Kaufman v Commissioner of Internal Revenue

U.S. Tax Court, 134 T.C. No. 9, April 26, 2010

The Tax Court rejected a deduction for a façade easement that was subordinate to a mortgage, but denied the IRS summary judgment as to whether a companion cash contribution was a conditional gift. Because the superior mortgagee would have a prior claim to condemnation and insurance proceeds, the court said the easement failed to satisfy Income Tax Regs. section 1.170A-14(g)(6), and “so fails to satisfy the enforceability in perpetuity requirement” under IRC section 170(h)(2)(C) and (5)(A). The taxpayer and grantee National Architectural Trust (NAT) agreed NAT would refund the cash contribution if an appraisal found the façade easement to have no value. The court ruled there was a factual dispute whether that possibility was “so remote as to be negligible”. The court did not find that the cash donation was part of a quid pro quo, and therefor not deductible, despite NAT’s requiring the donation for NAT to accept the easement.

The decision is available at http://www.ustaxcourt.gov/InOpHistoric/kaufman.TC.WPD.pdf.

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