U.S. Court of Appeals Upholds Charitable Deduction for Preservation Easements
June 27, 2011
Mary Carolyn "Carolyn" Brown- Washington
Joseph B. "Joe" Whitebread- Washington
The U.S. Court of Appeals for the D.C. Circuit has ruled that a charitable deduction for two preservation (“façade”) easements in Logan Circle were valid, bringing to an end in the D.C. Circuit one of the longstanding challenges lodged by the Internal Revenue Service (IRS) against easement donations. The decision in Simmons v. Commissioner of the Internal Revenue Service issued June 22, 2011, provides greater certainty for owners of historic properties who wish to donate preservation easements.
What Is a Preservation Easement?
A preservation easement is a property interest that an owner grants to a qualified charitable organization. The easement restricts an owner’s ability to change the exterior of the historic property in perpetuity. In exchange, the owner may deduct the value of the easement as a charitable donation on his or her income tax return.
Tax Court Recognizes Easement Value
In the Simmons case, the IRS had argued that the two easements granted by Mrs. Dorothy Jean Simmons to the L’Enfant Trust were defective because they were not in perpetuity and because the appraisal method used to determine the value of the easement was invalid. The appraisal valued the two easements at 11 percent and 13 percent of the property values, while the IRS claimed the easements had no value. The Tax Court reduced the value to 4.5 percent and 5 percent of the property values and found the easements to be valid. See Simmons v. Commissioner of Internal Revenue Service, T.C. Memo. 2009-208, 2009 WL 2950610 (U.S. Tax Ct.). The IRS appealed that decision but the U.S. Court of Appeals rejected the challenge and upheld the validity of the easements and their valuation based on the specific facts of the case. Here is a copy of the Simmons decision.
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