Victoria Dieringer v. Cir , 917 F.3d 1135 ( 2019 )


Menu:
  •                     FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    VICTORIA E. DIERINGER, Deceased;                 No. 16-72640
    EUGENE DIERINGER, Executor,
    Petitioners-Appellants,              Tax Ct. No.
    21992-13
    v.
    COMMISSIONER OF INTERNAL                           OPINION
    REVENUE,
    Respondent-Appellee.
    Appeal from a Decision of the
    United States Tax Court
    Argued and Submitted May 15, 2018
    Portland, Oregon
    Filed March 12, 2019
    Before: M. Margaret McKeown and Richard A. Paez,
    Circuit Judges, and Cynthia A. Bashant, * District Judge.
    Opinion by Judge Paez
    *
    The Honorable Cynthia A. Bashant, United States District Judge
    for the Southern District of California, sitting by designation.
    2                       DIERINGER V. CIR
    SUMMARY **
    Tax
    The panel affirmed the Tax Court’s decision sustaining
    a deficiency against an estate for overstating the amount of
    a charitable deduction, and sustaining an accuracy-related
    penalty.
    Petitioner, the estate executor and heir of the decedent,
    declared a large charitable deduction based on the value of
    certain estate property at the time of death. The charity
    received less than the amount of the claimed deduction, and
    the estate received a tax windfall in the process. Petitioner
    contended that the Tax Court should have taken into account
    events that occurred after the decedent’s death in
    determining the value of the charitable deduction.
    In light of this court’s holding in Ahmanson Foundation
    v. United States, which underscored “the principle that the
    testator may only be allowed a deduction for estate tax
    purposes for what is actually received by the charity,”
    
    674 F.2d 761
    , 772 (9th Cir. 1981), the panel affirmed the
    Tax Court’s decision upholding the reduction of the
    charitable deduction and the deficiency assessment. The
    panel found no clear error in the Tax Court’s finding that
    there was no evidence of a significant decline in the
    economy that would have decreased the value of the
    property being donated. The panel also found no error in the
    Tax Court’s upholding of the accuracy-related penalty.
    **
    This summary constitutes no part of the opinion of the court. It
    has been prepared by court staff for the convenience of the reader.
    DIERINGER V. CIR                        3
    COUNSEL
    W. Michael Gillette (argued), Sara Kobak, and Marc K.
    Sellers, Schwabe Williamson & Wyatt, P.C., Portland,
    Oregon, for Petitioners-Appellants.
    Douglas Campbell Rennie (argued), Jennifer M. Rubin, and
    Joan I. Oppenheiner, Attorneys; David A. Hubbert, Acting
    Assistant Attorney General; Tax Division, United States
    Department of Justice, Washington, D.C.; for Respondent-
    Appellee.
    OPINION
    PAEZ, Circuit Judge:
    I.
    In this estate tax case, the Internal Revenue Service
    Commissioner (“Commissioner”) assessed a deficiency
    against the decedent’s estate for overstating the amount of a
    charitable contribution. The estate executor and heir
    declared a large charitable deduction based on the value of
    estate property at the time of death, only to manipulate the
    property for personal gain, deliver assets to the charity worth
    substantially less than those claimed as a deduction, and
    receive a tax windfall in the process. The Tax Court
    sustained the deficiency. We affirm in light of our holding
    in Ahmanson Foundation v. United States, where we
    underscored “the principle that the testator may only be
    allowed a deduction for estate tax purposes for what is
    actually received by the charity.” 
    674 F.2d 761
    , 772 (9th
    Cir. 1981). We also affirm the Tax Court’s ruling sustaining
    an accuracy-related penalty under I.R.C. § 6662.
    4                    DIERINGER V. CIR
    A.
    This case involves the Victoria E. Dieringer Estate
    (“Estate”). Victoria and her late husband Robert E.
    Dieringer (“Robert”) had twelve children together, including
    Eugene Dieringer (“Eugene”), Patrick Dieringer (“Patrick”),
    and Timothy Dieringer (“Timothy”).
    The Dieringer family owns Dieringer Properties, Inc.
    (“DPI”), a closely held corporation that manages
    commercial and residential properties in Portland, Oregon,
    as well as a Wendy’s restaurant in Texas. After Robert
    passed away and before Victoria’s death, Eugene was the
    president of DPI, Patrick was the executive vice-president
    and secretary, Victoria was the vice-president, and Timothy
    was the office manager. DPI’s Board of Directors (“Board”)
    consisted of Victoria as chairperson, and Eugene, Patrick,
    Timothy, and Thomas Keepes (“Keepes”), who is unrelated
    to the Dieringers, as directors. None of the other nine
    Dieringer children were involved in DPI in any capacity.
    Before Victoria’s death, the only shareholders of DPI
    were Victoria, Eugene, and Patrick. Victoria owned 425 out
    of 525 voting shares and 7,736.5 out of 9,220.5 nonvoting
    shares. Eugene owned the remaining 100 voting shares, and
    Eugene and Patrick each owned 742 nonvoting shares.
    According to Victoria’s will, dated November 10, 2000,
    upon her death all of her Estate would pass to the Victoria
    Evelyn Dieringer Trust (“Trust”). The Trust, as amended on
    April 22, 2005, provided for Victoria’s children to receive
    some personal effects, but no other proceeds from her estate.
    The Trust also provided for $600,000 in donations to various
    charitable organizations. Any assets remaining in the Estate
    would then pass to the Bob and Evelyn Dieringer Family
    Foundation (“Foundation”), an I.R.C. § 501(c)(3)
    DIERINGER V. CIR                                5
    organization, as a charitable contribution. Under Victoria’s
    estate plan, Eugene was appointed as the sole trustee of both
    the Trust and the Foundation. Patrick and Keepes served as
    advisory trustees of the Foundation.
    Prior to Victoria’s death, the DPI Board had preliminary
    discussions about purchasing Victoria’s DPI shares as part
    of ongoing succession planning. A November 24, 2008
    Board resolution reported that the issue had been discussed
    and that the Board resolved to “periodically purchase”
    Victoria’s shares based on terms acceptable to all parties.
    Victoria was “completely agreeable” to such a plan. At a
    February 13, 2009 Board meeting, Victoria reiterated her
    potential interest in having DPI purchase her shares. In
    anticipation of entering a purchase agreement for Victoria’s
    shares, DPI paid the Trust $45,000 prior to Victoria’s death.
    When Victoria unexpectedly died on April 14, 2009, there
    were no specific redemption agreements in place. 1
    When Victoria died, Eugene was appointed executor of
    the Estate. To determine the value of Victoria’s DPI shares
    for Estate administration purposes, the Estate’s law firm
    requested that Lewis Olds & Associates perform an
    independent appraisal of the net asset value of DPI. The
    appraisal determined that the value of DPI as of the date of
    1
    In addition to the Board resolutions that reflect conversations about
    redemption of Victoria’s stock in 2008 and 2009, the record reflects that
    as early as 2000 Victoria and Robert contemplated a buy/sell agreement
    that would require DPI or Eugene to purchase all of Victoria or Robert’s
    shares upon the later death of the two of them.
    6                         DIERINGER V. CIR
    Victoria’s death was $17,777,626 and that Victoria’s shares
    in DPI were worth $14,182,471. 2
    Effective November 20, 2009, DPI’s Board converted
    the corporate structure from a C corporation to an
    S corporation on the advice of Keepes. The DPI Board made
    this change in corporate structure to accomplish its long-
    term tax planning goals and to avoid certain adverse tax
    consequences under I.R.C. § 1374. As a result of electing
    S corporation status, the DPI Board decided that it should
    also redeem Victoria’s DPI shares that were to pass to the
    Foundation. 3
    The Board entered into an agreement with the Trust to
    redeem Victoria’s shares, prior to the shares “pouring over”
    into the Foundation. Initially, DPI agreed to redeem all of
    Victoria’s shares for $6,071,558, effective November 30,
    2009. This amount was based on a 2002 appraisal, since the
    date-of-death appraisal had not yet been completed. As a
    result, the redemption agreement provided that the stated
    price would be “reconciled and adjusted retroactively” to
    reflect the fair market value of the shares as of November 30,
    2009. DPI executed two promissory notes payable to the
    2
    Victoria’s voting shares had a market value of $1,824.19 per share
    and her nonvoting shares had a market value of $1,732.97 per share.
    3
    The DPI Board put forth a number of business rationales for the
    decision to redeem the Trust’s DPI shares. These included concerns
    about the tax consequences of the Foundation owning shares in an
    S corporation, that the DPI shares did not provide enough liquidity for
    the Foundation to distribute five percent of its funds annually as required
    by I.R.C. § 4942, and that freezing the value of the Foundation’s DPI
    shares into a promissory note could prevent future decline in the value
    of DPI shares given the poor economic climate. The Tax Court did not
    question any of these rationales.
    DIERINGER V. CIR                              7
    Trust in exchange for the DPI shares. 4 Eugene, Patrick, and
    Timothy entered into separate subscription agreements to
    purchase additional DPI shares, in order to provide funding
    for DPI to meet the required payments on the promissory
    notes. 5 At the later Tax Court trial, the court found that there
    were appropriate business purposes for these subscription
    agreements.
    At the direction of DPI, Lewis Olds & Associates
    performed another appraisal of the value of Victoria’s DPI
    shares as of November 30, 2009, for the purpose of
    redemption (“redemption appraisal”). The redemption
    appraisal valued Victoria’s DPI shares at $916 per voting
    share and $870 per nonvoting share. Lewis Olds testified,
    and the Tax Court found, that Eugene (through his lawyer)
    instructed him to value Victoria’s DPI shares as if they were
    a minority interest in DPI for the purposes of this appraisal,
    and that he would not have done so without these
    instructions.    Olds’s appraisal therefore included a
    15-percent discount for lack of control and a 35-percent
    discount for lack of marketability. As a result, Victoria’s
    4
    One of the promissory notes was a short-term note for $2,250,000.
    The other was a long-term note for $3,776,558. Each note was payable
    to the Trust, included interest, and was retroactively adjustable
    depending on the new appraisal value.
    5
    These separate subscription agreements provided that voting
    shares would cost $779 per share and nonvoting shares would cost
    $742 per share, subject to a retroactive price adjustment. Initially, the
    subscription agreements provided that Eugene would purchase
    2,695 nonvoting shares; Patrick would purchase 86 voting shares and
    2,695 nonvoting shares; and Timothy would purchase 25 voting shares
    and 108 nonvoting shares. These amounts were later modified. See infra
    fn. 7.
    8                         DIERINGER V. CIR
    DPI shares were valued significantly less in the redemption
    appraisal than in the date-of-death appraisal. 6
    DPI determined that it could not afford to redeem all of
    Victoria’s shares at the new valuation price. The redemption
    agreement was then amended, and consequently DPI
    redeemed all 425 voting shares and 5,600.5 nonvoting shares
    for a total purchase price of $5,263,462. 7 The balance on the
    long-term promissory note was amended to reflect the
    changes in the number and price of shares under the
    amended redemption agreement. After the redemption
    agreement was implemented, the distribution of DPI shares
    was as follows: (1) the Trust owned 2,136 nonvoting shares;
    (2) Eugene owned 200 voting shares and 2,932 nonvoting
    shares; (3) Patrick owned 65 voting shares and
    893 nonvoting shares; and (4) Timothy owned 25 voting
    shares and 108 nonvoting shares. 8
    In January 2011, the Trust distributed the promissory
    notes and the remaining DPI shares to the Foundation. The
    6
    Lewis Olds & Associates worked on producing the appraisals
    simultaneously; they are dated March 24, 2010, and March 25, 2010.
    7
    Correspondingly, the subscription agreements also were modified.
    Under the modified agreements, Eugene purchased 100 voting shares
    and 2,190 nonvoting shares, Patrick purchased 65 voting shares and
    86 nonvoting shares, and Timothy purchased 25 voting shares and
    108 nonvoting shares.
    8
    There are minor discrepancies between the number of shares
    indicated in the parties’ stipulation and those indicated in the Tax Court’s
    opinion. For instance, the number of nonvoting shares owned by Patrick
    differs between the parties’ stipulation (893) and the Tax Court’s opinion
    (828). We use the number of shares to which the parties stipulated, but
    the analysis is the same regardless.
    DIERINGER V. CIR                             9
    state probate court approved the redemption agreement and
    indicated that the redemption agreement and promissory
    notes would not be prohibited self-dealing under I.R.C.
    § 4941. 9 For the 2011 tax year, the Foundation reported the
    following contributions on its Form 990-PF, Return of
    Private Foundation: (1) a noncash contribution of DPI shares
    with a fair market value of $1,858,961; (2) a long-term note
    receivable with a fair market value of $2,921,312; and (3) a
    short-term note receivable with a fair market value of
    $2,250,000. The Trust reported a capital loss of $385,934
    for the sale of the 425 voting shares and $4,831,439 for the
    sale of 5,600.5 nonvoting shares for the taxable year ending
    in December 31, 2009, on its Form 1041 Tax Return. The
    Estate filed its Form 706, United States Estate (and
    Generation-Skipping Transfer) Tax Return on July 12, 2010,
    reporting no estate tax liability. The Estate claimed a
    charitable contribution deduction of $18,812,181, based on
    the date-of-death value of Victoria’s DPI shares.
    B.
    In June 2013, the Commissioner issued a notice of
    deficiency to the Estate based on its July 2010 tax return
    (Form 706). The notice stated that there was a deficiency of
    $4,124,717 and imposed an accuracy-related penalty of
    $824,943 under I.R.C. § 6662 for error and negligence in
    using the date-of-death appraisal as the value of the
    charitable contribution of Victoria’s DPI shares.
    Upon receiving the notice of deficiency, the Estate filed
    a timely petition in the Tax Court challenging the
    9
    I.R.C. § 4941 allows the Commissioner to impose a tax on certain
    transactions between a private foundation and a “disqualified person” as
    defined by I.R.C. § 4946(a)(1).
    10                   DIERINGER V. CIR
    Commissioner’s deficiency notice and penalty assessment.
    The Estate argued that it correctly used the date-of-death
    appraisal to determine the value of Victoria’s DPI shares for
    the purpose of the charitable contribution deduction. The
    Commissioner responded that post-death events should be
    considered in determining the value of the charitable
    contribution, as the actions by Eugene, Patrick, and Timothy
    reduced the value of Victoria’s contribution to the
    Foundation.
    Following trial, the Tax Court issued a decision
    upholding the Commissioner’s reduction of the Estate’s
    charitable deduction and the deficiency assessment. The
    Tax Court found that the redemption was not part of
    Victoria’s estate plan and there were valid business reasons
    for many of the transactions that took place after her death.
    The Tax Court also concluded, however, that post-death
    events—primarily Eugene’s decision to apply a minority
    interest discount to the redemption value of Victoria’s DPI
    shares—reduced the value of the contribution to the
    Foundation and therefore reduced the value of the Estate’s
    charitable deduction. But the evidence did not support the
    conclusion that a poor business climate caused the reported
    decline in share values, as the Estate argued. Further, the
    Tax Court affirmed the Commissioner’s determination that
    the Estate was liable for a penalty under I.R.C. § 6662(a).
    After denying the Estate’s motion for reconsideration, the
    Tax Court entered a final decision in favor of the
    Commissioner, which sustained an estate tax deficiency of
    $4,124,717 and an accuracy-related penalty of $824,943.
    The Estate timely appealed.
    II.
    We review de novo the Tax Court’s legal conclusions,
    see DJB Holding Corp. v. Comm’r, 
    803 F.3d 1014
    , 1022 (9th
    DIERINGER V. CIR                       11
    Cir. 2015), as well as the Tax Court’s interpretation of the
    Internal Revenue Code, see Metro One Telecomms., Inc. v.
    Comm’r, 
    704 F.3d 1057
    , 1059 (9th Cir. 2012). We review
    for clear error the Tax Court’s factual findings. See DJB
    Holding Corp., 803 F.3d at 1022. Under clear error review,
    if the Tax Court’s interpretation of the evidence is plausible,
    we must uphold it. See Leslie v. Comm’r, 
    146 F.3d 643
    , 646
    (9th Cir. 1998).
    Where the Tax Court sustains an accuracy-related
    penalty, we review for clear error the Tax Court’s finding of
    negligence. Hansen v. Comm’r, 
    471 F.3d 1021
    , 1028 (9th
    Cir. 2006). We review de novo whether substantial authority
    supported the taxpayer’s position, but we review for clear
    error whether the taxpayer acted with reasonable cause and
    in good faith. DJB Holding Corp., 803 F.3d at 1022.
    III.
    The Estate challenges the Tax Court’s final decision on
    three grounds. First, it argues that the Tax Court erred by
    taking into account events that occurred after Victoria’s
    death in determining the value of the charitable deduction.
    Instead, the Estate argues that the charitable deduction
    should have been valued as of Victoria’s date of death.
    Second, the Estate argues that even if post-death events
    could be considered, the Tax Court erred by not accounting
    for a decline in value of Victoria’s shares caused by
    economic forces. Third, the Estate argues that the Tax Court
    erred by upholding the accuracy-related penalty under I.R.C.
    § 6662. We reject all three arguments.
    A.
    At the center of the parties’ dispute is whether the
    Estate’s charitable deduction should be valued at the time of
    12                    DIERINGER V. CIR
    Victoria’s death, or whether the post-death events that
    decreased value of the property delivered to charity should
    be considered.
    The Estate Tax and Charitable Deductions
    It is well established that the “estate tax is a tax on the
    privilege of transfer[r]ing property” after one’s death.
    Propstra v. United States, 
    680 F.2d 1248
    , 1250 (9th Cir.
    1982). The estate tax “is on the act of the testator not on the
    receipt of the property by the legatees.” Estate of Simplot v.
    Comm’r, 
    249 F.3d 1191
    , 1194 (9th Cir. 2001) (citing Ithaca
    Tr. Co. v. United States, 
    279 U.S. 151
    , 155 (1929)).
    Because the estate tax is a tax on the decedent’s bequest
    of property, the valuation of the gross estate is typically done
    as of the date of death. See I.R.C. § 2031; Tr. Servs. of Am.,
    Inc. v. United States, 
    885 F.2d 561
    , 568–69 (9th Cir. 1989).
    The pertinent statute provides that “[t]he value of the gross
    estate of the decedent shall be determined by including to the
    extent provided for in this part, the value at the time of his
    death of all property . . . wherever situated.” I.R.C.
    § 2031(a); see also id. § 2033 (mandating that property in
    which the decedent had an interest be valued on the date of
    decedent’s death); 
    Treas. Reg. § 20.2031-1
    (b) (requiring the
    valuation of property at the “fair market value at the time of
    the decedent’s death” unless an exception applies). Except
    in some limited circumstances, such as when the executor
    elects to use an alternative valuation under I.R.C. § 2032,
    post-death events are generally not considered in
    determining the estate’s gross value for purposes of the
    estate tax. The parties agree that the executor did not use the
    alternative valuation method in this case.
    A related provision allows for deductions from the value
    of the gross estate for transfers of assets to qualified
    DIERINGER V. CIR                       13
    charitable entities. I.R.C. § 2055(a). This deduction
    generally is allowed “for the value of property included in
    the decedent’s gross estate and transferred by the decedent
    . . . by will.” 
    Treas. Reg. § 20.2055-1
    (a). Congress’s
    allowance for a charitable deduction was a “liberalization[]
    of the law in the taxpayer’s favor.” Helvering v. Bliss,
    
    293 U.S. 144
    , 151 (1934). Yet, as we have recognized,
    deductions are acts of “legislative grace.” Comm’r v.
    Shoong, 
    177 F.2d 131
    , 132 (9th Cir. 1949). “[T]he purpose
    of the charitable deduction [is] to encourage gifts to charity.”
    Ahmanson, 674 F.2d at 772; see also Underwood v. United
    States, 
    407 F.2d 608
    , 610 (6th Cir. 1969) (“The purpose of
    allowing charitable deductions is to encourage testators to
    make charitable bequests, not to permit executors and
    beneficiaries to rewrite a will so as to achieve tax savings.”).
    Valuing the Charitable Deduction
    Deductions are valued separately from the valuation of
    the gross estate. See Ahmanson, 674 F.2d at 772 (“The
    statute does not ordain equal valuation as between an item in
    the gross estate and the same item under the charitable
    deduction.”).      Separate valuations allow for the
    consideration of post-death events, as required by Ahmanson
    and provisions of the tax code.
    We addressed valuation of a charitable deduction in
    Ahmanson. There, the decedent’s estate plan provided for
    the voting shares in a corporation to be left to family
    members and the nonvoting shares to be left to a charitable
    foundation. Id. at 765–66. We held that when valuing the
    charitable deduction for the nonvoting shares, a discount
    should be applied to account for the fact that the shares
    donated to charity had been stripped of their voting power.
    Id. at 772. That a discount was not applied to the value of
    the nonvoting shares in the gross estate did not impact our
    14                   DIERINGER V. CIR
    holding. Id. Importantly, we recognized that a charitable
    deduction “is subject to the principle that the testator may
    only be allowed a deduction for estate tax purposes for what
    is actually received by the charity.” Id.
    In contrast, the Estate argues the charitable deduction
    must be valued as of the date of Victoria’s death, in keeping
    with the date-of-death valuation of an estate. We disagree.
    Although the Supreme Court and our court have applied that
    valuation method where the remainder of an estate is
    donated to charity after a post-death contingency, there is no
    uniform rule for all circumstances. Ithaca Trust, 
    279 U.S. at 154
    ; Wells Fargo Bank & Union Tr. Co. v. Comm’r,
    
    145 F.2d 132
     (9th Cir. 1944). In Ithaca Trust, the decedent
    left the remainder of his estate to his wife for her life, with
    any assets remaining after her death to be donated to charity.
    
    279 U.S. at 154
    . The decedent’s wife unexpectedly died
    only six months after the decedent. 
    Id. at 155
    . The Court
    considered whether the charitable deduction should reflect
    the amount actually given to charity after the wife’s
    premature death, but ultimately determined that the
    deduction should instead reflect a valuation based on
    mortality tables for the wife on the date of the decedent’s
    death. 
    Id.
    We applied Ithaca Trust in Wells Fargo, where the
    decedent had created a trust with instructions that the trust’s
    income be paid to the decedent’s sister from the date of the
    decedent’s death to the date of the sister’s death, and after
    the sister’s death that the corpus of the trust be given to
    charity. 145 F.2d at 133. Due to commingling of assets after
    the decedent’s death and an unrelated tax dispute, part of the
    corpus of the trust was used to support the decedent’s sister,
    which reduced the amount that went to charity upon her
    death. Id. The Tax Court relied on these payments to
    DIERINGER V. CIR                      15
    disallow part of the charitable deduction, but we reversed,
    concluding that the charitable deduction must be determined
    from data available at the time of death. Id.; see also Estate
    of Van Horne v. Comm’r, 
    720 F.2d 1114
    , 1117 (9th Cir.
    1983) (relying on Ithaca Trust to “hold that legally
    enforceable claims valued by reference to an actuarial table
    meet the test of certainty for estate tax purposes” when
    valuing spousal support obligation).
    Neither Ithaca Trust nor Wells Fargo, however, set in
    stone the date of death as the date of the valuation of assets
    for purposes of a deduction. See Shedd’s Estate v. Comm’r,
    
    320 F.2d 638
    , 639 (9th Cir. 1963) (“Congress did not intend
    to make events at the date of death invariably determinative
    in computing the federal estate tax obligation.”). Nor could
    they. Certain deductions not only permit consideration of
    post-death events, but require them. For example, I.R.C.
    § 2053(a) authorizes a deduction for funeral expenses and
    estate administration expenses—costs that cannot accrue
    until after the death of the testator. Similarly, I.R.C.
    § 2055(c) specifies that where death taxes are payable out of
    a charitable bequest, any charitable deduction is limited to
    the value remaining in the estate after such post-death tax
    payment. Still another provision of the tax code, I.R.C.
    § 2055(d), prohibits the amount of a charitable deduction
    from exceeding the value of transferred property included in
    a gross estate—but, by negative implication, permits such a
    deduction to be lower than the value of donated assets at the
    moment of death. The Third Circuit also recognized that
    valuations of the gross estate and a charitable deduction are
    separate and may differ. In Re Sage’s Estate, 
    122 F.2d 480
    ,
    484 (3d Cir. 1941) (“[W]hile a decedent’s gross estate is
    fixed as of the date of his death, deductions claimed in
    determining the net estate subject to tax may not be
    16                   DIERINGER V. CIR
    ascertainable or even accrue until the happening of events
    subsequent to death.”).
    Indeed, “[t]he proper administration of the charitable
    deduction cannot ignore such differences in the value
    actually received by the charity.” Ahmanson, 674 F.2d at
    772; accord Irving Tr. Co. v. United States, 
    221 F.2d 303
    ,
    306 (2d Cir. 1955); Thompson’s Estate v. Comm’r, 
    123 F.2d 816
    , 817 (2d Cir. 1941); In Re Sage’s Estate, 
    122 F.2d at 484
    . This rule prohibits crafting an estate plan or will so as
    to game the system and guarantee a charitable deduction that
    is larger than the amount actually given to charity.
    Ahmanson, 674 F.2d at 772.
    Applying Ahmanson’s Rule
    Ahmanson compels affirming the Tax Court’s ruling
    here. Victoria structured her Estate so as not to donate her
    DPI shares directly to a charity, or even directly to the
    Foundation, but to the Trust. Victoria enabled Eugene to
    commit almost unchecked abuse of the Estate by setting him
    up to be executor of the Estate, trustee of the Trust, and
    trustee of the Foundation, in addition to his roles as
    president, director, and majority shareholder of DPI. As the
    Tax Court found, Eugene improperly directed Lewis Olds to
    determine the redemption value of the DPI shares by
    applying a minority interest valuation, when he knew a
    majority interest applied and the Estate had claimed a
    charitable deduction based upon a majority interest
    valuation. Through his actions, Eugene manipulated the
    charitable deduction so that the Foundation only received a
    fraction of the charitable deduction claimed by the Estate.
    The Estate attempts to evade Ahmanson by arguing that
    it is limited to situations where the testamentary plan
    diminishes the value of the charitable property. Read in
    DIERINGER V. CIR                             17
    context, Ahmanson is not limited to abuses in the four
    corners of the testamentary plan. Id. Ahmanson extends to
    situations where “the testator would be able to produce an
    artificially low valuation by manipulat[ion],” which includes
    the present situation. Id. Moreover, Victoria’s testamentary
    plan laid the groundwork for Eugene’s manipulation by
    concentrating power in his hands—in his roles as executor
    of the Estate and trustee of the Trust and Foundation—even
    after she knew of and assented to early discussions of the
    share redemption plan.
    The Tax Court correctly considered the difference
    between the deduction and the property actually received by
    the charity due to Eugene’s manipulation of the redemption
    appraisal value. 10
    B.
    The Estate argues that any consideration of post-death
    events also requires finding that the decline in value of DPI
    stock was due, at least in part, to market forces. The Tax
    Court, however, found that “[t]he evidence does not support
    a significant decline in the economy that resulted in a large
    decrease in value in only seven months.” The Tax Court
    acknowledged that the adjusted net asset value of the DPI
    stock decreased from $17,777,626 at the date of Victoria’s
    death to $16,159,167 at the date used for the redemption
    appraisal. 11 Still, the Tax Court found, “[t]he reported
    10
    The Commissioner argues in the alternative that the events in this
    case fall under the exception in 
    Treas. Reg. § 20.2055-2
    (b)(1). In light
    of our holding that Ahmanson compels affirmance, we need not address
    this argument.
    11
    The Estate suggests that this change in adjusted net asset value is
    entirely attributable to a changed real estate market. This argument
    18                     DIERINGER V. CIR
    decline in per share value was primarily due to the specific
    instruction to value decedent’s majority interest as a
    minority interest with a 50% discount.” We find nothing in
    the record—nor does the Estate point to anything in the
    record—that suggests the Tax Court’s findings were clearly
    erroneous.
    C.
    Finally, the Estate challenges the accuracy-related
    penalty that was imposed pursuant to I.R.C. § 6662(a).
    Section 6662(a) imposes a penalty of 20 percent of the
    amount of the underpayment attributable to either
    negligence or disregard of rules or regulations. A penalty
    will not be imposed if the taxpayer can show “that there was
    a reasonable cause [for the underpayment] and that the
    taxpayer acted in good faith.” I.R.C. § 6664(c)(1). The
    Commissioner bears the initial burden of production
    regarding the applicability of the penalty, but once this
    burden is met, the taxpayer bears the burden of persuasion
    as to defenses to the penalty. Id. § 7491(c); Higbee v.
    Comm’r, 
    116 T.C. 438
    , 446–47 (2001).
    The Tax Court first found that the Estate acted
    negligently. Section 6662(c) defines negligence as “any
    failure to make a reasonable attempt to comply” with the
    I.R.C. See also Allen v. Comm’r, 
    925 F.2d 348
    , 353 (9th Cir.
    1991) (defining negligence as a “lack of due care or the
    failure to do what a reasonable and prudent person would do
    under similar circumstances”). The Tax Court found that the
    Estate was negligent because it “not only failed to inform the
    misses the point. The Estate claimed an $18,205,476 charitable
    deduction largely based on the value of assets earmarked for the
    Foundation—but the Foundation only received assets worth $6,434,578.
    DIERINGER V. CIR                      19
    appraiser that the redemption was for a majority interest, but
    also instructed the appraiser to value the redeemed DPI stock
    as a minority interest.” We agree; the Tax Court did not
    clearly err in finding negligence.
    The Tax Court next found that the Estate did not have
    reasonable cause and good faith for its negligent act. “The
    determination of whether a taxpayer acted with reasonable
    cause and in good faith is made on a case-by-case basis,
    taking into account all pertinent facts and circumstances.”
    
    Treas. Reg. § 1.6664-4
    (b)(1). The most important factor “is
    the extent of the taxpayer’s effort to assess the taxpayer’s
    proper tax liability.” 
    Id.
     A reliance on professional advice
    may be used to show reasonable cause and good faith, but
    only if the professional advice meets certain requirements.
    
    Id.
     (instructing that “the circumstances under which the
    appraisal was obtained” are considered in determining
    whether there was reasonable cause and good faith).
    The record evidence supports the Tax Court’s finding
    that the Estate did not rely in good faith on its attorney’s
    judgment. The redemption appraisal was inaccurate because
    of instructions from Eugene on behalf of the Estate.
    Therefore, the Estate “knew” that Eugene and his brothers
    were acquiring the DPI stock at a discount. Further, the
    appraiser’s credible testimony that he was instructed to
    undertake a minority interest valuation, which he ordinarily
    would not have done in this situation, demonstrates the lack
    of good faith. See 
    id.
     On these facts we find no error in the
    Tax Court’s holding that the Commissioner properly
    imposed the accuracy-related penalty under I.R.C.
    § 6662(a).
    20                   DIERINGER V. CIR
    IV.
    The Estate claimed an $18,205,476 charitable deduction
    based on the value of assets earmarked for the Foundation,
    but the Foundation received assets worth only $6,434,578.
    The Estate, at Eugene’s direction, claimed a large charitable
    deduction representing that such assets would be delivered
    to the Foundation. Eugene then revalued and delivered
    assets—promissory notes and DPI shares—worth far less
    than the claimed charitable deduction. By doing so, the
    Estate—and various Dieringer family entities—ended up
    avoiding $4.1 million in taxes. We agree with the Tax
    Court’s decision upholding the Commissioner’s reduction of
    the Estate’s charitable deduction and the deficiency
    assessment. To hold otherwise would only “invite abuse.”
    Ahmanson, 674 F.2d at 768.
    AFFIRMED.