Commercial Investment Real Estate September/October 2013

LEGAL BRIEFS Deduction Denied Good intentions do not replace a qualiﬁ ed appraisal. by Mark Lee Levine, CCIM, JD, LLM (tax) i T e reason is a failure to follow Internal Revenue Code regulations and use a quali- f ed appraiser. As this case illustrates, in charitable contributions of this size, if such steps are not properly undertaken, there can be a complete loss of the deduction. Tax Rules Taxpayers are generally allowed a charitable contribution deduction when a gif is given to a qualif ed charitable recipient. Addition- ally, the IRC requires a qualif ed appraisal undertaken by a qualified appraiser. As def ned by Internal Revenue Service regu- lations, a qualified appraiser has earned certain appraisal designations or has met certain educational requirements. The appraiser also needs to regularly perform the kind of appraisals for which the individ- ual client is paying and meet certain other requirements, as noted by the Secretary of the Treasury in IRC Section 170. The Case Joseph Mohamed Sr., a real estate broker and a certif ed real estate appraiser, and his wife set up a charitable remainder trust in which the taxpayer receives a current deduc- tion for the property as to the gif portion. Af er setting up the trust, the Mohameds donated a number of properties in 2003, worth millions of dollars. Mohamed f lled 18 September | October | 2013 out his own tax return and completed a tax form for noncash charitable contributions. Mohamed noted that he did not read all of the form’s instructions and he made some mistakes on the form. He also claimed substantial deductions, including about $230,000 for one property and over $3.6 million on another property. Mohamed said that he claimed a lower value than the actual value of the properties, because he did not want to risk “overvaluing” the properties. T e taxpayers signed the IRS forms but did not comply with all of the instructions. In 2004 the Mohameds donated another property, a shopping center, to the CRT. T e taxpayer f lled out IRS form 8283 to make the contribution but did not complete the entire form, leaving certain parts of it blank. He claimed a deduction of almost $500,000. He did not sign the declaration as to the gif , which is required by the IRC. Mohamed did not include appraisal infor- mation and did not have a qualif ed appraisal from a qualif ed appraiser. He said he sup- ported income and expenses on the property and the capitalization rate utilized to com- pute the fair market value of the property. The IRS audited the Mohameds’ 2003 return. At that time, the taxpayer engaged appraisers to perform independent apprais- als of some of the properties. Some of the independent appraisals came back with valu- Commercial Investment Real Estate In the recent case of Joseph Mohamed Sr., et. ux. v. Commissioner, T.C. Memo 2012-52, the U.S. Tax Court determined that a taxpayer and his spouse, after making almost $20 million worth of charitable real estate gifts to qualiﬁ ed charitable recipients, could not take the $18.5 million tax deduction for the gifts.

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