Court Opinion

ID: 4635931
Source: CourtListenerOpinion
Date Created: 2020-11-24 21:49:59.217023+00
Date Added: 2024-06-11T07:58:27.437187
License: Public Domain

T.C. Memo. 2020-157

                           UNITED STATES TAX COURT

                      GEORGE FAKIRIS, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent*

      Docket No. 18292-12.                          Filed November 19, 2020.

      Neil David Katz, Richard Stephen Kestenbaum, and Bernard Stephen Mark,

for petitioner.

      Marc L. Caine and Peggy J. Gartenbaum, for respondent.

                   SUPPLEMENTAL MEMORANDUM OPINION

      GALE, Judge: Respondent has timely moved for reconsideration of our

prior opinion Fakiris v. Commissioner (Fakiris I), T.C. Memo. 2017-126.1 See

      *
     This opinion supplements our previously filed opinion Fakiris v.
Commissioner, T.C. Memo. 2017-126.
      1
          We granted respondent’s simultaneous motion to vacate our decision under
                                                                      (continued...)
                                         -2-

[*2] Rule 161.2 In Fakiris I, we held, inter alia, that petitioner was not entitled to

charitable contribution deductions claimed under section 170 in connection with

the transfer of the St. George Theatre (St. George or theater) on the grounds that

Grou Development LLC (Grou)--of which petitioner was the managing member--

did not relinquish dominion and control over the theater as required for a

completed gift. We also held that the disallowance of the claimed deductions gave

rise to gross valuation misstatements for which petitioner was liable for 40%

accuracy-related penalties under section 6662(h). Since the transfer of the theater

was not a completed gift, we determined that the correct value of the property

actually contributed was zero for purposes of determining the applicability of the

section 6662(h) accuracy-related penalty because no property had been

transferred, citing Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo.

2015-130, vacated and remanded sub nom. BC Ranch II, L.P. v.

Commissioner, 867 F.3d 547 (5th Cir. 2017), and United States v. Woods, 571

U.S. 31 (2013).

      1
      (...continued)
Rule 162 to facilitate consideration of his motion for reconsideration.
      2
       Unless otherwise noted, all section references are to the Internal Revenue
Code of 1986, as amended and in effect for the years at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                                         -3-

[*3] Respondent does not dispute our holding that the transfer of the St. George

failed to be a completed gift. Rather, respondent argues that the Court’s

application of the section 6662(h) accuracy-related penalty in Fakiris I was not

analyzed properly and that our analysis should be reconsidered. In particular,

respondent argues that Fakiris I misapplies Woods and conflicts with the

reasoning of the Court in RERI Holdings I, LLC v. Commissioner, 149 T.C. 1

(2017), aff’d sub nom. Blau v. Commissioner, 924 F.3d 1261 (D.C. Cir. 2019),

and Gemperle v. Commissioner, T.C. Memo. 2016-1. In those cases, even though

the Court disallowed charitable contribution deductions in their entirety for

donations of a remainder interest and a facade easement, respectively, for failure

to satisfy statutory substantiation requirements, we nevertheless found it necessary

to ascertain the fair market value of the remainder interest and the facade easement

that had been contributed in order to decide whether the values claimed on the

returns for them resulted in gross or substantial valuation misstatements for

purposes of section 6662(h). It is respondent’s contention that a determination of

the “actual value” of the theater is similarly required in order to determine the

extent to which petitioner’s returns contained gross valuation misstatements under

that section.
                                        -4-

[*4] The decision whether to grant a motion for reconsideration lies within the

discretion of the Court. Estate of Quick v. Commissioner, 110 T.C. 440, 441

(1998), supplementing 110 T.C. 172 (1998). Motions for reconsideration are

generally “intended to correct substantial errors of fact or law and allow the

introduction of newly discovered evidence that the moving party could not have

introduced by the exercise of due diligence in the prior proceeding.” Knudsen v.

Commissioner, 131 T.C. 185, 185 (2008), supplementing T.C. Memo. 2007-340.

“Reconsideration is not the appropriate forum for rehashing previously rejected

legal arguments or tendering new legal theories to reach the end result desired by

the moving party.” Estate of Quick v. Commissioner, 110 T.C. at 441-442.

      For the reasons discussed hereinafter, we believe our application of the

section 6662(h) accuracy-related penalty was correct, and we will therefore deny

respondent’s motion. However, after the issuance of Fakiris I, the U.S. Court of

Appeals for the Fifth Circuit, in BC Ranch II, L.P. v. Commissioner, 867 F.3d 547

(5th Cir. 2017), vacated and remanded Bosque Canyon Ranch, L.P., which, as

noted supra, was cited along with Woods as support for our section 6662(h)

accuracy-related penalty determination in Fakiris I. Thus, we herein address the

issues raised by respondent’s motion and clarify the reasoning supporting our

application of the section 6662(h) accuracy-related penalty in Fakiris I.
                                         -5-

[*5]                                  Discussion

       We adopt the findings of fact set forth in Fakiris I, repeating such facts only

as necessary for clarity and convenience.

I.     Valuation misstatement penalties

       Section 6662(a) and (b)(3) imposes an accuracy-related penalty equal to

20% of the portion of an underpayment of tax “attributable to * * * [a]ny

substantial valuation misstatement under chapter 1.” For purposes of section

6662, “a substantial valuation misstatement under chapter 1” exists if “the value of

any property (or the adjusted basis of any property) claimed on any return of tax

imposed by chapter 1 is 150 percent or more of the amount determined to be the

correct amount of such valuation or adjusted basis (as the case may be)”.3 Sec.

6662(e)(1)(A). However, and for purposes of the foregoing provisions, if the

value or adjusted basis of the property claimed on the return is 200% or more of

the amount determined to be the correct amount of such value or adjusted basis, a

       3
        As noted in Fakiris I, the Pension Protection Act of 2006, Pub. L. No. 109-
280, 120 Stat. 780, effected certain amendments to the valuation misstatement
penalty regime, including lowering the threshold percentages and eliminating the
reasonable cause defense for gross valuation misstatements made in connection
with charitable contributions of property. As applicable here, the amendments are
effective for returns filed after August 17, 2006, including returns claiming a
carryover of a charitable contribution deduction originating in a return filed before
August 17, 2006, as occurred here. See Chandler v. Commissioner, 142 T.C. 279,
294 (2014).
                                        -6-

[*6] “gross valuation misstatement” exists and the penalty imposed increases to

40%. Sec. 6662(h). A gross valuation misstatement is considered to exist when

the correct value or adjusted basis of property is zero and the value or adjusted

basis claimed on the return for such property is greater than zero. See sec. 1.6662-

5(g), Income Tax Regs.

II.   United States v. Woods

      In Woods the U.S. Supreme Court granted certiorari to resolve a circuit split

among the U.S. Courts of Appeals over whether the section 6662(b)(3) accuracy-

related penalty for valuation misstatements is applicable when the relevant

transaction is disregarded for lack of economic substance. The majority view held

that the penalty applied to such transactions, with the Court of Appeals for the

Second Circuit (to which an appeal in this case lies absent a stipulation to the

contrary) reasoning that “[w]here a transaction is not respected for lack of

economic substance, the resulting underpayment is attributable to the implicit

overvaluation.” Gilman v. Commissioner, 933 F.2d 143, 152 (2d Cir. 1991)

(applying the since-repealed section 6659 penalty for valuation overstatements),4

      4
       In the Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239,
sec. 7721, 103 Stat. at 2395-2400, Congress repealed former sec. 6659 and
consolidated the various accuracy-related penalties into sec. 6662, carrying over
the same essential language as sec. 6659. In the Omnibus Budget Reconciliation
                                                                       (continued...)
                                        -7-

[*7] aff’g T.C. Memo. 1989-684; see also Superior Trading, LLC v.

Commissioner, 728 F.3d 676, 681-682 (7th Cir. 2013), aff’g 137 T.C. 70 (2011)

and T.C. Memo. 2012-110; Gustashaw v. Commissioner, 696 F.3d 1124, 1136-

1138 (11th Cir. 2012), aff’g T.C. Memo. 2011-195; Alpha I, L.P. ex rel. Sands v.

United States, 682 F.3d 1009, 1026-1031 (Fed. Cir. 2012); Fid. Int’l Currency

Advisor A Fund, LLC v. United States, 661 F.3d 667 (1st Cir. 2011); Merino v.

Commissioner, 196 F.3d 147, 155-159 (3d Cir. 1999), aff’g T.C. Memo. 1997-

385; Zfass v. Commissioner, 118 F.3d 184, 190-191 (4th Cir. 1997), aff’g T.C.

Memo. 1996-167; Illes v. Commissioner, 982 F.2d 163, 166-167 (6th Cir. 1992),

aff’g T.C. Memo. 1991-449; Massengill v. Commissioner, 876 F.2d 616, 619-620

(8th Cir. 1989), aff’g T.C. Memo. 1988-427. In joining the majority view, the

Court of Appeals for the Seventh Circuit reasoned that “a taxpayer who overstates

basis and participates in sham transactions * * * should be punished at least as

severely as one who does only the former.” Superior Trading, LLC v.

Commissioner, 728 F.3d at 682; see also Gilman v. Commissioner, 933 F.2d

at 150.

      4
       (...continued)
Act of 1990, Pub. L. No. 101-508, sec. 11312, 104 Stat. at 1388-454 to 1388-455,
Congress amended sec. 6662, changing, inter alia, the phrase “valuation
overstatement” to refer to “valuation misstatement”.
                                         -8-

[*8] The minority view shared by the Courts of Appeals for the Fifth and Ninth

Circuits held that when a deduction or credit is disallowed in full, the

underpayment is not “attributable to” a misstatement of value within the meaning

of the statute; rather, the courts reasoned, the underpayment is attributable to

claiming an improper deduction or credit. See Keller v. Commissioner, 556 F.3d

1056 (9th Cir. 2009), aff’g in part, rev’g in part T.C. Memo. 2006-131; Heasley v.

Commissioner, 902 F.2d 380, 382-383 (5th Cir. 1990), rev’g T.C. Memo. 1988-

408; Gainer v. Commissioner, 893 F.2d 225 (9th Cir. 1990), aff’g T.C. Memo.

1988-416; Todd v. Commissioner, 862 F.2d 540 (5th Cir. 1988), aff’g 89 T.C. 912

(1987).

      The transaction at issue in Woods concerned a tax shelter wherein the

taxpayer contributed offsetting currency options to a partnership to create an

artificially inflated basis in his interest, which, following the subsequent

liquidation thereof, ultimately resulted in his claiming significant noneconomic tax

losses.5 Woods, 571 U.S. at 33-34; see IRS Notice 2000-44, 2000-2 C.B. 255.

      5
       The specific tax shelter at issue in Woods is known as COBRA (Currency
Options Bring Reward Alternatives), one of several shelters generically referred to
as “Son of BOSS”, an acronym that refers to an earlier corporate tax shelter known
as BOSS (Bond and Options Sales Strategy). See Karen C. Burke & Grayson
M.P. McCouch, “Woods: A Path Through the Penalty Maze”, 142 Tax Notes 829,
829-830 & n.3 (2014); Karen C. Burke & Grayson M.P. McCouch, “COBRA
                                                                      (continued...)
                                          -9-

[*9] The U.S. District Court held that the partnerships at issue were shams but that

under Fifth Circuit precedent the valuation misstatement penalty did not apply

because the relevant transaction was disregarded for lack of economic substance.

Woods, 571 U.S. at 37. The Court of Appeals for the Fifth Circuit affirmed. Id.

       The Supreme Court reversed, adopting the majority view that the valuation

misstatement penalty applies when the relevant transaction is disregarded for lack

of economic substance. Id. at 44. The holding relied on a plain language reading

of the statute:

              The penalty’s plain language makes it applicable here. As we
       have explained, the COBRA transactions were designed to generate
       losses by enabling the partners to claim a high outside basis in the
       partnerships. But once the partnerships were deemed not to exist for
       tax purposes, no partner could legitimately claim an outside basis
       greater than zero. Accordingly, if a partner used an outside basis
       figure greater than zero to claim losses on his tax return, and if
       deducting those losses caused the partner to underpay his taxes, then
       the resulting underpayment would be “attributable to” the partner’s
       having claimed an “adjusted basis” in the partnerships that exceeded
       “the correct amount of such . . . adjusted basis.” § 6662(e)(1)(A).

Id.

       The Supreme Court noted that under the regulations, “when an asset’s true

value or adjusted basis is zero, ‘[t]he value or adjusted basis claimed . . . is

       5
       (...continued)
Strikes Back: Anatomy of a Tax Shelter”, 62 Tax Law. 59, 64-66 (2008).
                                        - 10 -

[*10] considered to be 400 percent or more of the correct amount,’ so that the

resulting valuation misstatement is automatically deemed gross and subject to the

40-percent penalty.” Id. (quoting section 1.6662-5(g), Income Tax Regs.).

      The taxpayer in Woods advanced two arguments. First, the taxpayer argued

that “the statutory terms ‘value’ and ‘valuation’ connote ‘a factual--rather than

legal--concept,’ and that the penalty therefore applies only to factual

misrepresentations about an asset’s worth or cost, not to misrepresentations that

rest on legal errors (like the use of a sham partnership).” Id. The Supreme Court

rejected this argument, holding that the concept of “value” for purposes of

applying the valuation misstatement penalty encompasses not only factual

misstatements but also “threshold legal determinations.” Id. at 45.

      Second, the taxpayer--advancing the view of the Courts of Appeals for the

Fifth and Ninth Circuits--argued that any underpayment of tax was not

“attributable to” a misstatement of basis, “but rather to the determination that the

partnerships were shams--which he describe[d] as an ‘independent legal ground.’”

Id. at 46-47. The Supreme Court rejected this argument as well, holding that

“[t]he economic substance determination and the basis misstatement are not

‘independent’ of one another.” Woods, 571 U.S. at 47. Rather, the Court

explained, the misstatement of basis and the transaction’s lack of economic
                                        - 11 -

[*11] substance are “inextricably intertwined” such that to claim otherwise was to

make “a false distinction.” Id. at 47 (internal quotation marks and citation

omitted). The Supreme Court succinctly summarized this point: “In short, the

partners underpaid their taxes because they overstated their outside basis, and they

overstated their outside basis because the partnerships were shams.” Id.

III.   Respondent’s motion

       As noted supra, respondent argues that the Court’s analysis of the

applicability of the section 6662(h) accuracy-related penalty in Fakiris I is wrong.

Respondent argues that Fakiris I misapplies Woods and conflicts with this Court’s

reasoning in RERI Holdings, LLC and Gemperle. Respondent argues that the

Court erred in determining the applicability of the section 6662(h) penalty by

treating the value of the contributed property as zero (because no property was

contributed) and that in order to determine the proper penalty amount the “actual

value” of the theater must be determined. We disagree.

IV.    Application of the section 6662(h) penalty in the case of sham gifts

       In Fakiris I we held that petitioner was not entitled to charitable contribution

deductions in connection with Grou’s transfer of the St. George to WEMGO

Charitable Trust, Inc. (WEMGO), on the grounds that the transfer did not

constitute a completed gift. Under the contract of sale, WEMGO agreed not to sell
                                        - 12 -

[*12] the St. George for five years after obtaining legal title, during which Grou

retained the right to direct the transfer of title to Richmond Dance Ensemble, Inc.

(Richmond Dance), in the event it obtained IRS recognition of section 501(c)(3)

tax-exempt status. We held that WEMGO’s agreement to a restriction on

transferability, coupled with Grou’s retention of the right to direct the transfer of

ownership of the theater for five years, afforded Grou a substantial--indeed

paramount--element of dominion and control over the subject of the claimed gift,

exercisable against the claimed donee WEMGO after the transfer of legal title to

it.6

       A conclusion that a donor did not relinquish dominion and control over the

subject of a purported gift, and thus that no property was actually contributed, is

coterminous with a conclusion that the purported gift was a sham; that is,

something that is not what it purports to be. The principle that a claimed gift is a

sham transaction where the donor has not divested himself of control over the

gifted property was articulated by Judge Learned Hand in 1939.

       6
       We also held that Grou’s right under the contract of sale to direct the
transfer of the St. George to Richmond Dance rendered the gift conditional, and
because the possibility that the condition would be satisfied was not so remote as
to be negligible, no gift was “made” within the meaning of sec. 170(a)(1) and sec.
1.170A-1(e), Income Tax Regs.
                                         - 13 -

[*13] All that need appear is that the donor did not intend to divest himself
      of control over the res, that the donee knew of the donor’s intent and
      assented to it, and that the donor knew of the donee’s assent. If all
      this is fairly inferable from the relations, the gift, however formal, is a
      sham * * *

Richardson v. Smith, 102 F.2d 697, 699 (2d Cir. 1939); see also Marshall v.

Commissioner, 57 F.2d 633, 634 (6th Cir. 1932), aff’g in part and rev’g in part 19

B.T.A. 1260 (1930); Royce v. Commissioner, 18 T.C. 761, 766-768 (1952);

Schwarzenbach v. Commissioner, 4 T.C. 179, 184-185 (1944).

      The facts set forth in Fakiris I demonstrate that Grou did not intend to divest

itself of control over the St. George, that WEMGO knew of Grou’s intent and

assented to it, and that Grou knew of WEMGO’s assent. Indeed, circumstantial

evidence was not even required for us to make such findings, as the express terms

of the contract of sale established them definitively. While in Fakiris I we did not

label Grou’s claimed gift of the St. George to WEMGO a sham, our holding that

Grou did not relinquish dominion and control over the theater was to the same

effect; namely, the formal gift transaction was nonexistent.

      What is more important than the label we attached to the claimed gift in

Fakiris I is the nature of the dominion and control determination itself, which at its

core requires that a transaction “be in reality what it purports to be on its face.”

Royce v. Commissioner, 18 T.C. at 766. The question whether a donor has
                                        - 14 -

[*14] surrendered dominion and control arises where, as here, the parties use

formalities in an attempt to paper over a transaction to give it the appearance, but

not the substance, of a valid gift. Consequently, and as we have previously

observed, the rule that a donor must relinquish dominion and control over the

subject of a claimed gift has been expressed by any number of well established

substance-over-form principles:

             It is axiomatic that the reach of the income tax law is not to be
      circumscribed by refinements of legal title. The rule finds expression
      in the oft repeated admonitions that taxation is an intensely practical
      matter, concerned with economic realities; that tax consequences flow
      from the substance of a transaction rather than from its form; and that
      command over property or enjoyment of its economic benefits marks
      the real owner for income tax purposes. Commissioner v. Court
      Holding Co., 324 U.S. 331; Helvering v. Clifford, 309 U.S. 331;
      Gregory v. Helvering, 293 U.S. 465; Corliss v. Bowers, 281 U.S. 376.
      ***

Royce v. Commissioner, 18 T.C. at 768 (quoting Greene v. Commissioner, 7 T.C.

142, 150 (1946)).

      In our view, the determination that a donor has not relinquished dominion

and control over the subject of a claimed gift is conceptually analogous to the

determination that a partnership is a sham and therefore does not exist for tax

purposes. Both present instances where parties attempt, by adhering to

formalities, to create significant tax benefits without a corresponding effect to
                                       - 15 -

[*15] their underlying economic positions. That is the case here. Petitioner

attempted to claim significant tax benefits for a charitable contribution, but Grou

never ceded dominion and control over the St. George to the claimed donee.

      We therefore conclude that our holdings that Grou did not relinquish

dominion and control over the St. George and that the property actually

contributed (of which there was none) had a value of zero for purposes of

determining the applicability of the section 6662(h) are “inextricably intertwined”

within the meaning of Woods. To paraphrase: Petitioner underpaid his tax

because he overstated the value of the property claimed to have been contributed,

and he overstated that value because no gift was actually made; that is, the gift was

a sham. See Woods, 571 U.S. at 47. Thus, the “gift”, in that there was not one,

reflected property with no value and any underpayment of tax resulting from the

disallowance of petitioner’s claimed charitable contribution deduction is

“attributable to” a valuation misstatement within the meaning of section 6662.

      That determination, however, raises the question: What is the “correct

value” of “property” that is claimed to be donated but is not actually donated? Or,

more precisely: Is the value that of the property that was reported to have been

contributed, as respondent would have it be, or the value of the property that was

actually contributed? It follows under section 6662 and Woods that where a
                                       - 16 -

[*16] charitable contribution is characterized as a sham, the correct value of the

contributed “property” is zero for purposes of determining the applicability of the

gross valuation misstatement penalty because no property was actually

contributed.

      First, a “Woods-ian” plain language reading of section 6662 supports this

conclusion. See Woods, 571 U.S. at 44. Petitioner reported a $3 million noncash

charitable contribution and claimed related deductions in connection with Grou’s

claimed gift of the St. George to WEMGO.7 We held that for tax purposes no gift

was made because Grou did not relinquish dominion and control over the theater.

Since no gift was made, petitioner could not legitimately claim to have made a

charitable contribution of property in any amount greater than zero. The

regulations provide that when the correct value of contributed property is zero and

the value claimed is greater than zero, a gross valuation misstatement is deemed to

exist. See sec. 1.6662-5(g), Income Tax Regs. We cannot fathom why the same

principle does not apply here, where a value is claimed for property that is

reported to have been contributed but, in fact, was not. By claiming charitable

contribution deductions in amounts greater than zero, when in fact no contribution

      7
       As noted in Fakiris I, the reported $3 million noncash charitable
contribution represented 60% of the $5 million noncash charitable contribution
apparently claimed by Grou, in which petitioner held a 60% interest.
                                        - 17 -

[*17] had been made, petitioner underpaid his tax, and those underpayments were

attributable to a gross valuation misstatement.

      Second, this plain language reading of section 6662 is bolstered by Woods’

holding that the concept of “value” for purposes of the valuation misstatement

penalty comprises not only factual assertions, but also threshold legal

determinations, such as a finding that a purported gift was a sham. Woods, 571

U.S. at 45; see also Long-Term Capital Holdings, LP v. United States, 150 F.

App’x 40, 44 (2d Cir. 2005) (holding that the valuation misstatement penalty

“does not differentiate between factual and legal determinations” and can apply

“where the transaction is ‘recast’ for tax purposes using a legal doctrine such as

the step transaction or economic substance doctrine”). We determined as a

threshold legal matter that no gift was made, and therefore found that the “correct

value” of property to be claimed on petitioner’s returns as charitable contributions

was zero. Cf. Zfass v. Commissioner, slip op. at 11 (“When a transaction lacks

economic substance, the correct basis is zero; any amount claimed is a valuation

overstatement.”).

      Consequently, we conclude and hold that the correct value of the property

underlying petitioner’s claimed charitable contribution deduction for purposes of
                                        - 18 -

[*18] the section 6662(h) penalty is zero, which triggers the gross valuation

misstatement penalty in accordance with the reasoning in Woods.

V.    Inapplicability of RERI Holdings I, LLC and Gemperle

      RERI Holdings I, LLC and Gemperle are distinguishable and do not lead to

a contrary result. In RERI Holdings I, LLC, the Court disallowed a claimed

charitable contribution deduction for the donation of a remainder interest in

property for failure to comply with the substantiation requirements of the

regulations under section 170. Specifically, the Court pointed to the taxpayer’s

failure to attach a fully completed appraisal summary to the return. In Gemperle

the Court held that the taxpayers were not entitled to charitable contribution

deductions claimed for the donation of a facade easement because the taxpayers

failed to include a copy of a qualified appraisal with the return. Of paramount

importance here, neither case held that the transfer of the remainder interest or the

facade easement was a sham or lacked economic substance.8 In both cases we

      8
        In RERI Holdings I, LLC, the Commissioner argued, in addition to his
assertion that the taxpayer had failed to attach to the return a fully completed
appraisal summary of the remainder interest, that the contribution of the remainder
interest was part of a transaction that was a sham for tax purposes or lacked
economic substance. Because we agreed with the Commissioner that the
charitable contribution deduction was disallowed in its entirety on account of the
failure to attach the appraisal summary, we did not consider his sham transaction
or lack of economic substance arguments.
                                        - 19 -

[*19] proceeded on the assumption that a discernible property right had been

validly transferred from the donor to the donee. In other words, some quantum of

property rights had been transferred from donor to donee, and the charitable

contribution deduction was disallowed for failure to satisfy statutory requirements

of substantiation. For that reason, a determination of the value of that quantum of

property transferred was necessary to calculate the applicability and amount of the

section 6662(h) penalty. The same is not true here; the transfer itself was a sham,

with the result that the value of the property claimed to have been contributed is

zero for purposes of the penalty.

      The same analysis applies with respect to BC Ranch II, L.P. The property

donated in that case was a conservation easement and, as with RERI Holdings I,

LLC and Gemperle, there was no holding or argument that no easement at all was

actually transferred. By contrast, here claimed charitable contribution deductions

are disallowed because a gift of the theater did not occur.

VI.   No evidence of value of the property claimed as donated

      Finally, we note that, even if we were to conduct the “actual value” analysis

of the theater that respondent argues is appropriate, our redetermination of the

section 6662(h) penalty would not change. A fundamental legal principle “is the

common-sense requirement that the fair market valuation of donated property must
                                        - 20 -

[*20] take into account conditions on the donation that affect the market value of

the donated property.” Rolfs v. Commissioner, 668 F.3d 888, 892 (7th Cir. 2012),

aff’g 135 T.C. 471 (2010); Cooley v. Commissioner, 33 T.C. 223, 225 (1959)

(“[P]roperty otherwise intrinsically more valuable which is encumbered by some

restriction or condition limiting its marketability must be valued in the light of

such limitation.”), aff’d per curiam, 238 F.2d 945 (2d Cir. 1960); see also John A.

Bogdanski, Federal Tax Valuation, para. 2.01[3][c][vii], at *78 (2020 Westlaw

FTVWGL) (“In determining the amount of a charitable contribution deduction, the

value of the donated property may be reduced below its pre-donation value, or

even wiped out entirely, by conditions imposed as part of the gift.”).

      The contract of sale transferring the property to WEMGO contained

substantial restrictions on WEMGO’s use of the property--restrictions so severe

that we concluded Grou had not relinquished dominion and control over the

property, rendering any purported transfer of the entire fee simple interest in the

property (as apparently claimed on Grou’s return) a sham. Even if we were to

assume contrary to our finding that some modicum of property rights was

transferred to WEMGO notwithstanding Grou’s retention of rights sufficient to

constitute dominion and control, the record is devoid of any evidence supporting a

value for whatever could be said to have been transferred to WEMGO. Both
                                        - 21 -

[*21] respondent’s expert and petitioner’s expert appraised the St. George in fee

simple. We find no mention in petitioner’s expert’s report of the restrictions and

conditions imposed by the contract of sale. And while respondent’s expert’s

report acknowledges that “there is a deed restriction prohibiting the resale of the

subject property for five years except to Richmond Dance Ensemble Inc.”, it is

unclear how, if at all, the report calculated the impact of those contract terms on

value. For that matter, we find it impossible to reconcile the simultaneous

acknowledgment of the “deed restriction”, as respondent’s expert characterizes it,

with an overall appraisal of the property in fee simple. Simply put, we see no

expert testimony in the record to support any value for a property interest

transferred to WEMGO under the contract of sale.

VII. Conclusion

      Our previous opinion in this case is supplemented in accordance with the

foregoing analysis, but in all other respects remains the same.

      To reflect the foregoing,

                                                 An appropriate order will be issued.