Charitable contribution of qualified conservation easement.

• Author: Hamilton, Larry

On September 14, 2009, in Herman, T.C. Memo. 2009-205, the Tax Court held that a conservation easement of air space over an historic structure that was donated by a taxpayer to a nonprofit organization did not meet the requirements to be considered a qualified conservation easement. In this case, the court determined that the terms of the taxpayer's covenant granting the easement did not "oblige the taxpayer or subsequent purchasers to preserve the building or underlying land." Because the future integrity of the building and the land was not protected in the covenant, the taxpayer was not allowed to take a deduction for the contribution of air space. It is important for taxpayers who are contemplating a contribution of a qualified conservation easement to understand the aspects of this recent case so that they are aware of the implications and potential outcomes of their decisions.

Background

The taxpayer, J. Maurice Herman, has owned property directly or indirectly in the Upper East Side Historic District on Fifth Avenue in New York City since 1975. The property consists of an apartment building with 11 stories at its rear and 8 stories at its front. The property has taller buildings on each side with no open space in between, making the front section of Herman's building look incomplete.

Herman transferred his rights, title, and interest in the property to Windsor, a wholly owned limited liability company, and recorded a deed on August 5, 1998. On December 31, 1998, Windsor made an unrecorded assignment that transferred all its rights, title, and interest to Herman for its unused development rights of the property. Windsor also made an unrecorded agreement to assist Herman in "the development, improvement, sale, transfer, assignment or other disposition without limitation, of the aforementioned unused development rights."

The National Park Service (NPS) has designated the property's district as a registered historic district. The Landmarks Preservation Commission controls the historic properties in New York, and the commission must preapprove any changes to historic properties. Herman asked the NPS to recognize his property as having historic significance by filing a National Park Service Historic Preservation Certification Application Part 1--Evaluation of Significance on August 27, 2003. The NPS determined that the property was certified historic but did not specify whether the building, land, or unused development rights were included...