SCOTUS Reports

Tag: Basis in Property

  • Morrison v. Commissioner, 71 T.C. 683 (1979): Deductibility of Donated Congressional Papers

    Morrison v. Commissioner, 71 T. C. 683 (1979)

    A taxpayer cannot claim a charitable contribution deduction for donated congressional papers and documents, classified as ordinary income property, without establishing a basis in the property.

    Summary

    James H. Morrison, a former U. S. Congressman, donated a collection of congressional papers and memorabilia to Southeastern Louisiana University, claiming a charitable deduction. The IRS disallowed the deduction, arguing the papers were ordinary income property under section 170(e)(1)(A) of the IRC, and Morrison had no basis in the property. The Tax Court agreed, holding that the donated items were not capital assets under section 1221(3), and Morrison failed to establish a basis in the property. The decision highlights the tax treatment of donated official papers and the importance of establishing a basis for claiming deductions on such contributions.

    Facts

    James H. Morrison, a former Congressman from Louisiana, donated a collection of congressional papers, documents, correspondence, memoranda, pictures, and memorabilia to Southeastern Louisiana University on September 21, 1970. The collection, valued at $61,100, was donated unconditionally to the university. Morrison claimed a charitable contribution deduction of $12,220 for 1970, with carryovers to subsequent years. The IRS disallowed the deduction, asserting that the donated items were ordinary income property under section 170(e)(1)(A) and Morrison had no basis in the property.

    Procedural History

    The IRS disallowed Morrison’s claimed charitable contribution deduction for the donation of his congressional papers. Morrison petitioned the United States Tax Court for a redetermination of the deficiencies determined by the IRS. The Tax Court heard the case and issued its opinion on January 29, 1979, denying Morrison’s claimed deduction.

    Issue(s)

    1. Whether the donated collection of congressional papers and documents constitutes a capital asset under section 1221(3) of the IRC.
    2. Whether Morrison established a basis in the donated property for the purpose of claiming a charitable contribution deduction under section 170(a) of the IRC.

    Holding

    1. No, because the donated items are fairly described as ordinary income property under section 1221(3) and section 1. 1221-1(c)(2) of the Income Tax Regulations, and thus do not constitute capital assets.
    2. No, because Morrison failed to establish a basis in the donated property, thereby disallowing any charitable contribution deduction under section 170(e)(1)(A) of the IRC.

    Court’s Reasoning

    The court applied the statutory definition of capital assets under section 1221, which excludes letters, memoranda, and similar property created by or for the taxpayer. The donated items were primarily correspondence and documents related to Morrison’s congressional activities, fitting the description of ordinary income property. The court rejected Morrison’s arguments that he had a basis in the property derived from personal expenditures or government allowances, as these were either already deducted or not directly attributable to the creation of the donated items. The court also dismissed Morrison’s claim that campaign contributions constituted gifts with a carryover basis, citing that such contributions are not gifts under tax law.

    Practical Implications

    This decision clarifies that congressional papers and similar official records are not capital assets for tax purposes, affecting how similar donations are treated. Taxpayers attempting to claim deductions for such contributions must establish a basis in the property, which is challenging given the nature of these items as ordinary income property. The ruling underscores the need for careful documentation and understanding of tax regulations when making charitable contributions of official records. Subsequent cases involving deductions for donated official papers will likely reference Morrison v. Commissioner to determine the applicability of section 170(e)(1)(A). Legal practitioners should advise clients on the potential tax consequences of donating such materials, emphasizing the importance of establishing a basis for any claimed deductions.

  • Farcasanu v. Commissioner, 50 T.C. 881 (1968): Confiscation by Foreign Government Not Considered Theft for Tax Deduction Purposes

    Farcasanu v. Commissioner, 50 T. C. 881 (1968)

    Confiscation of property by a foreign government, even if arbitrary and despotic, does not constitute a theft loss deductible under Section 165(c)(3) of the Internal Revenue Code.

    Summary

    Louisa B. Gunther Farcasanu sought a tax deduction for a ‘theft’ loss after her property in Romania was confiscated by the Communist regime between 1947 and 1951. The U. S. Tax Court ruled that such confiscation, despite being under color of law, did not qualify as a theft under IRC Section 165(c)(3). However, the court recognized her basis in the confiscated property as at least equal to the amount she recovered from the Foreign Claims Settlement Commission, thus allowing her to offset any capital gains from this recovery.

    Facts

    Louisa B. Gunther Farcasanu’s husband, Franklin M. Gunther, an American diplomat, died in Romania in 1941. After his death, Farcasanu left most of their valuable personal property in Romania when she evacuated in 1942 due to Romania’s declaration of war on the U. S. She returned to Romania in 1945 and again in 1947, leaving her property with friends, but was unable to retrieve it due to the political instability. Between 1947 and 1951, her property was confiscated by the Communist regime under various decrees. In 1959, Farcasanu filed a claim with the Foreign Claims Settlement Commission and was awarded $103,445, receiving a net payment of $23,386. 45. She sought to deduct the difference between her claim and the award as a theft loss on her 1959 tax return.

    Procedural History

    Farcasanu filed her 1959 tax return claiming a theft loss deduction of $192,271. 50. The IRS disallowed the deduction and determined that the net recovery from the Foreign Claims Settlement Commission should be taxed as capital gain. Farcasanu petitioned the U. S. Tax Court, which upheld the IRS’s disallowance of the theft loss deduction but allowed her to offset the capital gain by recognizing her basis in the property as at least equal to her net recovery.

    Issue(s)

    1. Whether the confiscation of Farcasanu’s property by the Communist regime in Romania constituted a theft loss deductible under IRC Section 165(c)(3).

    2. Whether Farcasanu’s net recovery from the Foreign Claims Settlement Commission should be taxed as capital gain and, if so, what her basis in the confiscated property was.

    Holding

    1. No, because the confiscation was under color of law by a recognized foreign government, it did not constitute a theft as defined by IRC Section 165(c)(3).

    2. Yes, the net recovery was taxable as capital gain, but Farcasanu’s basis in the property was at least equal to her net recovery, allowing her to offset the gain.

    Court’s Reasoning

    The court relied on the precedent set in William J. Powers, which held that confiscation by a foreign government, even if despotic, does not qualify as a theft under IRC Section 165(c)(3). The court emphasized the ‘Act of State’ doctrine, which precludes judicial determination that acts of a recognized foreign government constitute theft. The court noted that Congress’s subsequent enactment of IRC Section 165(i) to allow deductions for specific Cuban expropriations further supported their interpretation that confiscation by a foreign government is not generally deductible as theft. Regarding the basis in the property, the court found that Farcasanu’s basis was at least equal to her net recovery, allowing her to offset any capital gain from the award.

    Practical Implications

    This decision clarifies that property confiscation by a foreign government, even if under despotic regimes, is not deductible as a theft loss under IRC Section 165(c)(3). Taxpayers facing similar situations must look to specific legislation, such as IRC Section 165(i) for Cuban expropriations, for potential deductions. The ruling also underscores the importance of establishing a basis in confiscated property to offset any capital gains from recovery awards. Subsequent cases involving property seized by foreign governments will likely reference this decision to determine the deductibility of losses and the taxation of recoveries.