Green v. United States
| Decision Date | 12 January 2018 |
| Docket Number | No. 16-6371,16-6371 |
| Citation | 880 F.3d 519 |
| Parties | Mart D. GREEN, Trustee of the David and Barbara Green 1993 Dynasty Trust, Plaintiff–Appellee, v. UNITED STATES of America, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Geoffrey J. Klimas, Attorney, Tax Division (David A. Hubbert, Acting Assistant Attorney General and Teresa E. McLaughlin, Attorney, Tax Division, with him on the briefs), Department of Justice, Washington, DC, appearing for Appellant.
Charles E. Geister, III (J. Leslie LaReau, Len Cason, and Michael A. Furlong, with him on the brief), Hartzog Conger Cason & Neville, LLP, Oklahoma City, Oklahoma, appearing for Appellee.
Before BRISCOE, EBEL, and MATHESON, Circuit Judges.
Plaintiff Mart Green, as Trustee of the David and Barbara Green 1993 Dynasty Trust (the Trust), filed this action seeking a refund of federal income taxes paid by the Trust for the taxable year ending December 31, 2004. At issue is the amount of the charitable deduction that the Trust may take pursuant to 26 U.S.C. § 642(c)(1) in connection with its donation of three parcels of real property. The district court granted partial summary judgment in favor of the Trust, concluding that the Trust was statutorily authorized to a deduction equivalent to the fair market value of the properties as of the time of donation. The parties reached an agreement regarding the fair market value of two of the properties, and the district court held a jury trial to determine the fair market value of the third property. The district court then entered judgment in favor of the Trust. The government now appeals. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reject the district court’s interpretation of § 642(c)(1) and conclude that the amount of the deduction thereunder is limited to the Trust’s adjusted basis in the donated properties. Consequently, we reverse the judgment of the district court and remand with directions to enter summary judgment in favor of the government.
Factual background
In December 1993, David M. Green and Barbara A. Green (the Greens) executed an instrument creating the Trust. App., Vol. 1 at 14. The Trust instrument named Mart Green as the initial trustee (the Trustee). Article II, Section 2.1 of the Trust instrument, entitled "General Guide for Trustee," outlined the Greens’ expressions of intent for the Trust:
We want to provide for the relative health, education and maintenance needs of our children and descendants during the term of this Trust, and to provide for charity. In the absence of competing considerations, the Trustee should make an effort to primarily provide for the health and maintenance needs of our children. However, we recognize that different needs may and probably will arise as between our children and their descendants, particularly as to educational expenses and perhaps also with respect to their health and medical needs.
Article I, Section 1.6 of the Trust instrument, entitled "Distributions to Charities," stated as follows:
A distribution may be made from the Trust to charity only when both the purpose of the distribution and the charity are as described in Section 170(c) of the [Internal Revenue] Code. Notwithstanding anything else contained in the Trust to the contrary, the number of charities that would be eligible to receive a distribution under this Trust at any given time will be limited to a number that will not prevent the Trust from qualifying either as an Electing Small Business Trust ("ESBT") or otherwise as an S corporation shareholder under the Code.
Id. at 19. Section 1.6 did not specify whether distributions to charity were limited to the Trust’s principal, or instead could come from its income.
Exhibit A to the Trust was entitled "STANDARD TRUST PROVISIONS." Id. at 31. Article IV, Section 4.5 thereof, entitled "Trustee’s Power to Determine Income and Principal," stated, in pertinent part: "The Trustee shall have full power and authority to determine the manner in which expenses are to be treated and in which receipts are to be credited as between income and principal and to determine what shall constitute income or principal." Id. at 52.
GDT CG1 LLC (GDT) is a single-member limited liability company that is wholly owned by the Trust. As such, GDT is disregarded for federal income tax purposes. In other words, all of GDT’s income, deductions and credits are passed through to and reported by the Trust.
Hob–Lob Limited Partnership (Hob–Lob) owns and operates most of the "Hobby Lobby" retail stores that are located nationwide. Between 2002 and 2004, the Trust held a 99 percent ownership interest in Hob–Lob; in other words, the Trust was the 99 percent limited partner in Hob–Lob.
During the year ending December 31, 2002, the Trust’s distributive share of Hob–Lob’s ordinary business income totaled $72,465,646 and, during that same year, the Trust received distributions of $38,722,126 from Hob–Lob.
During the year ending December 31, 2003, the Trust’s distributive share of Hob–Lob’s ordinary business income totaled $68,303,318 and, during that same year, the Trust received distributions of $41,076,436 from Hob–Lob.
During the year ending December 31, 2004, the Trust’s distributive share of Hob–Lob’s ordinary business income totaled $60,543,215, and the Trust received distributions of $29,480,397 from Hob–Lob.
On February 19, 2003, GDT purchased 109 acres of land and two industrial buildings in Lynchburg, Virginia for approximately $10.3 million dollars. GDT obtained the money to purchase the property through a distribution from Hob–Lob to the Trust in 2003. This distribution was part of the distributive share of ordinary business income from Hob–Lob to the Trust in 2003.
On March 19, 2004, GDT donated to the National Christian Foundation Real Property, Inc. (NCF) approximately 73 of the 109 acres of land and the two industrial buildings. As of the date of the donation, NCF was an organization of the type described in 26 U.S.C. § 170(b)(1)(A) ( Internal Revenue Code § 170(b)(1)(A) ).
The Trust reported on a Form 8283, Noncash Charitable Contributions, attached to its 2004 income tax return that its adjusted basis in the Virginia property was $10,368,113 as of March 19, 2004, the date of the donation. The Virginia property had a fair market value in excess of $10,368,113 on the date of the donation.
In August 2002, GDT purchased a church building and several outbuildings in Ardmore, Oklahoma from Trinity Baptist Church for $150,000. GDT obtained the $150,000 to purchase the property through a distribution from Hob–Lob to the Trust in 2002. This distribution was part of the distributive share of ordinary business income from Hob–Lob to the Trust in 2002.
On October 5, 2004, GDT donated the Ardmore property to the Southwest Oklahoma District Church of the Nazarene (SODCN). As of the date of the donation, SODCN was an organization described in Internal Revenue Code § 170(b)(1)(A).
The Trust reported on a Form 8283, Noncash Charitable Contributions, attached to its 2004 income tax return that its adjusted basis in the Oklahoma property was $160,477 on October 5, 2004, the date of the donation. It is undisputed that the Oklahoma property had a fair market value of $355,000 on the date of the donation.
In June 2003, GDT purchased approximately 3.8 acres of land in Dickinson, Texas from Marina Bay Development Corp., Inc./Travis Moss for $145,000. GDT obtained the $145,000 to purchase the property through a distribution from Hob–Lob to the Trust in 2003. This distribution was part of the distributive share of ordinary business income from Hob–Lob to the Trust in 2003.
On October 5, 2004, GDT donated the Texas property to the Lighthouse Baptist Church. As of the date of the donation, the Lighthouse Baptist Church was an organization described in Internal Revenue Code § 170(b)(1)(A).
The Trust reported on a Form 8283, Noncash Charitable Contributions, attached to its 2004 income tax return that its adjusted basis in the Texas property was $145,180 on October 5, 2004, the date of the donation. It is undisputed that the Texas property had a fair market value of $150,000 on the date of the donation.
In October 2005, the Trust filed its income tax return for 2004. The return reported income of approximately $58.8 million, of which $58,712,171 was unrelated business income. The return claimed a charitable deduction totaling $20,526,383. This included the donations of real property, as well as a $1,851,502.42 cash donation to the Reach the Children Foundation, Inc. The return reported that the Trust’s total adjusted basis in the three donated real properties was approximately $10.7 million and that the properties’ fair market value at the time of donation was approximately $30.3 million. At no point in 2004 or any other tax year did the Trust report as income the properties’ unrealized appreciation of approximately $19.6 million (i.e., the claimed fair market value minus the adjusted basis).
On October 15, 2008, the Trust filed an amended Form 1041 income tax return claiming a refund from the Internal Revenue Service (IRS) for $3,194,748 in income tax and increasing the Trust’s reported charitable deduction from $20,526,383, as reported on the Trust’s original 2004 income tax return, to $29,654,233.
On December 8, 2011, the IRS sent the Trustee a Notice of Disallowance of the Trust’s refund claim. That Notice stated, in pertinent part: "The charitable contribution deduction for the real property donated in 2004 is limited to the basis of the real property contributed." Aplt. App., Vol. I at 162.
Procedural background
On November 21, 2013, the Trustee initiated this action by filing a...
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