https://www.forbes.com/sites/a...-court/#5868fdbc5e99


AUG 25, 2017 @ 04:37 PM

IRS Shoots Down Big Game Hunter In Tax Court



Tony Nitti , CONTRIBUTOR


I focus on tax policy, court decisions and planning opportunities.

Opinions expressed by Forbes Contributors are their own.

There's a lot of politically-fueled hate in this country right now. Democrats hate President Trump. Republicans hate CNN and Colin Kaepernick. The alt-right hates everyone.

But can't you see that harboring all of that hatred over what, really -- when you take a step back -- are small ideological differences, is both misplaced and misguided? After all, you -- Mr. Diehard Democrat -- had you been born in a different state and grown up on a farm, could easily have become a conservative. And you -- Mrs. Resolute Republican -- had you grown up with a parent who needed Medicaid, may well have become a liberal snowflake. While the chasm between the two parties seems impassable when we focus on the staunchest of the two sides, the reality is that most of us fall somewhere within that chasm, embracing a few sentiments from each party as part of our ever-evolving personal ethos. So why hate someone that could easily be you in a few years? It's a wasted emotion.

Now, I'm not asking you to stop hating; that would be lunacy. Rather, I'm simply suggesting we see past our petty differences and unite to hate the same thing. A group of people so reprehensible that all of us -- Democrat and Republican, black and white, gay and straight -- can become one in our shared repulsion.

Might I suggest these guys?



Ah, "big game" hunters. That special breed of human who, when presented with the image of a giraffe leisurely snacking on an acacia tree, dips deep into the boundless reserve of human emotion and musters only this thought: "Man, I'd love to plug a few rounds into that."

Those people who would soil their Tommy John's at the first sign of a fair fight, but when offered high-powered weaponry and a lion cub in their sights, become engorged with bravado.

People who will travel to a far-off land to spend nine hours a day cloaked in camo and stuck in a tree stand, when, if I were so inclined, each morning on my mountain bike ride I could reach out and smack a ten-point buck with a rolled-up newspaper.

You get the idea. These people are the worst. If we can all agree on that, the healing of this great nation can begin.

And while some of the more permissive among us may be able to forgive big game hunters for their slaughter of countless beautiful (and unarmed) animals, none of us can look the other way when they overstate their charitable contribution deduction, as the Tax Court decided one Paul Gardner did yesterday afternoon.

Facts in Gardner

Gardner, you see, like the majority of big game hunters, maintained a "Shrine of Death" (my words, not his: he would prefer "trophy room") in his home. It contained preserved trophies from all of his greatest kills; some in full-body form, while most were reduced to their head and shoulders and mounted on the wall.

Of course, when you're only displaying an animal from the neck up, there is a lot of, how should we put this...waste: things like skins and skulls, horns and hooves, ears and antlers. These items, despite being discarded from the real trophy, still speak to the hunter's skill and virility, and thus are usually also displayed within the trophy room.

At a certain point, Gardner found that all of the animal parts had caused his Shrine of Death to become a bit overcrowded, diluting the desired aesthetic. Fortunately, a fellow hunter explained that he could help Gardner out by connecting him with an ecological foundation to which Gardner could donate some of his lesser prized trophies, clearing out his room while claiming a generous charitable contribution deduction in the process.

Excited by the opportunity, Gardner identified 177 items from his collection and donated them to the same charity. These items included no full body mounts and only three shoulder mounts, with the remainder of the 174 donations coming from the "spare parts" described above.

In order to determine the fair market value of his donations -- and thus fix the amount of his charitable contribution deduction -- Gardner engaged the services of an appraiser who used the "replacement cost" method. Under this method, the appraiser estimated what it would cost to replace each donated item -- in other words, how much would Gardner have to spend to travel to the location where the animal was originally killed and murder it all over again, plus the cost of having it shipped back to the U.S. and appropriately preserved.

In doing so, the appraiser determined the value of the 177 items to be $1.4 million. As a result, Gardner claimed this amount as a charitable contribution deduction on his 2006 return. Because he ran into the 30% of AGI limitation for contributions of appreciated property, much of the deduction was carried over, with Gardner deducting the remainder in 2007 and 2008.

Upon reviewing the 2006 return, the IRS disagreed with Gardner's use of the "replacement cost" method in determining the value of the contributed items, arguing instead that the appropriate methodology was to use the "comparable sales" approach, where Gardner's contributed items were compared with similar items that had recently been sold on the open market. After applying this approach, the IRS found the value of the 177 items to be only $163,000, and the Service thus denied the remaining $1.24 million claimed on Gardner's 2006 tax return. Yesterday, the dispute found its way to the Tax Court.

Section 170, In General

If a taxpayer makes a charitable contribution of property other than money, the amount of the contribution is generally equal to the fair market value of the property at the time the gift was made. And therein lies the problem -- the concept of "fair market value" is an inherently subjective one, with taxpayers and the IRS often taking widely disparate views of what a property is "worth," as was the case here.

The regulations offer little counsel, simply providing that fair market value is "the price at which property would change hands between a willing seller and a willing buyer, neither being under any compulsion to buy or sell and having reasonable knowledge of relevant facts."

So how do we know what price property would sell for between a willing buyer and a willing seller? The IRS will always default to using the comparable sales methodology when an active market exists for the item being donated. Stated in another way: what has similar property sold for in the past? Use of the replacement cost approach, however, is typically reserved for those items where the "property is unique, the market is limited, and there is no evidence of prior sales." For the IRS to eschew comparable sales for replacement cost, the onus is on the taxpayer to prove not only that no active market exists, but that there is a direct correlation between the replacement cost and the fair market value.

Gardner argued that replacement cost must be used because the items he donated were pristine specimens that would be ideal for museum study and research. The Tax Court concluded, however, that Gardner did not provide a shred of evidence to support this claim. The donee had not studied and displayed the items; rather, they had been so widely sold and dispersed that they could not even be examined for the trial. Furthermore, the court claimed that the process of chemical preservation would have made the properties unattractive to a museum.

Undeterred, Gardner then trotted out three "experts" who were neither taxidermists or appraisers, and whom the Tax Court found wholly lacking in credibility. The first cited the donated items' "high quality and known points of origin," a statement that was belied by the photographic evidence and missing details of provenance. The second argued that what made the donated items so unique as to necessitate the replacement cost method was that they were "preserved in their natural state," before then conceding that he wasn't quite sure what that meant, and that the items had undergone heavy chemical treatment. The final expert argued that the value of the items was actually $2.5 million, more than double the claimed deduction, by assuming that to replace all 177 items the taxpayer would have to kill 177 more animals; ignoring the fact that many of the contributed items were parts of the same victim.

The IRS countered with its own expert, a man with considerable experience in taxidermy and the appraisal of taxidermy items. He described the contributed items as largely "remnants and scraps," stating the properties were "what's left over" after mounting the animal. He then consulted market data from bricks-and-mortar auction houses, online sites like eBay, and other sites specializing in hunting specimens. For some items he found only two comparable sales, but for many he found between 20 and 30, establishing that there was in fact a ready-made market for animal remnants.

Citing prior precedent, the Tax Court agreed with the IRS that an active market exists for shoulder mounts, hooves, horns, and the like. As a result, the court concluded that the taxpayer must use the comparable sales method and sided with the Service, limiting Gardner to a deduction of $164,000, requiring Gardner to pay over $400,000 in additional tax.

It's a harsh result, for certain, and one that undoubtedly left Gardner with a bad taste in his mouth. Don't feel too bad, however; I'm guessing that he was able to wash it away with an omelet made from endangered condor eggs. So delicious.

quote:

Originally posted by Kathi:


Upon reviewing the 2006 return, the IRS disagreed with Gardner's use of the "replacement cost" method in determining the value of the contributed items, arguing instead that the appropriate methodology was to use the "comparable sales" approach, where Gardner's contributed items were compared with similar items that had recently been sold on the open market. After

Citing prior precedent, the Tax Court agreed with the IRS that an active market exists for shoulder mounts, hooves, horns, and the like. As a result, the court concluded that the taxpayer must use the comparable sales method and sided with the Service, limiting Gardner to a deduction of $164,000, requiring Gardner to pay over $400,000 in additional tax.

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Thanks for posting Kathy ...interesting. As an accountant, I'm surprised someone likely advised him to try such an obviously aggressive approach on fair market value. As a hunter...wow what a window would have been opened up had the court set precedent on such a thing!
The guy had to know better...pardon the pun, but there's no way this passes the "smell test" with the IRS and the court rightly decided that it did not

There is a retired outfitter who also owns a wildlife museum, I don't know if he was the one who came up with this idea, but he did advise all of his wealthy clients about the donation/tax deduction. His wildlife museum was the recipient of many of these "donations".

Taxpayer ALWAYS loses in Tax Court.

Interesting article apart from the gratuitous and hateful sidebar comments.

Did it occur to the dimwit who wrote this that his shoe closet is a "Shrine of Death"? And that he eats corpses every day.

This same thing happened to a friend of mine. He ended up having to pay back a LOT of money. I'm pretty sure back in the 80's you were able to write everything off related to the hunt.

I would not be surprised to see the IRS audit other aggressive hunting related deductions.

I also think the IRS is spot on in this litigation.

Taxidermy is worthless on the resale market.

Mike

The IRS ruled a while ago that you could not claim replacement value for donating hunting trophies; not sure what year that occurred.

More interesting to me is practice of others deducting the cost of their hunts, whether it be booking agents, writers, or folks who own outdoor stores. I hunted with Henry Mills once (he is the founder of Mills Fleet Farm, since acquired by KKR) and asked him if he was going to deduct the cost of his hunt (21 day in Tanz) since he could display the taxidermy in his stores and he said, "Hell no."

I know one ex writer who deducted the cost of his taxidermy as an "office expense."

quote:

Originally posted by AnotherAZWriter:
The IRS ruled a while ago that you could not claim replacement value for donating hunting trophies; not sure what year that occurred.

More interesting to me is practice of others deducting the cost of their hunts, whether it be booking agents, writers, or folks who own outdoor stores. I hunted with Henry Mills once (he is the founder of Mills Fleet Farm, since acquired by KKR) and asked him if he was going to deduct the cost of his hunt (21 day in Tanz) since he could display the taxidermy in his stores and he said, "Hell no."

I know one ex writer who deducted the cost of his taxidermy as an "office expense."

I hunt with businesss friends/clients and write it off every year.
I took my sales team fishing in Guatemala this year..write it off?..Hell Yeah!
One thing you can do is, for example, hunt something large (say a Bison) on a business trip...not only can you write off the hunt, you can donate a whole bunch of HIGH VALUE meat...essentially taking a free hunt.

quote:

Originally posted by Poyntman:

quote:

Originally posted by AnotherAZWriter:
The IRS ruled a while ago that you could not claim replacement value for donating hunting trophies; not sure what year that occurred.

More interesting to me is practice of others deducting the cost of their hunts, whether it be booking agents, writers, or folks who own outdoor stores. I hunted with Henry Mills once (he is the founder of Mills Fleet Farm, since acquired by KKR) and asked him if he was going to deduct the cost of his hunt (21 day in Tanz) since he could display the taxidermy in his stores and he said, "Hell no."

I know one ex writer who deducted the cost of his taxidermy as an "office expense."

I hunt with businesss friends/clients and write it off every year.
I took my sales team fishing in Guatemala this year..write it off?..Hell Yeah!
One thing you can do is, for example, hunt something large (say a Bison) on a business trip...not only can you write off the hunt, you can donate a whole bunch of HIGH VALUE meat...essentially taking a free hunt.

I have done the same but that is different than the examples I gave, wouldn't you agree? I mean, expensing the taxidermy in my office and calling it office decorations is a bit much.

The other difference: your total cost when taking clients mult by (1-eff tax rate) is still more than if you paid for it yourself. Deducting something when you are the only beneficiary and calling it a business expense translates into some kind of indirect business value.

Fortune 500 companies have really put the "kibosh" to vendor sponsored trips of any kind, FWIW. Even asking is akin to a serious ethics violation.

Bottom Line is you can claim anything for a deduction- until the audit catches you....

quote:

Originally posted by jdollar:
Bottom Line is you can claim anything for a deduction- until the audit catches you....

Ha! This reminds me that we got a bill for a nice safari from the IRS for Ms AZW's tax return. She works for a reg company but I file quarterlies for her because she gets comped with options. Apparently I put Q4 2017 on her Q4 2016 remittance. Even though I included that on her estimated tax payments, the IRS dinged her. The first IRS guy said tough luck; I would have to send in another check and apply the erroneous payment to 2017, but my accountant said to get another agent on the phone and she was able to change it. Q1 2017 payments were not even due until Apr 2017, so what idiot would ever prepay Q4 2017 before Jan 15 2017? Even the check memo said Q4 2016 1040ES with her SSN. My error, but arguing with the first guy was like fighting city hall.

quote:

Originally posted by jdollar:
Bottom Line is you can claim anything for a deduction- until the audit catches you....

Absolutely true. I have seen people get away with astounding things for years, sometimes forever.

I had a client, now deceased, who was audited by the IRS. He had issues. I estimated $700,000 of issues. The agent came in to my office. At the time, I had a few mounts in the office. The agent was from Montana and liked to hunt. That was fortuitous.

The agent asked for the clients personal expense reports. My response was that there weren't any. He was too lazy to turn them in. That was the end of the audit. We talked hunting the rest of the time. The client came out of this with no change. Even a minor review would have showed these obvious problems.

I had another some years ago. The client shows up. We gave him the standard instructions. Don't answer questions that aren't asked, be polite, etc. Just before we went to meet the agent the client wanted to stop momentarily. He reached in his bag and brought out a large onion. He took a big bite. Damn this thing smelled awful. The agents eyes were watering from the onion smell. I have to think this one got over pretty quickly because of that. I still laugh about it.

I have a friend that funded a tax free natural history museum in his building and would bring school kids to see the exhibits behind glass at no charge. He would contribute $250K annually to the foundation and the foundation would pay for his trips to collect specimens for the museum. Slick. He never got audited.

Seldom have I seen a more asinine piece, apart from the information about tax accounting, which, by the way, I thought everyone knew by now.

The writer of this hateful screed gleefully assumes that everyone hates big game hunters, that it's fine to do so, and that he can therefore get away with making them objects of hate.

Shameful - and irrational, to boot.

quote:

Originally posted by Michael Robinson:
Seldom have I seen a more asinine piece, apart from the information about tax accounting, which, by the way, I thought everyone knew by now.

The writer of this hateful screed gleefully assumes that everyone hates big game hunters, that it's fine to do so, and that he can therefore get away with making them objects of hate.

Shameful - and irrational, to boot.

I am glad you used the term "hate" because that is exactly what came to my mind.

I subscribe to Forbes and give it to some of my employees and am tempted to contact them and complain. They have written about hunting before in a benign manner, so I don't know why this even passed by the editor.

AZ, I read Forbes, and find it generally interesting and informative.

But how a bozo like this guy got published, I cannot fathom.

Hateful diatribes such as this one (and in this case, contrived to achieve hatefulness, because the information imparted was old news) ued to be race or religion based, and limited to the press organs of scum like the KKK and the Nazi party.

But now it's deemed okay, by editors of major publications such as Forbes, to spread hate about hunters.

Just disgraceful, and IMHO, editorially and, more importantly, morally, bankrupt.

Wait, no one is surprised that the IRS gave him 164k in deductibles for three shoulder mounts and some scraps? I'm donating all my ass end skins and hooves now!

I just complained to Forbes; if you want, you can too:

readers@forbes.com

quote:

Originally posted by AnotherAZWriter:
I just complained to Forbes; if you want, you can too:

readers@forbes.com

You can be sure I will. Thanks for the link.

quote:

Originally posted by txlonghorn:
Wait, no one is surprised that the IRS gave him 164k in deductibles for three shoulder mounts and some scraps? I'm donating all my ass end skins and hooves now!

My thoughts exactly. Fair market value was probably less than zero.