Sullivan v. Commissioner

Priscilla M. Sullivan, Petitioner, v. Commissioner of Internal Revenue, Respondent Sullivan v. Commissioner Docket No. 17467 United States Tax Court 16 T.C. 228; 1951 U.S. Tax Ct. LEXIS 293; January 29, 1951, Promulgated *293 Decision will be entered under Rule 50. Petitioner owned property which she caused to be conveyed to the Red Cross in 1942 for the duration of the war or until it should cease to be used as the headquarters for its Manchester, New Hampshire, Chapter, whichever event should first occur. She claimed deductions for charitable contributions in each of the years 1942 and 1943 of the rental value of the property. Held, petitioner made a single irrevocable gift to the Red Cross in 1942, in the nature of a determinable fee in the property, and is entitled to deduct as a charitable contribution in that year, under section 23 (o), I. R. C., the value of the gift. John E. Shea, Esq., for the petitioner. Leo C. Duersten, Esq., for the respondent. Raum, Judge. RAUM *228 The respondent determined a deficiency in income tax for the *294 year 1943, in the amount of $ 1,166.73, of which $ 1,074.73 is now in dispute. The principal issue is whether he properly disallowed deductions claimed by petitioner as charitable contributions under section 23 (o) with respect to a transaction whereby petitioner in 1942 turned over without consideration a house owned by her in Manchester, New Hampshire, to the American National Red Cross to be held by it until termination of the war or until the premises should cease to be used by the Manchester Chapter of the Red Cross as its headquarters, whichever event should first occur. Petitioner claimed a deduction for both 1942 and 1943 based upon rental value of the premises for each year, and the year 1942 is involved only because of the forgiveness feature of the Current Tax Payment Act of 1943, whereby tax liability for 1943 is made to depend upon computation of taxable net income for both 1942 and 1943. A subsidiary issue is whether the proceeding, to the extent that it relates to 1942, is barred by limitations. *229 By amended answer, respondent asserts that if petitioner is entitled to deduction with respect to the rental value of the property, then petitioner realized income*295 in the amount of such rental value. FINDINGS OF FACT. Petitioner, an individual residing at 1330 Union Street, Manchester, New Hampshire, and 4871 Glenbrook Road, N. W., Washington, D. C., filed her individual income tax returns on the cash basis for the calendar years 1942 and 1943 with the collector of internal revenue for the district of New Hampshire. Prior to 1942 petitioner acquired under the will of her grandfather, who died April 13, 1938, certain real estate at 1800 Elm Street, Manchester, New Hampshire, consisting of a house, lot, and stable and garage combined. The residence at 1800 Elm Street was never rented by petitioner, nor occupied by any member of her family after she had acquired it. She never made any attempt to rent the premises. On March 30, 1942, petitioner and her husband executed a deed conveying the property at 1800 Elm Street in fee simple to Thomas E. Dolan, an attorney, who, on the same day executed a deed conveying the same property to the American National Red Cross, referred to hereinafter as the Red Cross. Beginning with the habendum clause, the latter deed provided as follows: TO HAVE AND TO HOLD the afore-described premises, with all the privileges*296 and appurtenances thereunto belonging to it, the said American National Red Cross, until the termination and cessation of the state of war now existing between the Government of the United States of America and the Governments of Germany, Italy and Japan by treaty of peace or otherwise or until said premises shall cease to be used by the Manchester Chapter of the said American National Red Cross for the purpose to which the said premises are now being put by the said Manchester Chapter as its headquarters, whichever event shall first occur. This conveyance is made with the express restriction that no alterations or changes shall be made in the said building without the consent of the remainderman hereinafter referred to and that the premises shall not be used, nor put to any other purpose than as headquarters for the general work now being carried on by the said Manchester Chapter. Upon the happening of the condition above set forth, for the consideration aforesaid, I do hereby remise, release and forever quitclaim the said premises to Priscilla M. Sullivan of said Manchester. To have and to hold the afore-described premises with all the privileges and appurtenances thereunto belonging*297 to her, the said Priscilla M. Sullivan, and her heirs and assigns to them and their use and behoof forever. And I do hereby covenant with the said American National Red Cross and with the said Priscilla M. Sullivan, her heirs and assigns, that I will and my heirs and assigns shall warrant and defend the said premises to the said American National Red Cross and to the said Priscilla M. Sullivan, her heirs and assigns forever, against the lawful claims and demands of all persons claiming by, from or under me. * * * * *230 Dolan did not at any time have any beneficial interest in the property. The two deeds were merely parts of a single transaction, whereby petitioner gave to the Red Cross the above described interest in the property. The Manchester Chapter of the Red Cross had already commenced occupancy of the premises at 1800 Elm Street in November 1941; its occupancy continued throughout the years 1942 and 1943, and it was still in possession at the time of the hearing in this case, November 1949. The Red Cross made no payment to petitioner for use of the premises. The property at 1800 Elm Street was valued at $ 25,000 for local real estate taxes in 1941. Such taxes were*298 assessed in the amount of $ 1,600 for 1941, which petitioner paid. In addition, she paid approximately $ 1,500 for caring for the property in 1941. She paid no real estate taxes on the property after the transfer to the Red Cross. The fair market value of the property during 1942 and 1943 was $ 25,000; its rental value during those years was $ 200 a month. Petitioner did not make separate gifts in 1942 and 1943 to the Red Cross with respect to 1800 Elm Street. She made a single gift to the Red Cross in 1942, described in the foregoing deed from Dolan to the Red Cross. The fair market value of the property interest which she thus gave to the Red Cross in 1942 was not less than $ 2,400. The Red Cross is an exempt organization under section 101 (6) and is a qualified donee under section 23 (o) of the Internal Revenue Code. On her Federal income tax return for each of the years 1942 and 1943 petitioner deducted as a charitable contribution, in addition to other charitable contributions, the amount of $ 2,400 said to represent the "rental value" of the property "loaned" to the Red Cross for each of those years. Respondent's deficiency notice, mailed December 9, 1947, asserted a deficiency*299 for the year 1943; in that notice he disallowed deductions for 1942 and 1943 for the foregoing "rental value" of the property. OPINION. At the outset, we reject respondent's preliminary contention that whatever gift was made to the Red Cross was made by Dolan, rather than by the petitioner. The two deeds must be read together as component parts of an integrated transaction, and it is fanciful to suggest that petitioner merely made a gratuitous transfer to Dolan. On the other hand, neither do we agree with petitioner's position that she made a series of annual gifts measured by the rental value of the property for each year. Although petitioner testified that she intended that the Red Cross should have the use of the property from year to year, and indeed such *231 may have been her view of the transaction, the fact is that she made a single completed gift in 1942. The Red Cross did not take over the property as a tenant at will, or from month to month, or from year to year. It was given a present, immediate, irrevocable interest in the property of indefinite duration. Its interest could not be terminated by petitioner during the period described in the habendum clause. *300 The Red Cross received a freehold in the nature of a determinable fee. See 1 Tiffany, Real Property (3d Ed.), § 220; 1 Fearne, Remainders (4th Am. Ed.), p. 381, n; First Universalist Society v. Boland, 155 Mass. 171; Lyford v. Laconia, 75 N. H. 220; but cf. Gray, Rule Against Perpetuities (4th Ed.), §§ 13, 31 et seq. When the transfer was completed, it became the owner of the property, subject to a right of reverter in the petitioner in accordance with the terms of the deed. Thus, petitioner was no longer liable for real estate taxes with respect to the property, and in fact paid none after March 30, 1942. We hold that petitioner made a gratuitous transfer to the Red Cross on March 30, 1942, and that she is entitled to a deduction from her 1942 gross income measured by the fair market value of her gift, within the limitations of Section 23 (o). It is not disputed that, by reason of the 15 per cent limitation in Section 23 (o), the maximum amount of deduction allowable with respect to this charitable contribution would be less than $ 2,400. Accordingly, since we have found that the value of the property interest*301 given by petitioner to the Red Cross in 1942 was not less than $ 2,400, she is entitled to a deduction for 1942 in an amount sufficient to absorb the full 15 per cent permissible under the statute. In view of this holding it is unnecessary to reach petitioner's second issue that the year 1942 is barred by limitations, although, as she recognizes, that point has been decided against her in at least several cases. Lawrence W. Carpenter, 10 T. C. 64; Fred B. Snite, 10 T. C. 523, affd. on other grounds (CA-7), 177 Fed. (2d) 819; William W. Todd, 10 T. C. 655; Estate of Carr V. Van Anda, 12 T. C. 1158; Z. W. Koby, 14 T. C. 1103. Nor is it necessary to reach respondent's alternative position, for his proposed additional assessment based upon the inclusion of the rental value of the property in petitioner's gross income is conditioned upon a decision that petitioner made a charitable contribution of the rental value of the property. Since we have made no such ruling, there is no occasion to consider that question. *302 We hold that petitioner has not made gifts of the rental value of the property in 1942 and 1943, but that she has made a completed gift in 1942 which is deductible within the limitations imposed by the statute. Decision will be entered under Rule 50.