Evans v. Commissioner

In December 2004, Billy Evans donated historic preservation facade easements on two separate rowhouses in the Capitol Hill Historic District of Washington, D.C., to the Capitol Historic Trust. Evans claimed a $154,350 charitable contribution deduction attributable to these easements. The IRS challenged the deductions in their entirety, claiming that: (1) the easements did not qualify under section 170(h); (2) Evans did not meet the substantiation requirement of section 170(f)(8); and (3) the fair market value of the easements was zero.

The IRS also sought an $11,779 accuracy-related penalty under section 6662. Once the Tax Court case was filed, Evans hired a new appraiser to prepare a second appraisal report, as well as to testify as an expert witness at the trial. For unstated reasons, Evans chose not to call the original appraiser as an expert witness.

Holding: The Tax Court found the taxpayer's appraiser expert witness was not credible and that her testimony lacked any probative weight. And because Evans did not call the original appraiser, that appraisal report was deemed inadmissible as evidence of fair market value.

Thus, although the Court noted that 'ordinarily any encumbrance on real property, howsoever slight, would tend to have some negative effect on that property's fair market value,' because the taxpayer failed to meet his burden of proof on valuation, the IRS' zero valuation claim was sustained. The Court declined to assess the accuracy-related penalty, however, finding that the original appraisal was a 'qualified appraisal' and that Evans had reasonable cause and acted in good faith in relying on the appraiser. In particular, the appraisal substantially complied with the qualified appraisal regulations in spite of the absence of the appraiser's qualifications (other than his licensed status) on the report.

Analysis and Notes: The taxpayer appraiser's testimony was nothing short of disastrous, with the court quoting multiple exchanges in which the appraiser showed a blatant lack of knowledge about the relevant law and regulations. One interesting side issue that was noted but found moot was the fact that the appraiser's signature on the Form 8283 preceded his signature on the appraisal report.

Furthermore, the court did not reach the section 170(f)(8) contemporaneous written acknowledgement issue. The taxpayer and the IRS eventually settled on a deficiency owed of $58,896 and a penalty of $1,077.