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Keywords

burden of proofcorporation

Related Cases

Pescosolido v. C.I.R., 91 T.C. No. 6, 91 T.C. 52, Tax Ct. Rep. (CCH) 44,888, Tax Ct. Rep. Dec. (P-H) 91.6

Facts

Carl A. Pescosolido, a controlling shareholder of Lido Corporation, donated shares of preferred stock to Harvard University and Deerfield Academy in 1978 and 1979. The donations were made after a period of business growth and were intended to support the educational institutions that had impacted his life. However, the stock was classified as section 306 stock, which has specific tax implications, and Pescosolido did not seek professional tax advice regarding the donations.

Some of the facts have been stipulated, and the facts set forth in the stipulation are incorporated in our findings by this reference. Carl A. Pescosolido (petitioner) and Virginia L. Pescosolido resided in Ipswich, Massachusetts, when their petition was filed.

Issue

Whether the deductions for charitable contributions of section 306 stock are allowable at fair market value or limited to the cost basis in the stock.

The sole issue for decision is whether petitioners' deductions for charitable contributions of section 306 stock are allowable at fair market value or limited to cost basis in the stock.

Rule

Under section 170(e)(1)(A) of the Internal Revenue Code, the amount of any charitable contribution of property is reduced by the amount of gain that would not have been long-term capital gain if the property had been sold at its fair market value.

Section 170(e) Certain Contributions of Ordinary Income and Capital Gain Property. — (1) General Rule. — The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of — (A) the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).

Analysis

The court analyzed whether Pescosolido could demonstrate that the donations were not part of a plan to avoid federal income tax. It noted that the burden of proof lies with the taxpayer and that the circumstances surrounding the donations, including Pescosolido's control over the corporation and the nature of the stock, suggested a potential tax avoidance motive. The court found that the evidence did not sufficiently negate the inference of tax avoidance.

Petitioner has the burden of proving that neither the distribution nor the disposition of section 306 stock was part of a plan of tax avoidance; that burden is a heavy one.

Conclusion

The court concluded that Pescosolido's deductions for contributions of section 306 stock to Harvard and Deerfield were limited to his cost basis in the stock, pursuant to section 170(e)(1)(A).

Petitioners' deduction for contributions of section 306 stock to Harvard and Deerfield are therefore limited to his cost basis in the stock, pursuant to section 170(e)(1)(A).

Who won?

The Commissioner of Internal Revenue prevailed in the case, as the court upheld the determination that the deductions were limited to the cost basis due to the failure to prove the absence of a tax avoidance plan.

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Keywords

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Haft Trust v. C. I. R., 510 F.2d 43, 35 A.F.T.R.2d 75-650, 75-1 USTC P 9209

Tomlinson v. 1661 Corp., 377 F.2d 291, 19 A.F.T.R.2d 1413, 67-1 USTC P 9438

Towne v. Eisner, 245 U.S. 418, 38 S.Ct. 158, 62 L.Ed. 372, L.R.A. 1918D, 254, 1 USTC P 14, 3 A.F.T.R. 2959

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