Seventeen Seventy St. v. Comm'r
2014 Tax Ct. Memo LEXIS 124
Tax Ct.2014Background
- Seventeen Seventy Sherman Street, LLC (Seventeen Seventy) claimed a charitable contribution deduction for interior and exterior conservation easements on the El Jebel Shrine in Denver, Colorado, related to a development deal with the city and Historic Denver, Inc. (Historic Denver).
- The FPAA disallowed the deduction, arguing the contribution failed section 170 requirements and that a quid pro quo exchange reduced or eliminated the deduction.
- Seventeen Seventy argued the easements were qualified conservation contributions and, when valued against consideration received (including zoning changes and a view plane variance), exceeded the value of the consideration.
- The development agreement required Seventeen Seventy to grant the easements in exchange for PUD approval, CPDA’s recommendation to the Planning Board, a view plane variance, and rehabilitation obligations.
- The court analyzed whether the contribution was made with detached motive and whether the FMV of the easements exceeded the total consideration Seventeen Seventy received in the quid pro quo exchange.
- The court ultimately denied the charitable contribution deduction because Seventeen Seventy failed to prove that the FMV of the easements exceeded the consideration received in the quid pro quo exchange.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the conservation easements qualified as a charitable contribution under §170. | Seventeen Seventy; claimed FMV exceeded consideration. | Respondent; there was a quid pro quo, so no deduction. | Not deductible. |
| If deductible, the proper amount of the deduction any charitable contribution. | FMV of easements should be the deduction amount after accounting for consideration. | FMV did not exceed consideration; no deduction. | No deduction; value not proven above consideration. |
| Whether a gross valuation misstatement penalties under §6662(h) apply. | FMV overstated; misstatement. | Valuation overstated; penalties may apply. | Penalty not applied for gross valuation misstatement. |
| Whether §6662(b)(1) negligence or disregard penalties apply. | Reliance on professional advice to justify deduction. | Taxpayer failed to adjust for consideration despite advice. | Penalty for negligence or disregard sustained. |
Key Cases Cited
- United States v. Am. Bar Endowment, 477 U.S. 105 (U.S. 1986) (sine qua non of a charitable contribution is transfer without adequate consideration; excess payment must be gift)
- Hernandez v. Commissioner, 490 U.S. 680 (U.S. 1989) (donation must be detached and disinterested unless excess payment is monetized as a gift)
- Pollard v. Commissioner, T.C. Memo. 2013-38 (T.C. 2013) (quid pro quo analysis; failure to prove value of consideration defeats deduction)
- Derby v. Commissioner, T.C. Memo. 2008-45 (T.C. 2008) (failure to prove FMV exceeds consideration defeats deduction in quid pro quo)
- Freytag v. Commissioner, 501 U.S. 868 (U.S. 1991) (reliance on professional advice in tax positions; three-prong test for reasonableness)
- United States v. Bethlehem Steel Corp., 315 U.S. 289 (U.S. 1942) (contract/divisibility analysis to determine enforceability of separate promises)