Tax News

CCH (cch.taxgroup.com) reports:

  Doctors and an accountant who donated stock in their medical practice to a newly formed tax-exempt professional services corporation (PSC) were only entitled to a small portion of the charitable contribution deductions that they claimed and accuracy-related penalties were imposed. The value of the donated stock, as determined by the taxpayers' expert, was too high. Based on trial testimony and other evidence, it was clear that the medical group was going to be consolidated into the PSC and should not have been valued as a going concern. Instead, the asset-based approach used by the IRS's expert was more appropriate since it valued the business on the basis of the medical group's equity with a discount to account for the noncontrolling, nonmarketable nature of the stock.

  In addition, the taxpayers were liable for the 40-percent accuracy-related penalty for gross valuation misstatement, if each taxpayer's underpayment exceeded $5,000, because they did not act in good faith and did not make a good-faith investigation as to the value of the donated stock. Despite the taxpayers' claimed reliance on appraisers and advisors, the taxpayers were well-educated and should have been aware of the problems in valuing the stock at so high a price when it was unlikely that the medical group would continue as an operating entity. To the extent that the taxpayers were not liable for the 40-percent penalty because their underpayments were $5,000 or less, they were liable for the 20-percent accuracy-related penalty due to negligence.

B.J. Bergquist, 131 TC No. 2, Dec. 57,492

Other References:

 
Code Sec. 170

  CCH Reference - 2008FED ¶11,660.58

 
Code Sec. 6662

  CCH Reference - 2008FED ¶39,651G.17

  CCH Reference - 2008FED ¶39,651G.24

  CCH Reference - 2008FED ¶39,654.48

  CCH Reference - 2008FED ¶39,654.60

 
Code Sec. 6664

  CCH Reference - 2008FED ¶39,661.65

  Tax Research Consultant

  CCH Reference - TRC INDIV: 51,152

  CCH Reference - TRC VALUE: 9,050

  CCH Reference - TRC PENALTY: 3,106.10

  CCH Reference - TRC PENALTY: 3,110.25

  CCH Reference - TRC PENALTY: 3,116.10