Justia Federal District Court Opinions

Taxpayers Leo G. Ebben, Donna W. Ebben, Gilbert Dreyfuss, Evelyn H. Dreyfuss, Donald Kaufman, Gloria Kaufman, Eli Broad, and Edythe L. Broad petition for review of a tax court decision redetermining deficiencies in their federal income taxes. The Internal Revenue Service (IRS) asserted the deficiencies after taxpayers, a partnership, claimed charitable deductions from the donation of property to Pitzer College. We affirm in part and reverse in part the tax court's redetermination of taxpayers' liability.

* In December 1968 taxpayers Kaufman and Broad purchased an unimproved parcel of real estate for $548,000. They paid $3,416 in cash and gave a nonrecourse note for $544,584, secured by a deed of trust. In addition, Kaufman and Broad prepaid $999,211.20 of interest on the note.

On January 1, 1969 taxpayers and others formed Whitney Farms, a general partnership created to hold real estate investments. A few days later, Kaufman and Broad transferred their interests in the subject property to Whitney Farms as a contribution of capital. The partnership took the property subject to the note and trust deed. Whitney Farms continued to hold the property until December 28, 1973 when the entire parcel was donated to Pitzer College, a qualified charitable organization under the Internal Revenue Code of 1954, 26 U.S.C. Sec. 170 (cited hereafter as "I.R.C."). Pitzer accepted the gift subject to the note and deed of trust, which secured an outstanding obligation in the amount of $544,584 on the date of transfer.

The donated property consisted of 931.66 acres located in Placer County. Fiddyment Road divides the parcel into two areas: 322.63 acres west of the road (west tract) and 609.03 acres east of the road (east tract). As of December 28, 1973, both tracts were zoned "U," except for an irregular 75-acre "arm" of the east tract which was zoned "M" or "M-D." A "U" zone permits agricultural or residential uses, while an "M" or "M-D" zone allows for more valuable industrial uses.

Taxpayers hired three expert appraisers to value the land at the date of transfer to Pitzer for purposes of calculating their charitable deductions. From interviews with county officials and a planning report commissioned by the county, these appraisers concluded that the entire east tract had industrial potential and valued the land accordingly. Taxpayers used these appraisals to calculate their charitable deductions as follows:

Appraised value at date of gift $1,420,000

Less: Deed of trust $ 544,584