For the second time in two weeks, the Tax Court denied a sizeable charitable contribution deduction ($6.5M) on the donation of an easement to the National Architectural Trust (“NAT”).
The NAT, a qualified organization for contribution purposes under Section 170(h)(3), runs a federal historic preservation tax incentive program that offers to “handle all the red tape and paperwork” necessary to earn the donor a contribution deduction of 10-15% of the value of a nationally registered historic building upon the donation of an easement.
Last week, in Kaufman v. Commissioner, 136 T.C. 13 (April 4, 2011), and today in Asser v. Commissioner, T.C. Memo 2011-84, the court denied such contributions on the basis that the contributions failed to comply with the enforceability-in-perpetuity requirement of Treas. Reg. Section 1.170-14.
In both donations, the building was mortgaged, and the lender agreement permitted the mortgagor to retain a prior claim to all condemnation proceeds in preference to NAT until they recovered the balance of the mortgage. This violates the requirement of Treas. Reg. Section 1.170-14(g)(6) that the contribution be protected in perpetuity because the NAT was not guaranteed a proportionate share of proceeds in the event of casualty or condemnation.
As pointed out by the court, if the donated property was destroyed and had no significant value remaining after the mortgage was satisfied , the right of NAT to a share in the future proceeds would not be guaranteed. As a result, no charitable contribution was permitted.
Now, I’m not one to point fingers, but I imagine there are currently at least two taxpayers a tad ticked off at NAT’s inability to “handle all the red tape.”
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