United States v. Stafford

727 F.2d 1043 (1984)

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United States v. Stafford

United States Court of Appeals for the Eleventh Circuit
727 F.2d 1043 (1984)

Facts

The Life Insurance Company of Georgia (LOG) wanted to build a hotel complex near LOG’s corporate headquarters. LOG approached real estate developer DeNean Stafford (plaintiff) regarding the project. Following negotiations, Stafford obtained a letter of intent from LOG regarding the hotel development. The letter of intent acknowledged a basic agreement but recognized that additional terms needed to be resolved to reach a final agreement. Stafford and some investors subsequently formed a limited partnership called Center Investments, Ltd. (Center) to pursue the development. Stafford purchased two $100,000 shares in the partnership and received a third partnership share in exchange for his contribution to the partnership of the LOG letter of intent. LOG continued to abide by the letter’s terms after the transfer to Center. Stafford and his wife did not report Stafford’s receipt of the third partnership share as income on their income-tax return. The Commissioner of Internal Revenue (the commissioner) determined that the Staffords should have treated the receipt of the share as income because the share was compensation for services that Stafford had rendered to Central by negotiating and developing the deal with LOG. The commissioner thus assessed a tax deficiency of $64,000. The Staffords paid the additional taxes but sought a refund. The Internal Revenue Service denied the refund claim, and the Staffords sued the federal government (defendant) in federal district court. The district court granted summary judgment for the Staffords, finding under § 721(a) of the Internal Revenue Code that the partnership share was entitled to nonrecognition as a gain to Stafford because Stafford had contributed property to Central in exchange for that share. The appellate court reversed, and the district court granted summary judgment for the government on remand. The Staffords appealed.

Rule of Law

Issue

Holding and Reasoning (Anderson, J.)

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