Scheidelman v. Commissioner of Internal Revenue, No. 10-3587 (2d Cir. 2012)
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Taxpayer appealed a decision of the Tax Court that disallowed her deduction for donating a "facade conservation easement" to the National Architectural Trust on the ground that there was no "qualified appraisal" within the meaning of Treasury Regulation 1.170A-13(c)(3). The court concluded that the Trust's agreement to accept the gift of the easement was not a transfer of anything of value to the taxpayer and thus did not constitute a quid pro quo for the gift of the cash. The court also concluded that the appraisal satisfied the regulatory specifications and vacated the Tax Court's judgment, remanding for further proceedings.
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10-3587 (L) Scheidelman v. Commissioner of Internal Revenue 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2011 (Argued: December 15, 2011 Decided: June 15, 2012) Docket Nos. 10-3587-ag(L), 10-5316-ag(XAP) - - - - - - - - - - - - - - - - - - - - -x HUDA T. SCHEIDELMAN, Petitioner-Appellant-Cross Appellee, - v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee-Cross Appellant.* - - - - - - - - - - - - - - - - - - - -x 26 27 Before: 28 Taxpayer appeals a decision of the Tax Court (Cohen, JACOBS, Chief Judge, LEVAL and LIVINGSTON, Circuit Judges. 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). 33 appraisal satisfied the regulatory specifications. * We conclude that the The Clerk of Court is respectfully directed to amend the caption as listed above. 1 Accordingly, the decision of the Tax Court is vacated and 2 the case remanded for further proceedings. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 FRANK AGOSTINO (Eduardo S. Chung, on the brief), Agostino & Associates, P.C., Hackensack, N.J., for PetitionerAppellant-Cross Appellee. PATRICK J. URDA (Kenneth L. Greene, on the briefs), for Gilbert Rothenberg, Acting Deputy Assistant Attorney General, U.S. Department of Justice, Washington, D.C., for Respondent-Appellee-Cross Appellant. DENNIS JACOBS, Chief Judge: 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 ). 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). 25 appraisal sufficiently detailed the method and basis of 26 valuation. 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. The Tax Court ruled that We conclude that the The Tax Court also disallowed her deduction for We disagree because the Trust s agreement to 2 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. 7 8 9 BACKGROUND 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. 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. 17 § 170(f)(3)(B)(iii). 18 Such an easement is designed to protect the See 26 U.S.C. 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. 22 altering the facade without permission of the Trust and The easement would prohibit Scheidelman from 3 1 would require her to maintain the facade and the rest of the 2 structure. 3 inspect the facade and to require Scheidelman to cure any 4 violation of her easement obligation. 5 land in perpetuity. 6 The easement would give the Trust the right to It would run with the In order to complete the donation process (and obtain 7 the associated tax benefit), Scheidelman needed to have the 8 easement appraised. 9 real estate appraiser. She hired Michael Drazner, a qualified Drazner valued the easement at 10 $115,000. 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. 14 Scheidelman s property at $1,015,000, a figure the parties 15 do not dispute. 16 after the granting of the easement at $900,000, yielding an 17 easement value of $115,000. 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 22 He employed the before-and-after method, which, Drazner estimated the unencumbered value of He estimated the value of the property This appeal concerns primarily After receiving Drazner s appraisal, the Trust notified Scheidelman that each of the Trust s easement donors must 4 1 make a cash contribution toward operating costs equivalent 2 to ten percent of the value of the easement. 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. 6 for noncash charitable contributions (Form 8283), signed by 7 Drazner and the Trust, reflecting a fair market value for 8 the easement of $115,000. 9 Sheidelman The Trust then sent Scheidelman an IRS form Scheidelman claimed a $115,000 deduction on her federal 10 tax return for the 2004 tax year. 11 Scheidelman had to carry over $63,083 to future years 12 ($59,959 in 2005 and $3,124 in 2006). 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 Pursuant to IRS rules, After an audit, the 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 5 1 prerequisite for deducting a noncash 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). 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). 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 11 Scheidelman The Tax Court deduction. The Tax Court also rejected Scheidelman s attempt to 12 deduct her cash contribution to the Trust.2 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. Citing the Scheidelman, 2010 WL 2788205, at *13. 20 2 Although Scheidelman did not originally take a $9,275 deduction for her 2004 cash contribution, the parties agreed to permit the Tax Court to adjudicate the deductibility of the cash donation as well. 6 1 2 DISCUSSION 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. ). 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). 14 questions of law and fact are reviewed for clear error.3 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). [W]e owe no deference to the Tax 3 Mixed This approach may be in tension with the statutory text, which requires us to review Tax Court decisions in the same manner and to the same extent as decisions of the district courts. 26 U.S.C. § 7482(a)(1); see Robinson Knife Mfg. Co. v. Comm r, 600 F.3d 121, 124 (2d Cir. 2010). But as in Robinson Knife, we have no reason to resolve the tension because our conclusion would be the same under any standard of review. 7 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). 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, However, there is an exception for, 10 id. § 170(h)(1). 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 One such conservation purpose, the 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. 21 § 1.170A-13(c)(2)(i)(A). See 26 U.S.C. § 170(f)(11)(C); Treas. Reg. The regulatory requirements of a 8 1 qualified appraisal are many, as set forth in the margin,4 4 Treasury Regulation § 1.170A-13(c)(3)(ii) enumerates eleven items that a qualified appraisal must include: (A) A description of the property in sufficient for a person who is not generally familiar with type of property to ascertain that the property was appraised is the property that was (or will contributed; detail the that be) (B) In the case of tangible property, the physical condition of the property; (C) The date (or expected date) of contribution to the donee; (D) The terms of any agreement or understanding entered into (or expected to be entered into) by or on behalf of the donor or donee that relates to the use, sale, or other disposition of the property contributed; . . . (E) The name, address, and . . . the identifying number of the qualified appraiser; . . . (F) The qualifications of the qualified appraiser who signs the appraisal, including the appraiser's background, experience, education, and membership, if any, in professional appraisal associations; (G) A statement that the appraisal was prepared for income tax purposes; (H) The date (or dates) on which the property was appraised; (I) The appraised fair market value (within the meaning of § 1.170A 1(c)(2)) of the property on the date (or expected date) of contribution; (J) The method of valuation used to determine the fair market value, such as the income approach, the market-data approach, and the replacement-cost-less-depreciation approach; and 9 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. 4 clauses (J) and (K), which require that the appraisal 5 specify the method and basis: 6 7 8 9 10 11 12 13 14 15 16 17 We are concerned here only with (J) The method of valuation used to determine the fair market value, such as the income approach, the market-data approach, and the replacement-cost-less-depreciation approach; and (K) The specific basis for the valuation, such as specific comparable sales transactions or statistical sampling, including a justification for using sampling and an explanation of the sampling procedure employed. Treas. Reg. § 1.170A-13(c)(3)(ii)(J) & (K). 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. 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 See Treas. Reg. § 1.170A- (K) The specific basis for the valuation, such as specific comparable sales transactions or statistical sampling, including a justification for using sampling and an explanation of the sampling procedure employed. 10 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. 9 Treas. Reg. § 1.170A-13(c)(4)(ii). See 10 11 12 B 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. 17 § 1.170A-13(c)(3)(ii)(J). 18 Treas. Reg. The before-and-after method used by Drazner is an 19 accepted means of valuing conservation easements. 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 11 The 1 a willing seller, neither being under any compulsion to buy 2 or sell and both having reasonable knowledge of relevant 3 facts. 4 is generally used if no substantial record of market-place 5 data is available: Id. § 1.170A-1(c)(2). The before-and-after method 6 7 8 9 10 11 12 13 14 15 If no substantial record of market-place sales is available to use as a meaningful or valid comparison . . . the fair market value of a perpetual conservation restriction is equal to the difference between the fair market value of the property it encumbers before the granting of the restriction and the fair market value of the encumbered property after the granting of the restriction. 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 . . . . 12 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. ). 5 Drazner s conclusion that there was insufficient market data 6 to support other valuation methods. 7 The Commissioner has not challenged Drazner s appraisal proceeded as follows. 8 boilerplate,5 9 After some treatment of facade conservation easements: the appraisal considers the IRS s past 10 11 12 13 14 15 16 17 18 19 20 It is now generally recognized by the Internal Revenue Service that the donation of a facade easement of a property results in a loss of value . . . of between 10% and 15%. The donation of a commercial property results in a loss of value of between 10% or 12% or higher if development rights are lost. The inclusive data support at least these ranges, depending on how extensive the facade area is in relation to the land parcel. JA 184. 21 appraisal does, however, rely on a Tax Court case that The inclusive data is not identified. 5 The Drazner recited that a precise estimate of the diminution in value caused by the easement cannot be made because of a lack of market data (and because every property is unique); the process of valuing easements is akin to evaluating the effect of a condemnation of a partial interest in a property by a sovereign insofar as the appraiser must ascertain what rights have been taken and what their value is; and that the appraiser must place himself in the mindset of competent buyers and sellers and to examine considerations they have actually had, or are likely to have, in the buying or selling of a property encumbered by a facade easement. Joint Appendix ( JA ) 184. 13 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. 6 8 percent by considering the location of the property in New 9 York City and the existing restraints imposed by the City s Drazner narrowed the range to 11 to 11.5 10 historic preservation laws. 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 JA 183 ( For most attached row 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). 18 the after value, he applied an 11.33 percent discount to the 6 To arrive at The article Drazner relied on, Facade Easement Contributions by Mark Primoli, was written as part of an IRS program focusing on specialized areas of tax law. The Primoli article, in turn, had relied upon a 1994 IRS Audit Technique Guide, used to train tax examiners but not intended to set IRS policy. In 2003 both the Audit Technique Guide and a revised version of Primoli s article omitted any reference to the ten to fifteen percent range for fear the numbers were being misconstrued. 14 1 original value. 2 of the easement. 3 (h)(4)(Example 12); Nicoladis, 1988 Tax Ct. Memo LEXIS 187, 4 at *23. 5 valuation used to determine the fair market value of the 6 property. 7 Id. The difference is given as the value See Treas. Reg. § 1.170A-14(h)(3)(i) & This was enough to explain [t]he method of 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. 12 disagree. 13 arrived at his numbers. 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. 18 appraiser identify the valuation method used ; it does not 19 require that the method adopted be reliable.7 Scheidelman, 2010 WL 2788205, at *9. We Drazner did in fact explain at some length how he For the purpose of gauging The regulation requires only that the 7 By providing Although one could argue that the IRS s interpretation of its own regulations may be entitled to some deference under Auer v. Robbins, 519 U.S. 452, 461 (1997), the Commissioner failed to argue for such deference and we deem the argument forfeited. See Robinson Knife, 600 F.3d at 134 n.11. In any event, the Commissioner s interpretation, that an unreliable method is no method at 15 1 the information required by the regulation, Drazner enabled 2 the IRS to evaluate his methodology. 3 4 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. 11 13(c)(3)(ii)(K). 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. 16 11. 17 Treas. Reg. § 1.170A- The Tax Court s specific criticism is that Scheidelman, 2010 WL 2788205, at *9- The business end of Drazner s analysis is the 11.33 18 percent loss in value he attributed to the easement. 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 all, goes beyond the wording of the regulation, which imposes only a reporting requirement. 16 We 1 experience, and the location of the house in the regulatory 2 environment of New York City. 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. 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. The Primoli article and the He then 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). 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. 23 statistics gathered by [the preservation trusts] that [the Simmons concerned an appraisal of facade True, the Simmons appraisals also contained 17 1 appraiser] took into account in preparing the appraisals. 2 Id. 3 it does not distinguish a qualified appraisal from one that 4 is unqualified. 5 Such data may render an appraisal more persuasive, but 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. 9 alterations omitted). Id. at *4 (internal quotation marks and In that case, however, the appraisal 10 failed altogether to even indicate the valuation method 11 used or the basis for the appraised values. 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. 19 at *2. Id. The Id. 20 The cited cases are therefore inapposite. 21 Commissioner may deem Drazner s reasoned analysis 22 unconvincing, but it is incontestably there. 23 Regulations do provide substantive requirements for what a 18 The Treasury 1 qualified appraisal must contain.8 2 inapplicable, and others are expressly considered by 3 Drazner. 4 broad regulatory authority granted to it by the Internal 5 Revenue Code to set stricter requirements for a qualified 6 appraisal. 7 Drazner appraisal in the context of a considerable body of 8 data. 9 undertaken a project in which it reviewed about 700 facade Some would seem to be And of course, the Treasury Department can use the Moreover, the Commissioner could review the Around the time Scheidelman was audited, the IRS had 10 conservation easements, about one-third of them all. 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 15 See In sum, the Drazner appraisal accomplishes the purpose of the reporting regulation: It provides the IRS with 8 For example, the regulations require that, when before-and-after valuation is used, the appraisal must account for the effect of zoning and historic preservation laws as well as the possibility of other uses for the property. See Treas. Reg. § 1.170A-14(h)(3)(ii). Moreover, any increased value to other property owned by the donor must be offset against the decrease caused by the easement, id. § 1.170A-14(h)(3)(i), and account must be taken of any permissible uses of the subject property that will increase its value over its current use even if the restrictions reduce the fair market value of the property at its highest and best use, id. § 1.170A-14(h)(3)(ii). 19 1 sufficient information to evaluate the claimed deduction and 2 deal more effectively with the prevalent use of 3 overvaluations. 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. Hewitt v. Comm r, 109 T.C. 258, 265 8 9 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. 17 argues this point on appeal. 18 Court s ruling rested on this observation, we reject it. 19 The Commissioner To the extent that the Tax Scheidelman submitted two Form 8283s, which together 20 contained the information required. 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 20 In support of her 1 Samoza. 2 omitted from the Form 8283 completed by the Trust and signed 3 by Drazner and the Trust. 4 The second Form 8283 contained the information 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). 15 16 * * * 17 Drazner s delivery of a qualified appraisal does not 18 itself entitle Scheidelman to a deduction. 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 21 In the Tax 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. 8 appraisal meets the minimal requirements of a qualified 9 appraisal mandates neither that the Tax Court find it Our conclusion that Drazner s 10 persuasive nor that Scheidelman be entitled to any deduction 11 for the donated easement. 12 13 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. 18 made with no expectation of a financial return commensurate 19 with the amount of the gift. 20 680, 690 (1989) (internal quotation marks omitted). 21 sine qua non of a charitable contribution is a transfer of 22 money or property without adequate consideration. 23 States v. Am. Bar Endowment, 477 U.S. 105, 118 (1986). Charitable gifts under the tax code are those Hernandez v. Comm r, 490 U.S. 22 The United The 1 consideration need not be financial; medical, educational, 2 scientific, religious, or other benefits can be 3 consideration that vitiates charitable intent. 4 Hernandez v. Comm r, 819 F.2d 1212, 1217 (1st Cir. 1987), 5 aff d, 490 U.S. 680 (1989). 6 See 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. 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. 14 See Hernandez, 490 U.S. at 690. In this Id. Courts have implemented this quid pro quo principle by 15 looking to the external features of the transaction in 16 question : 17 18 19 20 21 22 23 24 25 26 If a transaction is structured in the form of a quid pro quo, where it is understood that the taxpayer s money will not pass to the charitable organization unless the taxpayer receives a specific benefit in return, and where the taxpayer cannot receive the benefit unless he pays the required price, then the transaction does not qualify for the deduction under section 170. Graham, 822 F.2d at 849; see also Hernandez, 490 U.S. at 27 690-91 (approving structural analysis of transactions). 23 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. 8 what the taxpayer gave to the Trust in the two gifts.9 9 Earlier cases applying the quid pro quo principle concerned The only transfer of benefit was 10 bargained-for exchanges for services desired by the 11 taxpayer, such as religious or adoption services. 12 Hernandez, 819 F.2d at 1217 (religious auditing ); Murphy 13 v. Comm r, 54 T.C. 249, 253 (1970) (adoption fee). 14 Scheidelman received no such benefit from the Trust in 15 exchange for her cash donation. 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). 9 See But A donee s agreement to The Commissioner suggests that Scheidelman received as consideration help in obtaining the necessary government and lender approval to convey the easement. However, the logistical help was completed well before Scheidelman was obligated to pay the Trust at the time of the donation. Furthermore, the value in obtaining the necessary approvals was primarily a benefit to the Trust, without which the Trust would have been unable to secure its objectives. 24 1 Scheidelman s cash payment was part of her donation to 2 the Trust. 3 endowed the maintenance of it, and the whole was an 4 unrequited contribution. 5 expenditures are commonplace among entities like the Trust 6 that hold and administer facade contribution easements. 7 National Park Service has explained that She gave the Trust the easement to hold, she Contributions toward operating The 8 9 10 11 12 13 14 15 Many easement holding organizations require the easement donor to make an additional donation of funds to help administer the easement. These funds are often held in an endowment that generates an annual income to pay for easement administration costs such as staff time and travel expenses, or needed legal services. JA 232. 16 easement of this kind is easily violated, withdrawn, or 17 forgotten. 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. 22 hoped to obtain a charitable deduction for her gifts, but 23 this would not come from the recipient of the gift. 24 would not be a quid pro quo. 25 tax benefit deprived a gift of its charitable nature under 26 Section 170, virtually no charitable gifts would be Without some way of monitoring compliance, an When a cash contribution (even mandatory in It is true the taxpayer It If the motivation to receive a 25 1 deductible. 2 (CCH) 2267, 1994 WL 53665, at *4 (1994). 3 See Mount Mercy Assocs. v. Comm r, 67 T.C.M. 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 8 9 10 11 12 13 14 15 Id. at 319. 16 deductible. Seeing no benefit to [the taxpayer] other than facilitation of her contribution of the facade easement . . . and an increased charitable contribution deduction, we shall not deny petitioners deduction of the cash payments on the ground that the application required a donor endowment to accompany the contribution of facade easement. We agree, and hold that the contribution was 17 18 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. 23 Tax Court s finding of understatement, we need not decide 24 the issue. See 26 U.S.C. § 6662(b)(2). 25 26 27 26 Because we vacate the 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. 27
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