Tax Court Uses Merger Clause to Find Adequate Substantiation

• Published date: 01 October 2017
• DOI: http://doi.org/10.1002/npc.30374
• Date: 01 October 2017

Bruce R. Hopkins’ NONPROFIT COUNSEL

October 20172THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

and Kaufman v. Shulman (summarized in the September

2012 issue). In those cases, wrote the court, two federal

appellate courts ruled that “conservation easements were

perpetual even though the [donees] could consent to

the partial lifting of the restrictions to allow repairs and

changes to the façades of buildings.” The court espoused

the “common-sense reasoning” in these opinions—that is,

that there may be a modification to “promote the under-

lying conservation easements.” The court concluded that

the “need for flexibility to address changing or unforeseen

conditions on or under property subject to a conservation

easement clearly benefits all parties, and ultimately the

flora and fauna that are their true beneficiaries.”

As to the baseline documentation, the court held

that the Tax Court “inexplicably” failed to consider sig-

nificant information in the record, which, along with

the documents the Tax Court acknowledged, “are more

than sufficient to establish the condition of the property

prior to the donation.” The court held: “The Tax Court’s

hyper-technical requirements for baseline documentation,

if allowed to stand, would create uncertainty by imposing

ambiguous and subjective standards for such documenta-

tion and are contrary to the very purpose of the statute. If

left in place, that holding would undoubtedly discourage

and hinder future conservation easements.”

What May Be Next

On remand, the Tax Court may take up one or more

of the following other contentions initially advanced by

the IRS: the easements were not exclusively for conserva-

tion purposes, the donors lacked charitable intent, and

the easements were overvalued. [9.7] ◆

TAX COURT USES MERGER

CLAUSE TO FIND ADEQUATE

SUBSTANTIATION

The US Tax Court, on August 25, ruled that a chari-

table deduction for a gift of a façade easement was

available to the donor, which did not receive a substan-

tiation letter from the donee, because of the existence

of a suitable merger clause in the deed of easement

(310 Retail, LLC v. Commissioner).

Facts

A limited liability company contributed a façade

easement to a qualified public charity. The easement

deed was recorded on the day of the gift. The donor

received an appraisal, supporting the value of the

easement as approximately $26.7 million. The donor

timely filed its tax return reflecting this deduction,

attached to which was the requisite Form 8283. Thus,

all went well, except that the donee did not provide

a contemporary written acknowledgment of the gift.

The deed, however, did not contain any reference to

goods or services being furnished by the donee to

the donor.

The deed stated that it represented the parties’

“entire agreement” and that “[a]ny prior or simulta-

neous correspondence, understandings, agreements,

and representations are null and void upon execution

hereof unless set out in the instrument.”

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