Unpublished Disposition, 908 F.2d 977 (9th Cir. 1987)

Annotate this Case
US Court of Appeals for the Ninth Circuit - 908 F.2d 977 (9th Cir. 1987)

William THORNTON, Barbara Thornton Petitioners-Appellants,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 89-70147.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 5, 1990.Decided July 24, 1990.

Before SNEED, FARRIS and FERNANDEZ, Circuit Judges.


William and Barbara Thornton ("taxpayers") appeal the Tax Court's valuation of property known as the Hillside Cemetery ("the cemetery"), donated to the University of Nevada at Reno ("UNR") in 1978. We affirm.


Hillside Cemetery was over one-hundred years old at the time of donation and contains the remains of some of Reno's founders. Abandoned by the family ("the Sanders") that owned the land and sold individual graves in fee simple, the condition of the cemetery deteriorated over the years. William Thornton ("Thornton") located the heirs of the Sanders, helped them to clear the title (acting as their attorney), and in 1977 paid them $15,000 for their interests in the property. Taxpayers then gave the property to UNR in 1978 and took a charitable deduction for the gift on their income tax returns for 1978, 1979, and 1980. Taxpayers' valuation of the property for income tax purposes at $503,500 was based on the property's ultimate use as the location for multi-unit dwellings.

The Commissioner of Internal Revenue ("Commissioner") disputed taxpayers' valuation of the property and sent them a notice of deficiency, which taxpayers contested. The Tax Court ruled that the fair market value of the property was $28,702.06. This valuation takes into account the price paid by Thornton for the property ($15,000) and other expenses he incurred in obtaining the property ($13,702.06). Taxpayers filed this appeal. We have appellate jurisdiction of this matter under 26 U.S.C. § 7482 (1982).


The Commissioner's determination of the value of the property had "the support of a presumption of correctness" before the Tax Court, and taxpayers had "the burden of proving [the Commissioner's valuation] to be wrong." Welch v. Helvering, 290 U.S. 111, 115 (1933). See also Ebben v. Commissioner, 783 F.2d 906, 910 (9th Cir. 1986) (citing Tax Ct. Rule 142(a)).

We review the Tax Court's valuation of the property for clear error.1 


Section 170 of the Internal Revenue Code permits taxpayers to deduct charitable contributions made within the taxable year. 26 U.S.C. § 170 (1988). Treasury Regulations Secs. 1.170A-1(c) (1) & (2) guide valuation of property donated under section 170. These regulations state in pertinent part:

(1) If a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution....

(2) The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

26 C.F.R. Secs. 1.170A-1(c) (1) & (2) (1989) (emphasis added).

In this case, the parties disagree as to the most appropriate method for judging the fair market value of the property on the date it was transferred to UNR. Taxpayers argue that the Tax Court should have adopted their appraisal of the property, which valued the property as if it were capable of use as the site of multi-unit housing. Taxpayers state that we should consider "the potential highest and best use to which the property might be put in the near future ... even though the potential use is prohibited by some restriction in a deed, statute or zoning regulation at the time of the donation."

It is true that assessment of the fair market value of the property "should reflect the highest and best use to which such property could be put on the date of valuation." Symington v. Commissioner, 87 T.C. 892, 896 (1986) (emphasis added). Although we must consider the highest and best use to which the property might be put "in the reasonably near future," Olson v. United States, 292 U.S. 246, 255 (1934), we must also take into account the probability that the property actually will be put to the proposed future use, id. at 256-57.

Elements affecting value that depend upon events or combinations of occurrences which, while within the realm of possibility, are not fairly shown to be reasonably probable, should be excluded from consideration, for that would be to allow mere speculation and conjecture to become a guide for the ascertainment of value....

Id. at 257. See also United States ex rel. Tenn. Valley Auth. v. Powelson, 319 U.S. 266, 275-76 (1943); United States v. 320.0 Acres of Land, 605 F.2d 762, 814 (5th Cir. 1979); Great N. Nekoosa Corp. v. United States, 544 F. Supp. 511, 514 (D. Me. 1982), aff'd, 711 F.2d 473 (1st Cir. 1983).

At the time the property was given to UNR, many obstacles remained to the property's availability for development as the site of multi-unit dwellings. These obstacles included: the need to disinter 1,434 bodies from one portion of the cemetery and reinter them in another portion; legal impediments to such a plan at state, city, and county levels; ownership of grave lots by individuals in fee simple; UNR's need for funds for transfer of graves and maintenance of the portion of the land that would remain a cemetery; and possible negative public reaction to the disinterment plan.

Taxpayers argue that Thornton's hiring of a top lobbyist before making the donation made passage of proposed state legislation ninety percent likely. In fact, the legislation did pass the year after the donation. Yet, as the Tax Court pointed out, passage of the legislation removed only one of the many obstacles to the property's availability for its highest and best use.2  Public resistance and other legal obstacles requiring action by the city and county also impeded the realization of the highest and best use. Thus, at the time the cemetery was donated to UNR, the prospect that the land would be free for development as multi-unit housing in the foreseeable future was indeed speculative. The Tax Court did not err when it rejected taxpayers' appraisal, holding that that appraisal was associated with "speculation, remoteness and conjecture."

B. Taxpayers's Alternative Valuation of the Property

The Tax Court also refused to consider, as an alternative method of valuation of the property, an option agreement between UNR and Sierra Memorial Services of Reno ("Sierra"). On September 4, 1985, Sierra obtained an option to purchase the property for $150,000. The agreement expired December 31, 1987, and required Sierra to take certain steps, such as cleaning up the cemetery grounds and acquiring specified adjacent property, prior to exercising the option.

The Tax Court rejected the agreement as evidence of the value of the property, citing the fact that the option agreement was not a sale. Taxpayers presented no evidence at trial as to the likelihood that Sierra ultimately would exercise its option, nor did it provide evidence that Sierra had commenced the actions it was required to complete before exercising the option. Thus, the possibility that Sierra would exercise its option remained speculative at the time of trial. The Tax Court's rejection of the agreement as a basis for assessing fair market value was not clearly erroneous.

C. The Tax Court's Valuation of The Property

The Tax Court concluded that the actual cost of the property to Thornton (that is, $15,000 purchase price plus $13,702.06 expenses in obtaining the property) provided the best measure of the property's value at the time of the donation to UNR. Only eighteen months had passed between the date of the purchase and the date of the gift, and there was no evidence that the condition of the property had changed in that interval. Courts have commonly upheld reliance on the initial cost to the donor of a donation as an index of fair market value. See, e.g., Sammons v. Commissioner, 838 F.2d 330, 334 (9th Cir. 1988); Orth v. Commissioner, 813 F.2d 837, 842 (7th Cir. 1987); Tripp v. Commissioner, 337 F.2d 432, 434-35 (7th Cir. 1964); Chiu v. Commissioner, 84 T.C. 722, 736 (1985). This is true particularly where there is no evidence to suggest that the value of the property changed during the period between the donor's purchase and the donation. See, e.g., Sammons, 838 F.2d at 334; Tripp, 337 F.2d at 434.

In light of the above authority, as well as the absence of a more appropriate method of measuring the value of the property, we affirm the Tax Court's rulings.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


Taxpayers urge us to adopt the de novo standard, citing Estate of Palmer v. Commissioner, 839 F.2d 420, 423 (8th Cir. 1988). Notwithstanding the Eighth Circuit standard, we have addressed this question explicitly, and have concluded that a "Tax Court's determination of the value of property is a finding of fact, which we will reverse only for clear error." Sammons v. Commissioner, 838 F.2d 330, 333 (9th Cir. 1988). "Trial courts have particularly broad discretion with respect to questions of valuation." Ebben, 783 F.2d at 909 (footnote omitted)


The Tax Court concluded that:

[O]n the date of the contribution Hillside Cemetery was far from being available for its highest and best use. Briefly stated before any part of the cemetery could be devoted to such use the following had to be done:


The state legislation necessary to remove the restriction of the property to use as a cemetery had to [be] drafted, submitted to the legislature, subjected to public hearings, passed by the legislature, and signed by the governor

(2) After enactment of the state legislation an ordinance outlining the procedure for removal of the 1,434 graves and the reinterment of their contents in military style had to be drafted, submitted after notice to all identifiable lot owners or their heirs to the city council of Reno, subjected to public hearings by the city council, and adopted.

(3) After the city ordinance containing the proposed procedures for removal and reinterment of the remains ... was adopted ... such procedure had to be submitted after similar public notice to and approved by the District Court of Washoe County. The District Court also had to formally remove the cemetery dedication from that portion of the property which was not needed for the relocation of the 1,434 graves.

... It logically follows that an increase in opposition could be expected at each step in the procedure to closing part of the cemetery and to the proposed manner of relocating the remains especially where the proposed reinterment of such remains is to be done in military style.