Today, the 2nd Circuit Court of Appeals (based in New York) decided Scheidelman v. Commissioner of Internal Revenue. Ms Huda Scheidelman donated a facade conservation easement (part of her townhouse in a historic district of Brooklyn) to the National Architectural Trust (a tax exempt organization). The area of Brooklyn where he townhouse is located is a “registered historic district” under federal law and New York law prohibits altering, reconstructing, or demolishing a federally registered historic building. Ms Scheidelman took a $115,000 tax deduction for donating the conservation easement to a tax exempt organization. But the IRS balked, arguing (1) she didn’t have a “qualified appraisal” and (2) her donated easement didn’t reduce the property’s fair market value because she didn’t give anything up by donating the easement. The Court found that the appraisal was seriously flawed and incomplete (see Slip at pp. 9-12), and the historic designation actually boosted, not diminished the value of her home.

While conservation easements are a useful estate planning tool, Scheidelman teaches that taxpayers need a good appraisal, to know the real value of their property, to avoid costly and embarrassing litigation and owing more money to the IRS. This year, the KC Estate Planning Society heard 2 great papers on conservation easements, which survey the landscape contours of conservation easements and how they fit into estate planning more broadly – this one by Laurie Hamilton and this one by Leah Mueller. (Excellent papers were also presented on special needs trusts and Sharia law and liberating a trust’s capital gains income from the net investment income tax under the Affordable Care Act.)

If my law firm, Johnson Law KC LLC, can help counsel you or your family on conservation easements or other estate planning issues, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a complimentary and convenient consultation.

(c) 2014, Stephen M. Johnson, Esq.