Palmer v. C. I. R.

• Decision Date: 30 September 1975
• Docket Number: No. 75-1102,75-1102
• Citation: 523 F.2d 1308
• Parties: 75-2 USTC P 9726 Daniel D. and Agnes H. PALMER, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1308

523 F.2d 1308

75-2 USTC P 9726

Daniel D. and Agnes H. PALMER, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 75-1102.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 10, 1975.

Decided Sept. 30, 1975.

Richard L. Braunstein, Dow, Lohnes & Albertson, Washington, D. C., for appellants.

William S. Estabrook, III, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellee.

Before GIBSON, Chief Judge, HENLEY, Circuit Judge, and VAN PELT, Senior District Judge. ^*

GIBSON, Chief Judge.

Appellants, Daniel D. and Agnes H. Palmer (hereafter taxpayers), appeal from that part of a judgment of the United States Tax Court ¹ determining that they did not overpay income taxes for the year 1966 due to their alleged undervaluation of 238 shares of corporate stock of the Palmer College of Chiropractic donated to the Palmer College Foundation, a nonprofit corporation. In their 1966 joint return, taxpayers valued the stock at $863 per share. The Commissioner assessed a deficiency challenging their right to a charitable deduction on grounds not at issue here, ² and later questioned their valuation of the stock in any amount exceeding $310 per share Inter alia on the ground that other shares of the same close corporation had been sold for $264.74 each in 1964.

The Tax Court rejected the Commissioner's disallowance of the charitable deduction and held that the Commissioner had failed to meet his burden of proving that the value of the stock was less than $863 per share. Additionally, the court ruled that taxpayers raised too late (for the first time in their reply trial brief to the Tax Court) their contention that the stock was actually worth $1,096 per share and concluded that in any event they had failed to meet their burden of proving the stock was worth more than $863 per share. Palmer v. Commissioner, 62 T.C. 684 (1974).

The Commissioner no longer challenges the Tax Court's determination that there is no deficiency in the income tax due from taxpayers for 1966. ³ Taxpayers, however, appeal the Tax Court's ruling that their contention of undervaluation could not be considered for the reason that the Commissioner was given neither notice of the claim nor opportunity to object to it. In their informal pretrial memorandum to the Tax Court, taxpayers gave notice that they would offer evidence and ask the court to find that the stock had a 1966 value well in excess of $863 per share. At trial, they offered evidence of a greater value, but it was not until they filed their reply brief in the Tax Court that they specifically requested a finding that the shares were worth $1,096 each. The Tax Court thus concluded that taxpayers had requested the finding for the first time in their reply trial brief and that they had raised the issue too late. Taxpayers contend, however, that the value of the shares was first placed in issue by the Commissioner himself when he challenged the taxpayers' $863 figure as an overvaluation in his amended answer in the Tax Court after accepting taxpayers' claimed $863 value in his notice of deficiency.

However, in view of the Tax Court's additional holding that taxpayers failed to prove that the value of the stock exceeded the $863 per share claimed on their return, we do not reach the procedural question whether taxpayers waived their claim of undervaluation for failure to raise it in a timely reply to the Commissioner's amended tax court answer, ⁴ or otherwise. The corporation in question owned and operated the Palmer College of Chiropractic as its principal business activity (approximately 80 percent of its assets) and also engaged in the sale, leasing and ownership of other real estate (approximately 20 percent of its assets). To meet their burden of proving that the value of the donated shares exceeded the $863 claimed on their return, taxpayers called two experts. The experts testified as to the value of the corporation's assets, including real estate and goodwill, and the value of the college as an ongoing profit-making business. The Commissioner presented his own IRS valuation engineer who testified, on a theory partly rejected by the Tax Court, that the shares were worth no more than $310 each.

We have carefully considered the record, briefs and arguments of the parties and affirm on the basis of the Tax Court's published opinion on the issue whether the 1966 value of the donated shares exceeded $863. In judging that the taxpayers had not met their burden of proof, the Tax Court was in a better position to evaluate the experts' testimony and exhibits. The taxpayers themselves established the price of $863 per share listed in their 1966 return after considering an independent auditor's assessment of all the corporation's assets. The price of $863 per share was also paid by the foundation when it purchased 2,078.97 corporate shares from the Palmer family trust in the same year, 1966. The Tax Court's conclusion concerning the value of the stock is in conformity with established principles and is supported by substantial evidence upon the record as a whole. Riss v. Commissioner, 478 F.2d 1160, 1164 (8th Cir. 1973); Gloyd v. Commissioner, 63 F.2d 649, 650 (8th Cir.), Cert. denied, 290 U.S. 633, 54 S.Ct. 52, 78 L.Ed. 551 (1933).

We reject taxpayers' attempt to frame the issue in this appeal as one purely of law by asserting that "(t)here is simply no dispute in the record that on a Pro rata basis the stock * * * was worth $1,096 per share," and attacking the Tax Court's expressed concern with taxpayers' failure to discount for the fact that theirs was only a minority interest in the corporation. The Tax Court does not have to accept "in toto, in part" or at all expert opinion as to value. Gloyd v. Commissioner, ...