## Facts

- Ottawa Silica Co., a silica-sand mining and processing company, acquired land in Oceanside, California, initially for potential mining use but later for residential and commercial development.
- A local high school district sought a new school site and approached Ottawa for a conveyance of part of Ottawa’s Oceanside holdings.
- After negotiations, Ottawa conveyed roughly 50 acres for the school site and about 20 additional acres for rights-of-way to support new access roads.
- The district committed to construct roads and related improvements that Ottawa expected would materially aid its development plans and increase the value and marketability of its remaining land.
- The high school and access roads did increase the value of Ottawa’s surrounding property, and Ottawa later sold much of the remaining land at enhanced prices.
- Ottawa claimed (1) a charitable contribution deduction under I.R.C. § 170 for the land conveyed to the school district and (2) percentage depletion deductions for silica mining for years 1965–1971.
- The IRS disallowed or reduced the deductions; Ottawa filed administrative refund claims and then sued for refunds (and interest) for tax years 1964, 1967, and 1969–1971.
- The Claims Court rejected Ottawa’s positions after trial and dismissed the petition; the Federal Circuit affirmed in a per curiam decision adopting the Claims Court’s reasoning.

## Issues

1. Whether Ottawa was entitled to additional percentage depletion deductions beyond those allowed by the Commissioner for its silica mining operations.
2. Whether Ottawa’s land transfer to a qualifying school district was a deductible charitable contribution under I.R.C. § 170 when Ottawa received substantial, negotiated economic benefits in return.
3. Whether Ottawa was barred in the refund suit from advancing a new depletion theory not fairly contained in its timely administrative refund claim.

## Decision

- The Federal Circuit affirmed the Claims Court’s judgment for the United States.
- Ottawa was not entitled to the additional percentage depletion deductions sought.
- Ottawa could not deduct the full value of the land transfer as a charitable contribution because the transfer involved substantial quid pro quo benefits tied to Ottawa’s development objectives.
- Ottawa was procedurally barred from expanding its depletion claim beyond the grounds presented in its administrative refund claim.

## Legal Principles

- A deduction under I.R.C. § 170 requires a “contribution or gift,” meaning a transfer made without expectation of a direct or commensurate return benefit; a transfer made for substantial, specifically bargained-for economic benefits is not a deductible gift to that extent.
- A transfer to a qualifying governmental entity under § 170(c)(1) is not automatically deductible; courts examine the economic substance and whether the transfer was induced by concrete return benefits.
- In a tax refund suit, the taxpayer’s recovery is limited to grounds fairly presented in the timely administrative refund claim; a materially different computational method or theory raised later is outside the permissible scope.

## Conclusion

The court upheld the denial of Ottawa’s claimed charitable deduction because the conveyance to the school district was negotiated to obtain substantial development-related benefits, and it upheld the rejection of additional depletion claims, including on the independent ground that Ottawa could not expand its refund suit beyond the theories stated in its administrative refund claims.


Ottawa Silica Co. v. United States, 699 F.2d 1124 (Fed. Cir. 1983)