IRS fine of $ 8.5 million upheld for tax shelter for timeshare donations

Timeshares have long been controversial, and there have been numerous lawsuits surrounding them. Even get outside Timeshare deals has become something of an industry. But it turns out that a way out of timeshares might even be worse than just using them. The Department of Justice announced that a federal court in Montana had backed the IRS in issuing fines of nearly $ 8.5 million on James Tarpey, a lawyer in Montana. The penalty is for promoting a tax shelter involving abusive deductions for the timeshare gift. The tax case dates back to 2015, when the government initially filed a lawsuit to bar Tarpey and others from engaging in an alleged timeshare interest donation scheme for large tax deductions. The court has permanently banned Tarpey from promoting the timeshare donation program. The court also ruled that Tarpey made false statements resulting in tax avoidance.

Tarpey accepted an injunction in 2016, which is still in effect. According to court documents, Tarpey formed Project Philanthropy Inc. dba Donate for Cause (DFC) as a non-profit organization in 2006. The idea was to have timeshare owners who faced fees and charges. heavy timeshare expenses for donating their unwanted timeshares to “charity” for a tax deduction. The court found that Tarpey and others prepared appraisals for the timeshares that were donated to DFC, and that Tarpey promised potential clients generous tax savings from donating their unwanted timeshares. In a March 2019 order, the court found that Treasury regulations prohibited Tarpey and its appraisers from performing timeshare appraisals for DFC because they were not independent. The court also found that the false valuations resulted in tax avoidance and that Tarpey knew, or had reason to know, that he had made false statements.

But the precise penalty Tarpey would face was not clear until December 2021. In its final order, issued on December 16, the court ruled on the amount of the penalty. The court estimated that the amount of gross income Tarpey was making from the entire program was at least $ 19,623,437, which would result in a penalty of more than $ 9.8 million. However, the court agreed with the United States to limit the penalty against Tarpey to $ 8,465,000 (plus interest).

The fallout from tax shelters can be serious, and not just for developers. Victims often have their deductions denied and penalties added which can be significant. In the case of charitable contributions, there are fixed rules. If you are making a contribution of real estate valued at $ 250 or more, you must also keep a statement from the charity describing the property and its value. If your non-monetary contributions for the year total more than $ 500, you must complete IRS Form 8283, Noncash Charitable Contributions, and attach it to your return. See Form 8283, Non-cash Charitable Contributions. For IRS instructions on Form 8283, click here.

If you are donating an item (or a group of similar items) valued over $ 5,000, you must also complete Section B of Form 8283, which requires appraisal by a qualified appraiser. A “qualified assessor” must meet IRS criteria, so allow time for these formalities. For more explanation of these and other rules relating to charitable contributions, see IRS Publication 526, Charitable Contributions. If you want the IRS to discuss valuation issues and how to value non-monetary items, see IRS Publication 561, Determining the Value of Donated Property. If you’re fighting for value, have proof. But you’d be surprised how many taxpayers get into tax brawls, be it over income, property, inheritance, gift or sales taxes, without the right ammunition.

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