Hoffman Properties II, L.P. v. Commissioner of Internal Revenue, No. 19-1831 (6th Cir. 2020)
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Hoffman owns the historic Tremaine Building in Cleveland, Ohio. Over a decade ago, Hoffman donated an easement in the façade of the building and certain airspace restrictions associated with the building to the American Association of Historic Preservation (AAHP). Hoffman agreed not to alter the historic character of the façade or to build in the airspace above or next to the building—subject to certain conditions. Hoffman then sought a $15 million tax deduction for its donation of a “qualified conservation contribution,” I.R.C. 170(f)(3)(B)(iii). The IRS and Tax Court concluded that Hoffman was not entitled to a deduction because the donation was not “exclusively for conservation purposes.”
The Sixth Circuit affirmed. To be deductible, the donation must protect the conservation purposes “in perpetuity,” I.R.C. 170(h)(5)(A) and include “legally enforceable restrictions” that will prevent the donor from using its retained interest in the property in a way “inconsistent with the [donation’s] conservation purposes.” The donation agreement gives Hoffman the right to propose changes to the facade or airspace, after which AAHP has a 45-day window in which to prevent those changes. If the organization misses that window—for whatever reason—it loses the ability to stop the change. The provision violates the “perpetuity” requirement.
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