Tax Court Denies Summary Judgment in Brauser v. Commissioner Over Restricted Stock Donation

Case Overview

In Brauser v. Commissioner, No. 20434-23, 2025 U.S. Tax Ct. LEXIS 2460 (U.S. Tax Ct. Oct. 10, 2025), the United States Tax Court, Judge Emin Toro presiding, denied a motion for summary judgment filed by taxpayers Michael and Betsy Brauser.

The case concerns whether the Brausers may claim a charitable contribution deduction carryover for tax year 2017, stemming from their 2015 donation of 1,576,680 shares of Orbital Tracking Corp. stock to Friendship Circle of North Broward and South Palm Beach, Inc., a Florida-based tax-exempt organization under section 501(c)(3).

Factual Background

In late December 2015, the Brausers donated 1,576,680 shares of stock in Orbital Tracking Corp. At the time, the shares were quoted on an over-the-counter market, but trading was infrequent and typically involved low volumes. Historical pricing data showed the stock price at $1.30 per share on December 28, 2015, and $1.25 per share on December 29, 2015.

The stock was volatile. In 2014, the price ranged from $9.00 to $0.51 per share; in 2015, it ranged from $2.37 to $0.81. By March 28, 2016, it had fallen to $0.199 per share.

The donated stock was subject to a restrictive legend under SEC Rule 144, 17 C.F.R. § 230.144, which governs the resale of securities acquired in unregistered private offerings. Restricted shares cannot be freely traded until certain holding periods and disclosure requirements are met, or until an opinion letter removes the legend.

The Brausers did not obtain or attach a qualified appraisal to their 2015 or 2017 tax returns. They valued the donated shares at $1 per share, below the quoted market prices.

In February 2020, they filed an amended 2017 return to include additional Schedule C and Schedule K-1 items. The IRS examined the amended return and, on October 4, 2023, issued a Notice of Deficiency disallowing the entire charitable contribution deduction carryover and determining an additional $93,382 of tax due for 2017. The Brausers petitioned the Tax Court.

Legal Framework

The central issue is whether the donated stock constituted “publicly traded securities” for purposes of the charitable contribution substantiation rules in section 170(f)(11) of the Internal Revenue Code.

Under section 170(f)(11)(D), taxpayers claiming charitable deductions exceeding $500,000 must attach a qualified appraisal to their return. The rule does not apply to “readily valued” property, such as cash or publicly traded securities, under section 170(f)(11)(A)(ii)(I).

A security qualifies as publicly traded if, as of the contribution date, market quotations are readily available on an established securities market. Treas. Reg. § 1.170A-13(c)(7)(xi)(A)(2). However, several limitations apply:

1. If the security’s value is based only on an interdealer quotation system, the issuer must meet five additional reporting and recordkeeping requirements. Treas. Reg. § 1.170A-13(c)(7)(xi)(B)(1)–(5).
2. A security is not publicly traded if restrictions materially affect value or prevent free trading. Treas. Reg. § 1.170A-13(c)(7)(xi)(C).
3. A deduction cannot be based on a value differing from the published market quotations. Id.

The Brausers’ Position

The Brausers argued that the Orbital Tracking shares qualified as publicly traded securities and therefore required no appraisal. They maintained that the shares were regularly traded on an over-the-counter market with published quotations. They also contended that the SEC Rule 144 legend did not materially affect value or restrict free transferability.

They further argued that their valuation of $1 per share, although below the market quotes of $1.25 to $1.30, did not violate Treasury Regulation § 1.170A-13(c)(7)(xi)(C) because they substantially complied with the rule or because the regulation was invalid.

In the alternative, they argued that any failure to attach an appraisal was excusable under the reasonable cause exception of section 170(f)(11)(A)(ii)(II), asserting that they relied on their long-time accountant’s professional advice in preparing their returns.

The Commissioner’s Response

The Commissioner opposed summary judgment, asserting that several material factual disputes remained.

First, the Commissioner argued that the Brausers had not shown that Orbital Tracking stock was “regularly traded” as required by Treasury Regulation § 1.170A-13(c)(7)(xi)(A)(2). Evidence indicated that the stock was quoted but not consistently or actively traded.

Second, the Commissioner noted that Orbital Tracking’s own SEC filings described the quotations as interdealer prices “without retail mark-up, mark-down or commission,” which “may not represent actual transactions.” Because the quotations were interdealer-based, the Commissioner argued that the Brausers were required to satisfy the five additional regulatory requirements under § 1.170A-13(c)(7)(xi)(B), which they had not addressed.

Third, the Commissioner maintained that the Rule 144 legend did materially affect value because a “sell-by” legal opinion would have been required before the shares could be sold. No such opinion was obtained, and the Brausers provided no evidence about who could issue one, how long it would take, or how much it would cost.

Finally, the Commissioner argued that reasonable cause for failing to attach an appraisal was a question of fact that required cross-examination.

The Court’s Analysis

Judge Toro agreed with the Commissioner that genuine issues of material fact precluded summary judgment.

The Court identified several unresolved questions, including the regularity of trading on the OTC market, whether the quotations were based solely on interdealer pricing, whether the Rule 144 restriction affected the value or transferability of the stock, and whether the taxpayers had reasonable cause for failing to attach an appraisal.

Citing Fla. Peach Corp. v. Comm’r, 90 T.C. 678 (1988), and Sundstrand Corp. v. Comm’r, 98 T.C. 518 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994), the Court reiterated that summary judgment is appropriate only when there is no genuine dispute of material fact and a decision can be rendered as a matter of law.

Because these factual issues remained, the Court denied the Brausers’ motion for summary judgment and ordered the parties to file a status report by November 10, 2025, describing the status of the case and recommending further proceedings.

Practical Implications

The decision serves as a cautionary example for taxpayers donating restricted or thinly traded stock. Even when stock is quoted on an over-the-counter market, it may not qualify as “publicly traded” if trading activity is sporadic, prices are derived solely from interdealer quotations, or SEC Rule 144 restrictions limit resale.

To preserve charitable contribution deductions, donors should obtain qualified appraisals when in doubt, maintain evidence of market activity, and document reliance on professional advice.

The Brauser case will proceed to further factual development, and its outcome will likely depend on expert testimony and evidence regarding trading volume, market accessibility, and the actual impact of the Rule 144 legend.

Citation

Brauser v. Comm’r, No. 20434-23, 2025 U.S. Tax Ct. LEXIS 2460 (U.S. Tax Ct. Oct. 10, 2025) (Toro, J.).