*44 Decision will be entered under rule 155.
Ps bought property at a U.S. Customs Service auction. Ps held the property for more than 1 year and then donated it to an organization tax exempt under
Held, in deciding whether the limitation of
Held, further, the property at issue, if sold, would not be considered to be held by Ps primarily for sale to customers under
*2 COLVIN, Judge: Petitioners in these consolidated cases claimed charitable contribution deductions for the donation of a total*45 of 180,000 Christmas cards to Catholic Charities. Respondent disallowed those deductions and determined income tax deficiencies, with additions to tax and increased interest as reflected in the appendix, infra. After concessions and our opinion in
Section references are to the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure. The term "petitioners" generally does not include spouses of the persons who were actively involved in the transactions.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. We incorporate by reference the findings of fact in
*3 1. Petitioners' Medical*46 Goods Contributions
This section relates to events that preceded petitioners' purchase and charitable contribution of the Christmas cards.
Petitioner Barry Adler (Adler) worked in the medical industry before and during the years at issue. In the late 1970s, Adler bought medical equipment at a bankruptcy auction and donated it to a hospital. Adler discussed making charitable contributions of medical equipment with his accountant, petitioner Donald Saltzman (Saltzman), after he contributed the equipment to the hospital.
In 1980, Adler and Saltzman began an arrangement in which Adler bought medical supplies and equipment at bankruptcy auctions for clients or members of the accounting firm. The goods were stored for 1 year and then donated primarily to West Hudson Hospital or Pan American Development Foundation. From 1980 to 1982, Adler bought medical goods to be donated by members and clients of the Albano, Leaf firm for which the donors claimed charitable contribution deductions of $ 3 to $ 4 million.
Petitioners Pasqualini, Hassler, Perito, Marion, Seacor, Raymond Wendel, Frederick Wendel, and Richard Wendel of the clients group and Pfeil, Maeder, Leaf, Albano, and Saltzman*47 of the accountants group deducted charitable contributions of medical goods totaling $ 202,830 under this arrangement in 1982. 2
2. The Customs Service Auction of Christmas Cards
On December 8, 1981, Adler went to a U.S. Customs Service (Customs Service) auction preview at the World Trade Center in New York City to buy medical equipment. While there, he saw Christmas cards with gold medallions among the property to be auctioned 2 days later. There were 10 lots of 18,000 cards each, for a total of 180,000 cards. The Customs Service auction catalogue stated that the cards were valued for import duty purposes at $ 10.50 each, for a total of $ 1,890,000.
Adler contacted Saltzman to ask whether the cards could be purchased and donated to obtain tax benefits. Saltzman said yes, if they found a charitable donee to use the cards in its normal operations. Adler contacted a friend of his, Hy*4 Frankel (Frankel), who occasionally*48 did work for Catholic Charities, Diocese of Brooklyn (Catholic Charities). Frankel said that Catholic Charities might be interested in the cards.
On December 10, 1981, Adler, Saltzman, and Emil Solimine purchased the 180,000 Christmas cards for $ 30,000 at the Customs Service auction. Adler paid for the cards to be delivered and stored in a warehouse, where they remained until they were delivered to Catholic Charities.
Petitioners have not dealt with Christmas cards or any similar property in any trade or business.
3. Donation of the Cards to Catholic Charities
After the auction, Frankel referred Adler to Thomas DeStefano (DeStefano), the Executive Director of Catholic Charities. Catholic Charities is tax exempt under
Petitioners held the cards for more than 1 year. Around December 27, 1982, petitioners donated the cards to Catholic Charities.
4. Petitioners' 1982 Tax Returns
Petitioners each claimed a deduction on their 1982 tax returns for a charitable contribution*49 of the Christmas cards based on the Customs Service value of $ 1,890,000 ($ 10.50 per card). Deductions that exceeded the percentage limitations in
OPINION
1. Limitation on Charitable Contribution If Property Donated Would Have Been Ordinary Income Property If Sold
A charitable contribution deduction is reduced by any gain that would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value.
*51 Respondent argues that petitioners' charitable contribution deductions should be limited to petitioners' cost bases in the cards. Respondent contends that the cards are the inventory of a charitable donation venture because they were purchased and held to contribute to charity and thus were ordinary income property for purposes of
Petitioners argue that the donation of property, even in large quantities, does not transform an investor into a dealer for purposes of
*6 2. Whether the Christmas Cards Were Ordinary Income Property
The parties agree that we should apply
Whether property is held by a taxpayer primarily for sale to customers in the ordinary course of business is a question of fact.
The following factors are among *53 those which indicate whether property is held primarily for sale to customers in the ordinary course of a trade or business: (1) The frequency and continuity of sales; (2) the extent and substantiality of sales; (3) the purpose for which the taxpayer acquired and held the property; (4) the time between purchase and sale; (5) the extent of improvements made to facilitate its sale; and (6) the taxpayer's advertising and promotion efforts.
a. Number, Frequency, and Substantiality of Sales (Factors 1 and 2)
The frequency and substantiality of sales is the most important factor in deciding whether property is held for sale to *54 customers.
*55 b. Purpose of Acquisition and Duration of Ownership (Factors 3 and 4)
Petitioners undisputedly met the 1-year holding period of section 1222; however, they bought the cards to donate to charity and not for appreciation. On balance, this factor favors respondent.
c. Promotional Activities and Improvements To Property (Factors 5 and 6)
Petitioners made no improvements to the cards (such as supplying envelopes for them, removing them from the outer folder, or packaging them in a form suitable for retail sales), did no advertising, and made relatively little effort to arrange the gift of the cards to Catholic Charities. This factor favors petitioners.
We conclude that, on balance, the factors show that, if petitioners had sold the cards at their fair market value rather than donated them, the gain would have been long-term capital gain. 7
*56 Respondent points out that the Internal Revenue Service has ruled that a donor who is not actively engaged in a trade or business and who makes a large number of charitable contributions*8 may be engaged in activities that are substantially equivalent to the activities of a dealer, particularly if the donor makes the contributions after holding the property the minimum time required to meet the long-term capital gain holding requirement.
*57 We conclude that the
Decisions will be entered under Rule 155.
APPENDIX
| Additions to Tax | ||||
| Sec. | Sec. | |||
| Petitioner | Year | Deficiency | 6653(a)(1) | 6653(a)(2) |
| Pasqualini | 1982 | $ 21,570.16 | $ 1,078.51 | 1 |
| Hassler | 1982 | 32,147.00 | 1,607.35 | |
| 1983 | 13,640.50 | 682.03 | ||
| 1984 | 7,456.00 | 372.80 | ||
| Saltzman | 1982 | 5,383.00 | 269.15 | |
| Seacor | 1982 | 28,404.00 | 1,420.20 | |
| Perito | 1982 | 18,942.00 | 947.10 | |
| 1983 | 8,608.00 | 430.00 | ||
| Ray. Wendel | 1982 | 5,710.00 | 974.00 | -- |
| 1983 | 17,700.00 | 885.00 | ||
| Tendler | 1982 | 2,821.00 | 141.05 | |
| Marion | 1982 | 32,335.00 | 1,617.00 | |
| Pfeil | 1982 | 4,474.00 | 223.70 | |
| Bloom | 1982 | 3,380.00 | 169.00 | |
| Schartoff | 1982 | 2,293.00 | 114.65 | |
| Maeder | 1982 | 3,602.00 | 180.10 | |
| Leaf | 1982 | 9,329.00 | 466.45 | |
| Leonhard | 1982 | 2,590.00 | 129.50 | |
| Mangino | 1982 | 33,233.00 | 1,661.65 | |
| Albano | 1982 | 8,985.00 | 449.25 | |
| 1983 | 7,565.00 | 378.25 | ||
| 1984 | 1,943.00 | 97.15 | ||
| Fred. Wendel | 1982 | 14,330.00 | 716.50 | |
| 1983 | 21,560.00 | 1,078.00 | ||
| 1984 | 4,205.00 | 210.25 | ||
| Adler | 1982 | 28,764.00 | 1,438.20 | |
| 1984 | 22,934.00 | 2,002.30 | ||
| 1985 | 15,516.66 | 1,265.53 | ||
| Ribis | 1983 | 6,731.00 | 336.55 | |
| Rich. Wendel | 1982 | 10,178.00 | 919.00 | |
| Solimine | 1982 | 94,500.00 | 4,725.00 | |
| Increased | |||||
| Additions to Tax | Interest | ||||
| Sec. | Sec. | Sec. | Sec. | ||
| Petitioner | Year | 6651(a) | 6659 | 6661 | 6621(c) |
| Pasqualini | 1982 | -- | $ 3,925.30 | $ 848.58 | 2 |
| Hassler | 1982 | -- | 8,916.60 | 3,214.70 | |
| 1983 | -- | 4,092.15 | 3*59 | ||
| 1984 | -- | 2,236.80 | |||
| Saltzman | 1982 | -- | 1,384.20 | 77.00 | |
| Seacor | 1982 | -- | 7,585.50 | -- | |
| Perito | 1982 | -- | -- | 1,894.20 | |
| 1983 | -- | -- | 2,152.00 | ||
| Ray. Wendel | 1982 | -- | -- | -- | -- |
| 1983 | $ 4,358.00 | -- | -- | ||
| Tendler | 1982 | -- | 846.30 | -- | |
| Marion | 1982 | -- | 9,700.00 | ||
| Pfeil | 1982 | -- | 1,342.00 | -- | |
| Bloom | 1982 | -- | 1,014.00 | -- | |
| Schartoff | 1982 | -- | 687.90 | -- | |
| Maeder | 1982 | -- | 1,080.60 | -- | |
| Leaf | 1982 | -- | 2,798.70 | ||
| Leonhard | 1982 | -- | 777.00 | -- | |
| Mangino | 1982 | -- | 9,969.90 | ||
| Albano | 1982 | -- | 2,695.50 | ||
| 1983 | -- | 2,269.50 | |||
| 1984 | -- | 582.90 | -- | ||
| Fred. Wendel | 1982 | -- | 4,299.00 | ||
| 1983 | -- | 6,468.00 | |||
| 1984 | -- | 1,261.50 | -- | ||
| Adler | 1982 | -- | 8,629.20 | ||
| 1984 | 2,293.40 | 6,880.20 | |||
| 1985 | 1,018.46 | 4,654.99 | |||
| Ribis | 1983 | -- | 1,926.30 | ||
| Rich. Wendel | 1982 | -- | 5,514.00 | ||
| Solimine | 1982 | -- | 28,350.00 | ||
Footnotes
1. The following cases are consolidated herewith for purposes of this proceeding: Arthur and Josephine Hassler, docket No. 45507-86; Donald J. and Marilyn L. Saltzman, docket No. 45508-86; Vincent Perito, docket No. 46096-86; Leroy and Diane Seacor, docket No. 46466-86; Raymond J. and Lucille Wendel, docket No. 48955-86; Raymond J. and Lucille Wendel, docket No. 48956-86; Mark and Carol Tendler, docket No. 24165-87; William and Lillian Marion, docket No. 32279-87; Vincent Perito, docket No. 37626-87; Kenneth and Judith A. Pfeil, docket No. 39093-87; David and Muriel Bloom, docket No. 39094-87; Joel H. and Rachelle Schartoff, docket No. 39095-87; Charles W. and Maryann Maeder, docket No. 39096-87; Emanuel M. and Susan R. Leaf, docket No. 39535-87; Emil W. and Yvonne Solimine, docket No. 39541-87; Joseph J. and Gloria P. Leonhard, docket No. 39603-87; Joseph and Carolyn Mangino, docket No. 39604-87; Peter M. and Dorothea M. Albano, docket No. 8692-89; Frederick G. and Kathryn Wendel, docket No. 8702-89; Barry and Christine Adler, docket No. 9332-89; Barry and Christine Adler, docket No. 9391-89; Barry Adler, docket No. 9394-89; Nicholas L. and Carol A. Ribis, docket No. 26140-89; Arthur and Josephine Hassler, docket No. 18463-90; Richard T. and Delores Wendel, docket No. 2011-91.↩
2. Petitioners Hassler deducted a charitable contribution of medical goods in 1983.↩
3.
Sec. 170(e)(1)(A) provides:(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) * * *↩
4. During the time in issue, the holding period for long-term capital gain was 1 year. Sec. 1222. The parties agree that petitioners held the cards for more than 1 year. If the cards were capital assets in petitioners' hands, they would have produced long-term capital gain if sold.↩
5.
Sec. 1221(1) excludes from capital asset classification:stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;↩
6. In 1982, petitioners averaged slightly more than one contribution of medical equipment each.↩
7. Cf.
Lindsley v. Commissioner, T.C. Memo. 1983-729 (donation of five parcels of land by real estate broker was subject tosec. 170(e)(1)(A)↩ limitation because property would have given rise to ordinary income if it had been sold by the taxpayer).8. We generally treat a revenue ruling as merely the Commissioner's position with respect to a specific factual situation.
Tandy Corp. v. Commissioner, 92 T.C. 1165">92 T.C. 1165 , 1170 (1989) (citingStark v. Commissioner, 86 T.C. 243">86 T.C. 243 , 250-251 (1986)); seeStubbs, Overbeck & Associates, Inc. v. United States, 445 F.2d 1142">445 F.2d 1142 , 1146-1147 (5th Cir. 1971);Crow v. Commissioner, 85 T.C. 376">85 T.C. 376 , 389↩ (1985).1. Fifty percent of the interest due on the portion of the underpayment attributable to negligence.↩
2. One hundred twenty percent of the regular interest due on the deficiency.↩
3. Sec. 6661 is asserted in the alternative to sec. 6659.↩