On July 11, 2006, the Fifth Circuit Court of Appeals issued an opinion in the case of Caracci v. Commissioner of Internal Revenue, reversing the ruling of the Tax Court which imposed intermediate sanctions under section 4958 of the Internal Revenue Code. Section 4958 provides for the imposition of Intermediate Tax Sanctions in the event of an excess benefit transaction between applicable tax-exempt organizations and disqualified persons. Caracci v. Commissioner represents the only case to have court-issued opinions with respect to the assessment of Intermediate Tax Sanctions. While the Fifth Circuit’s opinion is fact specific, it does offer significant valuation guidance for tax-exempt organizations. Caracci underscores the importance of establishing the rebuttable presumption of reasonableness, which can generally be done by obtaining sound valuation reports. The Fifth Circuit’s opinion is an excellent tutorial in the valuation approaches appropriate for an asset transaction involving a 501(c)(3) organization. Through his valuation analysis and court testimony, Mr. Hahn successfully demonstrated to the Fifth Circuit Court that the Caraccis’ did not receive any excess benefits from the conversion of the Sta-Home Health Agencies to for-profit corporations. “Hahn used the valuation method that…was the preferred and more rigorous approach to value assets. …Hahn had spent months in Mississippi analyzing the Sta-Home agencies and was a recognized authority on the home-healthcare industry.”     -- United States Court of Appeals for the Fifth Circuit; Michael T. Caracci, et al., versus Commissioner of Internal Revenue, No., 02-60912 filed July 11, 2006.   “The thorough analysis by this expert convinced the Fifth Circuit that the Caraccis’ earlier valuations of the nonprofits’ assets were appropriate and that no excess benefit had arisen.”     -- Hall Render Killian Heath & Lyman Tax Law Alert, July 26, 2006.