Scheidelman v. Commissioner of Internal Revenue

10-3587 (L)
Scheidelman v. Commissioner of Internal Revenue

1 UNITED STATES COURT OF APPEALS
2
3 FOR THE SECOND CIRCUIT
4
5 August Term, 2011
6
7
8 (Argued: December 15, 2011 Decided: June 15, 2012)
9
10 Docket Nos. 10-3587-ag(L), 10-5316-ag(XAP)
11
12 - - - - - - - - - - - - - - - - - - - - -x
13
14 HUDA T. SCHEIDELMAN,
15
16 Petitioner-Appellant-Cross Appellee,
17
18 - v.-
19
20 COMMISSIONER OF INTERNAL REVENUE,
21
22 Respondent-Appellee-Cross Appellant.*
23
24 - - - - - - - - - - - - - - - - - - - -x
25

26 Before: JACOBS, Chief Judge, LEVAL and
27 LIVINGSTON, Circuit Judges.

28 Taxpayer appeals a decision of the Tax Court (Cohen,

29 J.) that disallowed her deduction for donating a “facade

30 conservation easement,” on the ground that there was no

31 “qualified appraisal” within the meaning of Treasury

32 Regulation § 1.170A-13(c)(3). We conclude that the

33 appraisal satisfied the regulatory specifications.

*
The Clerk of Court is respectfully directed to amend
the caption as listed above.
1 Accordingly, the decision of the Tax Court is vacated and

2 the case remanded for further proceedings.

3 FRANK AGOSTINO (Eduardo S. Chung, on the
4 brief), Agostino & Associates, P.C.,
5 Hackensack, N.J., for Petitioner-
6 Appellant-Cross Appellee.
7
8 PATRICK J. URDA (Kenneth L. Greene, on
9 the briefs), for Gilbert Rothenberg,
10 Acting Deputy Assistant Attorney General,
11 U.S. Department of Justice, Washington,
12 D.C., for Respondent-Appellee-Cross
13 Appellant.
14
15
16 DENNIS JACOBS, Chief Judge:

17 Taxpayer Huda Scheidelman appeals a decision of the Tax

18 Court disallowing her deduction for the value of a “facade

19 conservation easement” that she donated to the National

20 Architectural Trust (the “Trust”). The Tax Court ruled that

21 the appraisal she obtained insufficiently explained the

22 method and basis of valuation, and thereby failed to comply

23 with the Treasury Regulation defining a qualified appraisal.

24 See Treas. Reg. § 1.170A-13(c)(3). We conclude that the

25 appraisal sufficiently detailed the method and basis of

26 valuation. The Tax Court also disallowed her deduction for

27 a cash contribution she made to the Trust on the ground that

28 it was quid pro quo for the Trust’s acceptance of the

29 easement. We disagree because the Trust’s agreement to

2
1 accept the gift of the easement was not a transfer of

2 anything of value to the taxpayer and thus did not

3 constitute a quid pro quo for the gift of the cash.

4 Accordingly, we vacate the decision of the Tax Court

5 and remand the case for further consideration consistent

6 with this opinion.

7

8 BACKGROUND

9 A facade conservation easement is an undertaking by a

10 property owner, granted to an organization, that a

11 building’s facade will be maintained unchanged in

12 perpetuity. Such an easement is designed to protect the

13 historical integrity of properties and communities.

14 Congress has created a tax benefit for taxpayers willing to

15 donate property rights for conservation purposes, including

16 the right to alter a property’s facade. See 26 U.S.C.

17 § 170(f)(3)(B)(iii).

18 In early 2003, Scheidelman submitted an application to

19 the Trust to donate a facade conservation easement for her

20 brownstone row house in Brooklyn’s historic Fort Greene

21 neighborhood. The easement would prohibit Scheidelman from

22 altering the facade without permission of the Trust and

3
1 would require her to maintain the facade and the rest of the

2 structure. The easement would give the Trust the right to

3 inspect the facade and to require Scheidelman to cure any

4 violation of her easement obligation. It would run with the

5 land in perpetuity.

6 In order to complete the donation process (and obtain

7 the associated tax benefit), Scheidelman needed to have the

8 easement appraised. She hired Michael Drazner, a qualified

9 real estate appraiser. Drazner valued the easement at

10 $115,000. He employed the “before-and-after method,” which,

11 as the name suggests, subtracts the value of a house

12 burdened with an easement from the value of the house

13 without one. Drazner estimated the unencumbered value of

14 Scheidelman’s property at $1,015,000, a figure the parties

15 do not dispute. He estimated the value of the property

16 after the granting of the easement at $900,000, yielding an

17 easement value of $115,000. This appeal concerns primarily

18 the bases for the $900,000 after valuation, which he arrived

19 at by applying an 11.33 percent reduction to the pre-

20 easement value.

21 After receiving Drazner’s appraisal, the Trust notified

22 Scheidelman that each of the Trust’s easement donors must

4
1 make a cash contribution toward operating costs equivalent

2 to ten percent of the value of the easement. Sheidelman

3 remitted a check for $9,275, which represented ten percent

4 of the value of the easement less adjustments irrelevant to

5 this appeal. The Trust then sent Scheidelman an IRS form

6 for noncash charitable contributions (Form 8283), signed by

7 Drazner and the Trust, reflecting a fair market value for

8 the easement of $115,000.

9 Scheidelman claimed a $115,000 deduction on her federal

10 tax return for the 2004 tax year. Pursuant to IRS rules,

11 Scheidelman had to carry over $63,083 to future years

12 ($59,959 in 2005 and $3,124 in 2006). After an audit, the

13 IRS decided that she failed to establish a fair market value

14 for the easement; notified her of resulting deficiencies in

15 her taxes of $16,873, $17,537, and $1,015 for the years 2004

16 through 2006, respectively; and imposed a statutory penalty

17 of $3,374.60, $3,507.40, and $203.00 for each year,

18 respectively.

19 Scheidelman sought a redetermination of her tax

20 liability from the Tax Court. The Tax Court found that

21 Scheidelman was ineligible for the deduction because the

22 Drazner appraisal was not a “qualified appraisal”--a

5
1 prerequisite for deducting a noncash charitable

2 contribution--because it failed to state the method of

3 valuation and the basis of valuation, as required by

4 Treasury Regulation § 1.170A-13(c)(2)(J) & (K). Scheidelman

5 v. Comm’r, 100 T.C.M (CCH) 24, 2010 WL 2788205, at *8-9

6 (2010); see 26 U.S.C. § 170(f)(11)(A) & (C). The Tax Court

7 therefore did not go on to determine the value of the

8 easement de novo, which it would have done had it found that

9 Scheidelman satisfied the prerequisites for claiming the

10 deduction.

11 The Tax Court also rejected Scheidelman’s attempt to

12 deduct her cash contribution to the Trust.2 Citing the

13 principle that “a charitable gift or contribution must be a

14 payment made for detached and disinterested motives,” Graham

15 v. Comm’r, 822 F.2d 844, 848 (9th Cir. 1987), aff’d sub nom.

16 Hernandez v. Comm’r, 490 U.S. 680 (1989), it reasoned that

17 Scheidelman had made the donation for the purpose of

18 inducing the Trust to accept her easement so that she could

19 enjoy a tax benefit. Scheidelman, 2010 WL 2788205, at *13.

20

2
Although Scheidelman did not originally take a $9,275
deduction for her 2004 cash contribution, the parties agreed
to permit the Tax Court to adjudicate the deductibility of
the cash donation as well.
6
1 DISCUSSION

2 We review the legal rulings of the Tax Court de novo

3 and its factual determinations for clear error. See 26

4 U.S.C. § 7482(a)(1) (“The United States Court of

5 Appeals . . . shall . . . review the decisions of the Tax

6 Court . . . in the same manner and to the same extent as

7 decisions of the district courts in civil actions tried

8 without a jury.”). “[W]e owe no deference to the Tax

9 Court’s statutory interpretations, its relationship to us

10 being that of a district court to a court of appeals, not

11 that of an administrative agency to a court of appeals.”

12 Madison Recycling Assocs. v. Comm’r, 295 F.3d 280, 285 (2d

13 Cir. 2002) (internal quotation marks omitted). Mixed

14 questions of law and fact are reviewed for clear error.3

15 See Wright v. Comm’r, 571 F.3d 215, 219 (2d Cir. 2009);

16 Merrill Lynch & Co. v. Comm’r, 386 F.3d 464, 469 (2d Cir.

17 2004); Bausch & Lomb Inc. v. Comm’r, 933 F.2d 1084, 1088 (2d

18 Cir. 1991).

3
This approach may be in tension with the statutory
text, which requires us to review Tax Court decisions “in
the same manner and to the same extent as decisions of the
district courts.” 26 U.S.C. § 7482(a)(1); see Robinson
Knife Mfg. Co. v. Comm’r, 600 F.3d 121, 124 (2d Cir. 2010).
But as in Robinson Knife, we have no reason to resolve the
tension because our conclusion would be the same under any
standard of review.
7
1 I

2 A

3 Normally a taxpayer may not take a deduction for the

4 contribution of a partial interest in property. See 26

5 U.S.C. § 170(f)(3)(A). However, there is an exception for,

6 inter alia, “a qualified conservation contribution,” id.

7 § 170(f)(3)(B)(iii), which is a contribution “(A) of a

8 qualified real property interest, (B) to a qualified

9 organization, (C) exclusively for conservation purposes,”

10 id. § 170(h)(1). One such conservation purpose, “the

11 preservation of an historically important land area or a

12 certified historic structure,” id. § 170(h)(4)(A)(iv),

13 encompasses facade conservation easements, see Simmons v.

14 Comm’r, 98 T.C.M. (CCH) 211, 2009 WL 2950610, at *3-4

15 (2009).

16 A taxpayer deducting the value of a donated facade

17 conservation easement must first obtain a “qualified

18 appraisal” of the partial interest donated--a requirement

19 left to the Secretary of the Treasury for further

20 explication. See 26 U.S.C. § 170(f)(11)(C); Treas. Reg.

21 § 1.170A-13(c)(2)(i)(A). The regulatory requirements of a

8
1 qualified appraisal are many, as set forth in the margin,4

4
Treasury Regulation § 1.170A-13(c)(3)(ii) enumerates
eleven items that a qualified appraisal must include:

(A) A description of the property in sufficient detail
for a person who is not generally familiar with the
type of property to ascertain that the property that
was appraised is the property that was (or will be)
contributed;

(B) In the case of tangible property, the physical
condition of the property;

(C) The date (or expected date) of contribution to the
donee;

(D) The terms of any agreement or understanding entered
into (or expected to be entered into) by or on behalf
of the donor or donee that relates to the use, sale, or
other disposition of the property contributed; . . .

(E) The name, address, and . . . the identifying number
of the qualified appraiser; . . .

(F) The qualifications of the qualified appraiser who
signs the appraisal, including the appraiser's
background, experience, education, and membership, if
any, in professional appraisal associations;

(G) A statement that the appraisal was prepared for
income tax purposes;

(H) The date (or dates) on which the property was
appraised;

(I) The appraised fair market value (within the meaning
of § 1.170A–1(c)(2)) of the property on the date (or
expected date) of contribution;

(J) The method of valuation used to determine the fair
market value, such as the income approach, the
market-data approach, and the
replacement-cost-less-depreciation approach; and
9
1 but generally require information about the property, terms

2 of the donation, identity of the appraiser, and fair market

3 value of the donation. We are concerned here only with

4 clauses (J) and (K), which require that the appraisal

5 specify the method and basis:

6 (J) The method of valuation used to determine the fair
7 market value, such as the income approach, the
8 market-data approach, and the
9 replacement-cost-less-depreciation approach; and
10
11 (K) The specific basis for the valuation, such as
12 specific comparable sales transactions or statistical
13 sampling, including a justification for using sampling
14 and an explanation of the sampling procedure employed.
15
16 Treas. Reg. § 1.170A-13(c)(3)(ii)(J) & (K).

17 Scheidelman was required to obtain an appraisal before

18 claiming the deduction, but at the time it was sufficient to

19 submit a summary of the appraisal (Form 8283) with her tax

20 return, not the appraisal itself. See Treas. Reg. § 1.170A-

21 13(c)(2)(i) (requiring taxpayers to “[o]btain a qualified

22 appraisal” but “[a]ttach a fully completed appraisal

23 summary” to their tax returns); Instructions to Form 8283

24 (Revised Oct. 1998), at 3 (“Generally, you do not need to

25 attach the appraisals but you should keep them for your

(K) The specific basis for the valuation, such as
specific comparable sales transactions or statistical
sampling, including a justification for using sampling
and an explanation of the sampling procedure employed.
10
1 records.”). The IRS has since changed this practice and now

2 requires appraisals to be submitted with tax returns. See

3 Instructions to Form 8283 (Revised Dec. 2006), at 5. Unlike

4 a qualified appraisal itself, the summary Form 8283 requires

5 no information about how the fair market value of the

6 donated property was determined, only a description of the

7 property, the estimated fair market value, and information

8 about the appraiser’s qualifications and compensation. See

9 Treas. Reg. § 1.170A-13(c)(4)(ii).

10

11 B

12 The first defect identified by the Tax Court was that

13 Drazner omitted “[t]he method of valuation used to determine

14 the fair market value, such as the income approach, the

15 market-data approach, and the

16 replacement-cost-less-depreciation approach.” Treas. Reg.

17 § 1.170A-13(c)(3)(ii)(J).

18 The before-and-after method used by Drazner is an

19 accepted means of valuing conservation easements. The

20 purpose of an appraisal is to determine the “fair market

21 value” of the donated property, which is “the price at which

22 the property would change hands between a willing buyer and

11
1 a willing seller, neither being under any compulsion to buy

2 or sell and both having reasonable knowledge of relevant

3 facts.” Id. § 1.170A-1(c)(2). The before-and-after method

4 is generally used if no substantial record of market-place

5 data is available:

6 If no substantial record of market-place sales is
7 available to use as a meaningful or valid
8 comparison . . . the fair market value of a perpetual
9 conservation restriction is equal to the difference
10 between the fair market value of the property it
11 encumbers before the granting of the restriction and
12 the fair market value of the encumbered property after
13 the granting of the restriction.
14
15 Id. § 1.170A-14(h)(3)(i); see also Comm’r v. Simmons, 646

16 F.3d 6, 11-12 (D.C. Cir. 2011) (affirming Tax Court decision

17 holding that a before-and-after facade conservation easement

18 valuation was a qualified appraisal); Nicoladis v. Comm’r,

19 55 T.C.M. (CCH) 624, 1988 Tax Ct. Memo LEXIS 187, at *11

20 (1988) (“When faced with [the valuation of facade easements]

21 before[,] we have acknowledged, with approval, that the

22 ‘before and after approach’ is the most feasible method of

23 valuing such a donation.”); Hilborn v. Comm’r, 85 T.C. 677,

24 688 (1985) (observing that the before-and-after approach is

25 approved by Congress and the IRS); S. Rep. No. 96-1007, at

26 14-15 (1980) (“[B]ecause markets generally are not well

27 established for easements or similar restrictions . . . .

12
1 conservation easements are typically (but not necessarily)

2 valued indirectly as the difference between the fair market

3 value of the property involved before and after the grant of

4 the easement.”). The Commissioner has not challenged

5 Drazner’s conclusion that there was insufficient market data

6 to support other valuation methods.

7 Drazner’s appraisal proceeded as follows. After some

8 boilerplate,5 the appraisal considers the IRS’s past

9 treatment of facade conservation easements:

10 It is now generally recognized by the Internal Revenue
11 Service that the donation of a facade easement of a
12 property results in a loss of value . . . of between
13 10% and 15%. The donation of a commercial property
14 results in a loss of value of between 10% or 12% or
15 higher if development rights are lost. The inclusive
16 data support at least these ranges, depending on how
17 extensive the facade area is in relation to the land
18 parcel.
19
20 JA 184. The “inclusive data” is not identified. The

21 appraisal does, however, rely on a Tax Court case that

5
Drazner recited that a precise estimate of the
diminution in value caused by the easement cannot be made
because of a lack of market data (and because every property
is unique); the process of valuing easements is akin to
evaluating the effect of a condemnation of a partial
interest in a property by a sovereign insofar as the
appraiser must ascertain what rights have been taken and
what their value is; and that the appraiser must “place
himself in the mindset of competent buyers and sellers and
to examine considerations they have actually had, or are
likely to have, in the buying or selling of a property
encumbered by a facade easement.” Joint Appendix (“JA”)
184.
13
1 values a facade conservation easement at ten percent of the

2 property value, see Hilborn, 85 T.C. at 700-01, and a

3 government-published article (the “Primoli article”)

4 reporting that “Internal Revenue Service engineers have

5 concluded that the proper valuation of a facade easement

6 should range from approximately 10% to 15% of the value of

7 the property.”6 Drazner narrowed the range to 11 to 11.5

8 percent by considering the location of the property in New

9 York City and the existing restraints imposed by the City’s

10 historic preservation laws. JA 183 (“For most attached row

11 properties in New York City, where there are many municipal

12 regulations restricting changes to properties located in

13 historic districts, the facade easement value tends to be

14 about 11-11.5% of the total value of the property.”).

15 Drazner then expressly selected the before-and-after

16 method. He first used comparable sales to calculate a

17 baseline value for the property ($1,015,000). To arrive at

18 the after value, he applied an 11.33 percent discount to the

6
The article Drazner relied on, “Facade Easement
Contributions” by Mark Primoli, was written as part of an
IRS program focusing on specialized areas of tax law. The
Primoli article, in turn, had relied upon a 1994 IRS “Audit
Technique Guide,” used to train tax examiners but not
intended to set IRS policy. In 2003 both the Audit
Technique Guide and a revised version of Primoli’s article
omitted any reference to the ten to fifteen percent range
for fear the numbers were being misconstrued.
14
1 original value. Id. The difference is given as the value

2 of the easement. See Treas. Reg. § 1.170A-14(h)(3)(i) &

3 (h)(4)(Example 12); Nicoladis, 1988 Tax Ct. Memo LEXIS 187,

4 at *23. This was enough to explain “[t]he method of

5 valuation used to determine the fair market value” of the

6 property.

7 The Tax Court concluded that there was no method of

8 valuation because “the application of a percentage to the

9 fair market value before conveyance of the facade easement,

10 without explanation, cannot constitute a method of

11 valuation.” Scheidelman, 2010 WL 2788205, at *9. We

12 disagree. Drazner did in fact explain at some length how he

13 arrived at his numbers. For the purpose of gauging

14 compliance with the reporting requirement, it is irrelevant

15 that the IRS believes the method employed was sloppy or

16 inaccurate, or haphazardly applied--it remains a method, and

17 Drazner described it. The regulation requires only that the

18 appraiser identify the valuation method “used”; it does not

19 require that the method adopted be reliable.7 By providing

7
Although one could argue that the IRS’s
interpretation of its own regulations may be entitled to
some deference under Auer v. Robbins, 519 U.S. 452, 461
(1997), the Commissioner failed to argue for such deference
and we deem the argument forfeited. See Robinson Knife, 600
F.3d at 134 n.11. In any event, the Commissioner’s
interpretation, that an unreliable method is no method at
15
1 the information required by the regulation, Drazner enabled

2 the IRS to evaluate his methodology.

3

4 C

5 The second defect identified by the Tax Court is that

6 the appraisal failed to “include . . . [t]he specific basis

7 for the valuation, such as specific comparable sales

8 transactions or statistical sampling, including a

9 justification for using sampling and an explanation of the

10 sampling procedure employed.” Treas. Reg. § 1.170A-

11 13(c)(3)(ii)(K). The Tax Court’s specific criticism is that

12 the valuation lacked “meaningful analysis,” failed to

13 “explain how the specific attributes of the subject property

14 led to the value” assigned, and “displayed no independent or

15 reliable methodology.” Scheidelman, 2010 WL 2788205, at *9-

16 11.

17 The business end of Drazner’s analysis is the 11.33

18 percent loss in value he attributed to the easement. We

19 conclude that he sufficiently supplied the bases for the

20 valuation: IRS publications (since removed from

21 circulation), tax court decisions, Drazner’s past valuation

all, goes beyond the wording of the regulation, which
imposes only a reporting requirement.
16
1 experience, and the location of the house in the regulatory

2 environment of New York City. The Primoli article and the

3 Hilborn case yielded the initial range of 10 percent to 15

4 percent diminution in value; whether that range is accurate

5 or reliable is not at issue on this appeal. He then

6 considered the location of Scheidelman’s row house in New

7 York City, “where there are many municipal regulations

8 restricting changes to properties located in historic

9 districts” that tend to limit the incremental loss in value

10 to a range of about 11 to 11.5 percent of the total value of

11 the property.

12 Drazner’s approach is nearly identical to that approved

13 by the Tax Court in Simmons v. Commissioner, 98 T.C.M. (CCH)

14 211, 2009 WL 2950610 (2009), aff’d, 646 F.3d 6 (D.C. Cir.

15 2011). Simmons concerned an appraisal of facade

16 conservation easements for row houses in Washington, D.C.;

17 the appraisals “adequately describe[d] the parcels of land

18 owned by petitioner and the structures built thereon,”

19 “contain[ed] lengthy discussions of historic preservation

20 easements in general,” and “identif[ied] the method of

21 valuations used and the basis for the valuation reached.”

22 Id. at *7. True, the Simmons appraisals also contained

23 “statistics gathered by [the preservation trusts] that [the

17
1 appraiser] took into account in preparing the appraisals.”

2 Id. Such data may render an appraisal more persuasive, but

3 it does not distinguish a qualified appraisal from one that

4 is unqualified.

5 The Tax Court cited Friedman v. Commissioner, 99 T.C.M.

6 (CCH) 1175, 2010 WL 845949 (2010), for the proposition that

7 “[w]ithout any reasoned analysis, the appraiser’s report is

8 useless.” Id. at *4 (internal quotation marks and

9 alterations omitted). In that case, however, the appraisal

10 failed altogether to “even indicate the valuation method

11 used or the basis for the appraised values.” Id. The

12 authority relied upon by Friedman is Jacobson v.

13 Commissioner, 78 T.C.M. (CCH) 930, 1999 WL 1127811 (1999),

14 which similarly concerned one appraisal that “provided no

15 methodology or rationale for the values at which [the

16 appraiser] arrived,” and another appraisal that “did not

17 contain any valuation methodology, any rationale for the

18 prices quoted, or any reference to comparable sales.” Id.

19 at *2.

20 The cited cases are therefore inapposite. The

21 Commissioner may deem Drazner’s “reasoned analysis”

22 unconvincing, but it is incontestably there. Treasury

23 Regulations do provide substantive requirements for what a

18
1 qualified appraisal must contain.8 Some would seem to be

2 inapplicable, and others are expressly considered by

3 Drazner. And of course, the Treasury Department can use the

4 broad regulatory authority granted to it by the Internal

5 Revenue Code to set stricter requirements for a qualified

6 appraisal. Moreover, the Commissioner could review the

7 Drazner appraisal in the context of a considerable body of

8 data. Around the time Scheidelman was audited, the IRS had

9 undertaken a project in which it reviewed about 700 facade

10 conservation easements, about one-third of them all. See

11 Internal Revenue Service Advisory Council 2009 General

12 Report, available at

13 http://www.irs.gov/taxpros/article/0,,id=215543,00.html.

14 In sum, the Drazner appraisal accomplishes the purpose

15 of the reporting regulation: It provides the IRS with

8
For example, the regulations require that, when
before-and-after valuation is used, the appraisal must
account for the effect of zoning and historic preservation
laws as well as the possibility of other uses for the
property. See Treas. Reg. § 1.170A-14(h)(3)(ii). Moreover,
any increased value to other property owned by the donor
must be offset against the decrease caused by the easement,
id. § 1.170A-14(h)(3)(i), and account must be taken of any
permissible uses of the subject property that will increase
its value over its current use even if the restrictions
reduce the fair market value of the property at its highest
and best use, id. § 1.170A-14(h)(3)(ii).

19
1 sufficient information to evaluate the claimed deduction and

2 “deal more effectively with the prevalent use of

3 overvaluations.” Hewitt v. Comm’r, 109 T.C. 258, 265

4 (1997), aff’d, 166 F.3d 332 (4th Cir. 1998) (per curium).

5 And since the Commissioner’s bottom line is that the

6 donation had no value at all, it is hard to see how any

7 defect in the appraisal would matter.

8

9 D

10 The Tax Court also found that the summary Form 8283

11 filed by Scheidelman failed to include the date and manner

12 of acquisition of the property or its cost basis, see Treas.

13 Reg. § 1.170A-13(c)(4)(ii)(D) & (E), and opined that those

14 “defects alone demonstrate that there has not been strict

15 compliance with the regulation[’s] requirements.”

16 Scheidelman, 2010 WL 2788205, at *7. The Commissioner

17 argues this point on appeal. To the extent that the Tax

18 Court’s ruling rested on this observation, we reject it.

19 Scheidelman submitted two Form 8283s, which together

20 contained the information required. In support of her

21 deduction, Scheidelman submitted the Form 8283 completed by

22 Drazner and the Trust as well as a supplemental Form 8283

23 filled out (but not signed) by her tax preparer, John

20
1 Samoza. The second Form 8283 contained the information

2 omitted from the Form 8283 completed by the Trust and signed

3 by Drazner and the Trust.

4 The second Form 8283 was not signed by Drazner or the

5 Trust. But the two forms were both attached to

6 Scheidelman’s tax return and together contained all of the

7 information and signatures required by Treasury Regulations.

8 The required information and signatures were thus dispersed

9 in two forms submitted together, rather than gathered in a

10 single form; but that is the most technical of deficiencies,

11 which is properly excused on two grounds: “reasonable

12 cause,” see 26 U.S.C. § 170(f)(11)(A)(ii)(II); and the

13 doctrine of substantial compliance, see Bond v. Comm’r, 100

14 T.C. 32, 42 (1993).

15

16 * * *

17 Drazner’s delivery of a qualified appraisal does not

18 itself entitle Scheidelman to a deduction. In the Tax

19 Court, the Commissioner argued that Scheidelman failed to

20 comply with other statutory and regulatory requirements,

21 including that the contribution be exclusively for

22 conservation purposes (as required by 26 U.S.C.

23 § 170(h)(1)(C)) and that it be protected into perpetuity (as

21
1 required by Treasury Regulation § 1.170A-14(g)(6)). Because

2 the Tax Court has yet to decide these issues in the first

3 instance, remand is appropriate.

4 If the Tax Court agrees with Scheidelman on these

5 remaining issues, it would remain for the Tax Court to

6 determine the value of the Scheidelman easement on the basis

7 of the parties’ submissions. Our conclusion that Drazner’s

8 appraisal meets the minimal requirements of a qualified

9 appraisal mandates neither that the Tax Court find it

10 persuasive nor that Scheidelman be entitled to any deduction

11 for the donated easement.

12

13 II

14 The second issue on appeal is whether Scheidelman’s

15 $9,275 contribution to the Trust was “charitable,” and

16 therefore deductible under Section 170 of the Internal

17 Revenue Code. Charitable gifts under the tax code are those

18 “made with no expectation of a financial return commensurate

19 with the amount of the gift.” Hernandez v. Comm’r, 490 U.S.

20 680, 690 (1989) (internal quotation marks omitted). “The

21 sine qua non of a charitable contribution is a transfer of

22 money or property without adequate consideration.” United

23 States v. Am. Bar Endowment, 477 U.S. 105, 118 (1986). The

22
1 consideration need not be financial; medical, educational,

2 scientific, religious, or other benefits can be

3 consideration that vitiates charitable intent. See

4 Hernandez v. Comm’r, 819 F.2d 1212, 1217 (1st Cir. 1987),

5 aff’d, 490 U.S. 680 (1989).

6 Congress and the Supreme Court have illustrated this

7 principle using the example of donations made to a

8 charitable hospital: a contribution is not deductible if

9 given in exchange for a binding obligation to provide

10 medical treatment. See Hernandez, 490 U.S. at 690. In this

11 way, Section 170 distinguishes between “unrequited payments

12 to qualified recipients and payments made to such recipients

13 in return for goods or services.” Id.

14 Courts have implemented this quid pro quo principle by

15 looking to “the external features of the transaction in

16 question”:

17 If a transaction is structured in the form of a quid
18 pro quo, where it is understood that the taxpayer’s
19 money will not pass to the charitable organization
20 unless the taxpayer receives a specific benefit in
21 return, and where the taxpayer cannot receive the
22 benefit unless he pays the required price, then the
23 transaction does not qualify for the deduction under
24 section 170.
25
26 Graham, 822 F.2d at 849; see also Hernandez, 490 U.S. at

27 690-91 (approving “structural” analysis of transactions).

23
1 This structural approach obviates an inquiry into the

2 donor’s subjective intent. Hernandez, 490 U.S. at 690-91.

3 While Scheidelman’s $9,275 donation might be described

4 as a prerequisite of the Trust’s acceptance of the easement

5 donation, the Trust gave the taxpayer no “goods or

6 services,” or “benefit,” or anything of value in return for

7 her making the money gift. The only transfer of benefit was

8 what the taxpayer gave to the Trust in the two gifts.9

9 Earlier cases applying the quid pro quo principle concerned

10 bargained-for exchanges for services desired by the

11 taxpayer, such as religious or adoption services. See

12 Hernandez, 819 F.2d at 1217 (religious “auditing”); Murphy

13 v. Comm’r, 54 T.C. 249, 253 (1970) (adoption fee). But

14 Scheidelman received no such benefit from the Trust in

15 exchange for her cash donation. A donee’s agreement to

16 accept a gift does not transfer anything of value to the

17 donor, even though the donor may desire to have his gift

18 accepted, and may expect to derive benefit elsewhere (such

19 as by deductibility of the gift on her income taxes).

9
The Commissioner suggests that Scheidelman received
as consideration help in obtaining the necessary government
and lender approval to convey the easement. However, the
logistical help was completed well before Scheidelman was
obligated to pay the Trust at the time of the donation.
Furthermore, the value in obtaining the necessary approvals
was primarily a benefit to the Trust, without which the
Trust would have been unable to secure its objectives.
24
1 Scheidelman’s cash payment was part of her donation to

2 the Trust. She gave the Trust the easement to hold, she

3 endowed the maintenance of it, and the whole was an

4 unrequited contribution. Contributions toward operating

5 expenditures are commonplace among entities like the Trust

6 that hold and administer facade contribution easements. The

7 National Park Service has explained that

8 Many easement holding organizations require the
9 easement donor to make an additional donation of funds
10 to help administer the easement. These funds are often
11 held in an endowment that generates an annual income to
12 pay for easement administration costs such as staff
13 time and travel expenses, or needed legal services.
14
15 JA 232. Without some way of monitoring compliance, an

16 easement of this kind is easily violated, withdrawn, or

17 forgotten. When a cash contribution (even mandatory in

18 nature) serves to fund the administration of another

19 charitable donation, it is likewise an “unrequited gift.”

20 Scheidelman received nothing in return for her cash donation

21 and facade conservation easement. It is true the taxpayer

22 hoped to obtain a charitable deduction for her gifts, but

23 this would not come from the recipient of the gift. It

24 would not be a quid pro quo. If the motivation to receive a

25 tax benefit deprived a gift of its charitable nature under

26 Section 170, virtually no charitable gifts would be

25
1 deductible. See Mount Mercy Assocs. v. Comm’r, 67 T.C.M.

2 (CCH) 2267, 1994 WL 53665, at *4 (1994).

3 Our conclusion is amply supported by Kaufman v.

4 Commissioner, 136 T.C. 294 (2011), which rejected the

5 argument advanced here by the Commissioner, and held that a

6 mandatory cash contribution was deductible:

7 Seeing no benefit to [the taxpayer] other than
8 facilitation of her contribution of the facade easement
9 . . . and an increased charitable contribution
10 deduction, we shall not deny petitioners’ deduction of
11 the cash payments on the ground that the application
12 required a “donor endowment” to accompany the
13 contribution of facade easement.
14
15 Id. at 319. We agree, and hold that the contribution was

16 deductible.

17

18 III

19 The Commissioner has cross appealed the Tax Court’s

20 decision not to impose a 20% accuracy-related penalty on

21 Scheidelman for a “substantial understatement of income

22 tax.” See 26 U.S.C. § 6662(b)(2). Because we vacate the

23 Tax Court’s finding of understatement, we need not decide

24 the issue.

25

26

27

26
1 CONCLUSION

2 For the foregoing reasons, we vacate the decision of

3 the Tax Court and remand the case for proceedings consistent

4 with this opinion.

27