Sunday, February 3, 2013
On January 30, 2013, the United States filed a complaint in the United States District Court for the Northern District of Ohio against Michael Ehrmann and the company he owns with his wife, Jefferson & Lee Appraisals, Inc. Accoding to the complaint, Mr. Ehrmann has appraised more than 90 conservation easements for purposes of the deduction under IRC § 170(h) and earned substantial fees for his appraisals, ranging up to $40,000 for a single appraisal.
The government's complaint alleges that, continually and repeatedly, Mr. Ehrmann’s appraisals, inter alia,
- are unreliable due to material and substantive errors and omissions, unsupported assumptions, and his failure to comply with generally accepted professional appraisal standards;
- substantially overstate the fair market value of the easements by hundreds of thousands, if not millions, of dollars;
- distort data and provide misinformation or unsupported personal opinions to achieve artificially high values that are often completely out of line with actual property values in the market area; and
- are riddled with problematic methodology and conclusions that lead to substantial valuation misstatements of the resulting charitable contribution deductions taken by his clients.
As one example, the complaint alleges that Mr. Ehrmann appraised a building in Grand Rapids, Michigan; acknowledged that the building had been purchased in 2006 for just over $3.5 million; stated that the relevant real estate market had not “exhibited a net change over the past several years;” but then determined that the property’s “before” value in 2009 was just over $26 million. The complaint further alleges that Mr. Ehrmann has attempted to obstruct IRS enforcement efforts by claiming not to have any work files for his appraisal reports, while professional standards require that an appraiser maintain such files. “This sort of abuse of a high-dollar charitable contribution deduction,” states the complaint, “inspires contempt for the system of honest, voluntary income tax reporting.”
The government has requested that Mr. Ehrmann and Jefferson & Lee Appraisals be permanently enjoined from preparing appraisal reports for any purpose relating to federal taxes and from providing expert testimony or any other appraisal support for taxpayers challenging a disallowed deduction of a donated conservation easement. The government has further requested that the defendants provide to counsel for the United States a list of clients (including each client’s address, phone number, e-mail address, and federal tax identification number) for whom they have prepared appraisal reports for tax purposes on or since November 1, 2009.
In their Answer, Mr. Ehrmann and Jefferson & Lee Appraisals state that Mr. Ehrmann, who is 70 years old and has now retired, has, throughout his long career:
- routinely drafted extremely lengthy and detailed reports to support his work in hundreds of appraisals;
- declined to perform appraisals for many prospective clients who have approached him because he concluded that they (1) had unrealistic expectations of benefits, (2) were unwilling to incur costs for proper architectural and cost documentation necessary to determine the true value of the easement, (3) appeared unwilling to agree to a permanent donation of the easement, or (4) could not identify an appropriate donee of the easement; and
- always acted with the utmost good faith and professionalism.
The defendant’s answer further alleges, inter alia, that:
- Mr. Ehrmann’s work has been an invaluable part of historic preservation efforts, in that numerous preservation projects would not have been financially viable without his accurate and well-documented appraisals; and
- his façade easement appraisals have been entirely reasonable, estimating losses for the donation of the easements highlighted in the Government’s complaint of approximately 25% of the values that would otherwise have been achievable if the buildings had been built out without preservation of the historic facades.