Trust Challenges Adjustments to Hobby Lobby Flowthrough Deductions

THE DAVID AND BARBARA GREEN 1993 DYNASTY TRUST,
MART D. & GREEN, TRUSTEE
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

PETITION

Petitioner hereby petitions for a readjustment and redetermination of deficiencies set forth by the Commissioner of Internal Revenue in his Notice of Deficiency, dated August 7, 2019 (the "Notice"). As a basis for its case, Petitioner alleges as follows:

1. Petitioner is The David and Barbara Green 1993 Dynasty Trust, Mart D. Green, Trustee, and its address is 7707 Southwest 44^th Street, Oklahoma City, Oklahoma 73179-4808, and situs is the state of Oklahoma.

2. Petitioner's Tax Identification Number is listed on the Tax Court Rules of Practice and Procedure Form 4, attached hereto.

3. The returns for the periods here involved (the "2011 and 2012 Returns") were timely filed with the Internal Revenue Service Center in Ogden, Utah.

4. The Notice, dated August 7, 2019, (a copy of which is attached as Exhibit "A") was issued by the Appeals Office of the Internal Revenue Service at Oklahoma City, Oklahoma.

5. The deficiencies as determined by the Commissioner are in income taxes for taxable years 2011 and 2012 as follows, both of which are in dispute:

Tax Years Ended	Tax IRC 6662	Penalties
December 31, 2011	$7,114,007.00	$2,845,603.00
December 31, 2012	$19,031,932.00	$7,612,773.00

6. The determination of taxes set forth in the Notice are based upon the following errors:

a. The Commissioner erred in adjusting Petitioner's distributive share of flow-through noncash charitable contributions of Hobby Lobby Stores, Inc., an S corporation ("HLSI").

b. The Commissioner erred in determining that all of the requirements of Section 170 of the Internal Revenue Code have not been satisfied and, thus, in determining that Petitioner is not entitled to a charitable contribution deduction for the noncash contributions made in 2011 and 2012.

c. The Commissioner erred in increasing Petitioner's taxable income in the amounts of $20,325,736.26 and $54,376,946.91 for tax years 2011 and 2012, respectively, resulting in an increase in Petitioner's electing small business trust tax calculations.

d. The Commissioner erred in determining, in the alternative, that the Petitioner's total allowable deduction based upon its distributive share of the fair market value of the contributed property is $2,126,130.00 arid $16,542,349.00 in tax years 2011 and 2012, respectfully.

e. The Commissioner erred in proposing an addition to tax in the amounts of $2,845,603.00 and $7,612,773.00 for tax years 2011 and 2012, respectfully, pursuant to Internal Revenue Code § 6662.

f. The Commissioner erred in proposing, in the alternative, an addition to tax in the amounts of $1,422,801.00 and $3,806,386.00 for tax years 2011 and 2012, respectfully, pursuant to Internal Revenue Code §6662.

g. The Commissioner erred in each and every determination having the effect of increasing Petitioner's taxable income and/or tax liabilities for tax years 2011 and 2012.

7. The facts upon which Petitioner relies upon as a basis for its case, for tax years ended December 31, 2011 and 2012, are as follows:

a. Petitioner properly reported its distributive share of flow-through contributions of HLSI for tax years 2011 and 2012.

b. All of the requirements of Section 170 of the Internal Revenue Code for property contributed by HLSI during 2011 and 2012 were satisfied, and Petitioner properly determined and reported its noncash charitable contribution deductions for tax years 2011 and 2012.

c. Petitioner has established that it properly determined its distributive share of the fair market value of the property contributed during its tax years ended December 31, 2011 and 2012, and properly determined and reported its distributive share of noncash charitable contribution deductions for its tax years 2011 and 2012.

8. Assuming for sake of argument there is a deficiency in income taxes for either tax year 2011 or 2012 with respect to which Commissioner may assert an addition to tax under Internal Revenue Code Section 6662(e):

a. Petitioner was not negligent and did not disregard rules and regulations with respect to which Commissioner may assert an addition to tax is asserted;

b. Petitioner had reasonable cause and acted in good faith with respect to the valuation misstatement upon which such addition to tax is asserted;

c. The claimed values of the property contributed in tax years 2011 and 2012 were based on qualified appraisals made by a qualified appraiser, and in addition to obtaining such appraisals, Petitioner made a good faith investigation of the value of the contributed property; and

d. Petitioner properly computed and reported all items of income, deduction, and credit and loss for tax years 2011 and 2012.

WHEREFORE, Petitioner prays that this Court find that (i) the 2011 and 2012 Returns originally filed by Petitioner are correct; (ii) the adjustments proposed by the Commissioner in his Notice are erroneous; and (iii) there is no deficiency in the Petitioner's income tax, or interest or penalties thereon, for taxable years 2011 and 2012; and further grant Petitioner such other and further relief to which it may be entitled.

DATED this 30^th day of October, 2019.

Respectfully Submitted,

Charles E. Geister III
T.C. Bar Number GC0392
Hartzog Conger Cason
201 Robert S. Kerr Avenue
Suite 1600
Oklahoma City, OK 73102
Telephone: (405) 235-7000
Facsimile: (405) 996-3403
cgeister@hartzoglaw.com
COUNSEL FOR PETITIONER

Len Cason
T.C. Bar Number CL0262
201 Robert S. Kerr Avenue
Suite 1600
Oklahoma City, OK 73102
Telephone: (405) 235-7000
Facsimile: (405) 996-3403
lcason@hartzoglaw.com
COUNSEL FOR PETITIONER

J. Leslie LaReau
T.C. Bar Number LJ0943
201 Robert S. Kerr Avenue
Suite 1600
Oklahoma City, OK 73102
Telephone: (405) 235-7000
Facsimile: (405) 996-3403
llareau@hartzoglaw.com
COUNSEL FOR PETITIONER