Tidler v. Commissioner
| Citation | 1987 TC Memo 268,53 TCM (CCH) 934 |
| Decision Date | 01 June 1987 |
| Docket Number | Docket No. 32713-84. |
| Parties | Harold S. Tidler v. Commissioner. |
| Court | U.S. Tax Court |
Robert E. Bullard, for the petitioner. Dahil D. Goss, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in petitioner's Federal income taxes:
Taxable Year Deficiency
1974..................... $31,273.541
1975..................... 26,323.00
1976..................... 49,181.00
1977..................... 61,689.00
1978..................... 44,992.00
1979..................... 34,862.00
After concessions, we must determine (1) the fair market value of a 15.0396-acre tract of land donated by 197 Investment Partnership to Intercity Hospital Corporation; and (2) the amount of the charitable deduction, if any, to which petitioner is entitled.2 For reasons of convenience, we have combined our findings of fact and opinion.
Some of the facts have been stipulated and are so found. This reference incorporates the stipulations of facts and attached exhibits.
Petitioner resided in Silver Spring, Maryland at the time he filed his petition in this case.
On December 23, 1969, petitioner, a practicing physician, and Dr. Allan Offen ("Dr. Offen") formed the 197 Investment Partnership ("197 Partnership"), a State of Maryland general partnership, to acquire and own as an investment a certain parcel of real estate. From the partnership's inception until October 1, 1972, petitioner and Dr. Offen each owned a 50-percent interest in 197 Partnership. Subsequently and prior to the years at issue herein, each partner sold a 10-percent share of his 50-percent interest in 197 Partnership to LB Partnership for $26,000, or a total of $52,000. During the years 1970 through 1972, 197 Partnership acquired the following properties:
The original contract of sale for the 122.6062 acres between Edna B. Tidler and 197 Partnership was dated February 10, 1970. Both purchases of land made by 197 Partnership from Edna B. Tidler were arm's-length transactions.
On June 15, 1970, Dr. Offen organized Intercity Hospital Corporation ("Intercity") as a for-profit corporation for the construction and operation of a general hospital to be known as Parkway Medical Center ("Parkway"). Dr. Offen was the sole shareholder of Intercity during the period it was a for-profit corporation. Petitioner was not involved in the activities of Intercity.
On August 18, 1970, Intercity, as "contract purchaser," applied for a special exception for a general service hospital to be built on 21.7 acres of the 122.6062 acres owned by Edna B. Tidler. Edna B. Tidler signed the application for special exception as owner of the land. On November 16, 1970, the Prince George's County Planning Board of the Maryland National Capital Park and Planning Commission unanimously recommended, at a public hearing, the approval of the application for special exception. On November 27, 1970, the Prince George's County Council, sitting as the District Council for the Maryland-Washington Regional District, following a public hearing on November 24, 1970, unanimously approved the grant of special exception for the requested purpose.
On October 22, 1970, Intercity applied for a certification of conformance (now known as a certificate of need) to the State of Maryland, acting through an agency then known as the Maryland Comprehensive Health Planning Agency ("MCHPA"), to construct Parkway on 15.0396 of the 21.7 acres which had been granted the special exception. On May 14, 1971, the MCHPA granted Intercity a certificate of need valid for one year to build Parkway. The certificate of need contained 8 conditions. From the inception, there were difficulties in achieving compliance with these conditions. On June 20, 1972, Parkway was recertified for a period of 90 days. On October 11, 1972, the project was again recertified for 90 days. Thereafter until May 8, 1974, there were further recertifications for varying periods of six months or less. During the period from October 11, 1972 to May 8, 1974, Parkway was not able to meet the conditions attached to the certificate of need to warrant a full one year extension. The certificate of need granted by the MCHPA generated both resistance and support for the project by individuals, professional groups and civic groups. On May 8, 1974, Parkway was recertified for a period of one year with stringent conditions by the MCHPA and an admonishment to Parkway that all conditions and stipulations specified in the certificate of need be met.
Pursuant to the Comprehensive Health Plan developed and effective under sec. 59C of Article 41 of the Maryland Code, the following projects were certified in Prince George's County by the MCHPA:
(a) Southern Maryland Hospital Center, in Clinton, on March 26, 1971;
(b) Prince George's Doctors Hospital, in Lanham, on April 2, 1971;
(c) Parkway Medical Center (subject project) on May 14, 1971;
(d) Greater Laurel Hospital Authority, in Laurel, on October 16, 1972; and
(e) Bowie Health Center on March 27, 1974. Prince George's Doctors Hospital, Greater Laurel Hospital Authority and Bowie Health Center, comprising a total of 656 new hospital beds, were approved. All of these approved hospital sites were to be located within 8 miles of the proposed Parkway site.
On June 1, 1972, Dr. Offen created a limited partnership known as Parkway Hospital Partnership to purchase the hospital site from 197 Partnership, construct the hospital and then lease it to Intercity. A prospectus to sell 100 limited partnership interests was prepared by Baker, Watts & Co. However, as a result of the then rising cost of mortgage money and the difficulty of obtaining it, Dr. Offen and Intercity abandoned their attempts to obtain financing through the limited partnership concept.
In order to obtain funding for the construction of Parkway through the Maryland Health and Higher Educational Facilities Authority (hereinafter referred to as "State Bond Authority"), Intercity, influenced by then Governor Marvin Mandel and Councilwoman Gladys Noon Spellman, announced in November, 1973 its conversion to a non-profit corporation. On January 18, 1974, by Articles of Amendment, Intercity converted to a non-profit corporation.
At the organizational meeting of the Board of Trustees of Intercity, as reconstituted, held on January 26, 1974, Intercity agreed to accept from Parkway Hospital Partnership all of Parkway Hospital Partnership's right, title and interest in and to the plans, commitments, contracts, and every other asset of Parkway Hospital Partnership, subject to the obligations and commitments associated with or related to all such items, in any way incident to the planning, financing, development and construction of Parkway in consideration for the reimbursement to Parkway Hospital Partnership or the payment by Intercity to such creditors for expenses incurred by Parkway Hospital Partnership in the planning, financing, development and construction of Parkway. In addition, Intercity agreed to reimburse and pay for expenses of similar nature paid or incurred by Dr. Offen and entities in which Dr. Offen had an interest. Pursuant to this agreement, on June 15, 1974, Intercity executed a note in the amount of $344,666.55 to the order of Dr. Offen and on July 28, 1975, a similar note for $47,558.78.
On June 18, 1974, the United States Government took 45.8683 acres of the 122.062 acres of land originally purchased by 197 Partnership from Edna B. Tidler in 1970. The Government initiated condemnation proceedings in the United States District Court for the District of Maryland (Civil Action H 74-628). The parcel condemned was all of the land south of the proposed Outer Beltway (now known as the "Intercounty Connector"). The condemnation case was settled before trial in July, 1976, the Government paying, and 197 Partnership accepting, $10,000 per acre for the land taken, of which $229,300 was applied to reduce the 1970 mortgage to Mrs. Tidler, leaving a balance on the mortgage of $385,700.
On July 16, 1974, Intercity borrowed $100,000 from 197 Partnership evidenced by a note without any maturity date, but providing for interest at 10 percent per annum to be paid annually.
On July 2, 1974, Intercity and 197 Partnership executed a Hospital Development Agreement with American Medical International ("AMI") to assist Intercity in the development, financing and construction of Parkway. On July 8, 1974, Intercity and AMI executed a Construction Loan Agreement in which AMI agreed to advance $500,000 to Intercity for the maintenance of construction activity on Parkway until permanent financing could be obtained. This advance was to be secured by a second deed of trust (subject to the existing mortgage to Edna B. Tidler). In July, 1974, Intercity and 197 Partnership executed a second deed of trust note in the amount of $500,000 in favor of AMI, to be secured by the second deed of trust.
In June, 1974, construction began on the 15.0396 acres hospital site owned by 197 Partnership pursuant to a contract between Intercity and Volpe Construction Co., Inc. ("Volpe Construction"). The $500,000 advanced by AMI was used to pay Volpe Construction. On August 20, 1974, Intercity was advised by the MCHPA...
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