Del Monte LLC, Dev X Investment 2015, LLC, Tax Matters Partner, Docket No. 3411-21, filed 8/4/23, has Judge Patrick J. (“Scholar Pat”) Urda humming the 1958 Chordettes’ cover of Ronald & Ruby’s performance of Julius Dixson’s and Beverly Ross’ hit. The Montes have a historic façade easement case. As usual, IRS is trying to avoid a laborious and expensive valuation trial by attacking perpetuity, and here attacking whether the donation comprises real property.

The easement in gross to the 501(c)(3) included “‘Development Rights,’ which referred to ‘the right to develop the air space above and adjacent to the Building, encompassing all such air space of the Property.’” Order, at p. 2.

There is a companion case, Continental Downtown Properties, LLC, Historic Preservation Fund 2016 LLC, Tax Matters Partner, Docket No. 6084-21, filed 5/31/23, which I did not blog, as Salacoa Stone Quarry brought IRS’ summary J for chops into high relief that date. Scope out Continental Downtown for some further observations by Judge Scholar Pat.

But IRS has a twist that they didn’t assert against the Continentals.

“The Commissioner offers one argument that we did not consider in the related case, arguing that Del Monte’s donation of development rights is not a donation of a qualified real property interest.  The Commissioner contends that the development rights were encompassed in the definition of the façade relating to ‘height’ and thus were redundant. The Commissioner further argues that, to the extent that the development rights were not redundant, the restrictions on them ‘represent the contribution of a property interest which is far less than the entirety of the property, as required by Section 170(h)(2)(A).’ And the Commissioner asserts that Del Monte failed to satisfy various requirements (i.e., a contemporaneous written acknowledgement and qualified appraisal) for the development rights to be considered under section 170(h)(2)(C).” Order, at pp. 4-5.

And this very much matters, because the Montes’ appraisal of the worth of the development rights far o’ercrowed the worth of the restrictions on the façade.

“The [Montes’] appraisal determined that $52,000 of the diminution in value was attributable to the restrictions on the building façade, leaving $18,750,000 attributable to restrictions on development.” Order, at p. 3. So if the donation of the development rights was defective, the donation of the façade was worth bortscht. (Please pardon an arcane technical phrase).

Hence the title hereof. Development rights above the existing structure, where zoning and building codes would allow a vertical extension of the existing structure, can have great value. On this Minor Outlying Island off the Coast of North America, where I reside, we have the Villard Houses (landmarks) and the Palace Hotel, and Citicorp Center and St. Peter’s Lutheran Church (not landmarked, but the Church’s footprint allowed a skyscraper, with the Church below grade). Structures built over existing structures are known as “lollipops,” from their obvious resemblance. The right to erect a lollipop can have substantial value.

I award IRS’ trusty counsel a Taishoff “Good Move.” I don’t know which of the five (count ’em, five) IRS attorneys named in the docket search came up with this, but I know their adversary, The Great Chieftain of The Jersey Boys, will have a stunning response.

Because IRS doesn’t get summary J. “If we resolve doubts in favor of the non-movant (as Rule 121 requires), we must conclude that the deed contains considerable ambiguity with respect to the development rights (particularly in light of the reference to ‘height’ in the definition of the façade), which may necessitate a factual inquiry into the parties’ intent. That inquiry will also inform our consideration of the scope and applicability of the appraisal and contemporaneous written acknowledgement obtained by Del Monte. These issues are thus not amenable to summary adjudication.” Order, at p. 5.