Stafford v. U.S.

• Citation: 611 F.2d 990
• Decision Date: 13 February 1980
• Docket Number: No. 77-2771,77-2771
• Parties: 80-1 USTC P 9218 D. N. STAFFORD and Flora C. Stafford, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 990

611 F.2d 990

80-1 USTC P 9218

D. N. STAFFORD and Flora C. Stafford, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 77-2771.

United States Court of Appeals,

Fifth Circuit.

Feb. 13, 1980.

Gilbert E. Andrews, Acting Chief, M. Carr Ferguson, Asst. Atty. Gen., Gary R. Allen, Stanley S. Shaw, Jr., Attys., Tax Division, U. S. Dept. of Justice, Washington, D. C., for defendant-appellant.

Robert L. Marchman, III, F. Carlton King, Jr., Earl T. Berry, Atlanta, Ga., for plaintiffs-appellees.

Appeal from the United States District Court for the Middle District of Georgia.

Before TUTTLE, GOLDBERG and RANDALL, Circuit Judges.

RANDALL, Circuit Judge:

This case is on appeal from a summary judgment entered in favor of the taxpayer ¹ requiring the government to refund $78,475.82 of income taxes for the year 1969 based upon the conclusion of the district court that a limited partnership interest received by the taxpayer, for which he did not pay cash, was issued in exchange for property within the meaning of I.R.C. § 721 ² and was, therefore, not taxable. We do not think summary judgment was appropriate in this case. Accordingly, we reverse and remand.

I. FACTS

In the 1960's taxpayer-appellee DeNean Stafford, who had considerable experience in developing and leasing hotels, entered into negotiations with officers of the Life Insurance Company of Georgia (hereinafter referred to as "LOG"), who were familiar with and respected Stafford's development efforts, concerning the development of a hotel LOG wished to have built on property adjacent to its corporate headquarters in Atlanta. In 1967, LOG's Finance Committee authorized negotiations with Stafford and approved "in principle" those negotiations that had already taken place between Stafford and LOG's officers. On July 2, 1968, H. Talmadge Dobbs, who was then the Executive Vice President of LOG, sent Stafford a letter to serve as a "letter of intent" which stated that while there were many details to be worked out, LOG wanted to continue the negotiations along the general lines it specified in the letter: (1) LOG would grant a 30-year net ground lease to Stafford or his designee (limited partnership if he desired); (2) the lease would obligate Stafford to construct a hotel complex according to plans meeting LOG's approval; and (3) LOG would make a first mortgage loan on the improvements equal to seventy-five percent of the total cost of construction at 63/4 percent interest per annum for a term to run concurrent with the lease. LOG informed Stafford by letter dated July 3, 1968, that its proposal was open for acceptance for only sixty days, during which time Stafford was to consummate all necessary arrangements. On August 30, Stafford responded with a letter which he said was evidence of "our intent to proceed toward a finalization" of all plans along the lines set out in LOG's letter, subject to further negotiations on the specific items which remained to be settled. In closing, Stafford said that when those items were resolved and plan specifications sufficient to identify the land and air rights involved were available, "we will be in a position to enter the necessary lease and contract agreements." The letter was signed by Stafford, "General Partner of Partnership to be formed."

In January of 1969, the limited partnership of Center Investments, Ltd. was formed by Stafford and others, with Stafford as the sole general partner, to build the LOG hotel. Stafford bought two of twenty units of limited partnership interests which sold for $100,000 per unit. A twenty-first $100,000 unit of limited partnership interest was assigned to Stafford, purportedly as consideration for contributing to the partnership architects' drawings or renderings, contractors' estimates and LOG's July 2, 1968 letter of intent. ³

In 1970, LOG and Center Investments, Ltd. executed the lease and loan documents on terms differing somewhat from those outlined in the July 2, 1968 letter. The project had expanded, the amount of the loan required had increased to $7,127,500 and interest rates had escalated. The amount loaned by LOG above $5,000,000 was to bear interest at 93/4 percent. At the same time, the partnership entered into an agreement with Stouffer Food Corporation for the construction and operation of the hotel. By the terms of an amendment to the partnership agreement, Stafford received a salary beginning July 24, 1970, for his services in supervising the construction of the hotel and its subsequent operation. ⁴

Stafford did not report as income the value of the twenty-first partnership interest received by him in 1969. On audit, the Commissioner of Internal Revenue assessed a deficiency against Stafford based upon its determination that the value of the twenty-first partnership interest should be treated as compensation received for his services in negotiating and developing the investment for the partnership and was thus not entitled to the benefit of non-recognition afforded by I.R.C. § 721. Stafford paid the assessment of $78,475.82, filed a timely claim for refund and, upon disallowance of the claim, filed suit in the United States District Court for the Middle District of Georgia. Confronted with cross motions for summary judgment, the district court concluded that there was no controversy concerning any material fact and granted the taxpayer's motion for summary judgment. Stafford v. United States, 435 F.Supp. 1036 (M.D.Ga.1977).

II. ISSUE

The ultimate issue in this case may be stated as follows: What was the consideration given by Stafford for the twenty-first limited partnership interest? ⁵ The narrow issue on appeal is whether the district court correctly granted the taxpayer's motion for summary judgment on the ultimate issue which is essentially a factual question.

A. Criteria for Summary Judgment

Summary judgment is appropriate only if it appears from the pleadings and supporting documentation that (1) no genuine dispute as to material facts exists and (2) such facts would entitle the moving party to judgment as a matter of law. Fed.R.Civ.P. 56(c). When the record before the court on the motion for summary judgment, including the pleadings and any exhibits, depositions, answers to interrogatories, admissions and affidavits, examined in the light most favorable to the nonmovant, contains conflicting evidence as to any material fact or as to the inferences to be drawn from basic facts, summary judgment should not be granted. Gossett v. Du-Ra-Kel Corp., 569 F.2d 869, 871 (5th Cir. 1978). The burden is heavy upon the movant to establish his right to summary judgment and any doubt is resolved against him. Alabama Farm Bureau Mutual Casualty Co. v. American Fidelity Life Insurance Co., 606 F.2d 602 (5th Cir. 1979). Summary judgment should be granted only when it is clear what the truth is and that no genuine issue remains for trial. United States v. Burket, 402 F.2d 426, 430 (5th Cir. 1968). As was stated in a case where further proceedings were required to resolve the issue of fact created by controverting affidavits, " 'Cases in which the underlying issue is one of motivation, intent, or some other subjective fact are particularly inappropriate for summary judgment, as are those in which the issues turn on the credibility of the affiants.' " Slavin v. Curry, 574 F.2d 1256, 1267 (5th Cir. 1978) (quoting Conrad v. Delta Airlines, Inc., 494 F.2d 914, 918 (7th Cir. 1974)), Overruled on other grounds, Sparks v. Duval County Ranch Co., 604 F.2d 976 (5th Cir. 1979) (en banc). If the jury would be free to find against the taxpayer based upon the evidence before the court, it could not be held that the facts are not in dispute. Irwin v. United States, 558 F.2d 249, 253 (5th Cir. 1977).

B. Contents of the Record

In the instant case, the record before the district court on the motions for summary judgment was rather extensive. Among the exhibits were minutes from some of LOG's Finance Committee meetings from the years 1967, 1968 and 1970; LOG's letter of intent to Stafford, dated July 2, 1968; LOG's addendum to that letter, dated July 3, 1968; Stafford's response to LOG, dated August 30, 1968; Center Investments' limited partnership agreement, dated January 21, 1969 and an amendment thereto, dated July 24, 1970; the assignment to Center Investments, Ltd., signed by Stafford, dated January 21, 1969; and various other documents. Also before the court were ninety-nine requests for admission by the Government to Stafford, along with his responses; affidavits of DeNean Stafford and Alton F. Irby, a friend of Stafford and the limited partner who was primarily responsible for soliciting other investors for the project; and depositions, including those of Stafford, Irby, John Williams (another limited partner), H. Talmadge Dobbs (Vice Chairman of the Board of LOG who negotiated the deal with Stafford) and Jason B. Gilliland (general counsel to LOG).

1. Assignment and Partnership Agreement

The assignment and partnership agreement both recite that Stafford received the twenty-first partnership unit in exchange for his capital contribution of property, namely the letter of intent, worth $100,000.

2. Irby's Affidavit

In his affidavit in support of Stafford's motion for summary judgment, Irby stated that the twenty-first share of the limited partnership was given Stafford as consideration for his assignment and transfer to the partnership of his rights to the lease and loan commitment from LOG. According to Irby, "it was the intent of the limited partnership that Mr. Stafford receive one share of the limited partnership in exchange for this lease and loan commitment letter, the limited partners recognizing that the economic value of the rights under this lease and loan commitment exceeded the sum of $100,000 as a result of interest savings alone." Irby further pointed out that at no time prior to July 2, 1968, was there any agreement between Stafford...