                           T.C. Memo. 1997-255



                         UNITED STATES TAX COURT



     WILLIAM P. SHORT, JR. AND MARY E. SHORT, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13666-95.                              Filed June 9, 1997.



     Mark D. Olson and Eugene H. Bayard, for petitioners.

     Alan R. Peregoy, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION



     JACOBS,    Judge:     Respondent     determined      deficiencies     in

petitioners' Federal income taxes of $5,828 for 1991 and $35,681

for 1992. These deficiencies result from respondent's disallowance

of   petitioners'   carryforwards    of    the   unused    portions   of   a
                                       -2-

$5,810,000 charitable contribution deduction claimed on their 1988

amended Federal income tax return.

     The    issue    for   decision     is    whether    petitioners     made     a

charitable contribution of land to the State of Delaware within the

meaning of section 170(a) and, if so, the fair market value of the

contribution on the date of donation.

     All section references are to the Internal Revenue Code in

effect for the years under consideration.              All Rule references are

to the Tax Court Rules of Practice and Procedure.

                              FINDINGS OF FACT

     Some   of   the    facts   have    been    stipulated       and   are    found

accordingly.     The stipulation of facts and the attached exhibits

are incorporated herein by this reference.

     Petitioners William P. Short, Jr. and Mary E. Short, husband

and wife,1 resided in Bethany Beach, Delaware, at the time they

filed the petition herein. For convenience, we refer to William P.

Short, Jr. as petitioner.

The Disputed Land

     Petitioners      owned   substantial      tracts    of   undeveloped      land

along the Atlantic Ocean beaches in Sussex County, Delaware (Sussex

County). They       claimed   title    to    certain   parcels    of   land    (the

disputed land) in the same vicinity.             The State of Delaware also

     1
          At the time of trial, both petitioners were ill and
unable to testify. The Court has made no adverse inferences as a
result of their failure to testify. Petitioners' son, Rodney
Short, testified on petitioners' behalf.
                                    -3-

claimed title to the disputed land. Petitioners never paid real

estate taxes on the disputed land.

The 1988 Gift Land

     At issue is petitioners' ostensible 1988 contribution of

approximately 8-acres of the disputed land (the 1988 gift land) to

the State of Delaware. At the time of the purported donation, the

State of Delaware considered the disputed land, including the 1988

gift land, part of the Delaware Seashore State Park.

     Petitioners' claim of title to the 1988 gift land is based on

a quitclaim deed that petitioner purchased on August 16, 1982, for

$100 (the 1982 quitclaim deed) from J. Bennett Hill, a purported

heir to one-fourth of the property interest of a Colonel William D.

Waples.    Any interest obtained by petitioner apparently derived

from an 1839 recorded three-fourths tenants-in-common interest held

by Colonel Waples and two other individuals.         The 1839 title was

the last title interest recorded with respect to the 1988 gift

land; and, the chain of title that followed this interest is

uncertain and uncorroborated. It appears that Colonel Waples'

interest   in   the   1988   gift   land   was   likely   abandoned,   and

subsequently acquired by the State of Delaware in the early 1900's.

     In addition to claiming title to the 1988 gift land under the

1982 quitclaim deed, petitioners also claimed title to the land by

adverse possession.
                                  -4-

The State Court Action

     On August 3, 1987, F. Michael Parkowski, special counsel and

attorney for the State of Delaware, initiated a proceeding against

petitioner in the Delaware Chancery Court for Sussex County (the

State court action) seeking to quiet title to the disputed land, as

well as other relief. The State of Delaware argued that the

disputed land (including the 1988 gift land) had been abandoned by

any record title owner or heirs dating back to at least 1914 and

had then been acquired by the State through adverse possession long

before   petitioner   began   taking   action   to    establish   a   claim.

Moreover, State surveys conducted in 1914, 1926, 1929, 1955, and

1977 consistently showed the disputed land as part of the Delaware

Seashore State Park.   Maps also showed the disputed land as part of

State park lands.

     On October 6, 1987, petitioners responded to the State's

complaint by an answer and counterclaim.        Petitioners argued that

they had legal title to the property based on the 1982 quitclaim

deed as well as through adverse possession.          In essence, the State

considered petitioners' claim of title frivolous.

Petitioners' Appraisal

     In November 1988, appraiser Laurence P. Moynihan valued the

disputed land for petitioners "in order to facilitate a possible

donation of the property" to the State of Delaware.          Mr. Moynihan

valued an unencumbered fee simple interest in the disputed land at

$30,130,000, including $5,810,000 for the 1988 gift land.
                                -5-

The 1988 Deed

     On December 29, 1988, petitioners executed and recorded in the

Office of the Recorder of Deeds for Sussex County a special

warranty deed (the 1988 deed), which purportedly transferred the

1988 gift land to the State of Delaware. (At this time, the State

court action was in the discovery phase, and settlement discussions

had not begun.)   Petitioners did not submit the 1988 deed to any

State of Delaware official in 1988, other than to the Sussex County

Recorder of Deeds, who did not have discretion to reject or not

record the deed. Between 1988 and November 1991, the State neither

knew of nor accepted any gift from petitioners.

     On November 11, 1991, petitioners' attorney, Mark D. Olson,

submitted a letter to Edwin H. Clark II, Secretary of the Delaware

Department of Natural Resources, transmitting a copy of the 1988

deed. This was the first time the "gift" was officially brought to

the State's attention. However, the State rejected the attempted

gift in accordance with its position in the State court action.

1992 Settlement Agreement and Dismissal of the State Court Action

     Following lengthy settlement negotiations, the State court

action was resolved pursuant to an April 15, 1992, Settlement

Agreement (the agreement).   Pursuant to the agreement, petitioners

conveyed to the Nature Conservancy,2 which immediately conveyed to


     2
          The Nature Conservancy was a nonprofit environmental
preservation organization with its principal office in Arlington,
Virginia.
                                -6-

the State, all the disputed land, including the 1988 gift land.

The agreement included a side agreement whereby Secretary Clark,

who was authorized to sign Internal Revenue Forms 8283 (Noncash

Charitable Contributions) on behalf of the Delaware Department of

Natural Resources, executed the donee acknowledgment portion of

Form 8283 with regard to the 1988 gift land.

     Pursuant to the terms of the agreement, deeds and documents

were recorded to finalize the property transfer, including a May

29, 1992, quitclaim deed to the 1988 gift land (the 1992 quitclaim

deed).3 The State also had an option under the agreement to

purchase additional land from petitioners at a bargain sales price.

A July 25, 1992, Stipulation of Dismissal concluded the State court

action.

Petitioners' Federal Income Tax Returns

     Petitioners did not claim a charitable contribution deduction

with regard to the 1988 gift land on their original 1988 Federal

income tax return.4   On April 15, 1992, petitioners amended their

1988 return to claim a refund based on their entitlement to a

$5,810,000 charitable contribution deduction, arising from their


     3
           The parties utilized a quitclaim deed because Delaware
law treats a quitclaim deed as conveying any title that the donor
has. It is not, however, an acknowledgment of title. Thus, by
accepting petitioners' 1982 quitclaim deed, the State of Delaware
did not recognize that petitioners ever held title to the 1988
gift land.
     4
          Petitioners reported capital gains in excess of $8
million on their 1988 return.
                                            -7-

purported    donation         of    the     1988      gift    land.5        Petitioners

subsequently      filed    amended         1989      and   1990    returns,    claiming

charitable contribution carryforwards.

      On their 1991 and 1992 Federal income tax returns, petitioners

carried     forward      charitable         contribution          deductions   in   the

respective amounts of $66,741 and $103,784, in connection with the

purported donation of the 1988 gift land. These are the deductions

at issue herein.

Notice of Deficiency and Amended Answer

      In    the      notice        of     deficiency,        respondent     disallowed

petitioners'      1991    and      1992    charitable      contribution     deductions

because petitioners failed to establish that they had legal title

to   the   donated    property.           In   the    amended     answer,   respondent

alleged, among other things, that because the 1988 gift land was at

      5
          Petitioners attached the following explanation to their
1988 amended return:

                 The taxpayers made a gift of appreciated
            real property to a charitable donee on
            December 29, 1988. At the time their 1988
            return was filed, however, the taxpayers had
            not been able to obtain the donee's
            acknowledgment of the gift on Form 8283. As
            a result, and acting in accordance with the
            substantiation requirements of Treas. Regs.
            section 1.170A-13(c)(2), the taxpayers did
            not claim a deduction related to the gift on
            the originally filed return. Subsequently
            the taxpayers obtained the donee's
            acknowledgment of the gift on Form 8283 and
            now file this amended return for the purpose
            of claiming the deduction as herein set
            forth.
                                      -8-

the center of a lawsuit between petitioners (the purported donors)

and the State of Delaware (the purported donee), no donative intent

existed and a completed gift was neither made nor was it accepted

by the State.

                                    OPINION

        Initially,   we    must   determine   whether    petitioners   made   a

charitable contribution of land to the State of Delaware within the

meaning     of   section     170(c)(1).       Assuming    we   find    such   a

contribution, we must then determine the fair market value of the

land.    See sec. 1.170A-1(c)(1), Income Tax Regs.          Where respondent

has disallowed a charitable contribution deduction, the taxpayer

must show error in respondent's determination.             Rule 142(a).

     In determining the existence and timing of a charitable

contribution, we apply the same analysis as that in determining the

existence and timing of a gift.             We have consistently held that

there are six essential elements of a bona fide inter vivos gift.

These six elements are:

            (1) a donor competent to make the gift; (2) a
            donee capable of taking the gift; (3) a clear
            and unmistakable intention on the part of the
            donor to absolutely and irrevocably divest
            himself of the title, dominion, and control of
            the subject matter of the gift, in praesenti;
            (4) the irrevocable transfer of the present
            legal title and of the dominion and control of
            the entire gift to the donee, so that the
            donor can exercise no further act of dominion
            or control over it; (5) a delivery by the
            donor to the donee of the subject of the gift
            or of the most effectual means of commanding
            the dominion of it; (6) acceptance of the gift
            by the donee * * *
                                    -9-



Guest v. Commissioner, 77 T.C. 9, 15-16 (1981) (quoting Weil v.

Commissioner, 31 B.T.A. 899, 906 (1934), affd. 82 F.2d 561 (5th Cir.

1936)).     An objective inquiry must be made into the nature of the

transaction to determine whether that which is labeled as a gift is

in substance a gift.       Pettit v. Commissioner, 61 T.C. 634, 638-639

(1974); Grinslade v. Commissioner, 59 T.C. 566 (1973).

       A prerequisite to the required irrevocable transfer is that the

donors possess legal title to the property prior to the purported

donation.     Assuming the donors held title, the donee must then

accept the gift.

       The parties agree that the State of Delaware is a qualified

donee within the meaning of section 170(c)(1).                 The parties,

however, disagree as to: (1) Whether petitioners had good legal

title to the 1988 gift land at the time of the purported donation;

(2) whether the gift was completed and accepted by the State of

Delaware; and (3) whether petitioners had donative intent.

       We do not believe that petitioners are entitled to 1991 or 1992

charitable contribution deductions with regard to the 1988 gift land

for several reasons.       First, petitioners have not satisfied their

burden of proving that they possessed good legal title to the 1988

gift land.    At the time of the purported donation, it was doubtful

whether petitioners possessed good legal title to the property.

Chain of title was uncertain. Prior to petitioner's purchase of the

1982   quitclaim   deed,    the   last   record   title   to   the   interest
                                   -10-

petitioners claimed was recorded in 1839.          Colonel Waples' heirs

apparently abandoned their partial interest in the land.        The State

of Delaware subsequently conducted public surveys showing the 1988

gift land as public land.       These surveys were recorded in public

records, providing evidence of title for the State.         The 1988 gift

land was also considered part of the Delaware Seashore State Park.

Moreover, petitioners never paid real estate taxes on the disputed

land.    The existence of pending litigation between petitioner and

the State of Delaware is a further indication that petitioners did

not possess good legal title to the 1988 gift land at the time of

the purported donation.

        Petitioners have also not established that they held title to

the 1988 gift land by adverse possession.         Delaware law permitting

adverse possession against the State was repealed in 1953. See

Phillips v. State, 449 A.2d 250, 255 (Del. 1982).         And nothing in

the   record   supports   a   conclusion   that   petitioners   adversely

possessed the 1988 gift land against the State before (or after)

1953.

      Second, even assuming petitioners held title to the 1988 gift

land, it does not appear that the State accepted the 1988 deed from

petitioners because it had no knowledge of the deed's recording.

Delivery to and acceptance by the donee of a deed may not be

presumed by mere recording when a deed is not beneficial to the

donee or imposes an obligation on the donee and when the donee does

not know of its existence.      Estate of Mortimer v. Commissioner, 17
                                  -11-

T.C. 579, 583 (1951); see also Equitable Trust Co. v. Gallagher, 67

A.2d 50, 55 (Del. Ch. 1949), affd. 77 A.2d 548 (Del. 1950).

Accepting the 1988 deed might not have been beneficial to the State

of   Delaware   because   it   might     have   been    construed    as    an

acknowledgment of petitioners' interest in the disputed land and

thus detrimental to the State's position in the State court action.

Petitioners' recording of the 1988 deed without communicating its

existence to the State attorney who was litigating the State court

action   clearly   indicates   that    petitioners     never   attempted   to

effectuate proper delivery to and acceptance by the State.

     Accordingly, we hold that petitioners have not established that

they are entitled to any charitable contribution deduction connected

to the 1988 gift land in 1991 or 1992.

                      _____________________________

     A final note.     At the time of the purported donation, the

outcome of the State court action was unknown, and the fair market

value6 of petitioners' interest in the 1988 gift land was either

minimal or had mere speculative value.          One of respondent's real

estate title experts, Daniel Kristol, testified that a speculator

might have paid a maximum of $5,000 for petitioners' interest in the

     6
          The parties presented experts who appraised the 1988
gift land as an unencumbered fee simple interest. Respondent's
appraisal expert, Diane R. Maiden, valued the 1988 gift land at
$3.5 million. Petitioners' appraisal expert, Mr. Moynihan, valued
the 1988 gift land at $5.8 million. These appraisals do not
address the fair market value of petitioners' interest in the
1988 gift land because of the questions surrounding petitioners'
interest at the time of the purported donation.
                                    -12-

1988 gift land in December 1988.           We found Mr. Kristol credible.

Thus,     assuming   arguendo   petitioners      would   be   entitled   to

carryforwards in 1991 and 1992 arising from the 1988 charitable

contribution deduction, we would hold that the fair market value of

petitioners' interest in the 1988 gift land was no more than $5,000

in December 1988.

        To reflect the foregoing,



                                                    Decision will be

                                               entered for respondent.
