre Card i n fram es , 5 4 ,3 5 0 PerryEl l i s fram es , an d1 5 ,8 0 0 Perry El l i s Am eri ca fram es . Th i s l i s tal s o s ho wedv ari o u s m o d el s wi th i n each ey ewear b ran do f v ary i ng qu an t i t i es an dwh o l es al e p ri ces . Th e wh o l es al e p ri ce p er m o d el- 7
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[* 7 ] ran g edfro m

$ 3 7 t o $ 80 . Us i n g th e m ark etap p ro ach 7 an do n th e b as i s o f t h e wh o l es al e p ri ces wi th a m arkup o f 3 5 %, M ars h al l & St ev en s o p i n edth atth e fai r
m ark etv al u e o f t h e “ d on at edp ro p ert y ” as o f No v em b er 2 7, 2 0 0 6 , was $ 1 1 ,2 6 6 ,1 1 5
. M r. Cam p b el l d eci d ed t o p art i ci pat e i n the ey ewear ch ari t ab l e co n tri b u t i o n p ro g ram . As m em o ri al i zedb y a b i l l o f s al e d at edDecem ber 2 2 , 2 0 0 6 , M r. Cam p b el l p u rch as edfo r $ 50 ,0 00 “ ani n v en t o ry o f Pres cri p t i o n Des i g n er Ey ewear” fro m ZD Pro du ct s . Th e b il l o f s al e s t at edth atan “ [i ] t em i zed i nv en t ory b y b ran d
n am e, s ty l e, an dqu an t i ty i s at t ach ed ”, an dth ath e h ad“ an u nres tri ct ed an d
u n fet t eredi n t eres ti n t h e m erch an d i s e at t ach ed ”, al th o u g h n o s u ch i nv en t ory o r
m erch an d i s e l i s twas at t ach ed . Th e p art i es al s o s t i p ul at edth atM r. Cam p b el l ag reedt o p u rch as e “ a s i n g l e al l o t m en to f ap p ro x i m at el y 3 ,4 3 2 ey ewear fram es fro m ZD Pro du ct s ”. Pu rs u an t t o th e o fferi n g m em o ran dum ZD Pro du ct s s to red M r. Cam pb el l ’ s fram es o n h i s b eh al f. M r. Kawan a al s o p art ici pat edi n th e ey ewear ch ari t ab l e co n tri b ut i on p ro g ram (an dcl ai m eda d edu ct i o n fo r d o n at i n g h i s fram es ) d es pi t e h i s ro l e i n

7 In an y v al u at i o n t h ere are g en eral l y th ree ap p ro ach es t o v al u e--t h e i n co m e ap p ro ach , th e m ark etap pro ach , an dth e co s tap p ro ach . See Ban kOn e Co rp . v . Co m m i s s i o n er, 1 2 0 T.C. 1 7 4 , 3 0 6 (2 0 0 3) (d is cu s s i n g each ap p ro ach ), aff’ d i n p art , v acat edi n p art , an drem an dedo n an o th er i s s u e s ub n o m . J PM o rg anCh as e & Co
. v . Co m m i s s i o n er, 4 5 8 F.3 d5 6 4 (7 th Ci r. 2 0 06 ).- 8
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[* 8 ] ad v is i n g ZD Pro du ct s wi th res p ectt o th e p ro gram an dp ro m ot i n g t h e p ro g ram t o M r. Cam

p b el l (an d ot h ers ). Ata t i m e i n 2 0 0 7 n otes t ab l is h ed b y th e reco rd , ZD Pro duct s cam e i n t o p o s s es s i o n o f ad d i t i o n al n ew d es ig n er ey eg l as s fram es fo r t h e ey ewear ch ari t ab l e
co n tri b u t i o n p ro g ram . As o f Decem b er 2 00 7 m o re t h an 3 4 0 ,0 00 fram es were
av ai l ab l e fo r d o n at io n t o Li o ns i n Si g h t . To thaten d , i n Decem b er 2 0 0 7 Dr. W i l l i am

Ian n acco n e, t h e ch i ef o perat i n g o ffi cer o f Li o n s i n Si gh t , was
co n tact edab o u trecei v in g the m o re t h an 3 4 0 , 0 0 0 fram es as a d o n at i o n. Dr. Ian n acco n e ag reed t o accep tth e d o n at i o n, b u tb ecau s e o f Li o n s i n Si gh t ’ s wareh o us e co n s trai n t s ZD Pro du ct s s to redth e fram es o n Li o ns i n Si g ht ’ s b eh al f
u n t i l Ap ri l 2 9 , 2 00 8 , wh en th ey were d el i v eredt o Li o n s i n Si gh t ’ s wareh o u s e. OnDecem

b er 2 8, 2 00 7 , Li o n s i n Si gh ts en t M r. Cam p b el l a l et t er ack n owl ed gi ng h is “ g en ero u s g i fto f p res cri p t i o n ey e ware [s i c] ” an dh o w h i s d o n at i o n wo u l das s i s tLi o n s i n Si g h t . Th e l et t er was s i g n ed b y Dr. Ian n acco n e. Th e l et t er m ad e n o m en t i o n as t o wh et h er Li o n s i n Si g h tp ro v i d edan y g o o d s o r
s erv i ces i n co ns i d erat i on fo r h i s d o n at i o n. Pu rs uan tt o th e o fferi n g m em o ran du m M ars h al l & St ev en s p rep areda fo l l o wup wri t t enap p rai s al fo r ZD Pro du ct s ; th i s ap prai s al was d at edDecem b er 2 6 , 2 0 0 7 , an dcert ifi edb y

Sen i o r M an ag er Sh an e ParkatM ars h al l & St ev en s (2 0 0 7- 9
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[* 9 ] M ars h al l & St ev en s ap p rai s al ). Th e 2 0 0 7 M ars h al l & St ev en s ap p rai s al
co n tai n edth e s am e d es cri p t i on an d p h y s i cal co n d i t i o n o f t h e “ d o nat edp ro p ert y ”
as th e 2 0 0 6 M ars h al l & St ev en s ap p rai s al ex cep t th atthe t ot al qu an t i ty o f ey eg l as s fram es h adi ncreas edt o 3 4 9,6 2 9 (fro m 1 71 ,6 0 0 ) an di ncl u d edth e fo l l o wi n g ad d it i o n al b ran dn am es --Lau ra As hl ey , Ed d ie Bau er, HSM , Ni co l e M i l ler, Dak o t a Sm it h , an dBeb e. Th e i n ven t o ry

l i s t at t ach edt o t h e 2 00 7 M ars h al l & St ev en s ap prai s al s t at ed th atth e “ d o n at ed p ro p ert y ” co n s i s tedo f t h e s am e qu an t i ty an dfram e m o d el s as th e i n v en t o ry l i s tat t ach edt o t h e 2 0 0 6 M ars h al l & St ev en s ap prai sal p l u s 8 4 ,8 4 7 Lau ra As h l ey

fram es , 3 8 ,9 2 3 Ed d i e Bau er fram es , 5 8 3 HSM fram es , 6 ,0 4 4 Ni co l e M i l ler fram es , 1 ,0 4 7 Si gn atu re Co l l ect i o n fram es , 8 4 3 ,4 1 1 Dak o t a Sm i th fram es , an d 3 ,1 7 4 Beb e fram es . Th i s l i s tal s o s h o wedv ari o u s m o d el s wi th in each ey ewear b ran do f v ary i ng qu an t i t i es an dwh o l es al e p ri ces . Li k e th e i n v en t ory l i s tat t ach ed t o the 2 0 0 6 M ars h al l & St ev en s ap p rai s al , th e wh o l es al e p ri ce p er m o d el ran g ed fro m $ 3 7 t o $ 8 0 . Us in g the m ark etap pro ach an do n th e b as is o f t h e wh o les al e p ri ces wi th a m arkup o f 3 5%, M ars h al l & St ev en s o p i nedth atth e fai r m ark et
v al u e o f t h e “ d o n at edp ro p erty ” as o f Decem b er 2 6 , 2 0 0 7 , was $ 24 ,0 1 9 ,8 26
.

8 Th i s b ran dwas n otm en t i o n ed i n th e “ D es cri p t i o n o f Do n at edPro p ert y ” s ect i on o f t h e 2 0 0 7 M ars h al l & St ev en s ap p rai s al
.- 1 0 -

[* 1 0 ] OnAp ri l 9 , 2 0 0 8 , M ars h al l & St ev en s s en t p et i ti o n ers a l et ter s t at i n g th ati t h ad “ m ad e an an al y s is an dv al u at i o n o f t he Fai r M ark etVal u e o f Des i g n er Ey ewear Pro du ct s” an dth at“ as a res u l to f o u r an al y s i s, we h av e d et erm i nedth at th e Fai r M ark etVal u e o f t h e Des i g n er Ey ewear Pro du ct s y o u h o l d i s $ 2 25 ,5 9 6 b as edo n ” t h e 2 0 0 7 M ars h al l & St ev en s ap p rai s al . Th e 2 00 7 M ars h al l & St ev en s ap p rai s al was at t ach edt o t he l et t er. II. Pet i t i o ners ’ Tax Rep ort in g A. 2 00 7 Retu rn Pet i t i o ners p rep aredan dt i m el y fi l ed(wi th th e as s i s tan ce o f Kru se M en n i ll o ) th ei r jo i n tFo rm

1 0 40 , U.S. In d i v i du al In co m e Tax Retu rn , fo r 2 0 07 (2 0 0 7 retu rn ). Onth e 2 0 0 7 return th ey rep o rt edad ju s t edg ro s s i nco m e o f

! $ 1 ,0 1 6,9 6 4 , co n si s t i n g o f t ax ab l e i n t eres t o f $ 5 ,6 9 6 , o rd i n ary d i v i d en d s o f $ 2 3 6 , a cap i t al l o s s
o f $ 3 , 0 0 0 , a Sch edul e E l o s s o f $ 1 1 4,8 6 1 , a n eto perat in g l o s s carry fo rwardo f $ 8 9 7 ,6 8 0 , an ds el f-em

p l o ym en tt ax o f $ 7 ,3 5 5
. As rel ev an th ere, t h ey at t ach edt o th e 2 0 07 retu rn a Sch edu l e A, It em i zedDeduct i o n s , cl ai m i n g $ 9 7 ,6 2 1 o f i t em i zed d educt i o n s . Onth i s Sch edul e A p et i t i o n ers rep o rt ed , am o n g o th er i t em s , th e p u rp ort ed$ 2 2 5,5 9 6 d o n at i o n t o Li o n s i n Si g h t(al on g wi th ch ari t ab l e g i ft s b y cas h
o r ch eck o f $ 3 9 , 4 3 5 an da ch ari t ab l e co nt ri bu t i o n carry o v er fro m a p ri or y ear o f $ 1 5 ,6 4 5 ), b u tb ecau s e o f p et it i o n ers ’ n eg at i ve ad ju s tedg ro s s i nco m e t h ey co u l d- 1 1 -

[* 1 1 ] n o tcl ai m

a ch ari t ab l e co n tri b u t i o n d educt i on as an i t em i zedd edu ct i o n fo r 2 0 0 7 . As d i s cu s s edi n fra p . 1 2, p et i t i o n ers cl ai m edth i s d edu ct i o n as a carry o v er d educt i o n o n th ei r Sch edu l e A fo r 2 0 0 8. Fu rt her i n fo rm at i o n reg ard i n g th e Li o n s i n Si g h td o n at i o n was s ho wno n a Fo rm 8 2 8 3 , wh i ch th ey

al s o at t ach edt o th e 2 0 0 7 retu rn . 9 Sect i o n B o f t h e fo rm , cap t i on ed“ Do n at edPro p ert y Ov er $ 5,0 0 0 (Ex cep tCert ai n Pub li cl y Trad ed Secu ri t i es )”, h as fo u r p art s . PartI, cap t i o n ed“ In fo rm at i o n o n Do n at edPro p ert y ”, i n d i cat edth atp et i t io ners do n at ed“ ey eg l as s fram es ” i n “ new” co n d i ti o n h av i n g an ap p rai s edfai r m ark etv al u e o f $ 2 2 5 ,5 9 6 , wh i ch th ey h adp u rch as edi n Decem b er 2 0 0 6 fo r $ 50 , 0 0 0
. Part III, cap t i o n ed“ Decl arat io n o f Ap prai s er”, b o re a s i g n ature, al b ei t i l l eg i b l e, o f a “ p ri n ci pal ” atM ars h al l & St ev en s d at edDecem b er 2 6 , 2 0 0 7 , an d s ho wedM ars hal l & St ev en s ’ ad dres s i n Lo s An g el es , Cal i fo rn i a, an da Fed eral t ax i d en t ifi cat io n n um ber. 1 0 PartIV, cap t i on ed“ Do nee Ackno wl ed g m en t ”, i nd i cat edth atLi o n s i n Si g h t(1 ) i s a qu al i fi ed o rg an izat i o n
u n d er s ect i o n 1 7 0 (c), (2 ) recei vedth e d o n at edp ro p ert y d es cri b edi n PartI o n Decem b er 2 8 , 2 0 07 , an d(3 ) d oes n o ti n t en dt o u s e t h e p ro pert y fo r an u nrel at ed

9 Th e reco rdd o es n o t i n cl u d e p ag e o n e o f t h i s fo rm wh i ch req u es t s i n fo rm at i o n o n d o n at edp ro p ert y o f $ 5 ,0 00 o r l es s an dp ubl icl y trad ed s ecu ri t i es . 1 0 Part II i s n o trel ev an th ere.- 1 2 -

[* 1 2 ] u s e. Th i s p artal s o b o re th e s i g n atu re o f Dr. Ian n acco n e (al o n g wi th h i s t it l e) d at edAp ri l 1 4 , 2 0 0 8 , an d s ho wedLi o n s i n Si g h t’ s ad dres s i n W al n u t Creek , Cal i fo rn i a, an di t s em

p l o y er i d en t ifi cat i o n n u m b er. In ad d i t i o n t o at t ach i ng th i s fo rm t o th e 2 0 0 7 retu rn p et it i on ers at t ach ed M ars h al l & St ev en s ’ Ap ri l 9 , 2 0 0 8 , l et ter t o th em an d t h e 2 0 0 7 M ars h al l & St ev en s ap p rai s al
. B. 2 00 8 Retu rn Pet i t i o ners p rep aredan dt i m el y fi l ed(n o twi th th e as s i s t an ce o f Kru s e M en n i l l o b u to f an o ther p ai d p rep arer) t h ei r jo in tFo rm 1 0 40 fo r 2 0 0 8 (2 0 0 8 retu rn ). Onth e 2 0 0 8 retu rn th ey rep o rt edad

ju st edg ro ss i n co m e o f $ 2 ,9 6 8,3 3 0 , co n si s t i n g o f wag es o f $ 3 9 ,0 0 0 (at tri b u tab l e t o M r. Cam p b el l ’ s em

p l o ym en tas an
ex ecu t i v e co n s u l t an twi th RW B Au t o m o t iv e, LLC), t ax ab le i n t eres to f $ 5 7 ,4 0 5 , o rd i n ary d i v id en d s o f $ 2 ,6 0 1 , a cap it al g ai n o f $ 4 ,3 5 4 ,6 0 2 , a Sch edu l e E l o s s o f $ 4 9 5 ,2 0 5 , t ax ab l e So ci al Secu ri ty b en efi ts o f $ 2 9 , 8 23 , an d a n et o p erat i n g l o s s carry fo rwardo f $ 1 , 0 1 9 , 89 6 . As rel ev an th ere an dl i k e th e 2 00 7 retu rn , p et i t i o n ers at t ach edt o th e 2 0 08 retu rn a Sch edu l e A. Onth is Sch edu l e A th ey cl ai m ed $ 8 3 7 ,5 7 7 o f i t em i zedd edu ct io n s , co n s i s t i n g o f, am o ng o ther i t em s , th e carry o v er ch ari t ab le co n tri b u t i on d educt i o n fro m the 2 0 07 retu rn (wh i ch i n cl ud edth e Li o n s i n Si g h td o n at i o n).- 1 3 -

[* 1 3 ] III. Po s t co n tri b u ti o n Ap p rai s al A ret ro s p ect iv e ap p rai sal o f t h e 3 49 ,6 2 9 ey eg l as s fram es was p erfo rm ed b y Les l i e M il es o f M i les Ap p rai s al s ; th i s ap p rai s al was d at edFeb ru ary 2 4 , 2 0 1 2 (2 0 1 2 M i l es ap p rai s al ). 1 1 Ino p i n i ng as t o th e fai r m ark etv al u e o f t h es e fram es , M r. M i les rev i ewedthe 2 00 7 M ars h al l & St ev en s ap p rai s al . M r. M i l es d i dn o t
s am p l e o r i n s p ect th e fram es b ecau se o f th e ret ro s p ect i v e n atu re o f t h e as si g n m en t , an d h i s an al y s i s rev eal edth at3 9 ,7 0 9 fram es “ were n o tm at ch ed[(i .e., n o tcu rren t i n the m ark etp l ace)] an d , th erefo re, n o ti n cl u d edi n t h e v al u at io n ex cep tat a zero
am ou n t .” Ad d i t io n al l y , attri al M r. M i l es s t at edth ath e d i dn o t kn o w wh o o wn ed th e fram es th ath e v al u ed , n o r wh et h er t he fram es M r. Cam p bel l h add on at edt o Li o n s i n Si g h twere p arto f wh ath e v al u ed . Us i ng th e m ark etap p ro ach an do n th e b as i s o f t h e wh o l es al e p ri ce wi th a m arkup o f 3 5 % an dd edu ct in g 1 5% fo r co s t s
as s o ci at ed wi th h an d l i ng an dres t o ck i n g th e fram es , M r. M i l es o p i n edth atth e fai r
m ark etv al u e o f t h e 3 4 9 , 6 2 9 ey eg l as s fram es as o f Decem b er 2 6 , 2 00 7 , was $ 1 2 ,8 6 1 ,7 5 0
.

1 1 Th i s ap p rai s al i s i nex p l i cab l y ad dres s edt o “Nat han Ho ch m an ”, an di n th e ap p rai s al h e i s referred t o as th e “ cl i en t”.- 1 4 -

[* 1 4 ] IV. No t i ce o f Defi ci en cy Fo l l owi n g an ex am i n at i o n o f t h e 2 0 08 retu rn , res po n den td et erm i n edi n p ert i nen tp artth atp et i t i on ers ’ carry o v er ch ari tab l e co n tri b u t i o n d edu ct i o n wi th
res p ectt o M r. Cam

pb el l ’ s Li o n s i n Si gh td o n at i o n s h o u ld b e d i s al l o w edan dth at
accu racy -rel at edp en al ti es s h o u l db e i m p o s ed . Th e n o t i ce o f d efi ci en cy m ai l ed t o p et i t i o n ers o n Sep t em

b er 1 2 , 2 0 1 2 , refl ect s th o s e d et erm i n at i o n s. A Ci v i l Pen al t y Ap p ro v al Fo rm

p rep ared by

th e ex am i n i n g ag en to n J u n e 1 0 , 2 0 11 , l i s t ed 2 0 0 8 (as wel l as 2 0 0 7 ) an db o re a s i gn atu re o n th e l i ne p ro v i dedo n th e fo rm fo r “ Gro up M an ag er Ap p ro val t o As s es s Pen al t i es Id en t i fi edAb o v e” d at edJ u l y 1 2 , 2 0 1 1 , ap p ro v i n g th ata “ [p ] en al ty wi l l b e as s ert edwi th t h e 2 0 0 8 Year.” 1 2 Th e reco rd d o es no ti n cl u d e an y o ther ev i d en ce o f p en al ty ap p ro v al fo r 2 0 0 8
. OPINION I. Bu rd en o f Pro o f In g en eral , th e Co m

m i s s i o n er’ s d et erm i n at i o ns s etfo rt h i n a n o ti ce o f d efi ci en cy

are p res u m edco rrect an d , ex cep t fo r t h e b u rd en o f p ro du ct i o n i n an y
co u rtp ro ceed i ng wi th res p ectt o an i n d i v i du al t ax p ay er’ s l i ab i l i ty fo r an y “p en al t y , ad d it i o n t o t ax , o r ad d i t io nal am o u n t ”, s ee s ec. 7 4 9 1(c), t h e t ax p ay er b ears th e

1 2 Th e p art i es h av e s t i p ul at edth atth e s ig natu re (i .e., i n i t i al s ) i s t h at o f t h e i m m ed i at e s up erv i s o r o f t he ex am i n i ng ag en t
.- 1 5 -

[* 1 5 ] b u rd en o f p ro v in g o th erwi s e, s ee Ru l e 1 42 (a); W el ch v . Hel v eri n g, 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3). Fu rt h erm o re, t ax d edu ct i o ns are a m at t er o f l eg i s lat i v e g race,
an d th e t ax p ay er b ears the b u rd en o f p ro v i n g en t i t l em en tt o an y d edu ct i o n cl ai m ed . Seg el v . Co m

m i s s i o n er, 8 9 T.C. 8 1 6, 8 4 2 (1 9 8 7 ). Th i s b u rd en req u i res th e t ax p ay er t o d em o n st rat e t h atth e cl ai m edd edu ct i on i s al l o wab le p u rs u an tt o
s o m e s t atu t o ry

p ro v i si o n an dt o s ub s t an t i at e t he i t em g i v i n g ri s e t o the cl ai m ed d educt i o n . 1 3 Sec. 6 00 1 ; Hi gb ee v . Co m m i ss i on er, 1 1 6 T.C. 4 3 8 , 4 4 0 (2 00 1 ); Hrad es ky v . Co m m i s s io ner, 6 5 T.C. 8 7 , 8 9-9 0 (1 9 75 ), aff’ dp er cu ri am , 5 4 0 F.2 d 8 2 1 (5 th Ci r. 1 9 76 ). II. Ch ari t ab l e Co n tri b u t io n s A. Ap p li cab l e Law A t ax p ay er i s al l o wedas a d edu ct i o n an y ch ari t ab l e co n tri b ut i o n m ad e du ri n g th e t ax ab le y ear. Sec. 1 7 0 (a)(1 ). A ch ari t ab le co nt ri bu t i o n i s d efi n edas “ a
co n tri b u t i o n o r g i ftt o o r fo r t h e u s e o f” a ch ari t ab l e o rg an i zat i o n . Sec. 1 70 (c). Su ch a d edu ct io n i s al lo wab l e “ o n l y i f v eri fi edu n d er reg u l at i o n s p res cri b edb y th e

1 3 By m o t io n p et it i o n ers co n ten d edth atth e b u rd en o f p ro of s h o u l ds h i ftt o res p o n d en t p u rs u an t t o s ec. 7 4 91 (a). Un d er s ec. 7 4 9 1 (a)(1 ) an d(2 ), i f t he t ax p ay er p ro duces cred i b l e ev i d en ce wi th res p ect t o an y fact u al i s su e rel ev an tt o as cert ai n i n g h is Fed eral i n co m e t ax l i ab i l i ty an dm eet s cert ai n o th er req u i rem en t s , th e b u rd en o f p ro o f s h i ft s fro m th e t ax p ay er t o th e Co m

m i s s i on er as t o th atfact u al i s su e. Im m ed i at el y b efo re t h e t ri al o f t h is cas e t he p art i es were h eardo n p et i t i o n ers ’ m o t io n an dth e Co u rt , b y o rd er, d en i edth e m o ti on .- 1 6 -

[* 1 6 ] Secret ary .” Sec. 1 7 0 (a); s ee s ec. 1 7 0 A-1 3 , In co m e Tax Reg s . As rel ev an t h ere, fo r an y

n o n cas h ch ari t ab l e co n tri bu t i o n ex ceed in g $ 5,0 0 0 , th e reg u l at i o n s req u i re t he d o n o r t o (1 ) o b t ai n a “ qu al i fi edap p rai s al ” fo r t h e p ro p ert y co n tri b u t ed , (2 ) at tach a fu l l y

co m p l et ed“ ap p rai s al s u m

m ary ” t o th e i n co m e t ax retu rnfo r t h e y ear t h e d edu ct i o n i s cl ai m ed , an d (3 ) m ai n tai n reco rd s co n tai n i n g cert ai n i n fo rm at i o n (as req u i redb y s ect i o n 1 .1 7 0 A-1 3 (b )(2 )(i i ), In co m e Tax Reg s .). Sec. 1 .1 70 A-1 3 (c)(2 ), In co m e Tax Reg s .; s ee al s o s ec. 1 7 0 (f)(1 1 )(C); Al l i v . Co m m i s s i o n er, T.C. M em o . 2 0 1 4 -1 5 , at* 1 9 n .1 3. Ad d i t i o n al l y an das rel ev an t h ere, fo r an y

co nt ri b ut i o n o f $ 2 5 0 o r m o re t h e d o n o r m u sto b t ai n a

“ co n t em p o ran eo u s wri t t en ackn o wl ed g m en t ” (CW A) fro m th e ch ari t ab l e
o rg an i zat i o n . Sec. 1 .1 7 0A-1 3 (f)(1 ), In co m e Tax Reg s .; s ee al s o s ec. 1 70 (f)(8 ); Oat m an v . Co m

m i s s i o n er, T.C. M em o . 2 0 1 7-1 7 , at* 13
. B. Part i es ’ Po s i t i o ns Res p o n d en tco n t en d s th atp et i t i o n ers are n o ten t i t l edt o thei r carry o v er ch ari t ab le co n tri b u t i on d educt i o n wi th res p ectt o M r. Cam p b el l ’ s Li o n s i n Si g h t d o n at i o n b ecau s e (1 ) t h e co n tri b u t i o n was n o tm ad e wi th d o n at i v e i nt en t , (2 ) t h e
co n tri b u t i o n was n o tm ad e i n 2 0 0 7 b u trat h er i n 2 00 8 , an d(3 ) p et i ti o n ers d i dn o t
co m p l y wi th th e s ubs t an t i at i on req u i rem en t s u n d er s ect i o n 1 7 0 an dthe reg u l at i o n s th ereu n d er. Res p o nd en tco n t en d s th atp et i t i o n ers d i dn o t co m p l y wi th th e- 1 7 -

[* 1 7 ] s ub s t an t iat i o n requi rem en t s b ecau s e (1 ) t h e 2 0 0 7 M ars hal l & St ev en s ap p rai s al was n o ta “ qu al i fi edap p rai sal ” an d (2 ) Li o n s i n Si g h t ’ s Decem ber 2 8 , 2 0 0 7 , l et t er t o M r. Cam

p bel l was n o ta p ro p er CW A. 1 4 W e n eedo n l y

ad dres s wh et h er p et i t i o n ers h av e co m p li edwi th th e
s ub s t an t i at i o n req u irem en t s u n d er s ect io n 1 7 0 an d t h e reg u l at i o n s th ereu n d er. C. Sect io n 1 7 0 Sub s t an t i at i o n 1
. Qu al ifi ed Ap p rai s al Un d er th e reg u l at i o n s fo r an ap p rai s al t o b e a “ qu al i fi edap p rai s al ” i tm u s t (1 ) b e m ad e n o earl i er t h an 6 0 d ay s b efo re t h e d at e o f t h e co n tri b u ti o n an dn o l at er th an th e du e d at e o f t h e ret u rn , (2 ) b e p rep ared , s ig n ed , an dd at ed b y a qual i fi ed ap p rai s er, (3 ) n o ti n v o l v e a p ro h i b i t edap p rai s al fee, an d (4 ) i ncl u d e cert ai n i n fo rm at i o n . Sec. 1 .1 70 A -1 3(c)(3 )(i ), In co m e Tax Reg s. Th e i n fo rm at i o n t h at
m u stb e i n cl u d ed i s th e fo l l owi n g :

(A) A d es cri p t i o n o f t h e p ro pert y i n s u ffi ci en t d et ai l fo r a p ers on wh o i s n o t g en eral l y fam i l i ar wi th th e t y

p e o f p ro p ert y

t o as cert ai n t h atth e p ro pert y th atwas ap p rai s edi s th e p ro p ert y thatwas (o r wi l l b e) co n tri b u t ed ; (B) In th e cas e o f t an g i bl e p ro p erty , th e p h y si cal co n d i t i o n o f th e p ro p ert y ;

1 4 Res p o nd en tal s o co n ten d s thatth e Fo rm 8 28 3 at t ach edt o th e 2 0 07 retu rn was n ota fu l ly

co m p l et ed“ ap p rai s al s u m

m ary ”. In th e l i g h to f o u r h ol d i n g s as d i s cu s s edi n fra, we d ecl i n e t o ad dres s th i s co n t en t i on .- 1 8 -

[* 1 8 ] (C) Th e d at e (o r ex p ect ed d at e) o f co n tri b u t i o n t o th e d o n ee;

(D) Th e t erm s o f an y

ag reem en t o r u n d ers t an d i n g en t eredi n t o (o r ex pect ed t o b e en t eredi n t o ) b y o r o n b eh al f o f t h e d o n o r o r d o n ee th atrel at es t o th e u s e, s al e, o r o th er d i s p o s i t i o n o f t h e p ro p ert y co n tri b u t ed* * * ; (E) Th e n am e, ad dres s, an d * * * th e i d en t i fy i n g n u m b er o f t h e qu al ifi edap p rai s er * * * ; (F) Th e qu al i fi cat io n s o f t h e qual i fi edap p rai s er wh o s i g ns th e ap p rai s al , i n cl u d i n g th e ap p rai s er’ s b ack g ro un d , ex p eri en ce, edu cat i on , an dm em

b ers h i p , i f an y , i n p ro fes si o n al ap prai s al as s o ci at i o ns ; (G) A s t at em en t th atth e ap p rai sal was p rep aredfo r i n co m e t ax p u rp o s es ; (H) Th e d at e (o r d at es ) o n wh ich th e p ro p erty was ap p rai s ed ; (I) Th e ap p rai s edfai r m ark etv al u e * * * o f th e p ro p ert y o n th e d at e (o r ex pect ed d at e) o f co n tri b ut io n ; (J ) Th e m eth o d of v al u at i o n u s edt o d et erm i n e t h e fai r m ark et v al u e * * * ; an d (K) Th e s p eci fi c b as i s fo r t h e v al u at io n * * *
. Id . s ub di v . (i i). Res p o n d en tco n t en d s th atth e 2 0 07 M ars hal l & St ev en s ap p rai s al was n o ta

“ qu al i fi edap p rai s al ” b ecau se i tfai l ed t o s at i s fy th e fi rs treq u i rem en to f s ect i o n 1 .1 70 A-1 3 (c)(3 )(i i ), In co m e Tax Reg s. W e ag ree (as fu rt h er d i s cu s s edb el o w), b u t th e 2 0 07 M ars h al l & St ev en s ap p rai s al s u ffers fro m a m o re fu n dam en t al p ro b l em ;- 1 9 -

[* 1 9 ] th ati s , i ti s n otan ap p rai s al o f wh atM r. Cam p bel l d o nat ed , i .e., h i s 3 ,4 3 2
n ew d es i gn er ey eg l as s fram es , s ee s ec. 1 .1 7 0 A -1 3 (c)(2 )(i )(A), In co m e Tax Reg s ., b u trat her i s an ap p rai s al p rem i s edo n v al u in g 3 4 9 ,6 2 9 fram es . As we s t at edi n Al l i v . Co m

m i s s i on er, at* 3 0 , “ [i ] n o rd er fo r th e qual i fi edap p rai s al t o h el p th e IRS

‘ deal m o re effect i v el y wi th the p rev al en t u s e o f o v erv al u at i o n s ,’ th e ap p rai s ed p ro p erty m u s tb e t h e s am e p ro p ert y

th atwas d o n at edan d th atg av e ri s e t o th e cl ai m edd edu ct i on .” See al s o Es t at e o f Ev en ch i kv . Co m m i s s io n er, T.C. M em o . 2 0 1 3 -3 4 , at* 8 (co n cl u di n g th att ax p ay ers d i d n o to b t ai n a “ qu al ifi edap p rai s al ” o f

“ th e co n tri b u t edp ro p ert y ”, co ns i s t i n g o f 7 2 % o f t h e s h ares i n a co rp o rat i o n , b ecau s e th e ap p rai s al s o bt ai n edwere ap p rai s al s o f t h e co rp o rat i o n ’ s as s et s an dn o t
o f t h e co n tri b u t eds h ares ); Sm i th v . Co m m i s s i o ner, T.C. M em o . 2 0 07 -3 6 8 , s l i p o p . at4 7 -4 8 (co n cl u d i n g th att ax p ay ers ’ ch ari t ab l e co n tri b u t i o n o f fract i o n al i n t eres t s i n a fam i l y

l i m i t edp art n ers h i p th atwas s up p o rt edb y an ap p rai s al o f t he p art n ers hi p ’ s s o l e u n d erl y i n g as s et , al o n g wi th th ei r fai l u re t o at t ach a qu al i fi ed
s u m m ary ap prai s al t o th ei r retu rn an ds h o w th atth e ap prai sal was co m p l et edb y a qu al i fi edap prai s er, d i dn o t“ s ub s t an t i al l y co m p l y o r o th erwi s e p ro v i d e * * * [t h e Co m m i s s i o n er] wi th s u ffi ci en ti n fo rm at i o n t o acco m p li s h th e s t atu t o ry

p u rp o s e” o f
en ab li n g th e Co m

m i s s i o ner t o “ u n d ers t an dan dm o n i t o r t he cl ai m ed
co n tri b u t i o n s”), aff’ d, 3 6 4 F. Ap p ’ x 3 1 7 (9 th Ci r. 2 00 9 ).- 2 0 -

[* 2 0 ] Al th ou g h the 2 0 07 M ars h al l & St ev en s ap p rai s al i n cl ud edM r. Cam p b el l’ s 3 ,4 32 ey eg l as s fram es , we (an dth e IRS) h av e n o way t o d et erm i n e wh eth er wh at h e al o n e co n tri b ut edi s o v erv al u ed . Th i s i s t h e t y pe o f s itu at i o n thatCo ng res s i n t en d edt o p rev en twh en i tco d i fi edm o re t h an 1 5 y ears ag o th e req u i rem en tth ata t ax p ay er cl ai m i n g a ch ari t ab l e co n tri b u t i on d edu ct i o n fo r t h e d o nat i on o f p ro p ert y
wo rt h m o re t h an $ 5 ,0 0 0 o bt ai n a qu al i fi ed ap p rai sal fo r t h e p ro p ert y co nt ri b u t ed
. Sec. 1 7 0(f)(1 1 )(C) (as am en d edb y th e Am eri can J o b s Creat i on Acto f 2 0 04 , Pub
. L. No . 1 0 8 -3 5 7, s ec. 8 8 3(a), 1 1 8 St at . at1 6 3 1). Tel l i n g ly , the 3 4 9 ,6 2 9 ey eg l as s fram es th atM ars h al l & St ev en s v al u ed
v ari edi n p ri ce b et ween $ 3 7 an d$ 80 , y etp et i ti o n ers co u l dn o td i scern wh et h er M r. Cam p b el l ’ s 3 ,4 32 fram es are fro m th e l o w en do f t h e p ri ce s p ect ru m , th e h i g h en d , o r s o m e v ary i n g co m

b i n at i o n . In d eed , th e 2 0 1 2 M i les ap p rai s al h i g h l i gh t s th e p ri m ary d efect o f t h e 2 0 0 7 M ars h al l & St ev en s ap p rai s al . Inth e 2 0 1 2 M i l es ap p rai s al , 3 9 , 7 0 9 o f t h e 3 4 9 ,6 2 9 ey eg las s fram es were as s i gn eda v al u e o f zero as
o f Decem b er 2 0 07 . M i g h tM r. Cam p bel l ’ s 3 ,4 32 fram es b een a p arto f t h e 3 9 ,7 0 9 fram es ? Onb ri ef p et i t i o n ers arg u e (v i a req u es t in g th atth e Co u rtfi n d as fact ) t h at M r. Cam pb el l p urch as edan dd o n at eda fract io nal i n t eres t , i
. e., an u n di v i d ed 3 ,4 32 di n t eres t , i n th e 3 4 9 ,6 2 9 fram es . Th e reco rdu nm i s t ak ab l y b el i es thi s . As an- 2 1 -

[* 2 1 ] i n i t i al m at t er, p et i t i o n ers h av e s t ip u l at edth at M r. Cam p b el l p u rch as eda
s i ng l e al l o t m en to f 3 , 4 3 2 ey eg l as s fram es fro m ZD Pro du ct s. W e t reat a
s t ip u l at i o n “ as a co n cl u s i v e ad m i s s i o n b y th e p art i es , an dth e Co u rtwi l l n o tp erm i t a p art y t o ch an g e o r co n trad i cta s t i p u l at i o n , ex cep t i n ex trao rd i n ary ci rcu m s t an ces . ” Kears e v . Co m m i s s i o ner, T.C. M em o . 2 0 19 -5 3 , at* 1 5 (qu o t i n g Sh ack el fo rdv . Co m

m i s s i o n er, T.C. M em o . 1 9 9 5 -4 8 4 , s l ip o p . at1 5 ); s ee al s o Ru l e 9 1 (e). W e al s o no t e t h atp et i t i o n ers h av e n o t “ as k edt o b e rel i ev ed[fro m th e b i n d i n g effect ] o f t hi s s t i p u l at i o n , an dwe wi l l th erefo re h o l d* * * [t h em ] t o i t .” See W i n t er v . Co m

m i s s io ner, T.C. M em o . 2 0 1 0 -2 87 , s l i p o p . at 2 8 . Ad d it io n al l y , th e o fferi n g m em o ran du m d oes n o trefl ectth atp ro s p ect i v e b u y ers wi l l h av e a fract i o n al i n t eres t ; i n s teadi treci t es th atp ro s pect i v e b u y ers wi l l h av e t h e
o p p o rtu ni ty

t o p urch as e o n e o r m o re al l o t m en t s o f 3 ,4 3 2 ey eg l as s fram es fro m a
co l l ect i o n o f 1 7 1,6 0 0 fram es i n ZD Pro du ct s ’ p o s ses s i o n . Th e b i l l o f s al e b et ween M r. Cam pb el l an dZD Pro duct s al s o d o es n o tm em o ri al i ze t h e p u rch as e o f a fract i o n al i n t eres tan di t referen ces an i t em i zed i nv en t ory o r m erch an di s e l is t (al th ou g h s u ch a l is t i s n o t at t ach edt o th e b i l l o f s al e). M o reo v er, i f M r. Cam p b el l i n d eedh ada fract i o n al i n t eres th e wo u l dn o th av e h adth e u nfet t eredri g h tas th e
o fferi n g m em o ran du m

p ro vi dedt o (1 ) i n s pect o r rem o v e h i s fram es an d(2 ) d o n at e- 2 2 -

[* 2 2 ] h i s fram es b efo re t h e o ne-y ear h o l d i ng p eri o dev en t o an o th er ch ari t ab l e
o rg an i zat i o n b es i d es Li o n s i n Si g h t
. W e co ncl u d e t h at th e 2 0 0 7 M ars hal l & St ev en s ap p rai s al d oes n o t co m p l y wi th th e req u i rem en ti n s ect i o n 1 .1 7 0 A-1 3 (c)(2 )(i )(A), In co m e Tax Reg s ., th atth e t ax p ay er o b t ai n an ap p rai s al o f th e p ro p ert y h e co nt ri bu t ed an d g av e ri s e t o h i s cl ai m edd edu ct i on . W e al s o ag ree wi th res p on d en t , as i n d i cat ed s up ra p . 1 8 , th atth e 2 0 0 7 M ars h al l & St ev en s ap p rai s al fai l s t o p ro v i d e “ [a] d es cri p ti o n o f th e p ro p ert y i n
s u ffi ci en td et ai l fo r a p ers on wh o i s n o tg en eral l y fam i li ar wi th th e t y

p e o f p ro p erty t o as cert ai n thatth e p ro p ert y th atwas ap prai s edi s t h e p ro p erty th atwas (o r wi l l b e) co n tri b u t ed ”. Sec. 1 .1 7 0 A-1 3 (c)(3 )(i i )(A), In co m e Tax Reg s . As we
s t at edi n Al l i v . Co m

m i ss io n er, at* 31 -* 3 2 (q u o t in g Bru zewi cz v . Un i t edSt at es , 6 0 4 F. Sup p . 2 d1 1 97 , 1 2 0 6 (N.D. Il l . 2 0 0 9 )), “ [t ] h e d es cri p ti o n req u i rem en ti s

‘ im p o rt an t , i n d eedes s en t i al , t o th e rev i ew o f ch ari t ab l e co n tri b ut i on d edu ct i o n s
an d th e rel iab il i ty

o f co rres p o nd i n g ap p rai s al s .’ In d eed , ‘ [a] b s en ta d es cri p t i o n o f th e * * * [co n tri bu t edp ro p ert y ] , the ap p rai s al an di t s v al u at i o n o f th e d on at ed p ro p erty are m ean i n g l es s .’ ” Th e 2 0 0 7 M ars h al l & St ev en s ap p rai s al d idn o t p ro v id e a d es cri pt i o n o f t h e 3 ,4 3 2 ey eg l as s fram es as co nt ri bu t ed b y M r.- 2 3 -

[* 2 3 ] Cam

pb el l
. Co n s equ en t l y , i td o es n o tco m p l y wi th s ect i o n 1 .1 7 0 A1 3 (c)(3 )(i i )(A), In co m e Tax Reg s . Acco rd i ng l y , we h o l dth atp et i t i o n ers d i dn o ts tri ct l y co m p l y wi th th e req u i rem en tu n d er s ect i o n 1 7 0 an dthe reg u l at i o ns th ereu n der t h atth e t ax p ay er
o b t ai n a “ qu al i fi edap p rai s al ”.

2
. CWA Un d er th e reg u l at i o n s a CW A m u st i n cl u d e: (1 ) t h e am ou n t o f cas h an da d es cri p t io n (b u tn o tv al u e) o f an y p ro pert y o th er t h ancas h co n tri b u t ed ; (2 ) wh et h er t h e d o n ee o rg an i zat i o n p ro v i d edan y g oo d s o r s erv i ces i n
co n si d erat io n fo r t h e co nt ri bu t i o n ; an d(3 ) a d es cri p t i o n an da g o odfai th es t i m at e
o f t h e v al u e o f an y

g o o d s o r s erv i ces p ro v i dedb y th e o rg an i zat i o n , o r i f s u ch g o o d s an ds erv i ces co n s i s ts o l el y o f i n t an g i b l e rel i g i o u s b en efi t s , a s t at em en tt o th ateffect
. 1 5 Sec. 1 .1 7 0 A-1 3 (f)(2 ), In co m e Tax Reg s . Res p o n d en tco n t en d s th atLi on s i n Si gh t ’ s Decem b er 2 8 , 2 0 0 7, l et t er t o M r. Cam p b el l was n o ta p ro p er CW A b ecau s e i td i d n otad dres s th e “ go o ds o r
s erv i ces ” qu es ti o n . W e ag ree (al th o u gh we reco g ni ze t h at p et i t io n ers cl ai m , an di t
can b e i n ferred fro m th e reco rd , th atM r. Cam p bel l ’ s Li o n s i n Si g h t d o n at io n was

1 5 Sec. 1 7 0(f)(8 )(B) al s o s et s fo rt h th i s CWA requ i rem en tan ds ec. 1 7 0 (f)(8 )(D) p ro v i d es an ex cep t i o n t o th i s req u irem en t, b ut p et i t i o n ers d o n o t as s ertth atth i s ex cep t i o n ap p l i es .- 2 4 -

[* 2 4 ] n o tm ad e wi th th e ex p ect at i o n o f a qu idp ro qu o ). Th e l et t er m erel y ack n owl ed gedh i s “ g en ero u s g i ft o f p res cri p ti o n ey eware [s i c] ” an dh ow h i s
co n tri b u t i o n wo u l das si s tLi o n s i n Si gh t ; i tm ad e n o m en t i o n o f wh et h er Li o n s i n Si g h t p ro v i d edan y g o o d s o r s erv i ces i n co n s id erat i o n fo r M r. Cam p b el l’ s
co n tri b u t i o n . As we h av e s t at edm an y t i m es , th e CW A m

us taffi rm at i vel y s t at e th atn o co n s i d erat i o n was p ro v i d edfo r t h e co n tri b u t ed p ro p ert y reg ard l es s o f wh et h er a t ax p ay er act u al ly recei v ed an y

co ns i d erat i o n ; th i s i s a m an dat o ry req u i rem en tan d n o d edu ct i o n wi l l b e al l owedi f t h e CW A d o es n o ti n cl u d e s u ch a
s t at em en t . See, e.g
. , Fren ch v . Co m m i s s i o n er, T.C. M em o . 2 0 1 6 -5 3 , at* 8 ; Cri m i
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 3 -5 1 , at* 9 2 -* 9 3; Du rd env . Co m m is si o n er, T.C. M em o . 2 01 2 -1 4 0 , s l i p o p . at7 -8 ; Fri ed m an v . Co m m i s si o n er, T.C. M em o . 2 0 1 0 -4 5 , s l i p o p . at1 4 . “ T h e d et erren ce v al u e o f * * * [a t ot al d en i al o f a d educt i o n i n th e cas e o f an i m p ro p er CW A] co m

p ort s wi th the effect i v e ad m i n is trat i o n o f a s el f-as s es s m en tan ds el f-rep o rt in g s y s t em .” Ad d i s v . Co m m i s s i o n er, 3 7 4 F.3 d8 8 1 , 8 8 7 (9 th Ci r. 2 0 0 4 ), aff’ g 1 1 8 T.C. 5 2 8 (2 0 0 2 ). Acco rd i ng l y , we h o l dth atp et i t i o n ers d i dn o ts tri ct l y co m p l y wi th th e req u i rem en tu n d er s ect i o n 1 7 0 an dthe reg u l at i o ns th ereu n der t h atth e t ax p ay er
o b t ai n a CW A.- 2 5 -

[* 2 5 ] 3
. Sub s t an t i al Co m pl i an ce Pet i t i o ners co n t en dth att o th e ex t en tth ey h av e n o ts tri ct l y co m

pl i edwi th th e s ub s t an t i at io n req u i rem en t s o f s ect i o n 1 7 0 an dth e reg u l at i on s th ereu nd er t hey
s h o u lds t i l l b e en ti t ledt o t h ei r carry ov er ch ari t ab l e co n tri b u t i o n d edu ct io n wi th
res p ectt o M r. Cam

pb el l ’ s Li o n s i n Si gh td o n at i o n b ecau se t h ey s ub s tan t i al l y
co m p l iedwi th t h es e req u i rem en t s . Th ei r arg um en tp ri m ari l y s p ri ng s fro m

Bo n dv . Co m m i s s i o n er, 1 0 0 T.C. 3 2 , 4 0 -4 1 (1 9 9 3 ), wh ere we d et erm in edth ats o m e o f t h e req u i rem en t s o f s ect i o n 1 .1 70 A-1 3 , In co m e Tax Reg s ., are “ d i rect o ry an dn o t
m an d at o ry ”, an dth u s s tri ctco m p l i an ce wi th thes e req u i rem en t s i s n o tn eces s ary i f th e t ax p ay er d em o n s trat es “ s ub s t an t i al co m p l ian ce”. In Bo ndth e t ax p ay ers d o n at ed two b l i m

ps t o a ch ari t ab l e o rg an izat io n. Id . at3 3. Th ey h iredan ap p rai s er, wh o t im el y

m ad e an ap p rai s al o f th e b li m p s fo r u s e b y

th e t ax p ay ers i n th e p rep arat i o n o f t h ei r Fed eral i n co m e t ax retu rn fo r 1 9 86 . Id . Th e ap prai s er p rep aredan “ ap p rai s al s u m m ary ” (i .e., a Fo rm

8 2 8 3 ), wh i ch the t ax p ay ers at t ach ed t o thei r 1 9 86 retu rno n wh i ch th ey cl ai m eda ch ari t ab l e co n tri b ut i o n d edu ct i o n o f $ 6 0 ,0 0 0 (t he ap p rai s edv al u e) fo r t h e d o n at ed b l i m p s . Id . at3 4. Th e t ax pay ers , h o wev er, d i dn o tat t ach t o t h i s retu rn a “ qu al i fi ed ap prai s al ” o f t h e b l i m p s . Id . At th e b eg i n n i n g o f t h e au d i t o f t h ei r 1 9 8 6 retu rn , th e ap p rai s er fu rn i sh eda l et t er
s t at i n g h i s qu al i fi cat i o n s an dex p l ai n i n g h o w h e ap p rai s ed th e b l i m p s . Id . at3 4
-- 2 6 -

[* 2 6 ] 3 5 . W e h el d th atth e t ax p ay ers h ad s ub s tan t ial l y co m pl i edwi th s ect i o n 1 .1 70 A-1 3 , In co m e Tax Reg s ., an dth u s were en t i t l edt o th e ch ari t ab le
co n tri b u t i o n cl ai m ed b ecau s e: [Th e t ax p ay ers ] * * * m etal l o f t h e el em en ts req u i redt o es t ab l i s h the s ub s t an ce o r es s en ce o f a ch ari t ab l e co n tri b u t io n , b u tm erel y fai l edt o o b t ai n an dat tach t o th ei r retu rn a s ep arat e wri t t en ap prai s al * * * ev en tho u g h s ub s t an t i al l y al l o f t he s p eci fi edi n fo rm at i o n ex cep tth e qu al ifi cat i o n s o f t h e ap p rai s er ap p eared i n th e Fo rm 8 28 3 at t ach edt o th e ret u rn . Th e d en i al o f a ch ari t ab le d edu ct i o n u n d er t h es e ci rcu m s t an ces wo u l dco n s t i tu t e a s an ct i o n wh i ch i s n o twarran t ed o r ju s t i fi ed . [Id . at 4 2 .] Sub s t an t i al co m

pl i an ce i s n o t i n ten d ed t o ex cu s e al l fai l u res b utrat h er i t
m ay b e ap p l i edwh ere “ th e t ax p ay ers h adp ro v i d edm o s to f t h e i n fo rm at i o n req u i red [] an dth e s i n g l e d efecti n fu rn i s h in g ev eryth i n g req u i redwas n o t
s i gn i fi can t ” o r m ad e o m i s s i o n s “ s o l el y th ro u g h i n ad v ert en ce.” Hewi t tv . Co m m i s s i o n er, 1 0 9 T.C. 2 5 8 , 2 6 5 & n
. 1 0 (1 9 9 7 ), aff’ d wi th o u tp ub l i s h edo p i n i o n , 1 6 6 F.3 d3 3 2 (4 th Ci r. 1 9 9 8); s ee al so Du rd en v . Co m m i s s io n er, s l i p o p . at5 (“ Th e d o ct ri n e o f s ub s t an ti al co m p l i an ce i s d es i g n edt o av o i dh ard s h ip i n cas es wh ere a t ax p ay er d o es al l th ati s reas o n ab ly p os s i b l e, b u tn o net h el es s fai l s t o
co m p l y wi th th e s p eci fi c req ui rem en t s o f a p ro v i s i o n .”). Co n s equen t l y , th e
s ub s t an t i al co m

pl ian ce d o ct ri n e i s n o tt o b e l i b eral ly ap p l i ed . Al l i v . Co m m i s s i o n er, at* 5 4 (an d cas es ci t edth ereat ). In d eed , as we h i g h l i g h tedi n- 2 7 -

[* 2 7 ] Es tat e o f Ev en ch i kv . Co m m i s s i o n er, at* 1 1-* 1 2, an dM o h am edv . Co m m i s s i o n er, T.C. M em o . 2 0 1 2 -1 5 2 , s l i p o p . at1 9 , few t ax p ay ers p os t -Bo n d h av e s ucceed ed i n s h o wi ng s ub s t an t i al co m p li an ce wi th th e req u i rem en t s o f
s ect i on 1 7 0 an d th e reg u l at i o n s t h ereu n d er. Pet i t i o ners s u ffer t h e s am e fat e. A t ax p ay er can n o tb e ex cu s edfro m s tri ct
co m p l ian ce wh ere t h e t ax pay er fai l s t o m eet an es s en t i al req u i rem en to f s ect i o n 1 7 0 o r a s ub st an t i v e req u i rem en to f t h e reg u lat i o n s th ereu nd er. See, e.g ., Es t at e o f Cl au se v . Co m

m i ss i o n er, 1 2 2 T.C. 1 1 5 , 1 22 (2 0 0 4 ); Al l i v . Co m m i ss i o n er, at* 5 5 (an dcas es ci t ed th ereat ); Fri ed m an v . Co m m i s s io n er, s l i p o p . at6
. Reg ard i n g th e 2 0 0 7 M ars h al l & St ev en s ap p rai s al , as d i s cu s s ed s up ra p p . 2 0 -2 3 , i t s d efect s are
n o t(i n the wo rd s o f p et i ti o n ers ) “ ri d i cu l ou s l y tri v ial an di nco n s equ en t i al ”. Th e 2 0 0 7 M ars h al l & St ev en s ap p rai s al was n o tan ap p rai s al o f M r. Cam pb el l ’ s
co n tri b u t edp ro p ert y , i .e., h i s 3 ,4 3 2 n ew d es ig n er ey eg las s fram es ; i n s teadi t
v al u ed3 4 9 ,6 29 fram es . Th e ap p rai s al al s o fai ledt o m eetth e d es cri p t i o n req u i rem en ts etfo rt h i n s ect i o n 1 .1 7 0 A-1 3 (c)(3 )(i i )(A), In co m e Tax Reg s . Th es e

“ m i s cu e[s ] g o [] t o t h e es s en ce o f t h e i n fo rm at i o n req u i red ”. Ev en ch i kv . Co m m i s s i o n er, at* 1 4 . Co n s equ en t l y , th e 2 00 7 M ars h al l & St ev en s ap p rai s al d o es
n o ts ub s t an t i al l y

co m p l y wi th t h e req u irem en t s o f s ect i o n 1 7 0 an dth e reg ul at i o n s th ereu n d er. Reg ard i n g Li o n s i n Si g h t ’ s Decem ber 2 8 , 2 0 0 7 , l et t er t o M r.- 2 8 -

[* 2 8 ] Cam

pb el l an dwh et h er i t s ub s tan t i al l y co m pl i edwi th th e req u i rem en t s u n d er
s ect i on 1 7 0 an d th e reg u l at i o n s t h ereu n d er fo r a CW A, we h av e h el do n n um ero u s
o ccas i o n s th at th e d o ct ri n e o f s ub s tan t i al co m p l i an ce d o es n o tap p l y

wi th res p ect t o the CW A requi rem en t s . See Izen v . Co m m i s s io n er, 1 4 8 T.C. 7 1, 7 6 -7 7 (2 0 1 7 ) (an dcas es ci t ed th ereat ).

4
. Reas on ab l e Cau s e Pet i t i o ners al s o co n t en dth atp u rs uan tt o s ect i o n 1 7 0 (f)(1 1 )(A)(i i )(II)
reas on ab l e cau s e ex i s t s b ecau s e th ey “ rel i edo n th e ad v i ce o f t h ei r l o n g -t erm
acco u n t an t s [i
. e., Kru s e M en n i l l o ] th atth e d o cu m en t at i o n rel at i n g t o th e ch ari t ab l e
co n tri b u t i o n m etth e requ i rem en t s ” o f s ect i o n 1 7 0 an dthe reg ul at i o n s thereu n d er. As rel ev an th ere, i f a t ax p ay er d o es n o ts tri ct ly o r s ubs t an ti al l y

co m p l y wi t h th e req u i rem en t o f s ect i o n 1 7 0 an dth e reg u l at io ns th ereu n d er t hath e o b t ai n a

“ qu al i fi edap p rai s al ”, s ect i o n 1 7 0 (f)(1 1 )(A)(i i )(II) p ro v id es th ata ch ari t ab l e
co n tri b u t i o n d edu ct i o n wi l l n o tb e d en iedi f t h e t ax p ay er can p ro ve t hatth e fai l u re t o m eetth i s req u i rem en t “ i s du e t o reas o n ab l e cau s e an d n ott o wi l l fu l n eg l ect .” 1 6 W e u s e o th er Co d e p ro v is i on s ’ reas o n ab l e cau s e s t an d ard s t o i n terp retth e s ect i o n

1 6 W e n o te t h at th is reas o n ab l e cau s e ex cep t io n d oes n o t ap pl y t o t h e req u i rem en to f s ec. 1 7 0 an dth e reg u l at i o n s th ereu nd er t h atth e t ax p ay er o b t ai n a CWA. See s ec. 1 7 0(f)(1 1 )(A)(i ). Th u s , th ere i s n o reas o n ab l e cau s e t o ab so l v e p et i t i o n ers ’ fai l u re t o co m p l y wi th th e CWA requ i rem en t
.- 2 9 -

[* 2 9 ] 1 7 0 (f)(1 1)(A)(i i )(II) reas o n ab l e cau s e s t an d ard . See Cri m i v . Co m m i s s i o n er, at* 9 8 -* 9 9
.

“ Reas on ab le cau s e req u i res th atth e t ax p ay er h av e ex erci sedo rd i n ary b u s i n es s care an dp ru d en ce as t o th e ch al l en g edi t em . Thu s , th e i n qu i ry i s i n h eren t l y

a fact -i n t en s i v e o ne, an dfact s an dci rcu m s t an ces m u s t b e ju d g edo n a
cas e-b y -cas e b as i s .” Id . at* 9 9 (ci t i n g Un i t edSt at es v . Bo y l e, 4 6 9 U.S. 2 4 1 (1 9 8 5)). Rel ian ce o n th e ad v i ce o f a p ro fes s i o n al , s u ch as a cert i fi edp ub l i c
acco u n t an t , wo u l dco n s ti tu t e reas on ab l e cau s e an dg o odfai th i f t h e t ax p ay er p ro v es b y a p rep o n deran ce o f t h e ev i d en ce th at h e: (1 ) reas o n ab ly b el iev edth e p ro fes s i on al was a co m

p et en tt ax ad v i s er wi th s u ffi ci en tex p ert i s e t o ju s ti fy rel i an ce, (2 ) p ro vi d ed neces s ary an daccu rat e i nfo rm at i o n t o t h e ad v i si ng p ro fes s i on al , an d(3 ) act u al l y rel i ed i n g o o dfai th o n th e p ro fes si o n al ’ s ad v i ce. Id .;
s ee al so Neo n at o l o g y

As s o cs ., P.A. v . Co m

m i s s i on er, 1 1 5 T.C. 4 3 , 9 9 (2 0 0 0 ), aff’ d , 2 9 9 F.3 d2 2 1 (3 dCi r. 2 0 0 2 ). Ho wev er, a t ax pay er can n o trel y o n t h e ad v ice
o f a p ro fes si o nal wh ere t h atad v i ce i s n o t“ fro m a co m p et en tan di n dep en d en t ad v is o r u nb u rd en edwi th a co n fl i cto f i nt eres t an dn otfro m p ro m o t ers o f t h e i n v es t m en t .” 1 0 6 Lt d. v
. Co m m i s si o ner, 1 3 6 T.C. 6 7, 7 9 (2 0 1 1 ) (qu ot i n g M o rt en s en v . Co m

m is s i o n er, 4 4 0 F.3 d3 7 5 , 3 87 (6 th Ci r. 2 00 6 ), aff’ g T.C. M em o . 2 0 0 4 -2 7 9 ), aff’ d , 6 8 4 F.3 d 8 4 (D.C. Ci r. 2 0 1 2 ); s ee al s o M azzei v . Co m m i s s i o n er,- 3 0 -

[* 3 0 ] 1 5 0 T.C. 1 3 8 , 1 8 1 (2 0 1 8 ) (ci t in g Neo n at o l o g y As s o cs ., P.A. v
. Co m m i s s i o n er, 1 1 5 T.C. at9 8 ). M r. Cam p b el l l earn edo f th e ey ewear ch ari t ab l e co n tri b u t i on p ro g ram th ro u g h M r. Kawan a atKru s e M en n i l l o (wh o p et i t i on ers h aden g ag edt o p ro v i d e
acco u n t in g , es t at e p l an n i n g , an dretu rn p rep arat i o n s erv ices t o th em s in ce ap p ro x i m at el y 2 0 0 0). M r. Kawan a an dtwo o th er Kru s e M en ni l l o p art n ers s erv ed
as ad v is ers t o ZD Pro du ct s wi th res p ectt o th e p ro g ram (h av i n g p rep aredth e
o fferi n g m em o ran du m ), an dM r. Kawan a p ers o nal l y p art ici p at edi n th e p ro g ram . As we s t at edi n 1 0 6 Lt d . v . Co m m i s s i o n er, 1 36 T.C. at7 9 , “ [t ] h e cas el aw i s cl ear
o n th i s p o i n t --p ro m o t ers t ak e t h e g o o d -fai th o u to f g o o d -fai th rel i an ce.” On th e b as i s o f t h e reco rd befo re u s , we fi n dth atM r. Kawan a an dKru s e M en n i ll o were p ro m o t ers o f t he p ro g ram an dn o t“ i n d ep en den tad v i s o r[s ] u nbu rd en edwi th a
co n fl i cto f i n teres t ”. Id . Acco rd i n g l y , p et i t io n ers ’ reas o n ab le cau se arg u m en ti s
m eri t l es s . 1 7

1 7 Pet i t i o ners al s o arg u e t h atres p o n d en t d i d n o ts ub m itan y fact s thatwo u l d n eg at e t h e ex i s t en ce o f reas o nab l e cau s e. Pet i t i o n ers , h o wev er, b ear t h e b u rd en o f p ro v in g reas o n ab le cau s e, s ee Hi gb ee v . Co m m i s s i o ner, 1 1 6 T.C. 4 38 , 4 4 6 -4 4 7 (2 0 0 1), an dth ey

h av e fai l edt o p res en tev i d en ce o f s u ch
.- 3 1 -

[* 3 1 ] W e s u s t ai n res p o nd en t ’ s d et erm i n at i o n thatp et i t i o n ers are n o ten t i t l edt o th ei r carry ov er ch ari tab l e co n tri b u t i o n d edu ct i o n wi th res p ectt o M r. Cam pb el l ’ s Li o n s i n Si g h td o nat i o n . III. Accu racy -Rel at edPen al t i es W e n o wad dres s wh et h er p et i t i o n ers are l iab l e fo r t h e s ect i o n 6 6 6 2 (a)
an d (h ) accu racy -rel at edp en al t i es . As i n d i cat eds up ra p p . 1 4 -1 5 , th e Co m m i s si o n er b ears th e b u rd en o f p ro duct i o n wi th res pect t o an i n d i v i du al t ax p ay er’ s l i ab i l it y fo r an y p en al ty . Sec. 7 4 9 1 (c). In Fro s tv . Co m m is s i o n er, 1 5 4 T.C. _

_ _ , _ _ _ (s l i p o p. at 2 0) (J an . 7 , 2 0 2 0 ), we recen t l y

h el d th atth e Co m

m is s io n er’ s i n it i al b u rd en o f p ro du ct i o n
u n d er s ect i o n 7 4 9 1 (c) i n cl u d es p ro duci n g ev i d en ce t h ath e h as co m p l iedwi th th e p ro cedural req u i rem en ts o f s ect i o n 6 7 5 1 (b ) an dth ato n ce h e h as s at i s fi edth i s i n i t i al b u rd en th e t ax pay er m u stco m e fo rwardwi th co nt raryev i d en ce. Sect i o n 6 7 5 1 (b )(1 ) req u i res th atth e i n i t i al d et erm in at i o n o f cert ai n p en al ti es b e

“p ers o n al l y

ap p ro v ed(i n wri ti n g ) b y th e i m m ed i at e s up erv i s o r o f t h e i n d i v i du al
m ak i n g s u ch d et erm i n at io n ”. See Graev v . Co m m i s s i o n er, 1 4 9 T.C. 4 8 5 , 4 9 2 -4 9 3 (2 0 1 7), s up p l em en t i n g an do verru l i n g i n p art 1 47 T.C. 4 6 0 (2 0 1 6 ); s ee al s o Cl ay
v . Co m m i s s i o n er, 1 5 2 T.C. 2 23 , 2 4 8 (2 0 1 9) (q uo t i n g s ect i o n 6 7 5 1 (b )(1 )). In Bel ai r W o od s , LLC v . Co m m i s s i o ner, 1 5 4 T.C. _

__ , _

_ _ (s li p o p . at2 4 -2 5 )- 3 2 -

[* 3 2 ] (J an . 6 , 2 0 2 0 ), we recen tl y h el dth at“ th e ‘ i n i t ial d et erm i n at i o n’ o f a p en al t y
as s es s m en t* * * i s em

b o d iedi n th e d o cu m en tb y wh i ch the Ex am i n at i o n Di v i s i o n fo rm al l y n o t i fi es th e t ax p ay er, i n wri t i n g , th at i t h as co m p l et ed i t s wo rk

an dm ad e
an u n equ i v o cal d eci s i o n t o as s ertp en al t i es .” Fu rt h erm o re an d as rel ev an th ere, i n Pal m o li v e Bl dg . In v’ rs , LLC v . Co m m i ss i o ner, 1 5 2 T.C. 7 5 , 8 7 (2 0 1 9 ), we
recen t l y h el dthatthe s ect i o n 6 6 6 2 (a) an d(h ) p en al t i es are d i st in ct(d es p i t e t h e t i t le
o f s ect i o n 6 6 62 referri n g t o a (s i n g u l ar) p en al ty ), an dth e i n i t ial d et erm i n at i o n
u n d er each s ub s ect i o n m

u s tb e s ep arat el y

ap p ro v ed fo r p u rp o s es o f s ect i o n 6 7 5 1 (b )(1 ). See al s o Ro g ers v . Co m m i s s i on er, T.C. M em o . 2 0 1 9 -6 1 , at * 20 (ci t i n g Pal m o l i v e Bl dg . In v ’ rs , LLC v . Co m m i ss i o ner, 1 52 T.C. at8 7 ). Onth e b as is o f th e reco rdb efo re u s , we h ol d th atres p o n den th as fai l edt o carryh i s i n i t i al b u rd en o f p ro du ct i o n u n der s ect i o n 7 4 9 1 (c) t o s h o w th ath e
co m p l iedwi th t h e p ro cedural req u i rem en t s o f s ect i on 6 7 5 1(b ). Th e Ci v il Pen al ty Ap p ro v al Fo rm , al tho u g h p ro p erl y s i gn edan dd at edb efo re t h e i ss u an ce o f t h e
n o t i ce o f d efi ci en cy

(t h e fi rs tfo rm al co m

m u n icat i o n o f p en al t i es t o p et it i on ers ), d o es no ts h o w s ep arat e ap p ro v al fo r the s ect i o n 6 6 6 2 (a) an d(h ) p en al t i es . Th e
o n e-p ag e fo rm

fai l s t o s tat e wi th an y

d eg ree o f s p eci fi ci ty wh i ch p en al ti es s h o u l d b e as s ert ed(an dare ap p ro v ed ); i n d eed , al l th atthe fo rm s t at es i s th ata “ [p ] en al t y wi l l b e as s ert edwi th th e 2 0 0 8 [y ] ear.” Sect io n 6 75 1 (b )(1 ) wo u l d b e m ean i n g l es s- 3 3 -

[* 3 3 ] i f wri t t en s up erv i s ory ap p ro val o f an u n s p eci fi edp en al ty was s u ffi ci en t ;
ex am i n i n g ag en ts wo u l db e free t o as s ertan y ty p e o f p en al ty

aft er wri t t en
s up erv i s o ry

ap p ro v al was g i v en , an act i o n t h ats ect i o n 6 7 5 1 (b )(1 ) was d es i g n edt o p rev en t. Co ns equ en t l y , s i n ce res p o n d en th as n o tp ro ffered an y o th er ev i den ce t h at h e co m p l i edwi th th e p ro cedu ral req u i rem en t s o f s ect i o n 6 7 5 1(b ), p et it i on ers are
n o tl i ab l e fo r t h e s ect i o n 6 6 6 2 (a) an d (h ) accu racy -rel at edp en al t i es . W e h av e co n s id eredal l o f t h e arg um en t s m ad e b y th e p art i es an d , t o th e
ex t en tth ey

are n o tad dres s edh erei n , we fi n dth em t o b e m o o t , i rrel ev an t, o r wi th o u tm eri t
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.