Mann v. United States
| Decision Date | 06 January 2021 |
| Docket Number | No. 19-1793,19-1793 |
| Parties | Lawrence P. MANN; Linda S. Mann, Plaintiffs - Appellants, v. UNITED STATES of America, Defendant - Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Joshua J. Gayfield, MILES & STOCKBRIDGE P.C., Baltimore, Maryland, for Appellants. Douglas Campbell Rennie, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Derek P. Roussillon, Annie M. McGuire, MILES & STOCKBRIDGE P.C., Baltimore, Maryland; Lawrence J. Anderson, NEALON & ASSOCIATES, P.C., Alexandria, Virginia, for Appellants. Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Teresa E. McLaughlin, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Robert K. Hur, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee.
Before NIEMEYER, MOTZ, and RICHARDSON, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Motz and Judge Richardson joined.
In this appeal, Linda and Lawrence Mann challenge the district court's judgment affirming the IRS's disallowance of a charitable deduction that they claimed on their 2011 joint income tax return.
After Linda Mann purchased real property in Bethesda, Maryland, known as 5300 Moorland Lane, she and her husband decided to tear down the existing house on that property and build a new one in its place. In an agreement with Second Chance, a charitable organization, the Manns stated that they were donating the existing house in its entirety to Second Chance, but not the underlying land, and then took a charitable deduction of $675,000 on their income tax return, representing the appraised value of the house as if it were moved intact to another lot. Second Chance, however, disassembled some of the house, salvaged useful components, and left the remainder for demolition by the Manns’ contractor.
The IRS disallowed the deduction on the ground that the Manns did not convey their entire interest in the house, as required by 26 U.S.C. § 170(f)(3), and failed to provide an accurate appraisal of what they actually did donate. The IRS also rejected the Manns’ effort to amend the claimed deduction to $313,353 for settlement purposes, based on an alternative appraisal of the house's value.
The Manns paid the additional taxes assessed by the IRS and commenced this action against the United States, seeking a refund of approximately $213,000. They claimed that, through their agreement with Second Chance, they conveyed the entire house to Second Chance and therefore their appraisals of the entire house were appropriate. On the parties’ cross-motions for summary judgment, the district court upheld the IRS's determination that the Manns were not entitled to a charitable deduction for the value of the house, reasoning that they had not donated their entire interest in the property under Maryland law; that, considered practically, the Manns also did not donate all the components of the house itself, as some were destroyed and some were retained for demolition; and that the alternative appraisal of $313,353, which valued all of the house's components, overstated the value of their donation.
For the reasons that follow, we affirm.
After Linda and Lawrence Mann received an unsolicited offer to purchase their house in Bethesda, Maryland — a house in which they had lived for nearly 20 years — they decided to accept the offer and downsize to a smaller house in the same neighborhood. They found one at 5300 Moorland Lane and, in April 2011, purchased it for $2,250,000. They purchased it in Linda's name in order to effect a better division of the couple's assets. The house at 5300 Moorland Lane was a remodeled colonial house in good condition, which the Manns planned to renovate. But after discovering water issues in the basement and learning from their architect the high cost of desired changes to the house's layout, they decided to tear down the existing house and build a new one in its place. Accordingly, they hired a building contractor to demolish the existing house, clear the site, and build a new house.
Other builders whom the Manns knew suggested that the Manns consider working with Second Chance, a charitable organization offering "deconstruction" services, and thereby not only further the organization's noble mission but also obtain a tax deduction in the process. Second Chance is a § 501(c)(3) charitable organization based in Baltimore, Maryland, that offers deconstruction services to further its mission of providing "workforce development and job training opportunities to disadvantaged members of the community" who carry out the deconstruction, while also preventing "salvageable building materials and fixtures from [ending up in] landfills." The participants in the deconstruction program are employees who are paid an hourly wage and learn construction skills. Second Chance's deconstruction work involves the "systemic dismantling of a structure" to remove some building components "for preservation and salvage." Other components, like drywall, tile, and roofing materials, are necessarily destroyed as part of the deconstruction process, and yet others are destroyed as part of the employees’ training. Second Chance emphasizes, however, that it does not "provide demolition services," and it advises deconstruction donors that they "must engage a demolition contractor at their own expense." The charity "owns and operates a warehouse and retail store ... from which it resells furniture, fixtures, and building materials" that it has recovered through deconstruction or that people have otherwise donated.
Second Chance asks individuals donating property for deconstruction to also make a cash contribution to help defray the costs of its training program — mainly the hourly wages of the program's participants. It rarely undertakes a deconstruction project that lacks such funding, doing so only when the materials to be salvaged have historical significance.
After learning about Second Chance, the Manns decided to have the charity deconstruct their house before it was demolished by their contractor. To this end, Linda Mann, as the owner of the house, signed a two-page "Agreement for Charitable Contribution" with Second Chance, dated December 1, 2011. The agreement provided that inasmuch as Second Chance "utilizes existing homes ... to provide building materials for reuse and for work-force training" and inasmuch as Linda wished to "contribute to Second Chance the existing single-family residential dwelling" at 5300 Moorland Lane for the "purpose of Second Chance using the Premises in its charitable operations," Linda conveyed to Second Chance "all of [her] right, title and interest in the improvements, building and fixtures located [at 5300 Moorland Lane]," as described in an appraisal "prepared by Novastar Appraisal, Inc." The agreement also provided that Second Chance was to provide the labor, materials, and tools required to "undertake and complete ... the removal of the [building] in accordance with its customary procedures." Finally, in addition to other administrative provisions, Second Chance agreed to "cooperate with [Linda] in coordinating the documentation to evidence the charitable contribution to Second Chance" in connection with the Manns’ "federal and state income tax returns."
A couple of days before Second Chance began deconstruction in late December 2011, a Second Chance Deconstruction Sales Manager explained to Lawrence Mann how the tax deduction for the donation would work.
(Emphasis added). Thus, based on the expected level of tax savings for the Manns, Second Chance asked them to make a cash donation of $20,000 to help it offset the cost of paying its trainees. Lawrence initially wanted to condition this payment on the IRS's acceptance of the deduction, but ultimately, he sent Second Chance a check for $10,000 on December 31, 2011, "to cover de-construction so far." And in 2012, when Second Chance requested the second $10,000 payment of the total $20,000 proposed donation, Lawrence sent Second Chance $1,500.
In advance of the deconstruction, the Manns engaged NoVaStar Appraisals, Inc., to provide an appraisal establishing the value of the donation for tax purposes. Accordingly, in mid-October 2011, a NoVaStar appraiser inspected and appraised both the house and personal property in the house that was being donated.
The appraiser concluded, as stated in the appraisal, that the "Highest and Best use" of the house was "not disassembly, but rather physically moving the structure to another lot" to function as a residence. The appraisal added that ...
To continue reading
Request your trial