United States v. Stafford

United States Court of Appeals, Eleventh Circuit, 1984

727 F. 2d 1043

History

• Judge: R. Lanier Anderson III

• District court, then 11th circuit reverses

• Facts similar to James V. Comm.

• Stafford has rights to develop land

• Needs funding, gets investors to buy in

• 20 Units sold at 100K each in Ltd.

History cont.

• Transfer of letter of intent from LOG

• Stafford has the rights to this development

• Is an option “property” to be exchanged?

• Since partnership Sec. 721 is at issue.

LOG offers Stafford rights to develop land

Stafford forms Ltd.to raise 25% of capital

Transfers letter of intent to Ltd. Under 721

Ltd. Obtains financing for 75% from LOG

Ltd. Develops land andLeases back to LOG

Issue

• Under 721, what qualifies as property?

• Money, land, and certain intangibles eg. Trade secrets

• In this case, the letter was to Petitioner

• In James case, the FHA is to Corp.

• Timing issue arises although not discussed in the case.

• Exchange and Property requirements

Holding

• Letter does qualify as property• Stafford performed services, not

for Ltd.• Services prior to forming Ltd.• Leads to tangible property which he

transfers into Ltd.• “the Code is designed to prevent the

mere change in form from precipitating taxation.”

Reasoning

• James transferred property to the corp. that was never really his

• Letter was exchanged, just as money or land would be.

• Property should have “Value and enforceability” says lower court

• Letter has Substantial commitment

• Property is similar to goodwill or know-how