t c memo united_states tax_court steven rothman and rory rothman petitioners v commissioner of internal revenue respondent docket no filed date frank agostino reuben g muller eduardo s chung lawrence m brody and jairo g cano for petitioners marissa j savit peggy gartenbaum and nancy j lee for respondent memorandum opinion laro judge during petitioners contributed a historic preservation facade easement easement on their residence in brooklyn new york brooklyn in respect thereof petitioners claimed a noncash charitable_contribution_deduction of dollar_figure on their joint federal_income_tax return return and an excess charitable_contribution carryover of dollar_figure on their joint federal_income_tax return return respondent disallowed the deduction and the carryover in full determining respective deficiencies of dollar_figure and dollar_figure in petitioners’ and federal_income_tax with respect to the noncash contribution respondent determined for and that petitioners were liable for accuracy-related_penalties under sec_6662 h or alternatively for accuracy-related_penalties under sec_6662 and b or this case is presently before the court on petitioners’ motion for partial summary_judgment petitioners’ motion and respondent’s motion for partial summary_judgment respondent’s motion each party has filed with the court a response to the other’s motion and two supporting memorandums of law the parties agree that this case is ripe for partial summary adjudication as to whether petitioners obtained a qualified_appraisal in connection with their federal_income_tax 1petitioners also claimed on the return a cash charitable_contribution_deduction of dollar_figure respondent disallowed the cash contribution deduction in full and determined a accuracy-related_penalty with respect thereto neither the deductibility of the cash contribution nor the related penalty are before the court at this stage of the proceeding 2unless otherwise indicated section references are to the applicable version of the internal_revenue_code and rule references are to the tax_court rules_of_practice and procedure some dollar amounts are rounded reporting of the noncash donation we decide whether the appraisal attached to the return was a qualified_appraisal for purposes of sec_170 we hold it was not though we agree with petitioners as they assert in their response that there are material issues of fact as to whether the reasonable_cause exception in sec_170 excuses their noncompliance consequently we shall deny petitioners’ motion and we shall grant respondent’s motion in that petitioners did not obtain a qualified_appraisal background we derive the facts in this background section from the parties’ motion papers the exhibits submitted therewith and the pleadings petitioners resided in new york when they petitioned the court in petitioners purchased their brooklyn residence subject property in fee simple the subject property is a four-story townhouse which at all relevant times has been used as a single-family residence and a therapy office the subject property is within the brooklyn heights historic_district district and it is designated by the u s department of the interior national park service as a 3although we may refer to petitioners’ contribution of the easement as a donation we render no opinion as to whether the contribution was made with charitable intent and without the receipt or expectation of adequate_consideration see 477_us_105 certified_historic_structure that contributes to the significance of the district citimortgage inc and wachovia bank n a each held a mortgage collectively mortgages on the subject property at all pertinent times during petitioners executed a conservation deed of easement deed of easement granting to the national architectural trust nat an open space and architectural facade easement on the subject property the deed of easement prohibited petitioners from altering that portion of the subject property’s facade visible from the street level opposite that property without nat’s express written consent the deed of easement was dated date and petitioners’ signatures were notarized on date nat’s president accepted the deed of easement on nat’s behalf on date the new york city department of finance office of the city register recorded the deed of easement on date in connection with the contribution petitioners retained mitchell maxwell jackson inc mmj a new york real_estate appraisal services firm to appraise the subject property and the easement alexander j rosado who was licensed as a certified residential real_estate appraiser by the state of new york from at least 4nat currently known as the trust for architectural easements was at all relevant times tax exempt under sec_501 and a qualified_organization under sec_170 date through date inspected the subject property and completed the appraisal steven m knobel who was licensed as a certified residential real_estate appraiser by the state of new york state from at least date through date supervised the appraisal mmj was paid dollar_figure for the services of messrs rosado and knobel in a uniform residential appraisal report appraisal dated date messrs rosado and knobel estimated the market_value of the subject property as dollar_figure million as of date the appraisal gave a legal description and address of the subject property generally described the property’s condition and attached interior and exterior pictures of the property the appraisal identified mmj as the company engaged to prepare the appraisal and it named mr rosado as the appraiser and mr knobel as the supervisory appraiser we hereafter refer to mr rosado as the appraisal’s sole author 5the appraisal states that the subject property is physically and functionally adequate ‘as is’ no major repairs or modernizations are necessary upon inspection the subject was found to be in very good condition overall with a custom designed kitchen and custom designed marble ceramic bath facilities the subject features many ‘turn of the century’ details that generate strong demand for homes within the subject property’s market area the appraisal first used the cost and market data approaches to value the subject property without regard to the easement an addendum to the appraisal addendum stated that petitioners contemplated donating a conservation_easement to nat though the date on which the contribution was or would be made was not specified the addendum included a historical survey of the use and development of easements and it generally identified elements that according to the appraisal negatively affected the value of eased properties mr rosado concluded that the servitude decreased the fair_market_value of the subject property by approximately or dollar_figure explaining on page of the addendum the purpose of this report is to estimate the ‘as is’ value of the subject property and to estimate the impact on the subject property if granted an architectural facade easement this facade easement can and often does have an effect on marketability and the market_value of a property the measurement of this effect or impact is difficult to quantify with any supported precision articles periodicals and books have been written on the subject measurement of the value of the historic easement however in this market area there is no measure or formula that is applicable for all properties the individual properties are so unique that each case 6the appraisal contains contradictory statements as to whether the income approach was also employed to determine the subject property’s market_value without regard to the easement specifically the appraisal’s final reconciliation states that all three classic approaches to value which we understand to include the income approach were considered in reconciling the subject property’s value however the appraisal states also that the income approach was not used must be evaluated on it’s sic own additionally while there are accepted methods for measuring this effect only the market can provide the true test nonetheless there are market measures that provide sufficient data with which to bracket and support a reasonable market indicator mr rosado went on to conclude on page of the addendum that in summary the loss in value is a complex issue while the loss may not be a traditional type of loss the i r s rules and regulations and the laws are clear that preservation of historical areas are the prime concern the most significant manner to prevent builders and developers from destroying historic properties and or areas is to grant easements which legally prevents them from razing classic historical properties historical cities will definitely benefit in the future as our defined historical areas will be preserved in perpetuity as defined and certified by the u s department of interior national register of historic places and the national architectural trust the subject property is an historic example of residential real_estate located in an historic market area it is now generally recognized by the internal_revenue_service that the donation of a facade easement of a property results in a loss of value dedicated charitable_contribution of between and the donation of a commercial property results in a loss of value of between or or higher if development rights are lost the inclusive data support at least these ranges depending on how extensive the facade area is in relation to the land parcel it is our opinion that the presence of the facade conservation_easement would alter the market_value of the subject property in the subject’s market area the appraiser cannot precisely estimate the extent to which this ‘loss in value’ will result from the facade easement due to lack of market data in this situation it is the appraiser’s conclusion that the value of the facade conservation_easement on the subject property would be estimated at dollar_figure which is approximately of the fee simple value of dollar_figure this conclusion is based on consideration of range of value that the i r s has sic historically found to be acceptable as well as historical precedents therefore the presence of the historic facade easement would decrease the fair_market_value of the property rights held by the homeowner of the subject property to dollar_figure petitioners filed the return on or before date claiming thereon a charitable_contribution_deduction of dollar_figure in respect of the easement contribution attached to the return was a copy of the appraisal and form_8283 noncash charitable_contribution part i of section b of the form_8283 containing information on the donated property described the donated property as a historical facade easement on the subject property part iii of section b of the form_8283 declaration of appraiser affirmed that mr rosado holds himself out to the public as an appraiser or that he performs appraisals regularly and that he is qualified to appraise the type of property being valued part iii also reported the date of the appraisal as date even though the appraisal was dated date part iv of section b of the form_8283 donee acknowledgment was signed by nat’s president and confirmed that nat received the donated property on date on the return petitioners claimed an excess charitable_contribution carryover of dollar_figure relating to the noncash contribution respondent issued to petitioners a notice_of_deficiency dated date determining deficiencies in and accuracy-related_penalties with respect to their and federal_income_tax as relevant here respondent disallowed the noncash charitable_contribution_deduction because as he stated petitioners did not establish that the requirements of sec_170 or the regulations thereunder had been met that the value of the easement was dollar_figure or that sec_170 limited the amount of the charitable_contribution_deduction respondent also determined with respect to the noncash contribution that petitioners were liable for accuracy-related_penalties under sec_6662 for gross_valuation_misstatements or in the alternative that petitioners were liable for accuracy-related_penalties under sec_6662 and b for substantial valuation misstatements or still alternatively that petitioners were liable for accuracy-related_penalties under sec_6662 and b and for negligence or disregard of rules or regulations or substantial understatements of income_tax petitioners petitioned the court in response to the notice_of_deficiency discussion i standard of review the court may grant summary_judgment upon all or any part of the legal issues in controversy where the record establishes that there is no genuine issue of material fact and a decision may be rendered as a matter of law rule a and b for purposes of determining which party bears the burden_of_proof we treat respondent as the moving party and petitioners as the adverse_party classifying the parties in this manner is appropriate because the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are drawn most favorably to the party opposing summary_judgment see 369_us_654 249_f3d_115 2d cir 85_tc_812 the parties contend and we conclude that there are no genuine issues of material fact as to whether the appraisal attached to the return was a qualified_appraisal under sec_170 and sec_1_170a-13 income_tax regs ii parties’ arguments petitioners move the court for a partial summary adjudication in their favor as to whether the appraisal attached to the return was a qualified_appraisal for purposes of sec_170 and sec_1_170a-13 income_tax regs according to petitioners the appraisal actually or substantially complied with the requirements of sec_1_170a-13 income_tax regs or alternatively any noncompliance assuming it exists should be excused on the ground of reasonable_cause under sec_170 respondent similarly moves for partial summary_judgment that the appraisal was not qualified because he maintains the report failed to satisfy the requirements of sec_170 sec_1 170a- c i a and b ii a c d f g i j and k income_tax regs and the deficit_reduction_act_of_1984 defra pub_l_no sec stat pincite respondent contends that the substantial compliance doctrine if applicable at all should not be invoked to cure the appraisal’s defects because petitioners neither actually nor substantially complied with the qualified_appraisal requirements we note that respondent does not address whether the reasonable_cause exception in sec_170 otherwise entitles petitioners to the noncash charitable_contribution_deduction claimed iii guiding principles taxpayers are generally allowed a deduction for any charitable_contribution of property made during the taxable_year only if the contribution is verified under regulations prescribed by the secretary sec_170 the amount allowed as a deduction for a noncash contribution of property is the fair_market_value of the 7respondent does not contend and we do not conclude that the mortgages violated the subordination requirement of sec_1_170a-14 income_tax regs see eg mitchell v commissioner t c ___ ___ slip op at p date nor does respondent assert and we decline to conclude that the easement was not protected in perpetuity under sec_170 and sec_1 170a- g ii income_tax regs because nat was not guaranteed a proportionate share of future proceeds in the event of a casualty or condemnation before the mortgages were repaid see eg 134_tc_182 east llc v commissioner tcmemo_2011_84 101_tcm_1380 contributed_property measured as of the donation date see sec_1_170a-1 income_tax regs a deduction claimed for a noncash contribution of property valued at more than dollar_figure is generally denied unless the taxpayers obtain a qualified_appraisal of the donated property and attach to the return for the taxable_year in which the contribution is made such information regarding the property and the appraisal as the secretary requires sec_170 c sec_170 and sec_1_170a-13 income_tax regs collectively require taxpayers claiming a noncash charitable_contribution_deduction of more than dollar_figure to obtain a qualified_appraisal of the contributed_property attach to the return first claiming the deduction a fully completed appraisal_summary ie form and maintain records containing the information required in sec_1 170a- b ii income_tax regs another relevant statutory provision is defra sec through which congress directed the secretary to prescribe regulations requiring any individual closely_held_corporation or personal services corporation claiming a charitable_contribution_deduction for which the claimed value of the contributed_property is 8the requirements of sec_170 apply to petitioners’ donation of the easement to nat because that contribution was completed after the effective date of that section ie after date see american_jobs_creation_act_of_2004 pub_l_no sec_883 sec_118 stat pincite more than dollar_figure to obtain a qualified_appraisal congress defined the term qualified_appraisal to mean an appraisal prepared by a qualified_appraiser that includes among other information a description of the property appraised the fair_market_value of the property on the contribution date and the specific basis for valuation a statement that the appraisal was prepared for income_tax purposes the qualifications of the appraiser and any additional information as the secretary may prescribe by regulation defra sec a stat pincite pursuant to his grant of authority under defra the secretary promulgated sec_1_170a-13 income_tax regs see t d 1988_1_cb_99 stating in the preamble that amendments to the regulations interpreting sec_170 were promulgated to conform existing regulations to defra sec regulations issued under sec_170 define a qualified_appraisal as an appraisal document prepared by a qualified_appraiser no earlier than days before the contribution date and no later than the extended due_date of the return first claiming the deduction sec_1_170a-13 income_tax regs additionally a qualified_appraisal must include the following information 9a qualified_appraisal must also not involve an appraisal fee determined in whole or in part on a percentage of the property’s appraised value sec_1 170a- c d income_tax regs 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 the identifying number of the qualified_appraiser and if the qualified_appraiser is acting in his or her capacity as an employee of any person whether an individual corporation or partnerships sic 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 petitioners frame the initial issue to be decided as whether the provisions of sec_1_170a-13 income_tax regs are mandatory requiring strict compliance or directory requiring substantial compliance that question was first answered in the context of the foregoing regulation in 100_tc_32 at issue in bond was whether the taxpayers were entitled to a charitable_contribution_deduction for the contribution of two blimps to a charitable_organization the bond parties agreed upon the value of the contributed_property that a qualified_appraiser completed the appraisal and that the donee organization was qualified to receive the contribution the commissioner however asserted that the taxpayers were not entitled to the claimed deduction because they failed to obtain and attach to their return a separate written appraisal including the reporting information specified in sec_1_170a-13 income_tax regs in concluding that the requirements of sec_1_170a-13 income_tax regs were directory as opposed to mandatory we explained i t is apparent that the essence of sec_170 is to allow certain taxpayers a charitable deduction for contributions made to certain organizations it is equally apparent that the reporting requirements of sec_1_170a-13 income_tax regs are helpful to respondent in the processing and auditing of returns on which charitable deductions are claimed however the reporting requirements do not relate to the substance or essence of whether or not a charitable_contribution was actually made we conclude therefore that the reporting requirements are directory and not mandatory id pincite citations omitted this court held the taxpayers had substantially complied with the requirements of sec_1_170a-13 income_tax regs noting that information missing from their return was promptly furnished to the commissioner’s revenue_agent at or near the beginning of the audit since bond taxpayers have been generally unsuccessful in using the substantial compliance doctrine to excuse their noncompliance with the requirements under sec_1_170a-13 income_tax regs for example in 109_tc_258 aff’d without published opinion 166_f3d_332 4th cir the court decided whether taxpayers were entitled to charitable_contribution deductions for shares of nonpublicly traded stock contributed to qualified organizations the taxpayers in hewitt failed to obtain a qualified_appraisal before filing their returns for the years at issue instead determining the amounts of the charitable_contribution deductions from the average per-share price of the stock traded in arm’s-length transactions at approximately the same time as the contributions we held the taxpayers were not entitled to deductions greater than those the commissioner allowed because to hold otherwise would have created an exemption from the clear statutory and regulatory requirements that congress did not intend in rejecting the applicability of the substantial compliance doctrine and bond the court noted that the appraisal requirements may not be entirely procedural so as to justify the application of the substantial compliance rules under any and all circumstances id pincite we have more recently limited the role of the substantial compliance doctrine as a cure-all for appraisals lacking a valuation method or specific basis for the determined value in scheidelman v commissioner tcmemo_2010_151 100_tcm_24 quoting friedman v commissioner tcmemo_2010_45 99_tcm_1175 alteration in original this court characterized the valuation method and specific basis underlying the value as essential because ‘without any reasoned analysis the appraiser’s report is useless ’ similarly in friedberg v commissioner tcmemo_2011_238 102_tcm_356 we recognized that the method of valuation and specific basis requirements in sec_1_170a-13 and k income_tax regs relate to the substance or essence of the contribution and are consequently beyond the reach of the substantial compliance doctrine the substantial compliance doctrine has continuing but limited application in a post- sec_170 world this court previously harmonized bond and hewitt as offering a standard by which we can consider whether petitioners provided sufficient information to permit respondent to evaluate their reported contributions as intended by congress smith v commissioner tcmemo_2007_368 94_tcm_574 aff’d 364_fedappx_317 9th cir in view of cases such as scheidelman and friedberg the prevailing view is that where the appraisal contained sufficient information to allow the commissioner to evaluate the contribution and unconditionally included the valuation method and specific basis for the valuation the taxpayer’s substantial compliance will adequately serve the purpose congress intended with these principles in mind we turn to whether the appraisal included a method of valuation and specific basis for the determined value we hold it did not iv mandatory requirements a method of valuation to constitute a qualified_appraisal for purposes of sec_170 the appraisal must include the method of valuation employed to determine the fair_market_value of the contributed_property such as the income market data and replacement-cost- less-depreciation approaches see sec_1_170a-13 income_tax regs previously recognized methodologies for valuing an easement include the market- data approach see eg id and the before and after approach see eg 135_tc_471 aff’d 668_f3d_888 7th cir sec_1_170a-14 ii income_tax regs in substance petitioners argue that mr rosado used the before and after approach to determine the easement’s value when they claim the appraisal equates the fair_market_value of the easement to ‘the decrease in fair_market_value of the subject property caused by the restrictions placed on the subject property because of the easement ’ respondent replies that the appraisal failed to analyze the purported restrictions the servitude imposed on 10the market data approach also known as the comparable sales approach determines the donated easement’s fair_market_value from a substantial record of sales of easements comparable to the donated easement eg purchases pursuant to a governmental program see sec_1_170a-14 income_tax regs the subject property and as a result did not constitute a valuation method we agree with respondent the before and after method approximates the easement’s fair_market_value by measuring the difference between the fair_market_value of the property without regard to the easement before value and the fair_market_value of the property encumbered by the easement after value see sec_1_170a-14 and ii income_tax regs in hillborn v commissioner 85_tc_677 we described the methodology for computing the before and after values as follows before value before value is arrived at by first determining the highest_and_best_use of the property in its current condition unrestricted by the easement at this stage the suitability of the property’s current use under existing zoning and market conditions and realistic alternative uses are examined any suggested use higher than current use requires both closeness in time and reasonable probability next to the extent possible the three commonly recognized methods of valuing property capitalized net operating income replacement cost and comparable sales are used but are modified to take into account any peculiarities of the property which impact on the relative weight to be afforded each respective method after value after value is arrived at by first determining the highest_and_best_use of the property as encumbered by the easement at this stage the easement’s terms and covenants are examined individually and collectively and compared to existing zoning regulations and other controls such as local historic preservation ordinances to estimate whether and the extent to which the easement will affect current and alternate future uses of the property next the above-mentioned three approaches to valuing property are again utilized to estimate the value of the property as encumbered by the easement mr rosado determined the before value of the subject property using the market data approachdollar_figure he identified five sales of similar properties and adjusted the sale price of each comparable for factors such as front and depth lot footage view condition gross living area heating and cooling components customized kitchens and baths and the presence of a porch patio deck and or fireplace mr rosado treated the adjusted comparable sale prices as representing a range of values for the subject property’s estimated final value in reconciling the subject property’s dollar_figure million indicated value mr rosado gave greater import to more recent sales though his methodology if any for weighting each comparable is not explained in the appraisal with respect to the subject property’s after value mr rosado concluded that the market data approach could not be used because sales of comparable eased properties were not available to him specifically mr rosado recognized that because of the lack of market data he was unable to precisely estimate the extent to which the loss in value will result from the facade easement he went on to 11mr rosado also used the cost approach to derive an indicated value of the subject property of approximately dollar_figure million we do not discuss this method because the appraisal used the market data approach to determine the subject property’s before value provide a survey of easements and cited historical precedents such as hillborn v commissioner 85_tc_677 699_fsupp_578 e d la and an article prepared by an irs employee entitled facade easement contributions to conclude that the encumbrance reduced the subject property’s before value by approximately he also stated that this figure is based on the appraiser’s experience as to what the internal_revenue_service sic has found acceptable on prior appraisals this court in scheidelman v commissioner tcmemo_2010_151 was presented with an appraisal report identical in all material respects including the typographical errors to the one petitioners obtaineddollar_figure the scheidelmans donated to nat a historic facade easement on property they owned within the fort greene historic_district of brooklyn the scheidelmans like petitioners hired an mmj appraiser to appraise their property the appraiser in scheidelman similarly to mr rosado estimated the after value of the property by applying a fixed percentage of to the property’s before value and relying on the same historical precedents mr rosado cited this court held that the scheidelmans were not entitled to a charitable_contribution_deduction for the facade easement donation to nat because 12the record includes a copy of the appraisal at issue in scheidelman v commissioner tcmemo_2010_151 100_tcm_24 they failed to secure a qualified_appraisal in support of that holding the court rejected the proposition that applying a set percentage to a property’s before value provided a method or specific basis for determining a property’s after value we find scheidelman to be directly on point petitioners assert that mr rosado applied the before and after value method as described in hillborn we disagree the appraisal does not illustrate that mr rosado determined the highest_and_best_use of the subject property encumbered by the easement nor does the report indicate that he examined the easement’s terms and covenants to estimate whether if at all the easement would affect the future use of the subject property as far as the appraisal suggests mr rosado did not use the income cost or replacement-cost approach to extrapolate the fair_market_value of the subject property as encumbered by the easement applying a fixed percentage to the before value of the subject property without explanation does not constitute a valuation method under sec_1 170a- c income_tax regs see scheidelman v commissioner t c m cch pincite see also evans v commissioner tcmemo_2010_207 100_tcm_275 n applying a fixed percentage to a property’s before value without analysis linking the percentage discount to the specific property involved may not constitute a method of valuation nicoladis v commissioner tcmemo_1988_163 55_tcm_624 hillborn should not be read to mean that a general ‘10-percent rule’ has been established with respect to facade donations s rept no pincite 1980_2_cb_599 the before and after method should not be applied mechanically merely selecting a set percentage based upon a range of discounts that courts or the internal_revenue_service previously did not challenge is not a method at all but rather is conjecture lacking analysis to support the value claimed accordingly we conclude the appraisal lacked a method of valuation b specific basis for the appraised value a qualified_appraisal under sec_170 must include the specific basis for the valuation see sec_1_170a-13 income_tax regs we conclude the appraisal did not include a specific if any basis for calculating the after value mr rosado observed that a facade easement can and often does have an effect on the marketability and the market_value of a property he noted the presence of the facade conservation_easement would alter the market_value of the subject property on account of his conclusion that comparable sales of eased properties were unavailable for market data analysis mr rosado sought guidance from various court decisions including our decision in hillborn after summarizing the facts in hillborn and acknowledging that this court specified the methodology to be followed in quantifying the loss mr rosado concluded in summary fashion that the value of a facade easement tends to be between and of the total value of the property we question mr rosado’s reliance on hillborn the court in hillborn stated without qualification that the easement’s terms and covenants must be analyzed individually and collectively and compared to existing zoning restrictions and preservation laws to estimate the extent to which the easement affects the subject property’s fair_market_value hillborn v commissioner t c pincite the appraisal does not meaningfully analyze any of these factors in the exact words of the report in scheidelman the appraisal in this case states for most attached row properties in new york city where there are many municipal regulations restricting changes to properties located in historic districts the facade easement value tends to be about - of the total value of the property that figure is based on the appraiser’s experience as to what the internal_revenue_service sic has found acceptable on prior appraisals in scheidelman we stated that identical language failed to explain how the specific attributes of the subject property led to the value determined in the underlying appraisal see scheidelman v commissioner t c m cch pincite we again find scheidelman to be directly on point petitioners’ claim that mr rosado explained the additional restrictions on the homeowner resulting from the donation of a preservation easement is not supported by the appraisal while the appraisal generally cites elements that may affect the value of eased properties mr rosado never expounds upon how if at all the factors affected the fair_market_value of the encumbered subject propertydollar_figure nor does the appraisal suggest that mr rosado qualitatively analyzed the easement’s terms and covenants to determine the extent to which if at all the encumbrance protected the subject property noticeably absent from the appraisal is consideration that irrespective of the easement new york city law already precluded petitioners from altering the 13page of the addendum lists the following elements which mr rosado claimed negatively affect property values of eased properties - within the sales comparison approach a loss that can be shown from sales of eased properties in comparison with comparable properties not so eased - the loss of the right to develop up to the maximum density allowed under zoning codes - maintenance and insurance requirements that may be in excess of properties not eased - the loss that may occur if market preference changes as to exterior design color windows doors roof lines etc - the national architectural trust owns the rights of prior approval of the facade maintenance and other restricts sic signs paint liens certain restrictions of the entire exterior portion of the subject property subject property unless the change was approved by the landmarks preservation commission lpc dollar_figure see n y city admin code sec a in deciding whether to allow such an alteration the new york city administrative code requires lpc to consider whether the alteration would change destroy or affect any exterior architectural feature of the subject property and in the case of an improvement whether the addition would be inharmonious with the external appearance of neighboring improvements id sec a the appraisal does not specifically mention these restrictions or any other specific bases in support of the proffered reduction in value factor equally troubling is that mr rosado apparently valued a property interest greater than the one petitioners contributed the appraisal’s addendum states that nat owns the rights of ‘prior approval’ of the facade maintenance and other restricts sic signs paint liens certain restrictions of the entire exterior portion of the subject property emphasis added however the deed of easement is clear that petitioners contributed only an easement protecting that portion of the facade visible from the street level opposite the subject property 14lpc is a new york city agency responsible for identifying and designating new york city landmarks and historic districts see east llc v commissioner t c m cch pincite n c conclusion we conclude the appraisal was not a qualified_appraisal because it failed to include a valuation method or a specific basis for the value determined as required under sec_1_170a-13 and k income_tax regs assuming arguendo that the requirements of sec_1_170a-13 and k income_tax regs are discretionary as opposed to mandatory which they are not our result in this case would be unchanged we find that in addition to failing to substantially comply with the requirements of sec_1_170a-13 and k income_tax regs the appraisal had defects which lead us to conclude that the substantial compliance doctrine does not apply in this case v directory requirements a overview respondent asserts that the appraisal in addition to not including a method of valuation or a specific basis for the valuation fails to satisfy the requirements of sec_1_170a-13 and b and ii a c d f g and i income_tax regs petitioners contend that the appraisal actually or substantially complied with each of these requirements the following factors inform our conclusion that the appraisal when taken as a whole did not actually or substantially comply with the requirements of sec_1_170a-13 income_tax regs b appraisal made earlier than days before the contribution date the regulations impose a timeliness requirement that the appraisal be made no earlier than days before the contribution date and no later than the extended due_date of the federal_income_tax return on which the deduction is first claimed see sec_1_170a-13 income regs petitioners assert that the foregoing 60-day period is calculated by reference to the date on which petitioners delivered the deed of easement to nat ie date respondent answers that new york law regards the date of contribution as the recordation date ie date we agree with respondent petitioners misplace reliance on the general_rule that a valid inter_vivos gift is complete when in addition to meeting other requirements a donor irrevocably transfers present legal_title dominion and control of the entire gift to the donee see eg kaplan v commissioner tcmemo_2006_16 91_tcm_695 the nature of the property rights transferred is determined under state law and the appropriate tax treatment of those rights is determined by reference to federal_law 472_us_713 137_tc_159 carpenter v commissioner tcmemo_2012_1 103_tcm_1001 citing estate of lay v commissioner tcmemo_2011_208 102_tcm_202 thus it is new york law that governs when the easement is regarded as complete under new york law an instrument purporting to create convey modify or terminate a conservation_easement is not effective unless recorded n y envtl conserv law sec mckinney insofar as new york law does not regard an easement contribution as effective until the recordation date we conclude that the contribution date for an easement on real_property in new york is the recording date to satisfy the temporal regulatory requirement therefore the appraisal must have been dated no earlier than the start of the 60-day period described in sec_1_170a-13 income_tax regs ie date and no later than the extended due_date of the return ie date petitioners rely on cases such as manhattan life ins co v cont’l ins cos n y 2d and 973_fsupp_338 e d n y to support their position that the contribution date is the date on which they delivered the deed of easement to nat we find that reliance misplaced each case petitioners rely on addresses deeds of real_property but not the distinct conservation_easement permitted under new york law a conservation_easement may be created or conveyed only by an instrument conforming to specific statutory provisions see n y envtl conserv law sec allowing the creation or conveyance of a conservation_easement under those provisions a conservation_easement shall not be effective unless recorded see id the cases petitioners rely on do nothing to modify the statutory rule whether the appraisal date is credited as being the earlier as-of date ie date or the later signed date ie date the appraisal was not made within days of the contribution date crediting the appraisal as being made on the as-of date of date means that the appraisal was made days before the recordation date we think the better date for computing the 60-day period in sec_1_170a-13 income_tax regs is date because mr rosado inspected the subject property and determined its value as of that date even if we credited the appraisal as being made on its signature date ie date which we do not the appraisal was still obtained days before the recording date under either scenario the appraisal was not made within days of the contribution date consequently we conclude that the appraisal did not actually comply with the temporal requirement of sec_1_170a-13 income_tax regs in consol investors grp v commissioner tcmemo_2009_290 98_tcm_601 this court concluded that a partnership which obtained an appraisal report three months too early nevertheless substantially complied with the qualified_appraisal regulation while our decision in consol investors grp may support petitioners’ position that their timing miscalculation should be viewed as insubstantial we do not render an opinion on this point because as we conclude their cumulative failures preclude a finding that they obtained a qualified_appraisal we think this result congruous because as we discuss infra pp consol investors grp is otherwise distinguishable from the instant case c record unclear as to whether appraisal prepared by a qualified_appraiser regulations require that a qualified_appraisal be prepared signed and dated by a qualified_appraiser as defined in sec_1_170a-13 income_tax regsdollar_figure sec_1_170a-13 income_tax regs we are not persuaded on the record before us that mr rosado or mr knobel was a qualified_appraiser in the 15while we recognize that qualified_appraiser is now defined in sec_170 that section was not in effect at the time petitioners filed the return see pension_protection_act of pub_l_no sec c stat pincite effective for appraisals prepared with respect to returns filed after date appraisal merely lists the state certification numbers of messrs rosado and knobel petitioners claim that local law and web site printouts from the state of new york department of state division of licensing services establish that messrs rosado and knobel were qualified appraisers in we disagree the documents upon which petitioners rely merely prove that messrs rosado and knobel were licensed as certified residential real_estate appraisers from at least date through date in the case of mr knobel and date in the case of mr rosado neither printout nor any other documentary_evidence confirms that messrs rosado and knobel were licensed by the state of new york in as discussed below we conclude that this issue presents genuine issues of material fact as to whether the reasonable_cause exception of sec_170 applies d contributed_property not described the appraisal neither describes the contributed easement accurately nor in sufficient detail for a person unfamiliar with the property to ascertain whether the appraised property and the contributed_property were one and the same see sec_1_170a-13 income_tax regs petitioners contend that the appraisal sufficiently describes the property because it states that nat owns the rights of ‘prior approval’ of the facade maintenance and other restricts sic signs paint liens certain restrictions of the entire exterior portion of the subject property emphasis added however as discussed above the deed of easement protected only that portion of the subject property’s facade visible from the street level opposite that property the appraisal’s conclusion that the fair_market_value of the easement petitioners donated was dollar_figure is flawed in that mr rosado valued a property interest greater than that actually contributed by petitioners in this regard the appraisal does not accurately describe the easement respondent contends and we agree that the appraisal is also unclear that the appraised property was the easement and not the subject property itself the appraisal cover page is misleading when it states that the appraised property is a single_family_residence and office--not the easement a letter enclosed with the appraisal likewise states that the appraisal is intended to estimate the fee simple property rights of the subject property--not the easement the appraisal’s first page is also unclear when it states that there were no adverse easements observed other than typical utilities the first suggestion that the appraisal purports to value the easement is the statement on the appraisal’s second page that this appraisal is made ‘as is’ and is intended to estimate the impact on the subject property if granted an ‘architectural facade easement ’ setting aside the inconsistencies between the first and second pages of the appraisal the next clue that mr rosado purported to value the easement and not the subject property is not made until the addendum even assuming that the second page of the appraisal sufficiently describes the easement which it does not we would not conclude that the requirements of sec_1_170a-13 income_tax regs have been met the addendum states that one copy of the deed of easement is attached to the appraisal however the appraisal attaches two blank unexecuted copies of the deed of easement one revised in date and the second revised in date neither deed of easement describes the contribution date the location of the subject property the protected facade a legal description of the property or information identifying the mortgages held on the subject property we decline to conclude that an individual unfamiliar with easements or one familiar with easements for that matter would have been able to determine that the appraised property was also the contributed_property e actual or expected contribution date not included a qualified_appraisal must include the actual or expected contribution date see sec_1_170a-13 income_tax regs petitioners contend that the requirements of that section are met insofar as the addendum states that they were contemplating a donation of a conservation_easement and because nat acknowledged the donation on date as stated on the form_8283 we disagree the appraisal clearly did not specify the actual or expected contribution date as required by the qualified_appraisal regulation requiring an appraisal to include the actual or expected date of the contribution allows an individual such as the commissioner’s revenue_agent to compare the appraisal and contribution dates for purposes of isolating fluctuations in the property’s fair_market_value between those dates including a statement that petitioners are contemplating a donation does not satisfy the clear and unambiguous requirement that the appraisal include the actual or expected contribution date we therefore conclude that the appraisal did not actually comply with sec_1_170a-13 income_tax regs petitioners’ reliance on the form_8283 as a means of curing the absence of the contribution date from their appraisal is unpersuasive this court in simmons v commissioner tcmemo_2009_208 98_tcm_211 aff’d 646_f3d_6 d c cir concluded that an appraisal report which omitted the contribution date substantially complied with the qualified_appraisal regulation because the form_8283 specified the date on which the contributed_property was received while simmons tends to support the position that form_8283 might be used to cure an appraisal omitting the actual or expected contribution date we decline to render an opinion on this point in the light of the appraisal’s collective failures this result is appropriate because as we discuss infra pp simmons is distinguishable from this case we add that sec_1_170a-13 income_tax regs focuses on whether the appraisal is qualified and not on the donee’s understanding of the actual or expected contribution date to allow nat as the donee to satisfy the requirements of a qualified_appraisal runs afoul of the impartiality requirements found elsewhere in the regulations cf sec_1 170a- c i income_tax regs the donee may not also be the qualified_appraiser f terms of agreement not disclosed the appraisal does not include the terms of any agreement or understanding entered into or expected to be entered into between petitioners and nat that relate to the use sale_or_other_disposition of the contributed_property see sec_1_170a-13 income_tax regs the unexecuted deeds of easement attached to the appraisal are not the same as the deed of easement petitioners and nat executed respondent asserts and we agree that those deeds of easement do not include the terms of any agreement that relates to the use sale_or_other_disposition of the easement that petitioners contributed we add that the appraisal also fails to mention the mortgages on the subject property or whether nat’s rights were affected by their existence we conclude that petitioners neither actually nor substantially complied with the requirements of sec_1_170a-13 income_tax regs g appraisers’ background experience and other relevant information not included the appraisal does not describe mr rosado’s or mr knobel’s background experience education and membership if any in professional appraisal associations as required by sec_1_170a-13 income_tax regs as discussed above petitioners assert that local law and printouts from the state of new york department of state division of licensing services web site establish that messrs rosado and knobel were qualified appraisers in although we have judicially noticed local regulations concerning education and experience licensing requirements see evans v commissioner t c m cch pincite petitioners do not ask that we do so here see fed r evid d we decline to do so sua sponte h not clear that appraisal was made for income_tax purposes the appraisal does not include a specific statement as required by sec_1_170a-13 income_tax regs that it was made for federal_income_tax purposes petitioners contend that the requirements of that section are met insofar as the appraisal states if certain criteria are met the owner sic may also receive a federal_income_tax deduction_equivalent to the value of the rights given away to a charitable or government organization we disagree acknowledging that the appraisal was made for federal_income_tax purposes is not insignificant such a statement serves as notice to the appraiser that he or she may be subject_to a civil penalty under sec_6701 for aiding_and_abetting an understatement_of_tax liability and as a result that appraisals he or she prepared may be disregarded pursuant to u s c sec c cf sec_1_170a-13 income_tax regs requiring a qualified_appraiser to declare on the appraisal_summary that he or she understands that intentionally false or fraudulent overstatements of the property valued may result in civil penalties and disciplinary action an acknowledgment that petitioners may be allowed a federal_income_tax deduction for their contribution fails to actually comply with the straightforward regulatory requirement nor does it demonstrate that the appraisers acknowledged the ramifications of overstating the easement’s value we have previously found that neglecting to include a statement that an appraisal was made for income_tax purposes was an insubstantial omission in consol investors grp v commissioner t c m cch pincite and simmons v commissioner t c m cch pincite even if we viewed petitioners’ omission as inconsequential which we do not the appraisal would still not be a qualified_appraisal because the report’s cumulative failures preclude such a finding i wrong measure of value a qualified_appraisal must include the appraised fair_market_value within the meaning of sec_1_170a-1 of the property on the date or expected date of contribution sec_1_170a-13 income_tax regs emphasis added in turn sec_1_170a-1 income_tax regs specifies that fair_market_value is the price at which the property 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 the regulatory definition of fair_market_value is the same measure of value adopted by the supreme court and this court see eg 411_us_546 120_tc_174 aff’d in part vacated in part and remanded sub nom j p morgan chase co v commissioner 458_f3d_564 7th cir in adopting market_value and not fair_market_value as its measure of value the appraisal applies the wrong standard of valuedollar_figure the appraisal defines the term 16the appraisal uses market_value and fair_market_value interchangeably we conclude the appraisal adopted market_value and not fair_market_value as its continued market_value consistent with the uniform standards of professional appraisal practice uspap as follows the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale the buyer and seller each acting prudently knowledgeably and assuming the price is not affected by undue stimulus implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby buyer and seller are typically motivated both parties are well informed or well advised and each acting in what he considers his own best interest a reasonable_time is allowed for exposure in the open market payment is made in terms of cash in u s dollars or in terms of financial arrangements comparable thereto and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale fn ref omitted we observed in didonato v commissioner tcmemo_2011_153 101_tcm_1739 n and we note again here that although market_value adopts selective elements of fair_market_value the two are not identical compare sec_1_170a-1 income_tax regs defining fair_market_value with uspap advisory opinion defining market_value in using the wrong standard of value the appraisal fails to actually or substantially comply with the clear and unambiguous requirement of sec_1_170a-13 income_tax regs continued measure of value because the appraisal’s enclosure letter stated that the estimated market_value of the subject property as of date is dollar_figure j additional substantial compliance considerations petitioners misplace reliance on cases such as 100_tc_32 evans v commissioner tcmemo_2010_207 100_tcm_275 consol investors grp tcmemo_2009_290 98_tcm_601 and simmons v commissioner tcmemo_2009_208 98_tcm_211 to support their position that they should prevail on substantial compliance grounds at the outset it is worth noting that these cases were each decided before our decision in friedberg v commissioner tcmemo_2011_238 102_tcm_356 in which we concluded that the method of valuation and specific basis requirements related to the substance or essence of the contribution thereby making the substantial compliance doctrine defenseless to cure defects related to those requirements bond and consol investors grp are distinguishable from the instant case in that petitioners unlike the taxpayers in those cases did not provide to respondent the information required in the regulations at any time see bond v commissioner t c pincite consol investors grp v commissioner t c m cch pincite by curing the defects in their appraisals at the audit stage the taxpayers in bond and consol investors grp complied with the principal objective of defra sec though they did not meet the literal requirements of the regulations interpreting that law cf hewitt v commissioner t c pincite the principal objective of section is to provide a mechanism whereby the commissioner would obtain sufficient return_information in support of the claimed valuation of charitable_contributions of property in evans v commissioner t c m cch pincite we stated that any encumbrance on real_property howsoever slight would tend to have some negative effect on that property’s fair_market_value we noted further however that taxpayers must produce sufficient credible_evidence in respect of the easement’s fair_market_value to fix their entitlement to a charitable_contribution_deduction nothing in evans suggests that an appraiser need not rely on a method of valuation to buttress his or her conclusion that an easement affects the property’s fair_market_value to the contrary we cautioned that applying a fixed discount of a property’s before-donation market_value without any analysis tying the percentage discount to the specific property involved may not constitute a before-and-after valuation under the regulations id pincite n thus we read evans as bolstering respondent’s position not weakening it in simmons v commissioner t c m cch pincite this court found that the appraisal at issue was qualified because in addition to other reasons the appraiser took into account statistics gathered by the donee organization and the appraisal identified the method of valuation used and the basis for the valuations reached the appraisal in this case does not contain a statistical analysis a valuation method or a specific basis for the valuation we thus find the instant case distinguishable from simmons and consider scheidelman directly on point k conclusion on the basis of the foregoing we conclude that the appraisal neither actually nor substantially complied with the requirements of sec_1_170a-13 income_tax regs we are mindful that the appraisal met some of the requirements in sec_170 and sec_1_170a-13 income_tax regs specifically the appraisal did not involve a prohibited appraisal fee based upon a percentage or set of percentages of the subject property’s appraised value see sec_1 170a- c i d income_tax regs the appraisal also listed the name business address and state certification numbers of mr rosado see sec_1 170a- c ii e income_tax regs when viewing the multiple defects found elsewhere in the appraisal however we decline to conclude that the substantial compliance doctrine controls this case it follows that the appraisal petitioners attached to their return was not a qualified_appraisal vi whether reasonable_cause excuses petitioners’ noncompliance we have concluded that the appraisal did not actually or substantially comply with the requirements of sec_170 and sec_1_170a-13 income_tax regs petitioners next assert that the reasonable_cause exception of sec_170 excuses their noncompliance respondent does not address this point relying instead on the general_rule that taxpayers who fail to obtain a qualified_appraisal are denied a deduction under sec_170 on the record before us we must conclude that there are genuine issues of material fact as to whether petitioners’ noncompliance should be excused on the ground of reasonable_cause to be sure there are factual questions surrounding whether messrs rosado and knobel were qualified appraisers when the appraisal was completed whether petitioners provided them with necessary and accurate information and whether petitioners reasonably believed messrs rosado and knobel to be competent advisers who had sufficient expertise to justify reliance among others cf 115_tc_43 listing factors to be evaluated when deciding whether a taxpayer relied upon a professional with reasonable_cause and in good_faith aff’d 299_f3d_221 3d cir accordingly respondent’s motion will be granted in that petitioners did not obtain a qualified_appraisal whether petitioners can avail themselves of the reasonable_cause exception of sec_170 is an issue best decided following trial in reaching our decision on the adequacy of the appraisal we have considered all arguments made and to the extent that we have not specifically addressed them we conclude that they are irrelevant moot or without merit to give effect to the foregoing an appropriate order will be issued denying petitioners’ motion and granting respondent’s motion to the extent stated herein


internal_revenue_service number release date index number ---------------------------- ------------ -------------------- ------------------------------------------------ ----------------------------- in re -------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- id no -------------- ----------------- telephone number --------------------- refer reply to cc psi b05 plr-131459-13 date date legend -------------------- taxpayer ----------------------------------------------------- year property ----------------------------------------------------------- tenant ----------------------------------------- ----------------------------------------------------------- ---------------------------- dear ------------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations for taxpayer to make the election under sec_1_48-4 of the income_tax regulations for year facts according to the information submitted and representations made taxpayer is a limited_liability_company that owns the property taxpayer rehabilitated the property in a manner that qualified for the rehabilitation_credit under sec_47 of the internal_revenue_code for qualified_rehabilitation_expenditures incurred in connection with the certified_rehabilitation of a certified_historic_structure the property was placed_in_service in year tenant is a limited_liability_company that leases the property from taxpayer taxpayer and tenant entered into a contract to pass through the rehabilitation credits relating to the property to tenant the contract required taxpayer to file an election under sec_1_48-4 however taxpayer failed to timely file the election with its plr-131459-13 tax_return for year taxpayer requests an extension of time to make the election for year law and anaylysis sec_38 allows a credit for the taxable_year in an amount equal to the sum of the business_credit carryforwards carried to the taxable_year the amount of the current_year_business_credit plus the business_credit carrybacks carried to the taxable_year under sec_38 the amount of the current_year_business_credit includes the investment_credit under sec_46 under sec_46 the investment_credit includes the rehabilitation_credit under sec_47 sec_47 provides that the rehabilitation_credit for any taxable_year is the sum of percent of the qualified_rehabilitation_expenditures with respect to any qualified_rehabilitated_building other than a certified_historic_structure and percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure sec_1400n provides a higher percentage for qualified_rehabilitation_expenditures paid_or_incurred from date to date with respect to any qualified_rehabilitated_building or certified_historic_structure located in the gulf_opportunity_zone then the rehabilitation_credit for any taxable_year is the sum of percent of the qualified_rehabilitation_expenditures with respect to any qualified_rehabilitated_building other than a certified_historic_structure and percent of the qualified_rehabilitation_expenditures with respect to any certified_historic_structure under sec_47 qualified_rehabilitation_expenditures with respect to any qualified_rehabilitated_building shall be taken into account for the taxable_year in which the qualified_rehabilitated_building is placed_in_service section sec_50 makes applicable rules similar to the rules of former sec_48 relating to certain leased property under former sec_48 a person other than a person referred to in former sec_46 who is a lessor of property may at such time in such manner and subject_to such conditions as are provided by regulations prescribed by the secretary elect with respect to any new sec_38 property other than property described in former sec_48 to treat the lessee as having acquired the property sec_1_48-4 provides that a lessor of property may elect to treat the lessee of the property as having purchased the property for purposes of the credit allowed by sec_38 sec_1_48-4 requires a statement of election to treat the lessee as a purchaser to be filed in the manner and within the time provided in sec_1_48-4 or g plr-131459-13 sec_1_48-4 provides the information that must be included in the election statement under sec_1_48-4 the election statement must be filed with the lessee on or before the due_date including any extensions of time of the lessee’s return for the lessee’s taxable_year during which possession of the property is transferred to the lessee sec_301_9100-1 provides that an extension of time is available for elections that a taxpayer is otherwise available to make however the granting of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election sec_301_9100-1 provides that the term election includes an application_for relief in respect of tax and that the term regulatory election includes an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-2 and sec_301_9100-3 provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 a request for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence including the affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied accordingly taxpayer’s election will be considered timely filed for purposes of sec_1_48-4 if it is filed within days of the date of this letter a copy of this letter should be attached to taxpayer’s amended tax_return for year a copy is enclosed for that purpose except as specifically set forth above we express no opinion concerning the federal_income_tax consequences of the facts described above under any other plr-131459-13 provisions of the code in particular we express no opinion on whether taxpayer’s rehabilitation_expenditures qualify for the rehabilitation_credit under sec_47 whether any of the limited_liability companies involved in the transaction are partnerships for federal_income_tax purposes whether any of the members of the limited_liability companies are partners for federal_income_tax purposes or whether the lease is disregarded for federal_income_tax purposes in accordance with sec_301_9100-1 this ruling is not a determination regarding the economic_substance of the transaction economic_substance is a factual determination to be made during an examination by the appropriate service officials this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative also we are sending a copy of this letter to the appropriate sb_se official the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely curt g wilson associate chief_counsel passthroughs and special industries by _____________________________ nicole r cimino senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ------------------------------- --------------------------- ----------------------- ------------------------------------------------------- ------------------------------------------------ ------------------ department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ----------------- telephone number --------------------- refer reply to cc corp plr-124861-11 date date legend corporation ---------------------------------------------------------------- ------------------------------------------ ------------------------ shareholder ------------------------------------------------- --------------------------- ------------------------ trust ------------------------------------------------------------ -------------------------------------------------------------------- -------------------------------------------- business -------------------------------------------------------------------------------- ----------------------------- a ------------------------------------------------ -------------------------------------------------- ---------------------------------- b --------------------------------------------------------------- ------------------------------------------------------- ----------------- a b ----------------- --------------- plr-124861-11 c d e f g h j k l n o p r date date date date date dear ---- -------- --------------- --------------- -------- -- -- ---- --------------- -------------- --------------- --------------- -------- ----------------- -- ------------------------- -------------------------- -------------------------- -------------------------- ----------------------- we respond to your date request for rulings submitted on your behalf by your authorized representatives requesting rulings on the federal_income_tax consequences of a completed transaction the information provided in that request and subsequent communications is summarized below plr-124861-11 summary of facts corporation is a public company engaged in business as of the close of business on date corporation had a outstanding shares of voting common_stock shares shareholder owned b shares directly and trust of which shareholder is the sole beneficial_owner owned c shares accordingly shareholder is treated as owning in total d shares or approximately e percent of shares prior to the transaction corporation’s certificate of incorporation contains provisions that limit the voting power of corporation’s shareholders who own more than f percent of its shares in addition pursuant to an agreement dated as of date between corporation and shareholder the stockholders’ agreement shareholder had the right to nominate g members to corporation’s h member board_of directors the board on date corporation and shareholder entered into an agreement the redemption agreement pursuant to which corporation agreed to purchase j shares from shareholder the redemption in connection with the redemption on such date shareholder also entered into an agreement to sell k shares to a the sale at the same time a entered into an agreement with b pursuant to which a agreed to deliver k shares to b once certain regulatory approvals were obtained to permit such sale the forward sale the redemption the sale and the forward sale constitute the transaction the redemption and the sale closed on date and the forward sale was closed and physically settled on date after the transaction shareholder owned l shares directly and trust owned c shares accordingly after having disposed of over half of its shares in the transaction shareholder owned a total of n shares directly and constructively or o percent of the outstanding p shares which is less than percent of the total combined voting power of all classes of stock entitled to vote pursuant to the terms of the stockholders’ agreement shareholder had the right to nominate r which is a 50-percent reduction from g of the members of the board representations the following representations are made by corporation with respect to the transaction a no notes or other obligations of corporation will be distributed to shareholder b no shareholder of corporation has been or will be obligated to purchase any of the shares redeemed from shareholder c none of the shares redeemed from shareholder were sec_306 stock within the meaning of sec_306 of the internal_revenue_code plr-124861-11 d there were no declared but unpaid dividends or funds set apart for dividends on any of the shares redeemed from shareholder e at the time of the redemption the fair_market_value of the consideration received by shareholder was approximately equal to the fair_market_value of the shares exchanged therefor in making this representation corporation relies on the fact that it and shareholder agreed pursuant to arm’s-length negotiations that the purchase_price for the redeemed shares would be determined based on a day volume weighted average price of the shares ruling based solely on the information submitted and the representations set forth above we rule as follows with respect to the transaction the redemption will be treated as a substantially_disproportionate_redemption under sec_302 caveats the above ruling is effective to the extent that the amount distributed to shareholder represents the fair_market_value of shares redeemed from shareholder except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of the transactions under other provisions of the code or the regulations or the tax treatment of any conditions existing at the time of or effects resulting from the transactions that are not specifically covered by the above rulings procedural statements this ruling is directed only to the taxpayers requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney that each of you has on file in this office a copy of this letter is being sent to each of your authorized representatives the ruling contained in this letter is based on information and representations submitted by the taxpayers and accompanied by penalty of perjury statements executed by appropriate parties while this office has not verified any of the information submitted in support of the request_for_ruling it is subject_to verification on examination plr-124861-11 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely _____________________ filiz a serbes chief branch office of associate chief_counsel corporate cc


department of the treasury washington dc third party communication date of communication month dd yyyy person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 plr-136599-07 date february internal_revenue_service number release date index number ------------------------------ -------------------------------------- ----------------------------------------- ------------- -------------------------------- partnership ------------------------------- ------------------------------------------ state ------------- dear ------------------ this letter responds to a letter dated date submitted on behalf of x requesting a ruling concerning the qualifying_income exception to the publicly_traded_partnership rules of sec_7704 of the internal_revenue_code x is a limited_partnership organized under the laws of state x intends to become publicly traded within the meaning of sec_7704 x earns income for providing services to customers engaged in the exploration for and the development and production of oil and natural_gas through affiliated operating limited_partnerships limited_liability companies or disregarded entities x has also entered into preliminary agreements to acquire additional oilfield service companies x is and will continue to be paid fees for providing certain services with respect to fracturing fracturing is a technique by which fluids are pumped into an oil or gas well at high pressure to fracture geologic formations and open up pathways for the oil or gas to flow to an oil or gas well to this end x supplies fluid appropriate for the fracturing process to oil_and_gas wells additionally x removes production fluid and flowback generated in the fracturing process from oil_and_gas wells x will treat the production fluid and flowback so that it can be reused in a fracturing process or be disposed of consistent with environmental regulations personnel of x will be present at the site of the fracture process to assist with the implementation of the process x also earns and will continue to earn income from fees paid for removing and disposing of or recycling fluids generated by oil_and_gas production at oil_and_gas wells that do not utilize fracturing plr-136599-07 sec_7704 provides that a publicly_traded_partnership shall be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or substantial equivalent thereof sec_7704 provides that sec_7701 shall not apply to any publicly_traded_partnership for any taxable_year if such partnership met the gross_income requirements of sec_7704 for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 explains that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of such partnership for such taxable_year is qualifying_income sec_7704 provides that the term qualifying_income means income or gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy or timber based solely on the facts submitted and representations made we conclude that income derived by x from fees paid for providing services with respect to fracturing and fees paid for removing disposing of or recycling fluids generated by oil_and_gas wells is qualifying_income within the meaning of sec_7704 except as specifically provided no opinion is expressed or implied as to the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement in sec_7704 this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-136599-07 pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to partnership’s authorized representative sincerely melissa c liquerman senior technician reviewer branch associate chief_counsel passthroughs special industries enclosures copy of this letter copy for ' purposes cc


internal_revenue_service number release date index number ------------------------------------------------------ -------------------------------------------------- ------------------------------------ ---------------------------------- ------------- ---------------------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------------------------------- ----------------- telephone number ---------------------- refer reply to cc psi b04 plr-127258-18 date march legend decedent sister country -------------------------------- ----------------------------------------- ---------- dear --------------------------- this letter responds to your personal representative’s letter of date requesting an extension of time pursuant to sec_301_9100-3 of the procedure and administration regulations to file a form_8939 allocation of increase in basis for property_acquired_from_a_decedent to make the sec_1022 election and to allocate basis provided by sec_1022 of the internal_revenue_code code to eligible_property transferred as a result of decedent’s death the facts and representations submitted are summarized as follows decedent died in sister decedent’s sister was appointed as executor of decedent’s estate sister a citizen of country failed to file the form_8939 before the filing deadline of date consequently sister failed to make a sec_1022 election for decedent’s estate law and analysis sec_1022 provides that property_acquired_from_a_decedent who died after date is treated as transferred by gift and the basis of the person plr-127258-18 acquiring the property from such a decedent is the lesser_of the adjusted_basis of the decedent or the fair_market_value of the property at the date of the decedent's death sec_1022 provides in general that the basis_of_property under sec_1022 is increased by basis increase that is allocated to the property sec_1022 provides in general that basis increase is the portion of the aggregate basis increase that is allocated to the property sec_1022 and c provide that the aggregate basis increase is dollar_figure and that the aggregate basis increase is increased by-- i the sum of the amount of any capital_loss_carryover under sec_1212 and the amount of any net_operating_loss_carryover under sec_172 that would but for the decedent's death be carried from the decedent's last taxable_year to a later taxable_year of the decedent plus ii the sum of the amount of any losses that would have been allowable under sec_165 if the property acquired from the decedent had been sold at fair_market_value immediately before the decedent's death sec_1022 provides that in the case of property that is qualified spousal property the basis of such property under sec_1022 as increased under sec_1022 is increased by spousal property basis increase allocated to the property sec_1022 provides in general that spousal property basis increase is the portion of the aggregate spousal property basis increase which is allocated to the property sec_1022 provides that the aggregate spousal property basis increase is dollar_figure sec_1022 provides in general that the basis_of_property acquired from a decedent may be increased under sec_1022 or c only if the property was owned by the decedent at the time of death sec_1022 describes property that is considered to be owned by the decedent at the time of death sec_1022 provides that the basis adjustments under sec_1022 and c shall not increase the basis of any interest in property above its fair_market_value in the hands of the decedent as of the date of the decedent's death sec_1022 provides in general that the executor is to allocate the basis adjustments under sec_1022 and c on the return required by sec_6018 and that any allocation made may be changed only as provided by the secretary sec_1022 describes property that is considered to be acquired from the decedent for purposes of sec_1022 subtitle a of title v of the economic_growth_and_tax_relief_reconciliation_act_of_2001 p l stat enacted sec_2210 which made chapter the plr-127258-18 estate_tax inapplicable to the estate of any decedent who died in and chapter the generation skipping transfer gst tax inapplicable to generation-skipping transfers made in on date tax relief unemployment insurance reauthorization and job creation act of truirjca p l stat became law and sec_301 of truirjca retroactively reinstated the estate and gst taxes however sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect to apply the code as though sec_301 of truirjca did not apply with respect to chapter and for property acquired or passing from a decedent within the meaning of sec_1014 thus sec_301 of truirjca allows the executor of the estate of a decedent who died in to elect not to have the provisions of chapter apply to the decedent’s estate but rather to have the provisions of sec_1022 apply the sec_1022 election notice_2011_66 2011_35_irb_184 section i a provides that the executor of the estate of a decedent who died in makes the sec_1022 election by filing a form_8939 on or before date notice_2011_76 2011_40_irb_479 extended the due_date of the form_8939 and thus the election from date to date notice_2011_66 section i d provides that the internal_revenue_service will not grant extensions of time to file a form_8939 and will not accept a form_8939 filed after the due_date except in four limited circumstances provided in section i d under this section of notice_2011_66 an executor may apply for relief under sec_301_9100-3 sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied therefore the personal_representatives of decedent’s estate are granted an extension of time of days from the date of this letter to make the sec_1022 election on a form_8939 and allocate additional basis to eligible_property as provided by sec_1022 a copy of this letter should be attached to the form_8939 plr-127258-18 in accordance with the power_of_attorney on file with this office we have sent a copy of this letter to your authorized representatives except as expressly provided herein we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely associate chief_counsel passthroughs and special industries melissa c liquerman by melissa c liquerman chief branch office of the associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter


department of the treasury internal_revenue_service washington d c date cc el gl br3 cesamuel gl-803694-99 number release date uilc memorandum for district_counsel from lawrence h schattner chief branch general litigation subject we have reviewed your proposed advice to the chief examination_division and we have the following comments we concur with the proposed consent directives as drafted per our e-mail messages the proposed summonses should be redrafted to request documents for the period date through date since the and tax years are being examined and it does not appear from the information that you have provided that documents for prior and subsequent periods are relevant to the examination you recommend against issuing a formal_document_request pursuant to sec_982 at the present time however you recommend that a summons be issued to the taxpayers for the information and if the taxpayers fail to provide the requested information that the district consider issuing a formal_document_request if a summons is issued and the taxpayers do not provide the requested information the district should seek enforcement of the summons irm provides that the procedures under sec_982 may be used as an alternative to issuing a summons under sec_7602 where service of the summons cannot be made however the irm instructs that the formal_document_request is not an attractive alternative to the summons where the records are needed to determine liability apparently the district will not have a problem serving the summons in this case therefore we advise that a summons be issued as opposed to a formal_document_request under sec_982 e the statute_of_limitations on assessment will be suspended if the taxpayers file a motion to quash the formal_document_request with regard to the summonses you propose that two summonses be issued to the taxpayers one summons will request production of documents not expressly related to offshore bank accounts the other summons will request production of documents specifically related to offshore bank accounts brokerage accounts trust accounts etc you recommend that if the taxpayers fail to comply with the first summons that the second summons be issued we do not fully understand the strategy for issuing two summonses although we admit that there may be practical reasons for doing so the taxpayers have maintained that some or all of the non- bank information is located abroad and that it is difficult for them to retrieve the information if the taxpayers start to produce some documents a court considering enforcement may well be inclined to give the taxpayers more time to produce given the foreign location of the records whereas no such defenses would be available with respect to the bank records if the taxpayers refuse to comply with the summonses the district should seek enforcement of the summonses under sec_7402 at the enforcement proceeding the government will request the court to order the taxpayers to sign the consent directive pursuant to sec_7402 if the requested documents cannot be obtained through the summons enforcement process we agree with you that summonses should not be issued to united_states branch banks whose headquarters are located in taiwan based on the information that you have provided we do not believe that the branch banks have custody or control_over the documents that are located in taiwan and they could defend their noncompliance on that basis you should advise the district not to issue summonses to the branch banks not because of the separate_entity rule but because the district determined that the branch banks do not have custody or control of the taiwan based documents we have two other suggestions regarding the wording of the summons attachment the use of the term gift s may be detrimental to the case since the term could be interpreted in a technical sense we suggest that the summons refer to gift s or transfer s finally item attachment a or item attachment c should be eliminated we should not use the summons to draw legal conclusions only to request production of documents and or testimony in conclusion we recommend the following issue one summons to the taxpayers requesting off-shore bank account information and one summons for non-bank account information or issue one summons for off-shore bank account information as well as non-bank account information if the taxpayers fails to comply with the summonses or to the extent that the taxpayers refuse to turn over the requested information the district should be advised to seek enforcement of the summonses the district should be advised that at the summons enforcement proceeding the government will request the court to order the taxpayers to sign the consent directive if you have any questions please call me at