STATE OF MINNESOTA

COUNTY OF RAMSEY

Robert Arens,

Appellant,

vs.

Commissioner of Revenue,

Appellee.

TAX COURT

REGULAR DIVISION

ORDER GRANTING COMMISSIONER'S MOTION FOR SUMMARY JUDGMENT

Docket No. 8875-R

Filed: November 21, 2016

This matter came before The Honorable Joanne H. Turner, Chief Judge of the Minnesota

Tax Court, on the motion of appellee Commissioner of Revenue for summary judgment affirming

her order dated September 4, 2015.

Appellant Robert Arens represents himself in these proceedings.

Wendy S. Tien, Assistant Minnesota Attorney General, represents appellee Commissioner

of Revenue.

Appellant Robert Arens claims charitable contribution deductions from his 2010

through 2012 Minnesota income for his donation of a digital vital records collection to the

Luxembourg American Cultural Society. In 2014, the Minnesota Department of Revenue audited

Mr. Arens' returns and denied the charitable contribution deductions. Before the audit's

completion, Mr. Arens paid the disputed amounts but then filed amended returns for the years at

issue seeking refunds of the amounts paid. The Commissioner denied Mr. Arens' refund claims

in her order dated September 4, 2015. Mr. Arens timely appealed to our court. Because donated

property must be a capital asset to be fully deductible, and because the donated records at issue

here do not constitute a capital asset, we affirm the Commissioner's denial of the requested refund.

1

Based upon all the files, records, and proceedings herein, the court now makes the

following:

ORDER

The Commissioner's order dated September 4, 2015, is affirmed.

IT IS SO ORDERED. THIS IS A FINAL ORDER. LET JUDGMENT BE ENTERED

ACCORDINGLY.

BY THE COURT:

DATED: November 21, 2016

MEMORANDUM

This dispute involves the deductibility of a digital collection of vital records donated by

appellant Robert Arens in 2010 to the Luxembourg American Cultural Society (LACS) in

Belgium, Wisconsin. Mr. Arens collected and compiled digital copies of "6,959 unique [and]

indexed vital records" onto a DVD, which he then donated. 1 Mr. Arens argues the donated

property is a capital asset fully deductible up to its appraised value of $160,057.2 The

Arens' Amended Minnesota Income Tax 2010 Form MlX at 33 (unnumbered) (Exhibit D to the Affidavit of Wendy Tien).

2 Id. at 35. We do not address the appraisal's credibility or concluded value.

2

Commissioner argues the collection is not a capital asset under I.R.C. § 122l(a)(3) (2012) and Mr.

Arens' deduction is limited to his basis in the collection under l.R.C. § l 70(e) (2012).3

Charitable Contribution Deductibility

We briefly preview the statutory and regulatory scheme governing the deductibility of

charitable contributions. Under l.R.C. § 170(a) (2012), "[t]here shall be allowed as a deduction

any charitable contribution ... payment of which is made within the taxable year," but only to the

extent "verified under regulations prescribed by the Secretary." In addition to traditional cash

donations, the Code recognizes gifts of other property, both ordinary and capital. l.R.C. § 170( e ).

Ordinary income property is that on which the taxpayer would have recognized only ordinary

income or short-term capital gain if the property were sold at its fair market value. Treas.

Reg. § l.170A-4(b)(l) (2016). In contrast, capital gain property is that on which the taxpayer

would have recognized long-term capital gain if the property were sold at its fair market value.

Treas. Reg. § l .170A-(b )(2) (2016).

The Internal Revenue Code distinguishes among categories of deductible property so that

a taxpayer's contribution does not provide a tax benefit greater than the benefit obtained if the

property were sold at its fair market value.4 Because the purpose of allowing charitable

contribution deductions is to encourage private philanthropy, deductions should not be inconsistent

with charitable motivation or intent.5 To prevent this, Congress limited deductions for donations

of ordinary income property to a taxpayer's basis in the contributed property.

3 Comm'r's Mem. Law Supp. Mot. Summ. J. 14-16 (filed July 12, 2016).

4 Roger Colinvaux, Charitable Contributions of Property: A Broken System Reimagined, 50 HARV. J. ON LEGIS. 263, 272 (2013) (citing Tax Reform Act ofl969, Pub. L. No. 91-172, § 20l(a), 83 Stat. 487, 549).

5 Colinvaux, supra note 4, at 273-74.

3

I.R.C. § 170(e)(l)(A). In particular, Congress intended property created by the taxpayer's

personal efforts to be ordinary income property, limiting charitable deductions to a taxpayer's basis

in the property.6

To claim a deduction for the full fair market value of the contributed property, Mr. Arens

must show the digital collection is not ordinary income property but, rather, a long-term capital

asset.7 "[T]he term 'capital asset' means property held by the taxpayer (whether or not connected

with his trade of business), but does not include," inter alia, "a copyright, a literary, musical, or

artistic composition, a letter or memorandum, or similar property," if held by: (A) "a taxpayer

whose personal efforts created the property;" (B) "in the case of a letter, memorandum, or similar

property, a taxpayer for whom such property was prepared or produced;" or (C) a taxpayer whose

basis for computing gain is determined by reference to the property's basis in the hands of a

taxpayer whose personal efforts created the property or for whom the property was prepared or

produced. I.R.C. § 1221(a)(3)(A)-(C) (2014). Whether Mr. Arens' digital vital records collection

falls within this exclusion is dispositive.

6 Gain from ordinary income property "represents income from the personal efforts of the taxpayer, like wage income, and not gain from an investment." Colinvaux, supra note 4, at 273-74 n.53; see also I.R.C. § 1221(a)(3)(A).

7 Jones v. C.I.R., 560 F.3d 1196, 1199 (10th Cir. 2009) ("Two requirements must be met to. claim a deduction for long term capital gain. First, a taxpayer must prove he has owned the donated property for more than one year. Second, the donated property must meet the statutory definition of a capital asset.") (citation omitted).

4

Undisputed facts and procedural history

The collection

Mr. Aren's Notice of Appeal identifies the donated property as an "indexed digital

photograph collection of 6959 Luxembourger vital records on a DVD." 8 For over thirty years,

Mr. Arens "personally compiled" digital copies of vital records pertaining to his Luxembourger

ancestors. 9 According to Mr. Arens, vital records are "records of life events kept under

governmental authority, including birth certificates, marriage licenses, and death certificates." 10

Cf Vital Statistics, Black's La.w Dictionary (10th ed. 2014) ("Public records-usu. relating to

matters such as births, marriages, deaths, diseases, and the like-that are statutorily mandated to

be kept by a city, state, or other governmental division"). Mr. Arens acquired copies of these

records from The Church of Jesus Christ of Latter-Day Saints (via the Church's online records);

from the Special Collections Library at the University of St. Thomas in St. Paul, Minnesota; from

8

9

Not. Appeal 3, filed Sept. 28, 2015 (Tien Aff. Ex. N).

Tien Aff. Ex. D, at 16, 33.

10 Mem. Response, Attach. 6 (definition of vital record from Wikipedia) (filed July 20, 2016). We question the admissibility of the attachments to Mr. Arens' memorandum. Minn. R. Evid. 602 ("A witness may not testify to a matter unless evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter."). Mr. Arens did not provide an affidavit demonstrating his personal knowledge and competency to testify on the matters stated in the attachments. Minn. R. Civ. P. 56.05 ("affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein."). However, because the Commissioner does not object to them, we accept the attachments for purposes of this motion.

5

various churches, and by photographing old cemetery headstones. 11 According to Mr. Arens, the

majority of the records copied are more than 100 years old. 12

In response to questioning from the Department of Revenue, Mr. Arens indicated that

"[ m ]ost of the vital records were already in digital non-certified copy form .... The others were

my digital photos of microfilm images, book pages and cemetery headstones." 13 Mr. Arens

created a "unique file name" for each record based on "date, people names, place names and event

type," and subsequently compiled the digital copies onto a DVD. 14 According to Mr. Arens, "[a]s

[the copies] were burned to the [DVD's], the computer automatically organized (collated) them by

file name," using what Mr. Arens believes is called "BaseHierarchySort." 15 Moreover, he states

he "compiled and organized" the digital copies in accordance with guidelines promulgated by the

11 Tien Aff. Ex. L, at 1 (letter from Robert Arens to Dean Sieben, Department of Revenue, dated April 27, 2015).

12 Mem. Response 1.

13 Tien Aff. Ex. L, at 1. Mr. Arens distinguishes between certified and noncertified vital records, but does not elaborate on the difference. According to the Minnesota Department of Health, a non-certified copy of a birth record is a "plain paper copy ... for informational use only and cannot be used for legal purposes." MINNESOTA DEPARTMENT OF HEALTH, Non-certified Copies of Birth Records, http://www.health.state.rnn.us/divs/chs/osr/birthnc.html (last visited Nov. 17, 2016).

For examples of paper versions of the vital record copies submitted to the Commissioner, see Mem. Response, Attach. 2.

14 Tien Aff. Ex. L, at 1; id. Ex. D, at 33.

15 Tien Aff. Ex. L, at 1. We note that the record uses the terms DVD and CD interchangeably. Compare id. Ex. N, at 3, with id. Ex. L, at 1.

6

Society of American Archivists, which notes it is "helpful," though not required, to provide

"contextual information, such as names of people who appear in photographs." 16

In December 2010, Mr. Arens commissioned an appraisal of the donated property "to

determine a state and/or federal income tax deduction." 17 A "corrected" 18 version of the appraisal

describes the property as:

Robert Aren's [sic] copyrighted 2010 'Descendants of Hoffinan(n) of Capell en, Luxembourg' Part 1, collection of 10,685 blood relatives of Robert Arens based on non-copyrighted 7277 indexed, computer searchable data entries of vital records of which 6959 of these vital records are totally unique to this as well as any previously published genealogies. These 6959 vital records are the subject of this appraisal and the complete extension of 316 direct ancestors of Robert Arens. +his The copyrighted genealogy narrative is completely contained in a 1833 page, three ring bound book. A DVD containing the appraised 6959 vital records is in a separate plastic envelope at the back of the book. 19

Despite this description, Mr. Arens asserts the collection is neither copyrightable nor computer

searchable.20 Moreover, Mr. Arens concedes that the "three ring bound book" itself is a

16 Mem. Response 1, Attach. 4 (Society of American Archivists, "Donating Your Personal or Family Records to a Repository").

17 Tien Aff. Ex. D, at 34.

18 Although the original appraisal (Tien Aff. Ex. A) was dated April 3, 2011, Mr. Arens submitted a "corrected" version {Tien Aff. Ex. D) with his amended returns in 2014. See also id. Ex. D, at 8.

19 Tien Aff. Ex. D, at 33 (strikethrough in original).

20 Mem. Response 1; see Mem. Response, Attach. 9 (Affidavit of Barbara Czulewicz ~ 2); Mem. Response, Attach. 10 (Affidavit of Bryan S. Larson); see also Mem. Response, Attach. 11 (letter from United States Copyright Office to Robert Arens, dated May 18, 2015) (informing Mr. Arens that the "indexed vital records Collection" is not "copyrightable material" because it "does not contain the minimum amount of authorship required.").

Because we must view the facts in the light most favorable to Mr. Arens, we accept his assertions. State ex rel. Beaulieu v. City of Mounds View, 518 N.W.2d 567, 571 (Minn. 1994) ("On a motion for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party.").

7

nondeductible donation.21 The "corrected appraisal" thereby excludes the "three ring bound book"

from the property appraised and arrives at a somewhat lower value.22

The appraisal uses a sales comparison approach and "Blockage Method" to calculate the

collection's fair market value.23 The appraiser claims to have obtained "quotations from at least

five national and/or international" companies that specialize in "genealogical research," 24

concluding that the unit price per vital record is $23, or $160,057 for 6,959 digitized vital records

copies.25 The Commissioner does not offer her own calculation of the property's fair market value

but rather asserts that Mr. Arens is limited to deducting only his basis in the property, if any.26

Mr. Arens claims his basis in the collection is zero.27

Appeal history

After donating the collection to LACS in 2010, Mr. Arens attempted to deduct the

collection's fair market value-$162,830.06-as determined by the original appraisal.28 Because

of income limitations,29 Mr. Arens spread the deduction over his 2010, 2011, and 2012 individual

21

22

23

24

25

26

27

Tien Aff. Ex. L, at 1-2.

Compare Tien Aff. Ex. A, at 5 ($162,830.06), with id. ~ 16, Ex. D, at 35 ($160,057).

Tien Aff. Ex. D, at 36, 39.

Tien Aff. Ex. D, at 34.

Tien Aff. Ex. D, at 35, 39.

Comm'r's Mem. Law Supp. Mot. Summ. J. 16.

See original Form 8283 (Tien Aff. Ex. D, at 17).

28 Mr. Arens' original 2010 Minnesota Individual Income Tax Return, filed July 12, 2016 (Affidavit of Dean Sieben Ex. A, at 23).

29 l.R.C. § 170(b)(l)(A) (2014); see also id. § 170(d)(l)(A) (2014) (allowing individuals to carryover contributions in excess of 50 percent of their adjusted gross income).

8

income tax returns. 30 The Commissioner audited Mr. Arens' returns, initially concluding these

amounts were unlawfully deducted.31 Before the audit's conclusion, however, Mr. Arens paid the

alleged outstanding amount. 32 The Commissioner issued an order supporting her conclusions on

May 28, 2014. 33 Rather than appeal this order, Mr. Arens filed amended Minnesota income tax

returns for years 2010 through 2012. 34 With his amended 2010 return, Mr. Arens included a

"corrected appraisal" reducing the collection's claimed value to $160,057 and renewed his refund

claims.35 The Commissioner again denied his claims because "[n]o new and/or substantial

information [was] given to adjust the decision that was made during the audit." 36

After an unsuccessful administrative appeal, Mr. Arens timely appealed to the tax court on

September 28, 2015.37 The Commissioner filed a motion for summary judgment on July 12, 2016,

on the sole issue of the collection's deductibility.38 Mr. Arens responded on July 20, 2016, to

which the Commissioner replied on August 3, 2016.39 We heard the Commissioner's motion on

August 23, 2016.

30

31

32

33

34

35

36

37

38

39

See Sieben Aff. Exs. A-C.

Tien Aff. Ex. B.

Tien Aff. Exs. B, C.

Tien Aff. Ex. B.

Tien Aff. Exs. D-F.

Tien Aff. Ex. D, at 19, 35.

Tien Aff. Ex. G, at 2; id. Ex. H, at 2; id. Ex. I, at 2.

Tien Aff. Exs. M, N.

Comm'r's Mem. Law Supp. Mot. Summ. J. 1.

Mem. Response; Reply Mem. Law Supp. Comm'r's Mot. Summ. J (filed Aug. 3, 2016).

9

Legal standard: summary judgment

Summary judgment is appropriate "when the pleadings, depositions, answers to

interrogatories, admissions on file, and affidavits, if any, show 'that there is no genuine issue as to

any material fact and that either party is entitled to a judgment as a matter of law.' " DLH, Inc. v.

Russ, 566 N.W.2d 60, 69 (Minn. 1997) (citing Minn. R. Civ. P. 56.03). A court may "dispose of

an action on the merits if there is no genuine dispute regarding the material facts, and a party is

entitled to judgment under the law applicable to such facts." DLH, 566 N.W.2d at 69.

"[S]ubstantive law identifies which facts are material." Bond v. Comm 'r of Revenue, 691

N.W.2d 831, 836 (Minn. 2005). "A fact is material if its resolution will affect the outcome of a

case." 0 'Malley v. Ulland Bros., 549 N.W.2d 889, 892 (Minn. 1996).

In a summary judgment motion, "the moving party must show that there is an absence of

evidence to support the nonmoving party's case." Pautsch v. Comm 'r of Revenue, No. 8419-R,

2014 WL 1179796, at *2 (Minn. T.C. Mar. 17, 2014) (citing DLH, 566 N.W.2d at 69). However,

"[ w ]e view the evidence in the light most favorable to the nonmoving party, and resolve all doubts

and factual inferences against the movant." Mandel v. Comm 'r of Revenue, No. 8787-R, 2016

WL 903301, at *4 (Minn. T.C. Mar. 8, 2016) (citing State ex rel. Beaulieu v. City of Mounds

View, 518 N.W.2d 567, 571 (Minn. 1994)).

Applicable law

To deduct the full value of donated property, the taxpayer must demonstrate, among other

things, that the donated property is a capital asset under l.R.C. § 1221 (a). See Antonello v. Comm 'r

of Revenue, 884 N.W.2d 640, 647 (Minn. 2016) (noting that the Commissioner's assessment

enjoys a presumption of validity and the taxpayer bears both the burden of establishing that the

assessment is incorrect and the burden of proof as to the correct amount of taxes owed) (citing

10

Minn. Stat. § 270C.33, subd. 6 (2014)). "[T]he term 'capital asset' means property held by the

taxpayer ... but does not include" eight enumerated exclusions. l.R.C. § 122l{a).40 Here, the

relevant exclusion is "a copyright, a literary, musical or artistic composition, a letter or

memorandum, or similar property," when held by: (A) "a taxpayer whose personal efforts created

the property;" (B) "in the case of a letter, memorandum, or similar property, a taxpayer for whom

such property was prepared or produced;" or (C) a taxpayer whose basis for computing gain is

determined by reference to the property's basis in the hands of one of the aforementioned

taxpayers. l.R.C. § 122l(a)(3)(A)-(C) (emphasis added). This exclusion is consistent with the

notion that, like wage income, gain from the sale of property created by the taxpayer represents

income from the personal efforts of the taxpayer, not gain on an investment.41

At issue here is whether the contributed vital records collection is "similar" to letters and

memoranda, which are specifically excluded from the definition of capital asset. Treasury

Regulation § 1.1221-1 ( c )(2) (2016) provides a non-exhaustive list of such "similar property":

[SJ imilar property includes, for example, such property as a draft of a speech, a manuscript, a research paper, an oral recording of any type, a transcript

40 Although the Commissioner argues that the exclusions "are to be broadly construed," Comm'r's Mem. Law Supp. Mot. Summ. J. 9, the proper construction of section 122l(a)'s exclusions is uncertain. Ark. Best Corp. v. C.LR., 485 U.S. 212, 218, 108 S.Ct. 971, 975 (1988) ("The body of § 1221 establishes a general definition of the term 'capital asset,' and the phrase 'does not include' talces out of that broad definition only the classes of property that are specifically mentioned."). But see Corn Prods. Refining Co. v. C.LR., 350 U.S. 46, 52, 76 S.Ct. 20, 24 (1955) ("the definition of a capital asset must be narrowly applied and its exclusions interpreted broadly").

Arkansas Best concluded that the "oft-quoted rule of construction" from Corn Products, "that the definition of 'capital asset' must be narrowly applied and its exclusions interpreted broadly," is applicable to the specific inventory exception provided in section 1221, not necessarily all exclusions. Ark. Best, 485 U.S. at 220; see also Azar Nut Co. v. C.LR., 931 F.2d 314, 317 (5th Cir. 1991) (noting that the Supreme Court abandoned the Corn Products doctrine because "it created a nonstatutory exception to the definition of' capital asset' " and "it led to abuse of the tax laws.").

41 See supra note 6.

11

of an oral recording, a transcript of an oral interview or of dictation, a personal or business diary, a log or journal, a corporate archive, including a corporate charter, office correspondence, a financial record, a drawing, a photograph, or a dispatch.

Treas. Reg. § l.1221-l(c)(2). "[T]he phrase 'similar property' is not limited in any way by the

statute," and "the regulations state that the specific categories set forth therein are merely examples

of some types of materials which are included within this phrase." Chronicle Puhl 'g Co. &

Subsidiaries v. C.LR., 97 T.C. 445, 450 (1991).

Because Minnesota has yet to address Treas. Reg. § l.1221-l(c)(2), we look to federal

court analyses of charitable contributions and "similar property" for guidance. These analyses

simultaneously address whether the contributed property aligns with the categories mentioned in

Treas. Reg. § 1.1221-1 ( c )(2) and whether the taxpayer's personal efforts created the property. See

Cty. of Dakota v. Cameron, 839 N.W.2d 700, 709 (2013) (observing that under noscitur a sociis,

the court must interpret a phrase in a statute in light of the surrounding words and phrases in the

same statute). "Similar property" (for which no deduction was allowed) has included a

Congressman's correspondence and memoranda prepared during his time in office; tape recordings

of interviews personally conducted and recorded by the taxpayer; a large library of newspaper

clippings donated by the newspaper's owner; and discovery material exchanged in a criminal court

case that was prepared or produced for the lawyer-taxpayer.

In Morrison, the United States Tax Court concluded that a congressman was not entitled

to a charitable contribution deduction for a donation of documents, papers, correspondence,

memoranda, pictures, mementos, and other memorabilia collected during his time in Congress.

Morrison v. C.LR., 71 T.C. 683, 687, 689 (1979). The court held that "[s]uch items are clearly

within the statutory exclusion" as "letter[s], memorand[a], or similar property," and that the

donated materials were "those typically produced by the office of a Congressman diligently

12

representing his constituents." Id. at 688-89. Moreover, any third-party documents delivered to

the taxpayer were "prepared or produced" for the taxpayer. Id. at 689. The property was "clearly

the ordinary income property for which a charitable contribution deduction is expressly

disallowed .... " Id.

Similarly, the Tax Court has found that tape recordings of interviews conducted for the

taxpayer's professional use are ordinary income property. Glen v. C.LR., 79 T.C. 208 (1982). In

Glen, the taxpayer, a Ph. D. candidate, personally conducted and recorded interviews with leading

scientists in areas related to plate tectonics. Id. at 209-10. The taxpayer used information from

the recordings for his doctoral thesis and a variety of scientific literature, including a book

published on the history of the plate tectonics revolution. Id. Prior to conducting the interviews,

the taxpayer researched the interviewees to develop questions but was not compensated. Id. at 210.

The taxpayer subsequently donated the tape recordings to the Bancroft Library at the University

of California at Berkeley and petitioned for a deduction equal to the total amount he would have

received if he were paid to conduct the interviews. Id. at 210-11. According to the taxpayer, he

would have been paid $100 per hour of taped interview, or $6,200 total for the donation of 62

hours of recordings. Id. at 211. Having concluded- that it was "completely clear" the tapes were

created by the personal efforts of the taxpayer and the interviewees, as well as prepared or

produced for the taxpayer, the court held that an "oral recording of an interview" is "similar to the

other items mentioned" in Treas. Reg. § l.1221-l(c)(2) and clearly falls within the definition of

"similar property'' provided by the regulation. Id. at 214; see also Treas. Reg. § l.1221-l(c)(2)

("the phrase similar property includes ... an oral recording of any type").

"Similar property'' also includes newspaper clippings donated to a state historical society

by the newspaper's publisher. Chronicle, 97 T.C. at 446, 449-50. In 1983 and 1984, Chronicle

13

Publishing Company donated almost 8 million clippings from the San Francisco Chronicle dating

back to 1906. Id. at 446. All clippings were catalogued by subject matter and arranged in

alphabetical order. Id. When the publishing company attempted to deduct the clippings as a

charitable contribution, the IRS disallowed the deduction m its entirety. Id. at 44 7.

Acknowledging that the regulation identifies archives as similar property, Treas.

Reg. § 1.1221-1 ( c )(2) ("the phrase similar property includes . . . a corporate archive"), the tax

court applied the dictionary definition of "archive." Chronicle, 97 T.C. at 449. The court

concluded that the clippings library was "a 'collection of information' as well as an 'institutional

record,' ""maintained in topical, as well as chronological, form," that "fall[s] within the scope of

the ordinary meaning of 'archive.' " Id. at 449-50. The clippings library, consequently, was not

a capital asset. Id. at 452.

Last, in Jones v. C.LR., the Tenth Circuit had "no trouble concluding" that discovery

material produced for use in the Oklahoma City bombing trial was "properly characterized as

'letter[s], memorand[a], or similar property.' " Jones, 560 F.3d at 1197, 1200 (alterations in

original). Lead defense counsel for Timothy McVeigh donated discovery, produced by the

Government during the proceedings, to the Center for American History at the University of Texas.

Id. at 1197-98. Among other things, the discovery included copies of FBI witness statements, FBI

lab notes, photographs, and computer discs. Id. The Tenth Circuit concluded first, that the donated

material consisted of "letter[s], memorand[a], or similar property," and second, that the material

was "prepared or produced" for the taxpayer. Id. at 1200 (alterations in original). Although not

originally created for the taxpayer's benefit, the Government "made numerous copies of

memoranda ... specifically for Taxpayer .... [,]organized and categorized all the material for

the benefit of Taxpayer .... [,] [and] placed the discovery material in banker's boxes and prepared

14

letters for Taxpayer explaining the contents of each box." Id. at 1201. The Government's actions

"prepared" and "produced" the discovery material for the taxpayer's benefit. Id. Despite not

originally prepared for the taxpayer, the "letter[s], memorand[a], or similar property" were

nevertheless "prepared or produced" for the taxpayer, and any deduction was limited to the

taxpayer's basis in the donated property. 42 Id. at 1200-01 (alterations in original).

Analysis

Based on the foregoing, the material described by Mr. Arens as an "indexed digital

photograph collection of 6959 Luxembourger vital records on a DVD," 43 is ordinary income

property. Though Treas. Reg. § 1.1221-l(c)(2) does not specifically address such material, this

digital collection is substantially similar to the identified examples, such as a research paper, log

or journal, corporate archive, and photograph. Treas. Reg. § 1.1221-l(c)(2); see also

I.R.C. § 122l(a)(3)(A). The digitized collection is not unlike the tape recordings donated in Glen,

namely, interview recordings containing noteworthy scientific information. Glen, 79 T.C.

at 209, 214 (finding that an "oral recording of an interview" "clearly fall[s] with the definition of

'similar property' contained in section 1.1221-l(c)(2)"). Additionally, like the taxpayer's library

42 "Similar property" has also included a document analyzing macroeconomics with addenda drafted by the taxpayer and mailed to President Reagan, Rokke v. C.LR., 2 F.3d 1157 (9th Cir. 1993) (unpublished opinion) (document was a letter in the possession of its author and specifically excluded from the definition of a capital asset under l.R.C. § 1221).

Investors and collectors of art, however, are generally unaffected by section 122l(a)(3). Section 1221(a)(3) applies only to taxpayers whose personal efforts created the property or, in the case ofletters, memoranda, and similar property, a taxpayer for whom the document was prepared, or to a taxpayer who must compute their gain in reference to the property's basis in the hands of one of the foregoing. See e.g., Fidler v. C.LR., 231F.2d138, 144 (9th Cir. 1956) (holding that the tax court correctly concluded there was a loss on capital assets when the taxpayer sold, at a loss, his stock of literary properties, such as motion picture rights and scripts).

43 Tien Aff. Ex. N, at 3.

15

of newspaper clippings in Chronicle, the property is a collection of informational records akin to

an archival collection. Chronicle, 97 T.C. at 449 (noting that archive includes "a 'collection of

information' as well as an 'institutional record' that has been preserved"). Although an "indexed

digital photograph collection" is not specifically mentioned in the regulations, we reiterate that the

"specific categories set forth therein are merely examples" of"similar property" and the phrase is

in no way limited by the statute. Id. at 450.

Moreover, Mr. Arens' personal efforts created the collection. Though we acknowledge

that Mr. Arens did not physically create each of the original vital records,44 he nevertheless created

the end-product-the indexed collection-by his own efforts. See Treas. Reg. § 1.1221-1 ( c )(3)

("property is created in whole or in part by the personal efforts of a taxpayer if such taxpayer

performs ... other creative or productive work which affirmatively contributes to the creation of

the property"). The contributed property is a digital collection of copies of vital records, compiled

onto a DVD by the taxpayer. 45 Whereas "[ m ]ost of the vital records were already in digital non-

certified copy form," Mr. Arens personally created a ''unique file name" for each record copy

(based on date, names, place names, and event), and indexed the copies in accordance with specific

guidelines.46 Mr. Arens also added his own digital photographs of"microfilm images, book pages

44 See Tien Aff. Ex. J, at 1 (Mr. Arens stating the vital records "were not created by me").

45 Mem. Response 1 ("this organized digital image collection copy of the 6959 vital records .... This collection of the digital image copies) (emphasis added).

46 Tien Aff. Ex. L, at 1; Mem. Response 1 (collection "compiled and organized" to "comply with the guidelines of the American Association of Archivists).

16

and cemetery headstones" to the collection. 47 Indeed, the final indexed and organized collection

is the product of over thirty years of work by Mr. Arens.48

As in Glen and Morrison, Mr. Arens personally created the contributed property. Glen, 19

T.C. at 210 (taxpayer "personally conducted the interviews ... and recorded" them); Morrison, 71

T.C. at 689 (donated materials were "those typically produced by the office of a Congressman").

Indeed, Mr. Arens declares he "collected, organized, cataloged, compiled, [and] indexed" the

record copies.49 Although he did not create the original vital records-by their very nature they

are the creation of a governmental unit, see Vital Statistics, Black's Law Dictionary-the donated

collection itself was the result of Mr. Arens' personal efforts and creation. Importantly, the

donated property is a collection of indexed and organized record copies, not the original vital

records themselves. Even though the collection, stored on a DVD, may not be copyrightable, the

relevant question under l.R.C. § 1221(a)(3)(A) is whether the taxpayer created the property

himself. Glen, 19 T.C. at 214 (describing section 1221 as "obviously geared to a type of property

which a taxpayer himself creates"). We have no doubt that Mr. Arens affirmatively contributed to

the creation of the collection embedded on the DVD donated to LACS. Treas. Reg. § 1.1221-

1 ( c )(3 ). Mr. Arens' charitable contribution deduction is therefore limited to his basis in the

collection. I.R.C. § 170(e)(l)(A).

Mr. Arens makes several supplementary arguments. First, though he does not directly

address Treas. Reg. § l.1221-l(c)(2), Mr. Arens argues he "did not create any of the 6959 vital

47

48

49

Tien Aff. Ex. L, at 1.

Tien Aff. Ex. D, at 16.

Mem. Response I.

17

records, nor were any of them created, produced or prepared for me." so Conversely, the

Commissioner argues these records were "prepared or produced" for Mr. Arens. 51 Because we

conclude that Mr. Arens created the collection by his personal efforts, we need not address whether

the records were "prepared or produced" for him.

Second, Mr. Arens notes that some "digital image collection" donees actually require

collections be organized in a certain manner. 52 For example, he cites to the requirements of The

Museum of Vertebrate Zoology at Berkeley for donating digital images.53 However, even if

donees require the donor to categorize or organize a collection in a certain way, the donor's

personal efforts nevertheless created the collection. l.R.C. § 1221(a)(3)(A). That Mr. Arens may

have been required to provide an index is irrelevant to the collection's status as ordinary income

property. 54

50 Mem. Response 1.

51 Comm'r's Mem. Law. Supp. Mot. Summ. J 14-15.

52 Mem. Response 1.

53 Id., Attach. 19 (noting that photographers must complete a photo data entry template for each image donated). However, the pamphlet Mr. Arens provided from the National Library of Medicine, on donating materials to the images and archives collections, specifically says "[y ]ou don't need to do anything, other than to help get the materials to us safely." Id., Attach. 17 at 4 (also noting "[y]ou don't need to sort or cull materials."); see also id., Attach 4 (information from the Society of American Archivists noting it is "helpful," though not required, to provide "contextual information, such as names of people who appear in photographs.").

54 Moreover, we have no evidence the LACS requires a specific organizational format or index for donated collections. Likewise, simply because nonprofits will accept digital image collections does not mean such donations are tax deductible. Indeed, Mr. Arens' attachment 18 specifically notes that "given the current US tax law," donating photography is "probably not" tax deductible. Mem. Response, Attach. 18 (Nature Focused: Photography by Greg Cope, "Are Photography Donations Tax Deductible?").

18

Third, Mr. Arens claims the IRS "accepted" his 2010-2012 amended returns, asserting that

because the IRS did so, the Minnesota Department of Revenue must also do so. ss We have no

proof that the IRS did, in fact, accept Mr. Arens' amended returns for each tax year in question,

whether for filing or substantive purposes. For example, we do not have Mr. Arens' 2013 amended

federal return before us, much less anything indicating the IRS accepted a charitable deduction for

the collection.s6 Rather, we have only a letter from the IRS indicating it "adjusted [Mr. Arens']

account as [he] requested" for tax year 2013.s7 Moreover, even ifthe IRS did accept the amended

returns, the Minnesota Department of Revenue is not prohibited from doing differently. "Even

when Minnesota tax law incorporates the federal law, the commissioner is not necessarily bound

by the IRS's determinations." Busch v. Comm 'r of Revenue, 713 N.W.2d 337, 342 (Minn. 2006)

(citing Weed v. Comm 'r of Revenue, 550 N.W.2d 285, 289 (Minn. 1996)). Likewise, the

Commissioner's authority to examine tax returns and to order adjustments "would have no

meaning if the IRS' s action or lack thereof were always to govern the outcome." Id. (citing

Specktor v. Comm 'r of Revenue, 308 N.W.2d 806, 809 (Minn. 1981)); see also id. (collateral

estoppel does not apply when the IRS fails to correct a taxpayer's return when there was no prior

adjudication, or the Commissioner was neither a party or privy to the action) (citing Tarutis v.

Comm 'r of Revenue, 393 N.W.2d 667, 669 (Minn. 1986)).

Fourth, Mr. Arens argues "there may be many retroactive repercussions for past donations

of ... collections ... that have already been allowed as 'capital asset' donations" should we find

SS Mem. Response 1. Id

56 See Tien Aff. Exs. D-F (copies of Mr. Arens' 2010 through 2012 amended federal returns included with his amended Minnesota returns).

57 Id., Attach. 3.

19

his donation not a capital asset. 58 We disagree, for several reasons. One, Mr. Arens' examples­

"coins, old uniform buttons, bullets, belt buckles, stamps, land deeds, etc." 59-are original

tangible items physically created by a governmental unit, unlike digital images or copies of digital

images created by a private party. Moreover, we do not create new law; we simply apply existing

law to the particular facts before us, and the deductibility of those donations is not before us. Nor

does Mr. Arens cite any law for the proposition that the decision we issue here would permit any

taxing entity to challenge donations made years, or even decades, ago.

Finally, Mr. Arens argues that neglectful action by the Minnesota Department of Revenue

in this case "may be cause for punitive action." 60 Mr. Arens has presented no evidence of our

authority to assess punitive damages. Our jurisdiction is limited to cases "arising under the tax

laws of the state." Minn. Stat. § 271.01, subd. 5 (2014). Indeed, case law indicates we lack

authority to adjudicate tort claims or to award punitive damages. See, e.g., Benigni v. Cty. of St.

Louis, 585 N.W.2d 51, 54 (Minn. 1998) (concluding that a petitioner's requests that the tax court

order a county assessor to stop harassing him and address an assessor's alleged misconduct do not

arise under tax laws and are outside the tax court's jurisdiction); Carroll v. Comm 'r of Revenue,

No. 5713, 1991 WL 115799, at *1 (June 3, 1991) (dismissing a "civil action for damages" because

"the Tax Court clearly does not have subject matter jurisdiction over tort claims against individuals

employed by the Department of Revenue and against the State of Minnesota"); Halbach v. Cty. of

Lyon, No. CV83-976, 1984 WL 1993, at *3 (Jan. 23, 1984) (denying petitioners' request that the

58

59

60

Mem. Response 1.

Mem. Response 1.

Mem. Response 2.

20

tax court assess punitive damages under the Civil Rights Act because the tax court has no

jurisdiction over such an issue).

Even if we have authority to assess punitive damages, we would not do so here. Mr. Arens

asserts the Department was neglectful in several respects. One, he claims that contrary to the

Commissioner's memorandum,61 the digital image collection was available for the Department's

review at LACS in Belgium, Wisconsin.62 Mr. Arens contends that the Department was wrong

not to have traveled to Wisconsin to "examine[] this donated property in question prior to making

their judgments." 63 Two, Mr. Arens asserts the Department erroneously referred to the donated

materials as genealogical records.64 And three, Mr. Arens contends the Department failed to catch

Mr. Arens' own error, namely, identifying the collection as copyrighted in the appraisal.65

According to Mr. Arens, this is all "further evidence of [the Department's] own neglect and

incompetence." 66

"Punitive damages shall be allowed in civil actions only upon clear and convincing

evidence that the acts of the defendant show deliberate disregard for the rights or safety of others."

Minn. Stat.§ 549.20, subd. l(a) (2014). We do not find the Department's actions neglectful or in

deliberate disregard. As to Mr. Arens' first accusation, it is up to the taxpayer to maintain records

61 Comm'r's Mem. Supp. Law Mot. Summ. J. 3 n. l ("Because the donated property in question is in LACS's possession, it was not part of the record and was not available for inspection.").

62 Mem. Response 2.

63 Id.

64 Id.

65 Id. at 2.

66 Id.

21

to substantiate his or her tax returns. Conga Corp. v. Comm 'r of Revenue, 868 N.W.2d 41, 50

(Minn. 2015) (explaining that "the burden to maintain and provide adequate, complete, accurate,

and reliable records rests on the taxpayer") (citing FD-Oil Co. Inc. v. Comm 'r of Revenue, 560

N.W.2d 701, 706-07 (Minn. 1997)). Additionally, the presumptive validity of the Commissioner's

assessment "imposes on the taxpayer the burden of going forward with evidence to rebut or meet

the presumption." Conga, 868 N.W.2d at 53. Thus, if Mr. Arens wanted the collection inspected,

it was his duty to make it available for the Commissioner's inspection.

Mr. Aren's second accusation is equally baseless. He argues the Commissioner

misconstrues his argument by referring to the vital records as "genealogical records." 67 According

to Mr. Arens, vital records are "created, maintained in locked vaults, and individually sold ... by

governmental entities," 68 whereas genealogical records are "most often, indeed, copyrighted and

are not items of commerce. They are family histories." 69 Mr. Arens' attachment defines

"genealogy" as "the study of families and the tracing of their lineages and history. Genealogists

use oral interviews, historical records, genetic analysis . . . . " 70 Although vital records are

unquestionably government-issued, that does not prevent them from being used as historic,

genealogical records. We do not see how referring to the donated records as genealogical is

incorrect, much less neglectful.

Third, it appears Mr. Arens blames the Department for not catching his own mistaken

identification of the collection as copyrighted. We cannot say the Department overlooked this

67

68

69

70

Id.

Id.

Id.

Id., Attach. 8 (definition of genealogy record) (emphasis added).

22

"mistake," and we certainly cannot say it was its duty to correct it. It is the taxpayer's duty to

present evidence rebutting the assessment's validity, not the Department's. Conga, 868 N.W.2d

at 53.

For the foregoing reasons, we grant the Commissioner's motion for summary judgment

and affirm her order dated September 4, 2015.

J.H.T.

23