Opinion ID: 219206
Heading Depth: 2
Heading Rank: 2

Heading: Qualified Appraisals

Text: Section 155(a) of the Deficit Reduction Act of 1984, Pub.L. No. 98-369, 98 Stat. 494, 691, directs the Secretary of the Treasury to prescribe regulations requiring an individual claiming a charitable deduction pursuant to § 170 for property valued at more than $5,000 to obtain a qualified appraisal for the property contributed. The regulations contain substantiation requirements, viz., that the appraisal include, as relevant here: (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.... Treas. Reg. § 1.170A-13(c)(2)-(3). The Commissioner argues the Tax Court erred in holding Simmons's appraisals were qualified. First, he contends Donnelly failed to explain the method of valuation he used and to include a substantive basis for the valuation, as required by paragraphs (J) and (K), set out above. In doing the appraisals, Donnelly had relied upon an article prepared by Mark Primoli, an IRS employee, which stated, Internal Revenue Service Engineers have concluded that the proper valuation of a façade easement should range from approximately 10% to 15% of the value of the property. Internal Revenue Service, Façade Easement Contributions (2000). The Commissioner suggests Donnelly arbitrarily picked a percentage between 10 and 15 rather than stating any identifiable method to determine the after-easement value. Simmons argues that because there was no market price for conservation easements, Donnelly properly used the before and after approach, Hilborn v. Comm'r, 85 T.C. 677, 688-89 (1985): He calculated the difference between the fair market value of the property prior to donation and the fair market value of the encumbered property after the granting of the restriction, as permitted by § 1.170A-14(h)(3). To estimate the fair market value of each property once subject to the easement, Donnelly examined sales of similarly encumbered properties and took into account factors a buyer would consider in valuing such a property. The Commissioner, however, complains Donnelly did not identify the properties examined or the parties with whom he spoke and therefore did not provide adequate detail; instead, he said he had considered subjective and conjectural factors that would lower the value of the properties after being encumbered by easements. We hold the Tax Court did not clearly err in concluding the appraisals sufficiently identified the method and basis for the valuations. To determine the fair market value of the property before being encumbered, Donnelly consulted sales of similar properties and identified some of these sales in the appraisals. In ascertaining the fair market value after encumbrance, Donnelly explained he spoke with and considered the mindset of competent buyers and sellers and took account of the considerations they have actually had, or are likely to have, in the buying or selling of a property encumbered by a façade easement. For example, each appraisal noted the property would lose some value because the easement imposed more onerous requirements than does D.C. law. It also listed several factors that would lower the value of the encumbered property, such as potential legal exposure if the donor were to breach the easement and L'Enfant's right of prior approval for any change to the façade. After examining sales of easement-encumbered properties and speaking with interested parties, Donnelly concluded the donation of each easement would diminish the value of the property by from 10 to 15 percent, as contemplated by Primoli's article. Specifically, he determined the Logan Circle and the Vermont Avenue properties would lose, respectively, 13 and 11 percent of their value. Although the appraisals might have elaborated further upon the specific bases for reaching each valuation, and thus avoided litigation of this issue, it was not clear error for the Tax Court to conclude Simmons satisfied the substantiation requirements concerning valuation. [] In a footnote, the Commissioner suggests the appraisals failed to satisfy other requirements of [Treasury Regulation] § 1.170A-13(c)(3)(ii) but acknowledges the omissions might seem venal [sic] sins. It is not our practice, however, to indulge cursory arguments made only in a footnote. Spirit of the Sage Council v. Norton, 411 F.3d 225, 229 n.  (D.C.Cir. 2005) (internal quotation marks omitted). Accordingly, we hold the Tax Court did not err in holding Simmons provided the Commissioner with qualified appraisals.