A partnership (taxpayer) was denied a deduction for an easement donation related to a property (P1). The taxpayer claimed the deduction for the wrong year. Additionally, the taxpayer (1) substantially overvalued its worth, and failed to document key expenses.
The taxpayer was formed to purchase and develop P1. Later, the taxpayer created a “Historic Preservation and Conservation Easement,” which would donate the right to modify P1 (through construction) to a local charity. The taxpayer claimed a tax deduction nearly four times what it had paid for P1.
Between the donation and the beginning of the taxpayer’s taxable year, the taxpayer’s primary partner became its sole partner. During this time period, the taxpayer did not exist as a taxable partnership. The correct taxpayer with respect to the deduction was said primary partner, not the taxpayer. The taxpayer did not deny reporting said mistake in its return.
Further, the taxpayer valued the easement at 2500 percent of the Tax Court’s valuation. This qualified to be a gross valuation overstatement, and the taxpayer was liable for penalties. It could not raise the “professional tax advice” defense since the understatement exceeded 200 percent of the correct valuation.
Affirming the Tax Court, Dec. 62,487(M), T.C. Memo. 2024-072.
Corning Place Ohio, LLC, CA-6
