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Posted December 18th, 2018

Footnote to the Previous Blog

Last time we looked at the IRS’s new regs on qualified appraisals.

This time we look at an exception to the qualified appraisal rules that existed under the old regs that is erased from the new regs.

It’s the reasonable cause exception. The reasonable cause exception allowed a flawed appraisal, even a badly flawed appraisal, to pass muster if the donor truly believed the appraisal was OK based on reasonable business care and prudence.

For example, in one case (the 2013 Crimi Tax Court case) the donor had a badly flawed appraisal that his tax accountant of 20 years advised was good for tax purposes. The donor had no reason to doubt the CPA’s advice; and the CPA was a partner in a good regional CPA firm. The Tax Court excused the appraisal’s flaws, finding that the donor had reasonable cause to believe the appraisal was OK. (Talk about rewarding ignorance of the tax law and professional malpractice!)

The Crimi case is important, because the facts of the case (donor doesn’t have an appraisal that measures up, and donor’s tax adviser is clueless) represent the rule, not the exception.

In its new regs, the IRS announces that the regs do not contain a reasonable cause exception…because of the Crimi case.

It’s hard to say whether the IRS and the courts will follow the Crimi case now that the qualified appraisal regs don’t contain an express reasonable cause exception.

Donors and their tax advisers beware. Charitable gift planners too.

HAPPY HOLIDAYS. PEACE ON EARTH.

by Jon Tidd, Esq

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