In Uncategorized on 10/03/2011 at 18:28

That’s part of the lesson from Barry S. Friedberg and Charlotte Moss, 2011 T.C. Mem. 238, released 10/3/11. Barry and Charlie come a cropper on the appraisal, which doesn’t fill the bill for their Section 170(h) façade easement. They might survive on the transferable development rights surrender (if that’s worth anything), but that will await trial (if any). But when IRS tries to dump their $3,886,000 deduction and hit them for penalties because they didn’t complete their Form 8283, Judge Wells calls a halt.

Barry and Charlie are involved another one of those National Architectural Trust deals (see my post “A Joy Forever”, 4/4/11). It’s the usual story. Barry and Charlie bought and refurbished a townhouse in New York City’s historic silk stocking district, for which they paid telephone numbers. Along comes the National Architectural Trust and offers them a huge write-off. But Barry and Charlie don’t get the big deduction.

Their supporting appraisal comes unglued on technical grounds. Judge Wells devotes 67 pages to unscrambling this omelet in copious detail, the vast majority of which I refer to specialists. Of interest to New York City practitioners, of which I am one, is a very clear explanation of transferable development rights (“air rights”). However, valuing the same is very much like Omar Khayyam: “Myself when young did eagerly frequent/Doctor and saint, and heard great argument/ About it and about, but evermore/Came out by the same door as in I went”.

One thing is clear, though. If you attach your appraisal to your Form 8283, even if the Form 8283 is incompletely filled in, you’re still in the ballpark.

Judge Wells: “Section 1.170A-13(c)(4)(ii), Income Tax Regs., lays out the required contents of the appraisal summary, which include:

(B) A description of the property in sufficient detailfor a person who is not generally familiar with the type of property to ascertain that the property that was appraised is the property that was contributed;

(C) In the case of tangible property, a brief summary of the overall physical condition of the property at the time of the contribution;

(D) The manner of acquisition (e.g., purchase, exchange, gift, or bequest) and the date of acquisition of the property by the donor * * *

(E) The cost or other basis of the property * * *

“Respondent contends that petitioners’ Form 8283 complied with none of those requirements. Respondent contends that because of those omissions, the entire contribution should be disallowed.” 2011 T.C. Mem. 238, at pp. 54-55.

Petitioners argue substantial compliance. “The Form 8283 attached to petitioners’ return described the subject property by providing its street address, described its condition as ‘Historic Facade Conservation Easement’, and provided no information about Mr. Friedberg’s acquisition of the subject property. The Form 8283 does not, by itself, describe the subject property in sufficient detail for respondent to determine the nature of the contribution. Indeed, it does not even mention the contribution of the unused development rights. However, petitioners also attached to their tax return the appraisal report completed by Mr. …, which describes the contributions of a facade easement and unused development rights in sufficient detail. Petitioners contend that it is not necessary that the appraisal summary reprise everything in the appraisal; they contend it is sufficient if the appraisal summary enables respondent to identify the subject property in the appraisal report, which it does.” 2011 T.C. Mem. 238, at pp. 55-56.

Judge Wells lets the Form 8283 survive the challenge: “In Bond v. Commissioner, 100 T.C. at 41-42, we held that because the Form 8283 the taxpayers attached to their return provided all of the important facts except for the qualifications of the appraiser, the taxpayers substantially complied with the regulations despite their failure to attach an appraisal report to their return. In the instant case, petitioners attached to their return an appraisal report that contained all of the required information, but they failed to fully complete the Form 8283 summarizing the contents of the appraisal report. If, as we held in Bond, a fully completed Form 8283 can excuse the failure to attach an appraisal report under the doctrine of substantial compliance, then, a fortiori, attaching a completed appraisal report may excuse the failure to fully complete a Form 8283 under the doctrine of substantial compliance. Consequently, we conclude that petitioners substantially complied with the requirements of section 1.170A-13(c)(4)(ii), Income Tax Regs. Their minor omissions on the Form 8283 are not enough, by themselves, to disqualify the contribution.” 2011 T.C. Mem. 238, at p. 57.

Takeaway: If you put the bare facts on the Form 8283, but attach the appraisal, you’re OK.

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