Tarpey et al v. United States
Filing
51
ORDER denying as moot 28 Motion for Order; granting 30 Motion for Summary Judgment. Tarpey's liability for penalties pursuant to 26 U.S.C. § 6700 is resolved in favor of the United States. The parties continue to dispute the amount of penalties assessed pursuant to 26 U.S.C. § 6700. The amount of penalties is not resolved by this Order as this issue must be reserved for trial. Signed by Judge Brian Morris on 3/19/2019. (ASG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUTTE DIVISION
CV-17-94-B-BMM
JAMES TARPEY,
Plaintiff and Counter-Defendant,
vs.
ORDER
UNITED STATES,
Defendant and Counter-Plaintiff.
Defendant and Counter-Plaintiff the United States has filed the following
motions: (1) Motion for Order/Judgment Applying Issue Preclusion (Doc. 28), and
(2) Motion for Summary Judgment Regarding Liability (Doc. 30.) Plaintiff and
Counter-Defendant James Tarpey (“Tarpey”) opposes both motions. (Docs. 36,
38.) The Court held a hearing on the motions on March 6, 2019, in Great Falls,
Montana. (Doc. 50.)
BACKGROUND
Tarpey formed Project Philantropy, Inc. d/b/a/ Donate for Cause (“DFC”) in
or about 2006. DFC operated a business that facilitated the donation of timeshares.
Timeshares often involve significant fees and expenses, including membership
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fees, maintenance fees, and the payment of real estate taxes. A timeshare’s market
value may be significantly less than the timeshare owner’s original purchase price.
DFC allowed timeshare owners who faced burdensome timeshare fees and
expenses to donate their unwanted timeshares.
Tarpey formed DFC as a non-profit organization. Tarpey served as the sole
voting member of DFC. Tarpey possessed authority to nominate and remove board
members. Tarpey obtained tax-exempt status for DFC from the Internal Revenue
Service (“IRS”).
Tarpey promised potential customers generous tax savings from donations
of their unwanted timeshares. Tarpey hired real property appraisers Ron Broyles
and Curt Thor to conduct timeshare appraisals for DFC. Tarpey and his sister
Suzanne Tarpey also conducted timeshare appraisals for DFC. Suzanne Tarpey
served as the secretary, treasurer, and bookkeeper of DFC.
Tarpey founded a for-profit timeshare closing service that operated as Resort
Closings. Resort Closings initially provided closing services for the sale of
timeshares. Tarpey eventually integrated his timeshare donation business, operated
through DFC, into his timeshare closing business at Resort Closings. Resort
Closings handled the real estate closings for timeshares donated to DFC.
DFC accepted timeshares into its donation program. DFC would then open a
“closing file” on these donated timeshares with Resort Closings. DFC and Resort
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Closings marketed generous tax savings of up to $6,000 for donated timeshares.
DFC accepted at least 7,600 timeshare donations. Tarpey, Suzanne Tarpey,
Broyles, and Thor appraised the timeshares for DFC.
A. Tarpey I (the Injunction Lawsuit)
The United States filed an action to enjoin six defendants, including the
Tarpey, Suzanne Tarpey, Ron Broyles, Curt Thor, Resort Closings, and DFC, from
engaging further in timeshare donation practice and appraisal. The United States
alleged that the timeshare closing business constituted a “bogus tax scheme.”
(2:15-cv-00072-SEH, Doc. 1.)
The United States alleged that the customers contacted DFC to inquire about
donating an unwanted timeshare. Id. at 7. The United States alleged that DFC
enlisted an appraiser to determine the fair market value of the timeshare. Id. at 8.
The United States alleged that DFC used a conflicted appraiser who overstated the
value of the timeshare. Id. The United States alleged that DFC acted merely as a
conduit to hold title briefly to timeshares before being sold for a fraction of the
appraised amount. The United States alleged that DFC falsely told customers that
they could deduct the full appraised amount of the timeshare, conducted by DFC,
and the associated processing fees. Id.
The court in Tarpey I entered final judgments of permanent injunction
against all six defendants. (2:15-cv-00072-SEH, Docs. 36, 88, 89, 90, 103, 124.)
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Tarpey consented to judgment against him. (2:15-cv-00072-SEH, Doc. 90.) The
consent judgment permanently enjoined Tarpey from: (1) preparing (or assisting
others in preparing) any property appraisal that will be used in connection with
federal taxes; (2) encouraging or advising (or assisting others in encouraging or
advising) others to claim charitable contribution deductions on any federal tax
return; and (3) organizing, promoting, selling, marketing, or advising with respect
to (or assisting others in organizing, promoting, selling, marketing, or advising
with respect to) any plan or arrangement regarding charitable contribution
deductions claimed on federal tax returns. Id. at 2.
The United States filed an unopposed motion for summary judgment against
Broyles on February 10, 2017. (2:15-cv-00072-SEH, Doc. 116.) Broyles
previously had been represented by counsel. The court permitted Broyles’s
attorney to withdraw on November 22, 2016. (2:15-cv-00072-SEH, Doc. 112.)
Broyles did not oppose the United States’s motion for summary judgment. The
court granted the United States’s motion for summary judgment on March 3, 2017,
and the Court entered final judgment. (2:15-cv-00072-SEH, Doc. 123, 124, 125.)
B. Tarpey II (the Present Action)
The Treasury Department assessed penalties against Tarpey pursuant to the
conduct at issue in Tarpey I. Tarpey brought the present action against the United
States on December 27, 2017. (Doc. 1.) Tarpey filed his Amended Complaint on
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April 20, 2018. (Doc. 10.) Tarpey alleges that he did not overestimate the fair
market value of timeshares. Id. at 6. Tarpeys alleges that the IRS inaccurately
assessed penalties against him. Id. Tarpey seeks a refund of amounts paid toward
the penalties made against him. Id. at 13.
The United States filed a counterclaim against Tarpey. (Doc. 11.) Tarpey
seeks a money judgment for the unpaid balance of the penalties. Id. The United
States has moved for summary judgment regarding the issue of Tarpey’s liability
under 26 U.S.C. § 6700. (Doc. 28.) The United States’s motion does not seek
resolution of the amount of penalties as this issue must be reserved for trial. Id.
LEGAL STANDARDS
Summary Judgment is appropriate where the movant demonstrates that no
genuine dispute exists “as to any material fact” and the movant is “entitled to
judgment as a matter of law.” Fed. R. Civ. P. 5(a); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). Summary judgment may be rendered on
liability despite a remaining genuine issue regarding the amount of damages. See
Pac. Fruit Express Co. v. Akron, Canton & Youngstown R.R. Co., 524 F.2d 1025,
1029-30 (9th Cir. 1975). The moving party bears the initial burden of
demonstrating the absence of a genuine issue of material fact. Celotex, 477 U.S. at
322-23. If the moving party satisfies that burden, summary judgment shall be
5
granted unless the non-moving party demonstrates “specific facts showing that
there is a genuine issue for trial.” Id. at 324.
DISCUSSION
To establish a penalty under 26 U.S.C. § 6700(a)(2)(A), the United States
must show by a preponderance of the evidence that (1) the defendant organized or
sold, or participated in the organization or sale of, an entity, plan, or arrangement;
(2) the defendant made or caused to be made, false or fraudulent statements
concerning the tax benefits to be derived from the entity, plan, or arrangement; (3)
the defendant knew or had reason to know that the statements were false or
fraudulent; and (4) the defendant’s false or fraudulent statements pertained to a
material matter. United States v. Estate Pres. Servs., 202 F.3d 1093, 1098 (9th Cir.
2000).
Tarpey concedes that he organized or participated in the organization of an
entity, plan, or arrangement. (Doc. 38 at 2.) Tarpey makes no argument with regard
to whether the alleged false or fraudulent statements pertained to a material matter.
Id. Accordingly, only the second and third elements remain at issue. The Court will
discuss each of these two elements.
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I.
Tarpey Made or Caused to be Made, False or Fraudulent Statements
Concerning the Tax Benefits to be Derived from the Entity, Plan, or
Arrangement
The second element of 26 U.S.C. § 6700(a)(2)(A) requires the moving party
to show by a preponderance of the evidence that the nonmoving party made or
caused to be made, false or fraudulent statements concerning the tax benefits to be
derived from the entity, plan, or arrangement. See Estate Pres. Servs., 202 F.3d at
1098. The appraisals of timeshare to be donated to DFC represent the alleged false
statements at issue. The United States asserts that Tarpey made false statements by
preparing appraisals himself. (Doc. 31 at 16.) The United States also contends that
Tarpey caused others to make or furnish similar appraisals. Id. The United States
asserts that Tarpey’s connection to DFC disqualified him as an appraiser for DFC.
Id.
A taxpayer must obtain a “qualified appraisal” of property if a donation of
that property results in a claimed deduction of more than $5,000. 26 U.S.C. §
10(f)(11)(C), (E). A “qualified appraisal” must be prepared, signed, and dated by a
“qualified appraiser[.]” 26 C.F.R. § 1.170A-13(c)(3)(i)(B). A “qualified appraiser”
is an individual who (A) holds himself or herself out to the public as an appraiser
or performs appraisals on a regular basis; (B) is qualified to make appraisals of the
property type being valued; and (C) the appraiser is not excluded from being a
qualified appraiser. 26 C.F.R. § 1.170A-13(5)(i)(A)-(C). A “qualified appraiser”
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may not be fill any of the following roles: (A) the donor; (B) a party to the
transaction in which the donor acquired the property being appraised; (C) the
donee of the property; (D) any person employed by any of the foregoing persons;
(E) any person related to any of the foregoing persons; or (F) an appraiser who
does not perform a majority of appraisals made during the taxable year for other
persons. 26 C.F.R. § 1.170A-13(c)(5)(iv)(A)-(F).
The United States argues that the Treasury Regulations disqualified Tarpey
from conducting timeshare appraisals for DFC for three reasons: (1) the regulations
exclude the donee of the property from preparing appraisals; (2) Tarpey was
“related” to DFC; and (3) Tarpey only appraised timeshares to be donated to DFC.
See 26 C.F.R. § 1.170A-13(c)(5)(iv)(C), (E), (F). The United States argues that the
Treasury Regulations excluded Suzanne Tarpey, Ron Broyles, and Curt Thor from
preparing appraisals for DFC for the same reasons. (Doc. 31 at 22-24.)
1. DFC was the Donee of the Property
DFC is the donee. Tarpey founded Project Philanthropy. Project
Philanthropy conducted business as DFC in 2006. (Doc. 39 at 4.) DFC obtained tax
exempt status from the IRS. Timeshare owners donated their timeshares to DFC.
No genuine issue of material fact exists in relation to these matters.
Tarpey argues nevertheless that Resort Closings – Tarpey’s for-profit
company – was the client for appraisal purposes. (Doc. 38 at 6.) Tarpey concedes
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that DFC served as the donee. (Doc. 38 at 6.) Federal regulations require that any
person that considered to be the donee of DFC may not perform appraisals of
timeshares to be donated to DFC.
2. Tarpey was the Donee of DFC and was “Related” to DFC
The United States considers Tarpey to have been the donee of the timeshares
and argues that he was “related” to DFC. (Doc. 31 at 21.) Tarpey contends that he
did not exercise sufficient control over DFC to be considered the donee. (Doc. 38
at 6.) Id. Tarpey asserts that he remained “largely unconnected” to DFC. Id.
The Treasury Regulations exclude “[t]he donee of the property” from being
a qualified appraiser. 26 C.F.R. § 1.170A-13(5)(iv)(C). The regulations further
exclude persons “related” to the organization through direct or indirect control of
the organization. 26 C.F.R. § 1.170A-13(5)(iv)(E); 26 U.S.C. § 267(b)(9). The
United States argues that Tarpey controlled DFC – either directly or indirectly. No
factual dispute exists regarding Tarpey’s role for DFC. The dispute relates to
whether Tarpey’s connection to DFC amounted to sufficient control over DFC.
It remains undisputed that Tarpey served as the sole voting member of DFC.
(Docs. 11 at 26 & 12 at 26.) Tarpey possessed direct control over the
organization due to his role as the sole voting member at DFC. No issue of fact
exists that only Tarpey could appoint and remove board members at DFC. Id.
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Tarpey also retained indirect control over DFC through his power to appoint and
remove board members.
The United States relies on the tax court’s decision in Mohamed v. Comm’r,
103 T.C.M. 1814 (T.C. 2012). Mohamed involved a real-estate appraiser who
created a charitable trust. Id. at *1. The appraiser made himself the trustee of the
charitable trust. Id. The trust allowed taxpayers to claim immediate deduction for a
portion of property donated to the trust. Id.
The appraiser donated five of his own properties worth millions of dollars to
the trust. Id. The appraiser’s actions established him as both the trustee of the trust
and the donor to the trust. Id. The tax court evaluated whether the appraiser
remained qualified under the Treasury Regulations to perform appraisals for the
trust. Id. at *4. The tax court reasoned that the appraiser’s role as the trustee of the
trust effectively rendered him the donee of the trust. Id. The Treasury Regulations
excluded the appraiser from appraising property for the trust. Id.
Tarpey argues that his role at DFC differs from the appraiser’s roles in
Mohamed. (Doc. 38 at 7.) Tarpey contends that his relationship to DFC proves less
significant than the appraiser’s relationship as trustee in Mohamed. Id. The
appraiser in Mohamed created the trust for which he was excluded from serving as
an appraiser. Tarpey similarly created DFC. The appraiser’s status as the donee of
10
the trust in Mohamed disqualified him as an appraiser for the trust. Tarpey’s
relationship to DFC established him as the donee under the Treasury Regulations.
The appraiser in Mohmed also was “related” to the trust by virtue of serving
as the trustee. Tarpey’s direct and indirect control over DFC similarly rendered
him “related” to DFC. A trustee of a trust who also serves as the donee of that trust
stands no different than a person who serves as the donee, and is “related” to the
organization. Tarpey’s connection to DFC excluded Tarpey from performing
appraisals for DFC.
3. Tarpey Appraised Timeshares Only for DFC
The Treasury Regulations exclude any person “who does not perform a
majority of his or her appraisals made during his or her taxable year for other
persons.” 26 C.F.R. § 1.170A-13(c)(5)(iv)(F). The United States argues that
Tarpey failed to diversify sufficiently his appraisal practice. (Doc. 31 at 22.)
Tarpey concedes that he prepared only appraisals to be donated to DFC.
Tarpey likens his connection to DFC to the tax court’s analysis in Val Lanes
Recreation Center Corp. v. Commissioner, T.C. Memo 2018-92 (2018). Val Lanes
involved a bowling alley (“petitioner”) that operated an S corporation for federal
tax purposes. Id. at *1. Petitioner created a stock ownership plan and related trust
upon the recommendation of a certified public accountant. Id. The accountant
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prepared the plan and trust documents. The accountant also prepared forms for the
trust.
Petitioner retained the accountant to perform appraisals to value petitioner’s
stock. The tax court analyzed whether the accountant stood sufficiently
independent from the organization. Id. at *8. The IRS determined that the appraiser
had possessed an “inherent lack of independence” because he performed a number
of services for the organization each year. Id. The IRS reached its conclusion based
on the facts that the appraiser had prepared forms detailing the organization’s
assets, had performed and submitted appraisals valuing the organization’s stock,
and had received regular income from the organization. Id. The appraiser did not
otherwise hold himself out to the public as an appraiser. Id.
The tax court disagreed with the IRS’s determination. The appraiser did not
fall within any of the exclusions specifically listed in section 1.170A-13(c)(iv).
Tarpey’s connection to DFC differs from the appraiser’s connections in Val Lanes.
The appraiser in Val Lanes merely prepared paperwork and forms for the
organization. He did not exercise control over the organization. Tarpey possessed
both direct and indirect control over DFC. The appraiser in Val Lanes did not hold
himself out publicly as an appraiser. No genuine issue of material fact exists that
Tarpey held himself out publicly as an appraiser. (Doc. 32 at 16.) The appraiser in
Val Lanes did not fit within any of the specific exclusions provided in the Treasury
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Regulations. Tarpey fits squarely within at least three of the exclusions. Tarpey
constitutes the donee, Tarpey is “related” to DFC, and Tarpey did not appraise
timeshares for any organization other than DFC. See 26 C.F.R. § 1.170A13(c)(5)(iv)(C), (E), (F). These exclusions prohibited Tarpey from appraising
timeshares for DFC.
4. Tarpey Caused Others to Make or Furnish Statements
The United States argues that the Treasury Regulations excluded Suzanne
Tarpey, Curt Thor, and Ron Broyles from preparing appraisals for timeshares.
(Doc. 31 at 22-24.)
a. The Treasury Regulations Excluded Suzanne Tarpey from
Being a Qualified Appraiser
The United States asserts that the Treasury Regulations excluded Suzanne
Tarpey from preparing appraisals for timeshares to be donated to DFC. (Doc. 31 at
22.) The United States argues that Suzanne Tarpey possessed several conflicts: (1)
she is Tarpey’s sibling; (2) she served as an employee of DFC; and (3) she
appraised timeshares only for DFC. Id. at 23.
Tarpey and Suzanne Tarpey are brother and sister. The Treasury Regulations
impute siblings to have the same conflicts as one another. 26 U.S.C. § 267(b)(1).
Tarpey argues that the Treasury Regulations did not exclude him as an appraiser.
Tarpey contends that Suzanne Tarpey did not possess a conflict. (Doc. 38 at 7.)
The Court has determined that the Treasury Regulations excluded Tarpey as an
13
appraiser for at least three reasons – (1) his status as the donee; (2) his control over
DFC; and (3) his failure to diversify his appraisal work. The Treasury Regulations
excluded Suzanne Tarpey simply by virtue of her relation to Tarpey. See 26 U.S.C.
§ 267(b)(1).
Suzanne Tarpey faced her own conflicts. DFC employed Suzanne Tarpey as
its secretary, treasurer, and bookkeeper. (SUF 14.) The Treasury Regulations
exclude “[a]ny person employed” by the donee of the property. 26 C.F.R. §
1.170A-13(c)(5)(iv)(C), (D). Suzanne Tarpey prepared nearly 600 appraisals for
DFC. (SUF 32, 42, 57.) Suzanne Tarpey verified that she qualified under the
Treasury Regulations to perform each appraisal that she prepared for DFC. Id.
Suzanne Tarpey appraised timeshares only for DFC. Id. Suzanne Tarpey failed to
diversify her appraisal practice as required by the Treasury Regulations. See 26
C.F.R. § 1.170A-13(c)(5)(iv)(F). The undisputed facts establish that the Treasury
Regulations excluded Suzanne Tarpey from preparing appraisals for DFC.
b. The Treasury Regulations Excluded Broyles and Thor from
Being Qualified Appraisers
The United States argues that the Treasury Regulations similarly excluded
Broyles and Thor from conducting qualified appraisals. (Doc. 31 at 23.) Tarpey
argues that the exclusions in the Treasury Regulations did not apply as Broyles and
Thor received the majority of their appraisal income from Resort Closings or
Timeshare Specialists, rather than from DFC. (Doc. 38 at 7-8.)
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The undisputed facts demonstrate that approximately 57 percent of Thor’s
appraisal business consisted of appraisals of timeshares to be donated to DFC.
(Doc. 32 at 43.) Broyles identified Tarpey as his client. Id. at 47, 50. Broyles
prepared the majority of his timeshare appraisals for DFC. Id. Broyles derived 97.5
percent of his income from appraisals that he prepared for DFC for the time period
in question. Id. at 52. In fact, Broyles derived 100 percent of his income from
appraisals that he prepared for DFC in 2011, 2013, and 2014. Id. at 51, 53, 54.
Broyles and Thor regularly performed the majority of their appraisals for DFC.
The undisputed facts demonstrate that the Treasury Regulations excluded Broyles
and Thor from appraising timeshares for DFC. See 26 C.F.R. § 1.170A13(c)(5)(iv)(E).
Tarpey, Suzanne Tarpey, Ron Broyles, and Curt Thor lacked sufficient
independence from DFC to serve as qualified appraisers under the Treasury
Regulations. The undisputed facts demonstrate that each of these people performed
appraisals for DFC. The Treasury Regulations excluded these people from
preparing appraisals for at least one reason. The undisputed facts demonstrate,
therefore, that Tarpey made or furnished false statements regarding timeshare
appraisals. Tarpey also caused Suzanne Tarpey, Ron Broyles, and Curt Thor to
make or furnish such false statements. The United States has shown by a
15
preponderance of the evidence that Tarpey violated the second element of 26
U.S.C. § 6700(a)(2)(A).
I.
Tarpey Knew or had Reason to Know that the Statements were False or
Fraudulent.
The third element of 26 U.S.C. § 6700(a)(2)(A) requires the moving party to
show by a preponderance of the evidence that the non-moving party knew or had
reason to know that the disputed statements were false or fraudulent. See Estes
Pres. Servs., 202 F.3d at 1098. The United States argues that Tarpey knew or had
reason to know that his statements regarding qualified appraisal practice were
false. (Doc. 31 at 24.) Tarpey argues that his statements were not false. (Doc. 38 at
8.) Tarpey contends that he relied in good faith on the advice of counsel and other
qualified professionals even if his statements turned out to be false. Id. The Court
has determined that Tarpey falsely submitted statements regarding the qualified
appraisals. The Court must analyze only whether Tarpey knew, or had reason to
know, that the disputed statements were false or fraudulent.
Summary judgment with regard to a penalty under 26 U.S.C.§ 6700 may not
apply if a party relied in good faith on advice of counsel. See United States v.
Nordbrock, 828 F.3d 1401, 1404 (9th Cir. 1987). The trier of fact must determine
whether, and to what extent, the reliance on advice of counsel constitutes a
defense. Id. (citing Swayze v. United States, 785 F.2d 715, 717 (9th Cir. 1986)).
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The record first demonstrates that certified public accountant George
Schramm advised Tarpey that he was qualified under the Treasury Regulations to
be an appraiser of non-real property. (Doc. 39-14.) Tarpey obtained advice from
Schramm regarding whether the right to use timeshares constitutes real or personal
property. (Doc. 39-16.) Schramm advised Tarpey regarding situations in which a
generic charity sells donated property at prices below appraised fair market value.
This information explained the effect that such sales may have on a donor’s
charitable contribution deduction. (Doc. 39-17.) Tarpey argues that he relied on
advice of counsel to conduct appraisals. (Doc. 38 at 9.) The record reflects that
Tarpey relied on such general advice.
The record fails to establish, however, that Schramm, or any other
professional, ever advised Tarpey that he met all of the criteria to serve as a
qualified appraiser for his scheme within the meaning of the Treasury Regulations.
The record instead shows that counsel advised Tarpey that appraisals needed to be
performed by a qualified appraiser within the meaning of the Treasury Regulations.
(See Docs. 39-17 at 9 & 39-14 at 1, 2.) Tarpey’s reliance on counsel in Exhibits 14,
16, and 17, fails to demonstrate that Tarpey relied on counsel with regard to
“qualified appraisers” and “qualified appraisals” under the Treasury Regulations
with respect to this scheme.
17
The United States alleges that Tarpey’s statements regarding his appraisal
practice proved false under the Treasury Regulations. Advice of counsel on
subjects unrelated to appraisal practice under the Treasury Regulations proves
irrelevant to the United States’s Motion. The record demonstrates that Tarpey did
not rely on advice of counsel regarding whether he could serve as a “qualified
appraiser[]” or perform “qualified appraisals” under 26 C.F.R. § 1.170A-13(c)(5).
The record reflects that Tarpey knew, or had reason to know, that he made
false statements regarding qualified appraisal practice. Tarpey signed a
“Declaration of Appraiser” for each appraisal that he peformed. (Doc. 32 at 66.)
Tarpey promised in this declaration that he knew the Treasury Regulation
exclusions. Id. Tarpey declared, in effect, that he was aware that the donor of the
property, the donee of the property, a related person, or an appraiser who does not
perform a majority of their appraisals for other persons, all represented conflicts
that would exclude him from serving as the appraiser. See 26 C.F.R. § 1.170A13(c)(5)(iv).
Tarpey held himself out to the public as a professional timeshare appraiser.
(Doc. 32 at 55.) Tarpey failed to disclose to timeshare owners that he possessed
sole voting power for DFC. Id. at 64. Tarpey failed to disclose that he controlled, at
least indirectly, the board of DFC. Id. Tarpey failed to disclose that he likewise
retained control over Resort Closings, Charity Marketing, and Timeshare
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Specialists. Id. Tarpey’s acknowledgment that he knew the regulations and his
repeated appraisals for DFC demonstrates that he knew or had reason to know that
his statements were false. The record is clear that Tarpey violated the third element
of 26 U.S.C. § 6700(a)(2)(A).
II.
The United States’s Motion for Order Applying Issue Preclusion
The United States moved the Court for entry of an order of issue preclusion.
(Doc. 28.) The United States argues that Tarpey is barred from collaterally
attacking the final determination in United States v. James Tarpey, et al., No. 2:15cv-00072-SEH (D. Mont.). Id. at 1-2. Tarpey opposes the United States’s motion.
(Doc. 36.)
The United States asserts that an order of summary judgment in its favor
resolves all material issues brought by the United States. (Doc. 122.) The Court has
determined that the United States has met its burden regarding each element of its
summary judgment motion. Judgment in the United States’s favor for penalties
under 26 U.S.C. § 6700 renders moot the United States’s Motion for Order
Applying Issue Preclusion (Doc. 28.)
CONCLUSION
To establish a penalty under 26 U.S.C. § 6700(a)(2)(A), it must be
demonstrated by a preponderance of the evidence that, (1) the defendant organized
or sold, or participated in the organization or sale of, an entity, plan, or
19
arrangement; (2) defendant made or caused to be made, false or fraudulent
statements concerning the tax benefits to be derived from the entity, plan, or
arrangement; (3) defendant knew or had reason to know that the statements were
false or fraudulent; and (4) the false or fraudulent statements pertained to a
material matter. United States v. Estate Pres. Servs., 202 F.3d 1093, 1098 (9th Cir.
2000).
The first element is not in dispute. The United States has shown through a
preponderance of the evidence that Tarpey made false statements concerning tax
benefits to be derived from DFC. Tarpey could not serve as a qualified appraiser
under the Treasury Regulations for these appraisals. Tarpey appraised timeshares,
accepted donations, and promised donors charitable contributions on federal tax
returns. The treasury regulations similarly excluded Suzanne Tarpey, Ron Broyles,
and Curt Thor, from appraising the timeshares at issue. The United States has
demonstrated that Tarpey knew, or had reason to know, that the he made false
statements. The undisputed facts show that all of the appraisers lacked sufficient
independence from DFC to be considered “qualified appraisers” under the
Treasury Regulations. The false appraisals resulted in tax avoidance The
statements prove material. The United States has met its burden under 26 C.F.R. §
6700(a)(2)(A).
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ORDER
Accordingly, IT IS ORDERED that the United States’s Motion for
Summary Judgment (Doc. 30) is GRANTED. Tarpey’s liability for penalties
pursuant to 26 U.S.C. § 6700 is resolved in favor of the United States. The parties
continue to dispute the amount of penalties assessed pursuant to 26 U.S.C. § 6700.
The amount of penalties is not resolved by this Order as this issue must be reserved
for trial.
The United States’s Motion for Order Applying Issue Preclusion (Doc. 28)
is DENIED AS MOOT.
DATED this 19th day of March, 2019.
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