  RERI HOLDINGS I, LLC, HAROLD LEVINE, TAX MATTERS
       PARTNER, PETITIONER v. COMMISSIONER OF
           INTERNAL REVENUE, RESPONDENT
         Docket No. 9324–08.            Filed August 11, 2014.

        LLC1 contributed a successor member interest in a second
     LLC (LLC2) to University. R moves for partial summary judg-
     ment that (1) the actuarial tables under I.R.C. sec. 7520 do
     not apply to value the successor member interest and (2) TMP
     failed to substantiate the value of the successor member
     interest with a qualified appraisal as defined in sec. 1.170A–
     13(c)(3), Income Tax Regs. Held: Pierre v. Commissioner, 133
     T.C. 24 (2009), followed; LLC2, a disregarded entity, is not
     disregarded in determining value of the successor member
     interest in LLC2 that LLC1 contributed to University. Held,
     further, Estate of Gribauskas v. Commissioner, 116 T.C. 142
     (2001), rev’d and remanded, 342 F.3d 85 (2d Cir. 2003), distin-
     guished on ground that successor member interest involved
     right to receive a capital asset in the future and not a stream
     of fixed payments. Held, further, we will deny R’s motion.

  Randall Gregory Dick and Rebekah E. Schechtman, for
petitioner.
  Travis Vance III, Kristen I. Nygren, John M. Altman, and
Leon St. Laurent, for respondent.

                               OPINION

  HALPERN, Judge: This is a partnership-level action brought
in response to a notice of final partnership administrative
adjustment. The action involves RERI Holdings I, LLC
(RERI). On its 2003 income tax return RERI reported a
charitable contribution of property worth $33,019,000.
Respondent determined that RERI overstated the value of
the contribution by $29,119,000. He also determined that, on
account of the overstatement, he would apply an accuracy-
related penalty to any resulting underpayment of income tax.
Petitioner assigned error to respondent’s determinations.
Respondent answered, supporting his determination that
RERI had overstated the value of the contribution with the
                                                                       41
42           143 UNITED STATES TAX COURT REPORTS                       (41)


allegation that the transaction giving rise to RERI’s chari-
table contribution ‘‘is a sham for tax purposes or lacks eco-
nomic substance, and therefore the transaction should be dis-
regarded for federal tax purposes and the deduction dis-
allowed in its entirety.’’
  The case is presently before us on respondent’s motion for
partial summary judgment (motion). Respondent moves for
partial summary adjudication in his favor that (1) the actu-
arial tables under section 7520 1 do not apply to value the
future (remainder) interest in property that RERI contrib-
uted to the University of Michigan (University) in 2003 and
(2) RERI failed to substantiate the value of its contribution
with a qualified appraisal. Petitioner objects. We will deny
the motion.

                              Background
   Previously in this case we disposed by order of a motion by
respondent for partial summary judgment 2 and by Memo-
randum Opinion and order of a motion by petitioner for par-
tial summary judgment. RERI Holdings I, LLC v. Commis-
sioner, T.C. Memo. 2014–99 (rejecting petitioner’s claim that,
as a matter of law, the doctrines of ‘‘sham’’ and ‘‘lack of eco-
nomic substance’’ are inapplicable to the determination of
whether a taxpayer’s charitable contribution is allowed under
section 170). In doing so we relied on certain facts that we
believed are not in dispute. We shall, therefore, with minor
modifications and additions as relevant to the motion, again
rely on those facts. The facts we rely on are as follows.
   1 Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect for 2003, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
   2 Respondent moved for partial summary adjudication in his favor that,

if the valuation tables provided for in sec. 7520 are to be used in valuing
the charitable contribution in issue, the value of the real property under-
lying the contribution must be reduced by (1) depreciation and (2) the en-
tire amount of the indebtedness encumbering the underlying property. By
order dated May 5, 2011 (order), we granted that motion with respect to
respondent’s first prayer and denied it with respect to his second prayer,
which we treated as asking for judgment that the charitable contribution
had to be reduced by the amount of the indebtedness. We denied the mo-
tion on the ground that there was a genuine dispute as to a material fact.
See Rule 121(b).
(41)       RERI HOLDINGS I, LLC v. COMMISSIONER             43


RERI
  RERI was formed as a Delaware limited liability company
on March 4, 2002. It was dissolved on May 11, 2004. RERI
is classified as a partnership for Federal income tax pur-
poses. For 2003, RERI filed a Form 1065, U.S. Return of
Partnership Income (return).
The Charitable Contribution
   RERI reported on the return as a charitable contribution
its transfer to the Regents of the University of what RERI
described on the return as ‘‘100% of the remainder estate in
the membership interest in RS Hawthorne Holdings, LLC’’
(Holdings). Holdings, RERI reported, ‘‘owns all of the mem-
bership interest of a [‘single purpose, single member’] Dela-
ware limited liability company’’. That Delaware LLC is RS
Hawthorne, LLC (Hawthorne), which RERI described on the
return as owning ‘‘the fee simple absolute in a parcel of land
improved as a AT&T web hosting facility located at 2301
West 120th Street, Hawthorne, California’’ (Hawthorne prop-
erty).
Red Sea Tech I, Inc.
   The Hawthorne property had come to be owned by Haw-
thorne on February 6, 2002, pursuant to Hawthorne’s execu-
tion of a real estate contract that Hawthorne had received
from Red Sea Tech I, Inc. (Red Sea). Hawthorne purchased
the Hawthorne property from InterGate LAII, LLC
(Intergate), for $42,350,000. To fund that purchase, Haw-
thorne borrowed $43,671,739 from Branch Banking & Trust
Co. (BB&T), signing a promissory note (promissory note or
note) and securing its repayment obligation by, among other
things, a deed of trust (mortgage) and an ‘‘Absolute Assign-
ment of Rents and Lease’’. The promissory note called for
payments in installments (including interest) over a period of
14 years and 3 months (February 15, 2002–May 15, 2016),
with the final payment, due May 15, 2016, constituting a
‘‘balloon’’ payment of $11.8 million. AT&T occupied the Haw-
thorne property pursuant to a triple net lease between it and
Intergate. That lease had commenced on December 1, 2000,
and was for a term of 151⁄2 years, until May 31, 2016, with
AT&T having three renewal options of 5 years each.
44         143 UNITED STATES TAX COURT REPORTS              (41)


The Temporal Interests
   Initially, Red Sea was the sole member of Holdings. On
February 7, 2002, Red Sea created two temporal interests in
its membership interest in Holdings (Holdings membership
interest or, sometimes, Holdings)—a possessory term of years
member interest (TOYS interest) and a future, successor
member interest (SMI). The TOYS interest commenced in
February 2002 and is to run almost 18 years, through
December 31, 2020. The SMI becomes possessory on January
1, 2021, on termination of the TOYS interest.
Sale to RJS
  RJS Realty Corp. (RJS) is a Delaware corporation. On Feb-
ruary 7, 2002, RJS purchased the SMI for $1,610,000. By the
agreement of sale (assignment agreement), among other
things, Red Sea agreed to prohibit Holdings or Hawthorne
from encumbering the Hawthorne property without the con-
sent of RJS. Red Sea also agreed to prohibit the transfer of
any interest in the Hawthorne property or the creation of
any ‘‘lien or encumbrance’’ on the property that would ‘‘mate-
rially adversely affect’’ its value. The assignment agreement
limits Red Sea’s (and any successor in interest’s) liability for
breach of the agreement. An assignee’s recourse for breach of
the agreement is limited to the interest (the TOYS interest)
retained by Red Sea. The assignment agreement provides
that it ‘‘shall be interpreted and construed in a manner con-
sistent with the common law of estates in property of the
State of New York and the statutory scheme of future
interests and estates in property of the State of New York
that is set forth in the New York Estates, Powers and Trust
Law as in effect on the date hereof ’’.
RERI’s Purchase
  On March 25, 2002, RJS sold the SMI to RERI for
$2,950,000, RERI paying $1,880,000 in cash and executing a
nonrecourse promissory note for the balance.
The Gift Agreement
  On August 27, 2003, RERI’s principal investor, Stephen M.
Ross, pledged that he would make a gift of $4 million (later
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                      45


increased to $5 million) to the University for the benefit of
its Department of Athletics (gift agreement).
   Under the gift agreement, Mr. Ross pledged and agreed ‘‘to
transfer, or to have transferred’’ the SMI to the University
no later than December 31, 2003. Upon receiving the SMI,
the University was to hold it at a nominal value of $1 and
credit Mr. Ross’ pledge in the amount of $1. The University
agreed to hold the SMI for a minimum of two years, ‘‘after
which the University shall sell’’ the SMI and credit Mr. Ross’
account ‘‘to a value equal to the net proceeds received by the
University’’ for the SMI. RERI’s donation of the SMI to the
University was completed on the same day as the gift agree-
ment, August 27, 2003. Consistent with the gift agreement,
the agreement embodying RERI’s donation of the SMI to the
University required the University to hold the SMI ‘‘for a
period of two years’’. (We shall hereafter refer to the Univer-
sity’s obligations—first, to hold the SMI for a minimum of
two years and, then, to sell it—as the two-year hold-sell
requirement.)
Appraisal of the Hawthorne Property
  In September 2003, RERI retained Howard C. Gelbtuch of
Greenwich Realty Advisors to appraise a hypothetical
remainder interest in the Hawthorne property. Mr. Gelbtuch
concluded that the fair market value of ‘‘the leased fee
interest in the * * * [Hawthorne] property as of August 28,
2003, is US $55,000,000’’, and that the ‘‘investment value’’ of
a hypothetical remainder interest in that property vesting on
January 1, 2021, was $32,935,000. 3 Mr. Gelbtuch determined
that value by multiplying his valuation of the underlying
leased fee interest by an actuarial factor taken from the
tables promulgated under sections 2031 and 7520. See sec.
20.2031–7(d)(1), Estate Tax Regs. (2003); sec. 1.7520–1(a)(1),
Income Tax Regs. (2003). 4 In his appraisal report, Mr.
Gelbtuch states that he was ‘‘advised that the applicable
Remainder Interest Actuarial Factor as provided in Section
7520 of the Internal Revenue Code of 1986 for the month of
  3 The  appraisal and professional fees were calculated as $84,000, for a
total reported charitable contribution by the partnership of $33,019,000.
  4 Mr. Gelbtuch was asked to and did, in fact, appraise a hypothetical re-

mainder interest in the Hawthorne property, not the SMI.
46           143 UNITED STATES TAX COURT REPORTS                      (41)


contribution is .598793705.’’ Mr. Gelbtuch appraised the
leased fee interest assuming that it was ‘‘free and clear of
any and all liens or encumbrances’’.
Sale of the SMI
  On or about December 23, 2005, after the expiration of the
required two-year holding period, and after obtaining its own
appraisal of the remainder interest in the Hawthorne prop-
erty as of July 20, 2005, which valued that interest at $6.5
million (on the basis of a ‘‘Reversion Value’’ of the Hawthorne
property after 15 years), the University sold the SMI to HRK
Real Estate Holdings, LLC (HRK), a Delaware LLC
indirectly owned by petitioner and one of his associates, for
$1,940,000. 5
  HRK had pre-sold the SMI to a third-party individual for
$3 million on or about December 20, 2005. On December 26,
2006, that third party donated the SMI to another charitable
organization and claimed a charitable contribution deduction
of $29,930,000 in connection therewith, again on the basis of
an appraisal by Mr. Gelbtuch of a hypothetical remainder
interest in the Hawthorne property.

                              Discussion
I. Summary Judgment
  Pursuant to Rule 121(a), ‘‘[e]ither party may move, with or
without supporting affidavits or declarations, for a summary
adjudication in the moving party’s favor upon all or any part
of the legal issues in controversy.’’ A summary judgment is
appropriate ‘‘if the pleadings, answers to interrogatories,
depositions, admissions, and any other acceptable materials,
together with the affidavits or declarations, if any, show that
there is no genuine dispute as to any material fact and that
a decision may be rendered as a matter of law.’’ Rule 121(b).
  5 As  a result of petitioner’s donation of the SMI to the University and
other donations of similar successor member interests in other LLCs ar-
ranged by Mr. Ross, the University derived sale proceeds of $4,276,604,
which it credited to Mr. Ross’ $5 million pledge. Respondent alleges that,
in at least some of those cases, the amounts realized by the University on
its sales of the donated successor remainder member interests were far
less than the appraisal thereof for which the donor, presumably, claimed
a sec. 170 deduction.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                       47


A summary judgment may be made upon part of the legal
issues in controversy. See id. In response to a motion for
summary judgment, an adverse party may not rest upon
mere allegations or denials of the moving party’s pleading
but ‘‘must set forth specific facts showing that there is a gen-
uine dispute for trial.’’ Rule 121(d).
II. Application of the Actuarial Tables Under Section 7520 in
    Valuing the SMI
  A. Applicable Law
   Section 170(a)(1) allows a deduction for ‘‘any charitable
contribution * * * made within the taxable year * * * only
if verified under regulations prescribed by the Secretary.’’
Section 1.170A–1(c)(1), Income Tax Regs., generally provides
that the amount of a contribution ‘‘made in property other
than money * * * is the fair market value of the property at
the time of the contribution’’. Section 1.170A–1(c)(2), Income
Tax Regs., provides that ‘‘fair market value is the price at
which the property would change hands between a willing
buyer and a willing seller, neither being under any compul-
sion to buy or sell and both having reasonable knowledge of
relevant facts.’’
   In most cases, the willing buyer-willing seller standard is
not applied directly to annuities, life estates, terms of years,
remainders, reversions and similar partial interests in prop-
erty. In general, those interests are valued by determining
the fair market value of the underlying property and dividing
the value among the several interests in the property on the
basis of their present values. In pertinent part, section
7520(a) provides with respect to remainder interests:
    SEC. 7520(a). GENERAL RULE.—For purposes of this title, [i.e., title 26,
  U.S.C., the Internal Revenue Code] the value of any * * * remainder
  * * * interest shall be determined—
      (1) under tables prescribed by the Secretary, and
      (2) by using an interest rate (rounded to the nearest 2/10ths of 1
    percent) equal to 120 percent of the Federal midterm rate in effect
    under section 1274(d)(1) for the month in which the valuation date
    falls.
  If an income * * * tax charitable contribution is allowable for any part
  of the property transferred, the taxpayer may elect to use such Federal
  midterm rate for either of the 2 months preceding the month in which
  the valuation date falls for purposes of paragraph (2). * * *
48            143 UNITED STATES TAX COURT REPORTS                       (41)


   Section 1.7520–1(a)(1), Income Tax Regs., 6 applicable to
remainder interests, provides: ‘‘Except as otherwise provided
in this section and in § 1.7520–3 (relating to exceptions to
the use of prescribed tables under certain circumstances), in
the case of certain transactions after April 30, 1989, subject
to the income tax, the fair market value of * * * remainders
* * * is their present value determined under this section.’’
Section 1.7520–1(c), Income Tax Regs., generally provides
that ‘‘present value’’ is to be computed by using tables (sec-
tion 7520 tables) reflecting the section 7520 interest rate
component and, if necessary, the mortality component
described in the section 7520 regulations. See also section
1.7520–2(a)(1), Income Tax Regs., which provides: ‘‘Valu-
ation.—Except as otherwise provided in this section and in
§ 1.7520–3 * * * the fair market value of * * * remainders
* * * for which an income tax charitable deduction is allow-
able is the present value of such interests determined under
§ 1.7520–1.’’
   Section 1.7520–3(b)(1)(i)(C), Income Tax Regs., describes
an ‘‘ordinary remainder or reversionary interest’’ as ‘‘the
right to receive an interest in property at the end of one or
more measuring lives or some other defined period.’’ The
regulation provides that such an interest may be present-val-
ued using a ‘‘standard section 7520 remainder factor’’ as
defined therein. Id.
   Section 1.7520–3(b)(1)(ii), Income Tax Regs., describes a
‘‘restricted beneficial interest’’, in part, as a remainder
interest ‘‘that is subject to a contingency, power, or other
restriction, whether the restriction is provided for by the
terms of the * * * governing instrument or is caused by
other circumstances.’’ That regulation further provides: ‘‘In
general, a standard section 7520 * * * remainder factor may
not be used to value a restricted beneficial interest.’’ Id. It
provides, however, that ‘‘a special section 7520 * * *
remainder factor may be used to value a restricted beneficial
interest under some circumstances’’, citing an example in sec-
tion 1.7520–3(b)(4), Income Tax Regs., that is not germane to
this case. 7 Id.
  6 The regulations cited and discussed herein are those that were in effect

for 2003, the year in issue.
  7 As discussed infra pp. 23–24, respondent alleges that the SMI was a
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                         49


   If neither the section 7520 tables nor a special section 7520
factor is applicable to determining the value of a remainder
interest, then the fair market value of the remainder interest
is determined without regard for section 7520 on the basis of
all of the facts and circumstances. See sec. 1.7520–3(b)(1)(iii),
Income Tax Regs.
   Section 1.7520–3(b)(2), Income Tax Regs., is entitled
‘‘Provisions of governing instrument and other limitations on
source of payment.’’ Section 1.7520–3(b)(2)(iii), Income Tax
Regs., provides with respect to remainder and reversionary
interests:
     (iii) Remainder and reversionary interests. A standard section 7520
  remainder interest factor for an ordinary remainder or reversionary
  interest may not be used to determine the present value of a remainder
  or reversionary interest (whether in trust or otherwise) unless, con-
  sistent with the preservation and protection that the law of trusts would
  provide for a person who is unqualifiedly designated as the remainder
  beneficiary of a trust for a similar duration, the effect of the administra-
  tive and dispositive provisions for the interest or interests that precede
  the remainder or reversionary interest is to assure that the property will
  be adequately preserved and protected (e.g., from erosion, invasion,
  depletion, or damage) until the remainder or reversionary interest takes
  effect in possession and enjoyment. This degree of preservation and
  protection is provided only if it was the transferor’s intent, as manifested
  by the provisions of the arrangement and the surrounding cir-
  cumstances, that the entire disposition provide the remainder or rever-
  sionary beneficiary with an undiminished interest in the property trans-
  ferred at the time of the termination of the prior interest.
  See also section 1.7520–3(b)(2)(ii)(A), Income Tax Regs.,
which, in addressing the requirements of a ‘‘governing
instrument’’ with respect to ‘‘[i]ncome and similar interests’’,
restricted beneficial interest precluding Mr. Gelbtuch’s use of the sec. 7520
tables. Respondent appears to treat that preclusion as mandated by and
synonymous with the statement in sec. 1.7520–3(b)(1)(ii), Income Tax
Regs., that ‘‘[i]n general, a standard section 7520 * * * remainder factor
may not be used to value a restricted beneficial interest.’’ Petitioner does
not allege the right to file on RERI’s behalf a ruling request under sec.
1.7520–1(c), Income Tax Regs., seeking from respondent a ‘‘special section
7520 * * * remainder factor’’ in order to value the SMI. See sec. 1.7520–
3(b)(1)(ii), Income Tax Regs. Nor do the parties discuss the possible use of
such a factor herein in lieu of the ‘‘standard’’ sec. 7520 factor or what that
might mean in arriving at a value of the SMI. Therefore, we will address
the issue as framed by the parties: whether petitioner is entitled to use
the sec. 7520 tables (i.e., a ‘‘standard’’ sec. 7520 remainder factor) in val-
uing the SMI.
50            143 UNITED STATES TAX COURT REPORTS            (41)


provides that the income beneficiary’s interest is adequately
protected (i.e., is an ordinary beneficial interest subject to
valuation using a ‘‘standard section 7520 income factor’’)
‘‘only if it was the transferor’s intent, as manifested by the
provisions of the governing instrument and the surrounding
circumstances, that the trust provide an income interest for
the income beneficiary during the specified period of time
that is consistent with the value of the trust corpus and with
its preservation.’’ (Emphasis added.)
   The wasting nature of depreciable and depletable real
property is reflected in a special rule requiring that, in deter-
mining the value of a remainder interest in real property for
purposes of section 170 (allowing an income tax deduction for
any charitable contribution), depreciation and depletion be
taken into account. Section 170(f)(4) provides: ‘‘For purposes
of this section, in determining the value of a remainder
interest in real property, depreciation (computed on the
straight line method) and depletion of such property shall be
taken into account, and such value shall be discounted at a
rate of 6 percent per annum, except that the Secretary may
prescribe a different rate.’’
     B. Whether on the Authority of Pierre v. Commissioner We
        Should Disregard the Check-the-Box Regulations in the
        Context of a Valuation for Purposes of Section 170, and,
        if So, Whether That Disregard Necessarily Invalidates
        Mr. Gelbtuch’s Valuation as a Valuation of the SMI
        Because He Improperly Applied the Section 7520 Tables
        to the Hawthorne Property Rather Than to the Value of
        the Holdings Membership Interest
     1. The Parties’ Arguments
   Respondent argues that Mr. Gelbtuch improperly
appraised a hypothetical remainder interest in the Haw-
thorne property rather than the SMI that RERI did, in fact,
donate to the University. He argues that, assuming the sec-
tion 7520 tables are applicable to value the SMI, the section
7520 remainder interest factor should have been applied ‘‘to
the fair market value of Holdings, a recognized legal entity
formed under Delaware law, rather than [to] the market
value of the Hawthorne Property.’’
(41)        RERI HOLDINGS I, LLC v. COMMISSIONER              51


   Petitioner defends Mr. Gelbtuch’s application of the section
7520 tables to the fair market value of the Hawthorne prop-
erty on the ground that both Holdings and its wholly owned
subsidiary, Hawthorne, which owned the Hawthorne prop-
erty, were LLCs wholly owned by Red Sea and, therefore,
were ‘‘disregarded entities’’ pursuant to section 301.7701–
3(b)(1)(ii), Proced. & Admin. Regs. Petitioner argues that our
Opinion in Pierre v. Commissioner, 133 T.C. 24 (2009), in
which we held that an LLC constituting a disregarded entity
under the foregoing regulation may not be disregarded for
purposes of valuing the gift of an interest therein, is
applicable only for Federal gift tax purposes, not for purposes
of determining the income tax deduction for a charitable con-
tribution of an interest in a disregarded LLC, the sole asset
of which is an interest in real estate. Respondent rejects peti-
tioner’s reliance on the check-the-box regulations to disregard
Holdings and Hawthorne, noting that, although this Court
‘‘considered * * * [the] issue in the context of the federal gift
tax provisions, the Tax Court’s rationale in Pierre is equally
applicable to the instant case.’’
   Petitioner, recognizing that Pierre involved gifts and valu-
ations of fractional interests in an LLC, posits that ‘‘had
100% of the Pierre LLC interests been transferred to one per-
son the Court in Pierre would have agreed that no discounts
were appropriate’’; i.e., that the transferred LLC interests
and the underlying assets represented thereby would be of
equal value. In further support of that argument, petitioner
notes that ‘‘respondent fails to discuss how one would go
about valuing the interests transferred since the 100% owner
of the LLC could collapse the structure, terminating the
LLC’’, again suggesting that the SMI and the remainder
interest in the Hawthorne property were of equal value.
Similarly, in defending the Gelbtuch appraisal as a ‘‘qualified
appraisal’’ under section 1.170A–13(c)(3), Income Tax Regs.,
petitioner questions how an appraisal of the SMI ‘‘would
produce a different result as the underlying asset would still
have to be valued’’, and he further notes: ‘‘[w]hile respondent
argues the wrong property was * * * valued, * * * [he] does
not suggest how else the value of the * * * [SMI] would be
determined.’’ Thus, petitioner suggests that, even if Mr.
Gelbtuch did apply the section 7520 tables to a fair market
52            143 UNITED STATES TAX COURT REPORTS           (41)


valuation of the wrong property, that impropriety was of no
economic consequence and, therefore, should be ignored.
     2. Analysis
     a. Applicability of Pierre
   In Pierre, the LLC, wholly owned by the individual donor
of the fractional interests therein, was validly formed under
New York law. We determined that, even though the LLC
was a disregarded entity under the check-the-box regula-
tions, that designation did not control the valuation of the
fractional LLC interests transferred by the donor taxpayer
for Federal gift tax purposes. In holding that the gifts were
of fractional interests in the LLC rather than of pro rata
shares of the LLC’s underlying assets, we noted that, under
New York law, the taxpayer ‘‘did not have a property interest
in the underlying assets of ’’ the LLC and that ‘‘Federal law
could not create a property right in those assets.’’ Pierre v.
Commissioner, 133 T.C. at 29–30. We further noted that the
question of how the transfer of an ownership interest in an
LLC should be valued for Federal gift tax purposes ‘‘is not
the question addressed by the check-the-box regulations’’. Id.
at 35.
   We also find significant Judge Cohen’s admonition in her
concurring opinion (joined by 8 of the other 9 Judges joining
in the 10-Judge majority opinion), that ‘‘[w]here the property
transferred is an interest in a single-member LLC * * * val-
idly created and recognized under State law, the willing
buyer cannot be expected to disregard that LLC.’’ Id. at 37.
   We were faced in Pierre, as we are faced here, with identi-
fying the appropriate property against which to apply the
customary willing seller and willing buyer standard (here, as
a first step in applying the section 7520 tables). The cus-
tomary willing seller and willing buyer standard is described
in substantially identical language both for valuing chari-
table contributions of property for income tax purposes and
for valuing gifts of property for gift tax purposes. Compare
sec. 1.170A–1(c)(2), Income Tax Regs., with sec. 25.2512–1,
Gift Tax Regs. See sec. 20.2031–1(b), Estate Tax Regs. (same
definition for estate tax valuations). And it is only on account
of a charitable contribution deduction provided for in the gift
tax statute that gifts to charity are not included in the
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                        53


amount of taxable gifts. See sec. 2522. We see no reason to
identify the property to be valued for income tax purposes
(and subject to a charitable contribution deduction) dif-
ferently from the property to be valued for gift tax purposes
(and subject to a charitable contribution deduction). 8
  Thus, we agree with respondent that, on the rationale of
Pierre, for purposes of determining the value of RERI’s chari-
table contribution to the University, the property RERI
transferred to the University was the SMI. We also agree
with respondent that, on the face of it, Mr. Gelbtuch did not
determine the value of the SMI; rather, on the face of it, by
applying the section 7520 tables to the value of the Haw-
thorne property, he determined the value of a hypothetical
remainder interest in that property. The question is whether
the latter value may serve as an acceptable substitute for the
former value.
  b. Whether Mr. Gelbtuch’s Application of the Section 7520
     Tables to the Value of the Hawthorne Property Necessar-
     ily Invalidates Mr. Gelbtuch’s Valuation as a Valuation
     of the SMI
  On the basis of the rationale of Pierre, the property that
RERI transferred to the University was the SMI, and it thus
would have been no error for Mr. Gelbtuch to have deter-
mined the value of the Holdings membership interest and to
have applied the section 7520 tables to that value to deter-
mine the value of the SMI. That, however, does not nec-
  8 Nevertheless, the value of a remainder interest in real property contrib-
uted to a qualified charitable organization may be greater for gift tax or
estate tax purposes than it is for income tax purposes. Unlike sec. 170(f),
neither the gift tax nor the estate tax provisions contain an express re-
quirement that depreciation or depletion be taken into account in deter-
mining the value of a remainder interest in real property. Apparently, the
Commissioner takes that omission to be intentional. See Rev. Rul. 76–473,
1976–2 C.B. 306 (gift tax value of charitable remainder interest in per-
sonal residence following 20-year possessory interest determined without
taking into consideration depreciation for period before charity’s posses-
sion. ‘‘The value of the charitable remainder interest is higher for gift tax
purposes than for income tax purposes.’’); see also Nat’l Bank of Commerce
in Memphis v. United States, 422 F.2d 1074, 1076 (6th Cir. 1970) (estate
tax deduction for transfer of charitable remainder computed simply by
multiplying current asset value by factor from tables); Estate of Bachman
v. Commissioner, T.C. Memo. 1975–186 (to same effect).
54            143 UNITED STATES TAX COURT REPORTS                        (41)


essarily mean that RERI fatally erred in determining the
value of the SMI by having Mr. Gelbtuch determine the
value of a hypothetical remainder interest in the Hawthorne
property. Pierre involved transfers of present interests in a
single-member LLC to two trusts, which interests, because of
discounts for lack of marketability and control, were argued
to be worth less than the donees’ pro rata shares of the
assets of the LLC. Petitioner points out that RERI trans-
ferred to the University a future interest in Holdings that,
when it becomes a present (possessory) interest at the termi-
nation of the TOYS interest, will encompass 100% of the
membership interest in Holdings. Therefore, petitioner
argues, there is not necessarily any difference between the
value of the property owned by Holdings indirectly (the Haw-
thorne property) and the value of the property (Holdings) to
which Mr. Gelbtuch should have applied the section 7520
tables in determining the value of the SMI. It follows, peti-
tioner suggests, that, absent restrictions applicable to one
and not the other, see discussion infra, there is no difference
between the value of Holdings and the value of the leased fee
interest in the Hawthorne property that was, in effect,
Holdings’ sole asset. If so, petitioner continues, then Mr.
Gelbtuch’s valuation of the latter, in effect, would have con-
stituted a valuation of the former, so that the section 7520
tables could properly be applied to the latter in arriving at
a value for the SMI. In response to petitioner’s suggestion,
respondent admits that, ‘‘[i]n normal course, there exists a
unity of interest between a single-member entity and the
assets owned by such entity.’’ 9 But he argues that Red Sea’s
split of Holdings into the TOYS interest and the SMI gave
rise to ‘‘‘a multiple ownership structure’ unlike where one
party owned 100 percent.’’
   It is true that Red Sea did divide the Holdings membership
interest into a present (TOYS) interest and a future (SMI)
interest; it is also true that, applying the section 7520 tables
to determine the present value of each, neither value is equal
to the combined value of the two interests. Pursuant to sec-
  9 In support of that statement, respondent states: ‘‘See e.g., Pierre at 43

(Halpern, dissenting) citing 18 C.J.S., Corporations, at § 4 (2007) and
Smart v. Int’l Bd. of Elec. Workers, Local 702, 315 F.3d 721, 723 (7th Cir.
2002) regarding the rule of unity which exists amongst a sole proprietor
and such entrepreneur’s business.’’
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                        55


tion 7520 and its implementing regulations, the method for
determining the value of an ordinary income interest or an
ordinary remainder interest (or, in some cases, an income or
a remainder interest constituting a restricted beneficial
interest) is to determine the fair market value of the prop-
erty out of which the two interests were created and to divide
that value among the two interests on the basis of their
present values. See sec. 1.7520–1(a)(1), Income Tax Regs. For
a remainder interest following a term of years interest, the
section 7520 tables reflect only interest rate and timing vari-
ables. See sec. 1.7520–1(c), Income Tax Regs. But, if those
section 7520 tables do apply to value the SMI, they fully
reflect Congress’ and the Secretary’s concerns that the SMI
represents less than the 100% of the Holdings membership
interest. And if it can be assumed that (1) the Hawthorne
property and Holdings are of equal value and (2) no restric-
tions burden the SMI, then nothing may be lost in allowing
the Hawthorne property to substitute for the Holdings mem-
bership interest in applying the section 7520 tables to deter-
mine the value of the SMI. 10
   There is an unresolved issue of fact concerning whether
the value of a hypothetical remainder interest in the Haw-
thorne property can stand proxy for the SMI. That issue
involves the two-year hold-sell requirement imposed on the
University with respect to its possession of the SMI. Does
that requirement cause the SMI to be a restricted beneficial
interest for which a standard section 7520 remainder factor
may not be applied to determine fair market value, see sec.
1.7520–3(b)(1)(ii), Income Tax Regs., or, if not, does it at
   10 We note in passing that, in valuing the Hawthorne property, Mr.

Gelbtuch assumed that it was unencumbered by any indebtedness. Our in-
tuition is that any valuation of Holdings (a holding company) would reflect
Hawthorne’s net asset value (i.e., the value of its assets less the value of
its liabilities), thus taking into account the liability represented by the
promissory note and the mortgage. In that event, Mr. Gelbtuch’s valuation
of the Hawthorne property on the assumption that it was ‘‘free and clear
of any and all liens or encumbrances’’ could not be considered a substitute
for a valuation of Holdings, and, hence, his valuation of a hypothetical re-
mainder interest in the Hawthorne property (applying the sec. 7520 tables
to the debt-free value of that property), could not be considered a sub-
stitute for a valuation of the SMI. It is incumbent on the parties to address
that issue at the appropriate time. In the order, see supra note 2, we did
not address that specific issue.
56            143 UNITED STATES TAX COURT REPORTS                    (41)


least reduce the value of the SMI below that of a hypo-
thetical remainder interest in the Hawthorne property? We
discuss the restricted beneficial interest issue infra pp. 23–
31.
  If we determine the fact issue adversely to petitioner, we
would agree with respondent that Mr. Gelbtuch’s application
of the section 7520 tables to the fair market value of the
Hawthorne property necessarily resulted in a valuation (of a
hypothetical remainder interest therein) that may not sub-
stitute for a valuation of the SMI. 11 If, on the other hand,
we are persuaded that an appraisal of a hypothetical
remainder interest in the Hawthorne property can substitute
for an appraisal of the SMI, we would be inclined to apply
the often invoked principle of ‘‘[n]o harm; no foul’’, see, e.g.,
King v. Nat’l Human Res. Comm., Inc., 218 F.3d 719, 724
(7th Cir. 2000), and reject respondent’s argument that we
must, as a matter of law, disregard Mr. Gelbtuch’s appraisal
because he improperly applied the section 7520 tables to the
fair market value of the Hawthorne property rather than to
the fair market value of Holdings. It would be premature to
apply that principle herein, however, because there exist
unresolved questions of both law and fact.
     C. Whether the Regulations Preclude Application of the Sec-
        tion 7520 Tables to Value the SMI
     1. Introduction
   The SMI is a remainder interest in Holdings, and its fair
market value is its present value determined by applying the
section 7520 tables only if (1) the SMI is an ordinary
remainder interest and the provisions of section 1.7520–
3(b)(2)(iii), Income Tax Regs. (requiring that preservation
and protection of the underlying property (the Holdings
membership interest) is assured), are satisfied or (2) the SMI
is a restricted beneficial interest for which a standard section
7520 remainder factor may be used. See sec. 1.7520–
3(b)(1)(ii), Income Tax Regs.

   11 The same would be true should we ultimately determine that Mr.

Gelbtuch’s appraisal cannot substitute for a valuation of the SMI because
of his failure to take the mortgage into account.
(41)        RERI HOLDINGS I, LLC v. COMMISSIONER              57


  2. Summary of the Parties’ Arguments
   Respondent’s principal argument is that section 1.7520–
3(b)(2)(iii), Income Tax Regs., precludes application of the
section 7520 tables to determine the value of the SMI.
Respondent argues that, because the holder of the SMI does
not ‘‘enjoy the same protections as would be afforded to a
trust remainderman’’, there is no assurance that such holder
‘‘will receive the Hawthorne Property in its original form.’’
Respondent worries about devaluation of the Holdings mem-
bership interest because of depreciation of the Hawthorne
property, its sale, or additional or unpaid mortgage indebted-
ness. Therefore, respondent argues, whether the SMI con-
stitutes an ordinary remainder interest or not, the preserva-
tion and protection requirements of section 1.7520–
3(b)(2)(iii), Income Tax Regs., preclude application of the sec-
tion 7520 tables.
   Additionally, respondent argues that, because of the two-
year hold-sell requirement, the SMI is a restricted beneficial
interest within the meaning of section 1.7520–3(b)(1)(ii),
Income Tax Regs., to which the section 7520 tables cannot be
applied.
   Petitioner argues that the SMI follows a term of years
interest (i.e., the TOYS interest) and is therefore an ordinary
remainder interest within the meaning of section 1.7520–
3(b)(1)(i)(C), Income Tax Regs. Petitioner rejects respondent’s
reading of section 1.7520–3(b)(2)(iii), Income Tax Regs.,
arguing that ‘‘the regulation basically provides * * * con-
sistent with the laws of trusts, * * * [that] the trustee * * *
must protect against waste.’’ He further argues that ‘‘the
regulation simply provides that the interest of the property
[e.g., a remainder interest] as opposed to its value, be
undiminished’’, and that it is only ‘‘concerned with the initial
beneficiary having the power to utilize the assets of the trust
so that there is a real possibility that there will be nothing
or little left for a remainderman.’’ Petitioner also ‘‘discerns’’
from the regulatory language ‘‘that the interest being dis-
cussed is a remainder interest in a trust and not a remainder
interest in real property.’’ Petitioner argues that the SMI
holder’s right to protect its interest arises under contract
and property law, not trust law (i.e., the SMI holder is not
the remainder beneficiary of a trust), and that, in any
58            143 UNITED STATES TAX COURT REPORTS            (41)


event, the SMI is adequately protected by the severe limita-
tions in the Red Sea-RJS assignment agreement on the right
of the TOYS interest to encumber the Hawthorne property.
He thinks that respondent overstates the possibility of a
devaluation of the Holdings membership interest, arguing
that depreciation does not preclude the use of the section
7520 tables and that respondent’s concern that the
remainder will be diminished in value is ‘‘so remote as to be
negligible.’’
   Lastly, petitioner disputes respondent’s argument that the
two-year hold-sell requirement renders the SMI a restricted
beneficial interest to which the section 7520 tables are inap-
plicable. Rather, petitioner argues, a restriction on the right
to dispose of an interest in property is not the type of restric-
tion contemplated in the regulation, section 1.7520–
3(b)(1)(ii), Income Tax Regs., defining the term ‘‘restricted
beneficial interest.’’
     3. Analysis
     a. Introduction
   We may summarily dispose of petitioner’s argument that
the preservation and protection requirements found in sec-
tion 1.7520–3(b)(2)(iii), Income Tax Regs., apply only with
respect to property held in trust. They do not. The parenthet-
ical in the first sentence of the regulation makes that quite
clear: ‘‘A standard section 7520 remainder interest factor for
an ordinary remainder * * * interest may not be used to
determine the present value of a remainder * * * interest
(whether in trust or otherwise) unless’’. Id. (emphasis added).
   Therefore, for respondent to prevail on his claim that the
section 7520 tables are inapplicable in determining the fair
market value of the SMI, he must show either (1) that the
SMI is an ordinary remainder interest for which the
preservation and protection requirements of section 1.7520–
3(b)(2)(iii), Income Tax Regs., are not satisfied or (2) that the
SMI is a restricted beneficial interest whose value may not
be determined by application of a standard section 7520
remainder factor.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                      59


  b. Preservation and Protection of the Property
  i. Risk of Hawthorne’s Encumbering or Selling the Haw-
     thorne Property
   Respondent argues that, because Hawthorne may
encumber or sell the Hawthorne property, there is no assur-
ance that the value of the Holdings membership interest will
be preserved and protected until the holder of the SMI comes
into possession of that interest. See sec. 1.7520–3(b)(2)(iii),
Income Tax Regs. As stated supra in our background discus-
sion, by the assignment agreement, Red Sea agreed to pro-
hibit Holdings or Hawthorne from encumbering the Haw-
thorne property without the consent of RJS, the initial trans-
feree of the SMI under that agreement. By that agreement,
Red Sea also agreed to prohibit the transfer of any interest
in the Hawthorne property or the creation of any ‘‘lien or
encumbrance’’ on that property that would ‘‘materially
adversely affect’’ its value. Respondent argues that, in the
event the Hawthorne property is either sold or encumbered
in violation of the assignment agreement, 12 RJS and, subse-
quently, RERI and the University, as owners of the SMI,
would have the right, under that agreement, only ‘‘to receive,
as damages, the very interest promised’’, i.e., the SMI. Thus,
respondent concludes, ‘‘the successor member interest holder
is afforded substantially less protection than that of a trust
remainderman’’, in violation of the principal requirement for
the use of a ‘‘standard section 7520 remainder interest
factor’’ under section 1.7520–3(b)(2)(iii), Income Tax Regs.
Petitioner responds that the risks that the SMI might be
diminished by any such action are remote possibilities that,
pursuant to regulations under section 170, are not to be
taken into account in valuing a charitable contribution. See
sec. 1.170A–1(e), Income Tax Regs. (possibility that chari-
table transfer will not become effective disregarded if, on the
date of the gift, that possibility ‘‘is so remote as to be neg-
ligible’’). Therefore, petitioner argues the assignment agree-
  12 Both petitioner and respondent refer to the possibility that the owner

of the TOYS interest might encumber the Hawthorne property. In fact, it
would appear that Hawthorne, the owner of the property, would be the
only person who could encumber the property. That is the occurrence actu-
ally contemplated (and prohibited without RJS’ consent) by the parties to
the assignment agreement.
60            143 UNITED STATES TAX COURT REPORTS                          (41)


ment does not lack assurance that the Holdings membership
interest will be adequately preserved and protected.
   Respondent has not shown that either Red Sea, Holdings,
or Hawthorne intends a sale of the Hawthorne property.
Moreover, the property into possession of which the SMI
holder will come is the Holdings membership interest, not
the Hawthorne property. Holdings’ assets (whether held
directly or indirectly) may change without necessarily put-
ting into jeopardy the SMI holder’s rights to future posses-
sion and enjoyment of a valuable Holdings membership
interest. Similarly, respondent has not shown any intent to
encumber the Hawthorne property in violation of the assign-
ment agreement, except, perhaps, in connection with a refi-
nancing or restructuring of the balloon payment. That possi-
bility is acknowledged by petitioner should AT&T not exer-
cise its option to renew its lease in May 2016, when the ini-
tial lease term is to expire and the $11.8 million balloon pay-
ment becomes due. But even in that event, it is not clear that
such a refinancing would entail an additional, burdensome
encumbrance on the Hawthorne property as a new mortgage
would, presumably, replace the existing mortgage on the
Hawthorne property and, therefore, not cause any diminution
of the property’s fair market value. Moreover, even if the
Hawthorne property were otherwise encumbered, that would
not necessarily put into jeopardy the SMI holder’s rights to
future possession and enjoyment of the Holdings membership
interest.
   Respondent has not made his case that the risk of Haw-
thorne’s selling or encumbering the Hawthorne property
jeopardizes the SMI holder’s rights to future possession and
enjoyment of the Holdings membership interest so as to pre-
clude use of a standard section 7520 remainder interest
factor to determine the present value of the SMI. See sec.
1.7520–3(b)(2)(iii), Income Tax Regs. 13 At best, respondent
  13 We  note in passing that, in discussing the limitation-on-liability provi-
sion of the assignment agreement, which respondent claims jeopardizes the
SMI holder’s future interest in the Holdings membership interest, respond-
ent may have confused the TOYS interest and the SMI. That provision
(paragraph C of the covenants portion of the assignment agreement) pro-
vides that, in the event of an assignor’s (Red Sea’s or one of its successor’s)
breach of the agreement, the assignee’s (RJS’ or one of its successor’s, e.g.,
RERI’s or the University’s) recourse is limited to the assignor’s ‘‘Retained
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                        61


has identified a dispute as to a material issue of fact; i.e.,
Hawthorne’s (and others’) intentions.
  ii. Risk of Nonpayment of the Promissory Note and Foreclo-
      sure
   The parties differ sharply as to whether the possibility that
Hawthorne will be unable to make the $11.8 million balloon
payment on the May 15, 2016, due date poses a sufficient
risk of foreclosure and sale of the Hawthorne property to
warrant a conclusion that the Holdings membership interest
value will not be adequately preserved and protected for the
benefit of the SMI. If there is sufficient risk of foreclosure,
that would foreclose use of a standard remainder interest
factor to determine the present value of the SMI. See sec.
1.7520–3(b)(2)(iii), Income Tax Regs. Petitioner views the
risk as a remote contingency to be disregarded.
   The record shows that the Hawthorne property is Haw-
thorne’s only asset and that the AT&T lease is its only
source of income. The promissory note calls for a final, $11.8
million balloon payment on May 15, 2016. By the end of May
2016 (the conclusion of the first term of the AT&T lease),
Hawthorne should have received sufficient payments under
the AT&T lease to have made all installment payments
called for by the note and to have accumulated a surplus
(assuming no distributions) of approximately $5.7 million.
That would leave $6.1 million to be raised to make the bal-
loon payment.
   Petitioner views as remote the possibility of default on the
balloon payment. Specifically, petitioner states:
  Petitioner submits that at the time of the donation it was expected that
  AT&T would exercise its option to renew the lease and thus the balloon
  payment paid. Defaulting on the final payment due on the loan was as
  remote as Hawthorne defaulting on the underlying mortgage. It can also
  be anticipated that at the time of the donation the balloon payment
  would be refinanced or restructured or the premises leased to another
  party if AT&T did not exercise its option.

Interest’’ (i.e., the TOYS interest) in Holdings. Respondent’s claim is that
the limitation-on-liability provision ‘‘only permits the successor member in-
terest holder to receive, as damages, the very interest promised’’, i.e., the
SMI. That is not the case. The SMI holder could receive as damages all
of the TOYS interest, which, when united with the SMI, represents com-
plete ownership of Holdings.
62            143 UNITED STATES TAX COURT REPORTS                       (41)


   In response to those arguments, respondent continues to
maintain that ‘‘there is a possibility that the balloon pay-
ment would not get paid, thus resulting in foreclosure or
acquisition of the Hawthorne Property’’, in which event, ‘‘the
SMI holder would possess a worthless membership interest
in * * * [Holdings].’’ Respondent further argues that there is
no evidence that the loan would be refinanced or even could
be refinanced ‘‘due to the provisions petitioner relies upon to
argue that encumbrances are not permitted’’, respondent’s
assumption apparently being that the parties would interpret
such a replacement financing as the type of encumbrance
that is prohibited by the Red Sea-RJS Assignment Agree-
ment.
   The foregoing arguments by both parties are based entirely
on speculation. Respondent, whose motion it is we are consid-
ering, has not convinced us that Hawthorne, as obligor on
the promissory note, would not be able to raise the more
than $6 million needed to make the $11.8 million balloon
payment on May 15, 2016. Nor has respondent convinced us
that the risk of refinancing the remaining debt presents any-
thing other than a conventional commercial risk that has
little effect on the safety of Holdings as a long-term invest-
ment. Moreover, given Hawthorne’s expected payment of a
substantial amount of principal (close to $32 million) before
the due date of the balloon payment, what equity will Haw-
thorne have in the Hawthorne property, a portion of which
might be recouped on a forced sale of the Hawthorne prop-
erty to safeguard Holdings’ (and the SMI’s) value? Indeed,
how will the value of the SMI interest be affected by the fact
that principal payments under the promissory note are to be
paid from rental income that, but for the assignment of rents
to BB&T, it would seem should be distributed to the TOYS
interest holder? 14 The only ‘‘fact’’ before us is the certainty
  14 Inresponse to respondent’s prior motion for partial summary judg-
ment, see supra note 2, petitioner stated that the mortgage would ‘‘be fully
amortized by * * * the owner of the TOY[S] Interest’’. 1 Joseph Rasch &
Robert F. Dolan, N.Y. Law & Practice of Real Property, sec. 6:27 (2d ed.)
(‘‘Payment of principal of mortgage’’) states in pertinent part:
    A life tenant is under no obligation to pay the principal of a mortgage
  encumbering the property; this must be paid by the remainderman. If
  the life tenant does pay it, he may recover such payment from the re-
  mainderman.[9]
(41)            RERI HOLDINGS I, LLC v. COMMISSIONER                      63


that the lease payments will be insufficient (by more than $6
million) to enable Hawthorne to make that payment. And
although, as petitioner argues, it was ‘‘expected’’ or ‘‘antici-
pated’’ at the time of RERI’s gift of the SMI that there would
be a refinancing, a lease extension, or a new lease, any one
of which could have generated the funds needed to make the
balloon payment, expectation and anticipation are not
synonymous with certainty. Therefore, we find that the par-
ties’ dispute as to whether the risk of Hawthorne’s defaulting
on the $11.8 million balloon payment is the type of contin-
gency that would jeopardize the value of Holdings and, thus,
the value of the SMI, in contravention of section 1.7520–
3(b)(2)(iii), Income Tax Regs., constitutes a dispute as to a
material fact, which precludes summary adjudication that
the risk of nonpayment of the balloon payment on the
promissory note warrants a conclusion that Holdings’ value
will not be adequately preserved and protected for the benefit
of the SMI.
  c. Restricted Beneficial Interest
  i. The Parties’ Arguments
  Respondent summarizes his position with respect to the
impact of the two-year hold-sell requirement as follows:
  As a result of the ‘‘hold-sell’’ restrictions imposed by the Gift Agreement
  and the * * * [Assignment Agreement], the successor member interest
  was a restricted beneficial interest for purposes of section 7520. Further-
  more, the consequence of these restrictions dictated that the University
  would never become the owner of the underlying Hawthorne Property or
  enjoy the benefits and burdens of * * * [owning that property].

Respondent concludes: ‘‘Since there was no intention to
transfer an interest, which would be unrestricted prior to the
expiration of the prior TOYS interest, the section 7520 tables
may not be used.’’
  In rebuttal to respondent’s arguments, petitioner cites our
conclusion in Estate of Gribauskas v. Commissioner, 116 T.C.
142, 165 (2001) (Estate of Gribauskas I), rev’d and remanded,
342 F.3d 85 (2d Cir. 2003) (Estate of Gribauskas II),
involving the value of nonassignable future installments of
lottery winnings, that ‘‘a restriction within the meaning of
* * * [section 20.7520–3(b)(1)(ii), Income Tax Regs.] is one
       [FN9]Collins v McKenna (1921) 116 Misc 72, 189 NYS 433.
64             143 UNITED STATES TAX COURT REPORTS           (41)


which jeopardizes receipt of the payment stream, not one
which merely impacts on the ability of the payee to dispose
of his or her right thereto.’’ Petitioner also notes that we fur-
ther stated in Estate of Gribauskas I that ‘‘the cases
addressing attempts to avoid use of the [section 7520] tables
* * * [generally] required a factual showing that renders
unrealistic and unreasonable the return or mortality assump-
tions underlying the tables.’’ Id. at 161. Petitioner states:
‘‘Not only is the * * * [SMI] not a restricted beneficial
interest for purposes of section 7520, but such a determina-
tion is clearly factual and cannot be determined as a matter
of law as sought by respondent.’’
   Petitioner also relies upon two U.S. Courts of Appeals
cases that hold that restrictions on the marketability of an
income stream constituting an interest in property are not
the type of restriction that would render the section 7520
tables inapplicable in valuing the property interest. In Cook
v. Commissioner, 349 F.3d 850, 854 (5th Cir. 2003), aff ’g T.C.
Memo. 2001–170, the Court of Appeals stated: ‘‘In enacting
§ 7520(a)(1) and requiring valuation by the tables, Congress
displayed a preference for convenience and certainty over
accuracy in the individual case.’’ The Court of Appeals reiter-
ated that statement in Anthony v. United States, 520 F.3d
374, 377 (5th Cir. 2008). In petitioner’s view, the two-year
hold requirement does not furnish a reason to abandon the
judicial preference for valuing partial interests in property
under the section 7520 tables.
   Lastly, petitioner argues that the gift agreement
embodying the sell requirement has no bearing on the issue
because it did not affect the University’s rights with respect
to the property ‘‘as * * * [the University] would still own
and control * * * [the SMI] regardless of whether * * * [it]
adhered to the gift agreement.’’
     ii. Analysis
     (a) The Two-Year Hold-Sell Requirement
  We find fault with both parties’ analyses of the impact of
the two-year hold-sell requirement.
  Our principal problem with respondent’s argument is his
apparent assumption that no restricted beneficial interest
may be valued using the section 7520 tables. Section 1.7520–
(41)        RERI HOLDINGS I, LLC v. COMMISSIONER             65


3(b)(1)(ii), Income Tax Regs., provides that ‘‘[i]n general, a
standard section 7520 * * * remainder factor may not be
used to value a restricted beneficial interest.’’ (Emphasis
added.) The two-year hold-sell requirement is undeniably a
restriction on the University’s rights with respect to its
ownership of the SMI. But that fact, in and of itself, does not
provide a sufficient basis to conclude that the SMI is a
restricted beneficial interest for which a standard section
7520 remainder factor may not be used to determine value.
Respondent’s position also ignores the admonition, uniformly
expressed in the caselaw dealing with the application of the
section 7520 tables, that those tables must be used ‘‘unless
it is shown that the result is so unrealistic and unreasonable
that either some modification in the prescribed method
should be made, or complete departure from the method
should be taken, and a more reasonable and realistic means
of determining value is available’’ (unrealistic and unreason-
able fair market value standard). Weller v. Commissioner, 38
T.C. 790, 803 (1962) (citations omitted). To the same effect,
see Anthony, 520 F.3d at 383; Cook v. Commissioner, 349
F.3d at 854; Estate of Gribauskas II, 342 F.3d at 87;
Shackleford v. United States, 262 F.3d 1028, 1031 (9th Cir.
2001). Therefore, we reject respondent’s premise that any
restriction applicable to a remainder interest is, per se, a
restriction that renders the interest a restricted beneficial
interest for which use of the section 7520 tables is unavail-
able.
   Petitioner agrees that application of the section 7520 tables
is conditioned on nonviolation of the unrealistic and
unreasonable fair market value standard. But he relies on
our statements in Estate of Gribauskas I, 116 T.C. at 165,
that a restriction on alienation is not a restriction covered by
section 1.7520–3(b)(1)(ii), Income Tax Regs., defining a
restricted beneficial interest. Petitioner also relies on
Anthony and Cook, which reach the same result. Petitioner’s
argument overlooks two important facts. First, all three of
the cited cases involve the valuation of a present right to a
stream of income and not the valuation of a right to future
possession of corpus. That distinction was drawn by the
Court of Appeals in Cook v. Commissioner, 349 F.3d at 856,
where it stated: ‘‘We agree that the right to alienate is nec-
essary to value a capital asset; however, we think it
66            143 UNITED STATES TAX COURT REPORTS                       (41)


unreasonable to apply a non-marketability discount when the
asset to be valued is the right, independent of market forces,
to receive a certain amount of money annually for a certain
term.’’ Second, our decision in Estate of Gribauskas I was
reversed by Estate of Gribauskas II, which held that a
restriction on marketability may constitute a restriction that
prevents application of the section 7520 tables in valuing an
interest in property if it results in a violation of the unreal-
istic and unreasonable fair market value standard. 15
   We are not bound, pursuant to the doctrine of Golsen v.
Commissioner, 54 T.C. 742 (1970), aff ’d, 445 F.2d 985 (10th
Cir. 1971), to follow Estate of Gribauskas II because RERI,
whose principal place of business was in New York, was dis-
solved in 2004. Therefore, it had no principal place of busi-
ness when it filed its petition in 2008. As a result, the court
to which, barring a written stipulation to the contrary, an
appeal of this case would lie would be the Court of Appeals
for the D.C. (not the Second) Circuit. See sec. 7482(b); Peat
Oil & Gas Assocs. v. Commissioner, T.C. Memo. 1993–130,
1993 WL 95592, at *6. That court has not as yet addressed
the material restriction on the transferability issue.
   Nor are we bound by the doctrine of stare decisis to follow
our holding in Estate of Gribauskas I in this case. Estate of
Gribauskas I involved a promised stream of fixed payments
and is thus distinguishable from the valuation problem here
before us, the present value of the right to receive a capital
asset in the future. And while that capital asset may itself
represent nothing more than the expectation of a future
income stream, we generally rely on market prices to deter-
mine the value of capital assets such as shares of stock
because the value of such assets is not readily ascertainable
absent a transfer from buyer to seller. See Cook v. Commis-
sioner, 349 F.3d at 856.
   We conclude that the impact of both the restriction on
alienation (i.e., the two-year hold requirement) and the two-
year sell requirement is a restriction that must be measured
against the unrealistic and unreasonable fair market value
  15 In so holding, the Court of Appeals for the Second Circuit followed the

Court of Appeals for the Ninth Circuit in Shackleford v. United States, 262
F.3d 1028 (9th Cir. 2001), which reached that result. See Estate of
Gribauskas v. Commissioner, 342 F.3d 85, 89 (2d Cir. 2003), rev’g and re-
manding 116 T.C. 142 (2001).
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                         67


standard. It is true, as petitioner argues, that the latter
requirement is found only in the gift agreement and not in
the assignment agreement. But, as a signatory to both agree-
ments, the University was bound by both, and it is quite pos-
sible to interpret the two-year hold-sell requirement in the
gift agreement as, in effect, a condition of Mr. Ross’ $5 mil-
lion pledge to the University thereunder. Disputes under the
gift agreement were to be governed by Michigan law, and the
assignment agreement was to be construed in accordance
with Delaware law. Neither party has addressed Mr. Ross’
rights under Michigan and Delaware law in the event the
University were to violate the two-year hold-sell require-
ment. Thus, there remains a question of fact 16 as to whether
that requirement constituted a meaningful restriction
relating to the SMI because the University’s violation thereof
would have justified Mr. Ross’ reneging on all or a portion
of his pledge, thereby reducing the value of the SMI in the
University’s hands. 17
   Neither party has presented evidence with respect to the
impact, if any, of the two-year hold-sell requirement on
the fair market value of the SMI. 18 Therefore, the impact
   16 See, e.g., Moulton v. Commissioner, T.C. Memo. 2009–38, 2009 WL

416010, at *5 (holding that the characterization of a claim under applica-
ble State law, in that case, for purposes of determining the applicability
of the sec. 104(a)(2) exclusion from income of damages for physical injury,
is a question of fact).
   17 In that regard, we note that, before the University’s sale of the SMI

to HRK for $1,940,000, Mr. Ross had threatened to treat his pledge as off-
set by the full amount of HRK’s offer of that amount if the University were
to reject it and, later, sell the SMI for less.
   18 Even if the University’s violation of the two-year hold-sell requirement

would have had adverse economic consequences to the University, it is not
clear that that violation would have had any impact on the actual value
of the SMI (which is the relevant inquiry herein), as the violation would
have been irrelevant to the purchaser of the SMI from the University. Con-
versely, if the University felt bound to abide by the requirement (as, ap-
parently, it did), respondent argues that the ‘‘consequence’’ of the two-year
hold-sell restriction ‘‘dictated that the University would never become the
owner of the underlying Hawthorne Property or enjoy the benefits and
burdens of * * * [owning it].’’ But respondent furnishes no evidence that
that fact would have adversely affected the SMI’s value. Moreover, it is ar-
guable that the two-year hold restriction did not adversely affect value be-
cause, at the time of sale, the purchaser from the University would have
been two years closer to possession than was the University when it ac-
                                                 Continued
68           143 UNITED STATES TAX COURT REPORTS                      (41)


on the SMI’s value of the two-year hold-sell restriction also
presents issues of material fact.
     (b) Whether Use of the Section 7520 Tables Would Violate
         the Unrealistic and Unreasonable Fair Market Value
         Standard
   In Estate of Gribauskas II, 342 F.3d at 88, the Court of
Appeals for the Second Circuit noted the Commissioner’s
agreement that the taxpayer’s valuation of the income
stream in that case (lottery winnings in the form of an
annuity), which was more than $900,000 below the value
prescribed by the section 7520 tables ($2,603,661.02 versus
$3,528,058.22), accurately reflected the market discount
attributable to the restrictions on transferability of the
income stream. The court stated that, under those cir-
cumstances, ‘‘application of the tables would clearly ‘produce
a substantially unrealistic and unreasonable result’ ’’. Id.
(quoting O’Reilly v. Commissioner, 973 F.2d 1403, 1408 (8th
Cir. 1992), rev’g 95 T.C. 646 (1990)). On that basis, the court
held that ‘‘valuing the winnings pursuant to the tables was
erroneous.’’ Id. In Anthony, 520 F.3d at 384, the Court of
Appeals for the Fifth Circuit ignored a roughly 50% disparity
between the taxpayer’s expert valuation of a lottery winnings
annuity and the value derived pursuant to the section 7520
tables in sustaining the latter valuation. But that determina-
tion was based upon its prior determination, following its
holding in Cook, that such large valuation disparities, if they
result from marketability or transferability restrictions, are
to be ignored, a position that the Courts of Appeals for both
the Second and Ninth Circuits have rejected, and that the
Court of Appeals for the Fifth Circuit itself has indicated
should not be followed in determining the application of the
section 7520 tables to a capital asset rather than an annuity.
   In this case, sales of the SMI and an appraisal commis-
sioned by the University (University appraisal) all indicate
that the actual fair market value of the SMI, within a time-
frame stretching from approximately 18 months before

quired the SMI, a fact that might have enhanced its value; and the two-
year sell restriction would not have been a factor in the negotiations be-
tween the University and any prospective purchaser because the latter
would not have been restricted by it.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                        69


RERI’s August 27, 2003, gift of the SMI to the University to
2 years and 4 months thereafter, was substantially less than
Mr. Gelbtuch’s $32,935,000 valuation of the hypothetical
remainder interest in the Hawthorne property using the sec-
tion 7520 tables.
   The relevant sales (and valuation) of the SMI are as fol-
lows:
   (1) February 7, 2002: Red Sea’s sale of the SMI to RJS for
$1,610,000.
   (2) March 25, 2002: RJS’ sale of the SMI to RERI for
$2,950,000.
   (3) July 20, 2005: the University appraisal determining the
value of a remainder interest in the Hawthorne property to
be $6.5 million.
   (4) On or about December 23, 2005: the University’s sale
of the SMI to HRK for $1,940,000.
   (5) December 26, 2005: purported sale of the SMI by HRK
to an unidentified purchaser for $3 million.
   All four of the foregoing sales were for amounts substan-
tially below Mr. Gelbtuch’s appraised value of a hypothetical
remainder interest in the Hawthorne property, determined
using the section 7520 tables. The sales were for amounts
ranging from approximately 5% to 9% of Mr. Gelbtuch’s
$32,935,000 appraisal, and the University appraisal was for
an amount approximately 20% of that appraisal. Even with
allowances for market fluctuations during the approximately
3-year, 10-month period of the foregoing transactions, the
huge disparity between the SMI’s fair market value as deter-
mined by actual sales and an independent valuation and its
value based on Mr. Gelbtuch’s appraisal is prima facie viola-
tive of the unrealistic and unreasonable fair market value
standard. 19 Moreover, the reason for the disparity is of no
  19 With  regard to the presence of significant market fluctuations, we note
that Mr. Gelbtuch made a second appraisal of the Hawthorne property and
a hypothetical remainder interest therein as of December 26, 2006, in
which he concluded that the fair market value of the property was
$64,185,000 and that of the hypothetical remainder interest (per the sec.
7520 tables) was $29,930,000. That reflects an increase in the property’s
appraised value and a decrease (due to application of a lower discount
rate) in the hypothetical remainder interest’s value, as compared with Mr.
Gelbtuch’s appraisal (as of August 28, 2003), in which he found those val-
ues to be $55,000,000 and $32,935,000, respectively (using a remainder
                                                Continued
70            143 UNITED STATES TAX COURT REPORTS                          (41)


consequence. If the end result is a disparity of the foregoing
magnitude between actual fair market value and value
derived by applying the section 7520 tables, the tables are
inapplicable under the unrealistic and unreasonable fair
market value standard.
   Neither party has directly addressed this issue of actual
versus derived (per the section 7520 tables) value.
Respondent cites caselaw acknowledging the relevance of the
unrealistic and unreasonable fair market value standard.
Petitioner attempts to refute respondent’s argument for non-
application of the section 7520 tables on the ground that
each of the risks and contingencies identified by respondent
is either remote (and, therefore, to be disregarded) or irrele-
vant. We find nothing in the record before us that defini-
tively explains the foregoing large disparity in values. It may
be attributable to one or more of the restrictions or contin-
gencies discussed supra, but, for the reasons stated, that
determination must await the resolution of unresolved issues
of fact. Also, it may be attributable to the fact, discussed
supra, that, compared to the application of the section 7520
tables to Holdings’ (based on Hawthorne’s) net asset value to
determine the value of the SMI, the application of the section
7520 tables to the value of the Hawthorne property without
taking into account the burden of the mortgage on that prop-
erty produces a value for a hypothetical remainder interest
in the Hawthorne property that is not reflective of the value
of the SMI. If so, adjustment would have to be made for that
liability or the value of a hypothetical remainder interest in
the Hawthorne property would have to be rejected as a sub-
stitute for the value of the SMI. It also may reflect the fact
that the foregoing sales of the SMI were not intended to be

factor of 0.598793705 to calculate the value of the hypothetical remainder
interest). For the later appraisal, Mr. Gelbtuch was ‘‘advised that the ap-
plicable Remainder Interest Discount Rate as provided in Section 7520 of
the Internal Revenue Code of 1986 for the month of contribution is 5.6 per-
cent.’’ Petitioner has not reconciled for us the use of a smaller factor to cal-
culate the value of a remainder that was less distant. In any event, the
two appraisals do not differ significantly as regards the valuation of the
remainder interest, and the lower appraisal is still some $27 to $28 million
higher that the amounts for which the SMI was twice sold on or about the
‘‘as of ’’ appraisal date.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                       71


truly reflective of the SMI’s fair market value on the dates
of sale. 20
   In any event, the issue of whether the disparity between
the SMI’s value based upon the University appraisal and the
sales of the SMI both before and after its contribution to the
University, and its value based upon the Gelbtuch appraisal
using the section 7520 tables results in a violation of the
unrealistic and unreasonable fair market value standard is
also an unresolved issue of material fact.
  4. Conclusion
  Because there remain genuine disputes as to material
facts, we will deny the motion to the extent that respondent
asks us to rule that the section 7520 tables do not apply to
value the SMI.
III. Whether the Gelbtuch Appraisal Was a Qualified
     Appraisal
  A. Applicable Law
   As noted supra, section 170(a)(1) allows a charitable con-
tribution deduction, but only if the contribution is ‘‘verified
under regulations prescribed by the Secretary.’’ The Deficit
Reduction Act of 1984 (DEFRA), Pub. L. No. 98–369, sec.
155, 98 Stat. at 691, ordered the Secretary to prescribe regu-
lations under section 170(a)(1) requiring a taxpayer claiming
a deduction for a contribution of property worth more than
$5,000 to ‘‘obtain [and retain] a qualified appraisal for the
property contributed’’, attach an ‘‘appraisal summary’’ to the
return reporting the deduction, and ‘‘include on such return
such additional information * * * as the Secretary may pre-
scribe in such regulations.’’ See DEFRA sec. 155(a)(1).
   20 RERI’s contribution of the SMI to the University resulted in a claimed

deduction far in excess of RERI’s investment therein. That contribution
was followed by the University’s sale of the SMI to HRK and HRK’s resale
of it, which was followed, ultimately, by the last purchaser’s contribution
of the SMI to another charitable organization, again allegedly resulting in
a large deduction in excess of either HRK’s or the donor’s investment. That
chain of events suggests the presence of a scheme to generate large deduc-
tions, through application of the sec. 7520 tables, for multiple charitable
contributions of the same asset, in which each of the donors made a small
investment. Such a scheme at least suggests tax shelter aspects that the
parties may want to address at trial and on brief.
72            143 UNITED STATES TAX COURT REPORTS                        (41)


DEFRA defines a ‘‘qualified appraisal’’ as one prepared by a
‘‘qualified appraiser’’ that includes:
    (A) a description of the property appraised,
    (B) the fair market value of such property on the date of contribution
  and the specific basis for the valuation,
    (C) a statement that such appraisal was prepared for income tax pur-
  poses,
    (D) the qualifications of the qualified appraiser,
    (E) the signature and TIN of such appraiser, and
    (F) such additional information as the Secretary prescribes in such
  regulations.
    [Id. para. (4), 98 Stat. at 692.]
   In response to that directive, the Secretary issued section
1.170A–13(c), Income Tax Regs. (sometimes, DEFRA regula-
tions), 21 applicable to charitable contributions of property in
excess of $5,000 by certain taxpayers, including individuals
and partnerships, after December 31, 1984.
   Section 1.170A–13(c)(1)(i), Income Tax Regs., provides, in
pertinent part: ‘‘No deduction under section 170 shall be
allowed * * * [for a covered contribution] unless the substan-
tiation requirements described in paragraph (c)(2) of this sec-
tion are met.’’ Paragraph (c)(2)(i)(A) requires the donor-tax-
payer to ‘‘[o]btain a qualified appraisal (as defined in para-
graph (c)(3) of this section) for * * * [the] property contrib-
uted.’’ Paragraph (c)(3)(i) describes a ‘‘qualified appraisal’’, in
pertinent part, as ‘‘an appraisal document that * * *
[i]ncludes the information required by paragraph (c)(3)(ii) of
this section’’. Paragraph (c)(3)(ii) lists among the items of
information that a qualified appraisal ‘‘shall include’’:
     (A) A description of the property in sufficient detail for a person who
  is not generally familiar with the type of property to ascertain that the
  property that was appraised is the property that was (or will be) contrib-
  uted;

                        *    *   *   *    *   *    *

  21 The  DEFRA regulations govern this case. Congress largely codified
those regulations in 2004 by enacting sec. 170(f)(11) as part of the Amer-
ican Jobs Creation Act of 2004 (AJCA), Pub. L. No. 108–357, sec. 883(a),
118 Stat. at 1631. That provision, which, unlike the DEFRA regulations,
contains a ‘‘reasonable cause’’ exception for failure to comply with its
terms, applies to contributions made after June 3, 2004. See AJCA sec.
883(b), 118 Stat. at 1632. Therefore, it does not apply to the 2003 contribu-
tion at issue herein.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                        73


     (D) The terms of any agreement or understanding entered into (or
  expected to be entered into) by or on behalf of the donor or donee that
  relates to the use, sale, or other disposition of the property contributed,
  including, for example, the terms of any agreement or understanding
  that—
     (1) Restricts temporarily or permanently a donee’s right to use or dis-
  pose of the donated property,
     (2) Reserves to, or confers upon, anyone (other than a donee organiza-
  tion or an organization participating with a donee organization in
  cooperative fundraising) any right to the income from the contributed
  property or to the possession of the property, including the right to vote
  donated securities, to acquire the property by purchase or otherwise, or
  to designate the person having such income, possession, or right to
  acquire, * * *

                        *   *    *   *    *   *    *
    (I) The appraised fair market value (within the meaning of § 1.170A–
  1(c)(2)) of the property on the date (or expected date) of contribution;
    (J) The method of valuation used to determine the fair market value,
  such as the income approach, the market-data approach, and the
  replacement-cost-less-depreciation approach; and
    (K) The specific basis for the valuation, such as specific comparable
  sales transactions or statistical sampling, including a justification for
  using sampling and an explanation of the sampling procedure employed.

  Under certain circumstances, ‘‘substantial compliance’’
with the requirements for a qualified appraisal will be suffi-
cient to consider an appraisal qualified within the meaning
of DEFRA sec. 155(a)(1) and (4) and section 1.170A–13(c)(3),
Income Tax Regs. See Bond v. Commissioner, 100 T.C. 32,
41–42 (1993), in which we determined that the taxpayers’
failure ‘‘to obtain and attach to their return a separate writ-
ten appraisal containing the information specified in
respondent’s regulations’’ constituted a violation of ‘‘proce-
dural or directory’’ requirements as apposed to mandatory
requirements that go to ‘‘the essence of the thing to be done’’
and, therefore, are ‘‘a precondition to an effective election.’’
We held that, where all of the procedural defects concerning
the appraisal and the appraiser were corrected either on the
Form 8283, Noncash Charitable Contributions (the appraisal
summary attached to the return), 22 or at or near the
  22 See also Simmons v. Commissioner, T.C. Memo. 2009–208, 2009 WL
2950610, at *7–*8, aff ’d, 646 F.3d 6 (D.C. Cir. 2011), wherein we deter-
mined that defects in the appraisal could be cured by the Form 8283 at-
tached to the return.
74           143 UNITED STATES TAX COURT REPORTS           (41)


commencement of the audit, the taxpayers ‘‘substantially
complied with section 1.170–13A, Income Tax Regs., and are
entitled to the charitable deduction claimed.’’ Id. at 41–42.
Compare Hewitt v. Commissioner, 109 T.C. 258 (1997), aff ’d
without published opinion, 166 F.3d 332 (4th Cir. 1998), in
which we declined to extend Bond to circumstances in which
the taxpayers neither obtained an appraisal nor attached an
appraisal summary to their return. See also Estate of
Evenchik v. Commissioner, T.C. Memo. 2013–34, in which we
found that an appraisal did not constitute a qualified
appraisal of the contributed property (72% of the stock of a
corporation) because it was an appraisal of the assets of the
corporation, not of the contributed shares. In Estate of
Evenchik, we relied upon our decision in Smith v. Commis-
sioner, T.C. Memo. 2007–368, 2007 WL 4410771, aff ’d, 364
Fed. Appx. 317 (9th Cir. 2009), which involved charitable
contributions of fractional interests in a family limited part-
nership (FLP), supported by an appraisal of the FLP’s sole
underlying asset, shares in a closely held, family-owned C
corporation. In Smith v. Commissioner, 2007 WL 4410771, at
*20, we held that that and other violations of the reporting
requirements in the DEFRA regulations resulted in the tax-
payers’ ‘‘failure to substantially comply or otherwise provide
respondent with sufficient information to accomplish the
statutory purpose’’ of enabling the Commissioner to ‘‘under-
stand and monitor the claimed contributions’’.
     B. The Parties’ Arguments
  Respondent argues that, because Mr. Gelbtuch appraised
the wrong property, his appraisal ‘‘does not present a method
of valuation of the property contributed * * * [and] also fails
to contain a specific basis for a method of valuation for the
actual property conveyed to the University’’ in violation of
section 1.170A–13(c)(3)(ii)(J) and (K), Income Tax Regs.
Respondent further argues that, by submitting an appraisal
that ‘‘does not describe the property transferred to the
University’’, the Gelbtuch appraisal also violates the property
description requirement of section 1.170A–13(c)(3)(ii)(A),
Income Tax Regs., citing Smith and Estate of Evenchik.
  Respondent also argues that, by failing to mention the two-
year hold-sell requirement, the Gelbtuch appraisal violates
the requirement in section 1.170A–13(c)(3)(ii)(D)(1), Income
(41)        RERI HOLDINGS I, LLC v. COMMISSIONER             75


Tax Regs., that a qualified appraisal include ‘‘[t]he terms of
any agreement or understanding * * * by or on behalf of the
donor or donee that * * * [r]estricts temporarily or perma-
nently a donee’s right to use or dispose of the donated prop-
erty’’. In support of that argument, respondent cites our
opinion in Rothman v. Commissioner, T.C. Memo. 2012–163,
2012 WL 2094306, vacated in part on reconsideration, T.C.
Memo. 2012–218, 2012 WL 3101513, wherein we held that
the taxpayers’ appraisal of a historic preservation facade
easement was not a qualified appraisal because, among other
reasons, the appraisal did not adequately describe how, if at
all, the restrictions on the taxpayer-homeowners’ use of their
home, resulting from their donation of the easement,
‘‘affected the fair market value of the encumbered subject
property.’’ Id., 2012 WL 2094306, at *11.
   Respondent also points to other perceived deficiencies
in the Gelbtuch appraisal: its failure to take into account
(1) AT&T’s right to ‘‘remove the improvements made to the
Hawthorne property should it elect not to exercise the five
year options’’ and (2) the ‘‘mortgage and depreciation on the
Hawthorne property’’. Respondent apparently views those
disclosure omissions as additional failures to disclose restric-
tions on the use or disposition of the property in violation of
section 1.170A–13(c)(3)(ii)(D)(1), Income Tax Regs. In connec-
tion with Mr. Gelbtuch’s failure to address the potential
impact of the mortgage on the value of the Hawthorne prop-
erty, respondent cites our opinion in Rothman, wherein we
suggest that an appraisal’s failure to reveal the existence and
terms of a mortgage on the donated property may, by
itself, 2012 WL 3101513, at *4, or in conjunction with other
defects, 2012 WL 2094306, at *14, render an appraisal
unqualified under the DEFRA regulations.
   In addition, respondent points to the Gelbtuch appraisal’s
determination of the SMI’s ‘‘investment value’’ rather than
its fair market value as a violation of section 1.170A–
13(c)(3)(ii)(I), Income Tax Regs., which requires that the
appraisal ‘‘shall include * * * the appraised fair market
value * * * of the property on the date * * * of contribu-
tion’’.
   Lastly, respondent argues that the Gelbtuch appraisal is
not a qualified appraisal because it grossly overvalues a
hypothetical remainder interest in the Hawthorne property.
76            143 UNITED STATES TAX COURT REPORTS                        (41)


   In response to respondent’s argument that the Gelbtuch
appraisal fails to constitute a qualified appraisal because it
values the wrong property interest, petitioner argues:
‘‘Regardless of whether Pierre applies [to prevent looking
through Holdings (and Hawthorne) to its sole, income-pro-
ducing asset, the Hawthorne property], the only way to value
a single member LLC is by valuing the underlying assets.’’
He distinguishes Smith and Estate of Evenchik on the ground
that both involved contributions of partial interests in the
entities (in Smith, an FLP, in Estate of Evenchik, a corpora-
tion) owning the underlying assets that were actually
appraised. 23
   Petitioner also argues that Mr. Gelbtuch’s failure to men-
tion the gift agreement containing the two-year hold-sell
requirement does not warrant a conclusion that the Gelbtuch
appraisal failed to substantially comply with the require-
ments for a qualified appraisal. He bases that argument on
the fact that petitioner gave the gift agreement to the agent
at the beginning of the audit and that respondent ‘‘had suffi-
cient information to determine whether an audit was nec-
essary as intended by the purpose of the regulations.’’ Peti-
tioner also repeats his argument, made in defending the
application of the section 7520 tables herein, that, because
the two-year hold-sell requirement set forth in the gift agree-
ment was not a condition of the donation, i.e., it did not
interfere with the University’s ownership of or right to sell
the SMI at any time, ‘‘there was no articulated or perceived
consequences to any violation of the agreement. Regardless of
subsequent events, Ross was still obligated to give $5 million
to the University.’’
   In response to respondent’s argument that Mr. Gelbtuch’s
failure to mention either the mortgage or AT&T’s right to
remove improvements violated the requirement in section
  23 Petitionerattempts to further distinguish Estate of Evenchik v. Com-
missioner, T.C. Memo. 2013–34, on the ground that, in this case but not
in Estate of Evenchik, the donated asset (i.e., the SMI) ‘‘was accurately de-
scribed on [F]orm 8283 as required by the regulations and supplied the
necessary information to allow the Commissioner to assess the donation
and whether an audit was necessary.’’ That is not a valid distinction, since,
in Estate of Evenchik, we specifically found that the Form 8283 did de-
scribe the donated property: ‘‘15,534.67 shares Chateau Apartments, Inc.
common stock’’. Id. at *4.
(41)          RERI HOLDINGS I, LLC v. COMMISSIONER                         77


1.170A–13(c)(3)(ii)(D)(1), Income Tax Regs., that a qualified
appraisal disclose ‘‘the terms of any agreement or under-
standing * * * [restricting] a donee’s right to use or dispose
of the donated property’’, petitioner argues that (1) AT&T
had no right to remove improvements and (2) even if it did,
neither that right nor the mortgage arose out of ‘‘any agree-
ment or understanding entered into * * * by or on behalf of
the donor or donee’’ as required by the foregoing regulation.
   Petitioner also disputes respondent’s argument that the
Gelbtuch appraisal is fatally flawed because it fails to com-
pute the SMI’s fair market value, but instead computes the
‘‘investment value’’ of a remainder interest in the Hawthorne
property. Petitioner points out that, in the case of a
remainder interest in real property (in petitioner’s view, the
asset properly valued pursuant to the ‘‘check-the-box’’ regula-
tions), pursuant to section 170(f)(4), section 1.170A–12(c),
Income Tax Regs., and section 25.2512–5(d), Gift Tax Regs.,
fair market value is ‘‘present value’’ as determined under the
section 7520 tables. See sec. 25.2512–5(d)(2)(ii), Gift Tax
Regs. 24
  C. Analysis
  1. Appraisal of the Wrong Property
  We agree with petitioner that both Estate of Evenchik and
Smith, upon which respondent places principal reliance, are
distinguishable. As petitioner points out, both cases con-
cerned contributions of partial interests in entities holding
  24 At  the conclusion of his response to the motion, petitioner concedes
that, if we find Pierre v. Commissioner, 133 T.C. 24 (2009), applicable to
this case, a new appraisal (of the SMI) would be required. It would appear,
however, that a new appraisal at this or any future time could not con-
stitute a qualified appraisal, which, pursuant to sec. 1.170A–13(c)(3)(iv)(B),
Income Tax Regs., must have been ‘‘received by the donor before the due
date (including extensions) of * * * [RERI’s 2003 return]’’. See also Jor-
genson v. Commissioner, T.C. Memo. 2000–38, 2000 WL 134332, at *4, *8
(failure to obtain a qualified appraisal before the return due date was not
cured by submission to the IRS of letters drafted by two appraisers after
the return was filed). As discussed infra, however, if petitioner is able to
persuade us that there is no difference in value between the SMI and a
hypothetical remainder interest in the Hawthorne property and that the
latter was properly appraised, we would conclude that the Gelbtuch ap-
praisal constituted a qualified appraisal despite our determination that
Pierre requires an appraisal of the former.
78         143 UNITED STATES TAX COURT REPORTS            (41)


the property that was actually appraised. In Smith, the con-
tributions were of minority interests in three FLPs (and
were, therefore, presumably subject to minority and, perhaps,
marketability discounts) and, in Estate of Evenchik, the tax-
payer contributed a 72% interest in a corporation, the value
of which 72% interest, the parties stipulated, was only 65%
of the value reported. Estate of Evenchik v. Commissioner, at
*5 n.3. In this case, petitioner transferred a future interest
(the SMI) in Holdings, whose sole asset was (indirectly) the
Hawthorne property. Disregarding for the moment Haw-
thorne’s liabilities, whether the section 7520 tables are
applied to the value of Holdings to determine the value of the
SMI or are applied to the value of the Hawthorne property
to determine the value of a hypothetical remainder interest
therein at the end of a term equal to the duration of the SMI,
the resulting values should be equal. Moreover, any confu-
sion respondent might have had regarding the property actu-
ally donated to the University was eliminated by the Form
8283 attached to RERI’s 2003 return, which identified the
SMI as the property contributed and clarified Holdings’
indirect interest, through Hawthorne, of 100% ownership of
the Hawthorne property. In the circumstances of this case,
we attach more weight to the Form 8283 than we did in
Estate of Evenchik, where the Form 8283 also identified the
actual property contributed, which, as noted supra, was not
equal in value to the appraised property. Assuming the evi-
dence in this case demonstrates that the SMI and the
remainder interest in the Hawthorne property were of equal
value, we would find that the inclusion, in the Form 8283,
of the missing information required to be included in the
appraisal by section 1.170A–13(c)(3)(ii)(A), Income Tax Regs.,
i.e., a description of the property actually donated to the
University, constituted substantial compliance with that
provision. We believe that result is consistent with the
requirement, embodied in DEFRA, that a qualified appraisal
provide sufficient return information in support of the
claimed valuation so as ‘‘to enable respondent to deal more
effectively with the prevalent use of overvaluations’’, which
we have described as DEFRA’s principal objective. See Hewitt
v. Commissioner, 109 T.C. at 265. See also Simmons v.
Commissioner, T.C. Memo. 2009–208, 2009 WL 2950610, at
*8, aff ’d, 646 F.3d 6 (D.C. Cir. 2011), wherein we determined
(41)       RERI HOLDINGS I, LLC v. COMMISSIONER              79


that information included in the Form 8283 was sufficient to
cure the appraisal’s omissions of required information.
  We find that Mr. Gelbtuch’s appraisal of the hypothetical
remainder interest in the Hawthorne property, rather than of
the SMI, does not, in and of itself, prevent his appraisal from
constituting a qualified appraisal under section 1.170A–
13(c)(3), Income Tax Regs. Rather, the issue of whether that
appraisal constitutes a qualified appraisal turns on whether
we may reasonably conclude that its failure to take into
account restrictions and encumbrances applicable to either
the SMI or the Hawthorne property that are cited by
respondent rendered it an unacceptable alternative to a
direct appraisal of the SMI.
  2. The Appraisal’s Failure To Consider the Two-Year Hold-
     Sell Requirement
   The two-year hold-sell requirement is a restriction on the
disposition of the SMI, not of the hypothetical remainder
interest in the Hawthorne property. As such, it creates two
potential problems for petitioner. First, it may mean that the
section 7520 tables, applied by Mr. Gelbtuch to determine
the value of a hypothetical remainder interest in the Haw-
thorne property, may not be applicable to determine the fair
market value of the SMI. See sec. 1.7520–3(b)(1)(ii), Income
Tax Regs. (‘‘In general, standard section 7520 * * *
remainder factor may not be used to value a restricted bene-
ficial interest.’’). In that case, the Gelbtuch appraisal would
be irrelevant. Second, on its face, the appraisal’s failure to
mention the restriction may disqualify the appraisal as a
substitute for an actual appraisal of the SMI because the
omission constitutes a violation of the directive in section
1.170A–13(c)(3)(ii)(D)(1), Income Tax Regs., that the
appraisal inform as to ‘‘[t]he terms of any agreement or
understanding entered into * * * by or on behalf of the
donor or donee that * * * [r]estricts temporarily * * * a
donee’s right to * * * dispose of the donated property’’.
   We have determined supra that Mr. Ross’ right to renege
on all or part of his $5 million pledge to the University,
should it violate the two-year hold-sell requirement, raises
an unresolved issue of State law and, therefore, an issue of
material fact as to the economic impact on the University
had it violated that requirement. We also have determined
80            143 UNITED STATES TAX COURT REPORTS                         (41)


that there are additional issues of material fact concerning
the adverse impact, if any, on the value of the SMI in the
University’s hands should it either violate or, alternatively,
observe the two-year hold-sell requirement. Those unresolved
factual inquiries are relevant because we conclude that an
appraisal’s failure to take into account the terms of a restric-
tion described in section 1.170A–13(c)(3)(ii)(D)(1), Income Tax
Regs., does not automatically result in the failure of that
appraisal to constitute a qualified appraisal. We find it
implicit in that provision that such a result is justified only
if the omission relates to a restriction that reasonably can be
said to have some adverse impact on the value of the donated
asset. Otherwise, as we stated in the context of considering
whether the section 7520 tables may apply herein, it is a
case of no harm, no foul, and the omission may be dis-
regarded. 25
     3. The Appraisal’s Failure To Consider AT&T’s Right of
        Removal on Lease Termination
  The lease agreement between Intergate and AT&T pro-
vides that,
  upon the expiration or termination of this Lease, all improvements and
  additions to the Premises except * * * [cabling and wiring included
  within the scope of AT&T’s work, its alterations from all interstitial/
  ceiling plenum areas, furniture, equipment and personal property, and
  back-up generators and associated equipment] shall be deemed property
  of Landlord and shall not be removed by Tenant from the Premises.

All or most of the ‘‘improvements’’ that AT&T has a right to
remove would appear to be either personal property or easily
removable fixtures, which also constitute or are akin to per-
sonal property, rather than significant improvements to the
premises. Thus, it appears that AT&T’s right of removal is
quite limited and probably of little or no effect on the value
of the Hawthorne property. The relevant point, however, is
that the parties’ dispute regarding the impact of AT&T’s
right of removal on the Hawthorne property’s value raises an
issue as to whether the Gelbtuch appraisal overvalued the
  25 Our  conclusion in that regard is consistent with our determination
herein that an appraisal of the ‘‘wrong’’ property might not be fatal to the
appraisal’s status as a qualified appraisal if the ‘‘wrong’’ property is shown
to have (or potentially have) a value no different from that of the donated
property.
(41)        RERI HOLDINGS I, LLC v. COMMISSIONER             81


Hawthorne property, not an issue as to whether it con-
stituted a qualified appraisal. Mr. Gelbtuch’s failure to
assess the valuation impact, if any, of AT&T’s right of
removal does not violate any of the requirements of section
1.170A–13(c)(3), Income Tax Regs., for a qualified appraisal.
We disagree with respondent’s argument that the Gelbtuch
appraisal’s failure to disclose AT&T’s limited right of removal
constituted a failure to disclose ‘‘significant terms and condi-
tions affecting the use and disposition of * * * [the SMI]’’ in
violation of section 1.170A–13(c)(3)(ii)(D)(1), Income Tax
Regs. It does not seem possible that AT&T’s removal of what
is largely, if not exclusively, personal property would, in any
way, interfere with the subsequent use or disposition of the
building. Most importantly, however, we agree with peti-
tioner that AT&T’s right of removal, being a term of the
lease between Intergate and AT&T, did not constitute a term
of an ‘‘agreement * * * entered into * * * by or on behalf of
the donor or donee’’ as required by the foregoing regulation.
Therefore, the impact of AT&T’s right of removal is not ger-
mane to the qualified appraisal issue.
  4. The Appraisal’s Failure To Consider the Mortgage or
     Depreciation on the Hawthorne Property
  Mr. Gelbtuch’s failure to consider the mortgage on the
Hawthorne property in his appraisal thereof also does not
constitute an omission of ‘‘[t]he terms of * * * [an] agree-
ment * * * entered into * * * by or on behalf of the donor
or donee’’, as required by section 1.170A–13(c)(3)(ii)(D)(1),
Income Tax Regs. Rather it was part of the deed of trust
executed by Hawthorne (the borrower), Commonwealth Land
Title Insurance Co., and BB&T (the lender), which secured
the loan that financed Hawthorne’s purchase of the Haw-
thorne property. Therefore, that failure, like Mr. Gelbtuch’s
failure to consider AT&T’s right of removal, relates to the
accuracy of the Gelbtuch appraisal. It is not germane to the
issue of whether it was a qualified appraisal under the
DEFRA regulations.
  Similarly, Mr. Gelbtuch’s failure to discuss the potential
impact of depreciation on the Hawthorne property is not an
82            143 UNITED STATES TAX COURT REPORTS                      (41)


omission covered by the foregoing regulation. Therefore, it
too is not germane to the qualified appraisal issue. 26
     5. Mr. Gelbtuch’s Finding of ‘‘Investment Value’’ Rather
        Than Fair Market Value
   In his appraisal, Mr. Gelbtuch does refer to the value he
assigns to the hypothetical remainder interest in the Haw-
thorne property as its ‘‘investment value’’, for which he pro-
vides the following dictionary definition: ‘‘The specific value
of an investment to a particular investor or class of investors
based on individual investment requirements; distinguished
from market value, which is impersonal and detached.’’ As
defined by Mr. Gelbtuch, the term ‘‘investment value’’
appears to be unrelated to the value that he actually derives
for the hypothetical remainder interest in the Hawthorne
property. We agree with petitioner that Mr. Gelbtuch’s
method for valuing a hypothetical remainder interest in the
Hawthorne property was in accordance with section 170(f)(4),
section 1.170A–12(c), Income Tax Regs., and section 25.2512–
5(d)(2)(ii), Gift Tax Regs., to the extent that, when read
together, those provisions require that the valuation of a
remainder interest in real property be made by applying the
section 7520 tables to the fair market value of the prop-
erty. 27 That Mr. Gelbtuch mislabeled his valuation of a
hypothetical remainder interest as its ‘‘investment value’’ is
of no consequence. 28
   Moreover, as in the case of Mr. Gelbtuch’s failure to dis-
cuss the mortgage, depreciation of the Hawthorne property,
or AT&T’s right of removal, an allegedly improper valuation
of the donated property is not something that would result
in Mr. Gelbtuch’s appraisal’s not constituting a qualified
appraisal under the DEFRA regulations.
  26 Respondent does not argue nor do we find that a failure to discuss de-

preciation constitutes a failure to discuss ‘‘the physical condition of the
property’’, in violation of sec. 1.170A–13(c)(3)(ii)(B), Income Tax Regs.
  27 Mr. Gelbtuch did not take into account depreciation in valuing the hy-

pothetical remainder in the Hawthorne property, which, like his failure to
consider the mortgage, goes to the accuracy of his appraisal.
  28 What’s in a name? that which we call a rose

     By any other name would smell as sweet; * * * [William Shakespeare,
  Romeo and Juliet, act 2, sc. 2.]
(41)       RERI HOLDINGS I, LLC v. COMMISSIONER             83


  6. Alleged Gross Overvaluation of the Hypothetical
     Remainder Interest in the Hawthorne Property
  Respondent argues that Mr. Gelbtuch grossly overvalued
the hypothetical remainder interest in the Hawthorne prop-
erty (apparently assuming, for the sake of argument, that it
may be considered a proxy for the SMI) in the light of the
much smaller amounts paid for the SMI in a series of sales
thereof both shortly before and after RERI’s donation of it to
the University. Once again, respondent’s argument is inap-
posite as it goes to the accuracy of Mr. Gelbtuch’s appraisal,
not to its status as a qualified appraisal under the DEFRA
regulations.
  D. Conclusion
   Respondent’s arguments in support of his motion for par-
tial summary judgment that the Gelbtuch appraisal fails to
satisfy the DEFRA regulations’ definition of (and, therefore,
does not constitute) a qualified appraisal are either inap-
posite or involve unresolved disputes of material fact. There-
fore, we will deny the motion to the extent respondent asks
us to rule that petitioner failed to substantiate the value of
the SMI with a qualified appraisal.
                    An appropriate order will be issued
                  denying respondent’s motion for partial sum-
                  mary judgment.

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