15 W. 17TH St. LLC v. Comm'r
| Decision Date | 22 December 2016 |
| Docket Number | Docket No. 25152-11.,147 T.C. No. 19 |
| Parties | 15 WEST 17TH STREET LLC, ISAAC MISHAN, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
On its 2007 partnership return LLC claimed a charitable contribution deduction of $64,490,000. In order to substantiate a charitable contribution deduction of $250 or more, a taxpayer must secure and maintain in its files a "contemporaneous written acknowledgment" (CWA) from the donee organization. I.R.C. sec. 170(f)(8)(A). The CWA must state (among other things) whether the donee provided the donor with any goods or services in exchange for the gift. I.R.C. sec. 170(f)(8)(B)(ii).
The substantiation requirements of subparagraph (A) do not apply to a contribution "if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe," that includes the information specified in subparagraph (B). I.R.C. sec. 170(f)(8)(D). To date, the Secretary has not issued regulations to implement the donee-reporting regime referred to in subparagraph (D).
R audited LLC's 2007 return and disallowed the charitable contribution deduction in its entirety. After the case was docketed in this Court, the donee organization submitted an amended Form 990, Return of Organization Exempt from Income Tax, that included the information specified in subparagraph (B). P filed a motion for partial summary judgment, contending that this action by the donee eliminated the need for a CWA to substantiate LLC's gift.
1. Held: I.R.C. sec. 170(f)(8)(D) sets forth a discretionary delegation of rulemaking authority, and it is not self-executing in the absence of the regulations to which the statute refers.
2. Held, further, the general rule set forth in subparagraph (A), requiring a CWA meeting the requirements of subparagraph (B), is fully applicable to the gift at issue.
Jeremy M. Klausner, for petitioner.
Marc L. Caine, for respondent.
LAUBER, Judge: This case is before the Court on petitioner's motion for partial summary judgment. The motion presents a question of statutory construction involving the relationship between subparagraphs (A) and (D) of section 170(f)(8), which governs substantiation requirements for certain charitable con- tributions.1 Section 170(f)(8)(A) provides that no deduction shall be allowed for any charitable contribution of $250 or more unless the taxpayer substantiates the gift by a "contemporaneous written acknowledgment" (CWA) from the donee organization. The CWA must state (among other things) whether the donee supplied the donor with any goods or services in consideration for the gift and (if so) must furnish a description and good-faith estimate of the value of such goods or services. Sec. 170(f)(8)(B)(ii) and (iii).
After the petition in this case was filed, the donee organization submitted an amended return for the year in which the gift was made. This amended return described the gift from 15 West 17th Street LLC (LLC) and included a statement that the donee had provided the LLC with no goods or services in consideration for that gift. Petitioner contends that this action by the donee eliminated the need for a CWA, relying on section 170(f)(8)(D). That section provides that "[s]ubparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution."
The Internal Revenue Service (IRS or respondent) advances two arguments in opposition to petitioner's motion for partial summary judgment. First, respondent contends that section 170(f)(8)(D) is not "self-executing," i.e., that it will become operative only when the Secretary publishes the regulations to which the statute refers. Since the Secretary has not issued such regulations, respondent contends that subparagraph (A) remains applicable and that a proper CWA was necessary to substantiate petitioner's contribution. Second, in the event we determine that section 170(f)(8)(D) is operative in the absence of regulations, respondent contends that the term "return" as used in this subparagraph means the donee organization's original return for the period in question and cannot include an amended return.
We conclude that the rulemaking authority delegated in subparagraph (D) is discretionary, not mandatory, and that subparagraph (D) is not self-executing in the absence of regulations. We accordingly hold that the general rule set forth in subparagraph (A), requiring a CWA meeting the requirements of subparagraph (B), is fully applicable for the gift at issue. Because we will deny petitioner's motion for partial summary judgment on this ground, we need not address respondent's alternative argument.
Background
There is no dispute as to the following facts, which are drawn from the parties' summary judgment papers and from the stipulations of facts and attached exhibits filed previously. At the time of the filing of the petition, the LLC had its principal place of business in New York.
In September 2005 the LLC purchased, for $10 million, a property in New York City, Borough of Manhattan, known as block 558, lot 43. This property comprised two parcels. The building on the northern parcel, at 126-128 East 13th Street, is the Van Tassell & Kearney Auction Mart (VTK Building). The VTK Building was built in 1903-04 for staging horse auctions. It was later used as a candy factory, as a vocational school for women, and as the studio of Frank Stella, a well-known artist.
The LLC initially planned to demolish the VTK Building. However, the Greenwich Village Society for Historic Preservation petitioned the New York City Landmarks Preservation Commission to designate the VTK Building an individual landmark. The commission calendared an emergency hearing in September 2006 to consider this request. On November 29, 2007, the VTK Building was placed on the National Register of Historic Places, and it thus became a "certified historic structure" within the meaning of section 170(h)(4)(C)(i).
On December 20, 2007, the LLC executed in favor of the Trust for Architectural Easements (Trust) a historic preservation deed of easement. This deed granted the Trust a perpetual conservation easement over the north parcel of the property, including the VTK Building. The Trust is an organization described in section 501(c)(3) and is a "qualified organization" under section 170(h)(3).
The LLC's contribution of the easement to the Trust was completed for Federal tax purposes in 2007. On May 14, 2008, the Trust sent the LLC a letter acknowledging receipt of the easement. This letter did not state whether the Trust had provided any goods or services to the LLC, or whether the Trust had otherwise given the LLC anything of value, in exchange for the easement.
The LLC secured an appraisal concluding that, as of February 8, 2008, the property had a fair market value of $69,230,000 before placement of the easement. The appraisal thus opined that the property--acquired for $10 million in September 2005--had risen in value by almost 600% in 2-1/2 years. Opining that the property was worth only $4,740,000 after the donation, the appraisal concluded that the easement had reduced the property's value by $64,490,000.
The LLC filed its 2007 Form 1065, U.S. Return of Partnership Income, on October 17, 2008. On this return, the LLC deducted $64,490,000, the alleged value of the easement, as a charitable contribution to the Trust. The LLC included with its return a copy of the appraisal report, a copy of the Trust's May 14, 2008, letter, and Form 8283, Noncash Charitable Contributions, executed by the appraiser and by a representative of the Trust.
On August 19, 2008, the Trust filed Form 990, Return of Organization Exempt From Income Tax, for calendar year 2007. On that return, the Trust did not report receipt of a charitable contribution from the LLC. Nor did it report whether it had provided any goods or services to the LLC in exchange for the easement.
The IRS selected the LLC's 2007 return for examination. On August 28, 2011, the IRS mailed the LLC a notice of final partnership administrative adjustment (FPAA), which was followed by a supplementary FPAA on September 27, 2011. In the supplementary FPAA the IRS disallowed the charitable contribution deduction in full because "[i]t has not been established that all the requirements of IRC Section 170 and the corresponding Treasury Regulations * * * have been satisfied for the noncash charitable contribution." In the alternative, the IRS determined that the value of the easement was substantially less than the $64,490,000 claimed on the return. The IRS determined penalties for gross valuation misstatement under section 6662(a) and (h) and (alternatively) for negligence under section 6662(a) and (b)(1).
On November 2, 2011, the LLC's tax matters partner timely petitioned this Court for review of the supplementary FPAA. On June 16, 2014, the Trust prepared an amended Form 990 for 2007 and mailed it to the IRS Service Center in Ogden, Utah. Part III of Form 990 is captioned "Statement of Program Service Accomplishments." On its original Form 990 filed in 2008, the Trust had described these accomplishments in an attached statement, which summarized the easement donations it had received during 2007. On the amended Form 990 filed in 2014, the Trust added the following two sentences to that description:
The Ogden Service Center received the amended Form 990 on June 23, 2014. Respondent does not dispute petitioner's assertion...
To continue reading
Request your trial