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Huda T. Scheidelman v. Commissioner of Internal Revenue

June 15, 2012

HUDA T. SCHEIDELMAN, PETITIONER-APPELLANT-CROSS APPELLEE,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT-APPELLEE-CROSS APPELLANT.*FN1



The opinion of the court was delivered by: Dennis Jacobs, Chief Judge:

10-3587 (L)

Scheidelman v. Commissioner of Internal Revenue

Argued: December 15, 2011

Before: JACOBS, Chief Judge, LEVAL and LIVINGSTON, Circuit Judges.

28 Taxpayer appeals a decision of the Tax Court (Cohen, 29 J.) that disallowed her deduction for donating a "facade 30 conservation easement," on the ground that there was no 31 "qualified appraisal" within the meaning of Treasury 32 Regulation § 1.170A-13(c)(3). We conclude that the 33 appraisal satisfied the regulatory specifications.

1 Accordingly, the decision of the Tax Court is vacated and 2 the case remanded for further proceedings.

17 Taxpayer Huda Scheidelman appeals a decision of the Tax 18 Court disallowing her deduction for the value of a "facade 19 conservation easement" that she donated to the National 20 Architectural Trust (the "Trust"). The Tax Court ruled that 21 the appraisal she obtained insufficiently explained the 22 method and basis of valuation, and thereby failed to comply 23 with the Treasury Regulation defining a qualified appraisal.

24 See Treas. Reg. § 1.170A-13(c)(3). We conclude that the 25 appraisal sufficiently detailed the method and basis of 26 valuation. The Tax Court also disallowed her deduction for 27 a cash contribution she made to the Trust on the ground that 28 it was quid pro quo for the Trust's acceptance of the 29 easement. We disagree because the Trust's agreement to 1 accept the gift of the easement was not a transfer of 2 anything of value to the taxpayer and thus did not 3 constitute a quid pro quo for the gift of the cash.

4 Accordingly, we vacate the decision of the Tax Court 5 and remand the case for further consideration consistent 6 with this opinion.

8 BACKGROUND

9 A facade conservation easement is an undertaking by a 10 property owner, granted to an organization, that a 11 building's facade will be maintained unchanged in 12 perpetuity. Such an easement is designed to protect the 13 historical integrity of properties and communities. 14 Congress has created a tax benefit for taxpayers willing to 15 donate property rights for conservation purposes, including 16 the right to alter a property's facade. See 26 U.S.C. 17 § 170(f)(3)(B)(iii).

18 In early 2003, Scheidelman submitted an application to 19 the Trust to donate a facade conservation easement for her 20 brownstone row house in Brooklyn's historic Fort Greene 21 neighborhood. The easement would prohibit Scheidelman from 22 altering the facade without permission of the Trust and 1 would require her to maintain the facade and the rest of the 2 structure. The easement would give the Trust the right to 3 inspect the facade and to require Scheidelman to cure any 4 violation of her easement obligation. It would run with the 5 land in perpetuity.

6 In order to complete the donation process (and obtain 7 the associated tax benefit), Scheidelman needed to have the 8 easement appraised. She hired Michael Drazner, a qualified 9 real estate appraiser. Drazner valued the easement at 10 $115,000. He employed the "before-and-after method," which, 11 as the name suggests, subtracts the value of a house 12 burdened with an easement from the value of the house 13 without one. Drazner estimated the unencumbered value of 14 Scheidelman's property at $1,015,000, a figure the parties 15 do not dispute. He estimated the value of the property 16 after the granting of the easement at $900,000, yielding an 17 easement value of $115,000. This appeal concerns primarily 18 the bases for the $900,000 after valuation, which he arrived 19 at by applying an 11.33 percent reduction to the pre- 20 easement value.

21 After receiving Drazner's appraisal, the Trust notified 22 Scheidelman that each of the Trust's easement donors must 1 make a cash contribution toward operating costs equivalent 2 to ten percent of the value of the easement. Sheidelman 3 remitted a check for $9,275, which represented ten percent 4 of the value of the easement less adjustments irrelevant to 5 this appeal. The Trust then sent Scheidelman an IRS form 6 for non-cash charitable contributions (Form 8283), signed by 7 Drazner and the Trust, reflecting a fair market value for 8 the easement of $115,000.

9 Scheidelman claimed a $115,000 deduction on her federal 10 tax return for the 2004 tax year. Pursuant to IRS rules, 11 Scheidelman had to carry over $63,083 to future years 12 ($59,959 in 2005 and $3,124 in 2006). After an audit, the 13 IRS decided that she failed to establish a fair market value 14 for the easement; notified her of resulting deficiencies in 15 her taxes of $16,873, $17,537, and $1,015 for the years 2004 16 through 2006, respectively; and imposed a statutory penalty 17 of $3,374.60, $3,507.40, and $203.00 for each year, 18 respectively.

19 Scheidelman sought a redetermination of her tax 20 liability from the Tax Court. The Tax Court found that 21 Scheidelman was ineligible for the deduction because the 22 Drazner appraisal was not a "qualified appraisal"--a 1 prerequisite for deducting a non-cash charitable 2 contribution--because it failed to state the method of 3 valuation and the basis of valuation, as required by 4 Treasury Regulation § 1.170A-13(c)(2)(J) & (K). Scheidelman 5 v. Comm'r, 100 T.C.M (CCH) 24, 2010 WL 2788205, at *8-9 6 (2010); see 26 U.S.C. § 170(f)(11)(A) & (C). The Tax Court 7 therefore did not go on to determine the value of the 8 easement de novo, which it would have done had it found that 9 Scheidelman satisfied the prerequisites for claiming the 10 deduction.

11 The Tax Court also rejected Scheidelman's attempt to 12 deduct her cash contribution to the Trust.*fn2 Citing the 13 principle that "a charitable gift or contribution must be a 14 payment made for detached and disinterested motives," Graham 15 v. Comm'r, 822 F.2d 844, 848 (9th Cir. 1987), aff'd sub nom. 16 Hernandez v. Comm'r, 490 U.S. 680 (1989), it reasoned that 17 Scheidelman had made the donation for the purpose of 18 inducing the Trust to accept her easement so that she could 19 enjoy a tax benefit. Scheidelman, 2010 WL 2788205, at *13.

1 DISCUSSION

2 We review the legal rulings of the Tax Court de novo 3 and its factual determinations for clear error. See 26 4 U.S.C. § 7482(a)(1) ("The United States Court of 5 Appeals . . . shall . . . review the decisions of the Tax 6 Court . . . in the same manner and to the same extent as 7 decisions of the district courts in civil actions tried 8 without a jury."). "[W]e owe no deference to the Tax 9 Court's statutory interpretations, its relationship to us 10 being that of a district court to a court of appeals, not 11 that of an administrative agency to a court of appeals." 12 Madison Recycling Assocs. v. Comm'r, 295 F.3d 280, 285 (2d 13 Cir. 2002) (internal quotation marks omitted). Mixed 14 questions of law and fact are reviewed for clear error.*fn3 15 ...


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