Goulder v. U.S.
| Decision Date | 09 August 1995 |
| Docket Number | No. 93-3832,93-3832 |
| Citation | 64 F.3d 663 |
| Parties | -6001, 95-2 USTC P 50,464 NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Herbert I. GOULDER, Executor of the Estate of Adolph P. Goulder, deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
On Appeal from the United States District Court for the Northern District of Ohio, No. 92-01318; Laurie, Judge.
N.D.Ohio, 1993 WL 316002.
REVERSED.
Before: ENGEL, MARTIN, and BOGGS, Circuit Judges.
Herbert I. Goulder, executor of the estate of Adolph P. Goulder, appeals from a grant of summary judgment in favor of the Internal Revenue Service in this suit for a refund of taxes paid. For the reasons set out below, we reverse.
In 1969, Adolph P. Goulder entered into a general partnership known as Apartment Living Associates ("the Partnership"). In 1970, the Partnership purchased a residential apartment building in East Cleveland, Ohio. In connection with this purchase, the Partnership assumed a non-recourse loan (secured by a mortgage on the apartment building), guaranteed by the Department of Housing and Urban Development (HUD). The original mortgagees subsequently assigned HUD the note, mortgage, and all other security instruments pertaining to the building. The Partnership rented the apartments in the building to tenants. It collected security deposits and rent from the tenants, and periodically made distributions of cash to the partners.
In 1977, the Partnership defaulted on its non-recourse loan, and HUD began foreclosure proceedings. HUD appointed a receiver to manage the apartment building. On October 28, 1978, Adolph Goulder died and his estate became a partner in the Partnership. As a result of Adolph Goulder's death, the estate benefitted from a stepped-up basis in the decedent's interest in the partnership. 1
On February 5, 1980, HUD sold the apartment building at foreclosure sale. The sale resulted in ordinary income and long-term capital gain to the Partnership. Herbert Goulder, the executor, paid income tax on the estate's share of the gain.
After the sale of the building in 1980, the Partnership no longer held any legal or equitable title to the building. It did not receive any rents or other income from the building. The Partnership did not own any other business or property, and did not engage in any business venture.
In 1980, the Partnership distributed the Partnership assets to the partners. All assets were distributed, except for those that the Partnership retained as representing tenants' security deposits. The Partnership did not distribute the security deposits in 1980 because it believed that HUD had a claim to the deposits, which the Partnership might be obligated to pay. In 1981, the Partnership determined that HUD would not claim the security deposits. The managing partner distributed the remaining security deposits to the partners around April 14, 1981.
Upon distribution of the Partnership's assets in 1980, the estate suffered a capital loss, due to its stepped-up basis and the decline in value between 1978 and 1980. It attempted to claim the loss for 1980. The IRS disallowed the loss. It agreed that the estate could claim a loss when the partnership terminated, but the IRS contended that the termination event occurred in 1981, due to the distribution of the security deposits, and so the loss could only be claimed in 1981. The Partnership had no gains in 1981 to offset the loss.
In September 1991, Goulder filed a claim with the Internal Revenue Service for a refund of income tax previously paid, plus interest, in the amount of $36,228.90. When the IRS failed to notify Goulder of disallowance of the refund within six months, Goulder sued for a refund in federal district court. See I.R.C. 6532(a)(1).
In the district court, the parties agreed to a Magistrate Judge's jurisdiction, pursuant to 28 U.S.C. Sec. 636(c). The parties further agreed to dispose of their case by cross-motions for summary judgment. In accord with this agreement, and in preparation for the June 9, 1993 hearing, the parties agreed to stipulate to certain facts. On March 17, 1993, the IRS and Goulder filed their joint stipulation with the court. The stipulation included the following paragraph:
During 1981 the Partnership neither operated or carried on any business, financial operation, or venture, having ceased any such activity prior to the beginning of such year.
On June 9, 1993, the Magistrate granted the IRS's motion for summary judgment, and denied Goulder's motion.
We review de novo a grant of summary judgment based on stipulated facts and affidavits. Corea v. Welo, 937 F.2d 1132, 1135 (6th Cir. 1991); See also Buckner v. City of Highland Park, 901 F.2d 491, 494 (6th Cir.), cert. denied, 498 U.S. 848 (1990).
Section 731(a)(2) provides a deduction for a loss incurred in the liquidation of the partnership. I.R.C. Sec. 731(a)(2). Goulder contends that the stipulation makes it clear that the partnership interest was terminated and liquidated in 1980. After all, one can hardly be considered to have received partnership proceeds from a non-existent partnership. Two sections govern the issue of when a partnership has terminated. Section 708(a) provides that "an existing partnership shall be considered as continuing if it is not terminated." I.R.C. Sec. 708(a). As to when a partnership is terminated, the Code states that "[f]or purpose of subsection (a), a partnership shall be considered as terminated only if - (A) no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership." I.R.C. Sec. 708(b)(1).
The IRS studiously avoids discussing the stipulation at any length. This is understandable, since the stipulation tracks the language of Section 708(b)(1). Instead, the IRS asks that the stipulation, which is straightforward, be read in "context." See Appellee's Brief at 19 ( ) See also Appellee's Brief at 10, 18, and 19 ().
"Stipulations voluntarily entered by the parties are binding, both on the district court and on us." Federal Deposit Ins. Corp. v. St. Paul Fire and Marine Ins. Co., 942 F.2d 1032, 1038 (6th Cir. 1991). See also Estate of Quirk v. Commissioner, 928 F.2d 751, 758-59 (6th Cir. 1991); Unicore, Inc. v. Tennessee Valley Auth., 768 F.2d 109, 112 (6th Cir. 1985). Therefore, the Magistrate Judge's conclusion that "the retention of funds to pay off obligations of the partnership and the subsequent distribution of the remainder of those funds to the partners must be considered 'part of a business, financial operation, or venture of the partnership"' is erroneous. To the contrary, the stipulation provides that "[d]uring 1981 the Partnership neither operated or carried on any business, financial operation, or venture, having ceased any such activity prior to the beginning of such year." (Emphasis added). An appellate court must be diligent in enforcing the full scope of stipulation absent...
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