In Uncategorized on 11/12/2013 at 17:10

That’s what George Gorra and Leila Gorra, canny New York real estate operator and tax attorney, respectively, did, and part of their façade easement deduction survives the Section 170 gauntlet administered by Judge Kerrigan, in 2013 T. C. Memo. 254, filed 11/12/13. But they get the 40% gross overvaluation chop for the rest.

It’s our old chum the National Architectural Trust, n/k/a the Trust for Architectural Easements, at it again. Having learned from their past delictions, which I’ve blogged in extenso so often that I need hardly repeat them here, the Trust throws a blanket easement on the Gorras’ high-priced, historically-certified townhouse, covering not just the façade, but the roof, open spaces and rear thereof.

This gets around New York City’s fabled Landmarks Preservation Commission, which by law can’t touch open space or rear. The Trust also inspects annually and confirms inspections in writing.

And when the Gorras ask to lift the easement so they can sell, the Trust says no; and the Trust has the power to say no, and the Trust need not be reasonable in saying no.

Now the Gorras had an appraisal from Eric Haims, a qualified appraiser. But IRS’ expert, high-priced broker Cushman & Wakefield’s Richard Marchitelli, says the easement is worth zero.

“Respondent [IRS] contends that petitioners’ easement has no value. Respondent compares it to the easements in Dunlap v. Commissioner, T.C. Memo. 2012-126, and Scheidelman v. Commissioner, T.C. Memo. 2013-18. As discussed above, in Dunlap the taxpayers donated a facade easement regarding a property in New York, New York, to the NAT that restricted the ability to alter, construct or remodel the facade without the NAT’s express written consent. The donation took place in 2003. We concluded that the value of the facade easement was zero because the it did not result in increased restrictions on that property above those required and enforced by the LPC on the date of the donation. In Scheidelman we held that the taxpayers’ facade easement was valued at zero because, among other things, the property was already restricted by the LPC.

“The facade easement was donated in 2004. Respondent argues that petitioners’ easement also mirrors the existing restrictions already in local law.” 2013 T. C. Memo. 254, at pp. 55-56.

Judge Kerrigan isn’t buying a zero diminution: “Ordinarily, any encumbrance on real property, however slight, would tend to have some negative effect on the property’s fair market value. Evans v. Commissioner, T.C. Memo. 2010-207, slip op. at 15. We do not find respondent’s expert report credible insofar as it maintained that an easement would have absolutely no effect on the fair market value of a valuable piece of real estate. Simmons v. Commissioner, slip op. at 26. In White House Hotel Ltd. P’ship v. Commissioner, 615 F.3d 321, 327 (5th Cir. 2010), vacating and remanding 131 T.C. 112 (2008), the Court of Appeals for the Fifth Circuit noted: ‘[R]ather extraordinarily, * * * [the Commissioner’s expert] assigned the easement a value of zero’. 2013 T. C. Memo. 254, at p. 57.

As I said, I’ve blogged most, if not all, of these cases.

And of course the Gorras’ easement covered more than the LPC, and the Trust did inspect.

So after the usual mix-and-match between experts, Judge Kerrigan decides the magic number is a 2% diminution of value, or about $104K. But since the Gorras claimed $605K, and since they took the charitable deduction in two different years (apparently having exhausted what they could take in year one), they get the Section 6662(h) 40% chop for both years.

Judge Kerrigan: “A penalty pursuant to section 6662(h) applies to any portion of an underpayment for the year to which a deduction is carried that is attributable to a gross valuation misstatement for the year in which the carryover of the deduction arises. See sec. 1.6662-5(c), Income Tax Regs. Petitioners therefore are liable for this penalty for both tax years 2006 and 2007.” 2013 T. C. Memo. 254, at p. 62.

And the Gorras’ Eighth Amendment excessive fines and penalties arguments get nowhere, as Judge Kerrigan cites a bushelbasketful of cases saying it’s all remedial, intended to spur taxpayers to do the right thing.

But at least covering your rear gets you something.


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