Threlfall v. United States, 66-C-135.

• Decision Date: 27 June 1969
• Docket Number: No. 66-C-135.,66-C-135.
• Citation: 302 F. Supp. 1114
• Parties: John B. THRELFALL and Mrs. M. Threlfall, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

302 F. Supp. 1114

John B. THRELFALL and Mrs. M. Threlfall, Plaintiffs, v. UNITED STATES of America, Defendant.

No. 66-C-135.

United States District Court W. D. Wisconsin.

June 27, 1969.

John C. Fritschler, Jr., David J. Ross, Madison, Wis., for plaintiffs.

Mitchell Rogovin, Asst. Atty. Gen., Donald R. Anderson, Richard J. Sideman, Attys., Dept. of Justice, Washington, D. C., Edmund A. Nix, U. S. Atty., Thomas Eckerle, Asst. U. S. Atty., Madison, Wis., for defendant.

OPINION AND ORDER

JAMES E. DOYLE, District Judge.

This is an action brought under 28 U.S.C. § 1346(a) (1) to recover federal income taxes and statutory interest assessed and paid thereon in a total amount of $514.97 claimed to have been wrongfully and erroneously assessed and collected from plaintiffs for the calendar year 1963. The action arises under the Internal Revenue Code of 1954.

My findings of fact and conclusions of law appear in this opinion. Rule 52(a), Federal Rules of Civil Procedure.

All of the pertinent facts relative to the issues in this action have been stipulated by the parties. These facts are so found and are as follows. Plaintiff John B. Threlfall¹ is a self-employed individual engaged in the construction business and in the business of leasing real property. Plaintiff and his wife filed a joint federal income tax return for the calendar year 1963 and reported income under the cash receipts and disbursement method of accounting.

During the fall of 1963, the Dane County, Wisconsin chapter of the United Cerebral Palsy Foundation (hereinafter the Foundation) requested of plaintiff that it be permitted in early 1964 to use office space in a building which he owned in order to conduct a fund raising drive. Plaintiff agreed and confirmed the agreement by a letter to the Foundation, dated December 30, 1963. The text of this letter is as follows:

"This is to acknowledge your acceptance of my contribution of office space to United Cerebral Palsy of Dane County. To set the record straight I am donating to you rooms numbered 102, 104, 106 and 108 in the LINCOLN BUILDING located at 333 Price Place, Madison. These rooms consist of 1152 square feet of space on the main floor and included is heat, air conditioning, ventilation, 5 night per week janitor service, lights and electricity, parking space, use of wash room, women's rest room, halls, storage locker off utility room and venetian blinds furnished. The rent for this space is figured at $388.00 per month which is the rate I would charge your group or any other such charitable organization. You have indicated to me that you will want the space for 2½ months. Ordinarily I would not consider anything less than increments of a full month nor less than a full year lease. However, in view of the nature of your group, I am happy to have you for 2½ months which makes the value of the donated space for the 2½ months at $970.00.

"Since this donation was made in 1963 I would appreciate it if you would send me an acknowledgement indicating such date so that I may have it for my records to support my 1963 income tax return.

"Also, our records should indicate that I am donating this office space, NOT cash."

Thereafter, in the initial three and one-half months of 1964, the Foundation used four rooms, or "bays", in the Lincoln Building, located at 333 Price Place, Madison, Wisconsin. This building was owned by plaintiff. The rooms were used by the Foundation solely for charitable purposes. No rent or other expenses were paid to plaintiff by the Foundation for the use of the rooms. The Foundation is one of the types of organizations referred to in 26 U.S.C. § 170(c).

In his income tax return for 1963, plaintiff claimed a charitable deduction in the amount of $1,358. The amount of the deduction represented the total rental income which was attributed to the office space used by the Foundation during the initial three and one-half months of 1964.

On or about April 1, 1966, the Internal Revenue Service disallowed the claimed charitable deduction and assessed against plaintiff a tax deficiency in the amount of $461.72 together with interest in the amount of $53.25. Plaintiff paid the assessment on March 16, 1966, and April 7, 1966. On May 6, 1966, plaintiff filed a timely claim for refund of the assessment together with statutory interest. The claim for refund was disallowed on October 19, 1966, and this action was subsequently timely filed.

26 U.S.C. § 170(a) (1) provides for the allowance of a deduction for "* * * any charitable contribution * * * payment of which is made within the taxable year." Section 170(c) defines a "charitable contribution" as a contribution or gift to or for the use of certain enumerated types of organizations. It is undisputed that the Foundation is one of the types of organizations referred to in Section 170(c). The government contends however (1) that the permission granted by plaintiff in 1963 to the Foundation to use space in plaintiff's building in 1964 did not constitute a charitable contribution payment of which was made in 1963; (2) that if plaintiff is entitled to a charitable deduction for the amount of income which he sacrificed when he permitted the Foundation to use space in his office building, he should also constructively recognize gross income for the amount of rental income sacrificed; and (3) that if a deductible contribution was made, the government is entitled to an offset for the taxes reflected by plaintiff's claimed deduction for depreciation with respect to that portion of the building occupied by the Foundation. With respect to the last contention, the government, while adhering to its position that a depreciation deduction should not be allowed for depreciable property transferred to a charity, concedes that such a deduction in the present case would have to pertain to 1964 rather than 1963, the year for which plaintiff's tax liability is presently in issue. Accordingly, the government in its brief has requested that the defense in its answer which raises this contention be withdrawn and given no further consideration here.

The first contention of the government appears to raise two issues: (a) whether the permission granted by plaintiff to the Foundation to use space in plaintiff's office building constituted a "charitable contribution" within the meaning of Section 170(a) (1); and (b) whether, if such permission was a "charitable contribution" within the meaning of Section 170(a) (1), "payment was made within the taxable year" (1963) within the meaning of Section 170 (a) (1).

The government contends that plaintiff did not make a "charitable contribution" within the meaning of Section 170(a) (1) by granting the Foundation permission to use space in his office building. The donation of space in a building, the government asserts, is analogous to a contribution of services for which no deduction is allowed. Reliance is placed on I.T. 3918, 1948 — 2 Cum. Bull., in which the Internal Revenue Service ruled that a taxpayer who allows a charitable organization to use and occupy property could not deduct the value of such use under the predecessor of Section 170. The Internal Revenue Service concluded that permission to use and occupy property did not constitute payment to or for the use of a charitable organization within the meaning of the predecessor of Section 170; that it did not constitute a gift of property; and that it merely constituted the granting of a privilege for which no charge was made. The government also relies on Rev. Rul. 57-462, 1957 — 2 Cum.Bull. 157, which ruled that a newspaper may not deduct the contribution of free advertising space to a charity because the contribution is a service, and Rev.Rul. 67-236, 1967 — 2 Cum.Bull. 103, which ruled that a radio station may not deduct the contribution of free broadcast time to a charity.

Plaintiff concedes that a charitable deduction may not be taken for the donation of services, but contends that the donation of the use of space in a building transfers a property interest to the donee and is not analogous to the donation of services. Plaintiff further asserts that the government's position has been rejected by the courts on several occasions, citing Sullivan v. Commissioner, 16 T.C. 228 (1951); Fair v. Commissioner, 27 T.C. 866 (1957); and Passailaigue v. United States, 224 F.Supp. 682 (M.D.Ga.1963).

In Sullivan v. Commissioner, supra, the taxpayer in 1942 by deed conveyed certain property to the Red Cross for charitable purposes until the termination of hostilities then existing between the United States and Germany, Italy, and Japan or until the Red Cross should cease to use the property as its Manchester, New Hampshire headquarters, whichever event should first occur. Taxpayer claimed deductions for charitable contributions in each of the years 1942 and 1943 for the rental value of the property. The Tax Court held that the taxpayer made a single irrevocable gift to the Red Cross in 1942 in the nature of a determinable fee in the property and was, therefore, entitled to a charitable deduction in that year for the entire value of the gift.

In Fair v. Commissioner, supra, the taxpayer conveyed to a charitable organization by means of a certain instrument, the perpetual right to build, own and maintain five additional stories on an existing two-story structure owned by taxpayer, plus rights of access and support. The taxpayer did not obligate himself to rebuild the structure in the event it was destroyed, but if taxpayer did rebuild, the charitable organization also had the right to rebuild. The Tax Court held that the conveyance gave the charitable organization a present irrevocable interest in the property and that the taxpayer was, therefore, entitled to a charitable deduction in the year of the conveyance for the fair market value of the gift.

In Passailaigue v. United States, supra, the taxpayer permitted a charitable organization to use certain property without...