IRS deems façade easements to be façades
Generally, no charitable deduction is permitted for the contribution of a partial interest in property to charity. However, the Internal Revenue Code carves out an exception for façade conservation easements. This is the contribution of a qualified real property interest to a qualified charitable organization exclusively for conservation purposes. The term “conservation purposes” includes the preservation of open spaces and historic preservation.
For example, in the Tax Court case Simmons vs. C.I.R. which was affirmed by the Appeals Court, the taxpayer donated to a charity a conservation easement on the façades of two buildings located in a historic district. The easements prohibited the taxpayer from materially altering the façade of the properties without the written consent of the charity. There the court determined that the taxpayer was entitled to a charitable deduction equal to the value of the property before the easement, less the value of the property after the easement.
Despite the authorization of façade easement deduction in the Internal Revenue Code and by the courts, the IRS has continually challenged this deduction on a number of different theories, including improper valuation method, no diminution in value by the easement, failure to obtain contemporaneous written acknowledgement from the charity and that the easement was not in perpetuity. Further, the IRS began assessing a 40 percent gross valuation misstatement penalty.
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