                         T.C. Memo. 2000-285



                      UNITED STATES TAX COURT



    KENNETH L. MUSGRAVE AND ETTA D. MUSGRAVE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11209-98.              Filed September 6, 2000.


     David L. Hooper, for petitioners.

     George E. Gasper, for respondent.



                         MEMORANDUM OPINION


     LARO, Judge:   This case is before the Court fully

stipulated.   See Rule 122.1   Respondent determined deficiencies

in petitioners' 1994 and 1995 Federal income tax of $66,886 and

$41,020, respectively.   The sole issue we must decide is whether


     1
      Rule references are to the Tax Court Rules of Practice and
Procedure. Unless otherwise indicated, section references are to
the Internal Revenue Code in effect for the years in issue.
                               - 2 -

petitioners' entry into a contract for deed of real property with

a charitable organization in 1994 constituted, in part, a

completed gift.   We hold that it did.

     The stipulation of facts and attached exhibits are

incorporated herein.   The stipulated facts are hereby found.

                            Background

     When the petition was filed, petitioners resided in Abilene,

Texas.   Petitioners owned a property located at 3001 North 3d

Street, Abilene, Texas (the property).   On November 30, 1994,

petitioners signed a contract for sale of the property (contract

for deed) with the Word of Emmanuel Church (the Church).

Petitioners agreed to sell and the Church agreed to purchase the

property for $152,500, to be paid in monthly installments of

$1,400 each, beginning on January 1, 1995.   When the contract for

deed was signed, the property was valued at $450,000.   The value

of the property is not an issue.

     Under the contract for deed,2 petitioners retained legal



     2
      In Graves v. Diehl, 958 S.W.2d 468, 470-471 (Tex App.
1997), a contract for deed was described as:

     an agreement by a seller to deliver a deed to property
     once certain conditions have been met. BLACK'S LAW
     DICTIONARY 325 (6th ed. 1990). These contracts, also
     referred to as “land sale contracts” or “contracts of
     sale” typically provide that upon making of a down
     payment, the buyer is entitled to immediate possession
     of the property; however, [legal] title remains in the
     seller until the purchase price is paid in full. * * *
                                - 3 -

title to the property.    The Church had full rights to enter upon

and to enjoy the property.   In addition, the contract for deed

provided the Church would:   Insure all improvements on the

property with loss payable to petitioners, keep all improvements

in good repair and condition, assume and pay all taxes on the

property, and keep the improvements on the property occupied.

When the entire purchase price had been paid by the Church,

petitioners were required to convey the legal title of the

property to the Church.   The contract for deed prohibited the

Church from assigning, selling, pledging, or mortgaging the

property without petitioners' consent.   The contract for deed

specified, in part, that if the Church was in default in the

payments, petitioners could elect to declare the entire unpaid

indebtedness to be due and payable and enforce collection or to

declare the contract canceled.3   As long as the Church made

prompt payments on the indebtedness, the Church had the right to

occupy the property.

     Petitioners claimed a charitable contribution deduction on

their 1994 Federal income tax return for the difference between

the property’s $450,000 fair market value and its $152,500

selling price.   A part of the deduction was carried over to their

1995 income tax return.   Respondent's deficiency determinations


     3
      The provision required written notice of default to be
given to the Church and allowed a grace period of 15 days to cure
the default before petitioners could exercise their rights.
                               - 4 -

are a consequence of the denial of this charitable deduction and

the carryover into 1995.

     On December 30, 1997, Kenneth L. Musgrave, conveyed legal

title to the property, by warranty deed with vendor's lien to the

Church.   The conveyance was duly recorded in the office of the

county clerk of Taylor County, Texas.    The Church delivered a

real estate lien note to Kenneth L. Musgrave in the principal sum

of $133,315.69 and a deed of trust dated December 30, 1997,

securing such note with the property.

                            Discussion

     Section 170(a) allows a deduction for any charitable

contribution made during the taxable year.    Section 170(c)

defines the term “charitable contribution” to include a

contribution or gift to or for the use of a corporation, trust,

or community chest, fund, or foundation organized and operated

exclusively for religious purposes.    A taxpayer who sells

property for less than the property’s fair market value (i.e.

makes a bargain sale) to a charity is typically entitled to a

charitable contribution deduction equal to the difference between

the fair market value of the property and the amount realized

from the sale.   See Stark v. Commissioner, 86 T.C. 243, 255-256

(1986); Knott v. Commissioner, 67 T.C. 681 (1977);
                                 - 5 -

Waller v. Commissioner, 39 T.C. 665, 677 (1963); sec. 1.170A-

4(c)(2), Income Tax Regs.

     In order for a bargain sale to constitute a charitable

contribution, the seller must make the sale with the requisite

charitable intent, and the fair market value of the property on

the date of the sale must in fact exceed the selling price.    See

United States v. American Bar Endowment, 477 U.S. 105, 118 (1986)

(“The sine qua non of a charitable contribution is a transfer of

money or property without adequate consideration.    The taxpayer,

therefore, must at a minimum demonstrate that he purposely

contributed money or property in excess of the value of any

benefit he received in return.”).    Further, for the contribution

to be deductible, the taxpayer must place the donated property

beyond his or her control during the requisite tax period.     See

Stark v. Commissioner, supra at 257.

     Respondent concedes that a gift to the Church is a

charitable contribution.     Respondent also concedes that

petitioners had the requisite charitable intent.     The only issue

before the Court is whether petitioners' entry into the contract

for deed effected a completed gift of the property during the

requisite tax period.   Resolving the issue involves answering two

interrelated questions.     First, was the interest conveyed

sufficient to constitute a completed gift?     Second, when were the

sale and gift completed?
                               - 6 -

What Was Conveyed?

     State law controls the determination of the nature of the

property interest the taxpayer conveyed.   See United States v.

National Bank of Commerce, 472 U.S. 713, 722 (1985) (citing and

quoting Aquilino v. United States, 363 U.S. 509, 512-513 (1960)).

In order to determine the property rights transferred by the

contract for deed we must therefore look to Texas property law.

     In determining what the relevant State law is “the State’s

highest court is the best authority on its own law.”

Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967).     The

decision of an “intermediate appellate state court ... is a datum

for ascertaining state law which is not to be disregarded”,

unless the Federal court is convinced that the State’s highest

court would decide differently.   Id.   The decrees of “lower state

courts should be attributed some weight”, but their decisions are

not controlling where the highest court of the State has not

spoken on the point.   Id. (quotation marks and citation omitted).

State Law

     Petitioner and respondent cite seemingly conflicting lines

of authority in setting out their respective positions on what

rights a purchaser acquires under a contract for deed in Texas.

     Respondent relies on a line of cases that starts with

Johnson v. Wood, 157 S.W.2d 146 (Tex. 1941) (an opinion adopted
                               - 7 -

by the Supreme Court of Texas)4 for the proposition that a

purchaser under a contract for deed receives a mere equitable

right to complete the contract.   One court of appeals in Texas

has followed Johnson, stating it is the controlling law in Texas.

See Club Corp. of Am. v. Concerned Property Owners, 881 S.W.2d

620, 626 (Tex. App. 1994).   On the basis of these cases,

respondent argues petitioners are not entitled to a charitable

contribution deduction in 1994, the year that they entered into a

bargain sale of real property (contract for deed) with the

Church.   Respondent argues the contract for deed petitioners

entered with the Church was an executory contract.   The contract

contemplated petitioners retaining legal title to the property

until the Church had made all of the payments required.

Respondent concludes that because the contract was executory, the

gift was incomplete in 1994.

     Petitioners rely on a line of cases5 which finds its origin

in the case of Leeson v. City of Houston, 243 S.W. 485 (Tex.

Commn. App. 1922).   These cases stand for the proposition that

the purchaser receives equitable title to the property either at


     4
      The significance of an opinion’s being adopted as opposed
to a judgment’s being adopted is discussed infra p. 8.
     5
      Fant v. Howell, 547 S.W.2d 261, 264-265 n.5 (Tex. 1977);
City of Austin v. Capitol Livestock Auction Co., 453 S.W.2d 461,
464 (Tex. 1970); Graves v. Diehl, 958 S.W.2d 468 (Tex. App.
1997); Bucher v. Employers Cas. Co., 409 S.W.2d 583, 584 (Tex.
App. 1966).
                                - 8 -

contract signing or when he takes occupation.   The Supreme Court

of Texas adopted the judgment in Leeson.    Relying on these cases,

petitioners argue:

     Petitioners’ gift to the Church was completed in 1994
     when Petitioners and the Church executed the Contract
     [for deed]. Such act gave the Church unrestricted
     possession of the Property and equitable title to the
     Property. At such time, the Church had the risk of
     loss from destruction of improvements upon the Property
     or decrease in the Property's value. The Church also
     had the benefit of any increase in value of the
     Property. In fact, the Church had all obligations and
     benefits of ownership of the Property.

     In order to determine the rights given to a purchaser under

Texas law it is necessary to examine the precedential value of

both lines of cases.   Both Johnson v. Wood, supra, and Leeson

were decided by the Texas Commission of Appeals, an adjudicative

body formed to alleviate the workload of the higher courts of

Texas.   See Club Corp. of Am. v. Concerned Property Owners, supra

at 625-626 (citing Texas Law Review Association, Texas Rules of

Form, ch. 5, at 14-17 (8th ed. 1995)).   The precedential value of

a case decided by the commission depends on whether the opinion

was adopted, the holding was approved, or the judgment was

adopted by the Supreme Court of Texas.   See id. at 626.     If the

Supreme Court adopts the commission's opinion, then it is treated

as a precedent having the full authority of a Supreme Court of

Texas decision.   See id.   If the Supreme Court merely approves

the holding or adopts only the judgment, then the precedential

value of the commission's opinion is limited.   See id.
                               - 9 -

     By adopting the judgment in Leeson v. City of Houston,

supra, the Supreme Court of Texas indicated that it approved

neither the specific holding nor the reasoning of the commission.

Thus, Leeson's value as precedent on the issue of property

interests conferred by a contract for deed appears, at first

glance, questionable.

     The Supreme Court of Texas, however, has on two separate

occasions cited with approval the specific portion of Leeson that

states the purchaser under a contract for deed becomes the

equitable owner of the property.   See Fant v. Howell, 547 S.W.2d

261, 264-265 n.5 (Tex. 1977); City of Austin v. Capitol Livestock

Auction Co., 453 S.W.2d 461, 464 (Tex. 1970).     Leeson, therefore,

has also been approved on this point by the Supreme Court of

Texas.

     Moreover, the Supreme Court of Texas has cited Bucher v.

Employers Cas. Co., 409 S.W.2d 583, 584 (Tex. App. 1966) for the

proposition the “contract for sale effects change of ownership

wherein the purchaser becomes [the] equitable owner of the

property while all that remains in the seller is bare legal

title, more in the nature of security to guarantee payment than

anything else.”   Criswell v. European Crossroads Shopping Center,

Ltd., 792 S.W.2d 945, 949 (Tex. 1990).6


     6
      The Court of Civil Appeals of Texas said:

                                                     (continued...)
                              - 10 -

Interest Conveyed Under Texas Law

     We find the reasoning of the two lines of cases to be

reconcilable.   Leeson v. City of Houston, supra and its progeny

stand for the proposition that as against parties not privies to

the contract for deed, on execution of the contract for deed and

upon entry onto the property the purchaser acquires all the

benefits and burdens of ownership.     Simply stated, as against

third parties the purchaser receives full equitable title when

the contract is signed and the purchaser enters into possession.

     In contrast, Johnson v. Wood, 157 S.W.2d 146 (Tex. 1941) and

its progeny stand for the more limited proposition that as

against the vendor of the property the purchaser under a contract

for deed has an equitable right to specific performance.     The


     6
      (...continued)
           The Texas courts have uniformly held that a
     contract of sale such as is here involved does effect a
     change of ownership. Under such a contract the
     purchaser becomes full beneficial or equitable owner of
     the property. All that remains in the seller is a bare
     legal title, more in the nature of a security title to
     guarantee payment of the purchase price than anything
     else. The rule is summed up in 58 Tex. Jur. 2d 497,
     499, § 267, under the heading “Vendor and Purchaser,”
     as follows: “The purchaser, however, acquires an
     equitable title or interest in the property from the
     date of the contract, or in any event from the time
     when he enters into possession, until his interest
     ripens into a legal title by an absolute conveyance or,
     where the transaction consists in a conveyance and a
     reserved lien, by payment of the price or performance
     of the contract. The passing of the equitable title is
     a matter of law and not a matter of stipulation in a
     contract.” [Bucher v. Employers Cas. Co., supra at
     584.]
                               - 11 -

purchaser is not entitled to a full equitable title and the right

to demand the conveyance of the legal title until he has

completely performed his payment obligation.

Federal Tax Consequences

       When a bargain sale, in part, constitutes a charitable

contribution, normally the sale will occur at the same time the

gift is complete.    See, e.g., Stark v. Commissioner, 86 T.C. at

257.    In Baird v. Commissioner, 68 T.C. 115, 124 (1977), this

Court considered when a sale of property occurred for tax

purposes and stated:

            The question of when a sale is complete for tax
       purposes is essentially one of fact which must be
       resolved by an examination of all of the facts and
       circumstances, no single one of which is controlling.
       The test is one of practicality. Clodfelter v.
       Commissioner, 426 F.2d 1391 (9th Cir. 1970), affg. 48
       T.C. 694 (1967); Commissioner v. Segall, 114 F.2d 706
       (6th Cir. 1940), revg. 38 B.T.A. 43 (1938); Deyoe v.
       Commissioner, 66 T.C. 904 (1976). In examining the
       circumstances surrounding a conveyance of property to
       determine when it has occurred, the focus is directed
       to a consideration of when the “benefits and burdens”
       of ownership have shifted. Merrill v. Commissioner, 40
       T.C. 66 (1963), affd. per curiam 336 F.2d 771 (9th Cir.
       1964). And for purposes of real property, a sale is
       generally considered to have occurred at the earlier of
       the transfer of legal title or the practical assumption
       of the benefits and burdens. Dettmers v. Commissioner,
       430 F.2d 1019 (6th Cir. 1970), affg. 51 T.C. 290
       (1968); Deyoe v. Commissioner, supra.* * *


       A closed transaction for Federal tax purposes results from a

contract of sale which is absolute and unconditional on the part

of the seller to deliver to the buyer a deed upon payment of the
                              - 12 -

consideration and by which the purchaser secures immediate

possession and exercises all the rights of ownership.   The

delivery of a deed may be postponed and payment of part of the

purchase price may be deferred by installment payments, but for

taxing purposes it is enough if the vendor obtains under the

contract the unqualified right to recover the consideration.     See

Merrill v. Commissioner, 40 T.C. 66 (1963) (quoting Commissioner

v. Union Pac. R. Co., 86 F.2d 637, 639 (2d Cir. 1936), affg. 32

B.T.A. 383 (1935)), affd. per curiam 336 F.2d 771 (9th Cir.

1964).

      It has long been recognized that property, in the legal

sense, means not the thing itself, but the rights which inhere in

it.   Ownership of property is not a single indivisible concept

but a collection or bundle of rights with respect to the

property.   See, e.g., Merrill v. Commissioner, supra at 74.     In

this case under Texas law the full equitable title did not pass

to the Church when the contract for deed was signed in 1994.

However, as against third parties the Church received equitable

title to the property.   The Church bore the risk of loss or gain

in the value of the property, had a right to possession, could

sue third parties for nuisance or trespass, could erect

improvements on the land, was responsible for all taxes on the

property, and, with consent of the vendor, could mortgage the

property.   As against petitioner the Church had the equitable
                               - 13 -

right, subject to its performance under the contract, to specific

performance of the contract for deed.

     Concentrating on the substance of the transaction, we

conclude that the bundle of rights that the Church received is

essentially the same bundle of rights7 that would have been

received had the Church obtained legal title to the property and

granted a mortgage back to petitioner.    On brief, respondent does

not dispute that the latter transaction is a completed gift.    The

Supreme Court of Texas describes the substance of a contract for

deed as effecting “a change of ownership wherein the purchaser

becomes [the] equitable owner of the property while all that

remains in the seller is bare legal title, more in the nature of

security to guarantee payment than anything else.”    Criswell v.

European Crossroads Shopping Center, Ltd., 792 S.W.2d at 949.

For Federal income tax purposes we find no reason to treat the

transactions differently.




     7
      We   recognize there are technical differences in the
remedies   available to the vendor on default by the purchaser;
however,   we are not convinced they are significant for Federal
taxation   purposes in this case.
                              - 14 -

     We hold that a sufficient quantity of the benefits and

burdens of ownership passed to the Church so that the transaction

was closed for Federal income tax purposes when the contract for

deed was signed in 1994.   Petitioners made a completed gift in

1994.   Accordingly,



                                         Decision will be

                                    entered for petitioners.
