In Uncategorized on 06/20/2014 at 16:15

An e-mail from colleague Joel E. Miller, Esq., furnishes today’s blogpost. But first, see my blogpost “The Façade Collapses”, 3/21/14, the tale of the Primoli safeharborers and tax-break merchants sent to the sin-bin by Karen Hawkins and her myrmidons at OPR, offered subject to connection, as the high-priced lawyers say.

Now for today’s installment. It’s the last gasp of an old story, Huda T. Scheidelman v. Com’r., No. 13-2650, decided 6/18/14 by the long-suffering Second Circuit, which had give Huda a second bite at the cliché a couple of years back (as to which see my blogpost “Method to His Madness?”, 6/18/12; I got a lot of mileage out of Huda and her doings). (Emphasis by author).

Huda says the easement she gave the now-banished National Architectural Trust must have diminished the value of her Fort Greene townhouse. Fort Greene, once a slum, is now a chi-chi enclave in Brooklyn.

But you remember her appraiser “Iron Mike” Drazner’s opinion, though it slid under the regulatory tag as far as Second Circuit was concerned, certainly didn’t bind IRS or Tax Court.

The three-judge bench makes that clear, citing to its earlier decision: “As we emphasized, however, ‘[o]ur conclusion that Drazner’s appraisal meets the minimal requirements of a qualified appraisal mandates neither that the Tax Court find it persuasive nor that Scheidelman be entitled to any deduction for the donated easement.’” Opinion, at p. 5.

Now circuit courts of appeal treat Tax Court like a District Court, owing no Chevron-Mayo deference, reviewing law de novo, but reviewing facts only for clear error. Circuit courts of appeal don’t retry cases. If there’s substantial evidence in the record for what Tax Court (or a USDC) found, then game over.

And there’s plenty in the record to sustain Tax Court. While one would expect granting such an easement might diminish the value of the servient tenement (no, that’s not a 50-Shades-of-Grey hovel, that’s old English that I learned at an expensive law school), that’s no automatic result.

“To the contrary, the regulations provide that an easement that has no material effect on the obligations of the property owner or the uses to which the property may be put ‘may have no material effect on the value of the property.’. Treas. Reg. § 1.170A-14(h)(3)(ii). And sometimes an easement ‘may in fact serve to enhance, rather than reduce, the value of property. In such instances no deduction would be allowable.’ Id.” Opinion, at p. 8. (Footnote omitted, but read it; it quotes testimony from the VP and general counsel of the National Trust for Historic Preservation.)

Finally, Huda’s big witness on the Tax Court trial, Michael Ehrmann, had his expert opinion shredded, and, last year along with his firm, wound up being permanently enjoined by the USDC Northern District of Ohio “from preparing any further property appraisals for federal tax purposes.” Opinion, at p. 10, footnote 2.

Judge Polster did let Mr Ehrmann finish his engagement with Huda, and whatever matters he still had in his shop, even though IRS claimed “Ehrmann distorts data and provides misinformation or unsupported personal opinions to get artificially high values for conservation-easement donations.” Opinion, at p. 10, footnote 2.

And one of Huda’s own witnesses put the ball squarely in her net. This was the local preservation guru, whom I mistakenly said was a witness for IRS in my blogpost “Appraising the Appraisal (and Appraisers)”, 1/18/13, but I must plead in my own defense that I could not believe that the taxpayer would call a witness who would so testify.

I’ll let the Court tell this one: “Moreover, the Chairman of the Fort Greene Association (a witness for Scheidelman) explained that the Fort Greene Historic District, which provides guidelines to maintain the historic integrity of the District’s façades, has ‘actually has created Fort Greene to what it is today. It’s created — it’s an economic engine for Fort Greene.’” Opinion, at p. 11.

I did note at page 12 of the opinion that Second Circuit can’t tell a mortgagor from a mortgagee. Your Honors, a “mortgagor” is one who encumbers his, her, its or their property with a mortgage, generally to obtain a loan of money. A “mortgagee” is the party who lends money to the mortgagor, and secures the mortgagor’s obligation to repay same by placing a mortgage on the property.

Huda also argued that the burden of proof should shift to IRS, as she satisfied the Section 7491 requirements. Mox nix, says Second Circuit, your evidence crumbles before IRS’ evidence.

You can see that this wasn’t a great day for Huda.

I am told her attorney remarked after reading the opinion that this was his first easement case, and that he would know better the next time. Supposedly words of like import were said by General Edward Braddock in 1755, after he was ambushed, his troops routed, and he mortally wounded.


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