Ability to Change Roof Disqualifies Facade Easement Deduction

Ability to Change Roof Disqualifies Facade Easement Deduction

In Partita Partners, LLC. v. United States, No. 15-cv-2561 (S.D.N.Y. 2016), the court considered whether the taxpayer was entitled to a charitable deduction for donating a facade easement to charity. The issue was whether the retaining the right to change the roof on the building negated the charitable deduction for donating the facade easement.

About Facade Easements

Charitable deductions for facade easements are not new.

The idea is that the owner donates the right to alter the exterior of a historic building or house that he or she owns to a charity. The charity then ensures that changes are not made to the exterior that would compromise the historical significance of the structure. Ultimately, the hope is that historic structures are not converted into strip malls, etc. in the name of progress.

From the owner’s perspective, the facade easement diminishes the value of the structure. It also makes it more costly for the owner to keep and maintain the structure. So, if the requirements are met, the taxpayer is able to take a charitable deduction for the donation (the owner may also be entitled to a reduction in their local property taxes).

The Code specifically allows this type of charitable deduction.

Facade Easement Tax Disputes

Charitable deductions for facade easements have generated quite a bit of controversy between taxpayers and the IRS. In most of the reported cases involve disputes where the technical requirements for the appraisal were not satisfied or where the taxpayer’s determination of the valuation of the easement was in question.

In reviewing these tax deductions in other cases, the IRS has noted that:

some taxpayers are taking improperly large deductions. They agree not to modify the façade of their historic house and they give an easement to this effect to a charity. However, if the façade was already subject to restrictions under local zoning ordinances, the taxpayers may, in fact, be giving up nothing, or very little. A taxpayer cannot give up a right that he or she does not have.

This gets to the heart of most disputes about facade easements.

An Ability to Change the Roof Negates the Tax Deduction

Unlike most of the other reported cases, the Partita Partners case did not involve a challenge to the appraisal and it was not a valuation case. Instead, it considered whether the donation could qualify for a charitable contribution when the easement allowed the taxpayer to retain the right to make changes to the roof on the building subject to the easement.

This turns on the definition of the term “exterior.” The court looked to Sec. 170 for this definition. It noted that Sec. 170 requires that the easement “include a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building). . . .”

In the case, the taxpayer argued that its easement satisfied this definition even though the easement allowed the taxpayer to construct above the roof when the changes would not extend vertically beyond the highest point of the building.

The taxpayer explained that it did not need to modify the exterior of the building to make these changes:

Q. Could you build such an addition without altering the roof or the rear of the building?
A. Yes. I’m going to preserve the exterior. I’m not going to touch the exterior.
Q. Are you going to preserve the roof?
A. I’m not going to touch the roof. I’m going to build floors above it. I’m preserving the existing façade front, back and side. I’m not going to touch that.
Q. Did you to have [sic] touch the roof in order to build on top of the roof?Mr. Levine: Objection. Irrelevant.
A. I’m not going to, I’m going to preserve the roof. I don’t see, I’m going to preserve the roof and I’m going to preserve the façade. I’m going to build on top of it.
Q. Were you going to build a staircase from the existing floors to the new floors that you plan to build on top of the roof?
A. They are going to be preserved. I just don’t see where you’re coming from.The word preserve says I don’t damage it or touch it or change it. I’m not going to change it.

So the dispute really centered on whether the “including the front, sides, rear, and height of the building” parenthetical in the Code includes the ability to change the roof.

The court concluded that it does. It provided this explanation:

[I]f a building’s exterior features an arched roof or a steeple, the plain text of the statute would not allow a deduction if the restriction permitted additional rooftop construction that does not surpass the highest existing point of the building. Such a construction would be inconsistent with preserving the entire exterior of the building.

So it appears that the right to make any changes to the exterior of the building–including changes to the roof–will result in the owner not being able to take a charitable contribution deduction for donating the facade easement for the building.

Call Now, We Can Help!

 

(713) 909-4906

Do you have a tax dispute, under audit by the IRS or state tax authorities, or just have a tax question? We want to hear from you. Call today for a free, confidential, consultation. If you are pressed for time, you can also use the contact form below to reach out to us.

Our Recent Reviews

Grga Brolih
Grga Brolih
09:20 24 Apr 17
I was a bit hesitant at first because I had not really done any research, just my friend told me about Houston Tax Attorney. Anyway i decided to give them a try and I was really impressed and pleased with the outcome of my experience. They were always very pleasant and professional and made me feel free from my tax issues. Good job!
Brown Jones
Brown Jones
08:54 10 Jun 17
Houston Tax Attorney has given me my life back. I was unable to pay my payroll taxes and in combination with the penalties attached to those taxes, my debt had begun to snowball. Houston Tax Attorney genuinely cares about their clients; they helped me throughout the process. I am extremely grateful to them.
Sandra Camacho
Sandra Camacho
03:47 27 May 17
I had a tax problem and needed help, so I went to Houston Tax Attorney. Love the team, they were so organized and communicated. Good work was done!
Turman Villanueva
Turman Villanueva
12:20 21 Apr 17
Dealing with Houston Tax Attorney was simple from the beginning to the end. Every person I spoke to was knowledgeable and helpful. I was guided in all aspects of the process and given the best advice regarding my tax condition. I have been given a second chance with the IRS. Thank you.
Bill Moore
Bill Moore
07:05 02 Jun 17
I want to Thank Houston Tax Attorney team. They took care of my IRS issues with great professionalism. No more sleepless nights. Thank you Guys!
Sharon G. Velasco
Sharon G. Velasco
08:31 24 Jun 17
I had some big tax issues and I was unable to handle it alone. Houston Tax Attorney helped me to settle all my tax problems. They were there all the way. I respect their professionalism and appreciate their commitment to their clients.
See All Reviews