ACC576
... Shannon, Donald S.
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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:
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
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:
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Shares |
Cost |
Trading Value |
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Dec 21 |
5,000 shs |
$1.50 |
$12.80 |
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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.
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Smith Property |
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Wadsworth Property |
Serdar Property |
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Contributed Property |
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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?