Mass.  Appeals Court, 13-P-1050, November 10, 2014: Agricultural buy-local organization exempt from real estate tax.

On appeal from the state’s Appellate Tax Board, the court held that Community Involved In Sustaining Agriculture (CISA) is entitled to exemption from local property tax on land it owns and occupies for its programs. At issue was whether the dominant purpose of CISA’s work “is for the public good and the work done for its members is but the means adopted for this purpose” — which would qualify it as a charitable organization entitled to exemption — or if any benefit derived by the public is incidental.

The court found that the facts establish that CISA’s programs benefit an indefinite number of people, many of whom are not members. Quoting a ruling by the state’s highest court that, “Whatever aids agriculture helps to advance the health and prosperity of the Commonwealth,” the court listed CISA activities of general public benefit: it “distributes a free annual ‘locally grown farm products guide’ to nearly 50,000 households, and helps vulnerable populations such as the elderly, low income citizens, school children, and urban residents receive fresh local food that they would otherwise struggle to access. By increasing food security and developing sustainable local farming, CISA engages in charitable activities that benefit the general public. Moreover, CISA is traditionally charitable because its programs lessen the burdens of many government agencies ‘interested in food systems, nutrition, public health, agriculture, and local farmers.’” The court also noted that CISA does not restrict membership and its members are diverse and come from different segments of society.

The decision, available currently at, is a summary decision by a three-judge panel that may be cited for its persuasive value but not as binding precedent. The decision will eventually be available at

Markus v. Brohl

Colorado Court of Appeals, 3rd Div., No. 13CA1656, October 23, 2014: Colorado’s 4-year limitation on challenging a claimed conservation easement tax credit runs from when the credit is first claimed.

Colorado taxpayers may claim a state income tax credit, which may be carried forward for up to twenty years, for donating a qualifying conservation easement to a governmental entity or charitable organization. § 39-22-522(2), (5), & (7), C.R.S. 2014. The applicable general statute of limitations provides that “the assessment of any tax, penalties, and interest shall be made within one year after the expiration of the time provided for assessing a deficiency in federal income tax. . . .” § 39-21-107(2), C.R.S. 2014. The time for assessing a deficiency in federal income tax is three years, 26 U.S.C. § 6501(a) (2012.  Thus, the Colorado limitations period is four years.

The Colorado Department of Revenue and several taxpayers fund their way into court in a dispute over how long the DOR could challenge the validity and value of the CE tax credits: in each of up to 20 years year in which the credit is claimed, or only within four years from the first time the credits are claimed? What triggers the commencement of the four-year limitations period?

The court held that the Department of Revenue must determine the value and validity of a claimed conservation easement tax credit within four years from when the credit is first claimed.

Decision available at


Chabad Lubavitch of Litchfield County, Inc. V. Litchfield Historic District Commission

US Court of Appeals, 2nd Circuit, Nos. 12-1057-cv (Lead), 12-1495-cv (Con), September 19, 2014: Certificate of historical appropriateness subject to RLUIPA; current property interest not needed to bring RLUIPA claim; multiple factors must go into discriminatory intent inquiry.

RLUIPA is the federal Religious Land Use and Institutionalized Persons Act, 42 U.S.C. § 2000cc et seq. Litchfield’s Historic District Commission (“HDC”) denied an application by the religious organization Chabad Lubavitch of Litchfield County, Inc. (“Chabad”) for a certificate of appropriateness to alter a building in Litchfield’s historic district. The Chabad and its Rabbi Joseph Eisenbach (“Eisenbach”) challenged the decision in federal district court, claiming violation of RLUIPA and abridgement of constitutional rights.

The thrust of their claims was that the HDC action violated RLUIPA’s substantial burden provision, which says that a government can’t impose or implement a land use regulation in a manner that imposes a substantial burden on religious exercise unless the imposition of the burden meets certain tests. A prerequisite of showing a substantial burden is that it “is imposed in the implementation of a … regulation … under which a government makes … individualized assessments of the proposed uses for the property involved.” Id. § 2000cc(a)(2).

The district court barred the Chabad’s claim under RLUIPA’s substantial burden provision, saying that because the Connecticut law under which the HDC’s approval was required (Conn. General Statutes § 7-147a et seq) applies to any entity (with some exceptions) seeking to modify a property in a historic district, it is a neutral law of general applicability and thus could not, as a matter of law, impose a substantial burden on the Chabad’s religious exercise. The district court also held that Eisenbach lacked standing under RLUIPA. Chabad and Eisenberg appealed.

Chabad’s claims:

The court overruled the lower court on the applicability of the substantial burden rules to this case. It said the HDC decision under Connecticut’s statutory scheme was clearly the type of “individualized assessment” RLUIPA was meant to address. The court said the factors that may be considered to determine whether a substantial burden is imposed include whether the law is neutral and generally applicable, arbitrariness of a denial, whether the denial was conditional, and if so, whether the condition was itself a substantial burden, and whether the plaintiff had “ready alternatives.” The court remanded to the district court to determine whether the HDC denial in fact imposed a substantial burden on the Chabad’s religious exercise.

On the Chabad’s RLUIPA discrimination claim, the court held that unlike the substantial burden provision, evidence of discriminatory intent is required to establish a claim. The court found that when the district court had looked only for evidence that other comparable religious institutions had been similarly treated by the HDC, it had not looked at enough factors to properly determine intent. The court (Second Circuit Appeals) had not previously interpreted the nondiscrimination provision. The court remanded the Chabad’s discrimination claim to the district court for further consideration.

Eisenbach’s Standing:

The district court had dismissed Eisenbach’s claim saying he lacked standing under RLUIPA because he did not hold some property interest that he attempted to use and which was threatened by the conduct of the HDC.

The court distinguished the determination of whether Eisenbach has a cause of action under a statute from a federal court’s jurisdiction to hear the claim. Eisenbach’s standing to pursue his RLUIPA claims, the court said, turns on whether his allegations place him in the class of plaintiffs that RLUIPA protects. The court found the HDC’s denial of the Chabad’s application and the conditions it imposed on any renewed application deprived Eisenbach of the ability to live in the facilities as proposed, even though he didn’t currently live there. That circumstance, the court held, is an alleged injury that may be redressed by relief from the district court. The court vacated the district court’s holding that Rabbi Eisenbach lacked standing under RLUIPA and remand it for determination whether he has stated a claim.

Decision available at and

In Re Dekoning

US Bankruptcy Court, ED California Fresno Div., No. 13-16634-13-13, August 27, 2014: Conservation easement may not diminish market value of debtor’s residence in bankruptcy.

In this bankruptcy matter, the Debtor, Dekoning, sought to have the court accept a fair market value of his residence low enough so a mortgage holder would be deemed an unsecured creditor. The residence’s land was in part subject to a conservation easement which imposes restrictions on the access and use of property on both sides of a creek and on an “intermittent drainage” which cross the property. There was no expert appraisal or objective testimony about the effect of the conservation easement on the fair market value of the property. As part of the somewhat informal valuation of the premises, Dekoning asserted the conservation easement reduced the property’s value.. The court concluded, because Dekoning was once fined $10,000 for driving a tractor on the conservation easement, that he had a “grudge” against the easement holder over its enforcement of the easement and his negative opinion about the conservation easement was based on subjective factors.

The court rejected Dekoning’s valuation of the property for a variety of reasons, including the court’s statement that, “The Conservation Easement may be a source of aggravation to the Debtor, based on his personal experience and goals for the Property, but that does not mean that another buyer, with the same information the Debtors had, would not view the Easement as an asset to be enjoyed.”

Decision available at Decision may eventually also be available at (search under Judge Lee’s opinions).

Sierra Club v. Jewell

US Court of Appeals, DC Circuit, No. 12-5383, August 26, 2014: Non-property owner advocates have standing re. National Register listing.

This case involves efforts to obtain listing in the National Register of Historic Places for Blair Mountain Battlefield, the site of “the largest armed labor conflict in our nation’s history.”  The Battlefield was listed in 2009 only to be removed within days; the Keeper of The Register determined that the wishes of coal mining companies that own property in the area “had not been accurately captured in the nomination process.”  A coalition of several citizen groups (the “Coalition”) sued in federal district court challenging the Battlefield’s removal from the Register. They asserted that the delisting created a real risk that surface coal mining would alter the Battlefield in ways that would not happen if the site were listed. The district court granted summary judgment against the Coalition, holding that they lack standing. The Coalition appealed and the appeals court granted the Coalition standing, overturning the district court decision.

The majority decision on appeal held the Coalition had standing, based on the three components of standing: injury in fact, causation, or redressability. A dissenting judge would have denied standing.

Injury in fact: the Coalition had to show that the asserted injury to its members is concrete and particularized, and is also actual or imminent. The court cited Supreme Court decisions recognizing that harm to “the mere esthetic interests of the plaintiff … will suffice” to establish a concrete and particularized injury.  The court held that the Coalition members did not have to show they had a right to enter the property to meet this standard. The court said that Coalition members who merely view and enjoy the Battlefield’s aesthetic features, or who observe it for purposes of studying and appreciating its history, would suffer a concrete and particularized injury from the conduct of surface mining on the Battlefield: “They possess interests in observing the landscape from surrounding areas, for instance, or in enjoying the Battlefield while on public roads.”

As to whether the asserted injuries qualify as “imminent” the court said it was necessary to show a “substantial probability of injury” to establish imminent injury.  The court found the Coalition had made that showing because it was undisputed that coal companies have mined in the vicinity of the Battlefield under permits that encompass the Battlefield, and although the permits have existed for over ten years without any mining, the coal companies themselves had said they would eventually mine in the Battlefield under the permits.

Causation and redressability: The court said the standard of proof requires the Coalition to show that its injury is “fairly traceable” to the delisting of the Battlefield, and that “it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” This, the court said, depends on the extent to which inclusion in the Register would protect the Battlefield from surface mining. The court held that a West Virginia regulation affords enough additional protections to places listed in the Register for the coalition to satisfy this standard. The regulation says that “all adverse impacts [from surface mining] must be minimized” for sites included in the Register. W. Va. Code R. § 38-2-3-17.c.  The Coalition only need to persuade the court that it’s interpretation of the “minimization requirement” was “non-frivolous.”

One of the three judges on the panel dissented, saying that the federal courts should have no jurisdiction over this action because the “injury in fact” requirement for standing requires a legally protected interest. In the dissenting judge’s opinion, the coalition members’ interest in viewing the property of others is not a legally protected interest.

Decision available at$file/12-5383-1509259.pdf.



North Carolina Court of Appeals, No. COA13-1447, August 19, 2014: property not wholly and exclusively used for educational or scientific purposes subject to property taxes

The court accepted findings of substantial retail and commercial activity on the property, including profit from retail sales in excess of one million dollars. Accordingly, it held that the property was not “wholly and exclusively” used for educational and scientific purposes, as required under North Carolina statute to be eligible for a property tax exemption.

Decision available at

Francis Small Heritage Trust Inc. v. Town of Limington

Supreme Judicial Court of Maine, No. YOR-13-511, August 7, 2014: land fully devoted to conservation and free public access is tax exempt.

The Trust owns eleven contiguous parcels of land on and near Sawyer Mountain in Limington. Eight of the parcels are open space properties which are protected by conservation easements enforceable by third parties, including easements on some parcels held by the Department of Inland Fisheries and Wildlife as part of the Land for Maine’s Future program. The other three parcels are “tree growth parcels” subject to forestry harvesting.  In this appeal, the Trust challenged a denial of tax exempt status for all parcels. The court, considering this case the first one in which it was asked to squarely address the issues involved, held that land conservation constitutes a charitable purpose within the meaning of the relevant Maine law (36 M.R.S. § 652(1)) and that all parcels are tax exempt.

Essential to the decision were the facts that:

  • The Trust’s purposes are “to conserve natural resources and to provide free public access to those natural resources.”
  • The Trust’s properties are “used and operated as conserved wildlife habitat,” and are open to the public 365 days a year, with local schools using the properties for field trips and environmental education, and the public having access to the land for a variety of recreational activities.
  • T Maine he Legislature has enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine.
  • Free public access. (“[T]he Trust essentially operates its properties in the manner of a state …. In doing so, the Trust assists the state in achieving its conservation goals.”)
  • The testimony that the Trust’s tree harvesting plans are only “part of an educational program on sustainable tree harvesting, with any revenue flowing back into the Trust to be used in accordance with its purposes. An educational program on sustainable forestry is consistent with the Trust’s charitable purposes.”

The court distinguished an earlier case, in which exemption was denied, because the prior decision “was based on the absence of any benefit to the public of a game preserve operated in a manner that heavily restricted public access and was contrary to public policy.”

An additional review of this decision, which sets it in a broader context, is available from the Land Trust Alliance at

The decision itself is available at

Historic District Commission v. Sciame

Appellate Court of Connecticut, Ac 35713, August 12, 2014: Attorney’s fees awarded to historic commission.

Sciame was ordered by the local Historic District Commission (Commission) to remove certain renovations on a property in a historic district. When he failed to comply, the commission sued. After a trial on the issues found for the commission, and trial and appellate rejection of a counterclaim by Sciame, the trial court ordered Sciame to pay the Commission’s attorney’s fees under the following statute (General Statutes § 7-147h (b)) (emphasis added):

“The owner or agent of any building, structure or place where a violation of any provision of this part or of any regulation or ordinance adopted under said sections has been committed or exists . . . shall be fined not less than ten dollars nor more than one hundred dollars for each day that such violation continues. . .  All costs, fees and expenses in connection with actions under this section may, in the discretion of the court, be assessed as damages against the violator, which, together with reasonable attorney’s fees, may be awarded to the historic district commission which brought such action. . . .”

At issue on appeal was, first, whether the trial court’s failure to impose fines on Sciame means that the court could not properly award attorney’s fees to the commission. This question turned on whether the statute’s wording, “The owner . . . shall be fined,” is mandatory (a fine must be imposed) or directory (a fine may be imposed). The court held that the core purpose of the statute is to provide a means of enforcement and the imposition of daily fines is not of the essence of the purpose of the statute. The court therefore concluded that a fine was not required, and therefore the award of attorney’s fees did not depend upon the imposition of a fine.

The next issue was whether attorney’s fees could be awarded only if the defendant was found to have “violated” the commission’s order. The trial court had not labeled Sciame a violator, but had ordered “compliance” with the commission’s order. The court held that the trial court’s order of “compliance,” standing alone, “is sufficient to implicate the court’s authority under § 7-147h (b), including the discretion to award attorney’s fees.”  Thus, attorney’s fees could be awarded to the commission for its successful enforcement action of its order.

The last issue was whether the trial court improperly awarded attorney’s fees related to the commission’s successful defense against Sciame’s counterclaim. Sciame argued that a counterclaim is a distinct legal action, and that there is no statutory authority for the award of attorney’s fees in such an action. The court, however, agreed with the commission that Sciame’s litigation strategy in choosing to bring causes of action as a counterclaim to the enforcement action necessarily means that the attorney’s fees related to the counterclaim were incurred within the enforcement action pursuant to § 7-147h.

Accordingly, the court upheld the award of attorney’s fees to the commission.

Decision available at

Zarlengo v. Commissioner

U.S. Tax Court, T.C. Memo. 2014-161, August 11, 2014: Recording of NY easement determines date of compliance with tax regs. Substantial compliance with appraisal date requirement adequate.

Marco Zarlengo (“Zarlengo”) and his ex-wife Merilyn Sandin-Zarlengo (“Sandin-Zarlengo) signed a “facade conservation easement” (historic preservation easement) in 2004, and it was recorded in 2005. They each claimed a qualified conservation contribution deduction for 2004. Because of limitations on charitable contribution deductions in one year, Sandin-Zarlengo claimed only part of the easement’s value as stated in their appraisal, and carried the excess value forward and claimed it in subsequent years. The property was in a historic district in New York, subject to certain New York City Landmarks Preservation Commission (LPC) requirements. The IRS rejected any deduction and sought penalties.

The court held that no deduction was available for 2004 because the failure to record the easement in that year meant that it did not meet the perpetuity requirement of the tax laws. The court ruled that under New York law, which determines the enforceability of the easement, a conservation easement is not effective unless recorded, and a good faith purchaser of the property would not have been bound by it until it was recorded.

Because Sandin-Zarlengo is not entitled to the 2004 deduction, the court said it follows that she is not entitled to the carryover deductions. However, the court determined that she would be entitled to take a deduction in 2005, based on the recording of the easement that year, if she met the substantiation requirements.

Although the IRS asserted that the appraisal failed to meet the substantiation requirements on numerous grounds, the principal argument was whether the appraisal was not timely under section 1.170A-13(c)(3)(i) of the Income Tax Regulations., i.e., it was not prepared between 60 days before the contribution date and the extended due date of the return first claiming the deduction. The court, while agreeing that the appraisal was untimely, rejected that argument. It said that precedent had established that the substantiation requirements are “directory, requiring substantial compliance, rather than mandatory, requiring strict compliance.” It held that the timeliness requirement “does not relate to the essence” of the conservation easement deduction requirements.

As to valuation, based on the “before and after” method of valuation, the expert for each party adjusted the “before” value based on a variety of factors. The court found the positions of both parties’ experts were unreasonable, and calculated a value between the two. The court rejected the IRS’ experts assertion that a facade easement at this location would have no negative effect on the property’s fair market value, but it also criticized the taxpayers’ expert’s calculations, and again reached its own conclusion.

It is worth noting that the court, in a lengthy footnote, found that the conservation easement did have a “conservation purpose” within the meaning of sec. 170(h)(4)(A)(iv), contrary to the IRS position, because it provides an additional layer of protection over and above that provided by the LPC’s regulations.

As to penalties, the court had to differentiate between returns filed before and after the July 25, 2006, the effective date of the Pension Protection Act of 2006 (PPA), Pub. L. No. 109-280, 120 Stat. 780. One significant change made by the PPA was to eliminate the reasonable cause exception for gross valuation misstatements of charitable deduction property for post-PPA returns. The court found that both Zarlengo and Sandin-Zarlengo meet the reasonable cause and good faith exception for their 2004 joint return and Sandin-Zarlengo met the exception for her 2005 return. Sandin-Zarlengo’s 2006 and 2007 returns, on which she claimed carryover deductions, were post-PPA so the reasonable cause and good faith exception was not available to her.

Decision available at


Schmidt v. Commissioner

U.S. Tax Court, 2014 TC Memo 159, August 6, 2014: Court makes its own valuation of conservation easement contribution.

At issue was the valuation of a conservation easement for the purposes of a federal income tax deduction for a “qualified conservation contribution.”  Both the taxpayer/petitioner and the IRS (respondent) introduced expert testimony and questioned the credibility of each other’s experts. The parties and court agreed the valuation should be done using the “before and after method” and the primary focus of the court’s opinion was on the “before” valuation. In various respects, the court found neither side’s experts entirely convincing, and came up with its own appraisal of the before value.

The parties agreed that it would be appropriate to use both the “market” and “subdivision development” methods to determine the before value. The court, however, rejected the market method in this case. The market method looks at comparable sales, and the subdivision development method analyzes the income potential of a property based on creation and sale of subdivision lots, and then capitalizing or discounting the expected cash flow from the property. The court rejected the market method because it determined there were not sufficient sales of properties comparable to the before condition of the property.

The parties agree, and the court accepted, that the following factors are relevant to the subdivision development method to determine the before value of a property: (1) the number of lots; (2) the retail lot selling prices; (3) the retail lot selling price appreciation rate, (4) the time required to obtain entitlements (i.e., development approvals), (5) the absorption rate of the lots, (6) development costs, (7) marketing/administrative costs, and (8) the discount rate. The court accepted the parties’ conclusions on some of these factors but on others rejected the experts’ analysis and substituted its own analysis and conclusions.

In doing its analysis, the court did its own “proper application” of the discounted cash flow method in this case. The decision itself should be read for the court’s technical analysis.

Among other things, the court accepted the parties’ agreement that the appropriate discount rate was 22%, including a 10% entrepreneurial-profit factor.

The court thus determined the before value itself. As to the after value, the court accepted the agreement of the parties that the after value should be based on comparable sales of properties subject to conservation easements. The taxpayer’s and IRS’ experts disagreement on the after value was based primarily, the court said, on whether sales of properties that were not platted were comparable or sales of platted properties. The court came down on the side of using platted properties. The court, having made its own determination of the before value and accepting the IRS’ expert’s after value, was able to find what it said was the appropriate value of the conservation easement donation.

Because the value claimed by the taxpayer was substantially greater than the value determined by the court, the IRS sought a substantial underpayment penalty. The court found the taxpayer had reasonable cause and acted in good faith, and so rejected the penalty.

Decision available at

My appreciation to Leslie Rately-Beach for first bringing this case to my attention.

Mellon v. International Group for Historic Aircraft Recovery

U.S. District Court, D. Wyoming, No. 1:13-CV-00118-SWS, July 25, 2014: No negligent misrepresentation in Amelia Earhart search fundraising.

This decision is of some relevance as a discussion of the claim of Mellon, the plaintiff/donor, that The International Group for Historic Aircraft Recovery (“TIGHAR”), the defendant, engaged in negligent misrepresentation in fundraising. The court found that TIGHAR did not. The elements of negligent misrepresentation in Wyoming, the applicable law in this case, are set out below. It is reported here for that reason, but also because the court’s opinion includes interesting summer reading on TIGHAR’s search for the Earhart aircraft.

The court cited Wyo. Sugar Growers, LCC v. Spreckels Sugar Co., Inc., 925 F.Supp.2d 1225, 1228 n.2 (D. Wyo. 2012) (in turn citing Birt v. Wells Fargo Home Mortg., Inc., 75 P.3d 640, 656 (Wyo. 2003)) for following as the elements of negligent misrepresentation under Wyoming law: “(1) defendant gave plaintiff false information in a transaction in which defendant had a pecuniary interest; (2) defendant gave the false information to plaintiff for the guidance of plaintiff in plaintiffs business transactions; (3) defendant failed to use reasonable care in obtaining or communicating the information; (4) plaintiff justifiably relied on the false information supplied by defendant; and (5) as a result of plaintiff’s reliance, plaintiff suffered economic damages.” The court found that the information Mellon claimed was a misrepresentation was not false.

Decision available at

Avery v. Medina

Conn. Appellate Court, AC 36326, July 8, 2014: Stone wall is “permanent structure”

At issue was whether a stone wall erected by Medina, the defendant, at a location where a restrictive covenant between private parties prohibited construction of any “permanent structure,” was a permanent structure in violation of the covenant. A lower court agreed with Medina that the prohibition on permanent structures was ambiguous and, even though the wall is a structure that “is large in size, is undoubtedly heavy and is immobile” it was not permanent. The appeals court disagreed. It held that the phrase “permanent structure” was not ambiguous, and found that the wall is a permanent structure within the meaning of this restrictive covenant.

The court concluded that the term “permanent structure” has a common, natural and ordinary meaning and “equates to a structure that is not meant to be temporary or transient, but, rather, is meant to be fixed, lasting, and not readily abated.” The factors to be evaluated include the structure’s size, weight, durability, stability and mobility. The plaintiffs argued, and the court agreed, that even if the wall did not contain a concrete core, “gravity would affix this wall, with its pillars and fencing, to the ground.”

The case was remanded to the trial court for it to grant an injunction requiring Medina to remove all portions of the wall within the prohibited area. There were other controversies in this case, not relevant to this outcome.

Decision available at

In Re Flood Hazard Area Verification

NJ Super. Ct Appellate Division, Nos. A-5541-11T1, A-6364-11T1, June 20, 2014: Hearing required to amend conservation easement.

As of this writing the opinion is not approved for publication.

In 2001 the Italian American Sportsmen’s Club, Inc. (“IASC”) and developer Crestwood obtained approvals from the New Jersey DEP, including a wetlands transition area waiver (“the 2001 TAW”), to subdivide a large IASC parcel (“Lot 47”) and develop some of the lots. The DEP’s approval of the 2001 TAW was conditioned on the granting to DEP of a deed restriction or conservation easement, among other things. The conservation easement was never recorded. More recently another developer (“Sharbell”) obtained approvals from the DEP for a project on other lots carved out of Lot 47. As part of its application, Sharbell obtained approval (the “Sharbell TAW”) to modify the boundaries of the transition area specified in the 2001 TAW, by encroaching on some of the transition area while creating a larger transition area in other locations on the site. A local group, Save Hamilton Open Space (“SHOS”), said Sharbell should not be allowed any relief that would alter the 2001 TAW. SHOS appealed issuance of the Sharbell TAW, in part based on the failure to record the conservation easement. The DEP took the position that IASC’s violation of the easement recording requirement was a separate problem that should not stand in the way of Sharbell’s permits.

The court held that the failure to record the conservation easement required the DEP not to approve Sharbell’s proposed changes to the transition area, and it vacated the Sharbell TAW, without prejudice. The court pointed to a specific state regulation, Subsection (2)(i) of N.J.A.C. 7:7A-6.1(e), which required that the boundaries of the TAW originally approved by the DEP could not be modified except to a de minimis degree and then only if the conservation easement had been recorded. The court said that because the easement had not been recorded here, no modification should be allowed other than by following the procedure in New Jersey’s conservation easement enabling law (N.J.S.A. 13:8B) for releasing a conservation easement, in whole or in part. That procedure (which also applies to historic preservation easement) requires “that prior to any release, a public hearing shall be held … by the governmental body holding the restriction, or if held by a charitable conservancy, by the governing body of the municipality in which the land is situated.” As no such public hearing has been held in this case, the DEP, as holder of the easement, had not adhered to statutory procedure.

The court noted that the recording requirement for the conservation easement required as a condition to issuance of a TAW “presumably does not exist solely to guide only parties who may purchase or develop property containing wetlands or wetlands transition areas. The conservation restrictions are also intended to guide and protect the public at large, and to preserve freshwater wetlands as a valuable environmental resource for posterity. There is nothing in the text or history of the regulatory scheme to allow the recording obligation to be excused simply because compliance has become inconvenient due to the passage of time.”

The court said that the public hearing required by the conservation easement enabling act is “the appropriate forum to sort out the interests of all persons who are concerned about or affected by changes in the conservation restrictions, assuming that Sharbell still wishes to proceed with such changes.”

The unpublished decision is available until in or about July 7, 2014, at Thereafter it should be available through the Rutgers Newark Law School web site.

Seventeen Seventy Sherman Street, LLC v. Commissioner

US Tax Court, T.C. Memo 2014-124. June 19, 2014: quid pro quo for historic conservation easement not fully valued; deduction denied.

The claim by Seventeen Seventy Sherman Street, LLC (Petitioner) for a charitable deduction for a conservation easement it granted to a charitable organization was denied by the IRS. The Petitioner conceded that the grant of the easement was part of a quid pro quo transaction, but said the value of the easement was greater than the consideration the Petitioner received in return, and that excess value should be eligible for a deduction. The tax court upheld the IRS denial because it found that the Petitioner failed to identify or value a part of the consideration it received in the transaction.  The court held that when a taxpayer grants a conservation easement as part of a quid pro quo transaction and fails to identify or value all of the consideration received in the transaction, the taxpayer is not entitled to any charitable contribution deduction with for the grant of easement.

The Petitioner needed planning board approval (a PUD 545) to proceed with its project. As part of that process, it obtained the recommendation of the Community Planning and Development Agency (CPDA) to approve a variance. In response to the CPDA’s position that it would not recommend approval unless the Petitioner committed to granting interior and exterior conservation easements, the Petitioner agreed in a development agreement with the city to grant the conservation easements to a charity if the city approved certain changes to the property. The Petitioner conceded that the development agreement was part of a quid pro quo arrangement, and therefore the value of the CPDA recommendation should be included in determining whether the contribution of the easements had value in excess of what the Petitioner received in return for granting them.  But they argued that the Planning Board was so independent that it was doubtful the CPDA recommendation “would have any influence over the Planning Board or any real value to the recipient of the recommendation.” Therefore the Petitioner did not place any value on the CPDA recommendation.

The tax court said it should have valued the CPDA action. It concluded that the Petitioner itself “highly valued” the CPDA recommendation when seeking it, that the Planning Board would likely follow CPDA’s recommendation, and therefore the CPDA’s recommendation had to be be valued as part of the Petitioner’s quid pro quo exchange. Because the Petitioner did not value that recommendation in evaluating the quid pro quo, it did not meet its burden of proving that the grant of the conservation easement (assuming it was charitable) exceeded the consideration the Petitioner received in return.

The court had to review the valuation of the easement to determine whether to impose a 40% a gross valuation misstatement penalty on the Petitioner. In doing the review the court disagreed with the IRS position that local regulations on the property had already effectively restricted the exterior of the property as much as the conservation easement. Instead the court found that the exterior easement did have value. Accordingly, the court said the IRS failed to meet its burden of proof on the penalty question and therefore no penalty could be imposed.

The court agreed with the IRS that a 20% penalty should be imposed for underpayment of tax due to negligence or disregard of rules or regulations.  It found the IRS met its burden of proof on this point and had shown that the Petitioner sought the contribution deduction based on a valuation without any adjustment for the consideration it received in exchange for the easements. Because the Petitioner hadn’t made “a reasonable attempt to ascertain the correctness of the charitable contribution deduction” the penalty was warranted.

The decision is available at

Scheidelman v. Commissioner (Scheidelman IV)

US Court of Appeals, 2nd Circuit, No. 13-2650, June 18, 2014: evidence supports Tax Court; easement had no value for charitable contribution purposes.

The IRS denied Scheidelman a charitable deduction for a façade easement on a property in a New York City historic district. The Tax Court sided with the IRS in Scheidelman v. Commissioner, T.C. Memo. 2010-151 (Scheidelman I), saying that Scheidelman’s appraisal was not a “qualified appraisal.”  On appeal in the Second Circuit Court of Appeals vacated the tax court decision as to the qualification of the appraisal and remanded the case for further proceeding as to the fair market value of the easement for deduction purposes. Scheidelman v. Commissioner, 682 F.3d 189 (2d Cir. 2012) (Scheidelman II).  On remand, the Tax Court agreed with the IRS that the easement did not diminish the value of Scheidelman’s property and therefore no deduction could be taken. T.C. Memo. 2013-18 (Scheidelman III).  Scheidelman appealed that decision too.

The court explained that the tax court valuation must be upheld if it was supported by substantial evidence, but it first considered as a question of law whether the tax court erred in how it weighed the evidence. The court found there was no legal error when the tax court gave no weight to the evidence offered by two appraisers testifying for Scheidelman. One appraiser’s report “made no serious attempt to determine the ‘after’ value of Scheidelman’s property based on any factors actually related to the property.” The other report did not accurately describe the easement, relied on outdated information, and used comparables from other geographical areas. The tax court credited the valuation report by the IRS’ expert, which gave no valued to the easement, based on  the particular terms of the easement, zoning laws, local regulations, an evaluation of the neighborhood. The appeals court found this testimony, as well as that of another IRS expert, to be substantial evidence that supported the tax court’s finding and conclusion that the easement had no value for charitable contribution purposes.

Scheidelman also argued on appeal that the tax court should have shifted the burden of proof to the IRS. The court said that even if that were true (which the court did not decide, but assumed for the purpose of the appeal) it made no difference because the IRS more than countered whatever proof Scheidelman offered.

Decision available at

Whitehouse Hotel Limited Partnership V. Commissioner (Whitehouse IV)

US Court of Appeals, 5th Circuit, No. 13-60131, June 11, 2014: Reliance on qualified appraisal and accountant advice can be good faith basis to avoid tax penalty, but tax court’s valuation decision upheld.

This decision is the fourth in this historic preservation façade easement tax case. The case began when Whitehouse made a charitable contribution of a façade easement on a historic property in New Orleans and claimed a federal tax deduction for it. In the first decision the IRS entirely rejected the deduction and assessed a penalty for gross underpayment of taxes under § 662(h)(2) of the tax Code. Whitehouse sought to overturn the IRS decision in the US Tax Court. In Whitehouse Hotel Ltd. P’ship v. Comm’r, 131 T.C. 112 (2008) (Whitehouse I), the tax court held that Whitehouse was entitled to a deduction but set the value of the easement contribution far below Whitehouse’s claim, found that Whitehouse did not qualify for the good faith exception to the gross underpayment penalty rules, and thus imposed the penalty.

Whitehouse appealed. In Whitehouse Hotel Ltd. P’ship v. Comm’r, 615 F.3d 321 (5th Cir. 2010) (Whitehouse II) the Fifth Circuit Court of Appeals vacated the tax court’s valuation of the easement and therefore  also vacated the gross undervaluation penalty, and remanded the matter back to the tax court for further consideration on issues about the easement’s valuation and the denial of the good faith exception. The appeals court told the tax court to do three things: (1) reconsider valuation using the replacement cost and income methods, in addition to the comparable sales method; (2) determine the parcel’s “highest and best use” for the purposes of its valuation; and (3) consider the effect of the easement on an adjoining building which the tax court had said should not be considered in the valuation.

Grudgingly doing the review, on remand Whitehouse Hotel Ltd. P’ship v. Comm’r, 139 T.C. 304 (2012) (Whitehouse III) the tax court still found that Whitehouse had overvalued the easement (although it allowed about a 4% higher value that in Whitehouse I) and was subject to the overstatement penalty because it had not proved its case of a good faith exception.

Whitehouse took the case back to the 5th Circuit for appellate review of Whitehouse III. In its new decision (Whitehouse IV) the appeals court held that the tax court had taken the reconsideration steps as instructed in Whitehouse II, upheld the tax court’s valuation decision as not being wrong on the law, but overturned the tax court as to the law on the penalty question. Most of the appeals court decision focused on questions of whether the tax court had indeed complied with the remanding instructions, and not with the tax court’s factual conclusion (so long as there wasn’t clear error).

The appeals court held against Whitehouse on each of the three errors Whitehouse argued were made by the tax court’s valuation decision on remand: (1) continued refusal to use the results of a replacement cost or income analysis in valuation; (2) the “highest and best use” for valuation purposes; and (3) the exclusion of the adjoining building from the valuation.

Valuation Methods – Reproduction Cost: On remand, the tax court again rejected the reproduction cost approach because it concluded reproducing the historic façade after complete destruction would make no business sense. The appeals court questioned whether complete destruction was the only scenario to consider when evaluating “business sense” in this context, but nevertheless decided that the tax court’s conclusion about the facts in this case was not so clearly in error as to warrant a remand in this point.  As a matter of law, the appeals court noted precedent for being dubious about the likelihood of reproduction as a “reasonable business venture.” On the other hand, the court also noted that this easement imposed more repair and replacement requirements in the event of partial destruction rather than total loss, and that “reproducing or repairing some substantial portion of the façade might be a significant burden that arises only because of the existence of the easement. The more limited repairs, though, might make business sense. Such obligations could diminish the value of the building to a potential owner, since the later owner would bear that cost.” The appeals court was not willing, however, to substitute its judgment for the tax court’s judgment on this question.

Valuation Methods – Income: The tax court on remand refused to use the income approach to valuation in this case because it found the income calculations of Whitehouse’s appraiser too unreliable to use, particularly since comparable sales data were available as the basis for a more reliable alternative method. The appeals court said there was no applicable legal precedence for overturning the tax court’s conclusion on this issue, and therefore let it stand.

Valuation Methods – Non-Local Comparable Sales: In its earlier decision (Whitehouse II), the appeals court questioned the tax court’s refusal to consider the non-local comparable sales in Whitehouse’s appraisal, but the appeals court did not require the tax court to weigh those non-local sales in its valuation decision. Therefore the tax court’s continued rejection of those non-local comparable sales on remand was also not grounds for another remand.

Highest and Best Use: The problem about “highest and best use” the appeals court had with the tax court’s first Whitehouse decision was that the appeals court couldn’t “decipher” whether the tax court had actually reached a conclusion about it.  In the current decision, the appeals court said its instructions on remand were only to make a conclusive finding on the subject, without prejudicing the outcome. The choices for highest and best use were as a Ritz-Carlton luxury hotel or a non-luxury hotel.  Solomonically, the tax court on remand said the highest and best use could be either one, which the appeals court was willing to accept as fulfilling the remand instructions.

Exclusion of Adjoining Building: The appeals court found that having reconsidered this question, the tax court did what was required of it on remand, and again that the tax court’s conclusion was not reversible error.

Good Faith Defense to Penalty: On this issue, the appeals court said its decision should be based on its own interpretation of the law, without regard to the tax court’s interpretation, and that the tax court was wrong. The tax court on remand wanted more of Whitehouse than reliance on advice of attorneys and accountants. The appeals court cited the precedent in United States v. Boyle, 469 U.S. 241, 251 (1985) that “[w]hen an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for a taxpayer to rely on that advice.” The appeals court noted that reliance on such advice is particularly appropriate in the absence of a two-party “haggle over price” of this easement or easements generally. The court threw out the tax court’s imposition of the penalty, saying, “Obtaining a qualified appraisal, analyzing that appraisal, commissioning another appraisal, and submitting a professionally-prepared tax return is sufficient to show a good faith investigation as required by law.

The decision is temporarily available at  and should eventually be findable at

Chandler v. Commissioner

U.S. Tax Court, 142 T.C. 16, May 14, 2014: Preservation easement valuation zero in historic district. 2006 carryover deduction claim subject to accuracy penalty.

At issue was the valuation for federal income tax deduction purposes of historic preservation façade easements on two single-family residences in Boston’s South End Historic District.  The question was whether the burdens imposed by the façade easements were different from those imposed by the historic district regulations, and if so, the affect of the difference on the value of the property after the donation of the façade easement.  In this case, the court determined that while there were differences between the burdens of the easement and those of the historic district, the differences made no difference in the value of the properties. Hence, the court found the façade easements had zero value and no deduction was allowed.

The court recognized differences between the scope, monitoring, and enforcement of the façade easement and historic district restrictions, but said, “… a typical buyer would perceive no difference between the two sets of applicable restrictions here.” Accordingly, the court found that, in the before and after analysis of fair market value, there would be no difference between the “after” value of a South End Historic District residence with a façade easement or without one. The result was that the façade easement donation had no value and no tax deduction could be taken.

The perception of the easement by potential buyers as a decisive factor in valuation was something that the court implied is present in residential property but not (or not decisively) in commercial property. The court noted that historic preservation easements on commercial property impair the value more tangibly than they do on residential property because of the easement’s affect on future cash flows.  “Construction restrictions affect residential property values more subtly,” the court wrote, and do so “only to the extent their unique restrictions diminished petitioners’ property values.” The implication that can be taken is that to the court, residential property values are not based on bottom-line objective facts but on market perception.

The denial of the tax deduction meant that taxpayer was liable for a 40% gross valuation misstatement accuracy-related penalty under Internal Revenue Code section 6662 unless some exception applied. The taxpayer first claimed a portion of the charitable contribution deduction on their 2004 return but had also claimed the deduction in 2005 and 2006 as a carryover.  The Pension Protection Act of 2006 (PPA) changed tax law for all returns filed after July 25, 2006, by eliminated the ability of taxpayers to avoid the penalty under certain circumstances if they made the misstatement in good faith and with reasonable cause (the “reasonable cause exception”).  The taxpayer argued that to the extent their underpayment of 2006 (post-PPA) tax resulted from the carryover of charitable contribution deductions they first claimed on their 2004 return (pre-PPA), denying their right to raise a reasonable cause defense would amount to improperly retroactively applying the PPA.

The court said this was a novel issue, but decided it against the taxpayer, resulting in a 40% gross valuation misstatement accuracy-related penalty as to the taxes due for 2006. As to the taxes due for 2004 and 2005, applying the pre-PPA rules, the court found the taxpayer eligible for the reasonable cause exception because the deduction claim was based on  a qualified appraiser’s qualified appraisal (even if an erroneous one) and the taxpayer made a good-faith investigation of the property’s value. The court found that even well educated persons like the taxpayer have no experience valuing easements and “would not know where to start to value a conservation easement.” They are entitled to give “substantial weight” to the qualified appraisal and “rely heavily on the opinions of professionals.”  The taxpayer’s reliance on the appraisal and corroborating opinion of an experienced accountant amounted to a good-faith attempt to determine the easements’ values. Therefore no penalty was due for misstatement of the charitable deduction for tax years 2004 and 2005. The court distinguished this situation from one such as that in Kaufman v. Commissioner T.C. Memo 2014-52, (Kaufman IV), where the taxpayer had reason to doubt the appraisal.

Decision available at

NEFF v. Board of Assessors of Hawley

Massachusetts Supreme Judicial Court, No. 11432, May 15, 2014: Nonprofit’s forest conservation land entitled to property tax exemption.

New England Forestry Foundation, Inc. (NEFF) is a nonprofit corporation, whose purposes include to “create, foster, and support conservation, habitat, water resource, open space preservation, recreational, and other activities” by “promoting, supporting, and practicing forest management policies and techniques to increase the production of timber in an ecologically and economically prudent manner.”   NEFF owns a 120-acre parcel of forest land in the town of Hawley, abutted on two sides by a state forest, and operates it under a “forest management plan.”

NEFF applied to the town board of assessors (assessors) for a charitable property tax exemption on the parcel under M.G.L. c. 59, § 5, Third (“Clause Third”). Clause Third provides that the real property of a charitable organization is exempt from taxation if the land is occupied by the charitable organization or its officers for the purposes for which it was organized. The assessors denied NEFF’s application and NEFF appealed to the state appellate tax board (“board), which also denied the exemption. NEFF appealed that decision.

The board denied NEFF’s exemption because it said NEFF didn’t prove that it occupied the land for a charitable purpose within the meaning of Clause Third.  The board reached that conclusion because it said (1) forest management is not a traditional charitable purpose; (2) NEFF’s efforts to promote the use of the land by the public was insufficient for the benefits of NEFF’s activities to inure to a sufficiently large and fluid class of persons; (3) NEFF’s description of “active management” of the land was “at best vague testimony,” showing only one planned educational activity to take place in the Hawley forest.

The court overturned the board and held in favor of NEFF’s exemption for this land. The court’s lengthy analysis of the Clause Third requirements provides a roadmap for other conservation organizations and Massachusetts boards of assessors to determine whether conservation land ought to qualify for a property tax exemption.

Clause Third, the court wrote, initially sets up a two pronged test, each prong of which may pose complex questions: the organization seeking the exemption must qualify as a “charitable” organization within the meaning of the statute, and the organization must “occupy” the property in furtherance of its charitable purposes. The court ruled that NEFF purposes and occupancy in this case met those tests.

To be a “charitable” organization within the meaning of the statute, the dominant purpose of the organization must be “to perform work for the public good, not merely its own members,” and the charitable programs and activities of the organization need to be “of the sort that their benefit inures to an indefinite number of people.”  The court made several pronouncements to counter the notion that benefits provided by “land held as open space or in its natural state” need to come from “direct access of people to that land for such purposes as recreation, scenic views, or education.” Instead the benefit of such land may derive from, among other things, mitigating the effects of climate change, contributing to “ecosystem resilience,” absorbing and dissipating stormwater runoff, cleaning the air, purifying the fresh water supply, and protecting wildlife habitats. The court concluded that by providing such benefits “combined with engaging in sustainable harvests to ensure the longevity of the forest,” NEFF charitable activities benefit the general public. In addition, an organization may be charitable if it assists in lessening the burdens of government.  The court found abundant evidence that conservation and environmental protection “are express obligations of the government in Massachusetts” (evidenced by the article of the Massachusetts Constitution creating a public environmental rights and the charge to a State cabinet level office to carry out State environmental protection policy) and that several State statutory schemes involve “organizations that align their missions with the conservation goals of the State … as essential partners in Statewide conservation efforts” (e.g., permitting municipalities appropriations to buy open space “community preservation” lands, the conservation easement enabling law, and allowing nonprofit conservation organization to be assigned municipalities’ right of first refusal under the special forest land tax classification (Chapter 61) discussed below).

The second prong of the Clause Third test is whether the organization “occupies” the land in furtherance of its charitable purposes. The legal precedents for this determination required “active appropriation to the immediate uses of the charitable cause for which the owner was organized,” and that the dominant use “contribute[s] immediately to the promotion of the charity and … participate[s] physically in the forwarding of its beneficent objects,” while at the same time deferring to the organization’s own determination of “the extent of property required and the specific uses of the land that will best promote those purposes” if the organization acts in good faith and not unreasonably. The balance of these approaches was characterized by the court as “seeking to ensure that the land is not being held as a private landowner would hold it but that it is being held as an entity would hold it for the public good.”

Crucially, the court held that holding the land for the public good does not require an affirmative duty to promote and facilitate public access on conservation lands.  Not only did the court find that such duty “exceeds the scope of the inquiry at the core of Clause Third’s occupancy requirement” but it also wrote that “in certain circumstances, such as in the case of a particularly fragile habitat or ecosystem, a public access requirement could operate to thwart the very conservation objectives an organization is seeking to achieve.… [W]e conclude that in a case such as NEFF’s where the entry of the public onto the land is not necessary for the organization to achieve its charitable purposes, the promotion and achievement of public access is not required to demonstrate occupancy of the land in order to qualify for a Clause Third exemption.  The right that is most central to the ‘bundle’ of rights enjoyed by a private property owner is not the freedom from an obligation to invite visitors, it is the affirmative right to exclude others from one’s property.  [citation omitted]  Consequently, the appropriate inquiry begins with whether the entity takes affirmative steps to exclude the public from the land. … the organization faces a heightened burden to show that such exclusion of the public is necessary to enable it to achieve its charitable purposes.  … it may do so only by presenting compelling facts demonstrating that the exclusion of the public is necessary to achieve a public benefit through other activities carried out on, or through use of, the land….”

The Appellate Tax Board had also denied the exemption to NEFF on the theory that the Legislature, by its enactment of another statute (M.G.L. c. 61), showed it intended only to reduce the tax burden on forest land, not to eliminate it completely.  The court disagreed. Chapter 61 provides for a reduced tax rate for forest land in an undeveloped state that is managed according to a forest management plan issued by a licensed State forester. It gives the municipality a right of first refusal to buy the land if the owner wants to take it out of qualifying use. The court characterized Chapter 61 as a financial incentive not to develop forest land. It is available to all private owners, whether individuals, for profit business entities or nonprofits, and in prior years NEFF had received forest-land classification for the Hawley forest under chapter 61.  The court held that Chapter 61 and Clause Third serve distinct purposes.  While Chapter 61 creates incentives to encourage conservation by any and all private landowners, Clause Third is a property tax exemption based on the theory that property held for philanthropic, charitable, religious, or other quasi-public purposes in fact helps to relieve the burdens of government.

The court also rejected the theory put forward by the board that the legislative charter creating The Trustees of Reservations (the first land conservation entity of its kind in the United States) included a property tax exemption that by implication meant that Clause Third did not apply to land privately held for conservation purposes by any other charitable organization.

The decision is available until May 27, 2014, as a slip opinion at, and should eventually appear at

Palmer Ranch V. Commissioner

U.S. Tax Court, T.C. Memo. 2014-79, May 6, 2014: Rezoning history to old to affect highest & best use of conservation easement land; no penalty assessed.

At issue was the fair market value of a donated qualified conservation contribution based on the “highest and best use” of the land before imposition of the conservation easement. The appraisal for the taxpayer, Palmer Ranch, reached the judgment that the land could be more intensely developed (and therefore much more valuable) than current zoning allowed if a rezoning were approve and that approval of a rezoning was probable. The IRS’ appraiser concluded that a rezoning was not reasonably probable given four factors: (1) a recent failed rezoning history, (2) environmental concerns, (3) limited access to outside roads, and (4) neighborhood opposition.

The rezoning history was that there had been a proposal more than two years before the deduction was claimed to rezone the Palmer Ranch parcel and another parcel together. The proponent of that zoning change revised it to exclude the Palmer Ranch parcel, but the rezoning petition was denied. The IRS argued that this showed a rezoning of the Palmer Ranch parcel was unlikely. The court found the legal precedents cited by the IRS to be distinguishable because the Palmer Ranch history was less recent, the environmental concerns here were less significant than in the precedent, and, in the court’s judgment, the Palmer Ranch’s appraisal accounted for various environmental concerns while the taxpayer in the cited precedent did not.  The court analyzed the circumstances of the prior rezoning denial, the concerns raise, and the vote margin of previous rezoning denial to reach essentially a political judgment about the likelihood of a future rezoning. The court’s conclusion was that the “rezoning history does not eliminate the reasonable probability on the valuation date of a successful rezoning.”

The IRS also contended that the presence of an eagle nesting area made the rezoning unlikely. The court agreed with Palmer Ranch that the rezoning history indicated that the local authorities would not automatically disapprove any development of the parcel that included the nesting area but would allow “moderate development” if it did not encroach on the nesting area.

As to road access, the IRS argued that a rezoning was unlikely because the parcel lacks the required two fully functional access points to both arterial and collector roads, and that neighborhood opposition would prevent Palmer Ranch from obtaining such access.  The court found that there was sufficient potential for the required access that this factor did not make rezoning unlikely.

The IRS tried to use the intense neighborhood opposition to the prior rezoning attempt to argue that a future rezoning would be unlikely. The court found that this argument required too many assumptions that it declined to make.

As a result of this analysis, the court found a reasonable probability that the parcel could have been successfully rezoned to allow for the development used in the taxpayer’s appraisal as justification for the highest and best use.  The court then analyzed other real estate market factors to conclude that the before value was higher than the IRS appraisal but not as high as the Palmer Ranch appraisal. It therefore allowed a somewhat lower deduction than Palmer Ranch had claimed.

The court then turned its attention to whether Palmer Ranch should be assessed a 20% accuracy related penalty for underpayment of taxes, that is, claiming a deduction higher than allowed. The IRS argued that Palmer Ranch had not acted in good faith when it failed to disclose the rezoning history to its appraiser, and therefore the resulting underpayment (based on the appraisal) was “negligence or disregard of rules or regulations.”  The court disagreed, in part based on its own discounting of the rezoning history.

Decision available at

Patterson v. Christ Church

Massachusetts Appeals Court, No. 13-P-354, April 3, 2014: Recreational use law from liability even when defendant gets economic benefit; no consumer protection liability either.

Linda Patterson brought suit after she was injured from a fall inside a historic church while she toured it. The Pattersons claimed the recreational use statute, M.G.L. c. 21, § 17C (current version at, did not bar liability on her negligence claims, and that she was entitled to remedies for unfair and deceptive trade practices under the consumer protection act, M.G.L. c. 93A. The trial judge found against the Pattersons and they appealed. The appeals court upheld the trial court judgment.

The injury happened during a tour of the church offered by a nonprofit foundation (foundation), organized to put on tours and historical programs at the church. The foundation has a memorandum of understanding (MOU) with the church. Under the MOU the foundation pays the church for the right to operate at the church. The foundation raises revenue from its gift shop, from fees for specialized tours to exclusive areas of the church, and from other fundraising efforts. Neither the Pattersons nor anyone in their sightseeing group were charged a fee to enter or tour the church.  Mrs. Patterson attributed her fall to the difference in height between the floor of an aisle and the floor of a pew and the painting of the step the same color as the aisle carpet.

The only recreational use statute issue on appeal was whether the foundation lost the protections of the statute because it “impose[d] a charge or fee” under the statute. The Pattersons asserted that the foundation lost that protection because it generates revenue and pays the church an annual fee, arguing that a defendant who reaps an economic benefit from property utilized by the public free of charge is barred from relief under the statute.

The court found that the foundation’s other income and financial relationship with the church did not create an indirect fee for the Pattersons’ to enter or tour the church. This distinguished the facts in this case from precedents in other cases in which an indirect fee was found to exist, thereby depriving the defendants in those cases from the statute’s protection. The court found that the Pattersons made no contribution, direct or indirect, to the payments the foundation made to the church, and that would be so even if it were true that the church would not have been open to the public free of charge in the absence of the foundation’s annual payment to it.

(The recreational use statute applies under certain conditions to property used for recreational, educational, religious, or charitable purposes. The court said the undisputed facts showed that the situation met those conditions because the foundation has an interest in the land, Mrs. Patterson was injured when engaged in a recreational activity on that land, and the foundation did not “impos[e] a charge or fee” for the injured plaintiff’s use of the land.  Under the statute a person engaged in a recreational activity is owed “only the standard of care applicable to trespassers: that is, landowners must refrain from willful, wanton, or reckless conduct as to their safety,” and not the duty of reasonable care owed other lawful visitors. On appeal the Pattersons did not dispute that the high volume of tourism activity does not disqualify the Pattersons’ visit from being considered a “recreational use” or that visiting a tourist destination while on vacation is a “recreational activity,” or that the foundation’s actions or omissions rose to the level of wilful, wanton, or reckless conduct.)

The Pattersons asked the court to interpret the legislative history of the recreational use statute to exclude the foundation and church from the statute’s protection the foundation they generate revenue on the church property. The court held that the purposes and requirements of the recreational use statute are sufficiently clear on its face that it would be inappropriate for the court to delve into the legislative history.

The court also rejected the Pattersons’ claim that because the church was not in compliance with certain accessibility requirements when Mrs. Patterson was injured, the church and the foundation are liable under the Massachusetts Consumer Protection Act, M.G.L. c. 93A.  The court said there was nothing in the record to support the contention that, whatever negligence there might have been, it was or resulted in an unfair or deceptive act or practice. The implication was that in order for noncompliance with the accessibility requirements to be or result in an unfair or deceptive act or practice, the result had to be intentional, or there had to be fraud or deceit. The court found the foundation and church had not been fraudulent or deceitful by encouraging church visitors to sit in the pew boxes.

Lastly the court held that the accessibility regulations are not directed at the protection of consumers in the marketplace, but instead regulate building accessibility, and therefore the failure to comply with them did not violate the Attorney General’s Chapter 93A Regulations (940 CMR § 3.16(3)).

The decision is available at and until April 17 at  It may eventually be available at by searching for “Patterson”.