UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT JAMES TARPEY, No. 22-35208

Plaintiff-Appellant, D.C. No. 2:17-cv- 00094-BMM v. UNITED STATES OF AMERICA, OPINION

Defendant-Appellee.

Appeal from the United States District Court for the District of Montana Brian M. Morris, District Judge, Presiding

Argued and Submitted April 12, 2023 Seattle, Washington

Filed August 17, 2023

Before: M. Margaret McKeown, Jay S. Bybee, and Roopali H. Desai, Circuit Judges.

Opinion by Judge McKeown 2 TARPEY V. USA

SUMMARY *

Tax

The panel affirmed the district court’s judgment imposing over $8 million in penalties against taxpayer for promoting a tax-avoidance scheme that involved charitable deductions claimed in connection with the donation of unwanted timeshares. Taxpayer formed Project Philanthropy, Inc., d/b/a/ Donate for a Cause (DFC), a nonprofit with tax-exempt status that facilitated the donation of timeshares by timeshare owners. Taxpayer also formed Resort Closings, a for-profit service that handled the real estate closings for timeshares donated to DFC. Donors paid a donation fee to DFC and shouldered the timeshare transfer fees. Taxpayer, his sister, Ron Broyles, and Curt Thor appraised the value of the unwanted timeshares. 26 U.S.C. § 6700 imposes a penalty on promoters and others involved in the organization or sale of tax shelters if they make false statements or exaggerate valuation, in this case, in the form of timeshare appraisals. The panel upheld the district court’s determination on summary judgment that taxpayer was liable for the appraisals of Broyles and Thor because, as a matter of law, taxpayer knew or had reason to know Broyles and Thor were disqualified as appraisers under the Treasury regulations, and taxpayer forfeited his

* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. TARPEY V. USA 3

argument on appeal that he was unaware the appraisals would be imputed to DFC. The panel next affirmed the district court’s determination on summary judgment that the scope of the “activity” to be penalized under § 6700(a) encompassed taxpayer’s entire timeshare donation business and not just the funds directly coming from the false statement appraisals. Finally, the panel upheld the district court’s judgment following a bench trial imposing over $8 million in penalties. The panel held that the district court properly relied on the Internal Revenue Code’s general definition of gross income, which includes “all income from whatever source derived,” 26 U.S.C. § 61(a), and properly included funds deposited into an escrow account managed by Resort Closings in calculating the penalties, because taxpayer had some guarantee that he would be allowed to keep the money in that account.

COUNSEL Sean T. Morrison (argued), Morrison Law Firm PLLC, Helena, Montana; Brian K. Gallik, Gallik Bremer & Molloy PC, Bozeman, Montana; for Plaintiff-Appellant. Judith A. Hagley (argued) and Jacob E. Christensen, Attorneys, Tax Division/ Appellate Section; Jesse Laslovich, United States Attorney; Department of Justice, Washington, D.C.; for Defendant-Appellee. 4 TARPEY V. USA

OPINION McKEOWN, Circuit Judge:

Through Donate for a Cause, James Tarpey pitched an attractive offer to customers looking to get rid of timeshares: donate your unwanted property to us, we’ll get it appraised, and you’ll claim a charitable contribution deduction on your federal tax return. There was just one hitch. Th