United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 4, 2011 Decided June 21, 2011
No. 10-1063
COMMISSIONER OF INTERNAL REVENUE SERVICE,
APPELLANT
v.
DOROTHY JEAN SIMMONS,
APPELLEE
Appeal from the United States Tax Court
Patrick J. Urda, Attorney, U.S. Department of Justice,
argued the cause for appellant. With him on the briefs was
Kenneth L. Greene, Attorney.
Robert J. Onda argued the cause for appellee. With him
on the brief was Timothy S. Rankin.
Matthew A. Eisenstein was on the brief for amici curiae
The National Trust For Historic Preservation, The L=Enfant
Trust, and Foundation for the Preservation of Historic
Georgetown in support of appellee.
Before: GINSBURG and GARLAND, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
2
Opinion for the Court filed by Circuit Judge GINSBURG.
GINSBURG, Circuit Judge: The Commissioner of Internal
Revenue appeals a decision of the Tax Court holding taxpayer
Dorothy Jean Simmons was entitled to claim deductions in
2003 and 2004 for donating to the L’Enfant Trust, Inc.
conservation easements on the façades of two buildings
located in an historic district. The Commissioner argues
Simmons may not take these deductions because her
contribution was not “exclusively for conservation purposes,”
as required by 26 U.S.C. § 170(h)(1)(C), and because she
failed to obtain “qualified appraisals” meeting the standards
of Treasury Regulation § 1.170A-13(c)(3)(ii). We hold the
Tax Court did not clearly err in concluding the factual
circumstances supporting Simmons’s deductions met the
applicable statutory and regulatory requirements.
I. Background
During the years at issue, Simmons owned two properties
in the Logan Circle neighborhood of Washington, D.C. —
one on the Circle and one nearby on Vermont Avenue. The
two properties were and are subject to the District of
Columbia’s Historic Landmark and Historic District
Protection Act of 1978, D.C. Code § 6-1101 et seq. The D.C.
Historic Preservation Office may fine any person who violates
the District’s preservation laws and can compel that person to
restore a structure that he impermissibly altered. Id. § 6-1110.
A. The Conservation Easement Deeds
The L’Enfant Trust, Inc. is a tax-exempt organization
under 26 U.S.C. § 501(c)(3), dedicated to the preservation of
historic properties. In 2003 Simmons executed a
“Conservation Easement Deed of Gift” granting to L’Enfant
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“an easement in gross, in perpetuity, in, on, and to the
Property, the Building and the Façade” on Logan Circle. In
2004 she granted to L’Enfant another, essentially identical
easement on the Vermont Avenue property.
Each deed prohibits Simmons from materially altering
the façade of the property without the written consent of
L’Enfant, and requires her to maintain the properties in good
repair, periodically clean the façades, and ensure any change
to a façade will comply with “applicable federal, state and
local governmental laws and regulations.” The deeds give
L’Enfant the right to inspect the façades and to seek equitable
remedies for any violation of the easements. By their terms,
the easements are binding upon Simmons and her
“successors, heirs and assigns,” run “in perpetuity with the
land,” and “survive any termination of Grantor’s or the
Grantee’s existence.”
The deeds allow L’Enfant “to give its consent (e.g., to
changes in a Façade) or to abandon some or all of its rights”
thereunder. The deeds also acknowledge the properties were
already encumbered by deeds of trust securing loans to a
mortgage company, but recite that the lenders have agreed to
subordinate their rights in the property to the rights of
L’Enfant “and join in the execution” of the easement deed for
this limited purpose. Attached to each deed are “Lender
Acknowledgements” signed by a representative of the lenders.
B. Simmons’s Claim of Charitable Deductions
Simmons filed tax returns for 2003 and 2004 claiming
charitable deductions of, respectively, $162,500 and $93,000
for having donated the conservation easements to L’Enfant.
A taxpayer generally may not take a charitable deduction for
the gift of a partial interest in property. 26 U.S.C. §
4
170(f)(3)(A). There is an exception, however, for a “qualified
conservation contribution,” id. § 170(f)(3)(B)(iii), defined as
the contribution “(A) of a qualified real property interest, (B)
to a qualified organization, (C) exclusively for conservation
purposes,” id. § 170(h)(1). The parties agree the easements
are “qualified real property interest[s]” and L’Enfant is a
“qualified organization.” See id. § 170(h)(2)(C), (3).
As required by the applicable Treasury regulations, see
Treas. Reg. § 1.170A-13(c)(2)–(3), Simmons obtained
appraisals performed by a licensed and certified appraiser,
estimating the fair market value of each easement, which
appraisals she submitted with her tax returns. The appraiser,
James Donnelly, determined that prior to the easement the fair
market value of the Logan Circle property was $1,250,000
and that of the Vermont Avenue property was $845,000.
Donnelly estimated donation of the easement would diminish
the value of the former by $162,500 (13 percent), and that of
the latter by $93,000 (11 percent).
Before the Tax Court, the Commissioner argued
Simmons could not claim a charitable deduction because (1)
the easements were not granted “exclusively for conservation
purposes,” (2) Simmons had failed to submit “qualified
appraisals” proving the fair market value of the easements,
and (3) as shown by an appraisal done by an employee of the
Internal Revenue Service, the easements were of no value.
The Tax Court disagreed in all respects but held the
easements were worth only $56,250 and $42,250 respectively.
Simmons v. Comm’r, 98 T.C.M. (CCH) 211, 212 (2009).
II. Analysis
On appeal the Commissioner argues the Tax Court erred
in holding (1) the easements donated by Simmons were
5
“exclusively for conservation purposes,” § 170(h)(1)(C), and
(2) Simmons had obtained “qualified appraisals” as required
by Treasury Regulation § 1.170A-13(c)(3)(ii). * Because his
arguments raise mixed questions of fact and law, our review
is only for clear error. See Jombo v. Comm’r, 398 F.3d 661,
663 (D.C. Cir. 2005).
A. Exclusively for Conservation Purposes
To reiterate, a taxpayer may take a deduction for a
“conservation contribution” only if it constitutes a qualified
interest in real property given exclusively for a “conservation
purpose[].” For a contribution to be deemed exclusively for a
conservation purpose, that purpose must be “protected in
perpetuity.” 26 U.S.C. § 170(h)(5)(A). A regulation
promulgated by the Department of the Treasury states further
that “any interest in the property retained by the donor ... must
be subject to legally enforceable restrictions ... that will
prevent uses of the retained interest inconsistent with the
conservation purposes of the donation.” Treas. Reg. §
1.170A-14(g)(1).
The Commissioner argues Simmons is not entitled to
deductions for charitable contributions because the easements
she granted L’Enfant satisfy neither the statute nor the
regulation quoted above. More specifically, the
Commissioner points to the clause in the deeds stating
“nothing herein contained shall be construed to limit the
Grantee’s right to give its consent (e.g., to changes in a
Façade) or to abandon some or all of its rights hereunder.”
*
The issue whether the Tax Court improperly valued the easements
is not before us because, as the Commissioner clarified during oral
argument, he did not raise this point as an independent basis for
objecting to the judgment of the Tax Court.
6
This clause, he maintains, is inconsistent with conservation in
perpetuity because it leaves L’Enfant free to consent to an
ahistorical change in the façade and to abandon altogether its
right to enforce the restrictions set out in the deeds. The
Commissioner also asserts the deeds will not prevent uses of
the properties “inconsistent with” their conservation because
neither easement includes a clause providing for the
perpetuation of the easements in the event L’Enfant ceases to
exist or simply abandons its right to enforce the easements.
Simmons objects that each deed states explicitly the
parties’ intent to preserve the subject property and that, in any
event, both she and L’Enfant are limited in what they can
change by the District’s historic preservation laws. She also
points out that L’Enfant’s interest in preserving its tax-exempt
status will prevent it from approving changes inconsistent
with the conservation purposes of — let alone abandoning —
the easements. Finally, Simmons maintains if L’Enfant is
dissolved, then the easements will be transferred to another
organization that engages in similar activities, citing the
testimony of the State Historic Preservation Officer.
We conclude the easements meet the requirement of
perpetuity in § 170(h)(5)(A). The deeds impose an
affirmative obligation upon Simmons “in perpetuity” to
maintain the properties in a manner consistent with their
historic character and grant L’Enfant the authority to inspect
the properties and to enforce the easements. By their terms,
the deeds will “survive any termination of Grantor’s or the
Grantee’s existence.” Although the deeds do not spell out
precisely what would happen upon the dissolution of
L’Enfant, D.C. law provides the easements would be
transferred to another organization that engages in “activities
substantially similar to those of” L’Enfant. D.C. Code §§ 29-
301.48, 29-301.56. More specifically, the State Historic
7
Preservation Officer testified the easement initially reverts to
the District of Columbia, which then seeks to assign it to a
conservation organization. Accordingly, the deeds do all the
Commissioner can reasonably demand to “prevent” uses of
the properties inconsistent with conservation purposes, as
required by Treasury Regulation § 1.170A-14(g)(1).
The clauses permitting consent and abandonment, upon
which the Commissioner so heavily relies, have no discrete
effect upon the perpetuity of the easements: Any donee might
fail to enforce a conservation easement, with or without a
clause stating it may consent to a change or abandon its rights,
and a tax-exempt organization would do so at its peril. As the
amici curiae — the National Trust for Historic Preservation,
L’Enfant, and the Foundation for the Preservation of Historic
Georgetown — further explain, this type of clause is needed
to allow a charitable organization that holds a conservation
easement to accommodate such change as may become
necessary “to make a building livable or usable for future
generations” while still ensuring the change is consistent with
the conservation purpose of the easement.
Moreover, the Commissioner has not shown the
possibility L’Enfant will actually abandon its rights is more
than negligible. L’Enfant has been holding and monitoring
easements in the District of Columbia since 1978, yet the
Commissioner points to not a single instance of its having
abandoned its right to enforce. Simmons’s deeds in particular
make express L’Enfant’s intention to ensure her properties
“remain essentially unchanged.” Treasury Regulation §
1.170A-14(c)(1) also provides “an eligible donee” — as
L’Enfant undisputedly is — must have a “commitment to
protect the conservation purposes of the donation” and “the
resources to enforce the restrictions.” Simmons’s entitlement
to a deduction for a “qualified conservation contribution”
8
under 26 U.S.C. § 170(f)(3)(B)(iii), therefore, is supported by
the limitation in Treasury Regulation § 1.170A-14(g)(3):
A deduction shall not be disallowed under section
170(f)(3)(B)(iii) and this section merely because the
interest which passes to, or is vested in, the donee
organization may be defeated by the performance of
some act or the happening of some event, if on the
date of the gift it appears that the possibility that such
act or event will occur is so remote as to be negligible.
Simmons’s deductions cannot be disallowed based upon the
remote possibility L’Enfant will abandon the easements. See
Stotler v. Comm’r, 53 T.C.M. (CCH) 973, 980–81 (1987)
(concluding easement was granted in perpetuity even though
grantee could abandon it because possibility future events
would undermine perpetuity was “so remote as to be
negligible”).
We also note any change in the façade to which L’Enfant
might consent would have to comply with all applicable laws
and regulations, including the District’s historic preservation
laws.
In short, because the donated easements will prevent
in perpetuity any changes to the properties inconsistent with
conservation purposes, we hold Simmons has made a
contribution “exclusively for conservation purposes,” in
accordance with 26 U.S.C. § 170(h)(1)(C).
The Commissioner makes the rather niggling argument that,
because of certain administrative shortcomings, compliance with
the District’s preservation scheme would not perpetuate the
conservation purposes of the deeds. Appearing as it does for the
first time in the reply brief, the argument is forfeit and we do not
address it. See Sitka Sound Seafoods, Inc. v. NLRB, 206 F.3d 1175,
1181 (D.C. Cir. 2000).
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B. Qualified Appraisals
Section 155(a) of the Deficit Reduction Act of 1984, Pub.
L. No. 98-369, 98 Stat. 494, 691, directs the Secretary of the
Treasury to prescribe regulations requiring an individual
claiming a charitable deduction pursuant to § 170 for property
valued at more than $5,000 to obtain “a qualified appraisal for
the property contributed.” The regulations contain
“substantiation requirements,” viz., that the appraisal include,
as relevant here:
(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
(K) The specific basis for the valuation, such as
specific comparable sales transactions or statistical
sampling ....
Treas. Reg. § 1.170A-13(c)(2)–(3).
The Commissioner argues the Tax Court erred in holding
Simmons’s appraisals were “qualified.” First, he contends
Donnelly failed to explain the “method of valuation” he used
and to include a substantive basis for the valuation, as
required by paragraphs (J) and (K), set out above. In doing
the appraisals, Donnelly had relied upon an article prepared
by Mark Primoli, an IRS employee, which stated, “Internal
Revenue Service Engineers have concluded that the proper
valuation of a façade easement should range from
approximately 10% to 15% of the value of the property.”
Internal Revenue Service, Façade Easement Contributions
(2000). The Commissioner suggests Donnelly arbitrarily
picked a percentage between 10 and 15 rather than stating any
identifiable method to determine the “after-easement” value.
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Simmons argues that because there was no market price
for conservation easements, Donnelly properly used the
“before and after approach,” Hilborn v. Comm’r, 85 T.C. 677,
688–89 (1985): He calculated the “difference between the
fair market value of the property” prior to donation and “the
fair market value of the encumbered property after the
granting of the restriction,” as permitted by § 1.170A-
14(h)(3). To estimate the fair market value of each property
once subject to the easement, Donnelly examined sales of
similarly encumbered properties and took into account factors
a buyer would consider in valuing such a property. The
Commissioner, however, complains Donnelly did not identify
the properties examined or the parties with whom he spoke
and therefore did not provide adequate detail; instead, he said
he had considered “subjective and conjectural factors” that
would lower the value of the properties after being
encumbered by easements.
We hold the Tax Court did not clearly err in concluding
the appraisals sufficiently identified the method and basis for
the valuations. To determine the fair market value of the
property before being encumbered, Donnelly consulted sales
of similar properties and identified some of these sales in the
appraisals. In ascertaining the fair market value after
encumbrance, Donnelly explained he spoke with and
considered “the mindset of competent buyers and sellers” and
took account of the “considerations they have actually had, or
are likely to have, in the buying or selling of a property
encumbered by a façade easement.” For example, each
appraisal noted the property would lose some value because
the easement imposed more onerous requirements than does
D.C. law. It also listed several factors that would lower the
value of the encumbered property, such as potential legal
exposure if the donor were to breach the easement and
11
L’Enfant’s right of prior approval for any change to the
façade.
After examining sales of easement-encumbered
properties and speaking with interested parties, Donnelly
concluded the donation of each easement would diminish the
value of the property by from 10 to 15 percent, as
contemplated by Primoli’s article. Specifically, he
determined the Logan Circle and the Vermont Avenue
properties would lose, respectively, 13 and 11 percent of their
value. Although the appraisals might have elaborated further
upon the specific bases for reaching each valuation, and thus
avoided litigation of this issue, it was not clear error for the
Tax Court to conclude Simmons satisfied the substantiation
requirements concerning valuation. *
In a footnote, the Commissioner “suggests” the appraisals
“failed to satisfy other requirements of [Treasury Regulation]
*
The Commissioner also contends the requirements of § 1.170A-
13(c)(3) are mandatory rather than directory and therefore cannot
be satisfied by merely substantial compliance. Cf. Bond v. Comm’r,
100 T.C. 32, 41 (1993) (if Treasury regulations “are procedural or
directory in that they are not of the essence of the thing to be done
..., they may be fulfilled by substantial, if not strict compliance”)
(quoting Taylor v. Comm’r, 67 T.C. 1071, 1077–78 (1977)). For
her part, Simmons argues the requirements in § 1.170A-13(c)(3) are
directory because they do not go to “the essence” of whether a
charitable contribution has been made under § 170. See Bond, 100
T.C. at 40–41 (reporting requirements of § 1.170A-13(c)(2)(i)(A)
and (3) are “directory and not mandatory”). We need not, however,
resolve the issue whether a taxpayer can fulfill the requirements of
§ 1.170A-13(c)(3) through substantial compliance because we
conclude above that the Tax Court did not clearly err in finding
Simmons fully “complied with the substantiation requirements” by
including “all of the required information.” 98 T.C.M. (CCH) at
216.
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§ 1.170A-13(c)(3)(ii)” but acknowledges the “omissions
might seem venal [sic] sins.” It is not our practice, however,
to indulge “cursory arguments made only in a footnote.”
Spirit of the Sage Council v. Norton, 411 F.3d 225, 229 n.*
(D.C. Cir. 2005) (internal quotation marks omitted).
Accordingly, we hold the Tax Court did not err in holding
Simmons provided the Commissioner with “qualified
appraisals.”
III. Conclusion
For the foregoing reasons, the judgment of the Tax Court
that Simmons was entitled to claim the deductions at issue is
Affirmed.