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 The other report did not accurately describe the easement, relied on outdated information, and used comparables from other geographical areas.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 http://www.ca2.uscourts.gov/decisions/isysquery/2bf522aa-559e-4d82-8c8d-3c4b734c3504/8/doc/13-2650_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/2bf522aa-559e-4d82-8c8d-3c4b734c3504/8/hilite/.

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