## Facts

- J. Maurice Herman owned (directly or indirectly since 1975) a Fifth Avenue property in New York City improved with an eleven-story apartment building in the Upper East Side Historic District.
- The building qualified as a “certified historic structure” for purposes of I.R.C. § 170(h)(4)(B).
- The property had approximately 22,000 square feet of unused development rights (air rights).
- In 1998, Herman transferred fee title to Windsor Plaza, LLC (wholly owned by Herman), and Windsor executed an assignment transferring all unused development rights to Herman.
- Windsor also agreed that it and its successors would not develop those unused rights except in accordance with Herman’s directions, separating the air rights (held by Herman) from the underlying real property (held by Windsor).
- In 2003, Herman donated to the National Architectural Trust, Inc. a conservation easement restricting development of 10,000 unspecified square feet of the unused development rights; Herman retained roughly 12,000 square feet of unused development rights.
- Windsor signed the easement as a confirming party and agreed to be bound by the easement and applicable historic-preservation ordinances.
- Herman claimed a charitable contribution deduction under § 170 for the easement as a “qualified conservation contribution.”
- The IRS disallowed the deduction and determined a 2003 deficiency of $3,906,531 and a § 6662(h) accuracy-related penalty of $1,562,612.40.
- The Commissioner moved for partial summary judgment limited to whether the contribution was “exclusively for conservation purposes” under § 170(h).

## Issues

1. Whether an easement that restricts only part of a donor’s unused development rights above a certified historic structure, while the donor retains significant additional development rights, qualifies as a “qualified conservation contribution” “exclusively for conservation purposes” under § 170(h)(1)(C) and § 170(h)(4)(A)(iv).

## Decision

- The Tax Court granted the Commissioner’s motion for partial summary judgment.
- The court held that the easement did not preserve an “historically important land area” or a “certified historic structure” within the meaning of § 170(h)(4)(A)(iv).
- Because the easement failed the conservation-purpose requirement, the claimed § 170 charitable deduction was disallowed (with deficiency and penalty consequences to follow from that determination).

## Legal Principles

- A “qualified conservation contribution” under § 170(h)(1) requires (1) a qualified real property interest, (2) to a qualified organization, and (3) exclusively for conservation purposes.
- “Exclusively for conservation purposes” may be satisfied by preserving an historically important land area or a certified historic structure under § 170(h)(4)(A)(iv), but the donated interest must in fact effect that statutory preservation purpose.
- An easement burdening only a portion of unused development rights (air rights), without imposing preservation restrictions directed at the existing historic structure itself, may fail to constitute preservation of a certified historic structure for § 170(h)(4)(A)(iv).
- Restricting limited airspace above a fully developed urban property, with no undeveloped space and with substantial development rights retained, does not necessarily constitute preservation of a historically important land area under § 170(h)(4)(A)(iv).
- On summary judgment under Tax Court Rule 121, the moving party must show no genuine dispute of material fact and entitlement to judgment as a matter of law; where the nature and scope of the donated restrictions are undisputed, qualification under § 170(h) may be resolved as a legal issue.

## Conclusion

The Tax Court held that a conservation easement limiting only a portion of a taxpayer’s air rights above a certified historic building, while leaving significant development potential intact and not directly restricting the building’s preservation, was not “exclusively for conservation purposes” under § 170(h), so the charitable deduction was disallowed on partial summary judgment.


Herman v. Comm'r, T.C. Memo. 2009-205 (2009)