Scheffres v. Commissioner, Docket No. 4459-67-4461-67.
| Decision Date | 26 February 1969 |
| Docket Number | Docket No. 4459-67-4461-67. |
| Citation | 28 TCM (CCH) 234,1969 TC Memo 41 |
| Parties | Jerome and Myrtle Scheffres, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Julius I. Fox, 1707 H St., N. W. Washington, D. C., for the petitioners. Louis F. Nicharot, for the respondent.
Respondent determined the following income tax deficiencies for the calendar year 1962 in these consolidated cases:
Petitioners Docket Deficiency
Jerome & Myrtle Scheffres .. 4459-67 $1,994.42
Milton & Lillian Turner .... 4460-67 1,613.17
Eugene Scheffres ........... 4461-67 1,589.63
The deficiency in each case arose by reason of respondent's determination that "the transfer of an undivided interest in * * * a parcel of real property containing approximately ten (10) acres to the Prince George's County (Md.) Board of Education does not qualify as a charitable contribution within the meaning of section 170 of the Internal Revenue Code."2 Accordingly a deduction of $4,500 claimed in each of the returns here involved in connection with this transaction was disallowed.
Many of the pertinent facts have been stipulated by the parties. The stipulation and exhibits attached thereto, are incorporated herein by this reference.
Petitioners Jerome and Myrtle Scheffres are husband and wife and resided at 6204 Lennox Road, Bethesda, Maryland at the time of the filing of their petition. Petitioners Milton and Lillian Turner are husband and wife and resided at 8903 Woodland Drive, Silver Spring, Maryland at the time their petition was filed. Petitioner Eugene Scheffres resided at 3912 The Alameda, Baltimore, Maryland at the time of the filing of his petition. For the period in question all of the petitioners filed income tax returns with the district director of internal revenue at Baltimore, Maryland.
During the taxable year 1962 all of the petitioners were members of the partnership of Turner and Scheffres. There were no other partners.
On March 21, 1961 the Turner and Scheffres partnership, represented by Charles Scheffres, entered into a joint venture to acquire and hold certain real estate located in the area of Greenbelt, Maryland for investment purposes. This joint venture filed a partnership return for 1962 with the district director of internal revenue at Baltimore, Maryland in the name of Greenbelt Associates.
The percentage of interest of each of the members of Greenbelt Associates in that joint venture is as follows:
Turner and Scheffres Partnership ...... 10%
Edward Perkins and Harold Kramer
individually, and as trustees for the
partnership of Perkins, Perkins and
Kramer .............................. 20%
Gudelsky Brothers ..................... 25%
Theodore N. Lerner .................... 10%
Sanford Slavin ........................ 10%
Albert H. Small ....................... 6.25%
Herman Greenberg ...................... 6.25%
Ralph Ochsman ......................... 6.25%
Morton I. Funger ...................... 6.25%
_______
100.00%
On March 21, 1961 the members of Greenbelt Associates entered into an agreement to purchase a tract of land of approximately 390 acres from Edward M. and Evelyn Perkins and Harold and Rose Kramer (referred to in the Opinion as the "sellers"). On the same date, the members of Greenbelt Associates also entered into an agreement relating to the development of that tract of land by the construction of apartment houses and other income-producing improvements thereon. While these agreements were signed by Charles Scheffres rather than by petitioners, it is stipulated that in connection with this Greenbelt property Charles was acting not for himself but as agent for the Turner and Scheffres partnership. Edward M. Perkins and Harold Kramer, in addition to being sellers under the contract of sale mentioned above, together held a 20 percent interest in Greenbelt Associates, individually, and as trustees for the partnership of Perkins, Perkins and Kramer.
Edward M. and Evelyn Perkins and Harold and Rose Kramer acquired the land which was the subject of the contract of sale mentioned above by deeds dated April 30, 1959 and February 21, 1961. The contract under which they agreed to purchase the tract provided that consummation of the purchase was contingent upon their obtaining a change in the zoning of the greater portion of the property from I-1 (industrial) to R-18 (residential), so as to permit the construction of garden-type apartments on approximately 300 acres of the tract.
In 1958 or early 1959 Edward M. and Evelyn Perkins and Harold and Rose Kramer made application for a zoning change to the Maryland National Capital Park and Planning Commission, which is the zoning authority for Prince George's County, Maryland. Before taking any final action on the application, the National Park and Planning Commission referred the petition to the Prince George's County Board of Education.
Under the procedure followed in Prince George's County, the Park and Planning Commission refers an application for a zoning change to the Board of Education when it appears that the granting of the petition would result in an increase in the number of children in a particular area. If the Board of Education determines that a zoning change would require the erection of a school within the area of the requested change, it informs the Park and Planning Commission that reservation of a school site within that area will be necessary. Negotiations with regard to the acquisition of a suitable school site by Prince George's County are usually thereafter conducted between the Board of Education and the applicants prior to the granting of any zoning change.
In considering the zoning change requested by Edward M. and Evelyn Perkins and Harold and Rose Kramer as contract purchasers, the Board of Education determined that reservation of a school site would be necessary. Edward M. Perkins and Hammond T. Welsh, an attorney who represented the contract purchasers with regard to the zoning change, gave the Board of Education an oral assurance that a certain 10-acre parcel of land topographically suitable to the Board of Education and delineated on the plat of the proposed development would be donated to Prince George's County for use as a school site. The Board agreed to pay "the proportionate share of utility installation costs and all abutting street improvements." Accordingly, no further steps were taken thereafter by the Board of Education in negotiating for the acquisition of a school site in the proposed development. The requested zoning change was subsequently granted.
In practice the Board of Education acquired land for school purposes in similar proposed developments by donation from the sponsors, by negotiated purchases at prices fixed by contract or by condemnation proceedings in which the price was fixed by law.
After the site suitable for the erection of a school within the subdivision had been agreed upon by the Board of Education and the developers who were applicants for rezoning, and the Park and Planning Commission was so notified, no building permits would be issued permitting the erection of non-school structures on that site. If the promised gratuitous conveyance had not been made, the Board of Education could have acquired the 10-acre parcel upon the payment of a price by negotiated purchase or by condemnation.
Paragraph 4 of the contract of sale of the 390-acre tract entered into on March 21, 1961 between Edward M. and Evelyn Perkins, Harold and Rose Kramer and the members of Greenbelt Associates, provided as follows:
Purchasers acknowledge that they have been advised by Sellers that a ten (10) acre parcel of the land herein described is to be conveyed to the Prince George's County Board of Education, free of encumbrances and without charge, except that the said Board of Education will agree that it will pay the proportionate share of utility installation costs and all abutting street improvements. Seller will release the above school site from the mortgage without requiring additional payments by purchaser on account thereof.
On or about July 18, 1961, the purchase of the 390-acre tract was consummated. Title was conveyed to trustees for the members of Greenbelt Associates who gave back a deferred purchase money deed of trust securing $1,600,000 of the $2,000,000 purchase price. The remaining $400,000 was paid in cash.
On or about May 7, 1962, the trustees then holding title for Greenbelt Associates conveyed title to the 10 acres of the 390-acre tract of land to the Prince George's County Board of Education. The 10-acre parcel constituted the site determined by the Board of Education to be suitable for a school and delineated for such use on the development plat pursuant to its discussions with Edward M. Perkins and Hammond J. Welsh.
No one acting on behalf of Greenbelt Associates, of which joint venture petitioners held membership interests, ever made any commitment to or negotiated with the Prince George's County Board of Education with regard to any conveyance of land for school purposes.
The information return (Form 1065) of Greenbelt Associates covering the year 1962 signed by a partner on April 10, 1963, showed that the partners' capital accounts had been reduced during the year by the deduction of an item referred to as "charitable contribution 1962" in the total amount of $135,000. The capital account of petitioners, carried in the name of Charles Scheffres, had been reduced on account of such deduction in the amount of $13,500. Petitioners' capital account as of the beginning of 1962 was $42,905.14. After adjustments reflecting the item "charitable contribution" and also reflecting "capital contributed," "withdrawals and distributions," "credit...
To continue reading
Request your trial