Belk v. Commissioner (Belk III)

US Court of Appeals, Fourth Circuit, No. 13-2161, December 16, 2014: Allowing property swap disqualifies conservation easement deduction.

The court upheld the Tax Court ruling in Belk v. Commissioner, 140 T.C. No. 1 (2013) (Belk I), that a conservation easement that allows the parties to change which property is subject to the easement does not qualify for [...]

Register v. The Nature Conservancy

US Dist. Court, ED Kentucky, Civil Action No. 5:13-77-DCR, December 9, 2014: Charitable gift restricted by oral contract but claimed restriction violation goes to jury

At issue were whether a contribution to a charity was restricted, what the law required if the gift was restricted, and whether the gift was ultimately used contrary to the restriction.

Register, the donor, contributed appreciated stock to The Nature Conservancy (TNC). The trial record produced evidence about what Register and TNC personnel thought the donation was for at the time of donation and leading up to it.  Register alleged the gift of about $1 million to TNC was intended to be permanently restricted for the purchase and management of a parcel of land known as Griffith Woods. Register alleged he made the gift intending to obligate TNC to use the proceeds from a sale of Griffith Woods for management of that property if Griffith Woods were ever sold. Using the gift and other funds, TNC bought Griffith Woods and then sold it. Part of the land was sold to the University of Kentucky (which Register evidently expected) and TNC sold the rest to the Kentucky Department of Fish and Wildlife Resources (“KDFWR”), without a conservation restriction.

Among the evidence relevant to the court’s decision was that TNC placed Register’s original donation in an account classified by TNC internally as “temporarily restricted” to fund the purchase of Griffith Woods. After Griffith Woods was sold, TNC deposited the funds back into that account and then transferred money out of the account. TNC used some of the proceeds from the sale to pay-off a land debt on another project and the rest were deposited into TNC’s general operating fund. TNC admitted that no portion of Register’s gift is currently being used to benefit Griffith Woods. The court’s opinion recites much additional evidence specific to the knowledge and intent of the parties at various times.

The court first held that as a matter of law Register’s donation was restricted as a “conditional gift” and as such TNC was bound by Register’s intention when it accepted the donation. The court cited an Arizona Supreme Court decision (Dunaway v. First Presbyterian Church of Wickenburg, 442 P.2d 93, 95 (1968)) for the proposition that a charity’s acceptance of a gift creates an implied contract with a promise “agreeing to the purposes for which it is offered.” The court cited a Seventh Circuit decision (Kentucky is in the 6th Circuit) for the proposition that a promise of a gift is a promise subject to contract law.

The court found that although there was no written contract in one integrated document, the evidence supported the conclusion that the parties entered into an oral contract and Register’s donation was “restricted to Griffith Woods” as a matter of law. [Digest readers are urged to read the opinion if they are interested in the specific statements, writings and circumstances that gave rise to the court’s conclusion in this and other aspects of its decision.]

The court then turned to the “parameters and duration” of the conditions, if any, of the contract. One letter from Register to the Director of the Kentucky TNC chapter at the time included, “I’d like to make now a gift …  I would prefer that the … proceeds go toward the establishment and management of a nature preserve in the Bluegrass region, e.g. Griffith Woods. If the Griffith Woods project falls through, I trust that KNC will put to use the funds in a manner that will further help protect areas in Kentucky with unique and diverse plants and animals.” The actual transmittal letters from Register’s investment clearinghouse to TNC memorializing the transfer of stock stated “[t]his represents a gift from [Register] to the Nature Conservancy-Kentucky Chapter, Griffith Woods project” or “[t]his represents a gift from [Register] to the Kentucky Chapter Griffith Woods project.”

TNC’s arguments focused on Register’s letter’s use of “precatory language” (“prefer” and “e.g.”) and the general nature of how he wanted the gift used if the Griffith Woods “project falls through.”   The court, however, concluded that Register’s intent for the funds to be used for Griffith Woods was meant by him as a limiting restriction and created an enforceable obligation because the next sentence points out what is to happen if the Griffith Woods preference is not fulfilled. The court also found the evidence lead to the conclusion that, “At the time the donation was made, no one appeared to believe that the funds were not restricted to Griffith Woods.” Continue reading Register v. The Nature Conservancy

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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. [...]

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 [...]

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 [...]

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 [...]

Kaufman v. Commissioner (Kaufman IV)

U.S. Tax Court, T.C. Memo 2014-52, March 31, 2014: Façade Easement had zero value; penalties imposed.

The issues in this case about the federal tax deduction for a “qualified conservation contribution” (a historic preservation façade easement) were principally the valuation of the façade easement and what, if any, penalties the taxpayer should pay for misstating the value [...]

Wachter v. Commissioner

US Tax Court, 142 TC 7, March 11, 2014: No federal tax deduction for conservation easement when state law limits easement to 99 years.

Wachter, in a bargain sale transaction, donated to a land trust a portion of the value of a conservation easement on North Dakota land. Wachter claimed a tax deduction for donation of a [...]

Esgar Corporation v. Commissioner (Esgar II)

U.S. Court of Appeals, Tenth Circuit, No. 12-9009, March 7, 2014: Highest and best use in easement appraisal must be most reasonably probable in the reasonably near future.

Esgar appealed the decision of the Tax Court in Esgar v. Commissioner (Esgar I), US Tax Court, 2012 TC Memo 35, February 6, 2012. In Esgar I the Tax [...]

61 York Acquisition, LLC v. Commissioner

U.S. Tax Court, T.C. Memo. 2013-266, November 19, 2013: No historic preservation easement deduction when donor doesn’t have right to restrict entire exterior.

A historic preservation easement was donated by a partnership (the “Partnership”) on the façade of a building divided for ownership purposes into two segments: an “Office Property”, which consists of the first 14 floors [...]

Gorra v. Commissioner

US Tax Court, T.C. Memo. 2013-254, November 12, 2013: Preservation easement deductible despite similar restrictions in local New York City historic preservation law.

The court held that this façade easement for a “certified historic structure” qualifies for a tax deduction despite some overlap with New York City’s Landmarks Law. The decision offers reasons that the circumstances in [...]

GLW Ventures LLC v. US Dept. of Agriculture

U.S. District Court, W.D. Washington, Tacoma, Case No. C12-5140 RBL, September 25, 2013: Holds USDA conservation easement either created two lots or owner is entitled to a rescission of easement.

Plaintiff GLW owns 110 acres of undeveloped land located along the Columbia River Gorge, on which its predecessor sold a conservation easement to the United States Forest [...]

Friedberg v. Commissioner (Friedberg II)

U.S. Tax Court, T.C. Memo. 2013-224, September 23, 2013: Appraisal deemed “qualified” on reconsideration, based on Scheidelman II decision.

 This case is a reconsideration of the Tax Court’s decision in Friedberg v. Commissioner, T.C. Memo. 2011- 238 (Friedberg I) in light of the US 2nd Circuit Court of Appeals decision in Scheidelman v. Commissioner, 682 [...]