Generally, no charitable deduction is permitted for the contribution of a partial interest in property to charity. However, the Internal Revenue Code carves out an exception for façade conservation easements. This is the contribution of a qualified real property interest to a qualified charitable organization exclusively for conservation purposes. The term “conservation purposes” includes the preservation of open spaces and historic preservation.

For example, in the Tax Court case Simmons vs. C.I.R. which was affirmed by the Appeals Court, the taxpayer donated to a charity a conservation easement on the façades of two buildings located in a historic district. The easements prohibited the taxpayer from materially altering the façade of the properties without the written consent of the charity. There the court determined that the taxpayer was entitled to a charitable deduction equal to the value of the property before the easement, less the value of the property after the easement.

Despite the authorization of façade easement deduction in the Internal Revenue Code and by the courts, the IRS has continually challenged this deduction on a number of different theories, including improper valuation method, no diminution in value by the easement, failure to obtain contemporaneous written acknowledgement from the charity and that the easement was not in perpetuity. Further, the IRS began assessing a 40 percent gross valuation misstatement penalty.

Apparently these IRS challenges have not been enough. To continue reading, click here.

After the audit of an S corporation for the 2009 tax year, the IRS disallowed some corporate deductions and further disallowed the $24 million corporate loss allocated to the shareholders asserting that the shareholders lacked adequate basis. The shareholders retained us to dispute the IRS determination.

The shareholders claimed that they had adequate basis in the S corporation because they each loaned funds to the S corporation and that the loans created basis even though they were back-to-back loans. This means that the shareholders were the sole owners of both an S corporation and an LLC. The loan scenario was the following—the LLC received a bank loan and then loaned the funds to the shareholders who loaned the funds to the S corporation. IRS regulations allow back-to-back loans to create shareholder basis. The shareholder also argued in the alternative that the losses are deductible because in 2011 all shareholder loans were contributed to the S corporation for equity. Thus, at a minimum the losses would be deductible in 2011 and could be carried back as net operating losses to 2009.

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A certified public accountant with a masters of law in taxation, David is uniquely qualified to counsel his clients on structuring transactions such as domestic and foreign asset protection trusts, to reduce the risk of exposure to potential creditors, as well as minimizing exposures to federal and state estate taxes. David also battles the IRS both in administrative proceedings and in U.S. Tax Court in gift, estate and income tax matters.