Whitehouse Hotel Ltd. P'ship v. Comm'r, 139 T.C. No. 13

Partnership conveyed a perpetual scenic facade servitude (the Servitude) on the Maison Blanche Building to PRC in 1997 for charitable contribution purposes.
Parties claimed a 1997 charitable deduction of $7.445 million based on the servitude’s value; the IRS reduced the deduction and asserted an accuracy-related penalty.
This case arises on remand from the Fifth Circuit following Whitehouse Hotel Ltd. P’ship v. Commissioner (Whitehouse II) directing reconsideration of the servitude’s value and the penalty.
Two valuation experts testified: Richard J. Roddewig (before/after reproduction cost, income, and comparable-sales methods) and Richard Dunbar Argote (comparable-sales approach).
Whitehouse I initially rejected Roddewig’s cost and income approaches and relied on comparable sales, ultimately valuing the servitude at $1,792,301 before remand.
The remand instructions required reevaluation of the approaches, highest and best use, the effect on the Kress Building, and the penalty.

Issue	Plaintiff's Argument	Defendant's Argument	Held
What is the controlling valuation method for the servitude?	Whitehouse (Roddewig) contends cost/income approaches are valid.	Respondent argues comparable-sales approach is more reliable here.	Comparable-sales approach is adopted as the reliable valuation method on remand.
Did the servitude diminish value by preventing construction atop the Kress Building?	Roddewig’s view that the servitude reduced value due to loss of 60 potential rooms above Kress.	Court previously found no burden on the Kress Building; servitude may or may not affect value.	Court finds the servitude may affect value but must be reconsidered; previously burden on Kress Building not sustained.
Did the servitude’s terms create a perpetual real right enforceable against successors?	Plead that Louisiana 9:1252 creates a perpetual predial/personal servitude affecting the Kress Building.	Louisiana conveyance terms do not create an enforceable servitude on the Kress Building or a view servitude.	Conveyance does not create an enforceable servitude against successors; no burden on successors to block atop Kress.
Is the 1997 charitable deduction subject to the 6662 gross valuation misstatement penalty?	Cohen appraisal supported deduction; partnership relied on professionals.	The value overstated by 400%+; reasonable-cause exception not satisfied; penalty applies.	Penalty sustained as gross valuation misstatement; reasonable-cause exception does not apply.

Whitehouse Hotel Ltd. P’ship v. Commissioner, 131 T.C. 112 (2008) (initial determination on value and approaches; remanded by Fifth Circuit (Whitehouse I))
Whitehouse Hotel Ltd. P’ship v. Commissioner, 615 F.3d 321 (5th Cir. 2010) (Whitehouse II; vacate/ remand for reconsideration of value and penalty)
Olson v. United States, 292 U.S. 246 (1934) (highest and best use considerations in determining value)
Estate of Jameson v. Commissioner, 267 F.3d 366 (5th Cir. 2001) (proximity/likelihood of comparables; relevance to fair market value)
Duncan Indus., Inc. v. Commissioner, 73 T.C. 266 (1979) (income approach usefulness diminishes when comparable-sales data available)