Company Petitions Tax Court for Redetermination of Tax Deficiency

a. By asserting a deficiency of Federal income tax in any amount for the 2014 or 2015 tax years;

b. By failing to refund any overpaid Federal income tax, with interest as provided by law;

c. By asserting an adjustment of $5,590,216 to CRH's 2014 deduction for charitable contributions;

d. By asserting that CRH's 2009 charitable contribution of $28,974,540 (“2009 Contribution”) should be disallowed;

e. By asserting that CRH's 2009 Contribution failed to meet the requirements of Section 170;

f. By asserting, in the alternative, that CRH's 2009 Contribution exceeded the fair market value of the transferred property;

g. By asserting an adjustment of $17,134,500 to CRH's 2014 net operating loss deduction;

h. By asserting that CRH's 2014 net operating loss deduction should be adjusted, in part, based on an improper disallowance of the 2009 Contribution;

i. By asserting that CRH's 2014 net operating loss deduction should be adjusted, in part, based on a computational adjustment to its 2014 tax return;

j. By asserting that Respondent's adjustments to CRH's 2014 net operating loss deduction causes adjustments to CRH's alternative minimum tax;

k. By asserting an adjustment of $611,595 to CRH's 2014 deduction for salaries and wages;

l. By asserting that CRH's 2014 deduction for salaries and wages of $611,595 should not be allowed because CRH paid the expenses under a plan deferring the receipt of such employee compensation to future years;

m. By asserting an adjustment of $394,000 to CRH's 2014 deduction for “Cost of goods sold — other costs”;

n. By asserting that CRH's 2014 deduction for “Cost of goods sold “other costs” should be disallowed, in part, due to unfiled customer claims;

o. By asserting that CRH's 2014 deduction for “Cost of goods sold — other costs” should be disallowed, in part, due to unpaid workers compensation not constituting economic performance;

p. By asserting an adjustment of $587,758 to CRH's 2014 deduction for legal and professional fees;

q. By asserting that legal and professional fees of $587,758 may not be deducted because they related to service not performed prior to the end of taxable 2014;

r. By failing to correctly calculate the tax and alternative minimum tax due based on the alleged adjustments;

s. By asserting that CRH's 2014 minimum tax credit should be increased by $8,192,654 based on the adjustments above;

t. By asserting that CRH's 2015 minimum tax credit should be decreased by $1,802,699 based on the adjustments above;

u. By asserting a penalty in any amount for tax year 2014 and 2015;

v. By asserting a gross valuation misstatement penalty based on Section 6662(h);

w. By asserting, in the alternative, an accuracy-related penalty under Section 6662(a) based on:

x. By asserting the non-determination that CRH did not proceed in good faith, based on reasonable cause; and

y. Based on information and belief, by failing to meet the requirements of Section 6751(b)(1).

a. CRH is one of four divisions of CRH, plc, a building materials group headquartered in Dublin, Ireland.

b. After the years in question, the Company changed its name from Oldcastle, Inc. and Subsidiaries to CRH.

c. The Shelly Company (“Shelly”) falls within the materials division of CRH.

d. Shelly constitutes a diversified construction materials and construction services organization with 24 subsidiaries that operate in Ohio, Indiana, and West Virginia.

e. Shelly consists of six divisions, including the Columbus, Ohio Division.

f Shelly's Columbus Division operates approximately ten asphalt plants; five sand, gravel, and limestone facilities; and two agricultural limestone facilities.

g. CRH included Shelly's income, gains, losses, and deductions on its 2009 through 2013 consolidated Federal income tax returns.

h. In May 2002, Shelly entered into a purchase agreement with American Aggregates Corporation (“American Aggregates”) to purchase its quarries and other facilities located in the vicinity of Columbus, Ohio.

i. Shelly purchased the various assets from American Aggregates for $70,215,295.

j. The assets included a 281.755-acre parcel north of the Scioto River.

k. The City, which is not in the mining business, approached Shelly about purchasing approximately 54 acres of the 281.755-acre tract to serve as a new impound yard.

l. A city impound yard was not the “highest and best [financial] use” of that parcel.

m. Shelly instead donated a fee simple interest in 54.187 acres of the Subject Property (the “Donated Property”) to the City.

n. The Donated Property includes both the surface rights and underlying mineral rights.

o. The Donated Property contained valuable limestone deposits as an extension of the limestone body Shelly was mining on the adjacent property.

p. The City also asked Shelly to make certain improvements in exchange for the City paying Shelly for the improvements.

q. By separate agreement, Columbus Limestone, Inc. (“Columbus Limestone”), Shelly's subsidiary, agreed to make the improvements.

r. Shelly and Columbus Limestone completed the improvements.

s. On July 1, 2009, the Directors of Columbus Limestone approved the contribution of the Donated Property to the City.

t. On October 1, 2009, Columbus Limestone contributed a fee simple interest in the Donated Property to the City by limited warranty deed.

u. The fee simple transfer constituted Columbus Limestone's entire interest in the Donated Property.

v. Columbus Limestone did not reserve any mineral interests in the deed or any other document.

w. The City acknowledged receipt of the donation in writing on October 1, 2009 by Certification of Gift.

x. Following the contribution, Columbus Limestone sold the requested improvements to the City for $4,449,464.

y. While the City paid for the improvements it requested, the City did not pay or otherwise reimburse CRH, Shelly, Columbus Limestone, or any other related party for the underlying Donated Property.

z. Columbus Limestone sold the improvements to the City at no more than fair market value.

aa. Shelly properly reported Columbus Limestone's sale of the improvements to the City.

ab. CRH reported the transfer of the surface rights as a sale for no gain on Form 4797 because the City originally wanted to pay for the surface rights but Columbus Limestone ultimately received no consideration for those rights.

ac. The transfer of those surface rights constitutes a charitable contribution beyond the mineral rights.

ad. CRH properly reported the contribution of the (subsurface) mineral interests to the City on Form 8283.

ae. Shelly hired CMC, Inc. (“CMC”) to determine the fair market value of the subsurface mineral interests donated to the City.

af. CMC was an internationally respected mining valuation firm.

ag. After extensive fieldwork, site visits, research, and data analysis, CMC completed its appraisal on January 26, 2010.

ah. J. Stuart Limb prepared and signed the CMC appraisal.

ai. CMC performed mineral appraisals on a regular basis.

aj. Mr. Limb regularly performed mineral appraisals prior to his death.

ak. While Mr. Limb has since passed away, he was qualified to perform mineral appraisals based on his years of experience, specialized knowledge, and training.

al. CMC and Mr. Limb were always independent of CRH, Shelly, and Columbus Limestone.

am. The CMC appraisal described the donated mineral interests in detail, including the proven and probable reserves.

an. The CMC appraisal included a description of Mr. Limb's qualifications, as well as an acknowledgement that CMC appraised the property for tax purposes.

ao. CMC described the history of the property, the field research, the mining operations, the regulatory restrictions, the technical requirements, various geologic studies, the mining industry, various transportation data, and the market conditions in the consumption area.

ap. CMC then described the valuation methods considered and the appropriate method CMC used to determine the fair market value of the mineral interest of $29,013,000.

aq. That valuation of just the mineral rights Columbus Limestone contributed to the City substantially exceeded the amount the consolidated group could use at the time.

ar. CMC used the Discounted Cash Flow (“DCF”) Method to determine the fair market value of the mineral rights contributed to the City.

as. The DCF method was at the time and remains the most common method in the mining industry for valuing mineral interests.

at. That valuation was conservative and appears to have understated value in a number of respects, including deferring income and double discounting the value.

au. CMC used the proper method (DCF income method), but deferred the income stream by seven years and applied two sets of discounts.

av. Both the income deferral and the double discounts had the impact of reducing the value conclusion.

aw. Still, CRH. included the (understated) valuation by CMC of $29,013,000 on its 2009 return.

ax. CRH inadvertently reduced the contribution of the 2009 donation of the mining interest by $38,460.

ay. CRH attached Columbus Limestone's Form 8283 to its 2009 consolidated U.S. Corporate Income Tax Return (Form 1120).

az. Respondent accepted CRH's returns without adjusting the 2009 contribution or its carryovers to 2010, 2011, and 2012.

ba. The IRS then selected the 2013, 2014, and 2015 CRH returns for audit.

bb. The charitable contribution issue for 2013, 2014, and 2015 remains the same for all years — the impact of the 2009 contribution on the later years.

bc. For two years, Respondent audited the contribution carryover without ever once suggesting that any issue existed other than Respondent's fluctuating view of value (from $27 million to $450,000).

bd. Respondent repeatedly asked CRH to unilaterally extend the limitations period for 2013 (and other periods) and CRH accommodated Respondent on two occasions.

be. When CRH indicated reluctance to extend the limitations period a third time, Respondent retaliated by threatening to raise a series of hypertechnical issues disregarding the contribution altogether.

bf. In a conference call to discuss Respondent's most recent request for extension of the limitations period on February 6, 2018, Respondent threatened unspecified technical issues.

bg. On February 7, 2018, Respondent then issued a Notice of Proposed Adjustment ("NOPA”) asserting for the very first time in the two-year audit that no charitable contribution deduction was allowable for 2009.

bh. The NOP A alleged that the contribution should be disallowed because the full (1,060 page) appraisal was not attached to the 2009 return and the Form 8283 did not treat the contribution as a part sale/part contribution.

bi. Neither contention withstands analysis.

bj. The substantiation provisions in Section 170 have been held to be merely “directory” and subject to satisfaction by “substantial compliance” under Bond v. Commissioner, 100 T.C. 32, 40-1 (1993) (taxpayer substantially complied despite failure to attach complete appraisal to original return).

bk. CRH substantially complied, if not strictly complied, with all such requirements.

bl. Moreover, the plain, unambiguous meaning of Section 170(f)(11)(A)(ii)(II) explicitly waives the requirement of attaching an expanded appraisal where the taxpayer possesses reasonable cause.

bm. CRH possessed specific reasonable cause for attaching the CMC Appraisal Summary to its 2009 return — instead of the full 1,060 page report and attachments incorporated by reference into the CMC Appraisal Summary.

bn. CRH's reasonable cause is based on, among other reasonable considerations, (i) IRS e-filing directives, (ii) the e-filing difficulties CRH itself incurred with the IRS processing its returns, and (iii) advice from the e-filing vendor for CRH and many public companies.

bo. Mr. Limb signed the Form 8283 on behalf of CMC.

bp. The City's Director of Finance and Management signed the Form 8283 on behalf of the City after October 1, 2009.

bq. CRH reported an adjusted basis of $38,460 for the mineral interest on Form 8283,

br. The Form 8283 included a description of the mineral interest donated and noted the mineral interest's condition and that Shelly acquired the mineral interest by purchase in May 2002.

bs. To more completely describe the Donated Property, Columbus Limestone attached two maps and a two-page metes and bounds survey of the 54.177 acre site.

bt. CRH attached CMC's Valuation Summary for its mineral interest appraisal to its 2009 return.

bu. Volumes I and II of the CMC report total 1,060 pages.

bv. CMC's Valuation Summary incorporates by reference all 1,060 pages included in Volumes I and IL

bw. The CMC Valuation Summary summarizes the entire 1,060-page appraisal and confirms that it remains part of Volume I of the appraisal, that Volume I consist of 85 pages, and that “all pages are essential.”

bx. The CMC Valuation Summary also confirms that Volume II, which contains backup and support data, plans, and other information, remains essential to the report.

by. In 2005, the IRS mandated that corporations which file more than 250 returns and have more than $50 million in assets must e-file their income tax return.

bz. At all relevant times, that has included CRH.

ca. The IRS e-filing software instructions directed software developers to keep PDF attachments “as small as possible.” See IRS Pub. 4164 (2005), p. 30,

cb. Similarly, CRH's software provider, One Source, instructed its customers to keep PDF attachments as small as possible.

cc. The Service rejected the 2005 return, causing CRH to e-file the return a second time.

cd. The Service and corporate executives throughout the country noted ongoing e-filing problems with PDF attachments.

ce. CRH continued to have trouble with e-filing in later periods, including the IRS allegedly not receiving or reviewing PDF attachments to e-filed returns.

cf. CRH donated a quarry in 2006 (“2006 contribution”).

cg. CRH relied on CMC to determine the fair market value of the quarry and prepare an extensive appraisal report.

ch. Because of CRH's 2005 e-filing problems, IRS directives to keep attachments small, and the software provider's directions to keep attachments small, CRH attached CMC's four-page Appraisal Summary for the 2006 contribution as a workable PDF attachment to its 2006 return.

ci. The Service audited the 2006 contribution.

cj. While the IRS questioned the value of the 2006 contribution, the IRS accepted the four-page Appraisal Summary as a more efficient attachment than attaching the (unprocessible) report incorporated by reference.

ck. The IRS allowed most of the 2006 contribution.

cl. In reporting the 2009 contribution, CRH continued the practice of keeping attachments small when e-filing its income tax returns to avoid further problems for the IRS and itself.

cm. Because of the IRS e-filing problems, IRS and One Source's directions to keep attachments small, and the IRS audit of the 2006 contribution, CRH attached CMC's 2009 four-page Appraisal Summary relating to the Columbus Limestone contribution, as a PDF attachment to its 2009 return.

cn. That 2009 Appraisal Summary incorporated by reference the 1,060 page mineral interest appraisal.

co. CRH possessed reasonable cause for not attaching the larger 1,060 page report as a PDF attachment to its 2009 return.

cp. CRH could not use the entire deduction associated with its contribution of the Donated Property in 2009, and so it carried the deduction forward.

cq. CRH properly included the carryover contribution on its 2014 return as a net operating loss deduction and as a carryover charitable contribution.

cr. CRH properly calculated its AMT liability for 2014 and 2015 based on the carryover of the 2009 contribution.

cs. The IRS audited CRH's 2013, 2014, and 2015 returns.

ct. During the audit, the Service requested a complete copy of the expanded 2009 CMC appraisal.

cu. Treas. Reg. § 1.170A-13(c)(4)(iv)(H) provides that problems with Form 8283 may be cured by providing the necessary information to the IRS within 90 days.

cv. CRH provided all 1,060 pages within 90 days of the IRS' request.

cw. For the first time, in the NOPA, the Service also raised certain questions about the Form 8283 attached to the 2009 return.

cx. Within 90 days of the NOPA, CRH provided a supplemental Form 8283 that answered the questions raised.

cy. In 2013, CRH incurred, but did not report, a Section 199 domestic production activities deduction (“DPAD”) of 9 percent of taxable income (or approximately $6 million).

cz. CRH remains entitled to the additional DPAD for 2013.

da. In 2014, CRH incurred, but did not report, a Section 199 DPAD of 9 percent of taxable income (or approximately $14.5 million).

db. CRH remains entitled to the additional DPAD for 2014.

dc. The 2013 and 2014 DPAD will impact CRH's 2014 and 2015 tax liability.

dd. CRH properly incurred, calculated, and deducted salaries and wages in 2014.

de. CRH properly incurred, calculated, and deducted “Cost of goods sold — other costs” in 2014.

df. CRH properly incurred, calculated, and deducted legal and professional fees in 2014.

dg. In 2015, CRH incurred a capital loss of $151,358,366.

dh. CRH can carry the 2015 loss back to 2013 and 2014.

di. The IRS overstates the total tax due under its theory through incorrectly computing:

dj. Any reduction to the tax computation will proportionately decrease the alleged penalties.

dk. In preparing its 2014 and 2015 returns, the Company proceeded in good faith and based on reasonable cause.

dl. In preparing its 2014 and 2015 returns, the Company maintained substantial authority for all items.

dm. To the knowledge of CRH, Respondent failed to obtain written managerial approval for the penalties asserted in the Notice.

(i) Determine that the proposed adjustments described in the Notice are internally inconsistent, excessive, erroneous, arbitrary, and capricious with the result that Respondent bears the burden of proof as to all matters;

(ii) Determine that no deficiencies exist in regards to the 2014 or 2015 tax years;

(iii) Determine that no penalties apply to the 2014 or 2015 tax years;

(iv) Determine a refund of overpaid Federal income taxes; and

(v) Grant such other and further relief as it deems appropriate.