JAMES TARPEY V. USA, No. 22-35208 (9th Cir. 2023)
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Plaintiff-taxpayer formed a nonprofit with tax-exempt status that facilitated the donation of timeshares by timeshare owners. Taxpayer also formed Resort Closings, a for-profit service that handled the real estate closings for timeshares donated to DFC. Donors paid a donation fee to DFC and shouldered the timeshare transfer fees. Taxpayer, his sister, and other associates appraised the value of the unwanted timeshares.
Under 26 U.S.C. Sec. 6700, imposed a penalty on taxpayer for his involvement in the organization or sale of tax shelters that made false statements or involved exaggerate valuation. The panel upheld the district court’s determination on summary judgment that taxpayer was liable for the appraisals of the associates because, as a matter of law, taxpayer knew or had reason to know the associates were disqualified as appraisers under the Treasury regulations, and taxpayer forfeited his argument on appeal that he was unaware the appraisals would be imputed to the non-profit he formed. .
Court Description: Tax. The panel affirmed the district court’s judgment imposing over $8 million in penalties against taxpayer for promoting a tax-avoidance scheme that involved charitable deductions claimed in connection with the donation of unwanted timeshares.
Taxpayer formed Project Philanthropy, Inc., d/b/a/ Donate for a Cause (DFC), a nonprofit with tax-exempt status that facilitated the donation of timeshares by timeshare owners. Taxpayer also formed Resort Closings, a for-profit service that handled the real estate closings for timeshares donated to DFC. Donors paid a donation fee to DFC and shouldered the timeshare transfer fees. Taxpayer, his sister, Ron Broyles, and Curt Thor appraised the value of the unwanted timeshares.
26 U.S.C. § 6700 imposes a penalty on promoters and others involved in the organization or sale of tax shelters if they make false statements or exaggerate valuation, in this case, in the form of timeshare appraisals. The panel upheld the district court’s determination on summary judgment that taxpayer was liable for the appraisals of Broyles and Thor because, as a matter of law, taxpayer knew or had reason to know Broyles and Thor were disqualified as appraisers under the Treasury regulations, and taxpayer forfeited his argument on appeal that he was unaware the appraisals would be imputed to DFC.
The panel next affirmed the district court’s determination on summary judgment that the scope of the “activity” to be penalized under § 6700(a) encompassed taxpayer’s entire timeshare donation business and not just the funds directly coming from the false statement appraisals.
Finally, the panel upheld the district court’s judgment following a bench trial imposing over $8 million in penalties. The panel held that the district court properly relied on the Internal Revenue Code’s general definition of gross income, which includes “all income from whatever source derived,” 26 U.S.C. § 61(a), and properly included funds deposited into an escrow account managed by Resort Closings in calculating the penalties, because taxpayer had some guarantee that he would be allowed to keep the money in that account.
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