Tax Court Case Provides Detailed Valuation Analysis for Charitable Deduction for Land with Sand and Gravel Deposits, Terrene Investments, Ltd. v. Commissioner, T. C. Memo. 2007-218, Docket No 4797-04 (August 7, 2007)
This appeal involved the gift valuation of a 31.4 acre property located near Houston, Texas contributed by the taxpayer/partnership to a church foundation. The taxpayer claimed a charitable deduction of $1,801,618, which was reduced to $301,000 on audit. In this Memorandum, the Tax Court considered three methods of establishing the property’s fair market value—comparable sales, discounted cash flow, and replacement cost. The Tax Court selected a discounted cash flow analysis in its opinion provided a detailed analysis of the valuation process. The Memorandum established a gift value of $1,303,616.
Michigan Appeals Court Upholds Lower Court’s Dismissal of Lawsuit Claiming Attorney Malpractice for Failure to Ensure Life Insurance Purchase, Smallegan v. Kooistra (2007 WL 840123, Mich. Ct. App., March 20, 2007)
In these facts, an elderly woman received estate planning advice to create a charitable remainder unitrust (CRUT) and purchase a life insurance to replace the funding assets. Prior to funding the trust, she applied for life insurance and was turned down; however, the company assured her they could find her a policy that fit her needs. Based on that assurance, she funded the trust with $900,000 in appreciated securities. Subsequent attempts to purchase wealth replacement insurance failed and she died four years later without the insurance. After her death, the decedent’s son sued the attorney and firm that created the CRUT alleging malpractice for funding it before the insurance was in place. The defendants claimed the CRUT was sound and stood on its "four corners” and the lower court dismissed the suit. In this opinion, the Appellate Court agreed, and also noted the decedent could have filed a legal action in the four years before her death.
IRS Issues Series of Negative Rulings on Exempt Organization Status, Letter Rulings 200729042, 200733027, 200733028
· Ltr. Rul. 200729042 (January 18, 2007). The IRS revoked the exempt organization status of an organization created to buy distressed real estate, rehabilitate it, and sell or lease the property at no profit to individuals qualified to receive housing assistance; In this ruling, the IRS found the organization had purchased four buildings and sold them at a profit and had no records indicating purchasers fit the low income qualified individual profile.
· Ltr Rul. 200733027 (August 17, 2007). The IRS ruled an organization established to supply used competition ski boats to nonprofit youth camps was engaged in commercial activity and did not qualify for tax exempt status. The organization received, restored, and then sold the ski boats to nonprofit camps, but did not make grants of its boats to the youth camps, had no educational purpose, and had a board comprised of related family members who approved and paid salaries for other family members.
· Ltr. Rul.200733028 (August 17, 2007). The IRS issued a final determination that a foundation established to make grants for scientific and medical research on spinal cord injuries and to assist individuals with spinal cord injuries and their families with treatment and expenses was not operated exclusively for exempt purposes, and did not qualify for exempt status. The ruling noted the foundation focused its grants on a single individual with a spinal cord injury whose father, aunt, and sister were the key officers of the foundation.