Tax Legal Services · Primary-source case analysis

Tarpey: The False-Statement Penalty Reached Beyond Individual Appraisal Fees

By Aneeta Mishra and Timothy Chan

Published April 21, 2026 · Updated October 18, 2026

Decision: Tarpey v. United States, No. 22-35208 (9th Cir. Aug. 17, 2023).

A promoter penalty can depend on more than the fee charged for one false appraisal. In Tarpey v. United States, No. 22-35208 (9th Cir. Aug. 17, 2023), the Ninth Circuit upheld an $8.465 million penalty plus interest arising from a timeshare-donation program. The court distinguished the false-statement penalty method from the valuation-overstatement method and examined the actual income-producing plan and control of its receipts.

A donation program linked marketing, appraisals, and closings

Tarpey organized Donate for a Cause, a nonprofit accepting unwanted timeshares, and Resort Closings, a related closing service. Donors paid fees, and the program marketed charitable tax deductions supported by appraisals. The record involved at least 7,600 donations during 2010–2013. The scope question was whether the penalized activity stopped at individual appraisal work or included the organized donation arrangement that generated the related income. Tarpey, slip op. at 4–9.

The appealed liability issue concerned appraiser qualification

On appeal, Tarpey challenged liability associated with two appraisers who performed most of their appraisal work for the donee. The court rejected his argument that only donors—not the donee—used the appraisals. Program marketing, referrals, financial arrangements, and testimony supported the donee’s use. It also held that his newly advanced knowledge challenge had been forfeited because it was not sufficiently raised below. Do not confuse that preservation ruling with a trial finding on every new explanation he offered on appeal. Tarpey, slip op. at 10–12.

The false-statement method reached income from the broader plan

The parties agreed that the false-statement computation applied: Fifty percent of gross income derived or to be derived from the activity. The court rejected limiting that activity to the appraisal fees or only transactions explicitly containing a false statement. The broader organized plan was the relevant activity, but the expert still excluded unrelated transactions and removed internal transfers when calculating income. The decision does not authorize counting every dollar passing through any affiliated business without that connection. Tarpey, slip op. at 8–9,13–20.

The account’s actual use mattered more than its escrow label

The court also rejected exclusion of money merely because an account was labeled escrow. The district court had made a fact-specific finding that this was not a true escrow arrangement, citing commingling, bulk transfers, and control. The unchallenged alter-ego finding also mattered to whose income was included. The Ninth Circuit affirmed; it did not hold that all genuine escrow deposits are income as a matter of law. The government’s expert calculated a larger penalty, but the judgment imposed the original $8.465 million assessment plus interest. Tarpey, slip op. at 9–10,21–26.

Key takeaways

• Identify which section 6700 penalty method applies to the conduct actually found.
• Trace the income-producing plan without automatically including unrelated business receipts.
• Separate liability and preservation rulings from the later penalty calculation.
• Review actual control and handling of an account rather than relying on its escrow label.