Germaine F. Harmon, Relator,
Commissioner of Revenue, Respondent.
Court Office of Appellate Courts
Johnson, Saint Paul, Minnesota, for relator.
Swanson, Attorney General, Kathryn M. Woodruff, Assistant
Attorney General, Saint Paul, Minnesota, for respondent.
tax court did not err by determining that relator failed to
overcome the presumption of validity of respondent's
assessment of taxes.
tax court did not err by determining that there was no
dispute regarding relator's federal tax liability that
required respondent to delay the assessment of relator's
Minnesota tax liability.
and decided by the court without oral argument.
the foreclosure of mortgage debt on a real-estate investment
property triggered taxable gains to the investors, respondent
Commissioner of Revenue requested that appellant Germaine
Harmon file a 2010 Minnesota income-tax return. Three years
later, Harmon still had not filed a return. Accordingly, the
Commissioner assessed Harmon's 2010 Minnesota income-tax
liability based on a Schedule K-1 filed by the partnership in
charge of the foreclosed real-estate investment. Harmon
appealed to the tax court, challenging the Commissioner's
assessment. On cross motions for summary judgment, the tax
court granted summary judgment in favor of the Commissioner.
tax dispute arises out of a failed real-estate investment
that resulted in substantial tax consequences for the widow
of one of the original investors. The trail leading to those
consequences began in May 1984, when a group of general
partners at Goldman Sachs formed City Center Investors (CCI),
a real estate partnership. CCI's sole investment was a
49.475% proportional share in a parent partnership, City
Center Associates (CCA). CCA's only asset was the City
Center building (City Center), a mixed-use office and retail
property in downtown Minneapolis. Because City Center was
located in Minneapolis, all income flowing from the
investment, and therefore from CCA, was generated in
Minnesota. Harmon, the widow of one of the initial investors,
acquired her husband's share of CCI upon his death in
Center was encumbered by two mortgage loans. One was a
purchase-money mortgage, used by CCA to purchase the
building, and another was an underlying nonrecourse first
mortgage. By 2007, due to various factors including
depreciation, interest, and anemic rental revenue, the
principal balance of the mortgage loans exceeded the market
value of City Center.
January 2007, CCI issued a memorandum to its partners,
including Harmon, outlining CCI's financial situation.
The memorandum warned that because the amount of mortgage
debt from the two mortgage loans encumbering City Center
exceeded the value of the property, a foreclosure sale would
"trigger a taxable gain to the partners of
CCI."Therefore, CCI warned its partners of a
"significant 'built-in' tax gain to be realized
upon foreclosure" of either mortgage loan, amounting to
each partner's "allocable ...