ACC576 ... Shannon, Donald S.

VALUATION PRACTICES

If you are not familiar with the content of the course please refer to its description in the SYLLABUS before trying to make sense of the site contents.

THIS SITE CONTAINS:

  1. A copy of the SYLLABUS which gives a complete description of the course and its requirements;
  2. A schedule of TOPICS TO BE DISCUSSED during the current course;
  3. The PRACTITIONER FORUM: a list of practitioners who have graciously offered to assist the students in this class.

 

NOTES & MESSAGES:

1.       Below I have made some comments, which should help you get to the essential issues in the FMV cases. Focus on those facets of these cases that pertain to fair market value. Try to avoid getting side-tracked.

2.       In this course students will be expected to conduct library research (via the internet) and to communicate efficiently with one another using e-mail, which accommodates Word and Excel attachments.

3.       I would like for each of you to become familiar with the list of topics chosen by the other class members. If you have any suggestions which might be helpful to one of your colleagues ... please pass them on.

4.       If you have questions please call me. I generally work at home until 1:00 PM or 2:00PM. Please feel free to call me there.  Keep trying until you get me (not voice mail) on the phone. You can also try e-mail … but I do get behind … frequently.

·         If you leave a voice mail for me please start by: (i) stating your name, (ii) identifying the course you are in and, (iii) slowly giving your phone number BEFORE beginning the message.

·         If you send an e-mail to me please put the course identification and your name in the "Subject." [ ACC576, J. Doe ] 

 

SOME COMMENTS ON THE FMV CASES:

The ADAMS case

The loss on a sale of rental property is deductible. The amount of the loss is determined by the difference between the sale price ($130,000 on October 1989) and the LESSER of the

  1. Fair market value, or
  2. The cost less depreciation ($141,026)

ON THE DATE THE PROPERTY WAS CONVERTED FROM A PERSONAL RESIDENCE TO RENTAL PROPERTY (June 1989).  According to the court, what was the amount of the loss?

 

The DEES case

The IRS claimed Dees received taxable compensation (of $184,100) related to the purchase of shares of the Insurance Company. Dees bought the shares from the company @ $1.50 per share when they were being traded in the market for higher values:

 

 

Shares

 

Cost

Trading

Value

Dec 21

5,000 shs

$1.50

$12.80

Apr 21

8,000 shs

$1.50

$16.00

Given the circumstances of the case, did the court agree with the IRS?

 

The 1st National case

Mrs. Rudy died leaving a farm with a value of $800 thousand (according to the estate) or $1,415 thousand (according to the IRS.

The principal reason for the difference was that the IRS took into consideration an agreement between the heirs and a development company, which offered to pay $1,000,000 for the farm presumably to place a department store thereon.

The offer was made 21 months after Mrs. Rudy’s death.

 

The ITHACA case

Estate tax is based on the value of the NET estate … the gross value of the estate less any gifts to charity.

When Edwin died, he left his wife the right to use from the principal of his estate any amount “that may be necessary to suitably maintain her in as much comfort as she now enjoys.”

After his wife’s death most of the remaining principal would be donated to charity.

On the date of Edwin’s death his widow had a life expectancy of (say) five years. In fact she died within six months of Edwin’s death.

When determining the present value of the eventual charitable contributions, did the court use the wife’s EXPECTED or ACTUAL longevity?

 

The NECASTRO case

In August 1990, Necastro’s estate files a claim for a refund on the estate tax it had paid on a property.

The estate claimed the property was essentially worthless on the date of death (October 1985) due to environmental clean up expenses that had not been taken into account when the initial estate tax return was filed.

Did the court go along with the Necastro claim?

 

The PALMER case

Palmer donated land and a “mansion” to the Palmer College Foundation that owned and operated the Palmer College of Chiropractic.  The sentimental/shrine value of the land and mansion was $322,000 … a nice deduction for Palmer. The IRS claimed the value was only $79,000.

Did the court acknowledge that sentimental value should be considered in the determination of fair market value?

 

The SERDAR case

This case contains multiple issues. Focus your attention of the value of the “Contributed Property,” which Serdar gave to the Forest Preserve.

The Contributed Property had been appraised at $5,750, and the Forest Preserve had offered to buy it for $5,000.

Serdar claimed a charitable deduction of $375,000 for the donation. Serdar based this valuation on the smaller parcel of “Serdar Property” sold to Smith for $250,000.

 

Smith

Property

 

 

 

 

 

Wadsworth

Property

Serdar

Property

 

 

 

 

 

 

 

 

Contributed

Property

 

 

 

What value did he court allowed for the contribution?

 

The WEITZ case

Alder was in the business of buying and selling medical equipment. Alder frequently purchased medical equipment at bankruptcy auctions for prices far lower than usual retail prices.

Sanderman was in charge of purchasing West Hudson hospital’s medical equipment. He and Alder picked out a lot of equipment to be purchased at bargain prices and subsequently donated to the hospital.

Saltzman, an accountant, set up a plan whereby investors would put up funds to purchase medical equipment at low prices, hold the equipment for awhile then donate it to charity … claiming a deduction for the fair market value at the time of the contribution.

Weitz donated several items of medical equipment to West Hudson through Saltzman’s plan. The items in question were purchased for $2,000 and had a retail value of $16,806.

How much did the court allow for the gift?

 

The WILTSHIRE case

Wiltshire had purchased a rug from Edgeworth for $3,500. Wiltshire gave the rug to charity, and claimed a $13,540 deduction for its presumed fair market value.

Edgeworth testified that the rug was worth $14,440. Edgeworth said the reason he sold the rug to Wiltshire for such a low price was that he had a cash flow problem.

How large a deduction did the court allow?