Date	Payee	Amount	Explanation
8/20/80	The Higbee Co.	$24.13	Office expense
9/05/80	I.B.M. Co.	108.29	Office expense
10/14/80	Sunmark Industries	393.32	Gasoline
12/29/80	The Higbee Co.	36.41	Office expense

*342 We find these amounts to be Zion's expenses.

Petitioner is a real estate investor and has purchased and sold real estate for himself and members of his family. Between 1976 and 1980 petitioner donated unimproved property to several charitable organizations and governmental entities. During the period 1963 through 1980, petitioner and members of his family donated numerous parcels of real property to Zion.

On December 8, 1980, petitioner donated eight parcels of unimproved property located in Cuyahoga County, Ohio to Zion and claimed a deduction of $27,500 for the donation as a charitable contribution. Respondent determined that petitioner had significantly overstated the value of the properties. The chart below sets forth the fair market values of the donated properties as claimed by petitioner and as determined by respondent:

Cuyahoga County Ohio	FMV Claimed	FMV Determined
Permanent Parcel Number	by Petitioner	by Respondent
A. 108-28-005	$ 4,000.00	$1,000.00
B. 142-27-212	5,000.00	2,600.00
C. 361-17-029	7,000.00	1,850.00
D. 795-07-120, 121, 122	7,500.00	1,000.00
E. 795-08-046, 048	4,000.00	0.00

Total	$27,500.00	$6,450.00

*343 In 1980 Permanent Parcel Number 108-28-005 ("Property A") was a 30' X 90' unimproved parcel with access to public utilities. Property A was zoned commercial, a designation that permits both commercial and residential uses, and was located on the westerly side of East 108th Street, South of St. Clair Avenue, in the northeast section of Cleveland, Ohio. The surrounding neighborhood on December 8, 1980, was an area of both residential and commercial uses. The neighborhood was fully developed and in a state of declining growth. Property A had no viable commercial use. Due to the dimensions of Property A, the proximity of adjacent buildings, and the proximity restraints imposed on residential use property under the Cleveland zoning laws, the types of residential improvements that could be built on Property A were significantly restricted. We find the fair market value of Property A to be $1,000 on December 8, 1980.

In 1980 Permanent Parcel Number 142-17-212 ("Property B") was a 30' X 15' unimproved parcel with access to public utilities. Property B is zoned for residential use and located on the south side of Ohio Avenue, on the south side of Cleveland, Ohio. In 1980 the immediate*344 area was residential but large tracts of property adjacent to Property B were zoned and developed for industrial use. We find the fair market value of Property B to be $2,600 on December 8, 1980.

In 1980 Permanent Parcel Number 361-17-029 ("Property C"), an approximately 60' X 66' unimproved parcel with access to public utilities, was zoned single family residential and was located on the westerly side of Wesley Drive in the City of Berea, Ohio. All of the surrounding properties had been developed for residential use. We find the fair market value of Property C to be $1,850 on December 8, 1980.

In 1980 Permanent Parcel Numbers 795-07-120, 121 and 122 ("Property D") and Permanent Parcel Numbers 795-08-046 and 048 ("Property E") were unimproved parcels located in the northern part of Oakwood Village, Ohio. The village had not installed any public improvements to serve Property D or Property E. All of the subject parcels were in an area zoned residential. The immediate area was only partially developed with a mixture of older and newer residential construction.

Property D comprises three adjacent parcels identical in size. Property D is rectangular with dimensions of 120' X*345 150' located on the west side of Northam Drive between Booker Avenue and Suwanee Avenue, an undeveloped area. We find the fair market value of Property D to be $1,000 on December 8, 1980.

Property E consists of two parcels of unimproved land, each measuring 40' X 125'. The parcels are not contiguous. Property E is located on the northerly side of Suwanne Avenue west of Lawson Road and east of Kentucky Drive, and as of January 1986, Suwanee Avenue at the sight of the subject properties had not been developed. We find Property E to have had a nominal $10 value on December 8, 1980.

Petitioner claims to have made several other noncash charitable contributions in 1980 for which he claimed deductions totaling $700.00. Included in this amount were several miscellaneous items donated to the Salvation Army, the fair market value of which was claimed to be $150.00. The receipt for these items was made out to "Mrs. Simon" at "24728 Letchworth, Beachwood 44122." Mrs. Simon was petitioner's mother-in-law, and the zip code 44122 is a location in Ohio. We find that petitioner's mother-in-law donated the personal property and not on petitioner's behalf. Another donation that*346 petitioner claims that his mother-in-law made on his behalf was a recliner and two chairs to the Volunteers of America which he valued at $150.00. The date on the receipt for this donation is April 19, 1978. We find that petitioner did not make the claimed donation to Volunteers of America and that the donation was made in 1978. Petitioner also claimed a deduction for a foosball section 170(c)(5). Respondent contends that Zion was not in 1980 a cemetery company within the meaning of section 170(c)(5) because petitioner used Zion for his personal enrichment.

The statute prohibits inurement to a*347 private shareholder or individual. Petitioner's contribution to Zion will not be deductible if any part of Zion's net earnings inured to petitioner for his private benefit. Payment of an unreasonable or excessive salary to an officer of a nonprofit corporation constitutes inurement, Knollwood Memorial Gardens v. Commissioner,46 T.C. 764">46 T.C. 764, 787 (1966), as does payment of unreasonable rents, Texas Trade School v. Commissioner,30 T.C. 642">30 T.C. 642, 647 (1958), affd. per curiam 272 F.2d 168">272 F.2d 168 (5th Cir. 1959), and the payment of personal expenses of an officer of the exempt organization. Restland Memorial Park of Dallas v. United States,509 F.2d 187">509 F.2d 187, 189 (5th Cir. 1975). ^{B.H.W. Anesthesia Foundation, Inc. v. Commissioner,72 T.C. 681">72 T.C. 681, 686 (1979).}

*348 Respondent contends that certain payments that Zion made in 1980 resulted in inurement of net earnings to petitioner for his private benefit. The payments at issue are Zion's payment of a management fee to Evergreen for services petitioner rendered to Zion; Zion's payment of a portion of petitioner's credit card bills and of certain expenses billed directly to Hawkins; and Zion's payment of rent to Hawkins.

We believe that petitioner has carried his burden of proof to explain each of these payments. In so holding, we have relied heavily on the testimony of Celeste Wells, the retired bookkeeper of Zion. Her testimony was straightforward, confident and unblemished by respondent's cross-examination.

The management fee paid to Evergreen represented compensation for services actually rendered to Zion and on this record the amount appears to be reasonable. *349 Zion's payment of a portion of petitioner's credit card bills did not constitute inurement but reimbursement for expenses he incurred on behalf of Zion. Similarly Zion's payment of a bill on Hawkins' account in 1980 was for the purchase of carpeting used by Zion. section 170(c)(5) for his contributions of real property to Zion in 1980. Consequently, we must determine the fair market value of the properties contributed.

Fair market value is the price at which property would change hands between a willing seller and a willing buyer, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. See section 1.170A-1(c)(2), Income Tax Regs. We hold that petitioner has not*350 carried his burden of proof. Welch v. Helvering,290 U.S. 111">290 U.S. 111, 112 (1933).

To estimate the value of unimproved properties, appraisers most frequently rely on the comparable sales method of valuation. The comparable sales approach produces an estimation of value by comparing the subject property to similar properties that recently have been sold in the vicinity. The reliability of the comparable sales method depends on several factors, including the availability of verifiable comparable sales data and the degree of comparability of the properties.

Wayne Levering, a professional appraiser, valued the subject properties for petitioner as of December 8, 1980. As to each parcel of property, we find that Levering's practices were cursory, unreliable, and inaccurate. Levering used properties that were not in fact comparable to value the subject properties and as a result significantly overstated their values. He relied on sales of commercially zoned properties as comparable sales data to value property zoned for residential use and sales of residentially zoned properties to value property zoned for commercial use. He used sales of properties in a generally well-maintained*351 neighborhood to value a parcel in declining neighborhood. Moreover, he listed some supposedly comparable properties as unimproved which in fact had been improved as of the comparable valuation date and significantly overstated the size of Property C because he had not examined the deed.

Respondent's appraiser, Gregory Zivoder, provided forthright and reliable evaluations of fair market value for the subject parcels, and we accept his findings. Specifically with regard to our finding that Property E had only minimal value as of December 8, 1980, it appears that the only verified sales of unimproved property in the immediate area between 1972 and 1982 were condemnation or sheriff's sales for taxes owed. Although a sheriff's sale is a distress sale and is, generally, not a reliable indicator of fair market value, in the case of Property E, the sheriff's sales are the only sales of comparable properties in the area. Zivoder relied on sheriff's sales of improved properties as comparable sales and because Property E was unimproved, subtracted the cost of improvements from the average sale price of the comparable properties. The cost of improvements exceeded the price anyone was willing*352 to pay in 1980 for the right to carry the taxes on the comparable properties. Thus, Zivoder appraised Property E as having no fair market value as of the valuation date. Since we are not persuaded that the full cost of improvements should be subtracted from the sheriff's sale price to determine Property E's fair market value, we find that Property E had some value which we find to be $10.

The second issue is whether petitioner has substantiated $700.00 in miscellaneous contributions for which he claimed deductions on his 1980 joint Federal income tax return. Harris v. Commissioner,745 F.2d 378">745 F.2d 378, 379 (6th Cir. 1984). We find that he has not.

Petitioner claimed deductions in 1980 for (1) miscellaneous items that were donated to the Salvation Army and valued at $150.00; (2) a recliner and two chairs that were donated to the Volunteers of America and valued at $150.00; and (3) a foosball table that petitioner donated to the City of Ithaca and valued at $400.00. The receipts that petitioner submitted to substantiate his donations to the Salvation Army and the Volunteers of America, however, were issued to petitioner's mother-in-law. The date on the Volunteers of*353 America receipt is September 19, 1978. Petitioner did not specifically testify as to the date he donated the foosball table to the City of Ithaca, and the receipt does not state when the foosball table was received. ^{section 6653(a) for negligence or intentional disregard*354 of rules and regulations. Respondent's determination of negligence or intentional disregard of rules and regulations is prima facie correct and petitioner bears the burden of proof to the contrary. Bixby v. Commissioner,58 T.C. 757">58 T.C. 757 (1972). Petitioner has not shown that he acted reasonably and prudently and exercised due care in obtaining appraisals of fair market value for the property he donated to Zion and in claiming deductions for donations to other organizations in 1980. See Neely v. Commissioner,85 T.C. 934">85 T.C. 934, 947-48 (1985).}

To determine the value of the real property he donated to Zion in 1980, petitioner relied on an appraisal report prepared by Wayne Levering. Levering had done appraisals of petitioner's donated properties in previous years and, on at least one occasion, had shown his work to be unreiable. *355 real estate investor in the Cleveland area, petitioner can be expected to have a better than average knowledge of land values in the area. Petitioner is a sophisticated business man who, we believe, knew that he was overstating the value of his claimed deductions. Finally, as to the miscellaneous personal deductions, we believe petitioner knew, for the donations to the Volunteers of America and to the Salvation Army, that he had not made them. Petitioner was negligent in claiming the amount of the deduction for charitable contributions on his 1980 return.

To reflect the foregoing,

Decision will be entered under Rule 155.

Footnotes

1. All section references are to the Internal Revenue Code of 1954, as amended and in effect during the year in issue.↩
2. Foosball is a game played on a table designed to resemble a soccer field. There are handles on the sides with which the players push the ball up and down the field.↩
3. Although all of these cases concern eligibility for tax exempt status under section 501(c), the language prohibiting inurement is identical to that in section 170(c)(5)↩.
4. On July 11, 1983, the Internal Revenue Service revoked Evergreen's tax exemption effective January 1, 1978, in part because some of Evergreen's net earnings inured to petitioner's benefit in the form of excessive salaries. Evergreen's status was not at issue before the Court, and we do not comment on it. The revocation of Evergreen's tax exemption in 1983, however, is not dispositive of whether Zion paid Evergreen an excessive management fee in 1980.↩
5. Based on Wells' testimony, Zion's payment of office expenses and a repair bill charged on a gasoline card was payment of its own expenses.↩
6. In response to the question whether he had made any donations of personal property in 1980, petitioner stated generally that he had made donations to the Salvation Army, the Volunteers of America and the City of Ithaca. Given that the receipt from the Salvation Army offered to help substantiate petitioner's contribution was his mother-in-law's and that the receipt offered to help substantiate petitioner's donation to the Volunteers of America bears the date September 19, 1978 (and is also in his mother-in-law's name), we are not inclined to believe that petitioner donated the foosball table in 1980 without more specific evidence of when the donation was made and when the City of Ithaca actually received it.↩
7. On October 20, 1980, Levering completed a certificate of appraisal for petitioner valuing Permanent Parcel Number 019-14-117 at $10,000.00 as of December 31, 1977. He used several nearby properties as comparable sales. Levering did not physically inspect the parcel or examine the deed. Had he done so, he would have discovered that the City of Cleveland had acquired the property from petitioner in 1964 by eminent domain and that as of the valuation date it was part of an interstate highway.↩

Document Info

Docket Number： Docket No. 10895-84.

Citation Numbers： 51 T.C.M. 1343, 1986 Tax Ct. Memo LEXIS 334, 1986 T.C. Memo. 273

Filed Date： 7/3/1986

Precedential Status： Non-Precedential

Modified Date： 11/20/2020

Authorities (4)

Texas Trade School v. Commissioner of Internal Revenue , 272 F.2d 168 ( 1959 )

Welch v. Helvering , 54 S. Ct. 8 ( 1933 )

Restland Memorial Park of Dallas v. United States , 509 F.2d 187 ( 1975 )

Robert C. Harris and Frances A. Harris v. Commissioner of ... , 745 F.2d 378 ( 1984 )

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