US Tax Court, T.C. Memo. 2012-1, January 3, 2012: Colorado conservation easement extinguishable by mutual consent of the parties does not guarantee protection in perpetuity under state law as required by Internal Revenue Code.
Petitioners (Carpenter) sought a federal qualified conservation contribution tax deduction for a conservation easement granted to a charitable nonprofit that the IRS agreed was a qualified organization for purposes of the deduction. The easement said it could be extinguished by judicial proceedings or by mutual agreement of the parties to the easement. The IRS denied the tax deduction sought by the Petitioners on the grounds the mutual agreement part of the extinguishment provision did not meet the requirement of section 1.170A-14(g)(6)(i), Income Tax Regs., that the conservation easements be granted in perpetuity.
The Petitioners argued that the easement donation created a charitable trust or a restricted gift, either of which “implicates the cy pres doctrine, requiring a judicial proceeding to extinguish the easement” even if the language of the easement allowed for extinguishment either by judicial proceedings or agreement of the parties.
The Tax Court, saying these arguments require a determination of state law but finding no state court precedent on point, held no charitable trust was created and even though the easement did create a restricted gift, that did not necessarily require cy pres court action to extinguish the easement. Accordingly, the Court held that the perpetuity requirement was not met.
As to charitable trust, the Court analyzed the Colorado requirements for creation of a charitable trust and wrote, “We do not find any clear, explicit, definite, unequivocal, and unambiguous language in the conservation easement deeds to create a trust. We also do not find any intention to create a trust. As a result, we do not find that petitioners created charitable trusts under Colorado law with their conservation easement deeds.” Thus, no implied requirement for judicial proceedings existed on this grounds.
Regarding the restricted gift concept, the Court had no trouble concluding the easement was restricted in the sense of creating a restriction on the use of “the gift” to the conservation purposes stated in the easement. The Court then interpreted Colorado law to apply the cy pres doctrine to restricted gifts only when “the donor manifested a more general intention to devote the property to charitable purposes” in addition to or overriding the specific charitable purpose that has become impossible or impractical to fulfill. The Court, taking note that the Petitioner retained all rights over “the donated property” not specifically granted to the donee and “demonstrated no intention to have the donated property put to some other general charitable use” in the event of extinguishment, found that the statements of purpose of the easement did not manifest an intent to donate “the property” to the donee “with a general charitable purpose”. As a result, cy pres would not apply, and the easement could be extinguished without judicial proceedings.
The matter did not end there, as the Court needed to decide whether the possibility of extinguishment by mutual agreement of the parties failed the perpetuity test. Here, the Court’s analysis walked a narrow line. On the one hand, the Court wrote that there is no absolute rule that an easement may allow extinguishment only by judicial proceedings (“In Kaufman v. Commissioner, 136 T.C. 294 (2011), we declined to rule that a conservation deed must require a judicial proceeding to extinguish an easement for the easement to be perpetual. Id. at 307 n. 7. We once again decline to create an absolute rule. Rather, we find that the extinguishment regulation provides taxpayers with a guide, a safe harbor, by which to create the necessary restrictions to guarantee protection of the conservation purpose in perpetuity.”) On the other hand, the Court wrote that allowing extinguishment simply by agreement of the parties to the easement, without any oversight by others, was insufficient to meet the perpetuity test (“Extinguishment by mutual consent of the parties does not guarantee that the conservation purpose of the donated property will continue to be protected in perpetuity.”) The Court favorably quoted Stephen Small, in Federal Tax Law of Conservation Easements 16-4 (1986), “With the decision-making process pushed into a court of law, the legal tension created by such judicial review will generally tend to create a fair result.” It is not clear if the requisite oversight can come only from a court or if other, e.g., state administrative, oversight might satisfy the perpetuity test.
The Court also said that the Kaufman decision (at 311-313) holds “that the so-remote-as-to-be-negligible standard does not modify the extinguishment regulation.”
The Tax Court Memo is available at http://www.ustaxcourt.gov/InOpHistoric/CARPENTER.TCM.WPD.pdf.
Maryland Court of Special Appeals, No. 0228, November 30, 2011: Holds the agricultural preservation easement at issue does not create charitable trust in Maryland, but abutter has rebuttable presumption that it has standing to bring mandamus action regarding enforcement of the easement by a state entity.
The owners of Bellevale dairy farm sold an agricultural preservation easement to the State, on behalf of Maryland Agricultural Land Preservation Foundation (MALPF). MALPF is an entity of the Maryland Department of Agriculture. MD. CODE ANN., AGRIC., § 2-502. (Maryland Code sections can be searched for at http://mlis.state.md.us/mgaweb/google.aspx.) Later, MALPF, as easement holder, approved Bellevale’s proposed construction and operation of a creamery, processing facility, farm store and parking on the property. The owners of an abutting property (Yoders) and a conservation organization (Long Green Valley or LGVA) claimed the creamery, etc. violated the Easement and brought suit, asking the court to issue a writ of mandamus to compel MALPF to enforce the Easement. At the Circuit Court level, the Yoders and LGVA (Appellants) were denied standing to sue. They appealed. The Appeals Court reviewed the Appellants’ three common law bases for standing in this case — third party beneficiary, charitable trust, and special harm – rejecting the first two but accepting the third. (This report will discuss charitable trust first.)
The Appeals Court rejected the Appellants argument that the Easement created a charitable trust, enforceable by interested third parties. In doing so, the Court took sides in a national debate exemplified by the law review articles by Nancy A. McLaughlin and W. William Weeks, In Defense of Conservation Easements: A Response to The End of Perpetuity, 9 Wyo. L. Rev. 1, 21 (2009), and C. Timothy Lindstrom, Conservation Easements, Common Sense and the Charitable Trust Doctrine, 9 Wyo. L. Rev. 397, 405 (2009) , both of which were cited by the Court.
The Court laid the groundwork for its decision by reviewing applicable law on what a conservation easement is, what constitutes a charitable trust, the distinction between charitable and private trusts, three relevant leading cases in other jurisdictions, and the scholarly debate on the subject. Citing MD. CODE ANN. Real Property, § 2-118, Court agreed with Lindstrom that “conservation efforts in the form of negative easements or restrictive covenants are creatures of property law and ‘the doctrine of charitable trusts is not a part of that law.’” It noted that under charitable trust law, termination or amendment of the trust would require a cy pres decision by a court. “In practice,” the Court wrote, “cy pres could serve as a basis for extending standing where citizens who are not parties to an easement sue to enforce the easement”.
Of the elements necessary to the creation of a charitable trust in Maryland, those in dispute in this case were manifestation of intention, and a charitable purpose.
As to the manifestation of intention, the Court noted the Easement makes no mention of “trust” or “trustee” but states that it is “the intention of the parties that the said land shall be preserved solely for agricultural use in accordance with the provisions of the Agricultural Article” of the Maryland Code. The Court then reviewed several arguments in favor of generally treating conservation easements as charitable trusts (perhaps on the theory that such arguments create an implicit but manifest intent on the part of the Easement grantor to create a charitable trust) and rejected them either generally or as to this Easement. This Easement expressly provides for modification or termination by agreement of the parties, which the Court said would not be the case if it were a charitable trust. Perhaps most decisively, the Easement in this case was not necessarily perpetual. It states that “[t]his easement shall be in perpetuity, or for so long as profitable farming is feasible on the Grantor’s land and may be released only by the Grantee as provided by Agriculture Article, Section 2-514[.]” The Court admonished that “the application of the charitable trust doctrine to a potentially nonperpetual conservation easement, such as the instant Easement Agreement, is particularly problematic, even among proponents of application generally”.
The Court also said it could not find that the Easement reflects a charitable purpose. “Not only was the MALPF program created in part for economic reasons, but the consideration paid by MALPF for the easement–$796,500–was obviously beneficial to Bellevale and the continuation of Bellevale’s farming operation so long as it was practical to do so. From the ‘settlor’s’ [Bellevale’s] viewpoint, any benefit to the public was incidental.”
Regarding the Appellants other two arguments on standing, the Appeals Court held that the Appellants are not third party beneficiaries of the Easement. The Court said an agricultural preservation easement is a type of contract and for a “stranger to a contract” (i.e., non-party) to sue for breach of contract he must at least show that it was intended for his direct benefit. Reviewing the language of the Easement, the Court couldn’t find anything to show the Appellants were more than incidental beneficiaries, and, as such, are not entitled to enforce the Easement Agreement. LGVA’s status as a community association gave them no special status in this regard.
The Appeals Court held that the Yoders do have standing based on their allegation of “special harm”. (To this reader, this basis of standing related to the character of this as a mandamus action and MALPF’s status as a government entity. The Court does not make this explicit, perhaps because it is obvious and well understood in Maryland.) The Court first concluded that MALPF’s approval of the Bellevale proposal for a creamery operation was a land use decision, because “land use . . . is at least one of the prime considerations” in the legislative effort to preserve agriculture and woodland. As a land use decision by MALPF, “it appears that adjoining, confronting or neighboring property owners may have standing to challenge as an illegal or ultra vires action the approval of a proposed use of land subject to a MALPF easement…. the Yoders would be considered prima facie aggrieved, and thus relieved of the burden of alleging specific harm.” The Appeals Court remanded to the circuit court, and with the Yoders considered prima facie aggrieved, the burden of denying such damage and rebutting the presumption shifts to MALPF.
The decision is available at http://mdcourts.gov/opinions/cosa/2011/0228s09.pdf.
Special thanks to Adam Block of Baltimore for bringing this decision to my attention. Adam is in his last year at the University of Maryland School of Law and is a law clerk at the Baltimore firm of Gallagher, Evelius & Jones.
The Internal Revenue Service publishes a “Conservation Easement Audit Techniques Guide” online at http://www.irs.gov/businesses/small/article/0,,id=249135,00.html#_Toc223. The publication was last revised September 30, 2011, and last reviewed by the IRS November 22, 2011. The Guide begins with a table of contents in hypertext linked to the chapters of the Guide, reproduced below. In addition to summaries of the many requirements of the Internal Revenue Code and Treasury Regulations regarding qualified conservation easements, the contents includes chapters addressed to IRS personnel conducting audit examinations: “Preplanning the Examination”,”Conducting the Examination” and “Concluding the Examination”. The text includes references to court decisions to support various statements about the requirements of the Code and Regulations. The publication states, “This document is not an official pronouncement of the law or position of the Service and cannot be used, cited, or relied upon as such. This guide is current through the publication date.”
Thanks to James L. Olmsted, Esq. and Robert D. Keller for posting information about this Guide on the Land Trust Aliiance’s LANDTRUST-L Digest listserv. Jim Olmsted has also put a PDF version of the Guide on his website at http://www.landprotect.com/files/47437881.pdf.
Table of contents of IRS Guide
Mass. Appeals Court, No. 10-P-1665, October 14, 2011: Holds the enforceability beyond 30 years of land use restrictions set by a government agency, such as incident to the grant of a zoning special permit, is not limited by state statute that limits enforceability of restrictions on their face unlimited as to time.
The Massachusetts statute, M. G.L. c. 184, § 23, says “conditions or restrictions, unlimited as to time, by which the title or use of real property is affected, shall be limited to the term of thirty years after the date of the deed or other instrument or the date of the probate of the will creating them,” with exceptions not directly relevant here (this statute called here, but not otherwise known as, the “Unlimited Time Restriction Law”). This limitation does not apply to historic preservation easements and conservation easements created under a different Mass. Statute (c. 184, §32), which are enforceable in perpetuity.
The Killorin property was granted a zoning special permit in 1940 to allow an apartment building, subject to the condition that while the apartment building exists, the lot it is on must not be subdivided and may contain no building other than the apartment building and an eight-stall garage. Killorin’s attempt to have the special permit amended to remove the restriction was denied by the town. Killorin appealed the denial. The Court said their argument was really that the permit condition is no longer enforceable under the Unlimited Time Restriction Law (184/23) and held that statute inapplicable to the restriction in the special permit.
The Court’s reasoning was several-fold. First, the restriction was in the land records because it appears in the recorded zoning decision, not in a separate instrument. The Court said, “the statutory language … strongly implies that the restrictions controlled by the statute [the Unlimited Time Restriction Law] are those created by deed, will, or other instrument” and not a decision by zoning board is not one of those “other instruments”. The Court distinguished cases “where the restrictions held by a public body were part of an agreement between parties, one of whom was the government, and not restrictions imposed by a zoning board of appeals as a condition to granting a special permit,” that is, in which the restriction is imposed by a recorded instrument other than the government permit. Second, but related, was reasoning that the government permit is presumed to be in the public interest and therefore, like a condominium declaration’s restrictions (to which 184/23 has been held not to apply), more akin to municipal by-laws more than private deed restrictions. Third, the Court seems to say that because the incident litigation was about enforcing the zoning laws and not directly about clarifying “title or interest in the real estate in question” or to establish a lien, it would not be appropriate to apply a statute controlling restrictions “by which the title or use of real property is affected”. Lastly, the Court said that allowing Killorin to have the benefit of the permit without the burden of the restriction would be an “anomalous and unjust” result.
Decision available at http://www.socialaw.com/slip.htm?cid=20983&sid=119.
U.S. Tax Court, T.C. Memo. 2011-238, October 3, 2011: Denies a contribution deduction for a facade easement based on appraisal defects. Holds: appraisal was not qualified because it did not properly apply the comparable sales method to the “after” value; appraisal adequately stated the method and specific basis for the valuation even if wrong; appraisal summary substantially complied with regulations despite errors and omissions that did not appear in attached appraisal; alleged transfer of unused development rights was not entitled to a charitable deduction because development rights became worthless at the moment of transfer; and the abandonment provision of the easement under state law do not violate the perpetuity requirement.
Petitioner Friedberg donated a façade easement on a townhouse in a New York City historic district to National Architectural Trust (NAT) in 2003. The appraisal said it used the “sales comparison approach” for before and after values. The “before” value was based on nine Manhattan properties sales within the prior two years. (The Court refers to this analysis as “a textbook example of how the comparable sales method works.”) The “after” valuation was based on six examples of sales of eased properties in Washington, D.C., during the mid-1980s and two examples of transactions involving eased properties in New Orleans during the mid-1990s. According to the Court Memo, the appraisal stated a range of percent reduction in market value of these examples, and stated a percentage that should be applied to the Friedberg property, but did not explain how that final percentage was derived from the examples’ range of percentages.
The Court granted the IRS summary judgment that the appraisal report was not a “qualified appraisal” for one reason, which the Court said was “essential”: the appraisal did not comply with Income Tax Regs. section 1.170A-13(c) (3) (ii) ((J), method of valuation, because the appraiser did not “properly apply the comparable sales method to valuing the subject property after the facade easement…” and “diverged significantly from the accepted comparable sales method”. The Court disapproved the appraisal’s use of sales in locales other than Manhattan “without explanation”, and – even had the “after” sales been appropriate properties — the failure “to consistently apply a single method to his estimates of percentage diminution”, and the use of “unreasonable” valuation methods. The Court wrote, “the acceptable comparable sales method requires the examination of multiple similar properties and corresponding adjustments, accompanied by explanations” and “Nothing in [the appraisal] supports his conclusion about the after value of the subject property.” The Memo picks apart each of the “after” sales in detail.
The Court granted Friedberg summary judgment that the appraisal was “qualified” regarding its specific basis for the valuation of development rights (Income Tax Regs. section 1.170A-13(c) (3)(ii) (K),), and denied summary judgment to the IRS on the same subject because of issues of disputed material fact. The Court reasoned that the appraisal of developments rights, while riddled with errors, nevertheless “explained the method of valuation and the specific basis for the valuation and “was not merely a mechanical application of some predetermined figure.” The Court said it was a matter of factual determination whether Friedberg could have been able to transfer or otherwise use the development rights before the donation, and whether the appraisal adequately assessed the market demand for those rights.
The Tax Court also refused the IRS summary judgment, and accepted Friedberg’s “substantial compliance” argument, as to whether the appraisal was “qualified” under Income Tax Regs. section 1.170A-13(c)(3)(ii)(C)[date (or expected date) of contribution],(H)[date (or dates) on which the property was appraised], (I)[ appraised value on the date (or expected date) of contribution]. The Court said: “the errors regarding the date of the appraisal report do not relate to the substance or essence of the contribution.”
The Court also held that Friedberg substantially complied with the requirement to attach a fully completed appraisal summary to his return (Income Tax Regs. section 1.170A-13(c)(2)(i)(B) and 1.170A-13(c)(4)(ii)), even though the summary didn’t adequately describe the property, its overall physical condition, the manner of acquisition or the cost or other basis. These flaws were overcome because petitioners also attached the appraisal report to their tax return, which gave the necessary information. The Court distinguished this case from its holdings in Todd v. Commissioner, 118 T.C. 334 (2002), Hewitt v. Commissioner, 109 T.C. 258 (1997), and Smith v. Commissioner, T.C. Memo., 2007-368, affd. 364 Fed. Appx. 317 (9th Cir. 2009).
The Court held the purported transfer of unused development rights was not entitled to a deduction under Code section 170(a). In addition to restrictions commonly found in such easements, the Friedberg grant donated the building’s development rights under New York City Zoning law, saying, “there shall be no use, exercise or transfer by Grantor or Grantee of development rights from or to the Property, any portion thereof or derived from any portion thereof… [and] subject to all other conditions of this Easement, all current and future development rights have been donated to the Grantee for the purposes of forever (i) removing such rights from the Property, (ii) extinguishing such rights, and (iii) further preventing the transfer or use of such rights.” Friedberg argued that the value of the development rights contribution should be the fair market value at the moment before contribution even if the terms of the contribution itself make the property worthless upon consummation. The Court held that if Friedberg transferred the unused development rights (the Court did not decide whether in fact the easement did effect a transfer), the value of those development rights was zero. The Court reasoned that under the terms of the grant, “those development rights were contributed for the purpose of extinguishing those rights and NAT agreed not to use or transfer them” and therefore they became worthless at the moment of transfer. Hence, no charitable contribution could be deducted.
Further, even if the development rights portion of the easement restricted the use of development rights associated with the subject property, no deduction would be allowed unless that restriction “served a conservation purpose that permits it to qualify for a deduction pursuant to [Code] section 170(h)”. The Memo did not decide whether this case is distinguishable from Herman v. Commissioner, T.C. Memo. 2009-205, where the Court held a transfer of some development rights was not a qualified conservation contribution because it did not preserve a “historically important land area” or a “certified historic structure” within the meaning of Code sec. 170(h)(4)(A)(iv).
Lastly, the Court held the conservation easement did not fail the perpetuity requirement of Code section 170(h)(5)(A) even though the abandonment clause of the easement said, “nothing herein contained shall be construed to limit … [NAT’s] right to give its consent (e.g., to changes in the Facade) or to abandon some or all of its rights hereunder”. The Court held that, as per the decision in Simmons v. Commissioner, 646 F.3d 6 (D.C. Cir. 2011), the terms of the easement, combined with the New York State law governing conservation easements, do not violate the perpetuity requirement. In a swipe at NAT, the Court cautioned, however, that, “it is nonetheless essential that the donee actively monitor the property and enforce any violations of the terms of the easement” for the donation to be a qualified conservation contribution, and, “In the instant case, the parties have not addressed NAT’s history of enforcing easements, and there is nothing in the record that would allow us to consider the likelihood that NAT would abandon the easement. Accordingly, although we hold the abandonment clause does not violate the perpetuity requirement, we do not decide whether the possibility that NAT would abandon the conservation easement is ‘so remote as to be negligible’.”
Decision available at http://www.ustaxcourt.gov/InOpHistoric/Friedberg.TCM.WPD.pdf. Thanks to Leslie Ratley-Beach for bringing it to my attention so quickly.
U.S. Court of Appeals, Fifth Circuit, No. 10-30918, September 26, 2011: Denies standing of neighborhood group to challenge National Historic Preservation Act section 106 review of related action in another neighborhood.
Friends of St. Frances Xavier Cabrini Church (Friends) a nonprofit unincorporated association dedicated to protecting a Roman Catholic church located in the Gentilly neighborhood of New Orleans that sustained severe damage from Hurricanes Katrina and Rita. Holy Cross School, part of the same Archdiocese that owns Cabrini Church, applied for, and FEMA granted, federal assistance funds to construct a new school campus on the Cabrini Church site in Gentilly to replace Holy Cross’ old campus six miles away in the Lower Ninth Ward. Pursuant to the National Historic Preservation Act (NHPA), 16 U.S.C. §§ 470, et seq., FEMA determined that the project in Gentilly would potentially affect historic properties and therefore required a review process of the Gentilly project under section 106 of NHPA. Because of uncertainty about Holy Cross’s plans for the old Ninth Ward campus, Friends asked FEMA to include that campus in the section 106 review. FEMA refused, saying they’d decide whether a 106 review was required for the old campus when Holy Cross submitted proposed project plans for it. Friends filed a complaint against FEMA (April 2007) alleging that the 106 review process was deficient. (Cabrini Church was demolished that June.)
When Holy Cross submitted a plan late in 2007 to “mothball” the Ninth Ward campus, FEMA conducted a 106 review of those plans, found the proposed work on the old campus included “no ground disturbing activities associated with the mothballing of the buildings,” and determined that there would be “No Adverse Effect” on historic properties. After that determination, Holy Cross revised its plan and proposed demolishing those Ninth Ward buildings that FEMA had determined were “”non-contributing elements to the [Holy Cross] historic district”. FEMA approved. Friends and FEMA each sought summary judgment, and the district court found for FEMA, but did not address issues of standing. Friends of St. Frances Xavier Cabrini Church v Paulson, 728 F. Supp. 2d 820, 2010.
On appeal, the Circuit Court remanded with instructions to dismiss because Friends lacked standing on all counts alleged by Friends.
(1) Failure to include the Lower Ninth Ward property in the “area of potential effects” (APE) for the undertaking in Gentilly: the Court held that because Friends exists to protect a property six miles away, Friends did not have the “sufficient geographical nexus” to the Ninth Ward project required under opinions of other federal Circuit Courts to raise this claim.
(2) Failure to include all the necessary consulting parties: Friends did not allege its own exclusion, so the Court found they lacked the “tangible personal injury” required by US Supreme court decisions to make this claim.
(3) Failure of the FEMA program to fully consider historic preservation when funding projects (violation of NHP section 110): The Court held that this allegation is “tied to the Lower Ninth Ward” with which Friends lacks a geographical nexus, and therefore lacks standing to maintain this claim.
Decision available at http://caselaw.findlaw.com/us-5th-circuit/1581087.html.
US District Court, W.D. Penn., No. 2:11cv889, Sept. 9, 2011: Allows redevelopment demolition of building eligible for inclusion in the National Register of Historical Places to proceed by dismissing claims under National Historic Preservation Act, Department of Transportation Act and National Environmental Policy Act because Court found no evidence of federal action.
At issue is the proposed demolition of the Pittsburg Civic Arena, owned by the Sports and Exhibition Authority of Pittsburgh and Allegheny County (SEA). In 2007, SEA and other governmental entities entered into an agreement with the owner of the Penguins hockey team to make the Civic Arena site available for redevelopment. SEA’s plan involved demolition of the Arena. Because the Pennsylvania Historical and Museum Commission (PHMC) had determined in 2001 that the Civic Arena was eligible for inclusion in the National Register of Historical Places, SEA was required by the Pennsylvania Historic Preservation Act, 37 PA. CONS. STAT. ANN. § 508(a)(1), to consult with the PHMC prior to “demolishing, altering, or transferring” the Civic Arena property. The City Planning Commission unanimously approved the plan. On the same day, Plaintiff Preservation Pittsburgh filed a Historic Nomination of the Civic Arena with the City’s Historic Review Commission to have the Arena designated as a “City Designated Historic Structure.” The petition was rejected at every level of review.
Preservation Pittsburgh contended that the demolition is an integral part of a plan to redevelop the site using federal-aid highway funds from the Federal Highway Administration (FHWA), that such funding would require approval of FHWA, and therefore such approval requires compliance with Section 106 of the National Historic Preservation Act (“NHPA”), 16 U.S.C. §§ 470f, Section 4(f) of the Department of Transportation Act (“DOTA”), 23 U.S.C. § 138, and the National Environmental Policy Act (“NEPA”), 42 U.S.C. § 4332(2), none of which had been complied with by the Defendants.
The Court found “no evidence … that federal action, let alone ‘major’ federal action, has occurred in this case…” or “any fact that establishes federal agency participation in the redevelopment of the Civic Arena site,” merely the contention that “federal funding is the ‘only realistic option for securing the funds needed to underwrite the significant site work costs.’” The Court concluded, “The mere possibility of federal funding in the future is too tenuous to convert a local project into federal action.”
The Court said it has no jurisdiction under NEPA because: “(1) there is no evidence of federal involvement by the FHWA; (2) there is no evidence that, even if there is future federal funding, the redevelopment will be a ‘major federal action’; and (3) there is no final agency action required for judicial review under the APA.” It rejected the DOTA Section 4(f) claim because that section “does not provide a private a private right of action, so claims thereunder can only be brought under the APA” which in turn requires final agency action before judicial review. Similarly, sue to the absence of any federal involvement with the demolition and redevelopment project, the claim under the NHPA also fails.
Decision available at http://docs.justia.com/cases/federal/district-courts/pennsylvania/pawdce/2:2011cv00889/197937/57/.
Court of Special Appeals of Maryland, No. 219, September 6, 2011: Upholds a Maryland historic district commission’s decision that reconstruction to match an original porch, removed many years before from a home in a historic district, was rehabilitation, not new construction, and therefore commission could require use of wood rather than fiberglass columns.
The Millers sought approval from the Historic Preservation Commission of the City of Annapolis (the “Commission”) to use fiberglass columns on a porch they attached to the front of their home in the Annapolis Historic District. Although the porch existed when the house was built before 1908, it was removed before the Millers’ ownership.
The Commission refused, finding (after a Circuit Court remand of their original decision without findings) that the project was “rehabilitation” as defined by the Annapolis Code, not “new construction” because the project involved the replacement of a once-existing porch. Pursuant to the Annapolis Code, the Commission had adopted the Secretary of the Interior’s Standards for Rehabilitation, 36 C.F.R. § 68.3 (1995). The Commission Guidelines and the Secretary’s Standards “make clear that the use of traditional materials is preferable” for rehabilitation.
The Millers argued that the porch construction was new construction within the meaning of the Annapolis Code because the porch did not exist when their project began, and that even if their project were properly considered rehabilitation, the actions of the Commission amounted to an impermissible “ban” on fiberglass materials.
On appeal the Court deferred to the Commission’s view of the evidence but not as to interpretations of law, and considered the Commission’s decision that the porch project was not new construction to be a mixed question of law and fact. The Court held that “whether Mr. Miller’s porch project constitutes new construction is fairly debatable, and the record contains substantial evidence to support the Commission’s conclusion that it does not.” Regarding the question of whether the Commission improperly banned fiberglass, the Court first held that Miller did not preserve the question for appeal, but then stated that even if he had, the strong preference of the Commission to avoid fiberglass for rehabilitation did not constitute an outright ban. Accordingly, the Court upheld the circuit court’s decision affirming the Commission’s decision and awarded costs to the Commission.
Decision available at http://mdcourts.gov/opinions/cosa/2011/219s10.pdf.
Dist. Court, D. Idaho, CIV. 1:10-186 WBS, August 29, 2011: Orders production of landowner’s attorneys’ documents related to appraisal of conservation easement value, in suit by landowner against US.
The Peskys donated a conservation easement to The Nature Conservancy in 2002. The IRS refused their claim for a qualified conservation contribution tax deduction and assessed a deficiency. In 2008, the US brought an action against Mark Richey, the appraiser hired by the Peskys’ attorney, to enforce a summons to compel him to disclose his work file on the appraisal. Subsequently the Peskys paid the deficiency plus penalties. In 2009 the Idaho District Court found that the appraisal work file was protected by both the attorney-client privilege and the work-product doctrine, but the Court of Appeals for the Ninth Circuit, reversed and remanded in January 2011, holding that IRS’s summons was issued in good faith because it was issued before the Peskys paid the IRS assessment. The Circuit Court also found that “any communication related to the preparation and drafting of the appraisal for submission to the IRS was not made for the purpose of providing legal advice, but, instead, for the purpose of determining the value of the Easement” and therefore not subject to the attorney-client privilege, and was not prepared in anticipation of litigation and therefore not protected by the work-product doctrine. When the Peskys complied with the District Court’s order on remand, the case was terminated. The Peskys then sued the US in 2010 for a refund of taxes and penalty.
In the Peskys’ suit against the US, the IRS sought documents that are covered by the attorney-client or work-product privileges but as to which the IRS claimed the Peskys have impliedly waived the privileges. The District Court has held that the Peskys waived those privileges by alleging that they relied on the advice of counsel in support of their assertion of the “reasonable cause” exception to the tax penalties. The Court ordered the Peskys to produce all requested documents relevant to their assertion of the “reasonable cause” exception which they may rely upon at trial, and ordered that if the IRS wanted yet additional documents to be produced, the court would review those claims in camera and make a further determination. In response, the IRS demanded additional documentation relating to the appraisal services provided by Richey from the work file of the attorney who hired Richey. The Court has now ruled that the Peskys must produce those documents that “relate to selecting and engaging a ‘qualified appraiser’”.
Decision available at http://scholar.google.com/scholar_case?q=PESKY+v.+US&hl=en&lr=lang_en&as_sdt=2,22&as_vis=1&case=14522498771725949293&scilh=0
Court of Appeals of Colorado, Division VII, No. 10CA1006, August 18, 2011: Affirms district court order requiring state to disclose records about an investigation of conservation easements appraisals used to obtain Colorado tax credits.
The Colorado Division of Real Estate and the Board of Real Estate Appraisers (collectively the Board), in connection with a statewide investigation of alleged abuse of the Colorado program permitting tax credits for conservation easements, ordered the permanent surrender of the appraiser’s license of two appraisers, William Milenksi and John Stroh. The plaintiffs, Land Owners United LLC and Land Owners United, Inc. (collectively Land Owners), nonprofits that together represent approximately eighty Colorado landowners whose conservation easement tax credits and deductions came under investigation. Land Owners made requests under the Colorado Open Records Act (CORA), §§ 24-72-200.1 to -206, C.R.S. 2010, for records about the Milenksi and Stroh proceedings and information relating to the Board’s investigation into allegations of abuse of the conservation easement program. The Board provided some but not all of the requested documents, asserting three exemptions under CORA to justify denial of various records. The trial court found that the Board failed to show cause why most of the requested public records should not have been released, but specified that some confidential information should be redacted from the records, and that two documents were protected by attorney-client privilege. The trial court also awarded attorney fees to Land Owners. The Colorado Appeals Court affirmed the trial court’s decision in its entirety.
Decision available at http://www.cobar.org/opinions/opinion.cfm?opinionid=8185&courtid=1.
Washington, DC, July 13, 2011: The US District Court for District Of Columbia has enjoined Trust for Architectural Easements from various activities regarding historic preservation easements in a civil suit brought by the Justice Department on behalf of the IRS.
A DOJ press release summarizes the injunction as follows:
“The injunction order bars the defendants from promoting the existence of a 10-to-15-percent valuation range and from accepting donations of easements that the defendants know or have reason to know lack a conservation purpose as defined by federal tax law. The order also blocks the defendants from participating in the appraisal process for an easement in any regard, other than by referring donors to lists of potential appraisers prepared by neutral third parties. The defendants are enjoined from representing to donors that they can expect an easement to diminish the value of their property in all circumstances or to result automatically in a charitable deduction. The order also requires the defendants to submit to independent monitoring of their practices for the next two years to ensure compliance with the injunction.”
The Trust for Architectural Easements (TAE), formerly the National Architectural Trust, issued its own press release in which it characterized the injunction as the result of “a fair and favorable settlement agreement with the U.S. Department of Justice … The settlement satisfactorily concluded a protracted investigation by the DOJ, on behalf of the Internal Revenue Service, and vindicated the Trust and its long-standing practices in the acceptance and enforcement of historic preservation easements.” The TAE press release also excoriates the IRS for “overreaching in its opposition to a decades-old law that supports and encourages historic preservation” and takes DOJ to task for filing “a lengthy, sensational complaint, replete with misstatements and innuendo … apparently designed to impugn the reputation” of TAE.
Thanks to Stefan Nagel, Esq., for bringing this news to my attention.
NY Supreme Court, Westchester County, Index no. 23534/10, July 13, 2011: Summary judgment order by trial court that conservation easement from Town to land trust prohibits the creation of fenced enclosures or “habitat” for the keeping of wolves.
The conservation easement was granted by the Town as a condition to receiving a grant from Westchester Land Trust (WLT) that helped the Town buy the land. The Town leased a portion of the easement land to the Wolf Conservation Center (WCC) for the creation of a habitat for wolves. WLT claimed the fencing, enclosures and habitat for the introduction of a non-native species all involved changes to the topography and vegetation that are prohibited by the conservation easement and do not constitute environmental education and “non-destructive nature study” allowed by the easement. WCC and the Town argued that the conservation easement does not explicitly prohibit any of the proposed physical changes to the property or the proposed use, which they said was consistent with the purposes of the easement.
The court found that “the planned [wolf habitat] use for the leased property cannot be effectuated without activity that is prohibited by the terms of the conservation easement”. The court found the easement purposes of holding the land in an undeveloped state and providing for passive recreation, and the express prohibitions in the easement of certain activities, are unambiguously inconsistent with “a certain amount of development” necessary for the creation of the wolf habitat. The court distinguished a wolf habitat from a habitat for indigenous fauna, and said that plan to fence in the wolves meant that there is no “serious argument” that a “historically native” species in being “reintroduced”.
News reports indicate WCC may appeal http://blogs.wsj.com/metropolis/2011/07/18/westchester-wolf-habitat-loses-legal-battle/?mod=google_news_blog and WLT will seek reimbursement of legal fees. http://www.acorn-online.com/joomla15/lewisboroledger/news/localnews/98768-land-trust-wins-lawsuit-against-wolf-center.html
Order available at http://www.westchesterlandtrust.org/files/Decision.pdf.
Commonwealth Court of Pennsylvania, 2057 C.D. 2010 July 12, 2011: Restriction to “recreational use” in Declaration of Covenants, Conditions and Restrictions (Declaration) does not allow structure or use for basketball court. Unreported opinion.
Land acquired by a Township in part with county funds was subject to the Declaration stating the land would be used only “for wildlife refuge, sanctuary, open space, agricultural, recreational, historical, cultural, or natural resource conservation purposes.” The land was later conveyed to Parsons subject to the Declaration and a purchase agreement (Agreement) that further provided that the land would be conveyed subject to a deed restriction allowing use only as a single family dwelling, tree farm or horse farm as allowed by local zoning, and prohibiting new buildings other than those used “for the keeping of horses”. (Court’s opinion does not state whether such a deed restriction was recorded.) Parsons built a two-story, 14,000 square foot, 100′ by 65′ steel pole barn for use as “an indoor community basketball facility”, without obtaining any municipal permits.
When the Township sought court approval to require demolition of the structure, the trial court concluded that the pole barn qualified as a “recreational facility” under the Declaration and the structure did not violate the Agreement because “the fact that the ‘community children, rather than horses, will be using the inside of the pole barn is a distinction without a difference.’” The trial court also ordered Parsons to offer the county an area equal to that of the barn plus a buffer subject to a Deed of Conservation Easement and Declaration of Restrictive Covenant. The appellate Commonwealth Court disagreed and reversed the trial court with instructions to order the Parsons to dismantle and remove the pole barn. The Commonwealth Court relied in part on statements made by the Township in its application for the funding grant from the county that was conditioned upon the land being subject to the Declaration. In the application the Township said the property’s use was to be limited to “passive recreation” and “agricultural use.”
Decision available at http://www.leagle.com/xmlResult.aspx?xmldoc=In%20PACO%2020110712385.xml&docbase=CSLWAR3-2007-CURR.
U.S. District Court, W.D. Virginia, Charlottesville Division, No. 3:09-CV-00079, June 30, 2011: Memorandum opinion finds the land trust holder of a conservation easement has standing to sue under the federal Clean Water Act because the alleged injury to the property rights of the land trust “provide an irrefutable basis for standing,” and at the pleading stage of litigation, the court may assume specific injury based on the land trust’s general allegation of injury to one of its core purposes, to protect water quality in an area that includes the subject location.
The Court also granted the Water Authority’s motion to dismiss pursuant to Rule 12(b)(6) because the Plaintiffs (land trust and land owner) failed to provide the required 60-day notice for all the violations alleged in an amended complaint, but the Court allowed ten days’ leave for Plaintiffs to file a motion for leave to file a second amended complaint.
The Historic Green Springs, Inc. land trust (HGSI), in its amended complaint had stated that “protecting water quality in Camp Creek [a water body into which the Water Authority discharged treated sewage wastewater] is a core duty in [HGSI's] overall purpose of preserving and protecting the properties that comprise the District, which it accomplishes through the use of conservation easements that, among other things, protect the riparian rights and beneficial uses of Camp Creek.”
Memorandum Opinion available at http://www.vawd.uscourts.gov/OPINIONS/MOON/3.09CV79HGSIV.LOUISA%28GRANTMTDCANAMEND%29.PDF.
Ohio Court of Appeals, 10th Appellate Dist, 2011 Ohio 3315, June 30, 2011: Requirement that replacement windows in historic district “match the original windows, like-for-like” would not confuse a person of ordinary intelligence and therefore is not unconstitutionally vague, does not constitute an unconstitutional exercise of the City’s police powers.
Defendant Bahgat replaced divided light wood frame windows with glass block windows after a burglary at his building in a historic district. After the replacement, Bahgat sought a certificate of appropriateness pursuant to the Columbus City Code. The Historical Commission, intending to order the replacement of what existed before the burglary, issued a certificate of appropriateness to, “Remove divided light wood frame window from all basement window openings. Install new divided light wood frame windows in all basement window openings to match the original windows, like-for-like. Window to match the original in material, dimension, trim, profile, and location in the window opening.” A year later, the glass block windows were still there, and the City sued for enforcement of the certificate.
Among other defenses, Bahgat claimed the requirements of the certificate were unconstitutionally vague. The Court disagreed, citing the plain language and context, as noted above.
Bahgat also argued that the attempted enforcement of the certificate constitutes an unconstitutional exercise of the City’s police powers. His argument, as reported by the Court, focused specifically on how the historic district requirements should be applied to the glass block windows in the area known at German Village Historic District:
“Defendants … argue that glass-block windows meet the legitimate interest underlying the historic preservation code, so the Commission cannot prohibit their installation. Defendants point out that glass-block windows originated in Germany around 1907. Due to this historical pedigree, defendants claim that glass-block windows would contribute to the preservation and protection of the unique character of the German Village historic district. As the glass-block windows would serve the purpose behind the historic preservation code, defendants assert that the Commission acted unconstitutionally when it refused to approve their installation.”
The Court rejected this line of reasoning by pointing out that the analysis of police power should focus on whether the legislative judgment underlying the enactment of the historic preservation code advances the City’s interest in preserving the character of German Village, not whether the particular alteration would advance the City’s interest in preserving the character of the historic district.
Lastly, Bahgat argued that the presence of glass block windows at other buildings within the historic district reflected an unconstitutionally arbitrary and capricious application of the code. The Court rejected this reasoning too, saying variations in appearance resulting from exceptions written into in the historic preservation code, such as “unusual and compelling circumstances” and “substantial economic hardship”, did not render those results unconstitutional.
Decision available at http://www.supremecourt.ohio.gov/rod/docs/pdf/10/2011/2011-ohio-3315.pdf.
US Tax Court, 2011 TC Memo 153, June 29, 2011: Tax deduction for conservation easement donated to county denied because owner-county conditional settlement agreement calling for donation was not an “acknowledgment” of the donated property as required by Internal Revenue Code section 170(f)(8).
The taxpayer settled a dispute with the county government by entering into a settlement agreement in 2004 that among other things called for the taxpayer to donate a conservation easement to the county on land owned by the taxpayer. The taxpayer sought a federal income tax deduction for the donation for tax year 2004. The taxpayer’s 2004 return included Form 8283 without signature by the appraiser or an authorized representative of the county but with an appraisal dated in 2005. The conservation easement was executed in 2006.
Without deciding whether the settlement agreement was contemporaneous with the donation, the Tax Court decided that it did not constitute an acknowledgement of the donation.
The taxpayer argued that the settlement agreement “legally obligated” him to donate his development right. The Court found that the fulfillment of the agreement was “subject to and conditioned upon” further governmental approvals that had not been granted in the year of the tax filing. Accordingly, at the time of the settlement agreement, the taxpayer “was not under a contractual duty to convey his development rights to the county and no legal obligation was certain to occur” and thus there could be on acknowledgement of receipt of the development rights in 2004.
(The county did give the taxpayer a letter in 2006, “acknowledging and thanking him for his ‘donation’ of the development rights” (in the court’s words). Although the Court does not address it, it seems that any attempt to take the deduction via an amended return for 2006 would be futile because of other shortcomings of this letter as an acknowledgement.)
Decision available at http://www.ustaxcourt.gov/InOpHistoric/DiDonato.TCM.WPD.pdf.
US Court of Appeals, District of Columbia Circuit, No. 10-1063, June 21, 2011: upheld the US Tax Court 2009 ruling in Simmons v. Commissioner, that a historic preservation façade easement was granted in perpetuity even if it allowed the Grantee to consent to façade changes and did not spell out what would happen to the easement on dissolution of the Grantee, and that the before-and-after appraisal was “qualified” even though the “after” value was based on subjective judgment of the “mindset” of buyers and sellers.
The Appeals Court review was only for clear error on the part of the Tax Court, and the Appeals Court found none.
Perpetuity: The IRS Commissioner contended that because a clause in the easement stated “nothing herein contained shall be construed to limit the Grantee’s right to give its consent (e.g., to changes in a façade) or to abandon some or all of its rights hereunder,” the Tax Court was wrong in finding that the Simmons easement qualified as being granted exclusively for conservation purposes under Internal Revenue Code. The Appeals Court said this easement clause has “no discrete effect upon the perpetuity of the easements”. The Appeals Court was evidently impressed by the amici briefs’ reasoning that “this type of clause is needed to allow a charitable organization that holds a conservation easement to accommodate such change as may become necessary ‘to make a building livable or usable for future generations’ while still ensuring the change is consistent with the conservation purpose of the easement.” (Arguably the Court’s reasoning here could apply to the need to uphold the conservation purposes of open space or agricultural easements by having flexibility to meet changed conditions.)
The IRS also asserted the Tax Court should have found fault with the failure of the easement to explicitly provide for the “perpetuation of the easements” if the Grantee ever ceases to exist or simply abandons its right to enforce the easements. The Appeals Court reasoned that the remote possibility of abandonment of the easement by the Grantee did not mean that the easement was not enforceable in perpetuity, because even if the easement did not “spell out precisely what would happen” if the Grantee dissolved, local (i.e., District of Columbia) law provides the easements would be transferred to another organization that engages in “activities substantially similar to those of” the Grantee. It was also significant to the Court that the State Historic Preservation Officer testified that upon dissolution the easement initially reverts to the District of Columbia, which then seeks to assign it to a conservation organization. The Appeals Court wrote, “Accordingly, the deeds do all the Commissioner can reasonably demand to ‘prevent’ uses of the properties inconsistent with conservation purposes, as required by Treasury Regulation § 1.170A-14(g)(1).”
In explaining its decision the Appeals Court also found it persuasive that the Grantee’s fear of action by the IRS against the Grantee’s tax exempt status and status as a qualified holder of conservation easements make it unlikely the Grantee would not enforce the easement as long as the Grantee sought to remain in operation.
Lastly, regarding perpetuity, the Appeals Court noted that even if the Grantee consented to ahistorical changes in the façade, the fact that the easement property is in a historic district that strictly regulates façade changes makes such changes unlikely. (The Appeals Court thereby turned on its head the argument sometimes made that donation of an easement that forbids something that is already forbidden by state or local law is not really of any value. See 1982 East, LLC v Commissioner of Internal Revenue (aka Asser v Commissioner), US Tax Court, T.C. Memo. 2011-84, April 12, 2011.
Qualified Appraisal: The IRS argued the appraisal was not “qualified” as required by the Code because it failed to explain the “method of valuation” used and failed to include adequate detail to provide a substantive basis for the valuation. The Appeals Court determined that it was not clear error on the part of the Tax Court to accept the appraisal as qualified because for the “before” value the appraiser consulted sales of similar properties and identified some of these sales in the appraisals, and for the “after” value the appraiser “spoke with and considered ‘the mindset of competent buyers and sellers’ and took account of the ‘considerations they have actually had, or are likely to have, in the buying or selling of a property encumbered by a façade easement.”
The Tax court has distinguished the Simmons appraisal, and it’s reasoning for accepting it, from the appraisal in Scheidelman v. Commissioner, 2010 TC Memo 151, July 14, 2010.
Decision available at http://www.cadc.uscourts.gov/internet/opinions.nsf/77D8B9AAA75C4697852578B60051AFAF/$file/10-1063-1314257.pdf.
US Tax Court, T.C. Memo. 2011-109, May 23, 2011: Follows the holding in Tempel v. Commissioner (US Tax Court, 136 T.C. No. 15, April 5, 2011), that Colorado State conservation easement tax credits are capital assets that qualify for capital gain treatment and the holding period for the assets sold begins at the time that the taxpayers received them and not when they acquired the real property that was the subject of the conservation easement.
Decision available at http://www.ustaxcourt.gov/InOpHistoric/McNeil.TCM.WPD.pdf.
Commonwealth Court of PA, 1273 C.D. 2010, 1274 C.D. 2010, April 18, 2011: City Board of License and Inspection Review must defer to the Historical Commission’s interpretations of words in city Historic Preservation Ordinance.
The Philadelphia Board of License and Inspection Review (Board) reversed a decision of the Philadelphia Historical Commission (Commission) approving a permit for the renovation and development of a historically designated building. The Board’s reversal was based in part on its overriding the Commission’s interpretation of the terms “alteration”, “in significant part,” “demolition,” and “appropriateness” under the Philadelphia Historic Preservation Ordinance. (Code §§ 14-2007(2)(a), 2(f), (7)(k), R.R. at 316a, 323a-24a.)
Accordingly, we must remand this matter to the Board for further review and for the Board to issue a new determination based on the evidence presently before it, with deference being given to the Historical Commission’s interpretation of the Historic Preservation Ordinance and the application of the principle that the Historical Commission’s interpretations “become[] of controlling weight unless [they are] plainly erroneous or inconsistent with” the Historic Preservation Ordinance.
The Court wrote that this case should be guided by how the US Supreme Court decided an analogous matter in Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144 (1991), i.e., it (1) “applied a presumption against the adjudicative actor;” (2) “concluded that [the Legislature] did not intend the adjudicative actor to play a policy-making role;” and (3) concluded that the legislative body “intended to invest” the administrative actor with “authoritative interpretive powers.”
The Court found the Board to be the adjudicative actor that should defer to the Commission’s reasonable interpretations as the administrative agency, unless they are plainly erroneous or inconsistent with the Ordinance. “When the Board replaced the Historical Commission’s definitions with its own, transforming the interpretation of phrases into credibility determinations, the Board exceeded its appellate scope of review.”
Decision available at http://www.pacourts.us/OpPosting/Cwealth/out/1273CD10_4-18-11.pdf.
US Tax Court, T.C. Memo. 2011-84, April 12, 2011: Denies preservation easement tax deduction because local law already protects property and because mortgage subordination reserves insurance and condemnation proceeds priority to lender.
The taxpayer/petitioner donated a façade easement and “unused development rights” (UDRs) to Trust for Architectural Easements (formerly known as National Architectural Trust) on a townhouse within the New York City Metropolitan Museum Historic District. The City’s landmark and zoning laws set the maximum density by “floor area ratio” and maximum height, and make it unlawful to (in the Court’s words) “alter the property” unless the City Landmarks Preservation Commission (LPC) approves the alteration. The “Protected Facade” included all exterior surfaces, e.g., walls, roofs, and chimneys, that were visible from the street level. UDRs included “any and all rights, however designated, now or hereafter associated with the [subject] Property or any other property that may be used pursuant to applicable zoning laws or other government laws or regulations to compute permitted size, height, bulk or number of structures, development density, lot yield, or any similar development variable on or pertaining to the [subject] Property or any other property.”
The Court agreed with the IRS assertion that the easement and UDRs did not preserves a historically important land area or a certified historic structure, and thus failed to meet one of basic requirements of the tax code for a “qualified conservation contribution” (section 170(h)(4)), because “it is local law and the rules of the [City Landmarks Preservation Commission] that preserve the subject property and not the rights which NAT possessed under the deed of easement. The Court wrote, “While petitioner argues that NAT’s enforcement of the deed of easement affords additional meaningful protection not already guaranteed by the LPC’s enforcement of local law, petitioner has failed to persuade us that such is the case.” Apparently, the Court did not consider the possibility that the LPC, in the exercise of its discretion, would approve an alteration that the easement or UDR would forbid, or that the local laws were subject to change in a way that donation of the easement and UDRs in perpetuity could not.
The property was also subject to a mortgage, and the owner obtained a subordination of the mortgage to the easement and UDRs by way of a lender agreement that, like the lender agreement in the Kaufman I case, reserved to the mortgagee a prior claim to all casualty insurance proceeds and all proceeds of condemnation. The Court, citing Kaufman I and Kaufman II, found this reservation of priority means the donation fails to meet the perpetuity requirement of the Code and section 1.170A-14(g)(6)(ii), Income Tax Regs. The petitioner tried to argue that applicable state law distinguished this case from Kaufman. The Court determined that although “a New York court ‘may’ adjudge the facade easement unenforceable, entitling the beneficiary of the easement to compensation … section 1.170A-14(g)(6)(ii), Income Tax Regs., requires that NAT ‘must’ be entitled to its proportionate share of proceeds in the event the easement is extinguished.”
Decision is available at http://www.ustaxcourt.gov/InOpHistoric/1982EastLLC.TCM.WPD.pdf.
Regarding the portion of the decision about the interplay of local law and the façade easement, attorney Stefan Nagel has written in a recent post to the Massachusetts Land Trust Coalition, “This is a so-called ‘memo’ ruling, therefore may not have been reviewed by the entire Tax Court, and therefore doesn’t have full precedential consequence. Also… the ruling contradicts [the 2009] Simmons case out of Washington, DC.”
The Court’s reasoning regarding a preservation easement that overlaps with local protections in theory could have implications for conservation easements, agricultural easements and land trusts if applied in analogous situations where local zoning or other land use laws restricted development or non-agricultural uses.
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