George H. Tempel and Georgetta Tempel v. Commissioner
2011 U.S. Tax Ct. LEXIS 14
Tax Ct.2011Background
- In 2004, Tempels donated a qualified conservation easement on ~54 acres in Colorado, valued at $836,500, incurring $11,574.74 in related expenses.
- As a result, they received $260,000 of Colorado conservation easement income tax credits, which were transferable to other taxpayers.
- Tempels sold $40,500 of credits for net $30,375 and $69,500 for net $52,125; they also gave away $10,000 of credits.
- On 2004 Form 1040, they reported $77,603 of short-term capital gains from the sales and allocated $4,897 basis from $11,574.74 in expenses.
- Respondent determined the credits were not capital assets and that petitioners had no basis; petitioners moved for partial summary judgment, seeking long-term gains treatment and a basis in the credits.
- The Tax Court held the credits are capital assets, petitioners have no basis in the credits, and the gains are short-term.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the transferable Colorado credits capital assets? | Tempels: credits are capital assets. | Respondent: credits are not capital assets. | Yes; credits are capital assets. |
| Do petitioners have a basis in the credits? | Tempels: basis allocated from the donation expenses or land basis should apply. | Respondent: no basis in the credits. | No basis in the credits. |
| Are gains from the sale long-term or short-term capital gains? | Tempels: holding period in land should confer long-term treatment to the credits. | Respondent: holding period in credits is not tied to land; may be long-term if held >1 year. | Gains are short-term; holding period in credits was less than 1 year. |
Key Cases Cited
- Ark. Best Corp. v. Commissioner, 485 U.S. 212 (1988) (limits on broad reading of capital asset concept)
- Commissioner v. Gillette Motor Transp., Inc., 413 U.S. 436 (1983) (capital asset definition and scope)
- Gladden v. Commissioner, 112 T.C. 209 (1999) (six-factor framework for contractual rights; substitute for ordinary income doctrine)
- Foy v. Commissioner, 84 T.C. 50 (1985) (two limitations on capital asset treatment; income vs. capital)
- United States v. Midland-Ross Corp., 381 U.S. 54 (1965) (substitute for ordinary income doctrine and capital asset limitations)