Sammons v. Commissioner
| Citation | 1986 TC Memo 318,51 TCM (CCH) 1568 |
| Decision Date | 28 July 1986 |
| Docket Number | Docket No. 21133-82. |
| Parties | Myron G. Sammons and Dorothy Sammons v. Commissioner. |
| Court | United States Tax Court |
James Powers and Marc L. Spitzer, for the petitioners. David W. Otto, for the respondent.
Memorandum Findings of Facts and Opinion
Respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
Additions to Tax
Year Deficiency Section 6653(a)1
1977 ........ $140,659.72 $7,032.98
1978 ........ 95,853.94 4,792.69
1979 ........ 165,546.60 8,277.33
After concessions, the issues for decisions are: (1) whether petitioners are entitled to a deduction for the nondelivery of a race horse for which they paid $12,000; (2) whether petitioners are entitled to a deduction for a contribution to Pacific Northwest Indian Center, and if so, the amount of such deduction; and (3) whether any part of any deficiency due from petitioners is attributable to their negligence or intentional disregard of rules and regulations within the meaning of section 6653(a).
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by reference.
Petitioners, Myron G. and Dorothy Sammons, are husband and wife. For the years 1977, 1978 and 1979 they filed joint income tax returns with the Internal Revenue Service Center at Ogden, Utah. For several years prior to the end of 1976 they lived in Missoula, Montana, where Myron G. Sammons ("Sammons") owned and operated a trucking business which he sold at a substantial profit in September 1976. Petitioners moved from Missoula to Scottsdale, Arizona in late 1976 and continued to reside there throughout the years in issue and at the time they filed their petition herein.
In November 1976, Sammons met Joe Shearer at the Santa Anita Race Track in Los Angeles to examine some thoroughbred race horses which Shearer was offering to sell as agent for an undisclosed owner. During the meeting, Sammons gave Shearer a check for $32,000 of which $20,000 was in payment for a race horse named "Wind Marhiai" and $12,000 was in payment for a second unnamed race horse. Early in 1977, Shearer delivered Wind Marhiai to Sammons. The second race horse was never delivered.
After some delay Sammons concluded that Shearer had no intention of delivering the second horse and attempted to contact Shearer at Santa Anita and later at the Bay Meadows Race Track in San Francisco. Being unsuccessful in these attempts, Sammons instructed his attorney Ralph Wright to take whatever legal action was necessary in order to recover the $12,000. Wright's efforts also proved unsuccessful, and after consultation with him in 1977, Sammons concluded the second horse would never be delivered, any futher action was useless, and the $12,000 could not be recovered.
From 1966 through the years in issue, the Pacific Northwest Indian Center, Inc. ("Indian Center") operated a museum in Spokane, Washington known as the Museum of Native American Cultures ("MONAC"). The museum features exhibits and collections of Indian artifacts which portray the history and culture of North American tribes. Wilfred P. Schoenberg ("Schoenberg"), a Jesuit priest and the founder of the Indian Center, was serving in 1977 as its president and as the curator of MONAC. Throughout 1977, the Indian Center was recognized by respondent under section 170(c) as a qualified charitable organization exempt from taxation under section 501.
Schoenberg made a practice of encouraging investors to buy artifacts and contribute them to the Indian Center. He distributed letters outlining tax writeoffs for the contribution of property where the fair market value of the property on the date of its contribution was greater than its cost. His letters to potential donors included statements to the effect that fair market value meant the highest price that "someone, somewhere" would offer for an object.
In January of 1977, Schoenberg became aware that a collection of Indian artifacts known as the Stuart Collection was owned by Joan Berry ("Berry")2 who lived in Kalispell, Montana, and that the collection might be available for contribution to the Center. This collection consisted of a number of artifacts, primarily from the Plains and Plateau Indians. It included painted buffalo hides, buckskin clothing, medicine pipes, war bonnets, snow shoes, bayonets (presumably taken in battle), baby carriers, human scalps, horse tails, medicine rattles made from buffalo scrotums, cradle boards, bone tools, such as elk bone hide scrapers, and numerous other items.
The most significant item in the Stuart Collection was a rare Blackfoot medicine pipe bundle known as a "thunder pipe." It contained a number of items wrapped together in a single hide or bundle. Among the items were sacred medicine pipe, various medicine bags, an ermine pelt, the bodies of two weasels, an effigy head of a crane, a bone dance whistle, deer bones, a feather bundle with hawk bells, other feathers, medicine wands used for gambling, braided sweet grass, a child's buckskin moccassin with medicine stones inside, a flute made from a rifle barrel and other artifacts.
Thunder pipes generally have important religious significance to members of the Blackfoot tribe. It is believed that they embody great power for the tribe, as well to as any individual who is the "holder" of a pipe. The pipes are used ceremoniously during the first thunderstorm in the spring of each year, as well as on feast days specifically honoring the pipes. Each holder has the perogative, after appropriate fasting and inspiration, of adding items to his bundle.
In keeping with a thunder pipe's religious function and to keep it from being desecrated, it is traditionally passed from one holder to another during a special cremony.
The Stuart who originally assembled the collection which bears his name was a policeman on a Blackfoot reservation and allegedly acquired his thunder pipe from a Blackfoot Indian in the 1930's without the traditional ceremony, but fearing for the health and well-being of the Indian who had improperly passed the pipe, fellow tribesmen surrounded Stuart's house and demanded that a proper pipe-passing ceremony be performed. Thereupon a feast was prepared and the pipe was ceremoniously passed to Stuart. Nevertheless, several years later Stuart purportedly disregarded its ceremonial purposes and unwrapped the bundle to display its contents in a gift shop which he owned. Shortly thereafter, he broke his leg, developed a very painful infection and died. His widow, Laura Stuart, sold the thunder pipe to Joan Berry, passed it to Ms. Berry without a proper ceremony, and within a month choked to death while dining with friends. In 1977 Joan Berry still owned the pipe and the balance of the Stuart Collection.
Upon learning of the possible availablity of the Stuart Collection Schoenberg contacted Dolores Swanberg ("Swanberg"), an art dealer in Kalispell, and believed by Schoenberg to be an acquaintance of Berry. They discussed generally the Indian Center's "local system for tax write-off gifts." By letter dated January 26, 1977, Schoenberg advised Swanberg of the availability in her area of a certain collection on Indian artifacts with a "possible fair market value appraisal of $500,000," which appraisal could be provided by a group of appraisers that the Indian Center had organized for this purpose. He further stated that the collection was available at a price "reasonable enough to attract investors." Schoenberg was referring to the Stuart Collection. Swanberg told Connie Jo Dalby ("Dalby"), another Kalispell art dealer, that Schoenberg was interested in obtaining the Stuart Collection for the Indian Center. Dalby telephoned Schoenberg and was also told by him that the Stuart Collection could be appraised at $500,000. At this point, Dalby and Swanberg became partners or joint venturers for the purpose of locating an individual to purchase the Stuart Collection and contribute it to the Indian Center.
After unsuccessfully contacting several attorneys and accountants in Montana about a possible purchaser Dalby, in early February of 1977 contacted Jack Dobbins ("Dobbins"), a C.P.A. with offices in Missoula and inquired whether he had a client who would be willing to invest $140,000 to acquire an artifact collection which could be contributed to a museum at an appraised value of about $500,000. Dobbins told Dalby that he would consider the matter.
At about the same time Sammons in Scottsdale was informed by his attorney, Ralph Wright, that he had learned of a "tax shelter" involving a collection of Indian artifacts which could be bought for about $140,000 and donated to the Indian Center at an appraised value of $500,000. Sammons instructed Wright to discuss the proposed transaction with his accountant, Jack Dobbins. In doing so, Wright learned that Dobbins had already been contacted about the collection by Dalby. Wright and Dobbins then advised Sammons that the proposed purchase of the collection for $140,000 and its contribution to the Indian Center at $500,000 appeared to be an appropriate transaction for Sammons and his wife. Sammons then instructed Dobbins and Wright to contact Dalby and proceed with the transaction.
In the meantime, Swanberg had approached Berry with an offer to purchase the Stuart Collection for $125,000. Berry, however, refused to sell at that figure because, according to Berry, she had just received two appraisals of the Stuart Collection which did not justify a sales price of $125,000. Further negotiations resulted in an agreement by Swanberg to purchase the collection from Berry for $60,000.
On February 9, 1977, Dobbins paid Dalby $140,000 and in return was given a receipt which reads as follows:
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