The U.S. Tax Court published its first 2016 memorandum opinion that illustrates very well the costly result of improper tax return compliance, as well as the downside of representing yourself in Tax Court. This is Gemberle v. Commissioner, T.C. Memo 2016-1 (January 4, 2016). Click here for the Tax Court web link to the pdf court opinion and type Gemberle in the “Case Name Keyword” box.
In short, the taxpayers deducted a conservation easement charitable deduction on their 2007 income tax return (with a carryover portion of the deduction on the 2008 return), but failed to attach to their returns a copy of the written appraisal supporting the easement value. The tax law expressly mandates that a written appraisal must be attached to the tax return. The court opinion gives you the specific Internal Revenue Code references, etc. The taxpayers in this case did obtain a written appraisal for the easement value prior to filing their tax returns. But again, they simply failed to include it with the tax returns. The IRS denied the easement deduction.
The taxpayers, representing themselves, took this charitable deduction issue to court before the United States Tax Court. As to an important trial procedural error, the taxpayers did not make their appraiser available at the trial, thus preventing the IRS from cross-examining the appraiser, etc. In response to this unavailability of the appraiser, the Tax Court did not allow the written report as evidence in the trial.
The Tax Court denied the easement charitable deduction in its entirety; the court also imposed a 20% penalty for failure to include the appraisal with the tax return; and the court applied a 40% gross valuation penalty. [Again, the tax law references to these penalties are fully discussed in the court opinion.] My guess also is the taxpayers expended a great deal of time, worry, and money in this failed effort.
Bottom line. Get good, effective help if you need it for tax issues and litigation. This simply is an appropriate cost-benefit consideration.