Whitehouse Hotel Limited Partnership, QHR Holdings-New Orleans, Ltd., Tax Matters Partner v. Commissioner
2012 U.S. Tax Ct. LEXIS 40
Tax Ct.2012Background
- On remand from the Fifth Circuit, the Tax Court reconsiders the value of the conservation servitude conveyed to PRC and whether an accuracy-related penalty applies.
- Whitehouse Hotel Limited Partnership donated a perpetual real right (servitude) over exterior surfaces of the Maison Blanche Building to PRC in 1997 as part of a hotel development project in New Orleans.
- Two qualified appraisers provided conflicting valuations: Roddewig (petitioner) valued a substantial servitude, while Argote (respondent) opined a zero or minimal value using local comparable sales.
- The Court previously (Whitehouse I) rejected Roddewig’s cost and income approaches, relying instead on local comparable-sales data to value the servitude at about $1.79 million before restriction and $0 after, yielding a ~$1.79 million servitude value.
- The remand instructed the court to reassess highest-and-best-use impacts, local vs nonlocal comparables, and whether the servitude deprived the parcel of development rights (e.g., 60 hotel rooms) and to reconsider the penalty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the correct value of the servitude on the valuation date? | Roddewig’s methods yield a higher value based on cost/income approaches. | Comparable-sales with local properties yield a more reliable value around $1.86 million. | Value determined via comparable-sales; servitude value $1,857,716. |
| Did the servitude deprive the parcel of the right to add hotel stories (e.g., 60 rooms) affecting value? | The servitude eliminated the possibility of adding 60 rooms, reducing value. | Highest-and-best-use analysis does not mandate that prohibition; argument rejected. | The servitude did not burden the Kress Building; value evidence based on local comparables remains controlling. |
| Should the 1997 charitable contribution deduction be sustained given the value misstatement and the penalty? | Reasonable cause and reliance on professionals could excuse penalties. | No reasonable cause; gross valuation misstatement established due to overstatement beyond 400%. | Penalty sustained; no reasonable-cause exception applies. |
| Does Louisiana law create a servitude of view that burdens the Kress Building? | Preamble and Plan language imply a servitude restricting views. | Operative terms do not create a servitude of view enforceable against successors. | Operative conveyance terms do not establish a servitude of view; no enforceable real right burdening the Kress Building. |
Key Cases Cited
- Whitehouse Hotel Ltd. P'ship v. Commissioner, 131 T.C. 112 (2008) (original decision on value; vacated/remanded by Fifth Circuit)
- Whitehouse Hotel Ltd. P'ship v. Commissioner, 615 F.3d 321 (5th Cir. 2010) (remand instructions on value and penalty; highest-and-best-use considerations)
- Olson v. United States, 292 U.S. 246 (1934) (highest-and-best-use considerations; market value framework)
- Stanley Works v. Commissioner, 87 T.C. 389 (1986) (highest and best use as foundation for value; market forces)
- Estate of Jameson v. Commissioner, 267 F.3d 366 (5th Cir. 2001) (proximity, comparability, and reliability in valuation)
- Van Zelst v. Commissioner, 100 F.3d 1259 (7th Cir. 1996) (auction-theory insight on highest and best use and value)