By Preservation Action
Over the past several years, the Internal Revenue Service has been actively challenging the donation of preservation easements to non-profit organizations. Citing a range of issues including the actual value of the donation, whether or not the easement is "exclusively for conservation purposes," as required in the law, or whether placing an easement on properties already subjected to the restrictions of local preservation ordinances have any value at all, the IRS aggressively started auditing donors - resulting in a substantial drop in easement donations.
A recent federal appeals court decision in a Washington DC case, Simmons v. Commissioner, should help to put many of the IRS's claims to rest. The case involved a property owner who donated the facades of two 19th century Italianate row-houses in the Logan Circle Historic District to an easement holding organization - the L'Enfant Trust. Among the issues raised by the IRS was their claim that because the L'Enfant Trust could actually approve changes to the facade and not simply mandate it remain in its current condition in perpetuity, that it did not count as being "exclusively for conservation purposes." They also took issue with the actual easement deeds because they contained provisions that permitted the easement holder to abandon the easement, and they did not clearly outline a process by which the easement would be transferred elsewhere should the holding entity cease to exist.
On all counts the court ruled against the IRS. This, coupled with an earlier tax court decision that the IRS did not appeal that invalidated the argument that easements donated on properties located in protected historic districts have no value, should help to set a stronger precedent in future cases and help deter the IRS from pursuing its attack on donations made to legitimate organizations.
For more information, the National Trust for Historic Preservation has posted a more in-depth article here.