honor good morning and may please the court in two thousand and eleven demands generously agreed to donate a house on their recently purchased property to nd chance of a one c three tax exempt nonprofit there are many non profits up donations of deconstructed building materials but after researching their options a man's became excited about nd chances unique workforce development commission which provides comprehensive training and education to disenfranchise baltimore citizens who face  major barriers to employment mans has their house appraised and they proceeded execute and deliver a contract a nd chance conveying all right title and interest in the improvements to the charity under maryland law the man's contract construct that we severed the house from the underlying land converting it to personally that was owned by nd chance while the main man has retained ownership rights in the underlying real property the man's did not retain any interest in the house nor did they impose any restrictions contractual or otherwise on nd chances ownership rights well how how do we how do we understand the contract that the man's entered into with the contractor which was to demolish the old get the permit demolish the old house and build the new house and that nd chance understood that it would go on me so far and then turn the project over to the contractor to demolish the house well i have two responses that your honor not number one whatever the man's other intentions were or were there other contractual relationships with the contractor at the end so anyone who wants to rebuild a house or build a house on on a previously deconstructed lot still needs a contractor to demolish the frame the foundation we would just what you said ken can i just enter enter demolition they do not perform the demolition of the house what do you what does what do they say one of the same correct so what happens is nd chance takes away every day of value that say able to extract after employees its workforce program it takes out the appliances takes out the copper pipes each back system the fixtures sometimes personal properties and there and out is it that was the case here too they take that out they take out the cabinets windows doors but you do have components that are better left after deconstruction typically such as such as what you have the roof you have frame you have dry wall you can't reuse drive all right so or whatever it was to write chimneys are probably typically kept although nd chance certainly takes away brick materials adieux materials it the point is nd chance has an option when it deconstructs the house to take away as much or as little as it wants but i understand that you know you can you go to that side but i'm interested in knowing when they say they don't perform the demolition that's consistent with the fact that the contractor performed the demolition in this case correct it and and there was an issue or at least there was initially a government contention that demands had gotten the benefit of a demolition contractor by way of  chance and it turns out in the testimony is clear on this and this was a stipulated fact demolition didn't happen by nd chance that's not what they they do they're not a demo company don't bring in a wrecking ball they don't bring a bigger equipment to knock  that's not to say that's not the limit that's a set up for my real question is if a nd chance doesn't perform the demolition but the the frame in the roof is left for demolition by the man's and their contractor then it's hard to conclude that the man's conveyed all of their interest in the house as personal equivalent of a demo service that you've got nothing prevented nd chance once that contract was signed from hauling to house the way they've done that before in other situations they chose not to do it here don't we have to look at the actual transaction in other words what somebody writes on a piece of paper and says i'm doing everything necessary to create a tax deduction but then in fact that's really nothing more than a generalized statement in the actual transaction the real transaction involves retention of an interest in the house for demolition purposes but why have two responses to that to your honor number one under section one hundred and seventy the law as we are that you have to look at subs that have state donate your entire interest and that is what the demands get the records clear to me and mr man's has the bye to that effect that nd sheet he had conveyed all interest to nd chance they could have done whatever they wanted and they they weren't restricted from doing shirts that i want to donate in each one of them i think is worth a dollar but i want you to come pick them up and i'm going to give you sort of an easement on my property four or ten days come pick up the them because those are the ones that they won't for whatever reasons so they take those five and they leave can i take the one hundred dollars deduction for because i gave all of those shirts to the salvation army even though the end of the day the salvation  first answer that and then nd once you answer the hypothetical explain to me why you think your case is like are different from that well i figure this case different because you you have to remember there question  tickle st and then bit about your why your differ well i think it also depends on whether you had a contract with salvation army in which you had already granted them the interest in be one hundred sure i got an oral oral contract i don't give is in writing all right so i got a doesn't return anything of value they take control of the structure they employ the work st development program testimony where they do use entire structure in fact they need an entire constructed structure or their workforce development program doesn't have  follow up question to that then so you say what was returned to a question we had value in my shirts example probably not correct but ok you say what's different here is what be actually assigns a value to the foundation right it takes a seventeen percent reduction on the twenty seven thousand dollars that are spent on the foundation and that's included in the value that the man's deducted right because the foundation which everybody knows is not going anywhere is part of the appraisals so on the one hand you say what was returned was value us and on the other hand your appraisal in fact says that the foundation was eighty three percent of twenty seven thousand dollars so that's i'm having trouble putting those two together so what the problem with that analysis your honor is that the iris you're looking beyond what we're talking about the appraisal now we're not talking about whether the entire interest only appear on track and we're looking to ok well well what did nd chance actually do with you know is this a situation where nd chance varies the entire thing away asking what nd chance did with it all you said that they had an option on using your words they had an option to take away what they won't but they were not going to take away the frame the foundation the roof or drywall those are just examples if you get one and you are here for everybody knew that then either anyway they didn't give away all their interests or your  valueless it's got to be one of those two and if they're valueless your appraisal when we look at j nine hundred and twenty seven dollars is is claiming value in the very things that you were also claim your values and there is no value true demands in whatever rubble is left on a on a foundation or whatever you know well it's not that own the when they started it did the foundation have value or not have  five thousand dollars what do we i'm going to use ninety five of them to as rats here and we're just going to clean our facility and they end up being discarded well that of course don't get us that moment in your hypothetical who has the burden to destroy to discard those rat salvation army because they all until right that's the point they own them so they must destroy that the the birth i mean if you talk about a burden of demolition that burden from t this court to uphold a three hundred thousand dollars deduction for the donation of a house without the land that it was sitting on that they then paid to have demolished only a few months later they haven't closest analogy is probably the donation houses donated fire departments for the purpose of burning down in those cases the th circuit in a tax court have rejected as the nd circuit the appraisal fail to accurately describe the property and the restrictions on that yet from the man's to nd chance and support to know that when evaluating either of these issues it's the taxpayer that bears the burden specifically explains that the right to use property is considered a partial interest for these purposes and that can't be ducked it so that brings us to the severance issue the only way to donate a house with not physically separated from the land until the man's contractor demolished it and never really contemplated the charity was actually going to pick it up in its entirety and moved away so that brings us to their main argument here which is the the land own sea improvements real property has to be transferred by recorded the best constructed severance of an improvement from the underlying land as to be recorded and there's clear and recent authority from the maryland appell between private parties i meant m m if you need to the next argument that i understand this one i have trouble understanding that that the next one and so you mind going to that one i didn't want you to run out of time on that one which right and i think part of the our main disagreement with the man's here is is how they interpret it and i believe counsel stated that you essentially have to the contract is the beginning and end of the analysis and that's incorrect for the purposes of federal tax law we want more generally as this court has explained at the true nature of the transactions the form different your colleague on the other side said that the man's had no interest in the house that was the premise of of his argument if that was really true would that qualify them for a deduction so imagine a scenario where instead of what happened here the man's gave nd chance the house in total so they had the house the benefits and the burdens of it and they had a you know twelve month easement on the property for that house but at the end of the twelve months they no longer had an easement so they could go in and take everything they wanted to have the house do whatever they wanted to with it  but they also had the burden the ownership burden of destroying the house removing it from the property at the end of the twelve months in that scenario would they had have given all of their think just to clarify are you saying that who would have the burden of destroying the house it is and it may would only every benefit in burma so so they own every board in the place but they have the obligation to deal with positively or negatively every board in the plates but they didn't get to leave behind what they didn't want so you're essentially saying it just to clarify someone if they had business you know property in a way that courts recognize they have the burden of any property taxes they have the obligation to remove the structure  months but they get the whole house right imagine it's like a famous house and everybody bike really wants it right so ok but they get a benefit in the burden of that half right they have all the trappings of ownership not just the ability to take what they want and leave behind what they don't with wouldn't that be up old friends for and i get your recording issue and i get your other issues i mean on this particular issue that would be all full transfer of the interest in the house under this scenario you're discussing your already it sounds like that might work under probably the undivided interest exception of who was right i assume tell me why this case is different from that what was the argument that you're making for why the man's didn't do that because they have none of the benefits and birds here what they have essentially a right to come onto the property at times that are essentially jaded by the man's one of the things that's noteworthy here it is they they can at one point to remove  aspects from the outside of the house they can do that until there was a demolition permit in place which it was the man's obligation to go yet because they are the true owners of property so it's the man's telling them what they do what they can't do it's not a situation where they're given full right title and interest nd chance to do with whatever they want here and the man still have the obligation to not this house now it was clear all along what was going to happen with this property the man's were going to rebuild all they retained that which was probably the most significant right which might be an issue that a cool not a condo i but another hypothetical where the st type which and end my sale price i agreed to retain a chandelier a large chandelier that's a fixture in the house at that point there is a constructive retention of the chandelier and a transfer of the house otherwise right as all constructive because there'd been no severance it's a fixture right as doesn't a doesn't constructive transfer always anticipate at some point in the future that they'll be a severance in other words if you don't if you just agree to transfer of real property sever real property and transfer it but it never happens is it still real property the construct of aspect is the contract to sever and it seems to me at some point it  already selling property to another and retaining rights to remove various fixtures on the property and in some cases the contracts are actually contingent on him being physically separated that is views are essentially between the parties to the transfer as to who owns or who has the right to remove property or the fixtures from but it seems to me if you if we just have a contract and let's say it's even a recording contract it doesn't matter for my hypothetical you have a contract which authorizes the severance of a fixture so as to become personal t me it seems to me there's constructive transfer in the real property becomes personalty but it's contingent on that actually occurring isn't it at some point one hundred and thirty years down the road the chandelier has never been removed it's got to be some kind of waiver and that's remains a fixture i mean we have the rule against perpetuities and all these other things that come into real property issues i'm just i notice at the man's argue sort of abstractly that a contract to sever is in fact a severance and makes a personalty and my only point is it's still a fixture until it's taken it's constructively treated as personalty but it intice a pace at some reasonable point in the law that there's a severance i think that's a fair point your honor and the cases we have from maryland didn't even go that far because there wasn't a record contract they were so they didn't reach the question that you are seeing which is essentially is something that would otherwise be considered fixture is left on that can you explain to me my my hypothetical i gave your colleagues who by i write up a contract in recorded or whatever it is that you want me to do but i got a contract with the salvation army to give them one hundred shirts  d i agree that whatever they don't pick up that i i will destroy all i'll bear the burden of throwing it away they show up and they only take five of the sure s i assume you're giving to the salvation army in that instance is not simply ownership of those one hundred shirts where you're giving them it is a right to come sort d through those shirts and take what they want which is not the same thing as going over to or the equivalent here would be is it the man's brought a bunch of building materials over nd chances we're ok here's a bunch of wanker that were donating here's a chandelier i says what your colleague i thought very helpfully described what was going on here was an option to take away right in an option to take we don't tend to think of options as being ownership rights so they say your colleague described this as an option to take away whatever they wanted to and which strikes me as exactly right this is an option to take away but whatever options were not exercised remained to both the benefit in the burden of the may it's exactly your honor it's it's an option is not full ownership it's a partial interest so unless it is actually realized by looking at what was taken away what crossed the threshold of the warehouse which we don't know in this particular case because the record doesn't tell us then you don't have ownership of those items and the only thing we do know in the record is that i believe nd chance and said they spent approximately thirteen thousand dollars on the labor to conduct their cell which in and they also stated in the th chance you know stripped out and sold you know one hundred thousand dollars worth of lumber you know make it simple that that one hundred thousand dollars or the lumber that could be considered a charitable contribution bought a man's two nd chance big because it is personal to me that has been carried away and they get used to given what's carried away in total they're given one hundred percent of the interest in what's being carried away yes your honor that would be like the five shirts that they've actually taken away that are gone back to  salvation army are being sold in their store so yes but short of that they don't have the full ownership interest since it's an option it's a license it's a right to come ons property to do something that would otherwise be a trespass and take the property they took possession of the entire structure the contract was executed december twelve thousand and eleven and days later the government's argument ignores a practical reality days later nd chance showed up and he owned the structure  yes nd chance had options to them because they had all rights attendant with ownership of that structure eight if nd chance doesn't own that structure they can't use it as a living classroom and they're not going to be able to perform their mission no they think they plainly could right i mean i'm not saying that that's what here that that statement seems to me is like totally wrong right is that you couldn't have you could be granted a license to do anything right so they could have been now maybe you're even if they didn't hear but you don't you don't really didn't in that they could not have been granted a license to do anything they wanted to do the house right this is the current sample right you can be given a license to use it in any way you don't have to receive full ownership rights in order to use it as a living classroom is you right at all well st i would distinguish that gave them one day to show up and burn the house and that was all they were permitted to do nd chances testimony is very different here and i think you know to the extent we're going to use the record to assume that there were restrictions or conditions on that it is contrary to the document and contrary to the testimony of the parties at interest here and we do have to remember we're up here on summary judgment standard but you agree i mean i'm just using what you agreed to like you agreed that the contract did not indigent nd chance taking the brain foundation roof or dry wall but he knew they were going to be left behind  be destroyed right i said not a unusual read of the contract that's your read of the contract i disagree your honor the contract limited nd chance in no way whatsoever all rights and that property were transferred  to nd chance it became personally at that time and nd chance to own owned it and was able to dispose it use of it however however it wished there was absolute the point is the man's had absolutely no right of recourse again you that's also true if it was an option right the man's net no recourse if they had an option to do anything they wanted to with the property but the man's retain the obligation for the un exercise options then then they c anything they wanted to i mean your distinction doesn't change if this is just an ott i mean again i think you were i've appreciated i think your example of this being an option is a good way but also the man's would not have an ability to complain whatever they did it was an option while the the real test once again is what is merely an contract in real property laws say with respect to conveying all your rights i don't interest in property from r t a to party b what do you need to do to comply with  those standards and that's what the contract does and that's never good in this case in this case if you are correct then the nd chance could retain the build it and he and the and the facts of the matter are that everybody entered it with the understanding that the man's were going to construct a new house there they had already retained a contractor that included the demolition obligation and so they knew the house was going to be demolished and made ready so that the man's could build a new house but yet if you're right about holding the man's to the contract that couldn't have been done because a nd chance could've kept that house in place for fifty years and that's what both parties test and that's that's an litigation stance i mean the fact of the matter is they both understood that the man's were building a new house they both understood there was a contractor they both understood there was a demolition permit that the contractor would get and they both understood that nd chance would not take down the final portion of the house your honor and once again i think dad's the distinction between what actually occurred in what contractual rights were transfer in the st instance and i i think there's a distinction between what you look at as satisfied when seventy and in what you look at in order to satisfy the qualified appraisal issue it is to answer a question that was put to  colleague earlier by you your honor there is no case to holds that later in maryland later physical severance of a previously constructively severed and conveyed improvement must actually  occur the fact it one hundred and thirty years later setting aside whatever you know other rules against perpetuities i think the owner earlier the owner of the conveyed improvement still has an action for conversion assuming that contract is still valid there's no time limitation on it and i think to read that in misconstrues merom not suggesting a time limitation i'm suggesting a condition and other words a constructive constructive severance  created by contract anticipates an actual severance now for some reason there is no severance and the house gets blown down by a hurricane or whatever else happens is not the issue the issue is what constructive means and i think constructive has to be an anticipation of an actual severance and ordered to be personal property to convert real property into personal property in my response to that  destructive severance actually i do see my time is up if there are any for that i should be happy to answer thank you mr gay feel at this point we usually come down as a court as a long standing tradition come down  shake your hands as in the circumstances we can't do that but we do it virtually here and i welcome you to the court and thank you for your arguments i will take this case under advisement and you'll hear from us court stan