HomeMy WebLinkAbout2011/07/19 Item 08 Attachment A Appendix_FF_Facade_Easments
Facade Easement for filing the donor?s income tax return
for the taxable year of the contribution.
Contributions
The easement must include restrictions
preserving the entire exterior of the
The purpose of this brief is to review the
building (including front, sides, rear, and
basic requirements with respect to the
height) and prohibiting any change to the
charitable contribution of a façade
exterior of the building inconsistent with
easement. A façade easement preserves
its historical character.
an historical structure by restricting
changes to the structure. This assures
The public must have visual access to
the owner of the historic structure that its
the façade upon which the easement is
façade will be maintained, protected and
placed. If the façade is not visible from
preserved forever. The Pension
a public way, the terms of the easement
Protection Act of 2006 (PPA) added
must permit regular viewing of the
several new requirements with respect to
façade by the general public.
a façade easement contribution. The
PPA is effective for charitable
The contribution of a façade easement
contributions made after July 25, 2006.
must be to a ?qualified organization?.
This brief explains the current
This will generally be an organization
requirements of the Internal Revenue
that is an eligible donee under Internal
Code, as amended by the PPA, for the
Revenue Code Section 170(c) that has a
charitable contribution of a façade
conservation purpose and the resources
easement. Some of the requirements do
and commitment to enforce the
not apply to a building that is
easement. The easement is normally
individually listed in the National
conveyed to the donee organization by a
Register of Historic Places.
deed which is then recorded in
appropriate state or county records. The
Façade Easement Requirements
deed must preserve the façade in
perpetuity. In addition, the donor and
To be deductible as a charitable
donee must enter into a written
contribution, a façade easement must be
agreement certifying, under penalties of
on a ?certified historic structure?. Under
perjury, that the recipient organization is
Internal Revenue Code Section
a qualified organization with a purpose
170(h)(4)(C), a certified historic
of environmental protection, land
structure is any building, structure or
conservation, open space preservation,
land area which is listed in the National
or historic preservation, and has the
Register, or any building which is
resources to manage and enforce the
located in a registered historic district
restriction and a commitment to do so.
and is certified by the Secretary of
Interior as being of historic significance
If a contribution of an interest in real
to the district. A façade easement can be
property is subject to a mortgage, no
on a structure that is used for either
deduction is allowed unless the
business or non-business purposes,
mortgage holder subordinates its rights
including a personal residence. A
in the property to the right of the donee
structure must be a certified historic
to enforce the façade easement in
structure at the time of the contribution
perpetuity.
or on the due date (including extensions)
Valuation
A fully-completed Form 8283 (the
¼
?appraisal summary?);
Photographs of the entire exterior
The donor of a façade easement may be
¼
of the building; and
entitled to claim a charitable
contribution deduction equal to the fair
A description of all restrictions on
¼
market value of the easement. The value
the development of the building.
of the easement is normally determined
by the ?before and after? method. This Qualified Appraisal and Qualified
approach appraises the underlying Appraiser.
The Internal Revenue Code
property before the grant of the easement
and Treasury Regulations provide
and after the grant of the easement, with specific requirements for a ?qualified
the difference being the value of the
appraisal? and a ?qualified appraiser?.
easement.
In addition, in Notice 2006-96, 2006-2
C.B. 902, the IRS provided transitional
The fair market value of an easement
guidance for the period ending on the
should not be determined by applying a
date regulations implementing the PPA
percentage reduction to the value of the
are finalized. A brief summary of the
underlying property before the easement.
PPA requirements follows. However,
The IRS does not accept this percentage
the donor of a façade easement should
reduction as a method of valuing an
be aware of the detailed requirements
easement. related to a qualified appraisal and
qualified appraiser as set forth in Section
It is possible that the grant of an
170(f)(11) of the Internal Revenue Code
easement will have no significant effect and Section 1.170A-13(c)(3) & (5) of
on the value of the property, particularly
the Treasury Regulations.
if the easement is not more restrictive
than local ordinances already in effect.
A qualified appraisal must comply with
all the requirements of Treasury
Substantiation
Regulation Section 1.170A-13(c)(3) and
must be conducted by a qualified
No deduction is allowed unless the appraiser in accordance with generally
donor properly substantiates the
accepted appraisal standards. It will be
charitable contribution. A deduction can
treated as meeting generally accepted
be disallowed if any one of the following appraisal standards if, for example, it is
requirements is not met.
consistent with the substance and
principles of the Uniform Standards of
For a contribution of a façade easement
Professional Appraisal Practice. A
made in a tax year beginning after qualified appraisal must be made not
August 17, 2006, the following must be
earlier than 60 days prior to the date of
attached to the donor?s income tax
contribution of the appraised property
return: and received by the donor before the due
date (including extensions) of the return
on which a deduction is first claimed.
A ?qualified appraisal? of the
¼
façade easement prepared by a
Under Internal Revenue Code Section
?qualified appraiser? (no matter
170(f)(11)(E)(ii), a qualified appraiser is
what the amount of the claimed
an individual who regularly performs
deduction);
appraisals for compensation and who has
earned an appraisal designation from a requires signatures of the donee and the
professional appraiser organization or qualified appraiser, in addition to other
has met minimum education and important information relevant to the
experience requirements as set forth in charitable contribution of the façade
regulations. Notice 2006-96 provides easement. See Treasury Regulation
that, until regulations are promulgated, Section 1.170A-13(c)(4).
an individual will be treated as meeting
the appraisal designation requirement if Contemporaneous Written
Acknowledgment
the individual?s appraisal designation is . For any charitable
awarded on the basis of demonstrated contribution of $250 or more, no
competency in valuing the type of deduction is allowed unless the taxpayer
property for which the appraisal is obtains a contemporaneous written
performed. For an appraisal of real acknowledgment, as required by Internal
property, the appraiser will be treated as Revenue Code Section 170(f)(8). This
having met minimum education and acknowledgment must contain the
experience requirements if the appraiser amount of cash and a description of any
is licensed or certified for the type of property contributed, whether the donee
property being appraised in the state in organization provided any goods or
which the appraised property is located. services in consideration for any
property contributed and, if so, a
Under Internal Revenue Code Section description and good faith estimate of
170(f)(11)(iii), for each specific the value of any such goods or services.
appraisal, an individual will not be The donor must obtain the
treated as a qualified appraiser unless the acknowledgment on or before the earlier
individual demonstrates verifiable of the date on which the taxpayer files a
education and experience in valuing the return for the year the contribution was
type of property subject to the appraisal made, or the due date (including
and has not been prohibited from extensions) for filing the return.
practicing before the IRS at any time
during the 3-year period ending on the Filing Fee
date of the appraisal. Notice 2006-96
provides that an individual will be
For a charitable contribution of a façade
treated as meeting the verifiable
easement made on or after February 13,
education and experience requirement if
2007, if the claimed deduction is more
the appraiser makes a declaration in the
than $10,000, no deduction is allowed
appraisal that because of the appraiser?s
unless the taxpayer includes with the
background, experience, education and
return a $500 filing fee. See Form 8283-
membership in professional associations,
V, Payment Voucher for Filing Fee and
the appraiser is qualified to appraise the
the instructions at
type of property being appraised.
http://www.irs.gov/pub/irs-pdf/f8283v.pdf.
Form 8283
. A fully-completed Form
Rehabilitation Tax Credit and
8283 is the ?appraisal summary? and
Charitable Contributions
must be attached to the tax return for the
year the property is contributed and a
When a façade easement is conveyed
deduction is first claimed. For a
during the same year that a qualified
contribution for which a deduction of
rehabilitated building is placed in
more than $5,000 is claimed, the form
service, the taxpayer will not be entitled and who knew, or reasonably should
to claim the portion of the rehabilitation have known, the appraisal would be used
tax credit attributable to the façade in connection with a tax return or claim
easement. for refund. The appraiser must make a
written declaration that he or she is
If a taxpayer claims a rehabilitation tax aware of this penalty provision.
credit with respect to property and
subsequently makes a qualified
conservation contribution (i.e., a façade
easement) with respect to the property,
the charitable contribution is considered
a partial disposition of the property.
This event will trigger recapture of all or
part of the credit if the contribution is
made within the recapture period (5
years from the placed in service date).
Please refer to Rev. Rul. 89-90, 1989-2
C.B. 3, and Rome I, Ltd.v. Comm., 96
T.C.697 (1991) for further information
on the tax effect of combining the
rehabilitation tax credit with a façade
easement donation.
If, during the 5 preceding years, a
rehabilitation credit under section 47
was claimed for the building, the amount
of the charitable contribution deduction
must be reduced by the ratio of the sum
of the credits over the fair market value
of the building on the date of
contribution.
Penalties
A charitable contribution deduction may
be disallowed and penalties imposed on
the donor if substantiation or other
requirements are not met, or if the façade
easement is overvalued.
In addition, under Internal Revenue
Code Section 6695A (added by the
PPA), if the claimed value of property
based on an appraisal results in a
substantial or gross valuation
misstatement, a penalty is imposed on
any person who prepared the appraisal