Easement Deduction Requires Appraisal Included With Return

Estate Planning Journal

In Gemperle, 1 the Tax Court upheld the IRS's disallowance of a charitable contribution deduction for a facade easement because the taxpayers, despite obtaining an appraisal, failed to include it with their return.


Since 1972, the taxpayers, a husband and wife, owned and resided in a house built in Chicago in 1898. In 1999, the Department of the Interior designated the neighborhood where the house was located as a historic district and listed the house on the National Register of Historic Places. In December 2007, the National Park Service certified that the house was a certified historic structure for obtaining a charitable contribution for conservation purposes.

Also in December 2007, the taxpayers granted a facade easement on the house and agreed not to demolish, remove, raze, alter, expand, reduce, or remodel the house or any portion of the exterior of the house. This easement was binding on the taxpayers and on successive owners of the house.

The taxpayers selected an appraiser to appraise the facade easement, and the appraiser valued it at $108,000. The taxpayers deducted this amount on their 2007 income tax return, which produced a carryover deduction for 2008. The taxpayers timely filed their joint income tax returns for 2007 and 2008. They attached to the 2007 return an incomplete Form 8283, Noncash Charitable Contributions, claiming a deduction for the noncash charitable contribution of the facade easement. In addition, no appraisal was included with the 2007 return.

In 2010, the taxpayers submitted a corrected Form 8283 to the IRS. The instructions for Form 8283 state that for contributions of easements made on buildings in historic districts, the taxpayer must include with the return a qualified appraisal. The IRS audited the taxpayers' 2007 and 2008 income tax returns and disallowed the taxpayers' deduction for the facade easement because they failed to include a qualified appraisal with their 2007 return.


Section 170(a)(1) generally allows a deduction for any charitable contribution, subject to certain limitations, that the taxpayer makes during the tax year. Section 170(f)(3) generally denies a deduction for charitable contributions of partial interests in property. One exception to the general rule denying a charitable contribution deduction for partial interests is for a "qualified conservation contribution." 2

Pursuant to Sections 170(f)(11)(A) and (C), no deduction is allowed for a contribution of property for which a deduction of more than $5,000 is claimed unless the taxpayer obtains a "qualified appraisal" of such property. In addition, Section 170(h)(4)(B)(iii)(I) provides that a taxpayer who contributes a use restriction (such as a facade easement) encumbering a certified historic structure in a registered historic district (such as the taxpayers' house) must include a qualified appraisal with their tax return for the year of the contribution. That provision was added to the Code by the Pension Protection Act of 2006. The Staff of the Joint Committee on Taxation's Technical Explanation of H.R. 4 (Pension Protection Act of 2006) explains the appraisal-inclusion requirement as follows:

For any contribution relating to a registered historic district made after the date of enactment of the provision [8/17/2006], taxpayers must include with the return for the taxable year of the contribution a qualified appraisal of the qualified real property interest (irrespective of the claimed value of such interest) and attach the appraisal with the taxpayer's return ***. Failure to obtain andattach an appraisal *** results in disallowance of the deduction. ***

The parties stipulated to a copy of the 2007 return, and the court found that nothing resembling a qualified appraisal was included with it. In addition, the court noted that the taxpayers conceded in their brief: "We admit that the full appraisal was not included with the [2007] return." Therefore, because a qualified appraisal was not included with the 2007 return, the court sustained the IRS's adjustments disallowing for 2007 and 2008 taxpayers' charitable contribution deductions claimed on account of their contribution of the facade easement. The court also sustained the IRS's imposition of the accuracy-related penalties for negligence or disregard of the rules and regulations because the taxpayers were unable to show adequate disclosure, reasonable cause, or good faith. Also valuation misstatement penalties were upheld, subject to the anti-stacking rules.


This case illustrates the importance of not just being generally familiar with the rules and regulations governing taxes, but truly understanding them in a detailed manner. The requirement of attaching a copy of the appraisal to the return was very clear and unambiguous. However, neither the taxpayers, nor apparently their advisors, knew of the existence of this requirement. Such an oversight cost the taxpayers dearly and was a very unfortunate result. Given the IRS history of challenging virtually all conservation easements, even a minimal deviation from the rules is sheer folly. Not submitting a qualified appraisal is much more than a minimal deviation.

1 TCMemo 2016-1.
2 Section 170(f)(3)(B)(iii).

Frank Baldino is an estate planning attorney who co-chairs Lerch, Early & Brewer’s Estate Planning & Probate group in Bethesda, Maryland. His focus is on protecting the assets his clients have accumulated and minimizing federal and state tax liability. These clients range from homeowners whose property has appreciated to people with significant investment, retirement, business, and real estate holdings. For more on easement deductions, contact Frank at (301) 657-0175 or

This article originally appeared in the June 2016 edition of Estate Planning, a monthly periodical directed to estate planning professionals that offers readers the newest and most innovative strategies for saving taxes, building wealth, and managing assets.


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