t c memo united_states tax_court barry s friedberg and charlotte moss petitioners v commissioner of internal revenue respondent docket no filed date david j fischer and kathleen pakenham for petitioners marc lee caine rachel l schiffman and alex shlivko for respondent memorandum opinion wells judge the instant case is before the court on the parties’ cross-motions for partial summary_judgment pursuant to rule respondent determined a deficiency of dollar_figure and 1unless otherwise indicated section references are to the continued a penalty pursuant to sec_6662 of dollar_figure with respect to petitioners’ tax_year the issues we must decide are whether the appraisal report regarding the donation of a conservation_easement on historic residential property was a qualified_appraisal within the meaning of sec_1 170a- c income_tax regs whether petitioners attached a fully completed appraisal_summary of the appraisal report to their return as required by sec_1_170a-13 income_tax regs whether the purported transfer of unused development rights on the property was a valid transfer permitting petitioners to deduct the donation of the development rights pursuant to sec_170 or whether the conservation_easement otherwise restricted the use of the development rights and whether the donation of the conservation_easement was granted in perpetuity as required for a qualified_conservation_contribution pursuant to sec_170 background the facts set forth below are based upon examination of the pleadings moving papers responses and attachments petitioners are husband and wife hereinafter referred to individually as mr friedberg and ms moss who resided in new york at the time they filed their petition continued internal_revenue_code_of_1986 as amended and rule references are to the tax_court rules_of_practice and procedure the subject property during mr friedberg purchased a six-story residential townhouse in new york city on east 71st street between park avenue and lexington avenue the subject property for dollar_figure the subject property has never been subject_to a mortgage during the time mr friedberg has owned it after mr friedberg purchased the subject property petitioners paid approximately dollar_figure million to extensively renovate it ms moss is an interior designer and after the renovation house and garden magazine published an article featuring her work on the subject property the subject property is in manhattan’s upper east side historic_district it was constructed during in the queen anne style on date the national park service determined that the subject property contributes to the significance of the upper east side historic_district and is a ‘certified historic structure’ for a charitable_contribution for conservation purposes in accordance with the tax treatment extension act of the subject property is not on a corner lot and is adjacent to two other properties on the same block of east 71st street because of the length of the lot it also abuts two properties on lexington avenue to the east and one property on east 70th street to the south all of those properties are also within the upper east side historic_district solicitation from nat during the national architectural trust2 nat contacted mr friedberg to ask him to donate an easement on the subject property mr friedberg met with sean zalka mr zalka a representative from nat to discuss donating a facade easement after the meeting mr zalka sent mr friedberg an email in which he wrote per our conversation attached please find the following materials for your review a revised profile of your estimated_tax benefit showing the additional tax benefits available for the extinguishment of the development rights on the site the sheet labeled ‘development rights retained’ shows your estimated_tax benefits using our standard easement document according to my calculations your total_tax deduction would increase to dollar_figure million from dollar_figure million additional language for insertion into our standard easement document to extinguish the development rights all or a portion of the development rights may be extinguished as we discussed the extinguishment of all or a portion of the additional development rights on a property such as yours located within a far zoning district would provide an additional tax deduction of of the value of those development rights recent appraisals of development rights in the upper east side historic_district have come in at dollar_figure to dollar_figure per square foot with an estimated big_number square feet of development rights you would receive an additional tax deduction of dollar_figure at dollar_figure psf 2the national architectural trust has since changed its name to trust for architectural easements per zoning regulations you have the right to develop a building of big_number square feet on the above referenced site however local landmark regulations strictly limit your ability to do so although this footage is currently undevelopable given the location of the property within a landmark district the irs allows these deductions based on the perpetuity of the easement versus the local landmark restrictions which are entirely discretionary and can be changed at any time although this is highly unlikely we are currently working with a number of property owners to structure deductions of this kind in order to substantiate these deductions we recommend the use of a particular appraiser based in pittsburgh who is the most highly respected in the specialty field of lost development rights appraisals he would charge approximately dollar_figure for a property of this kind versus dollar_figure for a standard appraisal we would also need a zoning consultant to determine the exact amount of development rights that currently exist on the site please let me know if you are interested in taking advantage of this aspect of our program mr zalka attached a spreadsheet to his email that provided an estimate of the tax savings available to mr friedberg should he decide to donate to nat the facade easement and development rights for the subject property mr zalka’s spreadsheet read as follows the national architectural trust profile of estimated_tax benefit1 east 71st street development rights extinguished estimated fair_market_value dollar_figure dollar_figure big_number conservation_easement value of fmv estimated development rights value dollar_figure big_number see development rights analysis worksheet dollar_figure big_number total estimated gross tax deduction tax-deductible cash donations of gross tax deduction appraisal dollar_figure big_number lender subordination fee if applicable total estimated tax-deductible costs dollar_figure big_number dollar_figure big_number total estimated charitable_contribution tax deduction total estimated federal state and city income_tax savings tax_bracket dollar_figure big_number dollar_figure big_number total estimated cash savings dollar_figure big_number 1for illustrative purposes only please consult your tax advisor 2actual figure determined by appraisal typically of fmv for comparable properties after reviewing nat’s materials mr friedberg decided to donate to nat a facade easement and all the development rights associated with the subject property mr ehrmann’s appraisal report mr friedberg followed nat’s recommendation and engaged michael ehrmann mr ehrmann of jefferson lee appraisals inc based in pittsburgh to appraise the subject property mr friedberg paid dollar_figure to jefferson lee appraisals inc for the appraisal mr ehrmann visited the subject property and conducted an inspection during date mr ehrmann prepared an appraisal report at some time after he had inspected the subject property the appraisal report states that the as of date was variously date date or date mr ehrmann signed but did not date the certification of value on page of the appraisal report the cover letter accompanying the report is dated both december and date but mr ehrmann did not sign or date the cover letter the appraisal report includes the address for mr ehrmann’s firm jefferson lee appraisals inc and it lists the address of the subject property the appraisal report states that it has been prepared for tax purposes in order to determine the loss of value due to a facade easement to be donated on the subject property the appraisal report includes a number of pages of background on the economic social cultural environmental and political forces that influence property values in new york city with regard to the effect of political forces including local zoning laws on property values mr ehrmann wrote property values are influenced by government political and legal actions which effect sic the market forces of supply and demand the extent and nature of local zoning building and health codes are also contributing factors to land use as it sic affects the value of real_estate national state and local fiscal policies affect property values and special legislation such as rent control laws statutory redemption laws forms of ownership homestead_exemption laws environmental legislation and legislation affecting mortgage lending institutions may influence general property values on the basis of the lot’s location in an r9x zoning district permitting a floor area ratio far of for residential 3new york city’s zoning resolution provides the following definition for floor area ratio continued property mr ehrmann calculated that the lot had a maximum development potential of dollar_figure square feet approximately big_number square feet of which was unused mr ehrmann wrote although the underlying zoning would permit expansion of the subject property up to the maximum development potential i believe that the new york city landmarks preservation commission which has authority over the upper east side historical sic district would block such an expansion however the subject owner clearly has the right to transfer see sic these development rights for use on neighboring blocks within the historical district furthermore i believe that developments utilizing transferable development rights tdr would be feasible in this area particularly along lexington avenue new york statutes define transfer of development rights tdr as the process by which development rights are transferred from one lot parcel or area of land in a sending district to another lot parcel or area of land in one or more receiving districts in many tdr programs the zoning provisions applicable to the sending district are amended to reduce the density at which land can be developed while losing their right to develop their properties at the formerly permitted densities property owners in the sending district are awarded development rights these development rights are continued floor area ratio is the total floor area on a zoning lot divided by the lot area of that zoning lot if two or more buildings are located on the same zoning lot the floor area ratio is the sum of their floor areas divided by the lot area for example a zoning lot of big_number square feet with a building containing big_number square feet of floor area has a floor area ratio of and a zoning lot of big_number square feet with two buildings containing a total of big_number square feet of floor area also has a floor area ratio of new york n y zoning resolution sec 4respondent accepts those numbers as accurate for purposes of these motions regarded as severable from the land ownership and transferable by their owners the appraisal report then describes different aspects of transferable development rights programs in general without any reference to the particular program implemented in new york city mr ehrmann found that the sales comparison approach was the most appropriate valuation method for estimating the market_value of the subject property before and after the donation he wrote in the following sections of this report i have estimated the market_value of the subject property both before and after donation of the proposed easement utilizing the sales comparison approach to value mr ehrmann used the following sales to estimate the before value of the subject property date address square price per adjusted historic sale price feet square foot dollar_figure sq ft district east 67th st dollar_figure big_number dollar_figure dollar_figure ye sec_3 park ave big_number big_number dollar_figure dollar_figure ye sec_1 east 72d st big_number big_number dollar_figure dollar_figure no dollar_figure dollar_figure ye sec_1 east 73d st big_number big_number dollar_figure dollar_figure no east 92d st big_number big_number dollar_figure dollar_figure no east 87th st big_number big_number east 69th st big_number big_number dollar_figure dollar_figure ye sec_2 east 73d st big_number big_number dollar_figure dollar_figure ye sec_2 east 75th st big_number big_number dollar_figure dollar_figure yes mr ehrmann adjusted those sale prices to take into account differences between those properties and the subject property due to the following factors time of sale location condition of the property size and whether the property included a finished basement although the properties were subject_to different zoning mr ehrmann did not make any adjustments because he wrote i do not believe that the varying zones have an impact on subject value after making all of his adjustments mr ehrmann averaged the adjusted prices and arrived at dollar_figure per square foot which he rounded to dollar_figure and used as his estimate for the value of the subject property as of the appraisal date on the basis of the subject property’s gross floor area of big_number square feet mr ehrmann estimated that the subject property’s total value was dollar_figure in addition to estimating the subject property’s fair_market_value mr ehrmann sought to appraise the development rights that could be transferred to a nearby property s sic as tdrs to do so he identified five transfers involving development rights on the east side of manhattan three of the five transfers involved the sale of development rights by themselves the other two involved the sale of an entire tract that included development rights previously acquired mr ehrmann calculated the price per far foot for each of the sales and then averaged those figures to reach an average of dollar_figure per far foot he then considered some general categories of adjustments including time location size zoning and historic restrictions with regard to historic restrictions he wrote the subject is part of the upper east side historic_district with significant historic restrictions none of the previous improvements on the comparable sites had a similar status furthermore there do not appear to be historically protected properties in the immediate vicinities of the tdr comparables as discussed previously the subject tdrs can only be utilized in a limited geographic area near the site however the tdrs transferred to the comparable properties do not appear to have had the same restriction i believe that the restrictions on the subject tdrs make these development rights somewhat less valuable than the apparently unrestricted rights purchased in the comparable transactions mr ehrmann’s comments reflect the fact that none of the other sales he considered was in a historic_district the average price per far foot of the comparable sales reported by mr ehrmann was dollar_figure however mr ehrmann estimated that the value of the unused development rights on the subject property was dollar_figure per far foot he explained his reasoning as follows i have identified five adjustment factors applicable to the tdr comparables three of the factors -- time location and size of the tdr -- support upward adjustments of a number of the comparable unit prices the two other factors -- zoning and landmark limitations -- support downward adjustments of all of the comparable unit prices tdr transactions are complex i have not made specific adjustments of each comparable for each adjustment factor discussed above however based on the overall adjustments i estimate that the value of the tdrs on the subject property as of dollar_figure per far foot mr ehrmann calculated that the total value of the unused development rights associated with the subject property was dollar_figure he then added that value to his before estimate of the value of the subject property to arrive at a total value for the subject property of dollar_figure the second half of the appraisal report provides an estimate of the value of the subject property after the facade easement in an introduction mr ehrmann explained that there are several reasons property values are negatively affected by facade easements one of the factors he listed was the loss of the right to develop the property up to the maximum density allowed under the subject zone other factors included potentially increased maintenance_costs loss of flexibility in changing exterior design and the inability of future owners to use the tax advantages from an easement contribution mr ehrmann noted the best measure of the impact of these elements on property values is the market place sic i have been able to identify a number of examples of the impact of easements on properties in both new orleans and washington two cities where facade easements have been most actively used mr ehrmann provided six examples of sales of eased properties in washington d c during the mid-1980s and two examples of transactions involving eased properties in new orleans during the mid-1990s mr ehrmann constructed the following table to summarize his research on comparable sales involving facade easements property easement lo sec_1 increase in renovation costs the average facade easement loss of the six sales of eased properties ie propertie sec_1 through the washington d c sales was percent however mr ehrmann estimated that the facade easement on the subject property decreased its value by percent he provided the following analysis to explain his reasoning the comparable data shows estimated losses ranging from to the residential properties had losses ranging from to most of the examples that i have identified took place during the 1980s when the facade easement programs in both washington and new orleans were relatively new comparables and are based on recent market developments the subject property is a residential dwelling in excellent condition and degree of finish based on the comparable data with particular emphasis on eased property i estimate that the facade easement will result in a loss of value of of the value of the actual subject improvement before donation of the easement on the basis of his estimate of percent mr ehrmann calculated that the facade easement would reduce the value of the subject property by dollar_figure which he rounded to dollar_figure he stated that after the easement the unused development rights would have no value he therefore estimated that the after value of the subject property was dollar_figure mr ehrmann concluded that the loss in value due to the facade easement was dollar_figure 5that figure reflects the value of both the facade easement and the development rights but mr ehrmann stated that it represented the estimated market_value of the loss due to the easement the donation on date mr friedberg executed a conservation deed of easement conservation deed the conservation deed provided in part ii the grantor does hereby grant and convey to the grantee to have and to hold an easement in gross in perpetuity in on and to the property building and to the facade being a scenic open space and architectural facade conservation_easement on the property with the following rights a without the express written consent of the grantee which consent may be withheld conditioned or delayed in the sole and absolute discretion of the grantee the grantor will not undertake nor suffer nor permit to be undertaken with respect to that part of the facade visible from the street-level on the opposite side of e 71st street any alteration construction or remodeling of existing improvements on the property or the placement thereon or on the building of signs or markers that would materially alter or change the appearance of the facade the exterior extension of existing improvements on the property or the erection of any new or additional improvements on the property or in the open space above or the erection of any new or additional improvements on the property or in the open space above or surrounding the existing improvements except for subject_to the consent of the grantee which consent will not be unreasonably withheld the erection of new improvements including an architecturally consistent facade to replace existing improvements which have been wholly or partially destroyed eg by fire or the painting or cleaning of the facade in a manner incompatible with the protection and preservation of the facade d grantor hereby agrees that the following acts or uses are expressly forbidden in on over or under the property except as otherwise conditioned or permitted in writing by grantee there shall be no use exercise or transfer by grantor or grantee of development rights from or to the property any portion thereof or derived from any portion thereof for the purposes hereof the term development rights includes without limitation any and all rights however designated now or hereafter associated with the property or any other_property that may be used pursuant to applicable zoning laws or other governmental laws or regulations to compute permitted size height bulk or number of structures development density lot yield or any similar development variable on or pertaining to the property or any other_property both parties hereto recognize and agree that subject_to all other conditions of this easement all current and future development rights have been donated to the grantee for the purposes of forever i removing such rights from the property ii extinguishing such rights and iii further preventing the transfer or use of such rights iv a this easement is binding not only upon grantor but also upon its successors heirs and assigns and all other successors in interest to the grantor and shall continue as a servitude running in perpetuity with the land this easement shall survive any termination of the grantor’s or the grantee’s existence the rights of the grantee under this instrument shall run for the benefit of and may be exercised by its successors and assigns or by its designees duly authorized in a deed of easement b grantor covenants that it will not transfer assign or otherwise convey its rights under this conservation_easement except to another qualified_organization described in sec_170 of the internal_revenue_code_of_1986 and controlling treasury regulations and grantee further agrees that it will not transfer this easement unless the transferee first agrees to continue to carry out the conservation purposes for which the easement was created provided however that nothing herein contained shall be construed to limit the grantee’s right to give its consent eg to changes in the facade or to abandon some or all of its rights hereunder c in the event this easement is ever extinguished whether through condemnation judicial decree or otherwise grantor agrees on behalf of itself its heirs successors and assigns that grantee or its successors or assigns will be entitled to receive upon the subsequent sale exchange or involuntary_conversion of the property a portion of the proceeds from such sale exchange or conversion equal to the same proportion that the value of the initial easement donation bore to the entire value of the property at the time of donation as estimated by a state licensed appraiser unless controlling state law provides that the grantor is entitled to the full proceeds in such situations without regard to the easement grantee agrees to use any proceeds so realized in a manner consistent with the conservation purposes of the original contribution the conservation deed was the only agreement between mr friedberg and nat the conservation deed was recorded with the new york city department of finance office of the city register by letter dated date nat acknowledged mr friedberg’s gift of a conservation_easement on the subject property that letter certified that no goods or services were received by mr friedberg in exchange for his gift procedural history petitioners timely filed their joint federal_income_tax return they deducted dollar_figure for the donation of the facade easement and development rights on the subject property petitioners appended form_8283 noncash charitable_contributions signed by mr ehrmann and by the president of nat it described the subject property by providing its address and it described the condition of the subject property as historic facade conservation_easement petitioners did not provide information on the form_8283 about the date they acquired the subject property how they acquired it or their cost or adjusted_basis in the subject property the form_8283 did not mention the donation of the development rights the date of appraisal provided on the form_8283 was date petitioners also attached to their tax_return a copy of mr ehrmann’s appraisal report on or about date respondent mailed to petitioners’ last_known_address a statutory_notice_of_deficiency petitioners timely filed their petition with this court on date discussion rule a provides that either party may move for summary_judgment upon all or any part of the legal issues in controversy full or partial summary_judgment may be granted only if no genuine issue exists as to any material fact and the issues presented by the motion may be decided as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir as explained below we conclude that we are able to resolve some of the issues presented on the basis of the undisputed facts contained in the parties’ moving papers including the attachments thereto i whether the appraisal report was a qualified_appraisal sec_170 allows taxpayers to deduct charitable_contributions only if those contributions are verified under regulations prescribed by the secretary those regulations require that a taxpayer claiming a noncash charitable_contribution of more than dollar_figure obtain a qualified_appraisal of the property contributed attach a fully completed appraisal_summary ie form to the tax_return on which the deduction is claimed and maintain records pertaining to the claimed contribution in accordance with sec_1_170a-13 income_tax regs sec_170a-13 c income_tax regs to constitute a qualified_appraisal the regulations require among other things that an appraisal be made not earlier than days before the date of contribution of the appraised property nor later than the due_date of the tax_return on which a deduction is first claimed be prepared signed and dated by a qualified_appraiser and include the following information a a description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property that was appraised is the property that was or will be contributed b in the case of tangible_property the physical condition of the property c the date or expected date of contribution to the donee d the terms of any agreement or understanding entered into or expected to be entered into by or on behalf of the donor or donee that relates to the use sale_or_other_disposition of the property contributed e the name address and identifying number of the qualified_appraiser and if the qualified_appraiser is acting in his or her capacity as an employee of any person the name address and taxpayer_identification_number of the person who employs or engages the qualified_appraiser f the qualifications of the qualified_appraiser who signs the appraisal including the appraiser’s background experience education and membership if any in professional appraisal associations g a statement that the appraisal was prepared for income_tax purposes h the date or dates on which the property was appraised i the appraised fair_market_value within the meaning of sec_1_170a-1 of the property on the date or expected date of contribution j the method of valuation used to determine the fair_market_value such as the income approach the market-data approach and the replacement-cost-less-depreciation approach and k the specific basis for the valuation such as specific comparable sales transactions or statistical sampling including a justification for using sampling and an explanation of the sampling procedure employed sec_1_170a-13 income_tax regs those regulations were promulgated in response to congress’ mandate in the deficit_reduction_act_of_1984 defra publaw_98_369 sec 98_stat_691 as we explained in 109_tc_258 affd without published opinion 166_f3d_332 4th cir the primary purpose of defra section was to provide a mechanism whereby respondent would obtain sufficient return_information in support of the claimed valuation of charitable_contributions of property to enable respondent to deal more effectively with the prevalent use of overvaluations respondent contends that mr ehrmann’s appraisal report fails to meet the requirements of sec_1_170a-13 h i j and k income_tax regs with respect to subdivision ii c h and i respondent contends that the appraisal report is not a qualified_appraisal because it does not contain the date of the contribution is ambiguous as to the date the subject property was appraised and does not value the subject property as of the date it was actually contributed petitioners contend that although the appraisal report contains typographical errors with regard to dates those errors are minor and the report substantially complies with subdivision ii c h and i of sec_1_170a-13 income_tax regs petitioners rely on our holding in 100_tc_32 in which we concluded that because the reporting requirements of sec_1_170a-13 income_tax regs did not relate to the substance or essence of whether or not a charitable_contribution was actually made and because the taxpayers had satisfied all the elements required to establish the substance or essence of their contribution the taxpayers were entitled to the deduction claimed because they had substantially complied with the requirements of the regulations similarly in the instant case the errors regarding the date of the appraisal report do not relate to the substance or essence of the contribution rather the requirements relating the proper dating of the appraisal and contribution are more procedural see bond v commissioner supra pincite 63_tc_316 noting that nonadherence to requirements that are procedural and therefore directory may sometimes be excused although there may be cases in which the failure to meet those requirements would be significant the instant case is not such a case we are persuaded that the discrepancies were merely typographical errors and that the report was completed within the 60-day period before the date of contribution as required by sec_1 170a- c ii a income_tax regs accordingly we conclude that the appraisal report substantially complies with the requirements of subdivision ii c h and i additionally respondent contends that the appraisal report does not meet the requirements of subdivision ii j and k because it fails to include the method and the specific basis for valuing the facade easement and the development rights in general the amount allowed as a charitable_contribution_deduction is the fair_market_value of the contributed_property sec_1_170a-1 income_tax regs the fair_market_value of a property is the price at which it would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs because no established market exists for determining the fair_market_value of an easement the before and after approach has often been applied to determine the fair market values of restrictive easements with respect to which charitable_contribution deductions have been claimed see eg 85_tc_677 simmons v commissioner tcmemo_2009_208 affd 646_f3d_6 d c cir griffin v commissioner tcmemo_1989_130 affd 911_f2d_1124 5th cir the before and after method operates by taking the difference between the value of the property immediately before the contribution and the value of the property immediately after hilborn v commissioner supra pincite an appraiser may use the comparable sales_method or another accepted method to estimate the before and after values id an appraiser using the comparable sales_method also known as the market-data approach locates sales of properties that meet three criteria the properties themselves are similar to the property being appraised the sales are arm’s-length transactions and the sales have occurred within a reasonable_time of the valuation_date 72_tc_1 because no two sales and no two properties are ever identical the appraiser then considers aspects of the comparable transactions such as time size of the property or other significant features and makes appropriate adjustments for each to approximate the qualities of the property being appraised 88_tc_1197 ndollar_figure wolfsen land cattle co v commissioner supra pincite although the court has accepted the use of the comparable sales_method we recognize that it like all valuation techniques is far from an exact science wolfsen land cattle co v commissioner supra pincite the before value of the property considers the highest_and_best_use of the property before its restriction by the easement hilborn v commissioner supra pincite if different from the current use a proposed highest_and_best_use requires closeness in time and reasonable probability id the highest_and_best_use takes into account existing zoning or historic preservation laws that restrict the property’s development potential even without a preservation easement simmons v commissioner supra we have held that an explanation of the valuation method used and the specific basis for the appraised value are essential because ‘without any reasoned analysis the appraiser’s report is useless ’ friedman v commissioner tcmemo_2010_ quoting jacobson v commissioner t c memo scheidelman v commissioner tcmemo_2010_151 on appeal 2d cir date date petitioners contend that mr ehrmann used the comparable sales_method to estimate the value of the subject property before and after mr friedberg donated the facade easement and the development rights to nat indeed mr ehrmann stated in his appraisal report that he was applying the sales comparison approach for purposes of the instant motions respondent does not contest the method mr ehrmann used to arrive at the before value for the subject property nor does respondent contest that value rather respondent contends that mr ehrmann failed to properly apply the comparable sales_method to valuing the subject property after the facade easement and respondent contends that mr ehrmann failed to apply any acceptable method to valuing the development rights we will first consider respondent’s contention with respect to the facade easement a appraising the facade easement mr ehrmann’s method for using comparable sales to estimate the before value of the subject property offers a textbook 6respondent does not contest the before value mr ehrmann estimated using comparable sales but respondent does contest mr ehrmann’s appraisal of the development rights and his addition of that value to the before value see infra pp example of how the comparable sales_method works he located nine sales of similar properties that were close to the subject property in both time and geography he made a series of adjustments to the sale price of each property and explained in detail his rationale for making those adjustments finally after making the adjustments he averaged the prices per square foot for all of the properties and used that average price per square foot to estimate the market_value of the subject property before mr friedberg donated the easement in contrast to his before valuation mr ehrmann’s approach to valuing the subject property after the easement donation diverged significantly from the accepted comparable sales_method to properly apply the comparable sales_method mr ehrmann should have located sales of similar properties in new york city with facade easements made appropriate adjustments and then used the average prices of those sales to estimate the after value of the subject property however without explanation mr ehrmann elected to use sales of eased properties in washington d c and transactions related to eased properties in new orleans to estimate the percentage diminution in value associated with facade easements in general mr ehrmann then used the percentage diminution he purported to derive from those transactions and multiplied it by his estimated before value of the subject property to estimate the loss in value associated with the facade easement that approach is not consistent with the comparable sales_method mr ehrmann claimed he was applying not only did mr ehrmann not actually use the comparable sales_method or any other method the court has sanctioned but he also failed to consistently apply a single method to his estimates of percentage diminution and the various methods he used were unreasonable to reasonably apply the method mr ehrmann appeared to use to which we will hereinafter refer as the percentage diminution method mr ehrmann would have needed to apply the comparable sales_method to each of the washington d c and new orleans properties he considered instead he applied a hodgepodge of approaches most of which were unreasonable the first washington d c property mr ehrmann considered was a mixed-use building with a gallery and two rental units it was purchased in for dollar_figure underwent dollar_figure of improvements and was resold in date for dollar_figure mr ehrmann’s estimate which was based on the amount invested in the property and on a survey showing that sale prices in the dupont circle neighborhood appreciated by a total of percent during the period from to indicated that the easement decreased the property’s value by percent mr ehrmann did not explain how the dollar_figure was used to improve the property nor why it was appropriate to simply add dollar_figure to the price of the property to estimate what it would have been worth without the easement without such an explanation it was unreasonable for mr ehrmann to assume that the dollar_figure increased dollar for dollar the value of the property moreover it was unreasonable for mr ehrmann to apply a 5-percent appreciation to the property on the grounds that the properties in the neighborhood appreciated by that amount over the course of years given that the owner held the property for only years the second washington d c property was a residential building with two rental units that was sold during date for dollar_figure or dollar_figure per square foot on the basis of the sale of a similar_property on the same block for dollar_figure per square foot during date mr ehrmann estimated that the easement reduced the property’s value by percent mr ehrmann’s method of estimating the percentage diminution with regard to the second property can best be described as a very abbreviated comparable sales_method he found one other_property that he considered similar made no adjustments to the price of that property and simply assumed that the eased 7it is conceivable that the dollar_figure could have increased the value of the property by more than dollar_figure that it could have increased it by less than that amount or that it could even have decreased the value of the property for instance the owner could have spent dollar_figure painting and decorating the house in a manner peculiar to his own aesthetic tastes but displeasing to most buyers property would have sold for the same price absent the easement in contrast the acceptable comparable sales_method requires the examination of multiple similar properties and corresponding adjustments accompanied by explanations see wolfsen land cattle co v commissioner t c pincite mr ehrmann’s shortcut was an unreasonable approach to estimating the percentage diminution of the eased property’s value the third washington d c property mr ehrmann considered was an owner-occupied home with a rental unit in the basement that sold for dollar_figure during date the sale price included months of free rent for the seller pursuant to the terms of an agreement with the buyer the seller reduced the sale price and claimed the tax deduction for a facade easement on the house donated at about the same time as the sale according to an appraisal of the property as of date the easement reduced the value of the property by percent with regard to the third property mr ehrmann relied entirely upon another appraisal about which nothing is set forth in his report without information regarding that appraiser’s methods experience etc it is impossible to review the reasonableness of the conclusion reached in that appraisal we assume therefore that it was unreasonable for mr ehrmann to rely on that appraisal as an estimate of the percentage diminution attributable to the facade easement mr ehrmann’s fourth washington d c property was a single-family house that sold for dollar_figure during date on the basis of the sale for dollar_figure of a slightly larger but otherwise almost identical home on the same block at around the same time mr ehrmann estimated that the easement decreased the value of the property by percent the approach mr ehrmann used to estimate the percentage diminution in value of his fourth washington d c property is similar to the approach used with the second it is unreliable for the same reasons we set forth above and for an additional reason he did not make any attempt to adjust the sale price of the comparable_property to reflect the fact that the eased property was smaller the fifth washington d c property was a two-unit owner- occupied property sold for dollar_figure during date solely 8it is unclear how mr ehrmann arrived pincite percent a reduction from dollar_figure to dollar_figure represents a decrease in value of percent according to mr ehrmann’s report the dollar_figure home was slightly larger than the home with the easement which would presumably require a reduction in the sale price of dollar_figure by some amount to reflect the fact that the eased home being smaller would have sold for less than the dollar_figure home even without an easement mr ehrmann did not appear to make any such adjustment any adjustment made would have corresponded to a decrease in value of less than percent we suspect that mr ehrmann actually divided dollar_figure ie the difference between the dollar_figure sale and the dollar_figure sale by dollar_figure to arrive at his figure of percent that calculation was an error when calculating the percentage reduction in value the numerator should be the amount of the reduction and the denominator should be the before value not the after value upon the basis of the original asking price of dollar_figure mr ehrmann estimated that the easement reduced the property’s value by percent to reach his estimate of the percentage diminution in the value of the fifth property mr ehrmann made another unreasonable assumption that the asking price for the house was an accurate estimate of the value of the property before the easement we see no reason to believe that an asking price is an accurate measure of the value of a house and mr ehrmann has provided no reason to believe it was mr ehrmann’s sixth washington d c property was a single- family home with a separate english basement apartment that sold during date for dollar_figure or dollar_figure per square foot five other properties were sold on neighboring blocks during the same period for dollar_figure to dollar_figure per square foot after making unexplained adjustments for degree of finish and time of sale mr ehrmann concluded that the data supports at least an loss in value due to the easement mr ehrmann’s method for estimating the percentage diminution in the value of the sixth property was the only method that resembled any reasonable method for estimating such a value 9even if we accept mr ehrmann’s logic the reduction in value is only percent not percent mr ehrmann again erred by dividing the reduction in value by the after value of the property instead of the before value however it was also flawed because mr ehrmann provided no explanation for how he made adjustments to account for differences in degree of finish and time of sale given that the property was sold during it would have been very difficult for mr ehrmann to have made reasonable adjustments for the differences in finish between neighboring properties since such adjustments would probably have been little better than guesswork the two other transactions mr ehrmann considered were nonsale transactions on properties in new orleans mr ehrmann reported that design changes mandated because of an easement on one residential property increased renovation costs by to percent the easement on that property was granted during but mr ehrmann’s report provided no date for the renovation the second new orleans transaction was the settlement of a lawsuit filed by the purchasers of a property alleging that the sellers failed to disclose the existence of the facade easement the case was settled out of court and mr ehrmann was not able to discover the exact amount of the settlement however he wrote that it reportedly exceeded percent of the purchase_price of the property mr ehrmann did not disclose the source from which he obtained the approximate amount of the settlement because they were not sales the transactions involving eased properties in new orleans provide little insight about the effect of facade easements on the sales of eased properties even setting aside the problems with mr ehrmann’s estimates of the percentage diminution in value for each of the above properties the problems with his approach are manifold mr ehrmann provided no explanation for his conclusion that the properties in washington d c and new orleans were comparable to the subject property in new york city indeed those properties were very different most of the properties in washington d c included at least one rental unit and one of the properties was even a multiunit rental property with a gallery on the first floor mr ehrmann himself discounted the utility of that property when because it was a nonresidential property he excluded it from his calculation of the average diminution he provided no information about the facade easements to which the other properties were subject despite the fact that the provisions of such easements depending upon how restrictive they were might have resulted in different after values additionally mr ehrmann failed to provide any rationale for comparing properties from cities other than new york city indeed his use of properties from cities other than new york city appears inconsistent with reasoning from his appraisal report where he wrote that property values are influenced by local_government actions and that the extent and nature of local zoning building and health codes are also contributing factors to the value of real_estate similarly the appraisal report provides no indication of why mr ehrmann thought it appropriate to consider sales from the mid-1980s in his valuation of a donation made during mr ehrmann himself cast doubt on the value of using sales from the mid-1980s when he placed more emphasis on the new orleans transactions from the mid-1990s because as he explained those transactions are based on recent market developments accordingly even if mr ehrmann’s percentage diminution method had been a reasonable means to estimate the after value of the subject property mr ehrmann’s application of that method was so riddled with errors and unreasonable assumptions as to make his estimate of the subject property’s after value worthless moreover even mr ehrmann’s percentage diminution method accepted at face value does not substantiate the percent diminution in value that his report concluded was appropriate to apply to the subject property as noted above the average percentage diminution for the six sale properties was percent not percent mr ehrmann chose to place particular emphasis on the eighth property instead of basing his estimated percentage diminution on the average of all the properties he had considered however the percentage diminution he reached for his eighth property a new orleans property was not even based on the sale of an eased property instead it was based on the settlement amount stemming from a lawsuit filed by a purchaser against a seller because the seller had not disclosed the existence of a facade easement on the sale property mr ehrmann provided no explanation of why he considered the amount of the settlement to accurately establish how much the easement had affected the value of the property and we find such an assumption unreasonabledollar_figure worse mr ehrmann was not even sure about the actual amount of the settlement instead he wrote that it reportedly exceeded percent of the purchase_price in other words it appears that mr ehrmann’s estimate for the effect of a facade easement granted during on the value 10given that the suit was brought after the purchasers had begun to renovate the home had been enjoined from conducting those renovations by the holder of the easement and had subsequently reached an agreement with the easement holder to complete modified renovations it is likely that the settlement amount also took into account damages to the purchaser resulting from that suit from increased costs of required changes to the renovation work and from any contract claims that may have arisen from being forced to change renovation plans suffice it to say that the purchaser’s claims probably were considerably more complex than simply the diminution in value of the property resulting from the easement moreover even if the purchaser’s claims had been related only to the diminution in value there is no reason to believe that the settlement amount would have been an accurate indication of how much the easement affected the value of the property of the subject property in new york city was actually based upon a rumor about a settlement agreement reached during the mid-1990s of a lawsuit filed against a seller for failing to disclose the existence of a facade easement on a property in new orleans petitioners contend that the very inclusion of comparable sales regardless of how reasonable the use of those comparable sales was indicates compliance with the regulatory requirements of a qualified_appraisal we disagree nothing in mr ehrmann’s report supports his conclusion about the after value of the subject property indeed it appears that mr ehrmann arrived pincite percent the percentage of fair_market_value that nat had told mr friedberg was typical for facade easements in spite of his research on comparable sales and not because of it we note that we previously have held that the mechanical application of a percentage diminution to the fair_market_value before donation of a facade easement does not constitute a method of valuation as contemplated under sec_1_170a-13 income_tax regs see scheidelman v commissioner tcmemo_2010_151 see also east llc v commissioner tcmemo_2011_84 we similarly conclude that mr ehrmann’s appraisal report was not a qualified_appraisal with respect to its valuation of the facade easement unlike the requirements of sec_1_170a-13 h and i income_tax regs the requirements of subdivision ii j and k do relate to the substance or essence of the contribution and the substantial compliance doctrine therefore does not apply see scheidelman v commissioner supra as we explained in scheidelman the lack of a recognized methodology or specific basis for the calculated after-donation value is too significant for us to ignore under the guise of substantial compliance id accordingly because petitioners did not submit a qualified_appraisal they are not entitled to the claimed deduction for the facade easement see 109_tc_258 scheidelman v commissioner supra b appraising the development rights we now consider whether mr ehrmann’s appraisal report constituted a qualified_appraisal with respect to the development rights we begin by examining the nature of the development rights in issue transferring development rights in new york city the transferability of the development rights in issue in the instant case is governed by new york city’s zoning resolutiondollar_figure pursuant to the zoning resolution lot owners are 11the concept of development rights stems from restrictions on the use of air rights the rights to construct a building on top of the owner’s land air rights are rooted in the bundle of rights associated with land ownership the new york court_of_appeals has explained the concept of air rights as follows a ir rights at the heart of the concept of zoning lot merger have historically been conceived as one of the continued not permitted to construct buildings larger than a certain bulk determined by multiplying the lot’s area by the far established for the lot by the zoning resolution new york n y zoning resolution sec for example the owner of a big_number square-foot lot with an far of would not be allowed to construct a building with a floor area of more than big_number square feet the zoning resolution defines many different zoning districts which permit development in varying degrees see new york n y zoning resolution secs creating zoning districts to laying out bulk restrictions for residential districts to laying out bulk restrictions for commercial districts to laying continued bundle of rights associated with ownership of the land rather than with ownership of the structures erected on the land air rights are incident to the ownership of the surface property -- the right of one who owns the land to utilize the space above it this right has been recognized as an inherent attribute of the ownership of land since the earliest times as reflected in the maxim cujus est solum ejus est usque ad coelum et ad inferos to whomsoever the soil belongs he owns also to the sky and to the depths macmillan inc v cf lex associates n e 2d n y internal citations omitted however the zoning resolution limits the use of those air rights and gives property owners the limited ability to transfer those air rights new york city enacted the original zoning resolution during in response to concerns about the shadows cast by newly constructed skyscrapers see note development rights transfer in new york city yale l j because the original height and setback limitations proved insufficient to constrain crowding growth the zoning resolution was amended during to incorporate far limitations see id pincite out bulk restrictions for manufacturing districts the zoning designation and attendant development rights assigned to a parcel depend on factors such as neighborhood character access to public transportation and street width marcus air rights in new york city tdr zoning lot merger and the well-considered plan brook l rev for the most part rights to develop the lots are stationary and may not be transferred to other lots but the zoning resolution provides several means by which the owner of one lot may transfer some of the unused development rights associated with that lot to another see new york n y zoning resolution secs defining zoning lot and explaining merged zoning lots transfer of development rights from landmark sites see also landis et al transferring development rights in new york city n y l j date marcus supra selver sillerman transfers of development rights what’s new -- and what is not n y l j date the amount of unused development rights associated with a given lot is the difference between the actual floor area of the building constructed on the lot and the maximum floor area that would be permitted for that lot under the zoning resolution when new york city’s zoning resolution was first amended to incorporate far limitations during it permitted only one means of transferring unused development rights property owners were allowed to transfer those unused development rights to adjacent properties on the same block via a zoning lot merger 438_us_104 marcus supra pincite during a new ordinance was enacted that gave additional transfer opportunities to owners of properties that the landmarks preservation commission had designated landmarksdollar_figure penn central transp co v city of new york supra pincite under that ordinance unused development rights could be transferred from landmark sites to properties across the street or across an intersection id during another amendment further increased options for transferring development rights in certain commercial districtsdollar_figure id under the new amendment development rights from a landmark could be transferred to any lot in a chain of contiguous properties under common ownership as long as part of 12during in response to concerns about the destruction of buildings with significant historical architectural and cultural value new york city adopted its landmarks preservation law 438_us_104 see n y city admin code ch sec_303 the task of administering the law was given to the landmarks preservation commission penn central transp co v city of new york supra pincite see new york city charter ch sec the landmarks preservation commission was given the power to designate landmarks interior landmarks and historic districts n y city admin code ch sec_303 13the and amendments were enacted to ensure that the owners of grand central terminal would have options to sell their unused development rights penn central transp co v city of new york supra pincite the chain was contiguous to or across the street from the landmark site id a chain of common ownership could extend across streets or intersections id see new york n y zoning resolution secs to 74-dollar_figure aside from special transfer rights granted to certain districts zoning lot mergers and 14zoning resolution sec provides in all districts except r1 r2 r3 r4 or r5 districts or c1 or c2 districts mapped within such districts for developments or enlargements the city planning commission may permit development rights to be transferred to adjacent lots from lots occupied by landmark buildings for the purposes of this section the term adjacent lot shall mean a lot that is contiguous to the lot occupied by the landmark building or other structure or one that is across a street and opposite to the lot occupied by the landmark building or other structure or in the case of a corner lot one that fronts on the same street intersection as the lot occupied by the landmark building or other structure it shall also mean in the case of lots located in c5-3 c5-5 c6-6 c6-7 or c6-9 districts a lot contiguous or one that is across a street and opposite to another lot or lots that except for the intervention of streets or street intersections form a series extending to the lot occupied by the landmark building or other structure all such lots shall be in the same ownership 15two such special districts are the special south street seaport district and the theater subdistrict the special south street seaport district was created during and it allowed excess development rights from certain lots in the core of the district to be transferred to designated receiving lots near the periphery of the district peck slip associates llc v city council of new york n y s 2d sup ct see new york n y zoning resolution secs to -69 during the zoning resolution was amended to authorize the transfer of development rights from listed theaters to receiving sites anywhere within the theater subdistrict fisher v giuliani continued transfers from landmarks to adjacent properties linked by a chain of common ownership remain the only means by which property owners may transfer their unused development rights see fisher v giuliani n y s 2d app div see also kruse constructing the special theater subdistrict culture politics and economics in the creation of transferable development rights urb law mr friedberg’s ability to transfer the unused development rights the parties disagree about whether mr friedberg could transfer the unused development rights as we explained above with the exception of properties in a few specially designated districts there are only two means by which a property owner can transfer unused development rights through a zoning lot merger or through the sale of unused development rights to a property linked to that property by a chain of common ownership however the second option is available only to owners of properties that have been designated landmarks by the landmarks preservation commission see new york n y zoning resolution sec respondent contends that because the subject property has not been designated a landmark mr friedberg’s options for transferring the unused development rights are continued n y s 2d app div see new york n y zoning resolution sec limited to the first option petitioners do not squarely address respondent’s argument because petitioners failed to identify the relevant law governing the transfer of development rights in new york city petitioners premise their arguments regarding the sale of their development rights on the new york state law that authorizes cities to set up transferable development rights programs see n y gen city law sec 20-f mckinney that law provides in addition to existing powers and authorities to regulate by planning or zoning including authorization to provide for transfer of development rights pursuant to other enabling law the legislative body of any city is hereby empowered to provide for transfer of development rights subject_to the conditions hereinafter set forth and such other conditions as the city legislative body deems necessary and appropriate that are consistent with the purposes of this section except that in cities of over one million any transfer of development rights shall be provided in the zoning ordinance after adoption by the city planning commission and board_of estimate nothing in this section shall be construed to invalidate any provision for the transfer of development rights heretofore or hereafter developed by any local legislative body or in the case of cities over one million by the board_of estimate id as the state law makes clear it was not intended to invalidate or supplant any existing transferable development rights program indeed the law’s only effect is to enable local governments to enact transferable development rights programs similar to the one already adopted by new york city new york city’s zoning resolution already in place well before the state enacted new york general city law section 20-f remains the law governing the transfer of development rights in new york city as noted above new york city’s zoning resolution generally permits development rights transfers only via zoning lot mergers and from lots occupied by landmark buildings or other structures new york n y zoning resolution secs section of the zoning resolution stipulates that a landmark building or other structure shall include any structure designated as a landmark by the landmarks preservation commission and the board_of estimate it also expressly states that it does not permit the transfer of development rights from structures within historic districts no transfer of development rights is permitted pursuant to this section from those portions of zoning lots used for cemetery purposes any structures within historic districts statues monuments or bridges id 16during city planners floated a proposal that would have allowed owners of smaller midblock townhouses on the upper east side’s cross-streets to transfer their unused development rights to developers building high-rise buildings fronting the avenues note development rights transfer in new york city yale l j pincite however the plan met strong resistance from neighborhood residents and was defeated id pincite critics feared that such a plan would change the character of the neighborhood endanger light to the midblock areas and overburden the neighborhood’s already crowded subway line id pincite accordingly mr friedberg’s options for transferring the unused development rights from the subject property were quite limited because his property was not a designated landmark his only option for transferring his unused development rights was via a zoning lot merger given that all of the adjacent lots were also within the boundaries of the upper east side historic_district owners of those properties were unlikely to be able to use the unused development rights because any alteration of those buildings would have required approval by the landmarks preservation commission which must approve all alterations of buildings within historic districts see n y city admin code ch sec_305 however we cannot conclude as a matter of law that mr friedberg was unable to transfer or otherwise use the development rights although any use of those development rights would have been subject_to the review of the landmarks preservation commission it is not certain that the landmarks preservation commission would have blocked all use of the development rights rather whether the development rights could have been used is a disputed issue of material fact accordingly that issue is not ripe for summary_judgment the market for development rights because of new york city’s restrictions on transferring development rights the value of the development rights associated with any given property is highly variable whether those development rights have any value depends upon the demand for development rights in the immediate vicinity of the property the new york court_of_appeals has described the difficulties of selling development rights by compelling the owner to enter an unpredictable real_estate market to find a suitable receiving lot for the rights or a purchaser who would then share the same interest in using additional development rights the amendment renders uncertain and thus severely impairs the value of the development rights before they were severed fred f french investing co inc v city of new york n e 2d n y at least one new york court has refused to allow a condemnation_award with regard to the unused development rights attached to a property because valuing those rights was too speculative see in re new york state urban dev corp n y s 2d app div that court considered whether there was any probability that those development rights would have been used in the reasonably near future id this court has similarly required that when considering the highest_and_best_use of property only those uses that are reasonably likely in the near future should be considered hilborn v commissioner t c pincite respondent contends that mr ehrmann’s report fails to address the probability that the unused development rights attached to the subject property would be purchased in the near future respondent contends that without such an assessment the appraisal report is not a qualified_appraisal petitioners contend that the court may consider such issues in deciding how much weight to accord the appraisal report but that those issues are irrelevant to deciding whether the appraisal report counts as a qualified_appraisal the market for unused development rights in the immediate vicinity of the subject property is an important factor in determining the market price of those rights and mr ehrmann’s report acknowledged that the subject property’s location would influence the demand for those rights he made a downward adjustment in his estimate of the price for the development rights to account for the subject property’s location in a historic_district but he did not explain in any detail how he estimated the appropriate adjustment or arrived at his conclusion regarding the market demand for the development rights whether his report adequately assessed the market demand for those rights is a disputed issue of material fact that we will not decide on the parties’ motions for partial summary_judgment mr ehrmann’s appraisal of the development rights respondent contends that mr ehrmann’s appraisal of the development rights was not a qualified_appraisal within the meaning of sec_1_170a-13 income_tax regs and that we should therefore sustain respondent’s disallowance of petitioners’ deduction for the donation of those rights in his appraisal report mr ehrmann sought to estimate a value for the unused development rights associated with the subject property to do so he located five transactions involving properties near the subject property where development rights had been purchased from neighboring properties however his method of using those comparable transactions to estimate the value of the unused development rights on the subject property was inconsistent in several cases it contained mathematical errors and erroneous assumptions with regard to two of the transactions he considered comparable mr ehrmann erred by using the price per square foot of the development rights already attached to the land instead of the price per square foot of the additional development rights purchased for instance his second comparable transaction consisted of the purchase of a parcel a purchase of development rights from an adjacent parcel and the purchase of additional development rights from inclusionary housing bonusesdollar_figure the parcel which had an far of dollar_figure and a land area of big_number square feet was purchased for dollar_figure million the price per square foot for the floor area associated with the parcel was therefore dollar_figure in addition the purchaser paid dollar_figure million for big_number square feet of development rights and dollar_figure million for big_number 17new york city’s inclusionary housing program grants bonus floor area in exchange for the creation or preservation of affordable housing units for low-income households see new york n y zoning resolution secs to -962 square feet of inclusionary housing bonus floor area the prices per square foot for the development rights and the inclusionary housing bonuses were both dollar_figure per square foot however mr ehrmann reported that the price per square foot for the entire transaction was dollar_figure which was actually the price per square foot of the development rights attached to the parcel not the price per square foot for the additional floor areadollar_figure mr ehrmann erred when he used dollar_figure the comparable part of the transaction was the purchase of the additional floor area the price for which was dollar_figure per square foot mr ehrmann made a similar error with regard to his fourth comparable transaction that transaction included a land area of big_number square feet with an far of plus an additional big_number square feet of development rights previously acquired from adjacent parcels although it is unclear how mr ehrmann arrived at a price per square foot of dollar_figure it appears that he calculated that price by dividing the total price of the building after it had been constructed using additional development rights by the development rights that came with the parceldollar_figure in other words his calculation completely ignored the 18we presume mr ehrmann meant to use the price per square foot for floor area associated with the parcel which we calculate to be dollar_figure but that his calculation was off because of a minor rounding or transcription error 19carrying out that calculation yields a price per square continued development rights acquired from adjacent parcels that number is clearly an inaccurate measure of the price per square foot of the development rights mr ehrmann made a different error with regard to his first comparable transaction the building’s zoning permitted an far of with a land area of big_number square feet and the building had acquired additional development rights from adjacent parcels of big_number square feet and big_number square feet from inclusionary housing bonuses the building therefore had a total of big_number square feet available mr ehrmann reported that the price per square foot was dollar_figure it is unclear whether mr ehrmann understood what his reported price per square foot actually represented because he wrote that the price per square foot noted above is applicable to the additional development rights reproducing mr ehrmann’s calculation shows that the reported price per square foot was actually the average price per square foot for the entire building not just the additional development rights that calculation assumes the same price per square foot for both the original parcel and the additional development rights without further explanation such an assumption is unrealistic for instance in his second comparable transaction continued foot of dollar_figure close to mr ehrmann's dollar_figure we assume the numbers are slightly off because of rounding or transcription errors made by mr ehrmann there was more than a dollar_figure-per-square-foot difference between the price per square foot for the additional development rights and that for the rights associated with the original parceldollar_figure the fifth comparable considered by mr ehrmann was actually two separate purchases of development rights from two different sites one purchase of big_number square feet for dollar_figure per square foot and one purchase of big_number square feet for dollar_figure per square foot both of those purchases were used to develop one property both sales would seem to be comparable to the type of sale mr ehrmann claims mr friedberg would have been able to make with the unused development rights on the subject property inexplicably instead of using each of the two sales as an individual comparable mr ehrmann combined them and used their weighted average of dollar_figure as his fifth comparable saledollar_figure such a calculation makes little sensedollar_figure 20the reason the price per square foot for the development rights associated with the land parcel will usually be higher than the price per square foot for the additional development rights is that the development rights associated with the land parcel include the land itself and the land is necessary to actually build anything the purchased development rights also known as air rights only allow the purchaser to build a bigger building on the land already owned 21the weighted average is actually dollar_figure per far foot we assume mr ehrmann’s figure is different because of minor rounding or transcription errors 22assuming that those sales were comparable to the hypothetical sale of the unused development rights associated with the subject property mr ehrmann should have simply used continued only mr ehrmann’s third comparable provided a reasonable estimate of what development rights might sell for in the neighborhood of the subject property his third comparable was the sale of big_number square feet of development rights for dollar_figure million or dollar_figure per square foot using mr ehrmann’s numbers he arrived at an average price per square foot of dollar_figure he then discussed general adjustments relating to time location number of square feet of floor area zoning and landmark limitations he did not specifically describe those adjustments but concluded that the price per square foot of the unused development rights on the subject property was dollar_figure per square foot mr ehrmann multiplied dollar_figure by the amount of the unused development rights he calculated for the subject property that calculation gave him a total value of dollar_figure inexplicably mr ehrmann then added that amount to his previously estimated before value of the subject property he did not explain why it was proper to do so unless all of the comparable properties mr ehrmann used to estimate a before value for the subject property had zero unused development rights a continued the price per square foot of each of them as a separate comparable transaction it was an error to average them if mr ehrmann had been using the sales as separate comparable transactions it would also have been inappropriate for him to calculate a weighted average proposition that seems highly unlikely the value of the unused development rights would already have been reflected in the market prices for those properties therefore mr ehrmann’s estimate of the before value for the subject property which was based on the sales of those comparable properties would have also included the value of the development rightsdollar_figure if the development rights were worth dollar_figure mr ehrmann should have subtracted that value from the before value not added itdollar_figure respondent contends that mr ehrmann’s appraisal of the unused development rights associated with the subject property is not a qualified_appraisal because inter alia it failed to include the method and specific basis for valuing the development rights petitioners contend that mr ehrmann’s appraisal used 23it is worth noting that the floor area of development rights associated with a particular parcel is directly affected by its zoning designation which sets the far for that parcel ie a zoning designation with a higher far allots more floor area of development rights to a given parcel if those development rights can be used or sold the floor area of development rights associated with a given parcel will affect that parcel’s value that fact is inconsistent with mr ehrmann’s assertion in his report that different zoning designations would have no effect on the values of his chosen comparable properties 24additionally we note that separately appraising the unused development rights and the facade easement may have overstated the loss in value due to the conservation_easement if it is true as mr ehrmann wrote in his report that one of the reasons facade easements decrease the values of eased properties is that facade easements restrict the rights of owners to develop those properties then mr ehrmann’s calculations would double count some of the loss in value because of the restriction of the development rights the comparable sales_method to value the development rights and that he explained the basis for his valuation it is true that mr ehrmann claimed to be applying the comparable sales_method and that he identified what purported to be five comparable sales as noted above because of some erroneous assumptions and calculation errors many of mr ehrmann’s comparable sales were not truly comparable instead some of his prices per square foot reflected either prices per square foot of properties that included no additional development rights his second and fourth comparable sales or prices that reflected an average price per square foot for both the development rights attached to the property and additional development rights his first comparable sale mr ehrmann should have been comparing the purchase prices per square foot for additional development rightsdollar_figure 25mr ehrmann’s errors are puzzling in light of the fact that his report contained five purchases of development rights that would have been comparable to the potential sale of development rights from the subject property yet he failed to identify them as comparable his report contained the following five comparable purchases of development rights the purchases of development rights and inclusionary housing floor area that were part of his second comparable both of which were priced at dollar_figure per square foot the purchases of development rights that were part of his fifth comparable which were priced at dollar_figure and dollar_figure per square foot and the third comparable priced at dollar_figure the average of those five purchases is dollar_figure per square foot or excluding the dollar_figure purchase which is more than twice the price of any of the other purchases and seems to be an outlier the average is dollar_figure per square foot despite its many errors mr ehrmann’s appraisal of the development rights explained the method of valuation and the specific basis for the valuation his valuation was not merely a mechanical application of some predetermined figure accordingly that portion of the appraisal report does not suffer from the same fatal flaws as mr ehrmann’s appraisal of the facade easement we therefore conclude that respondent is not entitled to summary_judgment with respect to the issue of whether mr ehrmann’s appraisal of the development rights constituted a qualified_appraisal because disputed issues of material fact remain we will also deny petitioners’ motion for partial summary_judgment with respect to the same issue ii whether petitioners attached a fully completed appraisal_summary to their tax_return sec_1_170a-13 income_tax regs lays out the required contents of the appraisal_summary which include b a description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property that was appraised is the property that was contributed c in the case of tangible_property a brief summary of the overall physical condition of the property at the time of the contribution d the manner of acquisition eg purchase exchange gift or bequest and the date_of_acquisition of the property by the donor e the cost or other basis of the property respondent contends that petitioners’ form_8283 complied with none of those requirements respondent contends that because of those omissions the entire contribution should be disallowed respondent cites three cases that he contends support his argument petitioners contend that they substantially complied with the requirements in the regulations additionally they argue that they were not required to provide information about their acquisition of or basis in the subject property because the contribution was not a contribution of tangible_property the form_8283 attached to petitioners’ return described the subject property by providing its street address described its condition as historic facade conservation_easement and provided no information about mr friedberg’s acquisition of the subject property the form_8283 does not by itself describe the subject property in sufficient detail for respondent to determine the nature of the contribution indeed it does not even mention the contribution of the unused development rights however petitioners also attached to their tax_return the appraisal report completed by mr ehrmann which describes the contributions of a facade easement and unused development rights in sufficient detail petitioners contend that it is not necessary that the appraisal_summary reprise everything in the appraisal they contend it is sufficient if the appraisal_summary enables respondent to identify the subject property in the appraisal report which it does respondent contends that we have held that taxpayers are not entitled to charitable_contribution deductions when they fail to provide fully completed appraisal summaries however in each of the cases respondent cites the taxpayers’ failures to comply with the regulations went significantly beyond the failure to fully complete the appraisal_summary in 118_tc_334 the taxpayers did not provide a qualified_appraisal did not provide an appraisal_summary and failed to keep the records required by the regulations in hewitt v commissioner t c pincite the taxpayers similarly did not obtain a qualified_appraisal and attached no appraisal_summary to their tax returns finally in smith v commissioner tcmemo_2007_368 affd 364_fedappx_317 9th cir we held that the taxpayers were not entitled to charitable_contribution deductions where the forms attached to their returns were in many respects either improperly or incompletely prepared the taxpayers did not establish that their accountant was a qualified_appraiser they never produced some of the appraisal reports none of the appraisal reports were prepared or submitted on time and those appraisal reports that they did submit did not adequately explain the appraisal methodology as required by the regulations accordingly our holdings in those cases do not support respondent’s argument that petitioners are not entitled to a charitable deduction solely because they submitted a form_8283 that was partially incomplete in bond v commissioner t c pincite we held that because the form_8283 the taxpayers attached to their return provided all of the important facts except for the qualifications of the appraiser the taxpayers substantially complied with the regulations despite their failure to attach an appraisal report to their return in the instant case petitioners attached to their return an appraisal report that contained all of the required information but they failed to fully complete the form_8283 summarizing the contents of the appraisal report if as we held in bond a fully completed form_8283 can excuse the failure to attach an appraisal report under the doctrine_of substantial compliance then a fortiori attaching a completed appraisal report may excuse the failure to fully complete a form_8283 under the doctrine_of substantial compliance consequently we conclude that petitioners substantially complied with the requirements of sec_1 170a- c ii income_tax regs their minor omissions on the form_8283 are not enough by themselves to disqualify the contribution iii whether the purported transfer of unused development rights was a valid transfer permitting a deduction pursuant to sec_170 or whether the conservation deed otherwise restricted the use of the development rights petitioners contend that mr friedberg’s donation of the unused development rights is deductible pursuant to sec_170 without regard to whether the donation was a qualified_conservation_contribution pursuant to sec_170 petitioners argue that mr friedberg’s unused development rights are transferable under new york city law and that they are a separate interest_in_real_property petitioners contend that mr friedberg transferred those development rights to nat by the conservation deed respondent contends that the conservation deed signed by mr friedberg and nat did not validly transfer to nat the unused development rights associated with the subject property or otherwise restrict mr friedberg’s ability to use those rights respondent’s contention is based on the premise that development rights in new york city can be transferred only pursuant to the zoning resolution respondent contends that even if mr friedberg did validly transfer unused development rights to nat pursuant to the terms of the conservation deed those rights were extinguished upon transfer and are therefore worthless the conservation deed is ambiguous as to whether mr friedberg transferred the unused development rights to nat or merely restricted the use of those rights the conservation deed states that except as allowed by nat there shall be no use exercise or transfer by grantor or grantee of development rights from or to the property it later states that all current and future development rights have been donated to the grantee for the purpose of forever i removing such rights from the property ii extinguishing such rights and iii further preventing the transfer or use of such rights for the reasons explained below we need not decide whether the conservation deed effectively transferred the unused development rights to nat petitioners contend that mr friedberg’s donation of the unused development rights is deductible under sec_170 regardless of whether that donation is a qualified_conservation_easement their contention appears to be that even if the donation served no conservation_purpose it was still the contribution of something valuable and petitioners should be entitled to a deduction for the value of that gift yet according to the terms of the conservation deed whereby petitioners contend mr friedberg contributed the unused development rights those development rights were contributed for the purpose of extinguishing those rights and nat agreed not to use or transfer them accordingly although the development rights may have had some value before the transfer to nat pursuant to the terms of that transfer those development rights became worthless pursuant to the regulations the value of a charitable_contribution of property other than money is the fair_market_value of the property at the time of contribution sec_1 170a- c income_tax regs petitioners appear to contend that the value of such a contribution should be the fair_market_value at the moment before contribution even if the terms of the contribution itself make the property worthless upon consummation we conclude that such an interpretation is inconsistent with the regulations we conclude that even if mr friedberg transferred the unused development rights to nat according to the terms of the conservation deed the value of those development rights was zero consequently unless mr friedberg’s donation of the unused development rights served some conservation_purpose that permits it to qualify for a deduction under sec_170 petitioners are not entitled to a deductiondollar_figure 26whether mr friedberg’s transfer or restriction of the unused development rights served a conservation_purpose is not an issue raised in the parties’ motions consequently we need not decide whether the instant case is distinguishable from herman v commissioner tcmemo_2009_205 where we held that the taxpayer’s contribution of a conservation_easement that restricted the use of some of his unused development rights was not a qualified_conservation_contribution because it did not preserve a historically important land area or a certified_historic_structure within the meaning of sec_170 in the alternative petitioners contend that the conservation deed restricted mr friedberg’s use of the unused development rights petitioners stated in their answers to respondent’s interrogatories that the conservation deed transferred the development rights to nat not that it restricted those rights respondent contends that petitioners should be bound by their responses to interrogatories and that therefore we should not consider petitioners’ alternative argument we disagree our interpretation of the conservation deed is not bound by petitioners’ interpretation of that document whether or not the conservation deed effectively transferred the unused development rights to nat it did restrict mr friedberg’s use of development rights associated with the subject property mr friedberg granted a conservation_easement to nat at common_law an easement is a permanent right conferred by grant or prescription authorizing one landowner to do or maintain something on the adjoining land of another which although a benefit to the land of the former and a burden upon the land of the latter is not inconsistent with general ownership trustees of freeholders commonalty of the town of southampton v jessup n e n y new york has enacted a statute permitting the creation of conservation easements see n y envtl conserv law sec mckinney pursuant to the statute a conservation_easement may be created or conveyed by a written instrument that complies with new york’s statute_of_frauds id n y gen oblig law sec mckinney a conservation_easement may be held by a not- for-profit conservation organization and is of perpetual duration unless otherwise provided in the instrument granting it n y envtl conserv law sec the easement must be recorded in the appropriate office and it must provide an adequate legal description of the property encumbered id conservation easements are distinct from easements recognized at common_law in that conservation easements are statutorily excepted from many defenses that might defeat common_law easements id stonegate family holdings inc v revolutionary trails inc n y s 2d app div for instance conservation easements need not be appurtenant to an interest_in_real_property n y envtl conserv law sec stonegate family holdings inc v revolutionary trails inc supra pincite granting a conservation_easement on a tract of land does not actually transfer ownership of the property but it may nonetheless restrict the grantee’s use of it according to the conservation deed in addition to granting a facade easement on the subject property mr friedberg gave up his right to any future use or transfer of development rights the conservation deed complied with new york’s requirements for a valid conservation_easement accordingly we conclude that by grant of the conservation deed mr friedberg restricted the use of development rights associated with the subject property nonetheless petitioners are not entitled to a deduction unless the restriction of the unused development rights served a conservation_purpose that permits it to qualify for a deduction pursuant to sec_170 see llc v commissioner tcmemo_2011_84 herman v commissioner tcmemo_2009_205 iv whether the donation of the conservation_easement was granted in perpetuity respondent contends that mr friedberg’s contribution of the conservation_easement was not a qualified_conservation_contribution because it was not granted in perpetuity respondent’s contention is based on the following language from the conservation deed nothing herein contained shall be construed to limit nat’s right to give its consent eg to changes in the facade or to abandon some or all of its rights hereunder abandonment clause petitioners contend that respondent’s argument ignores prior decisions of this court in which we have held that deeds with similar language nonetheless granted conservation easements in perpetuity a contribution will not be considered to be exclusively for conservation purposes unless such purposes are protected in perpetuity perpetuity requirement sec_170 see also sec_1_170a-14 income_tax regs however the regulations permit a deduction even if the deed allows some future development as long as the terms of the restrictions require that such development conform with appropriate local state or federal standards for construction or rehabilitation within the district sec_1_170a-14 income_tax regs in simmons v 646_f3d_6 d c cir affg tcmemo_2009_208 the court_of_appeals for the district of columbia circuit considered whether language identical to the abandonment clause violated the perpetuity requirement the court_of_appeals rejected the commissioner’s argument that such language violates the perpetuity requirement it noted that the deeds imposed obligations upon the taxpayer in perpetuity id pincite it also noted that the terms of the deeds stated that they would survive any termination of the grantor’s or grantee’s existence although the deeds did not specify what would happen if the donee organization dissolved the court_of_appeals found it sufficient that district of columbia law provides that such easements would be transferred to another organization performing similar activities similarly mr friedberg’s conservation deed imposes obligations in perpetuity and states that the easement will survive any termination of the grantor’s or grantee’s existence the conservation deed also states that nat may not transfer the easement except to another ‘qualified organization’ described in sec_170 new york state law provides that a conservation_easement held by a not-for-profit organization may be modified or extinguished only a as provided in the instrument creating the easement or b in a proceeding pursuant to section nineteen hundred fifty-one of the real_property actions and proceedings law or c upon the exercise of the power of eminent_domain n y envtl conserv law sec mckinney a new york court could permit abandonment of a conservation_easement only if it found no actual and substantial benefit either because the purpose of the restriction has already been accomplished or by reason of changed conditions or other cause its purpose is not capable of accomplishment or for any other reason n y real prop acts law sec mckinney we conclude that the terms of the conservation deed combined with the new york state law governing conservation easements do not violate the perpetuity requirement of sec_170 however the court_of_appeals in simmons also considered a factual issue the remoteness of the possibility that the donee would actually abandon its rights even though the conservation_easement might be protected by the terms of the conservation deed and even by state law it is nonetheless essential that the donee actively monitor the property and enforce any violations of the terms of the easement in simmons v commissioner supra pincite the court_of_appeals stated that the commissioner has not shown the possibility l’enfant the donee will actually abandon its rights is more than negligible the court_of_appeals noted that l’enfant has been holding and monitoring easements since yet the commissioner had failed to point to a single instance where l’enfant had abandoned its right to enforce those easements id similarly in stotler v commissioner tcmemo_1987_275 this court rejected the commissioner’s argument that the contribution failed the perpetuity requirement because we concluded that the possibility the donee would abandon the conservation_easement was so remote as to be negligible as in simmons our decision in stotler was based in part on facts in the record that allowed us to conclude that the possibility of abandonment was remote in the instant case the parties have not addressed nat’s history of enforcing easements and there is nothing in the record that would allow us to consider the likelihood that nat would abandon the easement accordingly although we hold the abandonment clause does not violate the perpetuity requirement we do not decide whether the possibility that nat would abandon the conservation_easement is so remote as to be negligible we conclude that respondent is entitled to summary_judgment on the issue of whether petitioners submitted a qualified_appraisal with respect to the facade easement consequently we hold that petitioners are not entitled to a charitable_contribution_deduction with respect to the facade easement we further conclude that petitioners are entitled to summary_judgment on the issues of whether their appraisal report substantially complied with sec_1_170a-13 h and i income_tax regs whether their appraisal_summary substantially complied with sec_1_170a-13 income_tax regs and whether the conservation deed restricted mr friedberg’s use of the unused development rights with respect to the remaining issues including the issue of whether petitioners submitted with their return a qualified_appraisal with respect to the development rights we conclude that there are disputed issues of material fact and we will deny the parties’ motions for partial summary_judgment in reaching these holdings we have considered all the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without merit to reflect the foregoing an appropriate order will be issued