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Huda T. Scheidelman v. Commissioner of Internal Revenue

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2011


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 See Wright v. Comm'r, 571 F.3d 215, 219 (2d Cir. 2009); 16 Merrill Lynch & Co. v. Comm'r, 386 F.3d 464, 469 (2d Cir. 17 2004); Bausch & Lomb Inc. v. Comm'r, 933 F.2d 1084, 1088 (2d 18 Cir. 1991).

1 I

2 A

3 Normally a taxpayer may not take a deduction for the 4 contribution of a partial interest in property. See 26 5 U.S.C. § 170(f)(3)(A). However, there is an exception for, 6 inter alia, "a qualified conservation contribution," id. 7 § 170(f)(3)(B)(iii), which is a contribution "(A) of a 8 qualified real property interest, (B) to a qualified 9 organization, (C) exclusively for conservation purposes," 10 id. § 170(h)(1). One such conservation purpose, "the 11 preservation of an historically important land area or a 12 certified historic structure," id. § 170(h)(4)(A)(iv), 13 encompasses facade conservation easements, see Simmons v. 14 Comm'r, 98 T.C.M. (CCH) 211, 2009 WL 2950610, at *3-4 15 (2009).

16 A taxpayer deducting the value of a donated facade 17 conservation easement must first obtain a "qualified 18 appraisal" of the partial interest donated--a requirement 19 left to the Secretary of the Treasury for further 20 explication. See 26 U.S.C. § 170(f)(11)(C); Treas. Reg. 21 § 1.170A-13(c)(2)(i)(A). The regulatory requirements of a 1 qualified appraisal are many, as set forth in the margin,*fn4 1 but generally require information about the property, terms 2 of the donation, identity of the appraiser, and fair market 3 value of the donation. We are concerned here only with 4 clauses (J) and (K), which require that the appraisal 5 specify the method and basis:

6 (J) The method of valuation used to determine the fair 7 market value, such as the income approach, the 8 market-data approach, and the 9 replacement-cost-less-depreciation approach; and

11 (K) The specific basis for the valuation, such as 12 specific comparable sales transactions or statistical 13 sampling, including a justification for using sampling 14 and an explanation of the sampling procedure employed.

16 Treas. Reg. § 1.170A-13(c)(3)(ii)(J) & (K).

17 Scheidelman was required to obtain an appraisal before 18 claiming the deduction, but at the time it was sufficient to 19 submit a summary of the appraisal (Form 8283) with her tax 20 return, not the appraisal itself. See Treas. Reg. § 1.170A- 21 13(c)(2)(i) (requiring taxpayers to "[o]btain a qualified 22 appraisal" but "[a]ttach a fully completed appraisal 23 summary" to their tax returns); Instructions to Form 8283 24 (Revised Oct. 1998), at 3 ("Generally, you do not need to 25 attach the appraisals but you should keep them for your 1 records."). The IRS has since changed this practice and now 2 requires appraisals to be submitted with tax returns. See 3 Instructions to Form 8283 (Revised Dec. 2006), at 5. Unlike 4 a qualified appraisal itself, the summary Form 8283 requires 5 no information about how the fair market value of the 6 donated property was determined, only a description of the 7 property, the estimated fair market value, and information 8 about the appraiser's qualifications and compensation. See 9 Treas. Reg. § 1.170A-13(c)(4)(ii).

11 B

12 The first defect identified by the Tax Court was that 13 Drazner omitted "[t]he method of valuation used to determine 14 the fair market value, such as the income approach, the 15 market-data approach, and the 16 replacement-cost-less-depreciation approach." Treas. Reg. 17 § 1.170A-13(c)(3)(ii)(J).

18 The before-and-after method used by Drazner is an 19 accepted means of valuing conservation easements. The 20 purpose of an appraisal is to determine the "fair market 21 value" of the donated property, which is "the price at which 22 the property would change hands between a willing buyer and 1 a willing seller, neither being under any compulsion to buy 2 or sell and both having reasonable knowledge of relevant 3 facts." Id. § 1.170A-1(c)(2). The before-and-after method 4 is generally used if no substantial record of market-place 5 data is available:

6 If no substantial record of market-place sales is 7 available to use as a meaningful or valid 8 comparison . . . the fair market value of a perpetual 9 conservation restriction is equal to the difference 10 between the fair market value of the property it 11 encumbers before the granting of the restriction and 12 the fair market value of the encumbered property after 13 the granting of the restriction.

15 Id. § 1.170A-14(h)(3)(i); see also Comm'r v. Simmons, 646 16 F.3d 6, 11-12 (D.C. Cir. 2011) (affirming Tax Court decision 17 holding that a before-and-after facade conservation easement 18 valuation was a qualified appraisal); Nicoladis v. Comm'r, 19 55 T.C.M. (CCH) 624, 1988 Tax Ct. Memo LEXIS 187, at *11 20 (1988) ("When faced with [the valuation of facade easements] 21 before[,] we have acknowledged, with approval, that the 22 'before and after approach' is the most feasible method of 23 valuing such a donation."); Hilborn v. Comm'r, 85 T.C. 677, 24 688 (1985) (observing that the before-and-after approach is 25 approved by Congress and the IRS); S. Rep. No. 96-1007, at 26 14-15 (1980) ("[B]ecause markets generally are not well 27 established for easements or similar restrictions . . . 1 conservation easements are typically (but not necessarily) 2 valued indirectly as the difference between the fair market 3 value of the property involved before and after the grant of 4 the easement."). The Commissioner has not challenged 5 Drazner's conclusion that there was insufficient market data 6 to support other valuation methods.

7 Drazner's appraisal proceeded as follows. After some 8 boilerplate,*fn5 the appraisal considers the IRS's past 9 treatment of facade conservation easements: 10 It is now generally recognized by the Internal Revenue 11 Service that the donation of a facade easement of a 12 property results in a loss of value . . . of between 13 10% and 15%. The donation of a commercial property 14 results in a loss of value of between 10% or 12% or 15 higher if development rights are lost. The inclusive 16 data support at least these ranges, depending on how 17 extensive the facade area is in relation to the land 18 parcel.

20 JA 184. The "inclusive data" is not identified. The 21 appraisal does, however, rely on a Tax Court case that 1 values a facade conservation easement at ten percent of the 2 property value, see Hilborn, 85 T.C. at 700-01, and a 3 government-published article (the "Primoli article") 4 reporting that "Internal Revenue Service engineers have 5 concluded that the proper valuation of a facade easement 6 should range from approximately 10% to 15% of the value of 7 the property."*fn6 Drazner narrowed the range to 11 to 11.5 8 percent by considering the location of the property in New 9 York City and the existing restraints imposed by the City's 10 historic preservation laws. JA 183 ("For most attached row 11 properties in New York City, where there are many municipal 12 regulations restricting changes to properties located in 13 historic districts, the facade easement value tends to be 14 about 11-11.5% of the total value of the property.").

15 Drazner then expressly selected the before-and-after 16 method. He first used comparable sales to calculate a 17 baseline value for the property ($1,015,000). To arrive at 18 the after value, he applied an 11.33 percent discount to the 1 original value. Id. The difference is given as the value 2 of the easement. See Treas. Reg. § 1.170A-14(h)(3)(i) & 3 (h)(4)(Example 12); Nicoladis, 1988 Tax Ct. Memo LEXIS 187, 4 at *23. This was enough to explain "[t]he method of 5 valuation used to determine the fair market value" of the 6 property.

7 The Tax Court concluded that there was no method of 8 valuation because "the application of a percentage to the 9 fair market value before conveyance of the facade easement, 10 without explanation, cannot constitute a method of 11 valuation." Scheidelman, 2010 WL 2788205, at *9. We 12 disagree. Drazner did in fact explain at some length how he 13 arrived at his numbers. For the purpose of gauging 14 compliance with the reporting requirement, it is irrelevant 15 that the IRS believes the method employed was sloppy or 16 inaccurate, or haphazardly applied--it remains a method, and 17 Drazner described it. The regulation requires only that the 18 appraiser identify the valuation method "used"; it does not 19 require that the method adopted be reliable.*fn7 By providing 1 the information required by the regulation, Drazner enabled 2 the IRS to evaluate his methodology.

C

5 The second defect identified by the Tax Court is that 6 the appraisal failed to "include . . . [t]he specific basis 7 for the valuation, such as specific comparable sales 8 transactions or statistical sampling, including a 9 justification for using sampling and an explanation of the 10 sampling procedure employed." Treas. Reg. § 1.170A- 11 13(c)(3)(ii)(K). The Tax Court's specific criticism is that 12 the valuation lacked "meaningful analysis," failed to 13 "explain how the specific attributes of the subject property 14 led to the value" assigned, and "displayed no independent or 15 reliable methodology." Scheidelman, 2010 WL 2788205, at *9- 16 11.

17 The business end of Drazner's analysis is the 11.33 18 percent loss in value he attributed to the easement. We 19 conclude that he sufficiently supplied the bases for the 20 valuation: IRS publications (since removed from 21 circulation), tax court decisions, Drazner's past valuation 1 experience, and the location of the house in the regulatory 2 environment of New York City. The Primoli article and the 3 Hilborn case yielded the initial range of 10 percent to 15 4 percent diminution in value; whether that range is accurate 5 or reliable is not at issue on this appeal. He then 6 considered the location of Scheidelman's row house in New 7 York City, "where there are many municipal regulations 8 restricting changes to properties located in historic 9 districts" that tend to limit the incremental loss in value 10 to a range of about 11 to 11.5 percent of the total value of 11 the property.

12 Drazner's approach is nearly identical to that approved 13 by the Tax Court in Simmons v. Commissioner, 98 T.C.M. (CCH) 14 211, 2009 WL 2950610 (2009), aff'd, 646 F.3d 6 (D.C. Cir. 15 2011). Simmons concerned an appraisal of facade 16 conservation easements for row houses in Washington, D.C.; 17 the appraisals "adequately describe[d] the parcels of land 18 owned by petitioner and the structures built thereon," 19 "contain[ed] lengthy discussions of historic preservation 20 easements in general," and "identif[ied] the method of 21 valuations used and the basis for the valuation reached." 22 Id. at *7. True, the Simmons appraisals also contained 23 "statistics gathered by [the preservation trusts] that [the 1 appraiser] took into account in preparing the appraisals." 2 Id. Such data may render an appraisal more persuasive, but 3 it does not distinguish a qualified appraisal from one that 4 is unqualified.

5 The Tax Court cited Friedman v. Commissioner, 99 T.C.M. 6 (CCH) 1175, 2010 WL 845949 (2010), for the proposition that 7 "[w]ithout any reasoned analysis, the appraiser's report is 8 useless." Id. at *4 (internal quotation marks and 9 alterations omitted). In that case, however, the appraisal 10 failed altogether to "even indicate the valuation method 11 used or the basis for the appraised values." Id. The 12 authority relied upon by Friedman is Jacobson v. 13 Commissioner, 78 T.C.M. (CCH) 930, 1999 WL 1127811 (1999), 14 which similarly concerned one appraisal that "provided no 15 methodology or rationale for the values at which [the 16 appraiser] arrived," and another appraisal that "did not 17 contain any valuation methodology, any rationale for the 18 prices quoted, or any reference to comparable sales." Id. 19 at *2.

20 The cited cases are therefore inapposite. The 21 Commissioner may deem Drazner's "reasoned analysis" 22 unconvincing, but it is incontestably there. Treasury 23 Regulations do provide substantive requirements for what a 18 1 qualified appraisal must contain.*fn8 Some would seem to be 2 inapplicable, and others are expressly considered by 3 Drazner. And of course, the Treasury Department can use the 4 broad regulatory authority granted to it by the Internal 5 Revenue Code to set stricter requirements for a qualified 6 appraisal. Moreover, the Commissioner could review the 7 Drazner appraisal in the context of a considerable body of 8 data. Around the time Scheidelman was audited, the IRS had 9 undertaken a project in which it reviewed about 700 facade 10 conservation easements, about one-third of them all. See 11 Internal Revenue Service Advisory Council 2009 General 12 Report, available at 13 http://www.irs.gov/taxpros/article/0,,id=215543,00.html.

14 In sum, the Drazner appraisal accomplishes the purpose 15 of the reporting regulation: It provides the IRS with 1 sufficient information to evaluate the claimed deduction and 2 "deal more effectively with the prevalent use of 3 overvaluations." Hewitt v. Comm'r, 109 T.C. 258, 265 4 (1997), aff'd, 166 F.3d 332 (4th Cir. 1998) (per curium). 5 And since the Commissioner's bottom line is that the 6 donation had no value at all, it is hard to see how any 7 defect in the appraisal would matter.

D

10 The Tax Court also found that the summary Form 8283 11 filed by Scheidelman failed to include the date and manner 12 of acquisition of the property or its cost basis, see Treas. 13 Reg. § 1.170A-13(c)(4)(ii)(D) & (E), and opined that those 14 "defects alone demonstrate that there has not been strict 15 compliance with the regulation['s] requirements." 16 Scheidelman, 2010 WL 2788205, at *7. The Commissioner 17 argues this point on appeal. To the extent that the Tax 18 Court's ruling rested on this observation, we reject it.

19 Scheidelman submitted two Form 8283s, which together 20 contained the information required. In support of her 21 deduction, Scheidelman submitted the Form 8283 completed by 22 Drazner and the Trust as well as a supplemental Form 8283 23 filled out (but not signed) by her tax preparer, John 1 Samoza. The second Form 8283 contained the information 2 omitted from the Form 8283 completed by the Trust and signed 3 by Drazner and the Trust.

4 The second Form 8283 was not signed by Drazner or the 5 Trust. But the two forms were both attached to 6 Scheidelman's tax return and together contained all of the 7 information and signatures required by Treasury Regulations. 8 The required information and signatures were thus dispersed 9 in two forms submitted together, rather than gathered in a 10 single form; but that is the most technical of deficiencies, 11 which is properly excused on two grounds: "reasonable 12 cause," see 26 U.S.C. § 170(f)(11)(A)(ii)(II); and the 13 doctrine of substantial compliance, see Bond v. Comm'r, 100 14 T.C. 32, 42 (1993).

17 Drazner's delivery of a qualified appraisal does not 18 itself entitle Scheidelman to a deduction. In the Tax 19 Court, the Commissioner argued that Scheidelman failed to 20 comply with other statutory and regulatory requirements, 21 including that the contribution be exclusively for 22 conservation purposes (as required by 26 U.S.C. 23 § 170(h)(1)(C)) and that it be protected into perpetuity (as 1 required by Treasury Regulation § 1.170A-14(g)(6)). Because 2 the Tax Court has yet to decide these issues in the first 3 instance, remand is appropriate.

4 If the Tax Court agrees with Scheidelman on these 5 remaining issues, it would remain for the Tax Court to 6 determine the value of the Scheidelman easement on the basis 7 of the parties' submissions. Our conclusion that Drazner's 8 appraisal meets the minimal requirements of a qualified 9 appraisal mandates neither that the Tax Court find it 10 persuasive nor that Scheidelman be entitled to any deduction 11 for the donated easement.

II

14 The second issue on appeal is whether Scheidelman's 15 $9,275 contribution to the Trust was "charitable," and 16 therefore deductible under Section 170 of the Internal 17 Revenue Code. Charitable gifts under the tax code are those 18 "made with no expectation of a financial return commensurate 19 with the amount of the gift." Hernandez v. Comm'r, 490 U.S. 20 680, 690 (1989) (internal quotation marks omitted). "The 21 sine qua non of a charitable contribution is a transfer of 22 money or property without adequate consideration." United 23 States v. Am. Bar Endowment, 477 U.S. 105, 118 (1986). The 1 consideration need not be financial; medical, educational, 2 scientific, religious, or other benefits can be 3 consideration that vitiates charitable intent. See 4 Hernandez v. Comm'r, 819 F.2d 1212, 1217 (1st Cir. 1987), 5 aff'd, 490 U.S. 680 (1989).

6 Congress and the Supreme Court have illustrated this 7 principle using the example of donations made to a 8 charitable hospital: a contribution is not deductible if 9 given in exchange for a binding obligation to provide 10 medical treatment. See Hernandez, 490 U.S. at 690. In this 11 way, Section 170 distinguishes between "unrequited payments 12 to qualified recipients and payments made to such recipients 13 in return for goods or services." Id.

14 Courts have implemented this quid pro quo principle by 15 looking to "the external features of the transaction in 16 question":

17 If a transaction is structured in the form of a quid 18 pro quo, where it is understood that the taxpayer's 19 money will not pass to the charitable organization 20 unless the taxpayer receives a specific benefit in 21 return, and where the taxpayer cannot receive the 22 benefit unless he pays the required price, then the 23 transaction does not qualify for the deduction under 24 section 170.

26 Graham, 822 F.2d at 849; see also Hernandez, 490 U.S. at 27 690-91 (approving "structural" analysis of transactions). 1 This structural approach obviates an inquiry into the 2 donor's subjective intent. Hernandez, 490 U.S. at 690-91.

3 While Scheidelman's $9,275 donation might be described 4 as a prerequisite of the Trust's acceptance of the easement 5 donation, the Trust gave the taxpayer no "goods or 6 services," or "benefit," or anything of value in return for 7 her making the money gift. The only transfer of benefit was 8 what the taxpayer gave to the Trust in the two gifts.*fn9 9 Earlier cases applying the quid pro quo principle concerned 10 bargained-for exchanges for services desired by the 11 taxpayer, such as religious or adoption services. See 12 Hernandez, 819 F.2d at 1217 (religious "auditing"); Murphy 13 v. Comm'r, 54 T.C. 249, 253 (1970) (adoption fee). But 14 Scheidelman received no such benefit from the Trust in 15 exchange for her cash donation. A donee's agreement to 16 accept a gift does not transfer anything of value to the 17 donor, even though the donor may desire to have his gift 18 accepted, and may expect to derive benefit elsewhere (such 19 as by deductibility of the gift on her income taxes).

1 Scheidelman's cash payment was part of her donation to 2 the Trust. She gave the Trust the easement to hold, she 3 endowed the maintenance of it, and the whole was an 4 unrequited contribution. Contributions toward operating 5 expenditures are commonplace among entities like the Trust 6 that hold and administer facade contribution easements. The 7 National Park Service has explained that

8 Many easement holding organizations require the 9 easement donor to make an additional donation of funds 10 to help administer the easement. These funds are often 11 held in an endowment that generates an annual income to 12 pay for easement administration costs such as staff 13 time and travel expenses, or needed legal services.

15 JA 232. Without some way of monitoring compliance, an 16 easement of this kind is easily violated, withdrawn, or 17 forgotten. When a cash contribution (even mandatory in 18 nature) serves to fund the administration of another 19 charitable donation, it is likewise an "unrequited gift." 20 Scheidelman received nothing in return for her cash donation 21 and facade conservation easement. It is true the taxpayer 22 hoped to obtain a charitable deduction for her gifts, but 23 this would not come from the recipient of the gift. It 24 would not be a quid pro quo. If the motivation to receive a 25 tax benefit deprived a gift of its charitable nature under 26 Section 170, virtually no charitable gifts would be 1 deductible. See Mount Mercy Assocs. v. Comm'r, 67 T.C.M. 2 (CCH) 2267, 1994 WL 53665, at *4 (1994).

3 Our conclusion is amply supported by Kaufman v. 4 Commissioner, 136 T.C. 294 (2011), which rejected the 5 argument advanced here by the Commissioner, and held that a 6 mandatory cash contribution was deductible:

7 Seeing no benefit to [the taxpayer] other than 8 facilitation of her contribution of the facade easement 9 . . . and an increased charitable contribution 10 deduction, we shall not deny petitioners' deduction of 11 the cash payments on the ground that the application 12 required a "donor endowment" to accompany the 13 contribution of facade easement.

15 Id. at 319. We agree, and hold that the contribution was 16 deductible.

III

19 The Commissioner has cross appealed the Tax Court's 20 decision not to impose a 20% accuracy-related penalty on 21 Scheidelman for a "substantial understatement of income 22 tax." See 26 U.S.C. § 6662(b)(2). Because we vacate the 23 Tax Court's finding of understatement, we need not decide 24 the issue.

1 CONCLUSION

2 For the foregoing reasons, we vacate the decision of 3 the Tax Court and remand the case for proceedings consistent 4 with this opinion.


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