The recent decision in American Properties, Co. G.P. v. The Welfont Group, LLC, US DC WD TN, Case No. 2:22-cv-0239-SHL-tmp, offers a salient reminder to tax professionals regarding the severe consequences of fraudulent or negligent tax advice and appraisal practices, particularly in the context of charitable contributions. This article provides a technical overview of the case, detailing the factual matrix, the plaintiff’s requested relief, the court’s legal analysis, its application to the facts, and the ultimate conclusions, including the imposition of substantial actual and treble damages.

Factual Chronology of the Dispute

The case centers on Plaintiff American Properties, Co. G.P.’s (the "Plaintiff") endeavor to sell real property in Memphis, Tennessee, for which it had been asking $3,995,000. In July 2018, Defendant The Welfont Group, LLC ("Welfont") presented an unconventional proposition: if the Plaintiff could secure a higher-value "Qualified Appraisal" acceptable to the Internal Revenue Service (IRS) and subsequently sell the property to a qualified charitable organization for less than that appraised value, the Plaintiff would realize a substantial tax deduction equivalent to the difference.

The Plaintiff agreed to this arrangement, entering into a Real Estate Purchase Agreement. This agreement stipulated that Welfont would procure a Qualified Appraisal of approximately $5,388,000 for the property, and the Plaintiff would then sell it to a qualified charitable organization for $2,000,000, later amended to $2,160,000. Welfont received a commission of $62,403 for its services.

Welfont subsequently introduced the Plaintiff to Defendant Tax Appraisal Group, LLC ("TAG"), which contracted with the Plaintiff to provide the Qualified Appraisal for a fee of $1,000. Defendant Lynda Scull, TAG’s manager, was found to have exercised complete dominion and control over TAG’s finances, policies, and business practices. It was later revealed that TAG was "grossly undercapitalized," and its earnings and assets were directly diverted to Scull. Crucially, the appraisal provided by TAG was not, in fact, a Qualified Appraisal.

Relying on the defendants’ representations and the appraisal, the Plaintiff sold the property to a charitable organization in May 2019 for $2,160,000 and claimed a $2,595,000 tax deduction on its 2019 tax return. Unbeknownst to the Plaintiff, on the very same day, an alter ego of Welfont acquired the property from the charity for a mere $2,650,000, an action that drastically undermined the purported appraised value of $5,388,000.

The IRS identified these discrepancies during an audit of the Plaintiff’s 2019 tax return. The audit determined that: (1) the appraisal was not a Qualified Appraisal; (2) the property’s fair market value was only $2,650,000, significantly lower than expected; (3) the Plaintiff’s charitable contribution deduction was reduced from $2,595,000 to $490,000; and (4) the Plaintiff owed at least $571,765 in taxes, fees, expenses, and costs.

In response, the Plaintiff initiated a lawsuit against Welfont, TAG, and Scull (collectively, "Defendants"), asserting claims for breach of contract, negligent misrepresentation, fraud or constructive fraud, negligence, violation of the Tennessee Consumer Protection Act (TCPA), veil piercing, and civil conspiracy. Despite proper service, the Defendants failed to appear in the action. Consequently, the Clerk entered a default against them on October 12, 2022, and a default judgment was granted on September 19, 2023, finding the Defendants liable for all claims. However, the quantification of damages was held in abeyance pending the outcome of the Plaintiff’s appeal of its tax liability with the IRS.

On August 28, 2024, the IRS issued a Notice of Final Partnership Adjustment, asserting that the Plaintiff owed $1,088,344 in underpayments and $217,669 in penalties. The Plaintiff disputed some of the IRS’s methodologies and calculations, leading to the filing of a Petition for Readjustment in the United States Tax Court. Given the protracted nature of the litigation, the Court instructed the Plaintiff to file a supplemental motion for default judgment to ascertain damages, with the understanding that any future favorable outcome in Tax Court could be addressed later.

Plaintiff’s Requested Remedies

In its Supplemental Motion for Default Judgment, the Plaintiff sought a total judgment of $7,107,296 against the Defendants, jointly and severally. This amount was itemized as:

$1,751,824 in actual damages.
$5,255,472 in treble damages under the Tennessee Consumer Protection Act (TCPA), Tenn. Code Ann. § 47-18-101 et seq..
$100,000 in attorney’s fees also pursuant to the TCPA.

Judicial Review of Legal Principles

Upon a party’s default, the court "effectively admits all well-pleaded allegations in the Complaint" (citing BMO Bank, N.A. v. Len Snyder Trucking, LLC, No. 1:24-CV-01089-STA-jay, 2024 WL 4469114, at *1 (W.D. Tenn. Sept. 16, 2024), report and recommendation adopted, No. 1:24-CV-01089-STA-jay, 2024 WL 4467532 (W.D. Tenn. Oct. 10, 2024); Visioneering Constr. v. U.S. Fid. and Guar., 661 F.2d 119, 124 (6th Cir. 1981)). However, while a default admits liability, the amount of damages must still be proven (citing New London Tobacco Mkt., Inc. v. Ky. Fuel Corp., 44 F.4th 393, 403 (6th Cir. 2022); Antoine v. Atlas Turner, Inc., 66 F.3d 105, 110 (6th Cir. 1995)).

The Court’s analysis of damages for the various claims proceeded as follows:

Contract Damages: In Tennessee, the standard measure of expectation damages for breach of contract is "awarding the party the benefit of its bargain" (citing Mueller Brass Co. v. Crompton, No. 2:20-CV-2496-SHL-ATC, 2024 WL 2303953, at *3 (W.D. Tenn. May 21, 2024); Alsbrook v. Concorde Career Colls., Inc., 469 F. Supp. 3d 805, 826 (W.D. Tenn. 2020)). Such damages are understood as payment for the actual losses caused by the breach (citing Alsbrook, 469 F. Supp. 3d at 856; Custom Built Homes v. G.S. Hinsen Co., No. 01A01-9511-CV-00513, 1998 WL 960287, at *4 (Tenn. Ct. App. Feb. 6, 1998)).
Tort Damages (Fraud, Constructive Fraud, Negligent Misrepresentation, and Negligence): For claims of fraud, constructive fraud, and negligent misrepresentation, a plaintiff is eligible to receive damages based on the pecuniary loss suffered due to the misrepresentations. In negligence claims, Tennessee law entitles an injured plaintiff to compensatory damages, including economic damages, which compensate for actual pecuniary losses resulting from wrongful conduct (citing Turnage v. Oldham, 346 F. Supp. 3d 1141, 1156 (W.D. Tenn. 2018); Dedmon v. Steelman, 535 S.W.3d 431, 437 (Tenn. 2017); Meals ex rel. Meals v. Ford Motor Co., 417 S.W.3d 414, 419–20 (Tenn. 2013)).
Tennessee Consumer Protection Act (TCPA) Violations: The TCPA allows for recovery of economic loss damages (citing Tenn. Code Ann. § 47-18-109). Significantly, if the unfair or deceptive act was "willful and knowing," the TCPA permits an award of three times the actual damages sustained, i.e., treble damages (citing Tenn. Code Ann. § 47-18-109(a)(3), § 109(a)(4)).
Theories of Extended Liability (Veil Piercing and Civil Conspiracy): The doctrine of veil piercing allows for holding an individual (like Scull) liable for a corporation’s (TAG’s) obligations when the corporation is found to be an alter ego of that individual. Furthermore, in a civil conspiracy, once its existence is established, all members are held jointly and severally liable for all damages caused by any of the conspirators, even if they did not personally commit the tortious or wrongful acts (citing Stanfill v. Hardney, No. M200402768COAR3CV, 2007 WL 2827498, at *7 (Tenn. Ct. App. Sept. 27, 2007)).
Attorney’s Fees: Upon a finding of a TCPA violation, "reasonable attorney’s fees and costs" are available (citing Tenn. Code Ann. § 47-18-109(e)(1)). The starting point for determining a reasonable fee is typically the "lodestar" method: the number of hours reasonably expended multiplied by a reasonable hourly rate (citing BKB Props., LLC v. SunTrust Bank, Civil Action No. 3:08-cv-00529, 2010 WL 200750, at *6 (M.D. Tenn. Jan. 13, 2010); Webb. v. Bd. of Educ. of Dyer Co., 471 U.S. 234, 242 (1985)). The party seeking fees bears the burden of documenting the hours worked and rates used.

Application of Legal Principles to the Case Specifics

The Court applied these legal principles to the facts, which were deemed admitted due to the Defendants’ default:

Breach of Contract: Welfont and TAG were held liable for breaching the Purchase Agreement and the appraisal contract, respectively. The Plaintiff’s actual losses, equating to the tax liability plus penalties, were directly attributable to these breaches, as Welfont failed to deliver on the promised substantial tax deduction and TAG failed to provide a Qualified Appraisal of $5,388,000.
Tort Claims (Fraud, Negligent Misrepresentation, Negligence): Welfont and TAG were found liable for fraud, constructive fraud, and negligent misrepresentation. They falsely represented that the property had a fair market value of approximately $5,388,000 and that they could obtain a Qualified Appraisal for that value, leading the Plaintiff to reasonably rely on these misrepresentations and suffer pecuniary loss. Furthermore, the Defendants were found negligent for failing to exercise reasonable care to ensure the Plaintiff received a Qualified Appraisal, thereby causing economic harm. The quantifiable economic damages from not receiving a Qualified Appraisal were recoverable.
TCPA Violations: The Defendants were found liable for violating the TCPA by knowingly making false material representations to the Plaintiff, a reasonable consumer, concerning the Qualified Appraisal, which resulted in the Plaintiff’s economic loss.
Extended Liability:
- Veil Piercing: The corporate veil of TAG was pierced, making Lynda Scull jointly liable with TAG, as TAG was determined to be Scull’s alter ego.
- Civil Conspiracy: The Defendants engaged in a civil conspiracy by acting in concert to falsely represent their ability to obtain a Qualified Appraisal. This scheme enticed the Plaintiff to sell the property below its purported market value, leading to economic loss. This finding rendered all Defendants jointly and severally liable for all damages.
Calculation of Actual Damages: Based on the IRS Notice of Final Partnership Adjustment, the actual damages were calculated. The IRS sought $1,306,013 from the Plaintiff, comprising a Preliminary Imputed Underpayment of $1,088,344 and $217,669 in penalties. Additionally, interest on this amount had accrued to approximately $445,811 through June 23, 2025, continuing to accrue daily at 7.0%. Combining these figures, the Court found $1,751,824 in actual damages to be warranted, for which all Defendants were jointly and severally liable.
Calculation of Treble Damages: Given the "willful and knowing" nature of the fraud, the Court determined that treble damages were appropriate under the TCPA. The Plaintiff sought $5,255,472, which is three times the calculated actual damages of $1,751,824. The Court deemed this amount appropriate, holding all Defendants jointly and severally liable for it.
Attorney’s Fees: Although the Plaintiff was entitled to attorney’s fees under the TCPA for the established violation, the Court could not evaluate the reasonableness of the requested $100,000 without proper documentation. The Plaintiff had not submitted the necessary information, such as hours worked or reasonable hourly rates, to support the requested amount.

Final Determination and Award

The Court concluded that Defendants Welfont, TAG, and Scull are jointly and severally liable for the damages stemming from the Plaintiff’s claims. The final judgment included:

$1,751,824 in actual damages.
$5,255,472 in treble damages. This totals $7,007,296.

No attorney’s fees were awarded at that time due to the lack of supporting documentation. The Plaintiff was granted leave to file a separate motion for attorney’s fees with the required documentation by September 26, 2025.

This case underscores the importance of due diligence in all aspects of tax-related transactions, particularly those involving complex charitable contribution structures and appraisals. For CPAs and EAs, the implications are clear: advising on or facilitating transactions based on unsubstantiated or fraudulent appraisals carries significant legal and financial risks, not only for clients but potentially for the professionals involved through theories of negligence, misrepresentation, or even civil conspiracy. The joint and several liability applied across the defendants, including the individual manager through veil piercing, highlights the severe personal exposure possible when corporate formalities are disregarded and illicit activities are undertaken.

CPAs and EAs, even if not directly involved in a tax structure, face risk if they fail to strongly advise clients to obtain information about proposed transactions, the relationships of partners, and to raise concerns when promoters suggest inflated qualified appraisals. While clients may be swayed by potential tax benefits, advisors must ground them by highlighting the apparent absurdity of such transactions.

Prepared with assistance from NotebookLM.