HELENA, Mont. – On Sept. 28, U.S. District Judge Sam E. Haddon, for the District of Montana, permanently enjoined Montana-based Attorney James Tarpey, two of his companies: Project Philanthropy, Inc., dba Donate for a Cause, and Timeshare Closings, Inc., dba Resort Closings, Inc., Suzanne Crowson, Ron Broyles and Curt Thor from promoting what the U.S. Department of Justice (DOJ) referred to as an abusive timeshare donation scheme.
The timeshare donation scheme was aggressively marketed via the Internet and through national and local media outlets, including Fox News in Phoenix and the TODAY Show.
In November 2015, the DOJ filed a complaint which laid out the defendants’ “elaborate – and bogus – tax scheme” organized, operated and promoted to encourage timeshare owners to donate their unwanted timeshares to Donate for a Cause, a tax-exempt entity set up and run by Tarpey.
Timeshare owners paid significant processing fees to Tarpey’s for-profit closing company, Resort Closings, Inc., for the transfer of the timeshares.
Then, according to the complaint, appraisers with a conflict of interest appraised the customers’ timeshares in a manner which did not comply with the law and which significantly overvalued the timeshares.
Based on Tarpey’s false representations, his customers subsequently claimed improper and grossly inflated charitable contribution deductions on their tax returns for not only the overvalued timeshares but the processing fees paid to Resort Closings, which were often in excess of $2,000.
The nonprofit Donate for a Cause was set up to briefly hold title to timeshares before they were sold for a fraction of the appraised amount.
The IRS estimates, since 2010, defendants have caused customers to donate 5,523 timeshares to this scheme and, based on a review of 2,994 of these customers’ files, defendants have caused more than $19.4 million in improper tax deductions for the timeshares alone.
Tarpey, called the “architect” of this timeshare donation scheme, promoted it to others and reaped substantial financial gain from selling and operating it.
Broyles, a real estate appraiser who resides in San Rafael, Calif., was the primary appraiser for Donate for a Cause, preparing thousands of appraisals for Donate for a Cause since 2010.
And, according to the complaint, virtually all of Broyles appraisal business consisted of appraisals prepared for Donate for a Cause.
Thor, a real estate appraiser who resides in Bellingham, Wash., also prepared more than 1,000 appraisals for Donate for a Cause since 2011.
Crowson, Tarpey’s sister, who resides in Bozeman, Mont., was an officer of Donate for a Cause and prepared more than 100 appraisals for that entity.
Since at least 2010, defendants promoted an abusive tax scheme that resulted in their customers claiming federal income tax deductions to which they were not entitled.
The complaint describes the benefits of timeshares as a way for owners to save money on travel expenses since most timeshares are equipped with a kitchen and laundry facilities.
It says timeshare owners also avoid hotel fees and guarantee themselves a vacation destination, although they must still pay the cost of travel to the timeshare location.
The downsides to timeshare ownership, in addition to the original purchase costs, are the annual maintenance fees and other expenses that may include things like membership fees and real estate taxes.
Some folks, after purchasing a timeshare, may decide they no longer wish to own that property.
However, due to the large costs associated with owning a timeshare, the excess supply of timeshares on the market and competition from developers selling new timeshare properties, timeshare owners generally face substantial difficulty in selling or even giving away their unwanted timeshares.
Defendants’ timeshare donation scheme was designed specifically to exploit the difficulties in the timeshare resale market, encouraged timeshare owners to donate their timeshares and claim improper federal tax deductions based on falsely inflated market value determination.
A Jan. 24, 2011 review of Tarpey’s services posted on avvo.com by “Craig” titled “Timeshare nightmare” stated, “I had just about given up trying to get rid of my timeshare when I came across a company called Donate for a Cause. I was very skeptical about all timeshare companies since I have been lied to by them several times. Jim Tarpey was their attorney and was right up front with me and everything he said he would do he did. I couldn’t be happier.”
In order to determine the “fair market value” of the timeshare,
Donate for a Cause enlisted the services of an appraiser. But rather than selecting an independent, third-party appraiser, Donate for a Cause used an appraiser who would overstate the value of the timeshare.
Because that appraiser was an insider, too closely affiliated with Donate for a Cause, Treasury regulations specifically exclude him or her from appraising timeshares for which customers claimed federal tax deductions.
The complaint asserts the appraisals typically suffered from numerous additional defects in that they failed to comply with regulations governing appraisals submitted with federal returns, contain substantive errors and omissions, and failed to comply with generally accepted appraisal standards, while grossly overvaluing the timeshares.
Donate for a Cause issued customers two acknowledgment letters, one for the processing fees paid to Resort Closings and a non-cash acknowledgment letter for the overvalued timeshare.
Additionally, customers were falsely told they could fully deduct the appraised amount of the timeshare and the processing fee on their federal income tax return.
Once the timeshare is deeded to Donate for a Cause, employees of Donate for a Cause and Resort Closings advertised it for sale. Most of the timeshares were advertised and sold on eBay, which since 2010, has generated more than $17.6 million in total revenue.
However, Donate for a Cause made less than $1.5 million in charitable contributions.
In one example, a customer donated a timeshare that originally cost $10,500 to Donate for a Cause. Tarpey provided the customer with an appraisal of $8,700 and Donate for a Cause subsequently sold the timeshare on eBay for $81.
Since 2010, Tarpey has appraised at least 647 timeshares in connection with the timeshare donation scheme.
Broyles, the primary appraiser for timeshares donated to Donate for a Cause has appraised at least 4,486 timeshares since 2010 in connection with the scheme.
Since 2011, Thor has appraised at least 1,458 timeshares in connection with the scheme.
Crowson appraised at least 101 timeshares in 2012 in connection with the scheme and may have prepared an additional 448 timeshare appraisals in 2013.
IRS rules require any claim for deduction of donated property valued at more than $5,000, the taxpayer must obtain a “qualified appraisal” for that property, which must be prepared by a “qualified appraiser.”
The complaint contends defendants used bogus appraisals to generate excessive profits for themselves and improper charitable contribution deductions for their customers.
In three separate orders, Haddon permanently barred Tarpey; Timeshare Closings, Inc. dba Resort Closings, Inc.; and Project Philanthropy, Inc., dba Donate for a Cause, from preparing any property appraisal that will be used in connection with federal taxes; encouraging or advising others to claim charitable contribution deductions on any federal tax return; and organizing, promoting, selling, marketing or advising with respect to any plan or arrangement regarding charitable contributions.
In addition, Haddon also ordered Project Philanthropy to use its reasonable best efforts to identify and collect the names, addresses, e-mail addresses, phone numbers, and Social Security or other tax identification numbers, of all customers for whom it accepted a timeshare donation since 2010.
The court retained jurisdiction over the matter for the purpose of implementing and enforcing the judgment, while permitting the federal government to engage in post-judgment discovery to ensure and monitor compliance with the judgment.
Defendants agreed to the stipulated permanent injunction, thus waiving all rights to appeal.
In the DOJ’s press release, the IRS warns taxpayers to be wary of scams that involve claiming inflated charitable contribution deductions and recommends anyone who may have improperly claimed such deductions to consult a tax professional.