Klavan v. Commissioner, Docket No. 3916-90.
| Citation | 66 T.C.M. 68 |
| Decision Date | 13 July 1993 |
| Docket Number | Docket No. 2181-91.,Docket No. 3916-90.,Docket No. 16970-91. |
| Parties | Ross Klavan and Kathleen Klavan, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
| Court | United States Tax Court |
Mervin M. Wilf, 60 State St., Boston, Mass., and Gary P. Brady, 1 Federal St., Boston, Mass., for the petitioners. Drita Tonuzi and Dante D. Lucas, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
Petitioners Ross and Kathleen Klavan, docket No. 3916-90
Additions to Tax
------------------------------
Year Deficiency Sec. 6653(a)(1)(A) Sec. 6661
1986 $32,384 $1,619.201 $4,544.50
1 Plus 50 percent of the interest due on the portion of the
underpayment attributable to negligence pursuant to sec
6653(a)(1)(B)
Respondent also determined that all or part of their underpayment was substantial and attributable to a tax-motivated transaction within the meaning of section 6621(c);2 accordingly, respondent determined that the annual rate of interest on the portion of the underpayment so attributable was 120 percent of the adjusted rate established under section 6621(b).
Petitioners Edward E. and Helaine F. Lucente, docket
No. 2181-91
Additions to Tax
---------------------------
Year Deficiency Sec. 6653(a)(1) Sec. 6661
1985 $95,228 $4,7611 $23,807
1 Plus 50 percent of the interest due on the portion of
the underpayment attributable to negligence pursuant
to sec. 6653(a)(2)
Respondent also determined that all or part of their underpayment was substantial and attributable to a tax-motivated transaction within the meaning of section 6621(c), accordingly, respondent determined that the annual rate of interest on the portion of the underpayment so attributable was 120 percent of the adjusted rate established under section 6621(b).
Petitioners Scott R. and Patricia B. Sanders, docket No. 16970-91
Additions to Tax
------------------------------------------------------
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(1)(A) Sec. 6659
1985 ............................ $21,136 $1,0571 $6,340
1986 ............................ 23,055 $1,1531 6,917
1 Plus 50 percent of the interest due on the portion of the underpayment attributable to negligence
pursuant to sec. 6653(a)(2) and (a)(1)(B)
Respondent also determined that their underpayments were substantial and attributable to a tax-motivated transaction within the meaning of section 6621(c); accordingly, respondent determined that the annual rate of interest on their underpayments was 120 percent of the adjusted rate established under section 6621(b).
After stipulations involving petitioners Scott R. and Patricia B. Sanders, the issues presented for decision are:
(1) Whether petitioners are entitled to a charitable contribution deduction pursuant to section 170 for gravesites they donated to section 170(c) charitable organizations in the years at issue. We hold that they are.
(2) What the fair market value of the donated property is for purposes of section 170. We hold that the fair market value of the gravesites is equal to petitioners' cost in acquiring the donated property.
(3) Whether the issue regarding petitioners' entitlement to a capital gains deduction pursuant to section 1202(a) on the exchange of unimproved land for gravesites is properly before the Court. We hold that it is not.
(4) Whether petitioners are entitled to a deduction for tax consulting fees pursuant to section 212(3). We hold that they are in accordance with this opinion.
(5) Whether petitioners are liable for additions to tax for negligence pursuant to section 6653(a). We hold that they are not.
(6) Whether petitioners are liable for the addition to tax for a substantial understatement pursuant to section 6661. We hold that they are.
(7) Whether each petitioner's underpayment of Federal income tax is subject to the increased rate of interest provided by section 6621(c). We hold that that portion of petitioners' underpayments attributable to a valuation overstatement within the meaning of section 6659 is subject to this increased rate of interest.
Some of the facts have been stipulated and are incorporated herein by reference. At the time they filed their petition, petitioners Ross and Kathleen Klavan resided in New York, New York; petitioners Edward E. and Helaine F. Lucente resided in New Canaan, Connecticut; and petitioners Scott R. and Patricia B. Sanders resided in Philadelphia, Pennsylvania.
At the commencement of trial, petitioners Scott R. and Patricia B. Sanders, docket No. 16970-91, stipulated with respondent that all issues pertaining to them were to be decided in accordance with the other two consolidated cases at docket Nos. 3916-90 and 2181-91. These stipulations will be given effect in the Rule 155 computation, and we do not further address the case of petitioners Scott R. and Patricia B. Sanders.
Between 1985 and 1986, the Klavans and petitioner Edward Lucente each purchased a limited partnership interest in D&E Investors (D&E), and via the partnership participated in an exchange and contribution program involving finished gravesites situated in a cemetery called Good Shepherd Memorial Park. As explained in more detail herein, the exchange and contribution program consisted of petitioners' exchange of unimproved land located within the cemetery for finished gravesites which petitioners thereafter donated to charitable organizations. For the taxable years at issue, petitioners reported a capital gain on the exchange of the unimproved land for the finished gravesites and claimed a charitable contribution deduction for the donation of the finished gravesites. The issues currently before the Court stem primarily from the tax consequences surrounding petitioners' participation in the exchange and contribution program.
Sometime prior to 1982, a New York limited partnership entitled Forest Green Venture (FGV) organized and facilitated a gravesite exchange and contribution program involving a cemetery located in Morganville, New Jersey. In most respects, this exchange and contribution program resembles the one in which petitioners participated; however, the cemeteries involved and sometimes the years involved differ. In 1982, the Internal Revenue Service (IRS or Service) entered a settlement agreement with FGV relating to the gravesite exchange and contribution program. The IRS therein allowed a charitable contribution deduction to each FGV partner participating in the exchange and contribution program for years before and including 1983 in an amount equal to the cemetery's retail sale price for the finished gravesites, less an 18-percent discount.
Thereafter, each FGV partner participating in the exchange and contribution program reported its resulting tax consequences pursuant to this settlement. Each partner reported a long-term capital gain on the exchange of unimproved land for finished gravesites in an amount equal to the difference between the basis in the unimproved land and the retail sale price (less an 18-percent discount) per finished gravesite multiplied by the number of gravesites received. Each partner also reported a charitable contribution deduction equal to the cemetery's retail sale price for the number of finished gravesites received and then donated, less an 18-percent discount.
In 1983, Ellis Elgart, a certified public accountant, formed a Pennsylvania limited partnership entitled E&D Investors, and in 1986 formed another Pennsylvania limited partnership entitled Ellis Arthur Partnership. Elgart, E&D Investors, and Ellis Arthur Partnership held limited partnership interests in FGV. E&D Investors and Ellis Arthur Partnership participated in an exchange and contribution program of gravesites similar to the one in which the partners of FGV participated and in which petitioners ultimately participated, except that the cemeteries involved and sometimes the years involved differ. The litigation involving the exchange and contribution program facilitated by E&D Investors is reported at Weintrob v. Commissioner [Dec. 47,179(M)], T.C. Memo. 1990-513, supplemented by T.C. Memo. 1991-67. The litigation involving the exchange and contribution program facilitated by Ellis Arthur Partnership is reported at Weiss v. Commissioner [Dec. 49,057(M)], T.C. Memo. 1993-228.
Good Shepherd Memorial Park, Inc., operates a cemetery located in Spartanburg County, South Carolina, called Good Shepherd Memorial Park (Good Shepherd). Good Shepherd Memorial Park, Inc., has been wholly owned by James Douglas Cheatwood, Sr. (Cheatwood), and managed by his son, Chip Cheatwood, since its incorporation in July 1982. Those familiar with Good Shepherd describe it as a beautiful, well-operated cemetery. Good Shepherd maintains a record book in its offices which indicates the ownership of gravesites; the cemetery is not required to record the ownership of gravesites elsewhere.
In 1985 and 1986, the retail sale price to an individual purchaser of a single gravesite located in Good Shepherd was $495. The focus of Good Shepherd's marketing efforts is its family protection plan, which consists of marketing gravesites on a pre-need basis. The family protection plan includes gravesites, burial services, headstones, vaults, and interment fees for a husband and wife (and for any...
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