Skouti v. Franchise Tax Board

Filed 2/11/25 CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Sacramento) ----

AHMAD SKOUTI et al., C100135

Plaintiffs and Appellants, (Super. Ct. No. 34-2020- 00278768-CU-MC-GDS) v.

FRANCHISE TAX BOARD,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of Sacramento County, Christopher E. Krueger, Judge. Affirmed.

Fennemore Dowling Aaron, J. Jackson Waste and Joseph J. Doerr for Plaintiffs and Appellants.

Rob Bonta, Attorney General, Tamar Pachter, Assistant Attorney General, Craig D. Rust, Jennifer T. Henderson and Lauren E. Freeman, Deputy Attorneys General, for Defendant and Respondent.

1

Plaintiffs Ahmad Skouti and Faten M. Kour purchased a citrus orchard with proceeds from a jury award for the destruction of their grapevines. Internal Revenue Code section 1033 (26 U.S.C. § 1033 (section 1033)) permits nonrecognition of gain from involuntary conversions of property, like the one here, if the taxpayer “purchases other property similar or related in service or use to the property so converted.” (§ 1033, subd. (a)(2)(A).) The Franchise Tax Board (Board) determined plaintiffs cannot benefit from section 1033 because the citrus orchard was not similar or related in service to the converted grapevines. After exhausting administrative remedies, plaintiffs filed a complaint in the trial court for refund of taxes against the Board. The parties filed competing motions for summary judgment and the trial court granted the Board’s motion and denied plaintiffs’ motion. On appeal, plaintiffs contend the trial court erred because their purchase of citrus orchards was sufficiently similar under section 1033 to permit nonrecognition of the gain from the involuntarily converted grapevines. We affirm, concluding the properties are not similar under section 1033 because plaintiffs replaced agricultural fixtures with property including both agricultural fixtures and land. FACTUAL AND PROCEDURAL BACKGROUND The parties’ stipulation of undisputed material facts for the summary judgment motions stated plaintiffs are grape farmers with about 1,000 acres of grapevines. In 2002, they sprayed their vineyards with a mixture of chemicals their crop advisor recommended. These chemicals killed many of the grapes and injured or killed nearly half of plaintiffs’ vines. Plaintiffs sued the crop advisor and a jury awarded them over $7.5 million in damages. This award consisted of $3,260,166 for “[d]amage to [r]aisin [c]rop” between 2002 and 2004; $160,933 for “[c]ost to [r]epair [v]ines” between 2002 and 2004; $467,629 for “[l]ost [p]rofit from [g]reen [g]rape [p]urchases” between 2002 and 2004; and $3,666,605 for “future lost profits.” The lost profits from 2002 through 2004 was based on the estimated drop in vine production from the damage, and the future lost profits were based on the time it would take new vines to grow to grape producing