Sammons v. C.I.R.

• Citation: 838 F.2d 330
• Decision Date: 27 January 1988
• Docket Number: 87-7104,Nos. 87-7066,s. 87-7066
• Parties: -544, 88-1 USTC P 9152 Myron G. SAMMONS and Dorothy Sammons, Petitioners-Appellees/Cross-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant, Cross-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 330

838 F.2d 330

61 A.F.T.R.2d 88-544, 88-1 USTC P 9152

Myron G. SAMMONS and Dorothy Sammons, Petitioners-Appellees/Cross-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant,

Cross-Appellee.

Nos. 87-7066, 87-7104.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Nov. 13, 1987.

Decided Jan. 27, 1988.

Robert A. Bernstein and Gayle P. Miller, Dept. of Justice, Tax Div., Washington, D.C., for respondent-appellant, cross-appellee.

James Powers, Marc L. Spitzer, Phoenix, Ariz., for petitioners-appellees, cross-appellants.

Appeal from a Decision of the Tax Court of the United States.

Before POOLE, BOOCHEVER and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

Myron and Dorothy Sammons appeal a decision of the United States Tax Court partially disallowing their deduction of $548,380 for the donation of certain Indian artifacts to the Museum of Native American Cultures. The Tax Court determined that the value of the donation on the date of the gift was $140,000 and reduced the deduction accordingly. The reduced amount was equal to what the Sammons had paid for the artifacts less than a year before making their contribution to the museum. The Sammons also appeal the Tax Court's approval of a negligence penalty imposed by the Commissioner of Internal Revenue. The Commissioner appeals the Tax Court's determination that the Sammons could include, among the items for which their charitable deduction was taken, artifacts incorporating certain feathers and other parts of birds protected by the Bald Eagle Protection Act, 16 U.S.C. Secs. 668-668d, the Migratory Bird Treaty Act, 16 U.S.C. Secs. 703-711, and the Endangered Species Act, 16 U.S.C. Secs. 1531-1543.

We have jurisdiction pursuant to 26 U.S.C. Sec. 7482(a). We affirm the Tax Court's partial disallowance of the deduction and the inclusion of the items incorporating the protected bird elements. We reverse the Tax Court's approval of the negligence penalty.

I FACTS AND PROCEEDINGS

The opinion of the Tax Court contains a full rendition of the facts of this case. See Sammons v. Commissioner, 51 T.C.M. (CCH) 1568, 1570-73 (1986). We set forth below only those facts pertinent to this appeal.

The Pacific Northwest Indian Center, Inc. was founded by Father Wilfred Schoenberg, a Jesuit priest, to foster the study of North American Indian history and culture. From 1966 to 1977, Father Schoenberg served as president and curator of the Museum of North American Cultures, a museum operated by the Indian Center in Spokane, Washington. To further the museum's goals, Father Schoenberg sought investors who would donate artifacts based upon appraisals of fair market value that would exceed the cost of the donated items.

In January 1977, Father Schoenberg became aware that the Stuart Collection of artifacts might be available for contribution to the museum. The Stuart Collection contained artifacts from the Plains and Plateau Indians and included items such as painted buffalo hides, buckskin clothing, medicine pipes, war bonnets, human scalps, medicine rattles made from buffalo scrotums and many other items. The most important artifact in the collection was a rare Blackfoot Indian "thunder pipe," a medicine pipe of religious significance to the Blackfoot tribe. The thunder pipe comprised a number of items wrapped together in a single hide. The bundle contained a sacred medicine pipe, an ermine pelt, the bodies of two weasels, an effigy head of a crane, a bone dance whistle, deer bones, a feather bundle with hawk bells, other feathers, medicine wands used for gambling, braided sweet grass, a child's buckskin moccasin with medicine stones inside, a flute made from a rifle barrel and other artifacts. ¹ The thunder pipe constituted a significant part of the Stuart Collection's value.

Through two art dealers contacted by Father Schoenberg, Mr. and Mrs. Sammons learned of the collection's availability. Their attorney and accountant advised them that they could donate the collection to the museum and claim a deduction for its appraised value, even though the appraised value exceeded its cost. The Sammons bought the Stuart Collection for $140,000. They did so expecting to receive an appraisal showing the value of the collection to be $500,000. When they later learned that the art dealers who had bought the collection for them had paid only $60,000 for it, they demanded that these dealers supplement the collection to raise its worth to $500,000. The art dealers then began to buy other collections of Indian art and memorabilia. By March 30, 1977, substantial additional items had been acquired, and by letter dated April 2, 1977, Father Schoenberg advised the Sammons that the entire collection was in the museum's possession and had a fair market value in excess of $500,000. This collection, which included the Stuart Collection and the additional items bought by the art dealers for the Sammons, was inventoried and photographed in June 1977. This entire collection, which we refer to as the "Sammons Collection," was then appraised at values of $540,185 and $548,380. In December 1977, the Sammons formally donated the Sammons Collection to the museum.

On their 1977 income tax return, the Sammons claimed a charitable contribution for the Sammons Collection in the sum of $548,380. Because of annual limitations, the 1977 deduction was limited to $192,108. The balance of the deduction was carried over into the Sammons' 1978 and 1979 tax returns. On audit, the Commissioner disallowed these deductions and imposed a negligence penalty under section 6653(a) of the Tax Code. The Sammons filed a petition for redetermination of liability in the Tax Court. At the Tax Court hearing, the Sammons presented an appraisal jointly prepared by Dr. Frederick J. Dockstader and Mr. Alton R. Packard, in addition to the letter appraisal that had been furnished by the museum and the two appraisals they had relied upon in claiming their deduction. The Dockstader-Packard appraisal valued the collection at $422,410. The Commissioner presented an appraisal valuing the donated collection at between $66,000 and $100,000.

The Tax Court rejected all of the Sammons' appraisals, as well as the appraisal submitted by the Commissioner. The Tax Court found that the Sammons' $140,000 cost of the Sammons Collection was the best indicator of its fair market value at the time the collection was contributed to the museum. This amount included the artifacts that incorporated the protected bird elements, which we hereafter refer to as the "Eagle Artifacts."

II VALUE OF THE SAMMONS COLLECTION

The Treasury regulations implementing section 170 of the Tax Code provide that "[i]f a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of contribution...." 26 C.F.R. Sec. 1.170A-1(c)(1). The regulations define fair market value as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." Id. Sec. 1.170A-1(c)(2). It is the rule in this circuit that the Tax Court's determination of the value of property is a finding of fact, which we will reverse only for clear error. Bryant v. Commissioner, 790 F.2d 1463, 1465 (9th Cir.1986); Ebben v. Commissioner, 783 F.2d 906, 908-09 (9th Cir.1986). As we have explained previously:

Complex factual inquiries such as valuation require the trial judge to evaluate a number of facts: whether an expert appraiser's experience and testimony entitle his opinion to more or less weight; whether an alleged comparable sale fairly approximates the subject property's market value; and the overall cogency of each expert's analysis. Trial courts have Ebben v. Commissioner, 783 F.2d at 909 (footnote omitted).

particularly broad discretion with respect to questions of valuation.

Mr. and Mrs. Sammons argue that although valuation is a question of fact reviewed for clear error, the method of valuation used by the trial court is a question of law reviewed de novo. They cite Zanuck v. Commissioner, 149 F.2d 714 (9th Cir.1945), in support of this proposition. They assert that the Tax Court erroneously rejected the Dockstader-Packard appraisal simply because the experts based their valuations on photographs of the donated artifacts. We disagree.

While it is true "that the subject of yardsticks for the evaluation of [property] ... present[s] a question of law reviewable by this court," Zanuck, 149 F.2d at 718, and "[r]eliance on photographs is not unusual in the appraisal of art", Johnson v. Commissioner, 85 T.C. 469, 477-78 (1985), the Tax Court did not reject the Dockstader-Packard appraisal only because it was based on photographs and not on a physical examination of the collection. The Tax Court found that the Dockstader-Packard appraisal was deficient in preparation and thus not entitled to any weight in determining fair market value. The Sammons' own experts testified that an appraisal based on photographs makes it "difficult, if not impossible, to determine the condition, authenticity, or age of artifacts." Sammons v. Commissioner, 51 T.C.M. (CCH) 1568, 1575 (1986). Because the Sammons' experts were forced to assume that the donated artifacts were genuine and of average to good condition, the Tax Court was unwilling to accept their appraisal "at face value." Id. at 1576. The Tax Court rejected the Commissioner's expert's appraisal because of the same methodological flaw in its preparation. Id.

The Tax Court did not abuse its discretion in rejecting the appraisals. As we observed in Ebben v. Commissioner, the trial court has broad discretion to evaluate "the overall cogency of each expert's analysis." 783 F.2d at 909. When experts qualify their valuations because, in their own minds, there are severe limitations upon the methods...