Kaufman v. Commissioner
136 T.C. 294
Tax Ct.2011Background
- Petitioners Gordon and Lorna Kaufman reside in Massachusetts; their property is in the South End historic preservation district.
- In 2003 Lorna Kaufman donated a facade easement to NAT (National Architectural Trust) under a Preservation Restriction Agreement, with a 10% cash endowment requirement tied to the easement value.
- The bank held a mortgage on the property and executed a Lender Agreement subordinating its rights to NAT, recorded October 1, 2004.
- An appraisal as of January 20, 2004 valued the property at $1,840,000 and the easement at 12% ($220,800); NAT provided services to secure approvals and facilitate the donation.
- Lorna Kaufman paid 2003 cash of $16,840 and 2004 cash of $3,332 to NAT; petitioners claimed large charitable deductions for the facade easement and cash gifts.
- The Internal Revenue Service disallowed deductions for the facade easement; penalties were proposed; the court granted partial summary judgment denying the easement deduction and later addressed cash contributions and penalties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the facade easement qualify as a perpetual conservation restriction? | Agreement satisfies g(6) extinguishment and related provisions. | Agreement fails enforceability-in-perpetuity under 1.170A-14(g)(6). | No; the easement does not satisfy the extinguishment provisions. |
| Are 2003 and 2004 cash contributions deductible as charitable deductions? | Cash payments were charitable contributions to NAT. | Cash payments were subject to conditions or quid pro quo and not deductible. | 2003 deduction denied; 2004 deduction allowed for $19,872 (cash payments 2003–2004). |
| Was there a quid pro quo for the cash payments to NAT? | Payments facilitated the charitable deduction and NAT's services; not a quid pro quo. | Payments were made in exchange for substantial services and reduced value of the easement deduction. | No; petitioners did not prove a quid pro quo. |
| Are the cash payments properly substantiated under 170(f)(8)? | NAT acknowledged contributions; documents support deduction. | Letters were erroneous or incomplete regarding goods/services. | Petitioners prevail on substantiation; 2004 deduction sustained to the extent described. |
| Should penalties be imposed for negligence or substantial understatements? | Reasonable cause and good faith apply; no or limited penalties. | Some understatements were negligent and/or substantial. | Penalty sustained only for 2003 cash contribution due to negligence; other penalties not imposed. |
Key Cases Cited
- Kaufman v. Commissioner, 134 T.C. 182 (2010) (existing ruling on extinguishment and enforceability-in-perpetuity)
- Addis v. Commissioner, 118 T.C. 528 (2002) (contemporaneous acknowledgment and substantiation)
- Hernandez v. Commissioner, 490 U.S. 680 (1989) (quid pro quo payments and charitable deductions)
- United States v. American Bar Endowment, 477 U.S. 105 (1986) (economic benefit as a bar to deduction)
- Rolfs v. Commissioner, 135 T.C. 471 (2010) (reasonable cause and penalties framework)
- McMillan v. Commissioner, 31 T.C. 1143 (1959) (precedent on charitable deductions and prerequisites)