TAX COURT OPINION

Case: J. Maurice Herman
Docket Number: 14005-07
Judge: Gustafson
Opinion Type: bench
Filed: 09/22/2011
Pages: 22

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM J. MAURICE HERMAN, Petitioner, v. Docket No. 14005-07. COMMISSIONER OF INTERNAL REVENUE, Respondent O R D E R Pursuant and Procedure, to Rule 152 (b) of the Tax Court Rules of Practice it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of transcript of Gustafson at New York, New York, on September 13, 2011, containing his oral conclusion of the pages of findings of the trial. the trial fact and opinion rendered at the in the above case before Judge David the In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. further It is therefore ORDERED that on or before December 21, 2011, either: (1) the parties shall file with the Court an agreed computation for entry of decision under Rule 155(a), or file with the Court computation for entry of decision pursuant (and serve upon the other party) (2) each party shall to Rule 155(b). a (Signed) David Gustafson Judge Dated: Washington, D.C. September 22, 2011 SERVED Sep 23 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 .Bench Opinion By Judge David Gustafson September 13, 2011 J. Maurice Herman v. Commissioner Docket No. 14005,07 The Court has decided to rénder oral Findings = of Fact and Opinion in this . case . The following represents the Court's oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other case. This Bench Opinion is made pursuant to the authori y granted by section 7459 (b) of the Internal Revenue Code, and Rule 152 of the Ta Court Rules of Practice and Procedure. By a notice of deficiency dated March 20, 2007 (Ex. 1-J), the Internal Revenue Service (IRS) determined a deficiency in the Federal income tax of petitiorer J. Maurice Herman for tax year 2003, in the amount . c f $3, 906, 531, plus an accompanying accuracy- related penalty under section 6662 (h)i of $1, 562, 612 . 40 . (Stip. 2 . ) Trial of this case was conducted on September 12, 2011, in New York, New York, and Mr. Herman testified. The parties' Stipulation of Facts and First Supplemental Stipulati.on of Facts was admitted into evidence. Undisputed background facts !were stated in our prio opinion, T. C. Memo. 2009-205, filed on Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Septemaer 14, 2009, with which the Ibarties are familiar. The pertinent facts for esolving the remaining issues are as follows: . FINDINGS OF FACT he Fifth Avenue propgr_t;y Since 1975 Mr. Herman has owned directly or indirectly an interest in property at 952 Fifth Avenue in New York, New York (the Fifth Avenue Property) . (Stip. 61.) The property is located within a row of taller ouildings and is in the "Upper East Side Histori J District " . (Stip. 33, 61 (g) ; Ex. 54 -J. ) The property is improved with an eleven-story apartment building that stands eight stories high at its front and eleven stories high at its rear. (Stip. 37. ) A portion of the Fifth Avenue property's "floor area ratio" l'as not been developed; and for purposes of this opinion we assume the unused development rights (sometimes called "air rights") are approximately 22,000 square feet, as petitioner contends. , Ownershi) by Windsor LLC In 1998 the Fifth Avenue property was owned by Windsor Plaza LLC (Stip. 61-J) (hereinafter, f "Windsor LLC") . Mr. Herman owned a 50 percent interest in the LLC, and the other 50 percent was owned by a trust for the benefit of Mr. Herman's Heritage Reporting Corporation (202) 628-4888 sister (Stip. 28 (b) . ) Documents show (see Exs . 24-J, 14-R; Stip. 28(c)) and petitioner contends that 6 on December 31, 1998, thë trust for lMr. Herman's sister sold its 50 percent interest lin the LLC to Consolidated Realty Holdings LLC (hereinafter, "Consolidated LLC"), an entity wholly owned by Mr. Herman That tranãaction is now challenged in litigation between Mr. Herman and hiá sister, but we assume Ear purposes of this opinion that the transac -ion took place as shown. We therefore assume . that, a ter that transaction,, Mr. Herman was the sole benefic al owner of Windsor LLC--50 ercent. in his own 1 2 3 4 5 6 7 8 9 10 11 12 13 . name and 50 percent through Consolidalted LLC. 14 15 16 17 18 19 2 0 21 22 23 24 25 Alleged assignment of development rigihts t Mr. Herman Mr. Herman offered into evidence at trial a document entitled "Assignment" (Ex. 39-p), dated December 31, 1998, by which he alleges that Windsor LLC transferred to Mr. Herman all of its unused developnient rights with respect to the Fifth Avenue prope rt i . e . , the right s to f urthe r deVelop the property by, among other things, addir g additional floors to the preexisting building on the property. He also offered into evidence a document entitled "Agreemert" (Ex. 38-P), by which, he alleged, Windsor LLC agreed to assist in the developmeni- of the unused Heritage Reporting Corporation (202) 628 4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 development rights. Both documents were signed only by Mr. Herman. Neither the Assignment nor the Agreemynt was witnessed, notarized, or recorded. (For reasons explained below, we find that the documents 7 were not executed in 1998 as alleged. ) Execut i on of res t rict ive covenant In December 2003 Mr . Herman executed a "Declaration of Restrictive Covenant" (Ex. 6-J) in favor of the National Architectural Trust, Inc. (NAT), a nonprofit'section 501(c) (3) organization .(currently known aá the Trust for Architectural Easements) . By its terms, t-he covenant restricts the developnent of 10, 000 unspecified square feet of the approximately 22, 000 square feet of unused development rights ver the property. That is, Mr. Herman promised as Grantor of the covenant not to develop those 10, 000 square feet, but rather to develop no more than 12, 000 square feet . The restrictive covenant did not purport to transfer to NAT the right to develop those 10,000 square feet, or to profit from the other 12,000 square feet, but only gave NAT Mr. Herman's covenant not to develop 10,000 square feet of the tota] . Appraisal and return Jef ferson & Lee Appraisals Inc. prepared an Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 . appraisal report for Mr. Herman dated February 25, 2004 (2x. 7-J) . It purports to calcúlate the diminution in value to *the Fifth Avénue property resulting froà the donation of the restrictive 8 covenart to NAT. Using a before-and-after valuation method, Jefferson & Lee Appraisals Inc. calculated the diminution in value to the property esulting from tÑe donation to be $21,850,.000. Mr. Herman timely filed his 2003 Form 1040, U.S. Individual Income Tax Return (Ex. 3-J), on or about April 6, 2004 . On Schedule A of that Form 1040 (Ex. 4-J), Mr. Herman claimed, among other things, a noncash contribution deduction of $21, 850, 000 under section 170 (a) (1) " for his charitable contribution of the restrictive covenant to NAT. (Stjip. 5 ) In section B ("Appraisal Summary") of Form 8283 ("Noncash Charitable Contributions") attached to his 2003 return (Ex. 5-J), Mr. Herman described the claiNed contribution to NAT. However, he· left neveral entries blank, including the blanks f or "Date acquired by donor" (line 5 (d) ) , "How acquired by donor " (line 5 (e) ) , and "Donor ' s cos t or adjusted basis" (line 5(f)). Notice of deficiency By a statutory notice of deficiency dated Heritage Reporting Óorporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 March 10, 2007, the IRS disallowed the noncash charitable contribution deductions Mr. Herman made to NAT. The .notice of deficiency stated, "It has not been established that all the requirements of Internal Revenue Code section 170 have been satisfied for the noncash charitable contribution of a restricted covenant [i . e . , the development right s at is sue] . " The IRS determined a $3,906,531 deficiency in Mr. 3erman's 2003 Federal income tax and an accompanying accuracy-related penalty under section 6662 (h) of $1, 562, 612 . 40 (or in the alternative a lesser penalty under section 6662 (b) (1). or (b) (3) ) . On June 19, 2007, Mr. Herman petitioned the Court for a redetermination· of the deficiency and elated accuracy-related penalty. Mr. Herman resided in Florida when he filed the petition in this case. Prior proceedings and amended pleadings On November 18, 2008, respondent moved for partial aummary judgment and, in T.C. !Memo. 2009-205, we held that Mr. Herman's noncash contribution to NAT of the rústrictive covenant was not "exclusively for conservat ion purposes" as required by section 170 (h) (4) (A) (iv) because it did not "preserve an historically important land area or a certified historic structure". This holding effectively Heritage Reporting Corporation (202) 628 4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 foreclosed Mr. Herman's ability to claim a charitable 10. contriNution deduction under section 170 (h) . Thereafter, Mr. Herman amended his pleadings to cont ënd that his restrictive covenant on 10, 000 square feet of development rights to NAT was either (a) a donation of his "entire interest in such property " (under sect ion 170 (f ) (3) (A) ) , or, in the alternative, (b) a donation under section 170 (f) (3) (B) (ii) of "an undivided portion of [his] entire interest in property", either (of which would su];>port a charitable contribution deduction. In response, respondent amended his answer to assert, inter a] ia, (a) that the assignment of the development rights f rom Windsor to Mr. Herman on .December 31, 1998, never occurred, thereby negating any donation of a restriction on such rights to. NAT, and (b) that, as an alternative to the section 6662 (h) penalty asserted in the original notice of deficiency, a section 6662 (a) énalty will apply. Issues cilrrently' before t;he court After concessions by respondent (i.e.,1 for the deduction of a. noncash contribution of skis and a cash contribution to NAT of $268,000), the issues for decision all concern his noncash contribution to NAT Those issues are: Heritacje Reporting Corporation (202) 628-4888 11 (1) Whether, at the time of the 2003 contribution, ·petitioner owned the development.rights at issue, by having acquired them on December 31, 1998. (We find that he did not.) (2) If so, whether petitioner transferred his entire interest (under section 170 (f) (3) (A)) or an undivided portion of his entire interest in property (under section 170(f) (3) (B) (ii)) so as to satisfy the requirement that the taxpayer convey an adequate propert:r interest.to the charitable organization. (We hold that he did not.) (3) If so, whether petitioner satisfied all the other requirements of section 170 necessary to be entitlec ,to a charitable contribution deduction, including whether he (i) substantiated his .contribution of development rights with the contemporaneous written acknowledgment required by section L70(f) (8), (ii) attached a fully completed appraisal summary. (Form 8283) to his income tax return, and (iii) obtained a.qualified appraisal under Reg. § 1 170A-13 (c) (3). (We find that he did not attach a fully completed appraisal summary, and we do not reach the other two requirements.) (4) If petitioner is entitled to a deduction for his noncash contribution to NAT under 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 | section 170, whether the value of the contribution asserted by petitioner 1s correct. (We do not reach 12 this question.) (5) Whether petitioner is liable for a forty percent valuation accuracy-related penalty or a 20 percent other accuracy-related penalty for his noncash contribution to NAT. (We find that he is liable for the 20% penalty.) OPINION I. Ownership of development rights The parties dispute the factual issue of whether petitioner owned the development rights as to which he executed a restrictive covenant. Of course, one canrot make a charitable contribution of something he does not own. Therefore, as a threshold matter, we must determine whether Mr. Herman owned the development rights at issue at the time of the contribu±ion. His only.allegation in this connection is that he acquired the development rights by ass1gnment on December 31, 1998; he made no alternat:.ve·contention. pursuant to our Order dated August 26, 2011, Mr. Hermôn bears the burden of proof with respect to whether he owned the development rights he purported to donate to NAT in 2003. However, the assignment of Heritage Report.ing Corporation (202) 628-4888 13 the burden of proof does not govern i the outcome of this issue. The preponderance of the evidence establishes that the assignment on ëhich Mr. Herman relies to prove his ownership was nÖt executed in December 1998 as he alleges . Mr. Herman's only evidence of the assignment is a photocopy of the assignment and his own testimony authenticating it . He does not have the original and does not know where it is, but he did not describe any efforts to locate it. He testified hat he presumed it was prepared by a law firm that p epared other .documents he executed in December 19 8; but he says he does nok know which lawyer prepared it, and he gave no testimony about any attempts to identify that lawyer or obtain information from that firm. The document is signed cnly by Mr. Herman (as manager of Windsor LLC) and is not witnessed) notarized, or r corded. He did not report the assignment to New York State on Form TP-584 (leal Estate Transfer Tax return, Ex. 40-J)), though he testified he did so report his 1998 acquisit:.on of 50 per[cent of Windsor LLC. He was not able to ahow whether he reported the assignment as a distribution on.Windsor LLC's information return (Form 1065) for 1998. He had no records of Windsor LLC that showed or reflected the assignment. When Mr. Herman 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Réporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reported the contribution in April 2004 on his tax return for the year 2003, he left blank the entries for "Date acquired by donor", "How acquired by donor", and "Donor's cost or adjusted basis" on Form 8283. At 14 trial he called no other witness to testify to the exister ce of the assignment before 2003. Mr. Herman stated several times in his testimony that, because he is not a lawyer or accountant, he relies on the professionals. he hires to prepare documents for him and sometimes does not read the documents before signing; and he testified in particular that because he is not a lawyer, he does not know what "warranty of title" 1s--a surprising gap in the education of an experienced real estate professional like Mr. Herman. However, when in 2003 he was presented with a draft restrictive covenant that would have had him as grantor give to NAT as donee a "warranty of [his] title" to the development rights, he instructed his lawyers to strike that provision from the. agreement because he was not comfortable granting such a warranty. This is the instruction he might well have given if he understood full wel] what a "warranty of title" is but was reluctant to warrant what he knew he did not have . Windsor LLC became an "S Corporation" on Heritage Reporting Corporation (202) 628-4888 15 January 1, 2003 (Stip. 28( )), and Mr. Herman testified that he was aware thereafter that a 2003 distribution of devÅlopment rights from Windsor LLC to himself would have had adverse tax consequences for him. In light of the foregoing facts, it is more likely that the assïgnment was created and backdated sometime after that date, rather than in December 1998, and that Mr. Herman therefore did not own the development rights in December 2003. Mr. Herman could not have donated a restrictive covenant on property he did not own. For this reason, Mr. Herman's noncash charitable contribution to NAT fails to qualify for a deduction under section 170 (a) . II. Donation of partial interest The parties also dispute the legal issue of . whether the restrictive covenant constitutes a partial interest that is nondeductible under section 170(f) (3). Mr. Herman acknowledges that he did not simply convey his entire interest in the development rights but rather (a). gave only a restrictive covenant , and (b) made that covenant as to 10, 000 of the 22,000 square feet he allegedly owned. However-- As to the cbntribution of only 10, 000 of the 22,000, Mr. Herman points out that the regulation permits deduction where "a taxpayer owns 100 acres 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of land and makes a contribution of 50 acres". 26 C.F.R. sec. 1.170A,7(b) (1). He. argues that, in the unique circumstances of New York City, development rights are analogous to acres, so that the 10,000 square feet he gave are a distinct property from the 12,000 he retained. For purposes of this opinion we assume he is correct. As to the contribution of only a restrictive covenan; rather than full title, Mr. Herman points out that the regulation requires only that a donor contrib1te "every substantial interest or right", 26 C.F.R. Eec. 1.170A-7(b) (1), and that a retention of insubsta.ntial rights may therefore not defeat a charitatle contributÄon. See, e.g., Stark v. Commissioner, 86 T.C. 243 (1983). He argues that the execution of the restrictive covenant "completely divested Petitioner. of any ability to 'build or otherwise improve' on the Contributed Development R.ights" (pretrial memo. at 22, quoting Ex. 6-J at 1) and thus divested him of all but bare title. Again, for purposes of this opinion, we assume he is correct. However, section 170 allows a deduction for a "contribution",. not a divestment. By the restrictive covenant, Mr. Herman may have forfeited his right to develop the 10,000 square feet, but he Heritage Reporting Corporation (202) 628-4888 17 did not thereby contribute to NAT the right to develop them. Enjoying the non-development of one's property is one of an owner's rights, but it is by no means the only right. Mr. Herman did not convey to NAT "every substantial interest or right" in the 10,000 square feet. Rather, he extracted two slender rights from his owner's bundle of rights--first, the right to stop developnent, and second, the right to a share of proceeds if destruction, eminent domain, or the like were to.extinguish the covenant (see Ebc. 6-J at 3)-- and he conferred those two rights on NAT. NAT by no means acquired substantially all the benefits and burdens of ownership of the 10,000 sqiuare feet. Cf. Musgrave v. Commissioner, T.C. Memo. 2000-285, 80 T.C.M. (CCH) 341, 344 ("a sufficient quantity of the burdens and benefits of ownership passed to the" donee). A charitable contribution is "a contribution or gift jw" a qualified organization. Sec. 170 (c) (emphasin added). Unlike provisions allowing a deduction for losses (see, e.g., sec. 165), section 170 generally looks not to what the donor loses or forfeits but to what he "contribut[es] * * * to" a donee. What Mr. Herman actually contributed--and what NAT received--was far.short of all substantial rights 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to the 10,000 square feet. Admittedly, the generality that one deducts not a forfeiture or divestment but a contributìon is subject to a major exception in the area of conservation easements. Both the statute-- section 170 (h)--and the case law allow for such a deducti n, and a "qualified conservation contribution" is typisally valued by the before-and-after method, which, n effect, measures what the donor forfeits and not necessarily what the donee acquires. However, the enactment of section 170 (h) made it clear that only easements that qualify under that new subsection could thereafter form the basis for a charitable deduction, see S. Rep. 96-1007, 1980-2 C.B. at 604 ("The bill permits a deduction for an open space easement only if it meets the requirements imposed by this provision"); and as we held in our prior opinion, Mr. Herman's covenant is not qualified under section 170(h). His alternatuve arguments must proceed under the general principles of section 170, and under those principles his restrictive covenant did not contribute to NAT "each anc every substantial interest" in 10,000 square feet of the development rights. Mr. Herman argues that if his covenant was not a gift of his entire interest, then it must have Heritage Reporting Corporation (202) 628-4888 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 been a gift of an undivided portion of his interest-- i.e., an unspecified (and therefore "undivided") intereEt in 10,000 of his 22,000 square feet of development rights. Section 170 (f) (3) (B) (ii) does indeed provide that a gift of a partial interest may nonetheless be deductible if it is "a contribution of an undivided portion of the taxpayer's entire interest in property". But section 1.170A-7(b) (1) ( ) of the regulations provides that an "undivided portion * * * must consist of a fraction or percentage of each and every substantial interest or right owned by the donor". Mr. Herman did not give NAT 10/22 or any other fraction or percentage of his right to develop and profit from the entire 22,000 square feet or from his retained 12,000 square feet. He did not contribu:e an undivided portion of his entire interest in eithe:: the total 22,000 square feet or the 10,000 square feet that were the subject of the restrictive covenant, His deduction fails under this alternative theory as well. III. .F1Lly__co_mpleted appraisal summary A taxpayer claiming a noncash charitable contribution must attach to his return a "fully completed appraisal summary", 26 C.F.R. sec. 1.170A-13(c) (2) (i) (B), that includes "[t]he Heritage Reporting Corporation (202) 628-4888 manner of acquisition (e.g., purchase, exchange, gift, or bequest) and the date of acquisition of the 20 property by the donor" and "[t]he cost or other basis of the property". Id. -13(c) (4) (ii) (D) and (E); see Scheidelman v. Commissioner, T.C. Memo. 2010-151. This is the information called for on lines 5(d) through (f) of section B of Form 8283, which Mr. Herman left blank. His testimony implied that this wan the result of an oversight by his return preparer, but he did not call the return preparer as a witness and did not produce any evidence of what information he provided to his return preparer. Whatever the reason for this omission, it was material. When the subject of Mr. Herman's alleged acquisition of the development rights was examined in the course of this litigation, it proved to be a decisive issue, and one for which the evidence does not at a 1 support Mr. Herman's allegations. Given the significance of these omissions, we cannot say that Mr. Herman's Form 8283 reflected substantial compliance. Cf. Simmons v. Commissioner, T.C. Memo. 2009-208. Rather, as in Scheidelman, slip op. at 15-16, The Form 8283 attached to petitioner's * * * l) tax return did not include the date and manner of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 21 acquisition of the property purportedly contkibuted or the cost or other basis of the property purportedly contributed, adjusted as provided by section 1016. These cefects alone demonstrate that there has not been strict compliance with the regulation requirement s . Therefore, for this reason also Mr. Herman's contrib tion deduction was properly disallowed. IV. Ac uracy-related penalty on noncash contribution Respondent asserts that Mr. Herman is liable for accuracy-related penalty under section 6662. Respondent originally contended that he is liable for a 40-percent gross valuation misstatement penalty under section 6662 (h) but conceded at trial that if the deduction is disallowed on the grounds that the assignment was not made in 1998 and Mr. Herman therefore did not own in 2003 the property he allegedly restricted, then the 40 percent section 6662 (h) penalty would not apply, but rather the 20- percent accuracy-related penalty under section 6662 (a) . We hold that Mr. Herman is liable for a 20- percent penalty on the tax attributable to disallowance of his noncash contribution. // // 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 A. _General application of accuracy-related 22 penalty Section 6662 imposes an "accuracy-related penalty" of 20 percent of the portion of the underp2yment of tax attributable to any substantial understatement of income tax. See sec. 6662 (a), (b) (2) . Pursuant to section 7491 (c) , the Commissioner bears the burden of production and must produce sufficient evidence showing that the imposition of the penalty is appropriate in a given case . Higbee v. Commissioner, 116 T.C. 438, 446 (2001) . An underst2 tement of income tax is substantial if it exceeds the greater of $5, 000 or 10 percent of the tax requirec to be shown on the return. Sec. 6662 (d) (1) . The Comtrissioner meets his burden here, because the deficiency attributable to the tax is approximately $3.9 million, and the corrected tax liability is approximately $17.3 million; thus the understatement is both greater than $5, 000 and greater than 10 percent of $17 . 3 mill ion (i . e . , greater than $1 . 73 million) . Once the Commissioner meets this burden, the taxpsyer must come forward with persuasive evidence that the Commissioner's determination is incorrect . Rule 142 (a) ; Higbee v. Commissioner, supra at 447. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 B. Defenses 23 A taxpayer who is otherwise liable for the accuracy-related penalty may avoid the liability if he successfully invokes one of three other provisions: 1. Substantial authority. Section 6662(d) (2) (B) provides that an understatement may be reduced where the taxpayer had substantial authority for his treatment of any item giving rise to the understatement. There is no authority to support a charitable contribution deduction for property that a taxpayer did not own and could not have contributed. 2. Disclosure. Section 6662(d) (2) (B) provideE that an understatement may be reduced, second, where the relevant facts affecting the item's treatment are adequately disclosed and the taxpayer had a reasonable basis for its treatment of that item. Mr. Herman's return did not disclose his non-ownership of the development rights. 3. Reasonable cause. Section 6664 (c) (1) provides that, if the taxpayer shows that there was reasonab]e cause for a portion of an underpayment and that he acted in good faith with respect to such portion, no accuracy-related penalty shall be imposed with respect to that portion. Reasonable cause may be shown where the taxpayer acted in reliance on Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 24 profes ional advice, see 26 C.F.R. sec. 1. 6664 4 (b) (1) . Mr . Herman contends that he relied on the ad ice of attorneys and appraisers in claiming a deduct on for a restrictive covenant on development rights; but that contention is now beside the point in light of our finding that the assignment was not execute as alleged. A taxpayer asserting reliance on profess onal advice must prove, among other things, that he provided the adviser necessary and accurate informa ion. See Neonatology Associates, P.A. v. Commiss oner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221 (3d. Cir. 2002) . Mr. Herman made no showing that he infor ed his advisers that no assignment was executed in 1998, and no one advised Mr. Herman that he could claim a deduction for property that he did not actu illy own. Consequently, the "reasonable cause" exception does not apply to relieve Mr. Herman of the 2C percent penalty under section 6662 (a) . Decision will be entered under Rule 155. This concludes the Court's oral Findings of Fact and pinion in this case . THE CLERK: All rise . (Whereupon, at 12:26 p.m., the bench opinion in the ab ve-entitled matter was closed.) // Heritage Reporting Corporation (202) 628-4888