In a tax refund action, a U.S. District Court in Pennsylvania denied a taxpayer's motion for summary judgment. The Court held that the taxpayer was not entitled to summary judgment regarding the assessment of a fraud penalty because there may be sufficient evidence for a jury to conclude that the taxpayer had intentionally undervalued properties.
The taxpayer timely filed a gift tax return for gifts of his ownership interests in seven parcels of property. The IRS disputed the value of three of the parcels and assessed both additional gift tax and a fraud penalty on the transfers. In this action, the taxpayer motioned for summary judgment on the issue of fraud, requesting a refund of the fraud penalty that he paid.
The Court denied the motion, noting that issues such as intent are rarely suitable for summary judgment. In its opinion, the Court pointed to a number of facts that should be considered at trial and which could lead a jury to find that the taxpayer had intentionally undervalued the properties, including the large difference in value between the values claimed on the return and the IRS's expert valuations at trial, the difference between the county tax assessments and taxpayer's reported values, the existence of prior contracts to sell two of the properties for amounts greater than the taxpayer's reported values, the failure of the taxpayer to inform the appraiser of the prior sales contracts and a final appraisal that reflected values suggested by the taxpayer to the appraiser.