Opinion ID: 2796442
Heading Depth: 3
Heading Rank: 1

Heading: The Easement Valuation

Text: On remand, the Tax Court, in a thorough analysis, found that the easement's value was zero. The court accepted Hanlon as equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion. Kaufman III, 687 F.3d at 26 (alteration in original) (quoting 26 C.F.R. § 1.170A-14(g)(6)(ii)). The Tax Court held that, because the Kaufmans' mortgage lender had retained a claim to all insurance proceeds . . . and all proceeds of condemnation superior to the claim of the Trust, the Trust was not guaranteed to receive its due proportion of the proceeds in the event of a condemnation of the Kaufmans' residence. Id. (alteration in original). We held that this was error because it was sufficient that the Trust retained a claim to its due proportion of the proceeds as against the owner-donor; the regulation did not require the Trust to have an absolute right to those proceeds as against the rest of the world. Id. at 27. -13- an expert appraiser of partial interests in property but evaluated his testimony with some skepticism given his closeness to [the Trust] and the singularity of his experience in valuing facade easements for clients and for a patron all interested in establishing high values for the easements. Kaufman IV, 107 T.C.M. (CCH) 1262, slip op. at 46-49. The court ultimately rejected Hanlon's methodology and assumptions as unsupported and unreliable. See id. at 51-54. Instead, the Tax Court found persuasive the testimony of the IRS's expert, John Bowman. See id. at 57. Bowman, who, like the Tax Court, rejected Hanlon's analysis, see id. at 14, 30-35, opined that the donation of the facade easement would not result in a diminution in property value for several reasons. First, he agreed with Hanlon that after the donation, there would be no change in the highest and best use of the property. Id. at 14, 36. Second, Bowman found, based on a component by component comparison of the South End zoning restrictions with the PRA restrictions, that the latter were 'basically duplicative' of, and 'not materially different' from the former. Id. at 36, 38; see also id. at 57-63. Finally, relying both on published literature and on his own study of data concerning sales and resales of residential properties in the Boston area, Bowman found no evidence that owners of restriction-encumbered properties have historically had difficulty marketing or financing them or that -14- restriction-encumbered properties actually sell for less than comparable properties without restrictions. Id. at 34-36, 39-43. Bowman accordingly concluded that the easement was worthless. Id. at 43-44. The Tax Court agreed and sustained the IRS's disallowance of the Kaufmans' charitable deduction for the easement donation. Id. at 63-64.