US Tax Court, T.C. Memo. 2012-163, June 11, 2012: Denies deduction for façade easement because appraisal fails to meet Treasury Reg. requirements.
The Tax Court sided with the IRS in denying a “qualified conservation contribution” tax deduction for a façade easement because, in the Court’s view, the appraisal failed to meet many requirements of Treasury Regulations for a “qualified appraisal”, even using a substantial compliance test. At issue was a deduction claimed for a façade easement and open space easement to the National Architectural Trust on a “certified historic structure” in the Brooklyn Heights Historic District of New York.
Some of the grounds for rejecting the appraisal were described by the Court as identical to the disqualification of the appraisal in the Tax Court decision in Scheidelman V. Commissioner, but the US Court of Appeals’ overturning that decision four days after the Rothman decision was issued casts into doubt this portion of the Tax Court’s analysis.
The Court listed the several additional factors (below) that “inform our conclusion that the appraisal, when taken as a whole, did not actually or substantially comply with the requirements of section 1.170A-13(c)(3), Income Tax Regs.” The Court sought to distinguish this case from prior cases in which similar performance was allowed as “substantial compliance” but some of the distinction also seems to rest significantly on the Court’s now questionable analysis in Scheidelman. These factors were:
The appraisal was not made within 60 days of the contribution date (Treas. Regs. 1.170A-13(c)(3)(i)(A)), because the appraisal used the date on which petitioners delivered the easement to NAT, not the date it was recorded, which would have been the correct date under New York law.
- The record did not adequately establish that the appraiser was a qualified appraiser at the time of the appraisal (Treas. Regs. 1.170A-13(c)(3)(i)(B)). This shortcoming also failed to satisfy Treas. Regs. 1.170A-13(c)(3)(ii)(F), requiring description of the appraiser’s background, experience, education, and membership (if any) in professional appraisal associations.
- The appraisal didn’t properly describe the easement (Treas.. Regs. 1.170A-13(c)(3)(ii)(A)) because (a) it said the easement controlled the entire exterior of the property, whereas the easement restricted only the facade visible from the street level opposite the property, (b) it seems to value the property and not the easement, and (c) the versions of the easement attached as an exhibit to the appraisal were not the executed version of the easement. Attaching the wrong version of the easement was also the basis of the appraisal’s failure to comply with Treas. Regs. 1.170A-13(c)(3)(ii)(D), regarding any agreement or understanding entered into (or expected to be entered into) between petitioners and NAT that relate to the use, sale, or other disposition of the contributed property.
- The appraisal failed to state the actual or expected contribution date (Treas. Regs. 1.170A-13(c)(3)(ii)(C)). Although the Court acknowledges that its own decision in Simmons v. Commissioner, T.C. Memo. 2009-208, aff’d, 646 F.3d 6 (D.C. Cir. 2011), said that this type of infirmity was overcome if the Form 8283 stated the contribution date, nevertheless the Court “decline[s] to render an opinion on this point in the light of the appraisal’s collective failures”.
- The appraisal did not explicitly state that it was made for income tax purposes as required by Treas. Regs. 1.170A-13(c)(3)(ii)(G).
- The appraisal appraised “market value” as defined by the Uniform Standards of Professional Appraisal Practice, not “fair market value” as required by Treas. Regs. 1.170A-13(c)(3)(ii)(I).
Decision available at http://www.ustaxcourt.gov/InOpHistoric/RothmanMemo.TCM.WPD.pdf.