                              T.C. Memo. 2017-164



                           UNITED STATES TAX COURT



                 310 RETAIL, LLC, ZELLER-310, LLC,
                TAX MATTERS PARTNER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 22838-14.                       Filed August 24, 2017.



      Jeffrey H. Paravano, Jay R. Nanavati, Michelle M. Hervey, and Kevin M.

Johnson, for petitioner.

       Keith Lawrence Gorman and Philip S. Yarberough, for respondent.



                            MEMORANDUM OPINION


      LAUBER, Judge: This case involves a charitable contribution deduction

claimed by 310 Retail, LLC (LLC), for a conservation easement. Currently before

the Court are cross-motions for partial summary judgment as to whether LLC sat-
                                        -2-

[*2] isfied the substantiation requirements in section 170(f)(8) for this gift.1 LLC

did not receive from the donee organization a timely letter of the sort that normally

acts as a “contemporaneous written acknowledgment” (CWA) within the meaning

of section 170(f)(8)(B). Petitioner contends that LLC nevertheless satisfied the

statutory substantiation requirements and points to three documents by which it al-

legedly did so.

      Relying on section 170(f)(8)(D), petitioner initially cited two Forms 990,

Return of Organization Exempt From Income Tax, filed by the donee charity six

years after the gift was made. On these forms the donee included certain informa-

tion required by section 170(f)(8)(B), including an averment that no goods or ser-

vices were provided in exchange for the gift. However, the parties filed their mo-

tions for partial summary judgment before this Court issued its Opinion in 15 W.

17th St., LLC v. Commissioner, 147 T.C. __ (Dec. 22, 2016). Petitioner acknow-

ledges that, under that Opinion, tax returns subsequently filed by the donee organ-

ization do not relieve the donor of the obligation to have secured a CWA that

meets the statutory requirements.




      1
       All statutory references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                         -3-

[*3] The third document on which petitioner relies is the deed of easement that

the donee executed contemporaneously with the gift. We have previously held

that a deed of easement may constitute a de facto CWA. See RP Golf, LLC v.

Commissioner, T.C. Memo. 2012-282, 104 T.C.M. (CCH) 413; Averyt v. Com-

missioner, T.C. Memo. 2012-198, 104 T.C.M. (CCH) 65. We conclude that the

deed of easement in this case qualifies as a CWA under the logic of these cases.

We will accordingly grant petitioner’s motion for partial summary judgment and

deny respondent’s cross-motion.

                                     Background

        There is no dispute as to the following facts, which are drawn from the par-

ties’ summary judgment papers and the attached exhibits. When the petition was

filed LLC had its principal place of business in Illinois.

        Sometime before 2006 LLC acquired a property at 310 South Michigan Av-

enue in Chicago. The property includes the Metropolitan Tower, originally known

as the Strauss Building (building), designed by the architectural firm of Graham,

Anderson, Probst and White and completed in 1924. In 2005 LLC began renova-

ting the building, converting it from commercial office use into a residential com-

plex.
                                        -4-

[*4] On December 30, 2005, LLC executed a preservation deed of easement

(deed of easement) granting the Landmarks Preservation Council of Illinois

(LPCI) an easement over the facade of the building. LPCI is an organization de-

scribed in section 501(c)(3) and is a “qualified organization” under section

170(h)(3). LPCI caused the deed of easement to be recorded by the Cook County

Recorder of Deeds on December 30, 2005.

      The deed of easement recited that “the subject matter of this conveyance is a

perpetual donation to charity which can no longer be transferred, hypothecated or

subjected to liens or encumbrances by Grantor.” The granting provision stated as

follows:

      NOW, THEREFORE, in consideration of One Dollar ($1.00) and the
      mutual covenants and terms, conditions, and restrictions hereinafter
      set forth and other good and valuable consideration, receipt of which
      is hereby acknowledged, * * * [LLC] hereby does grant, give, con-
      vey, bargain and sell unto * * * [LPCI], its successors and assigns,
      irrevocably forever, a Preservation Easement, in perpetuity, in and to
      the aforesaid Premises, for the purposes of Preserving the Protected
      Elements and accomplishing the other objectives set forth herein.

      The deed of easement provided that LPCI would monitor LLC’s compliance

with the easement restrictions and authorized LPCI to inspect the premises to en-

sure compliance. But it contained no reference to any goods or services being

furnished by LPCI to LLC and recited no receipt by LPCI of any consideration for
                                         -5-

[*5] providing goods or services. The parties explicitly stated their understanding

that “[t]his instrument, including the exhibits attached hereto, reflects the entire

agreement of Grantor and Grantee” and that “[a]ny prior or simultaneous corres-

pondence, understandings, agreements, and representations are null and void upon

execution hereof unless set out in this instrument.”

      LLC secured an appraisal dated December 30, 2005, that determined a value

of approximately $26.7 million for the facade easement. LLC timely filed for

2005 a Form 1065, U.S. Return of Partnership Income, claiming a $26.7 million

charitable contribution deduction. LLC attached to its return a Form 8283, Non-

cash Charitable Contributions, executed by the appraiser and by LPCI’s president.

This document contained no statement as to whether LPCI had provided any

goods or services to LLC in exchange for LLC’s gift.

      On July 30, 2009, more than three years after the gift was made, LPCI sup-

plied LLC with a letter stating that “no goods or services have been provided to

you in consideration of your prior donation.” This letter recited LPCI’s belief that

it had “acknowledged this donation with a receipt letter” at the time of the gift.

But LPCI could not find a copy of such a letter in its files.

      The Internal Revenue Service (IRS or respondent) selected LLC’s 2005

return for examination. In November 2009 the IRS sent LLC a summary report
                                        -6-

[*6] explaining that it proposed to disallow the claimed charitable contribution

deduction for the facade easement. In August 2012, almost three years later, LPCI

filed an amended Form 990 for its fiscal year ending (FYE) June 30, 2006. This

amended return referred to the facade easement and stated that no goods or ser-

vices had been furnished to the donor in exchange for that gift. The return was

unsigned and did not identify LLC as the donor.

      On June 30, 2014, the IRS issued LLC a notice of final partnership ad-

ministrative adjustment (FPAA). It disallowed the claimed charitable contribution

deduction in full for failure to satisfy the requirements in section 170. Alternative-

ly, the FPAA determined that, if any deduction were allowable, the fair market

value of the easement was $1.6 million rather than $26.7 million. The FPAA also

determined a 40% “gross valuation misstatement” penalty under section 6662(a)

and (h) or, in the alternative, a 20% accuracy-related penalty under section

6662(a).

      In September 2014 petitioner timely petitioned this Court for readjustment

of the partnership items under section 6226. Three months later LPCI filed a Form

990 for its FYE 2014. This return referred to the 2005 facade easement, identified

LLC as the donor, and stated that no goods or services had been furnished to LLC

in exchange for that gift.
                                        -7-

[*7]                                Discussion

       The purpose of summary judgment is to expedite litigation and avoid costly,

unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commis-

sioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment when

there is no genuine dispute of material fact and a decision may be rendered as a

matter of law. Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238

(2002). The parties agree on all questions of basic fact and have expressed that

consensus by filing cross-motions for partial summary judgment. We conclude

that the question presented is appropriate for summary adjudication.

A.     Statutory and Regulatory Framework

       Section 170(a)(1) allows a deduction for charitable contributions made dur-

ing the taxable year. Generally, the amount of the deduction is the value of the

property contributed reduced by the value of any consideration that the taxpayer

receives in exchange for the gift. Addis v. Commissioner, 118 T.C. 528, 536

(2002), aff’d, 374 F.3d 881 (9th Cir. 2004). Payments to a charity that are “made

partly as a contribution and partly in consideration for goods or services provided

to the donor by the donee” are often called “quid pro quo contributions.” Ibid.

       To address tax-compliance problems that had arisen in connection with quid

pro quo contributions, Congress in 1993 enacted section 170(f)(8), captioned
                                        -8-

[*8] “Substantiation requirement for certain contributions.” Congress enacted this

provision “to require charitable organizations that receive quid pro quo contribu-

tions * * * to inform their donors that the deduction under section 170 is limited to

the amount by which the payment exceeds the value of goods or services provided

by the charity.” Addis, 118 T.C. at 536. Section 170(f)(8) is “a compliance pro-

vision designed to foster disclosure of ‘dual payment’ or quid pro quo contribu-

tions.” Viralam v. Commissioner, 136 T.C. 151, 171 (2011).

      Section 170(f)(8)(A) provides: “No deduction shall be allowed * * * for

any contribution of $250 or more unless the taxpayer substantiates the contribu-

tion by a contemporaneous written acknowledgment of the contribution by the

donee organization that meets the requirements of subparagraph (B).” The re-

quirement that a CWA be obtained for charitable contributions of $250 or more is

a strict one. In the absence of a CWA meeting the statute’s demands, “[n]o deduc-

tion shall be allowed.” Id.; see French v. Commissioner, T.C. Memo. 2016-53,

111 T.C.M. (CCH) 1241, 1242 (“If a taxpayer fails to meet the strict substantiation

requirements of section 170(f)(8), the entire deduction is disallowed.”). “The doc-

trine of substantial compliance does not apply to excuse failure to obtain a CWA

meeting the statutory requirements.” 15 W. 17th St., LLC, 147 T.C. at __ (slip

op. at 10) (citing French, 111 T.C.M. (CCH) at 1242). “The deterrence value of
                                         -9-

[*9] section 170(f)(8)’s total denial of a deduction comports with the effective

administration of a self-assessment and self-reporting system.” Addis, 374 F.3d at

887.

       Section 170(f)(8)(B) provides that a donee acknowledgment will satisfy the

statutory substantiation requirements “if it includes the following information”:

             (i) The amount of cash and a description (but not value) of any
       property other than cash contributed.

             (ii) Whether the donee organization provided any goods or
       services in consideration, in whole or in part, for any property de-
       scribed in clause (i).

             (iii) A description and good faith estimate of the value of any
       goods or services referred to in clause (ii) * * *.

An acknowledgment qualifies as “contemporaneous” only if the donee provides it

to the taxpayer on or before the earlier of “the date on which the taxpayer files a

return for the taxable year in which the contribution was made” or “the due date

(including extensions) for filing such return.” Sec. 170(f)(8)(C)(i) and (ii).

B.     Analysis

       LLC did not receive from LPCI a CWA of the sort that charities typically

furnish their donors. The Form 8283 executed by LPCI’s president was contem-

poraneous, but it did not include information as to whether LPCI had supplied

LLC with any goods or services in exchange for its gift. The letter that LPCI
                                        - 10 -

[*10] supplied in July 2009 included the latter information, but it was not

“contemporaneous” because it postdated the facade easement by more than three

years.

         Lacking such documentation, LLC initially relied on section 170(f)(8)(D),

which provides that the CWA requirement in subparagraph (A) “shall not apply to

a contribution if the donee organization files a return, on such form and in accord-

ance with such regulations as the Secretary may prescribe, which includes the in-

formation described in subparagraph (B) with respect to the contribution.”

         In 2012 LPCI filed an amended Form 990 for FYE 2006 that disclosed the

facade easement and stated that no goods or services were provided in exchange

therefor. This amended return was unsigned and did not identify LLC as the do-

nor. In December 2014 LPCI filed a Form 990 for FYE 2014 that identified LLC

as the donor and included the same statement. LLC contends that by virtue of

LPCI’s filing of these returns--six years or more after the gift was made--it was

relieved by section 170(f)(8)(D) of the obligation to secure a CWA.

         We rejected essentially the same argument in 15 W. 17th St., LLC, and we

reject it again here. Section 170(f)(8)(D) applies only if the donee reports the nec-

essary information on a return filed “on such form and in accordance with such

regulations as the Secretary may prescribe.” The Secretary has declined thus far to
                                        - 11 -

[*11] issue regulations implementing a donee reporting regime under

subparagraph (D) as a supplement to the CWA regime that Congress enacted in

subparagraph (A). We held in 15 W. 17th St., LLC, 147 T.C. at __ (slip op. at 42-

51), that subparagraph (D) embodies a discretionary delegation of rulemaking

authority and that the statute is not self-executing in the absence of such

regulations. The requirement that LLC secure a CWA for its 2005 gift thus re-

mained in full force and effect, notwithstanding LPCI’s subsequent filing of a re-

turn reporting the information described in subparagraph (B).

      In the alternative, petitioner contends that LLC did in fact receive a CWA

and that the deed of easement constituted that CWA. Section 170(f)(8)(B) pro-

vides that a donee acknowledgment will satisfy the statutory substantiation re-

quirement if it “includes the following information.” One item of information that

must be included is “[w]hether the donee organization provided any goods or ser-

vices in consideration, in whole or in part” for the gift. Sec. 170(f)(8)(B)(ii).

      A CWA need not take any particular form and may be furnished to the do-

nor (for example) by letter, postcard, or computer-generated media. French, 111

T.C.M. (CCH) at 1242; Schrimsher v. Commissioner, T.C. Memo. 2011-71, 101

T.C.M. (CCH) 1329, 1330 (citing legislative history). Whatever form the

acknowledgment takes, however, it must include an affirmative indication that the
                                        - 12 -

[*12] donee has provided no goods or services to the donor, if that is the case.

The conference report accompanying the statute’s enactment indicated: “If the

donee organization provided no goods or services to the taxpayer * * * , the writ-

ten substantiation is required to include a statement to that effect.” H.R. Conf.

Rept. No. 103-213, at 565 n.30 (1993), 1993-3 C.B. 393, 443. Our case law is

consistent with the legislative history. See, e.g., 15 W. 17th St., LLC, 147 T.C. at

__ (slip op. at 17); Villareale v. Commissioner, T.C. Memo. 2013-74, 105 T.C.M.

(CCH) 1464, 1465; Durden v. Commissioner, T.C. Memo. 2012-140, 103 T.C.M.

(CCH) 1762, 1764; Castleton v. Commissioner, T.C. Memo. 2005-58, 89 T.C.M.

(CCH) 930, 934, aff’d, 188 F. App’x 561 (9th Cir. 2006).

      In several prior cases involving conservation easements, we have consid-

ered whether a deed of easement qualified as a CWA. In Simmons v. Commis-

sioner, T.C. Memo. 2009-208, 98 T.C.M. (CCH) 211, 215, aff’d, 646 F.3d 6 (D.C.

Cir. 2011), another facade easement case, we held that a deed of easement may

constitute a CWA provided that it is properly executed by the donee and is “con-

temporaneous.” But in that case we did not examine the text of the deed of ease-

ment or consider the contents of its granting provision. Nor did we address the

statutory requirement that a CWA provide information as to “[w]hether the donee
                                        - 13 -

[*13] organization provided any goods or services in consideration” for the gift.

Sec. 170(f)(8)(B); see Simmons, 98 T.C.M. (CCH) at 215.

      In subsequent cases we have considered in greater detail what features a

deed of easement must display in order to qualify as a CWA. In Schrimsher, 101

T.C.M. (CCH) at 1329, the granting provision stated that the donor conveyed a

perpetual conservation easement “for and in consideration of the sum of TEN

DOLLARS, plus other good and valuable consideration, the receipt and sufficien-

cy of which are hereby acknowledged.” Ruling on respondent’s motion for partial

summary judgment, we held that the deed of easement as thus drafted did not

qualify as a CWA. Id. at 1331.

      We recognized that the phrase “in consideration of the sum of TEN DOL-

LARS, plus other good and valuable consideration” might be regarded as boiler-

plate, reflecting an unfortunate (if centuries-old) habit of lawyers to state a “pep-

percorn” of consideration even in contracts for the conveyance of a charitable gift.

See id. at 1331 & n.3; Edmund Polubinski Jr., “The Peppercorn Theory and the

Restatement of Contracts,” 10 Wm. & Mary L. Rev. 201 (1968). But even if this

phrase were disregarded and the donee in fact furnished no consideration, we ruled

that “the written acknowledgment must say so in order to satisfy the requirement

of section 170(f)(8)(B)(ii).” Schrimsher, 101 T.C.M. (CCH) at 1331. We held
                                        - 14 -

[*14] that the deed of easement did not qualify as a CWA because, even if the

“peppercorn clause” were deemed boilerplate, “this statement does not indicate

that the * * * [donee] provided no goods or services.” Ibid. (emphasis in original).

      We reached the opposite result in Averyt. The granting provision there

stated that the donor conveyed a perpetual conservation easement “in considera-

tion * * * of the mutual covenants, terms, conditions and restrictions hereinunder

set forth and as an absolute and unconditional gift, subject to all matters of re-

cord.” Averyt, 104 T.C.M. (CCH) at 66. The deed of easement did not include an

explicit averment that the donee had provided no goods or services to the donor in

exchange for the easement. However, it included a merger clause stating: “This

instrument sets forth the entire agreement of the parties with respect to the Ease-

ment and supercedes all prior discussions, negotiations, understandings, or agree-

ments relating to the Easement, all of which are merged herein.” Ibid.

      Ruling on cross-motions for summary judgment, we held that the deed of

easement as thus drafted qualified as a CWA. As in Simmons, the deed was prop-

erly executed by the donee and was “contemporaneous.” Moreover, the deed

stated that “the conservation easement is an unconditional gift, recite[d] no con-

sideration received in exchange for it, and stipulate[d] that the conservation deed
                                       - 15 -

[*15] constitute[d] the entire agreement between the parties with respect to the

contribution.” Averyt, 104 T.C.M. (CCH) at 68.

      By stipulating that the deed of easement constituted the parties’ “entire

agreement,” the merger clause negated the provision or receipt of any considera-

tion not stated in that document. We concluded that the merger clause, read in

conjunction with other statements in the deed of easement, supplied the affirma-

tive indication required by section 170(f)(8)(B). We accordingly held that the

deed of easement, “taken as a whole, provides that no goods or services were

received in exchange for the contribution.” Ibid.

      We followed Averyt in RP Golf, LLC. The granting provision stated that

the donor conveyed a perpetual conservation easement “for and in consideration of

the covenants and representations contained herein and for other good and val-

uable consideration, the receipt and legal sufficiency of which are hereby acknow-

ledged.” RP Golf, LLC, 104 T.C.M. (CCH) at 414. The deed also included a

merger clause substantially identical to that in Averyt, providing: “This instru-

ment sets forth the entire agreement of the parties with respect to the Easement

and supersedes all prior discussions, negotiations, understanding, or agreements

relating to the Easement, all of which are merged herein.” Ibid.
                                        - 16 -

[*16] Ruling on a motion for summary judgment, we held in RP Golf, LLC, that

the deed of easement as thus drafted qualified as a CWA. As in Simmons the deed

was properly executed by the donee and was “contemporaneous.” RP Golf, LLC,

104 T.C.M. (CCH) at 416. As in Averyt the deed “d[id] not include consideration

of any value other than the preservation of the property.” Ibid. And as in Averyt

the deed stated that it “constitute[d] the entire agreement between the parties

regarding the contribution.” Ibid. In light of other provisions in the deed, we

concluded that the granting provision’s recitation of the receipt of “other good and

valuable consideration” was “boilerplate language and has no legal effect for pur-

poses of sec. 170(f)(8).” Id. at 416 n.7. We thus concluded, as in Averyt, that the

deed of easement, “taken as a whole, states that no goods or services were re-

ceived in exchange for the contribution.” Id. at 416.

      The deed of easement in the instant case is similar in all material respects to

the deed in RP Golf, LLC, and we reach here the same result we reached there.

The deed of easement was properly executed by LPCI’s president and recorded by

the Cook County Recorder of Deeds on December 30, 2005. It thus constituted a

“contemporaneous” acknowledgment. See sec. 170(f)(8)(C).

      This acknowledgment included an affirmative indication that LPCI supplied

no goods or services to LLC in exchange for its gift. The deed explicitly stated
                                        - 17 -

[*17] that it represented the parties’ “entire agreement” and that “[a]ny prior or

simultaneous correspondence, understandings, agreements, and representations are

null and void upon execution hereof unless set out in this instrument.” It thus

negated the provision or receipt of any consideration not stated therein.

      Apart from the charitable conveyance and the covenants attending the ease-

ment, the only “consideration” mentioned in the deed of easement is the granting

provision’s reference to “consideration of One Dollar ($1.00) * * * and other good

and valuable consideration.” Neither party contends that LPCI actually furnished

LLC with any valuable goods or services in exchange for its gift. Evaluating this

clause in the context of the deed overall, we conclude that this clause constitutes

“boilerplate language and has no legal effect for purposes of sec. 170(f)(8).” See

RP Golf, LLC, 104 T.C.M. (CCH) at 416 n.7.2 Taken as a whole, therefore, the

deed of easement includes the required affirmative indication that LPCI supplied

LLC with no goods or services in exchange for its contribution. Because the deed

of easement satisfied this and all other requirements in section 170(f)(8)(B), it

constituted a CWA sufficient to substantiate LLC’s gift.

      2
        We find no legally significant distinction between the boilerplate of the
granting provision in the instant case (which recited receipt of “One Dollar ($1.00)
and * * * other good and valuable consideration”) and in RP Golf, LLC (which
recited receipt of “other good and valuable consideration” without mentioning a
nominal dollar amount).
                                  - 18 -

[*18] To reflect the foregoing,


                                           An appropriate order will be issued

                                  granting petitioner’s motion for partial

                                  summary judgment and denying

                                  respondent’s cross-motion for partial

                                  summary judgment.
