                  T.C. Memo. 2009-205



                UNITED STATES TAX COURT



           J. MAURICE HERMAN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 14005-07.               Filed September 14, 2009.



     P owned approximately 22,000 square feet (six
stories) of unused development rights over a “certified
historic structure” within the meaning of I.R.C. sec.
170(h)(4)(B). In 2003 P contributed to a charitable
organization a conservation easement that restricted
the development of 10,000 unspecified square feet of
those unused development rights. P claimed on his tax
return a deduction for the charitable contribution of a
qualified conservation easement under I.R.C.
sec. 170(h)(1). R disallowed the deduction and
determined a deficiency and an accompanying accuracy-
related penalty under I.R.C. sec. 6662(h). P filed a
petition in this Court, and R moved for partial summary
judgment on the issue of whether the contribution of
the conservation easement was “exclusively for
conservation purposes” with respect to the requirement
that the conservation easement “preserv[e] * * * an
historically important land area or a certified
historic structure” within the meaning of I.R.C.
sec. 170(h)(4)(A)(iv).
                                - 2 -


          Held: The conservation easement does not preserve
     a “historically important land area” or a “certified
     historic structure” within the meaning of I.R.C.
     sec. 170(h)(4)(A)(iv).



     John F. Lang and Laura M. Vasey, for petitioner.

     Alexandra E. Nicholaides, for respondent.



                         MEMORANDUM OPINION


     GUSTAFSON, Judge:    The Internal Revenue Service (IRS)

determined a deficiency of $3,906,531 in petitioner J. Maurice

Herman’s 2003 Federal income tax and an accompanying accuracy-

related penalty under section 6662(h)1 of $1,562,612.40.

Mr. Herman petitioned this Court, pursuant to section 6213(a), to

redetermine this deficiency and penalty.      The case is now before

the Court on respondent’s motion for partial summary judgment

pursuant to Rule 121.    The issue for decision is whether

Mr. Herman’s contribution of a conservation easement with respect

to unused development rights over property held by his wholly

owned New York limited liability company, Windsor Plaza, L.L.C.

(Windsor), preserves a “historically important land area” or a

“certified historic structure” within the meaning of section


     1
      Unless otherwise indicated, all citations of sections refer
to the Internal Revenue Code of 1986 (26 U.S.C.) in effect for
the tax year at issue, and all citations of Rules refer to the
Tax Court Rules of Practice and Procedure.
                               - 3 -

170(h)(4)(A)(iv) to meet the “conservation purpose” requirement

of section 170(h)(1)(C) and (h)(4).    For the reasons discussed

below, we will grant respondent’s motion.

                             Background

     The following facts are not in dispute and are derived from

the pleadings, the parties’ motion papers, and the supporting

exhibits attached thereto.   At the time that he filed the

petition, Mr. Herman resided in Florida.

Title to the Fifth Avenue Property

     Since 1975 Mr. Herman has owned directly or indirectly

property on Fifth Avenue in New York, New York (the Fifth Avenue

property).   The Fifth Avenue property is improved with an eleven-

story apartment building designed by the late Henry Otis Chapman

in 1923 in the neo-Italianate Renaissance style of architecture.

The building stands eight stories high at its front and eleven

stories high at its rear, and stands within a row of taller

buildings.   Each building in that row stands immediately adjacent

to the neighboring buildings on either side of it, and there is

no undeveloped space between the building on the Fifth Avenue

property and the taller buildings that abut it.    These taller

buildings are of approximately equal height to each other, and

the building at issue is said to have the unfortunate appearance

of a “chipped tooth”--first, because it is the only shorter

building in the immediate vicinity, and second, because its front
                               - 4 -

section stands only eight stories high, whereas its back section

stands eleven stories high.   Thus, when viewed from the street,

the building’s shorter front section appears to be chipped or

incomplete.

     On August 5, 1998, Mr. Herman transferred his rights, title,

and interest in the Fifth Avenue property to Windsor, and a deed

was recorded to reflect that transfer.   Less than 5 months later,

on December 31, 1998, by a document entitled “Assignment”,

Windsor transferred, assigned, and delivered to Mr. Herman all of

its rights, title, and interest in and to all of its unused

development rights with respect to the Fifth Avenue property,

i.e., the rights to further develop the property by, among other

things, adding additional floors to the preexisting building on

the property.   On the same day, by a document entitled

“Agreement”, Windsor agreed “along with its successors and

assigns, to assist, and in no way withhold consent, the Assignee

[i.e., Mr. Herman] his successors and assigns, in any manner the

Assignee shall reasonably require in the development,

improvement, sale, transfer, assignment or other disposition

without limitation, of the aforementioned unused development

rights.”   Neither the Assignment nor the Agreement was recorded.

Historic Significance of the Fifth Avenue Property

     The Fifth Avenue property is in the “Upper East Side

Historic District”, which is designated (i) a “registered
                               - 5 -

historic district” within the meaning of section 47(c)(3)(B) by

the Secretary of the Interior through the National Park Service

(NPS), a bureau within the U.S. Department of the Interior; and

(ii) a historic district by New York City and its Landmarks

Preservation Commission.

     The Landmarks Preservation Commission is the local

government agency charged with “the protection, preservation,

enhancement, perpetuation and use of landmarks, interior

landmarks, scenic landmarks and historic districts” in New York

City.   N.Y. City Admin. Code sec. 25-303.    It is responsible for

designating landmarks and historic districts and regulating

changes to those landmarks and historic districts.     Id.   In New

York City it is unlawful to alter, reconstruct, or demolish a

building in a historic district, like the building on the 5th

Avenue property, without the prior consent of the Landmarks

Preservation Commission.   Id. sec. 25-305.    In determining when

to grant its consent to any change to a building, the Landmarks

Preservation Commission must consider the effect of the proposed

change on the exterior architectural features of the building and

the relationship between the results of the proposed change on

the building and the exterior architectural features of other

neighboring buildings in the historic district.     Id. sec. 25-307.

     On August 27, 2003, Mr. Herman executed a form entitled

“National Park Service Historic Preservation Certification
                               - 6 -

Application Part 1 - Evaluation of Significance”, requesting the

NPS to certify the historic significance of the Fifth Avenue

property.   Mr. Herman’s request was reviewed by the NPS, and it

determined that the Fifth Avenue property contributes to the

significance of the Upper East Side Historic District and is a

“certified historic structure” within the meaning of section

170(h)(4)(B)(ii).   Neither Mr. Herman’s request nor the NPS’s

determination specifies whether the apartment building, the

underlying land, or the unused development rights are to be

included in or excluded from the NPS’s determination.   However,

neither party disputes that the apartment building was included

in the NPS’s determination and is a “certified historic

structure”.

Contribution of Conservation Easement on the Fifth Avenue
Property

     On December 15, 2003, Mr. Herman contributed the

conservation easement at issue to the National Architectural

Trust, Inc. (NAT), a nonprofit section 501(c)(3) organization

(currently known as the Trust for Architectural Easements) by

executing a document entitled “Declaration of Restrictive

Covenant” (Covenant).   On December 30, 2003, the Covenant was

recorded in the Office of the City Register of the City of New

York.   The parties to the Covenant include Mr. Herman as the

“Grantor”, NAT as the Donee, and Windsor as the “Confirming
                                   - 7 -

Party”.       The term “Confirming Party” is not defined in the

Covenant and has no defined meaning under New York law.

     The Covenant restricts the development of 10,000 unspecified

square feet of the 22,000 square feet of unused development

rights2 over the Fifth Avenue property:

          WHEREAS, on December 31, 1998, Confirming Party
     owned the [Fifth Avenue property]:

          *         *       *       *       *       *       *

          WHEREAS, on December 31, 1998, Confirming Party
     transferred to Grantor all of Confirming Party’s right,
     title and interest in and to all of Confirming Party’s
     then unused development rights (the “Air Space”) with
     respect to such [Fifth Avenue property];

          WHEREAS, Confirming Party continues to own such
     [Fifth Avenue property], other than the Air Space (such
     property other than the Air Space is the “Property”);

          *         *       *       *       *       *       *

          WHEREAS, the Property’s conservation and
     preservation values will be documented in the appraisal
     report of Jefferson Lee Appraisals, Inc., Pittsburgh,
     Pennsylvania (the “Baseline Documentation”), which will
     be incorporated herein by reference;

          WHEREAS, the grant of a conservation restriction
     by Grantor to Donee with respect to the Restricted Air
     Space will assist in preserving and maintaining the
     Property and its architectural, historic and cultural
     features for the benefit of the people of the City of


     2
      In his memorandum in support of partial summary judgment,
respondent admits that “[a]ccording to the zoning regulations
restricting the development of the property in 2003, there were
approximately 22,000 square feet of developable air space above
the Fifth Avenue property prior to the Declaration of Restrictive
Covenant.” (Emphasis added.) Thus, the conservation easement
restricts the development of approximately 45 percent of the
unused development rights.
                         - 8 -

New York, the State of New York and the United States
of America;

   *       *       *       *       *       *       *

     1.   Grantor, for the benefit of Donee (and its
successors and assigns), does hereby agree that he will
not build or otherwise improve 10,000 square feet of
the Air Space (the “Restricted Air Space”). The
restrictive covenant imposed by the Paragraph 1 is the
“Restrictive Covenant.”

     2.   It is the purpose of the Restrictive Covenant
to prevent development of the Restricted Air Space that
would significantly diminish the Property’s
conservation and preservation values by removing the
right to develop the additional housing and/or
structures in the Restricted Air Space.

     3.   Grantor hereby agrees with Donee (and its
successors and assigns) that he will not take any
action with respect to the remaining Air Space (other
than the Restricted Air Space) (such remaining Air
Space other than the Restricted Air Space is the
“Unrestricted Air Space”) that is inconsistent with the
applicable restrictions, if any, imposed by the New
York City Landmarks Preservation Commission. Grantor
agrees that any new construction work or rehabilitation
work in the Unrestricted Air Space, whether or not
Donee has given consent to undertake the same, will
comply with the requirements of all applicable federal,
state and local governmental law and regulations.
Confirming Party agrees that any new construction or
rehabilitation work on the Property, whether or not
Donee has given consent to undertake the same, will
comply with the requirements of all applicable federal,
state and local governmental law and regulations.
Grantor further agrees that, to the extent the height
or density of the Unrestricted Air Space may be
increased beyond that which exists as of the date of
this Declaration by any action of the City of New York,
such additional height and/or density shall not be
utilized for any construction over and above or
adjacent to the Property.

   *       *       *       *       *       *       *
                                - 9 -

          16. Confirming Party hereby agrees with Donee
     (and its successors and assigns) that it will not take
     any action that is inconsistent with the Restrictive
     Covenant and that, at the request of Donee, it will
     deliver such instruments of further assurance relating
     to the Restrictive Covenant as may be requested by
     Donee. Subject to the preceding sentence, nothing in
     this Declaration shall place a limit on the use of the
     Property. [Emphasis added.]

Appraisal Report

     Jefferson & Lee Appraisals, Inc. prepared an appraisal

report for Mr. Herman that purports to calculate the diminution

in value to the Fifth Avenue property resulting from the donation

of the conservation easement.   The appraisal report is referred

to in the eleventh “WHEREAS” clause in the Covenant, as quoted

above, but the appraisal report was not recorded with the

Covenant.

     The appraisal report includes “[p]lans for building

expansion” with respect to the apartment building on the Fifth

Avenue property.   These plans project hypothetical expansions to

the existing apartment building “[i]n order to take potential

maximum advantage of the allowable density” both before and after

the donation of the conservation easement, and they include

drawings of those hypothetical expansions.   These drawings show a

sixteen-story building (with sixteen stories at both the front

and the rear of the building) before the donation, and a

thirteen-story building (with thirteen stories at both front and

rear) after the donation.   Jefferson & Lee Appraisals, Inc.,
                              - 10 -

calculated the diminution in value to the Fifth Avenue property

resulting from the donation of the conservation easement to be

$21,850,000.

Notice of Deficiency

     Mr. Herman timely filed his 2003 Form 1040, U.S. Individual

Income Tax Return, on or about April 6, 2004.   On that Form 1040,

Mr. Herman claimed a deduction of $21,850,000 under section

170(a)(1) for his charitable contribution of the conservation

easement to NAT.   Mr. Herman attached a Form 8283, Noncash

Charitable Contributions, to the Form 1040, which showed: (i) a

description of the donated property as a “Restrictive Covenant on

Development Rights within National Register Historic District”

with respect to the Fifth Avenue property; (ii) a stated

appraised fair market value of $21,850,000 for the donated

property; (iii) a declaration signed by Michael Ehrmann, an

appraiser with Jefferson & Lee Appraisals, Inc., and the date of

the appraisal as December 15, 2003; and (iv) an acknowledgment of

receipt signed by James Kearns, president of NAT, as the donee of

the conservation easement.   (However, the Form 8283 did not show

all of the required information, including the date the unused

development rights were acquired by Mr. Herman, how they were

acquired, or Mr. Herman’s adjusted basis in those rights.)    By a

statutory notice of deficiency dated March 20, 2007, the IRS

disallowed the charitable contribution deduction (and made other
                             - 11 -

adjustments) and determined a $3,906,531 deficiency in

Mr. Herman’s 2003 Federal income tax and an accompanying

accuracy-related penalty under section 6662(h) of $1,562,612.40.

                           Discussion

     The question now before the Court is whether Mr. Herman’s

contribution of the easement had, as its exclusive purpose, “the

preservation of an historically important land area or a

certified historic structure” (emphasis added), within the

meaning of section 170(h)(4)(A)(iv).    Mr. Herman did not own, and

did not contribute, any interest in either the existing structure

at the Fifth Avenue property or the land on which it was built.

The “air rights” easement that he did contribute did not oblige

him to preserve--and he did not have the power to preserve--the

structure of the existing building or the underlying land.      Any

undertaking that the structure would be preserved was made (if at

all) by Windsor as the “Confirming Party” and not by Mr. Herman;

and any assurance in the Covenant that the structure would be

preserved was redundant of restrictions imposed by New York

City’s Administrative Code and the Landmarks Preservation

Commission that implements those restrictions.   Mr. Herman’s

easement did not, by its terms, specify which portion of the air

space would not be developed, did not restrict him to the three-

story proposal in the unrecorded appraisal report, and did not

prohibit him or a subsequent bona fide purchaser from building
                                - 12 -

six stories over any half (front, back, or side) of the existing

building.    Respondent contends that the conservation easement

does not “preserv[e] * * * an historically important land area or

a certified historic structure” within the meaning of

section 170(h)(4)(A)(iv).    We agree.

I.     Standard for Summary Judgment

       Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.     Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    The Court may grant full

or partial summary judgment where there is no genuine issue of

any material fact and a decision may be rendered as a matter of

law.    Rule 121(b); Celotex Corp. v. Catrett, 477 U.S. 317, 323

(1986); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994).    The moving party

bears the burden of showing that no genuine issue of material

fact exists, and the Court will view any factual material and

inferences in the light most favorable to the nonmoving party.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986);

Sundstrand Corp. v. Commissioner, supra at 520; Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985).     If there exists any

reasonable doubt as to the facts at issue, the motion must be

denied.     Sundstrand Corp. v. Commissioner, supra at 520 (citing

Espinoza v. Commissioner, 78 T.C. 412, 416 (1982) (“The opposing

party is to be afforded the benefit of all reasonable doubt, and
                              - 13 -

any inference to be drawn from the underlying facts contained in

the record must be viewed in a light most favorable to the party

opposing the motion for summary judgment”)).

      The issue of whether Mr. Herman’s contribution of the

conservation easement was “exclusively for conservation purposes”

with respect to the historic preservation requirement under

section 170(h)(4)(A)(iv) can be resolved on the basis of the

undisputed facts.

II.   Statutory Framework

      A.   Qualified Conservation Contribution

      Section 170(a)(1) generally allows a deduction for any

charitable contribution made during the tax year.   A charitable

contribution includes a gift of property to a charitable

organization, made with charitable intent and without the receipt

or expectation of receipt of adequate consideration.   See

Hernandez v. Commissioner, 490 U.S. 680, 690 (1989); United

States v. Am. Bar Endowment, 477 U.S. 105, 116-118 (1986); see

also sec. 1.170A-1(h)(1) and (2), Income Tax Regs (26 C.F.R.).

While section 170(f)(3) generally does not allow an individual to

deduct a charitable contribution for a gift of property

consisting of less than his or her entire interest in that

property, an exception applies in the case of a “qualified

conservation contribution.”   Section 170(h)(1) provides that a
                                 - 14 -

contribution of real property is a qualified conservation

contribution if three requirements are met:

          SEC. 170(h).      Qualified Conservation
     Contribution.--

               (1) In general.--For purposes of subsection
          (f)(3)(B)(iii), the term “qualified conservation
          contribution” means a contribution–-

                    (A) of a qualified real property
               interest,

                      (B)    to a qualified organization,

                      (C)    exclusively for conservation
          purposes.

For purposes of this motion, respondent concedes the first two

requirements, and we therefore assume that the conservation

easement is a “qualified real property interest” and the donee is

a “qualified organization” under section 170(h)(3).     Accordingly,

we limit our consideration to the third and last requirement,

i.e., whether the contribution of the conservation easement is

“exclusively for conservation purposes.”
                              - 15 -

     B.   Exclusively for Conservation Purposes

     A contribution is made “exclusively for conservation

purposes” if it meets the tests of section 170(h)(4)3 and (5).

This requirement has two parts.

          1.    Conservation Purpose

     First, section 170(h)(4)(A) provides that a contribution is

for conservation purposes only if it serves one of four

delineated conservation purposes:

          (4)   Conservation purpose defined.--

               (A) In general.--For purposes of this
          subsection, the term “conservation purpose”
          means–-

                     (i)   the preservation of land areas for
                outdoor recreation by, or the education of,
                the general public,

                     (ii) the protection of a relatively
                natural habitat of fish, wildlife, or plants,
                or similar ecosystem,



     3
      One of the principal issues in this case (i.e., whether a
contribution of a restriction on “air rights” or “unused
development rights” alone can preserve a “certified historic
structure”) will not recur for charitable contributions made
after July 25, 2006. Section 170(h)(4) was amended by the
Pension Protection Act of 2006, Pub. L. 109-280, sec. 1213(a)(1),
120 Stat. 1075, which added a new subparagraph (B) to the
statute. Under section 170(h)(4)(B), a contribution is made
“exclusively for conservation purposes” only if that contribution
“preserves the entire exterior of the building (including the
front, sides, rear, and height of the building)” and “prohibits
any change in the exterior of the building which is inconsistent
with the historical character of the exterior”. Therefore, a
contribution of a restriction on “air rights” or “unused
development rights” alone cannot preserve a “certified historic
structure” under current law.
                                - 16 -

                       (iii) the preservation of open space
                  (including farmland and forest land) where
                  such preservation is–-

                                 (I) for the scenic enjoyment
                            of the general public, or

                                 (II) pursuant to a clearly
                            delineated Federal, State, or local
                            governmental conservation policy,

                  and will yield a significant public benefit,
                  or

                       (iv) the preservation of an historically
                  important land area or a certified historic
                  structure. [Emphasis added.]

Under the statute, each of these four prongs is a conservation

purpose in and of itself, and a taxpayer’s satisfaction of one of

these prongs suffices to establish the requisite conservation

purpose.    See S. Rept. 96-1007, at 10 (1980), 1980-2 C.B. 599,

604.    Mr. Herman contends that his contribution of the

conservation easement satisfies the fourth prong, i.e., that it

preserves a historically important land area or certified

historic structure.

       The regulations under section 170(h)(4)(A)(iv) define a

“certified historic structure” as “any building, structure or

land area which is”:

            (A)   Listed in the National Register, or

            (B) Located in a registered historic
       district (as defined in section 48(g)(3)(B)) and is
       certified by the Secretary of the Interior (pursuant to
       36 CFR 67.4) to the Secretary of the Treasury as being
       of historic significance to the district.
                             - 17 -

     A “structure” for purposes of this section means any
     structure, whether or not it is depreciable.
     Accordingly easements on private residences may qualify
     under this section. In addition, a structure would be
     considered to be a certified historic structure if it
     were certified either at the time the transfer was made
     or at the due date (including extensions) for filing
     the donor’s return for the taxable year in which the
     contribution was made.

Sec. 1.170A-14(d)(5)(iii), Income Tax Regs.

          2.   Perpetuity

     Second, section 170(h)(5)(A) provides that the “exclusively

for conservation purposes” requirement will be met only if the

conservation purpose is protected in perpetuity:

          (5) Exclusively for conservation purposes.--
     For purposes of this subsection–-

               (A) Conservation purpose must be
          protected.--A contribution shall not be treated as
          exclusively for conservation purposes unless the
          conservation purpose is protected in perpetuity.

     Respondent has requested summary judgment only on the issue

of whether the contribution of the conservation easement was

“exclusively for conservation purposes” with respect to the

historic preservation requirement under section 170(h)(4)(A)(iv).

Accordingly, we limit our consideration to (i) whether the

conservation easement preserves a “historically important land

area” or a “certified historic structure” within the meaning of

section 170(h)(4)(A)(iv), and (ii) whether the conservation

purpose of the conservation easement, if any, is protected in

perpetuity in accordance with section 170(h)(5)(A).
                              - 18 -

III. Analysis of Mr. Herman’s Easement

     The historic preservation requirement of section

170(h)(4)(A)(iv) is met by showing the preservation of a

“historically important land area” or “certified historic

structure.”   Mr. Herman argues in the alternative that limiting

the development of the apartment building on the Fifth Avenue

property preserves either (i) a “certified historic structure”,

i.e., the apartment building, or (ii) a “historically important

land area”, i.e., the underlying property.   Mr. Herman also

argues that even if the conservation easement does not restrict

the alteration or demolition of the apartment building, a

restriction on “air rights” or “unused development rights” above

that building is sufficient in and of itself to preserve the

apartment building or the underlying land for purposes of

section 170(h)(4)(A)(iv).

     A.   Preservation of a Certified Historic Structure

     The apartment building on the Fifth Avenue property is a

“certified historic structure” within the meaning of

section 170(h)(4)(B)(ii) because it was certified as such by the

Secretary of the Interior through the NPS in response to

Mr. Herman’s request on August 27, 2003.   Therefore, if the

conservation easement at issue did in fact have the purpose of

preserving the apartment building as a “certified historic

structure”, it would have been contributed “exclusively for
                               - 19 -

conservation purposes” and Mr. Herman would be entitled to a

deduction under section 170(a)(1).      As a result, the

determinative question is whether the conservation easement did

in fact have the purpose of “preserv[ing]” the “structure” of the

apartment building.

          1.     Provisions of the Easement

     The conservation easement restricts the development of

10,000 unspecified square feet of Mr. Herman’s unused development

rights over the apartment building on the Fifth Avenue property.

The Covenant, which created the conservation easement, states

that the donation of 10,000 square feet of the unused development

rights “will assist in preserving and maintaining the Property

and its architectural, historic and cultural features for the

benefit of the people of the City of New York, the State of New

York and the United States of America”.      However, by its own

terms, the Covenant merely restricts the development of 10,000

square feet of the unused development rights over the existing

apartment building.    It does not preclude Mr. Herman, Windsor, or

subsequent purchasers of the Fifth Avenue property from altering

or even demolishing that existing building.

     “[A] deduction will not be allowed if the contribution would

accomplish one of the enumerated conservation purposes but would

permit the destruction of other significant conservation

interests.”    Sec. 1.170A-14(e)(2), Income Tax Regs.      Assuming
                               - 20 -

arguendo that limiting the development of the apartment building

by 10,000 square feet does, in some way, preserve that building,

the Covenant does not preclude the possibility that the building

may be altered or even demolished.      This allowance permits the

destruction of what is clearly the most significant conservation

purpose in the instant case--preserving the apartment building

that was determined to be a “certified historic structure” by the

NPS.

            2.   Mr. Herman’s Contentions

       Mr. Herman contends that this analysis is flawed, because

he, Windsor, and subsequent purchasers are restricted from

altering or demolishing the apartment building under the terms of

the Covenant and local law.    Mr. Herman points to paragraph 16 of

the Covenant, where Windsor, as the Confirming Party, agreed

“that it will not take any action that is inconsistent with the

Restrictive Covenant”.    He argues that demolishing the apartment

building would be inconsistent with the stated purpose of the

Covenant to “assist in preserving and maintaining the Property”,

which includes the apartment building.

       Mr. Herman further argues that the appraisal report he

commissioned from Jefferson & Lee Appraisals, Inc., including an

attached drawing which illustrates a hypothetical expansion of

the apartment building after the donation of the conservation
                              - 21 -

easement, is incorporated in the Covenant by reference, because

it was mentioned in the eleventh “WHEREAS” clause:

     WHEREAS, the Property’s conservation and preservation
     values will be documented in the appraisal report of
     Jefferson Lee Appraisals, Inc., Pittsburgh,
     Pennsylvania (the “Baseline Documentation”), which will
     be incorporated herein by reference * * *.

He contends that the attached drawing illustrates the only

permissible development of the apartment building after the

donation of the conservation easement, and prevents him, Windsor,

and subsequent purchasers from altering the building in a manner

that is inconsistent with the attached drawing.   Therefore, he

argues, the only permissible alteration to the building would be

the hypothetical expansion depicted in the drawing, i.e., to

increase the height of the apartment building to thirteen

stories, with the same number of stories at both the front and

the rear.   He correctly notes that this particular alteration

would raise the apartment building’s height to that of the other

buildings on either side of it and heal its current “chipped

tooth” appearance, arguably increasing the building’s aesthetic

and historical value.

     However, Mr. Herman’s contentions lack merit.
                               - 22 -

               a.     Any Commitment To Preserve the Structure
                      Under the Covenant Is Made by Windsor.

     Paragraph 16 of the Covenant, on which Mr. Herman heavily

relies, reflects undertakings by Windsor, not by Mr. Herman.      Any

preservation that results from Windsor’s undertakings under this

paragraph is not by way of a contribution from Mr. Herman and

could not entitle him to the charitable contribution deduction

that he claimed.    Moreover, paragraph 16 merely provides that

Windsor “will not take any action that is inconsistent with the

Restrictive Covenant”.    That is, paragraph 16 arguably obliges

Windsor to honor restrictions that are provided elsewhere in the

Covenant and does not itself define what those restrictions are.4

               b.     The Covenant Does Not Preserve the Structure.

     The Covenant restricts only the development of 10,000

unspecified square feet of unused development rights over the

apartment building.   In fact, the third sentence of paragraph 16

provides that “nothing in this Declaration shall place a limit on

the use of the Property.”   In light of that provision, even

demolishing the apartment building altogether would not be

inconsistent with the Covenant.   Building up only the front or


     4
      Windsor has other obligations that arguably tend in the
other direction. The unrecorded “Agreement” of December 31,
1998, obliges Windsor to assist, and in no way withhold consent
from, Mr. Herman and his assignees “in the development [or]
improvement * * * of the aforementioned unused development
rights.” To the extent that unrecorded documents are consulted,
this language tends against Windsor’s being obliged to respect
any implied restrictions on the development.
                             - 23 -

only the rear of the apartment building above the neighboring

buildings would likewise be consistent with the Covenant.

     It might be argued that the appearance of a structure is

“preserved” in an aesthetic sense by an easement that prevents

vertical development above its existing height.   Assuming

arguendo that there can be circumstances in which an “air rights”

easement accomplishes the preservation of a “structure”, Mr.

Herman’s easement nonetheless fails to do so.

     First, if Mr. Herman were to use his retained air rights to

build up a full six stories, but only on the front half of the

building, he would thereby create a facade that completely filled

up the visible portion of the maximum height of the building.     In

that circumstance, the donated air rights held by the NAT as to

the back half of the building would be totally hidden behind the

developed front half of the building.   The donated air rights

would then have no function at all in preserving even the

aesthetic values associated with preventing upward development.

     Second, even if the retained air rights were used only to

build three full stories, leaving three full stories’ worth of

space empty on top of the building, the original structure would

not have been “preserved” at its original height.   The donated

air space would hover over an altered structure, not preserving

the “certified historic structure” but instead preserving an

unhistorical building consisting of the historic structure plus
                              - 24 -

three newly developed stories.    It could not fairly be said that

the easement barring development of the top three stories somehow

preserved the “certified historic structure” from which it was

separated by three new stories.   Moreover, the Covenant did not

assure that the development would be three full stories, as we

now show.

               c.   The Appraisal Report and the Attached Drawing
                    Do Not Modify the Covenant To Limit the
                    Development of the Building.

     With respect to the appraisal report and the attached

drawing, New York law provides that when a “contract is

unambiguous on its face, there is no need to refer to its

recitals, which are not part of the operative agreement”.    Jones

Apparel Group, Inc. v. Polo Ralph Lauren Corp., 791 N.Y.S.2d 409,

410 (App. Div. 2005).   Since we hold that the Covenant is

unambiguous on its face--stating that it restricts the

development of 10,000 unspecified square feet of unused

development rights without mention of other restrictions on the

development or alteration of the apartment building--there is no

need to refer to the recitals, including the eleventh “WHEREAS”

clause in the Covenant, which incorporates the appraisal report

and the attached drawing by reference.   Even assuming arguendo

that the attached drawing was part of the Covenant, the drawing

was (the clause says) incorporated simply to “document[]” the

“conservation and preservation values” (emphasis added) of the
                              - 25 -

Fifth Avenue property--not to illustrate the only permissible

development of the apartment building after the donation of the

conservation easement.

     Finally, even assuming arguendo that the attached drawing

was part of the Covenant and was incorporated by reference to

illustrate the only permissible development of the apartment

building, that drawing and its mandate would not be binding on

subsequent purchasers of the Fifth Avenue property because it was

left unrecorded.   For purposes of summary judgment, we assume

that it was the intent of Mr. Herman as the owner of the retained

development rights (and as the owner of Windsor, which owned the

underlying building) to preserve the structure and appearance of

the building and to limit development in a manner consistent with

that preservation.   However, the donation consisted not of

Mr. Herman’s intentions but of what he actually conveyed by the

easement as written and recorded.   To effect a contribution for a

“conservation purpose * * * in perpetuity” (as required by

section 170(h)(5)(A)), Mr. Herman needed to create a limitation

that would survive the sale of the building and the sale of the

remaining development rights to a bona fide purchaser who might

not share Mr. Herman’s subjective intentions.   Unless that bona

fide purchaser would be legally bound to the limitations depicted

in the drawing, the easement failed to protect a conservation

purpose in perpetuity.
                              - 26 -

     Under N.Y. Real Prop. Law sec. 291-e (McKinney 2006), if an

“exception, reservation or recital” refers to an unrecorded

document, like the attached drawing, the reference does not

affect the marketability of title or bind subsequent purchasers.

See also 165 Broadway Bldg., Inc. v. City Investing Co., 120 F.2d

813 (2d Cir. 1941); L.C. Stroh & Sons, Inc. v. Batavia Homes &

Dev. Corp., 234 N.Y.S.2d 401, 405 (App. Div. 1962) (New York Real

Prop. Law sec. 291-e “expressly relieves a prospective purchaser

from the obligation of inquiring or examining into the facts and

states that an exception, reservation or recital gives no notice

beyond the recital itself.   In other words, it rescinds the

former rule that, upon notice of a recital such as that in

question, one who was interested as a potential purchaser would

have been charged with any knowledge that a reasonable inquiry

would have produced”).   Since the attached drawing could not bind

subsequent purchasers, it did not protect the conservation

purpose of preserving the apartment building “in perpetuity” and

fails to meet the requirement of section 170(h)(5)(A).

                d.   The Protections Afforded by Local Law Will
                     Not Support a Deduction.

     Mr. Herman contends that in addition to the terms of the

Covenant, we must take into account local ordinances that could

prohibit the alteration or demolition of the apartment building.

We disagree.   The protections afforded to the building by

Federal, State, or local law, whatever they may be, are not part
                                - 27 -

of the conservation easement that Mr. Herman contributed to NAT,

and he is not entitled to a deduction under section 170(a)(1) for

or because of them.    In fact, it is local law and the rules of

the Landmarks Preservation Commission that will preserve the

building.    Any right that the donee possesses under the Covenant

to sue the donor to enforce the terms of the Covenant is, by

definition, redundant of the Landmarks Preservation Commission’s

role of enforcing its regulations and preventing inappropriate

alterations to the building.5

     B.      Preservation of a Historically Important Land Area

     Mr. Herman argues in the alternative that his contribution

of the conservation easement preserves the land underlying the

building, which he further contends is a historically important

land area.    The legislative history underlying section

170(h)(4)(A)(iv) describes a “historically important land area”

as one that is important in its own right or in relation to

“certified historic structures”:




     5
      As Mr. Herman’s counsel explained at argument, the Covenant
“say[s] that you [the donor] must do whatever the Landmarks
Preservation Commission’s rules require, and giving the NAT [the
donee] the right of enforcement.” He argued that the Landmarks
Preservation Commission is an inadequate enforcer of its own
rules and that the creation of a donee’s private right to sue was
an important contribution to preservation, but this argument has
no evidentiary support in the record. In any event, it is
difficult to justify a charitable contribution deduction for an
owner’s agreement to refrain from doing what he is already
legally forbidden to do.
                             - 28 -

     The term “historically important land area” is intended
     to include independently significant land areas (for
     example, a civil war battlefield) and historic sites
     and related land areas, the physical or environmental
     features of which contribute to the historic or
     cultural importance and continuing integrity of
     certified historic structures such as Mount Vernon, or
     historic districts, such as Waterford, Virginia, or
     Harper’s Ferry, West Virginia. For example, the
     integrity of a certified historic structure may be
     protected under this provision by perpetual
     restrictions on the development of such a related land
     area. * * *

S. Rept. 96-1007, supra at 12, 1980-2 C.B. at 605.     The

regulations under section 170(h)(4)(A)(iv) are consistent with

the legislative history and provide a nonexclusive list of three

categories of “historically important land area[s]”:

          (A) An independently significant land area
     including any related historic resources (for example,
     an archaeological site or a Civil War battlefield with
     related monuments, bridges, cannons, or houses) that
     meets the National Register Criteria for Evaluation in
     36 CFR 60.4 (Pub. L. 89-665, 80 Stat. 915);

          (B) Any land area within a registered
     historic district including any buildings on the land
     area that can reasonably be considered as contributing
     to the significance of the district; and

          (C) Any land area (including related
     historic resources) adjacent to a property listed
     individually in the National Register of Historic
     Places (but not within a registered historic district)
     in a case where the physical or environmental features
     of the land area contribute to the historic or cultural
     integrity of the property.

Sec. 1.170A-14(d)(5)(ii), Income Tax Regs.   Assuming arguendo

that the Fifth Avenue property is a “historically important land

area” within the meaning of section 170(h)(4)(A)(iv), the
                              - 29 -

undisputed facts in the record show that the conservation

easement fails to preserve the underlying land.

     Mr. Herman has not alleged, nor would the record support an

inference, that the underlying land has independent historical

significance, like a civil war battlefield.    Thus, the underlying

land could be a “historically important land area” only because

of its proximity and relation to the apartment building on the

Fifth Avenue property, which is a “certified historic structure.”

See Turner v. Commissioner, 126 T.C. 299, 316 (2006); S. Rept.

96-1007, supra at 12, 1980-2 C.B. at 604.     The land’s physical

feature “which [contributes] to the historic or cultural

importance” of the apartment building is simply its function as

that building’s foundation.   See S. Rept. 96-1007, supra at 12,

1980-2 C.B. at 605.   As we discussed, supra section III.A.1, the

conservation easement does not prevent the alteration or

demolition of the apartment building.   Therefore, it likewise

does not protect the historic significance of the underlying

land, which is simply to serve as the foundation of the apartment

building.6




     6
      Since we conclude that the conservation easement does not
protect the only possible source of historic significance of the
underlying land, we need not reach the issue of whether the
underlying land is a “historically important land area” within
the meaning of section 170(h)(4)(A)(iv).
                              - 30 -

     C.   Restriction Solely on “Air Rights” or “Unused
          Development Rights”

     Both parties acknowledge that there is no precedent that is

directly on point, and we are aware of none. However, Mr. Herman

cites Dorsey v. Commissioner, T.C. Memo. 1990-242, as authority

for the proposition that a conservation easement solely with

respect to “air rights” or “unused development rights” may

preserve a “historically important land area” or “certified

historic structure.”   In Dorsey, however, the taxpayers donated

to a charitable organization a conservation easement over a

building that included (inter alia) a facade easement and air

rights.   Under the terms of the donation they (i) agreed to

“‘preserve and maintain the roof, * * * exterior facade(s), the

foundation, and structural support of the property’” and (ii)

donated “all air development rights * * * to the Property.”    In

Dorsey the parties had stipulated that the donation “qualifie[d]

as a deductible ‘qualified conservation contribution’ * * *.

Unresolved is the charitable contribution amount.”   In valuing

the conservation easement, the Court assigned a value of

$30,773.52 to the restriction on the building and $122,648.92 to

the restriction on the air rights.

     While the Court did thus assign a value to the restriction

on the air rights in Dorsey, the Court addressed only a valuation

question and did not address the conservation purpose of the

donation, which purpose had been stipulated.   In this case, on
                               - 31 -

the other hand, the conservation purpose is disputed and is the

very issue under consideration.    Dorsey is simply not on point.

      We have previously held that “proximity [to a “certified

historic structure”] alone does not provide a basis to support a

claim of protection of a historical structure.”      Turner v.

Commissioner, supra at 316.   In Turner the taxpayers purchased

29.3 acres of unimproved land and subsequently contributed to a

charitable organization a conservation easement that limited to

30 the number of residences they could construct on the land.

Id. at 301-309.   The unimproved land was in close proximity to

Mount Vernon and other “certified historic structures”, but it

was not independently significant.      “[D]espite any ancillary

benefit of limited development”, we held that the conservation

easement did not preserve Mt. Vernon or other nearby “certified

historic structures”.   Id. at 315.     Despite the unimproved land’s

close proximity to Mount Vernon--a quintessential “certified

historic structure”--we still required the taxpayer to show “how

his proposed limitation in the conservation easement preserved

any historical structure.”    Id. at 316.    On the undisputed facts

of this case, the restriction on the unused development rights

does not preclude the demolition of the apartment building.

Thus, despite the “proximity” of the unused development rights to

the apartment building and the underlying land, and despite the

“ancillary benefit of limited development”, we hold under the
                              - 32 -

rationale of Turner that the conservation easement with respect

to the unused development rights does not, in fact, preserve a

“historically important land area” or “certified historic

structure.”   See id. at 315-316.   We decide only the case before

us, and we therefore do not decide whether there might be some

circumstances in which a restriction on “air rights” or “unused

development rights” alone might preserve a “historically

important land area” or “certified historic structure.”    On the

undisputed facts before us, there is no such preservation.

     Therefore, we hold that respondent has shown that he is

entitled to partial summary judgment on his assertion that the

contribution of the conservation easement was not “exclusively

for conservation purposes” with respect to the historic

preservation requirement under section 170(h)(4)(A)(iv).

     To reflect the foregoing,


                                      An appropriate order will be

                                 issued.
