                       T.C. Memo. 2009-208



                      UNITED STATES TAX COURT



               DOROTHY JEAN SIMMONS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 18647-06, 18654-06.   Filed September 15, 2009.



     Robert J. Onda and Timothy S. Rankin, for petitioner.

     Michael A. Raiken, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   Respondent determined the following income

tax deficiencies and additions to tax with respect to petitioner

in these consolidated cases:
                                  - 2 -
                                   Additions to Tax
Year       Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654

2003       $84,739.60    $19,066.41       $10,168.75    $2,217.64
2004        67,752.00     15,244.20         4,065.12     1,966.63

After concessions,1 the issue for decision is whether petitioner

is entitled to charitable contribution deductions with respect to

conservation easements petitioner granted to L’Enfant Trust, Inc.

(L’Enfant).      For the reasons stated herein, we find that

petitioner is entitled to charitable contribution deductions of

$56,250 for 2003 and $42,250 for 2004.

       Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years at issue and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

                            FINDINGS OF FACT

       Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.        Petitioner resided in

Washington, District of Columbia, at the time she filed her

petition in this case.      Petitioner was a real estate agent during

2003 and 2004, operating under the real estate brokerage firm of

Coldwell Banker.


       1
      The parties settled before trial a number of unrelated
issues in the notice of deficiency. That settlement will be
taken into account in the parties’ Rule 155 computations. The
parties further agree that additions to tax under secs.
6651(a)(1) and (2) and 6654 are applicable to any resulting
deficiency.
                                 - 3 -

     Petitioner owned two improved properties in Washington,

D.C., during the years at issue.    The first was at 17 Logan

Circle (the Logan Circle parcel).    The second was at 1503 Vermont

Avenue (the Vermont Avenue parcel).      Both were rowhouses subject

to the Historic Landmark and Historic Preservation Act of 1978

during the years at issue.

     L’Enfant is a District of Columbia nonprofit corporation

chartered in 1978.   L’Enfant is a section 501(c)(3) corporation

organized for the tax purpose of holding and enforcing

conservation easements on historic designated properties in

Washington, D.C.   L’Enfant currently holds about 1,100 easements.

     After an easement is donated to L’Enfant, it is recorded

with the District of Columbia.    L’Enfant requires all donors to

affix a bronze plaque to the donated facade.     The plaque serves

to inform local citizens that the facade will be preserved, and

L’Enfant often receives calls or tips from local citizens about

any construction or alterations to the facades of historic

buildings bearing the L’Enfant plaque.     L’Enfant also actively

inspects buildings on which it holds easements.     This is often

done during the winter when L’Enfant inspectors can take detailed

photographs of the donated facades.      L’Enfant uses these photos

to build a database of its easements.     The annual photographs are

used to verify that there have not been any changes to donated

facades.   L’Enfant also reviews all building permits received by
                               - 4 -

the District of Columbia Historic Preservation Office, annually

inspects its properties, and takes legal action to enforce its

rights under the easements.

     Petitioner granted facade easements on both the Logan Circle

and Vermont Avenue parcels to L’Enfant.   Each facade conservation

easement was memorialized by a “Conservation Easement Deed of

Gift” (the deed).   The deed memorializing the easement at the

Logan Circle parcel was made on November 18, 2003.   The deed for

the Vermont Avenue parcel was made on January 24, 2004.   The

terms of both easements are essentially identical except for the

identification of the underlying properties.

     The deeds provided in effect that petitioner could not make

any material changes to the respective facades in any way without

L’Enfant’s consent.   There were exceptions, however, if the

facades were damaged.   Should the facades be damaged, petitioner

would have to make any repairs in such a way that they would be

consistent with the historical aesthetic that the easements were

meant to protect.

     The deeds also required that petitioner periodically clean

the facades, keep the L’Enfant plaques polished and visible from

the street, and maintain the properties in good condition.     The

deeds also provided that any work done on the properties, whether

L’Enfant consented or not, was required to comply with all
                               - 5 -

applicable Federal, State, and local government laws and

regulations.

     The deeds also provided that should petitioner sell the

subject properties, the easements would remain in force.   Lastly,

the deeds provided that should the easements be extinguished

through condemnation or judicial decree, L’Enfant would be

entitled to a portion of any proceeds petitioner received on

account of such extinguishment.

     Petitioner hired appraisers to determine the values of the

conservation easements.   The appraisals were done by James

Donnelly (Mr. Donnelly) of J. Lee Donnelly & Son, Inc. (Donnelly

& Son).   Mr. Donnelly is a licensed and certified appraiser for

the Appraisal Institute and has appraised residential properties

for more than 30 years.

     Mr. Donnelly valued the Logan Circle parcel at $1,250,000,

and the Vermont Avenue parcel at $845,000.   The appraisal for the

Logan Circle parcel valued the contribution as of November 12,

2003, while the appraisal for the Vermont Street address valued

the contribution as of January 26, 2004.   Mr. Donnelly valued the

Logan Circle easement at $162,500 and the Vermont Avenue easement

at $93,000.
                                - 6 -

     Petitioner made cash contributions of $8,625 and $4,378 to

L’Enfant with the easements.2   L’Enfant requires donors of

preservation easements to make cash contributions to its

endowment fund.   The donations are used to fund L’Enfant’s

monitoring and enforcement of the donated easements.

     Petitioner did not timely file a Federal income tax return

for 2003 or 2004.    Respondent prepared substitutes for returns

under section 6020(b) on behalf of petitioner for those years.

On June 12, 2006, respondent issued statutory notices of

deficiency to petitioner for tax years 2003 and 2004.

     On September 15, 2006, petitioner filed petitions in this

Court contesting respondent’s determinations.    On or about April

15, 2007, petitioner executed a Federal tax return for 2003 and

mailed it to the Internal Revenue Service (IRS) service center in

Andover, Massachusetts.    Petitioner did the same on or about June

2, 2007, for 2004.    Respondent did not process the returns

because this case was pending at the time.

     Petitioner claimed a facade conservation easement charitable

contribution to L’Enfant of $162,500 on the delinquent 2003

return.   This contribution reflected the claimed value of the

conservation easement granted on the Logan Circle parcel.

Petitioner also claimed a facade conservation easement charitable



     2
      The treatment of these cash contributions was dealt with in
the parties’ settlement, discussed supra note 1.
                                 - 7 -

contribution to L’Enfant of $93,000 on the delinquent 2004

return.   This contribution reflected the claimed value of the

conservation easement granted on the Vermont Avenue parcel.

      A trial was held on June 25, 2008, in Washington, D.C.    The

only issue of fact in dispute was the values of the claimed

conservation easements.   Petitioner produced two fact witnesses,

while respondent produced one.    Both parties introduced expert

reports valuating the contributions.

                                OPINION

I.   Burden of Proof

      The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer bears the burden of

proving, by a preponderance of the evidence, that these

determinations are incorrect.    Rule 142(a)(1); Welch v.

Helvering, 290 U.S. 111, 115 (1933).      Tax deductions are a matter

of legislative grace, and a taxpayer has the burden of proving

that he is entitled to the deductions claimed.     Rule 142(a)(1);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).      The

burden of proof on factual issues that affect a taxpayer’s

liability for tax may be shifted to the Commissioner where the

“taxpayer introduces credible evidence with respect to * * * such

issue.”   Sec. 7491(a)(1).   Petitioner does not claim that the

burden shifts to respondent under section 7491(a).     In any event,
                                - 8 -

petitioner has failed to establish that she has satisfied the

requirements of section 7491(a)(2).     On the record before us, we

find that the burden of proof does not shift to respondent under

section 7491(a).

      Respondent does not argue that petitioner is not entitled to

a charitable contribution deduction because she filed delinquent

returns.    Instead, respondent puts forth the following

alternative arguments in support of his contention that

petitioner is not entitled for either year to a charitable

contribution deduction in any amount:

      (1)   That the easements granted to L’Enfant are not valid

easements for purposes of section 170;

      (2)   that even if we find the easements valid, petitioner’s

appraisals are not qualified appraisals;

      (3)   that petitioner has not met her burden of proof because

petitioner’s appraisals are not credible.

      We will take each argument in turn.

II.   Charitable Contribution Deductions in General

      Section 170(a)(1) provides that there shall be allowable as

a deduction any charitable contribution, payment of which is made

within the taxable year.    Section 170(a)(1) further provides that

a charitable contribution shall be allowable as a deduction only

if verified under regulations prescribed by the secretary.
                                - 9 -

     Generally, section 170(f)(3) does not permit a deduction for

a charitable gift of property consisting of less than the donor’s

entire interest in that property.    Section 170(f)(3)(B)(iii),

however, provides an exception to this general rule in the case

of a “qualified conservation contribution.”    Section 170(h)(1)

provides that a contribution of real property may constitute a

qualified conservation contribution if the real property is a

“qualified real property interest,” the donee is a qualified

organization, and the contribution is “exclusively for

conservation purposes.”    All three requirements must be met for a

donation to qualify as a qualified conservation contribution.

     Section 170(h)(2)(C) provides that for purposes of section

170(h), the term “qualified real property interest” means “a

restriction (granted in perpetuity) on the use which may be made

of the real property.”    A restriction granted in perpetuity on

the use of the property must be based upon legally enforceable

restrictions that will prevent uses of the retained interest in

the property that are inconsistent with the conservation purposes

of the contribution.   See sec. 1.170A-14(g)(1), Income Tax Regs.

     Section 170(h)(4)(A)(iv) provides in pertinent part that for

purposes of section 170(h), the term “conservation purpose” means

the preservation of an historically important land area or a

certified historic structure.    Section 1.170A-14(d)(5), Income

Tax Regs., provides that when restrictions to preserve a building
                              - 10 -

within a registered historic district permit future development

on the site, a deduction will be allowed under section 170 only

if the terms of the restriction require that such development

conform with appropriate local, State, or Federal standards for

construction or rehabilitation within that historic district.    A

contribution shall not be treated as exclusively for conservation

purposes unless the conservation purpose is protected in

perpetuity.   See sec. 170(h)(5)(A).

     Respondent argues that petitioner is not entitled to

deductions because the purpose of the easements does not meet the

requirements of section 170(h)(4) and (5)(A).   First, respondent

argues that no conservation purpose described in section

170(h)(4) has been met because L’Enfant:   (1) Can consent to

changes in the facades, even if they are contrary to the

conservation purposes of the easements and (2) has the right not

to exercise any of its obligations under the easements.     Second,

respondent contends that the requirements of section 1.170A-

14(g), Income Tax Regs., have not been met because the

restrictions in the easements allow L’Enfant to consent to

changes in the facades.

     Third, respondent argues that petitioner is not entitled to

deductions because the subordination requirements of section

1.170A-14(g)(2), Income Tax Regs., were not satisfied.

Respondent contends that these requirements were not met because
                              - 11 -

the easements were not granted in perpetuity.   As discussed

above, the properties at issue were subject to mortgages.

Respondent argues that although the mortgage holders of the

properties signed acknowledgments of easements, the documents do

not expressly identify the easements at issue and do not

subordinate the holders’ interests to L’Enfant’s interests in the

properties.   Therefore, respondent argues, the subordination

requirements of section 1.170A-14(g)(2), Income Tax Regs., have

not been met.

     Petitioner disputes respondent’s contentions and argues that

the easements are valid conservation easements.   Petitioner

argues that the facade easements are qualified real property

interests, that L’Enfant is a qualified organization, and that

the easements were granted exclusively for conservation purposes.

     We agree with petitioner that the easements granted to

L’Enfant are valid conservation easements.   Although the grants

do allow L’Enfant to consent to changes to the properties, the

grants require any rehabilitative work or new construction on the

facades to comply with the requirements of all applicable

Federal, State, and local government laws and regulations.

Section 1.170A-14(d)(5), Income Tax Regs., specifically allows a

donation to satisfy the conservation purposes test even if future

development is allowed, as long as that future development is

subject to local, State, and Federal laws and regulations.
                               - 12 -

       Further, the subordination rights of section 1.170A-

14(g)(2), Income Tax Regs., have been met.    Both deeds contain

paragraphs explicitly indicating that the properties were

currently securing mortgages to National City Mortgage and

Countrywide Home Loans.    Those paragraphs provided in pertinent

part that the lenders “[subordinate] their rights in the Property

to the right of the Grantee, its successors or assigns, to

enforce the conservation purposes of this easement in

perpetuity”.

       As discussed above, the Logan Circle parcel was subject to

two mortgages while the Vermont Avenue parcel was subject to one

mortgage.    Both the Logan Circle and Vermont Avenue deeds

contained sections titled “Lender Acknowledgments - Conservation

Easements” from the banks holding mortgages on both properties.

Respondent’s contention that the documents did not expressly

identify the easements is not persuasive; the deeds included a

document titled “Exhibit A”, which provided descriptions of the

respective parcels.

       In sum, the easements were valid conservation easements.

Accordingly, we move on to respondent’s alternative arguments.

III.    Substantiation of Charitable Contributions

       The obligation to substantiate a claimed charitable

contribution is clear and unambiguous.    Smith v. Commissioner,

T.C. Memo. 2007-368; Blair v. Commissioner, T.C. Memo. 1988-581.
                              - 13 -

No deduction is allowed for a contribution in excess of $5,000

unless the taxpayer meets the substantiation requirements of

section 1.170A-13(c)(2), Income Tax Regs.   Todd v. Commissioner,

118 T.C. 334, 340 (2002); sec. 1.170A-13(c)(1)(i), Income Tax

Regs.   Section 1.170A-13(c)(2)(i), Income Tax Regs., provides

that a taxpayer must generally comply with three requirements:

          (A) Obtain a qualified appraisal (as defined in
     paragraph (c)(3) of this section) for such property
     contributed. If the contributed property is a partial
     interest, the appraisal shall be of the partial interest.

          (B) Attach a fully completed appraisal summary (as
     defined in paragraph (c)(4) of this section) to the tax
     return (or, in the case of a donor that is a partnership or
     S corporation, the information return) on which the
     deduction for the contribution is first claimed (or
     reported) by the donor.

          (C) Maintain records containing the information
     required by paragraph (b)(2)(ii) of this section.

     Additionally, section 170(f)(8)(A) provides that a taxpayer

must obtain a contemporaneous written acknowledgment from the

donee organization for contributions of $250 or more.   Section

170(f)(8)(B) provides that this acknowledgment must include the

amount of cash and a description of any property other than cash

along with certain information about any goods or services

provided by the donee.   Section 170(f)(8)(C) provides that this

acknowledgment must be obtained by the earlier of the date the

return is filed or its due date.
                             - 14 -

     Section 1.170A-13(c)(3)(i) and (ii), Income Tax Regs.,

contains the specific requirements that a “qualified appraisal”

must meet, as summarized below:

          (A) Be made not earlier than 60 days before the date of
     the contribution nor later than the due date of the return,
     including extensions, on which a deduction is first claimed
     or reported;

          (B) be prepared, signed, and dated by a qualified
     appraiser;

          (C) contain the name, address, identifying number, and
     qualifications of the qualified appraiser;

          (D) contain a statement that it was prepared for income
     tax purposes;

          (E) contain a description of the property in sufficient
     detail for a person who is not generally familiar with the
     type of property to ascertain that the property that was
     appraised is the property that was contributed;

          (F) include the terms of any agreement of understanding
     entered into or expected to be entered into by or on behalf
     of the donor or donee that relates to the use, sale, or
     other disposition of the property, including an agreement
     that restricts temporarily or permanently a donee’s right to
     dispose of the property;

          (G) show the date on which the property was
     contributed;

          (H) show the fair market value of the property on the
     date of contribution;

          (I) show the method of valuation and the specific bases
     for the valuation; and

          (J) show the date on which the appraisal was made.

     In Bond v. Commissioner, 100 T.C. 32, 41 (1993), this Court

considered whether certain aspects of the above-referenced

regulations were mandatory or directory and whether the taxpayer
                               - 15 -

in that case had substantially complied so as to be entitled to a

charitable contribution deduction.3     This Court found the

requirements to be directory rather than mandatory, id., and

found the taxpayers to have substantially complied with the

qualified appraisal requirements because substantially all of the

information required had been provided, except the qualifications

of the appraiser on the Form 8283, Noncash Charitable

Contributions, attached to the return.

     In Hewitt v. Commissioner, 109 T.C. 258 (1997), affd.

without published opinion 166 F.3d 332 (4th Cir. 1998), the

taxpayers had claimed a charitable contribution deduction for a

donation of shares of stock that was not publicly traded.      The

taxpayers, however, had not obtained qualified appraisals before

filing their returns for the years at issue.     The IRS disallowed

a portion of the deduction because of the lack of a qualified

appraisal.   The taxpayers countered that they had substantially

complied with the appraisal requirements and attempted to rely on

Bond v. Commissioner, supra.   We rejected the taxpayers’ argument



     3
      For charitable contributions made after June 3, 2004,
Congress, in the American Jobs Creation Act of 2004, Pub. L. 108-
357, sec. 883, 118 Stat. 1631, which added sec. 170(f)(11),
specifically codified the substantiation requirements and
provided an exception where there is reasonable cause for failure
to comply with the substantiation requirements for noncash
charitable contributions. See Smith v. Commissioner, T.C. Memo.
2007-368. Petitioner granted both easements before June 3, 2004.
Accordingly, the reasonable cause exception is not available to
petitioner.
                              - 16 -

because the taxpayers had not provided any of the information

required by section 170 and the regulations thereunder.

     Taken together, Bond and Hewitt “provide a standard by which

we can consider whether [petitioner] provided sufficient

information to permit respondent to evaluate * * * [her] reported

contributions, as intended by Congress.”    Smith v. Commissioner,

T.C. Memo. 2007-368.

     Respondent argues that petitioner is not entitled to a

deduction because she failed to comply with the reporting

requirements of section 170 and the underlying regulations.      As

discussed above, section 170(a)(1) provides that a charitable

contribution is allowable as a deduction only if verified under

regulations prescribed by the Secretary.    See also Hewitt v.

Commissioner, supra at 261.   Section 170(f)(8)(A) provides that a

taxpayer must obtain a contemporaneous written acknowledgment

from the donee organization for contributions of $250 or more.

Section 170(f)(8)(B) provides that this acknowledgment must

include the amount of cash and a description of any property

other than cash along with certain information about any goods or

services provided by the donee.   Section 170(f)(8)(C) provides

that this acknowledgment must be obtained by the earlier of the

date the return is filed or its due date.   The deeds themselves

satisfy the requirements of section 170(f)(8)(A) and (B), as they

are signed by a representative of L’Enfant, are contemporaneous
                              - 17 -

with the donation of the easements, and describe the properties

donated.   The deeds were also obtained before petitioner’s

returns were due.

     Respondent argues that the appraisals petitioner relies on

are not qualified appraisals as defined in section 1.170A-

13(c)(3), Income Tax Regs., because they:   (1) Fail to adequately

describe the properties contributed; (2) fail to accurately

identify the method of valuation used to determine the fair

market value of the contributed easements or to adequately

describe the specific basis for valuation; (3) do not include a

statement that the appraisals were prepared for income tax

purposes; and (4) do not provide the dates of the contributions.

     Petitioner argues, however, that the appraisals meet the

requirements of a qualified appraisal, and that even if the

appraisals do not satisfy all of the requirements of a qualified

appraisal, petitioner has substantially complied with those

requirements.

     The appraisals petitioner obtained are qualified appraisals.

The appraisals adequately describe the parcels of land owned by

petitioner and the structures built thereon.   The appraisals also

contain lengthy discussions of historic preservation easements in

general.   In addition, the appraisals contain statistics gathered

by L’Enfant and the Capital Preservation Alliance that Mr.

Donnelly took into account in preparing the appraisals.   The
                               - 18 -

appraisals likewise identify the method of valuation used and the

basis for the valuations reached.

      Although the appraisals did not contain an explicit

statement that they were prepared for income tax purposes, the

appraisals did contain statements that the owner of the parcels

(petitioner) was contemplating donating conservation easements to

L’Enfant.   The appraisals also include discussions of IRS

practice and cases of this Court concerning facade easements.

The dates of contribution were likewise included on petitioner’s

tax returns.   The Forms 8283 that petitioner included with her

returns required an acknowledgment by the donee, L’Enfant.    That

acknowledgment required the donee to acknowledge the date that

the contributed property was received.

      Petitioner included all of the required information in the

appraisals attached to her returns or on the face of the returns.

Accordingly, petitioner has complied with the substantiation

requirements of section 170.

IV.   Valuation of Conservation Easements

      As we have stated previously, no established market exists

for determining the fair market value of an easement.   See

Hilborn v. Commissioner, 85 T.C. 677, 688 (1985).   The “before

and after” approach has been used on numerous occasions to

determine the fair market values of restrictive easements with

respect to which charitable contribution deductions are claimed.
                                - 19 -

See, e.g., Hilborn v. Commissioner, supra; Griffin v.

Commissioner, T.C. Memo. 1989-130, affd. 911 F.2d 1124 (5th Cir.

1990); Stotler v. Commissioner, T.C. Memo. 1987-275.

       The “before” value of the property generally reflects the

highest and best use of the property in its condition just before

the donation of the easement.    Hilborn v. Commissioner, supra at

689.    The highest and best use of the property in its “before”

condition takes into account the manner by which the property

likely would have been developed absent the easement.    The

evaluation of that likelihood also takes into account the effect

of existing zoning or historic preservation laws that already

restrict the property’s development regardless of the existence

of the restrictive easement.

       Respondent argues that petitioner has failed to meet her

burden of establishing the fair market values of the contributed

properties.    As discussed above, petitioner bears the burden of

proving her entitlement to deductions.

       Respondent argues that petitioner’s reliance on the Donnelly

& Son appraisals is not sufficient to meet her burden.

Respondent argues that the appraisals do not set forth in detail

the reasons for their conclusions, do not state the data relied

upon by the appraisers, and do not explain the basis for the

decision.    Respondent further contends that Donnelly & Son did

not use reliable principles or methods in determining the value
                               - 20 -

of the properties donated and does not explain how the easements

differ from District of Columbia rules and regulations governing

the facades before donation.

     Both petitioner and respondent submitted appraisals in

support of their valuations.   Respondent produced expert reports

prepared by Peter A. Wolman (Mr. Wolman), a District of Columbia

certified general real estate appraiser.      Mr. Wolman is currently

an IRS employee and has a degree in business administration from

American University.   Mr. Wolman has been a real estate appraiser

since 1985 and has worked at the IRS since 2007.       Respondent

also presented testimony by David Maloney (Mr. Maloney), an

employee with the District of Columbia Historic Preservation

Office.   Mr. Maloney is the manager of the District of Columbia’s

historical preservation program.

     Both the Donnelly & Son appraisals and Mr. Wolman’s expert

reports valued the easements by applying the “before and after”

sales test.   The parties’ reached similar “before” valuations.

Petitioner valued the Logan Circle and Vermont Avenue parcels at

$1,250,000 and $845,000, respectively.      Respondent valued the

Logan Circle and Vermont Avenue parcels at $1,175,000 and

$860,000, respectively.

     The difference in the “before” valuations of the Logan

Circle parcel stems mainly from Mr. Donnelly’s putting a premium

on the Logan Circle parcel’s view.      The Logan Circle parcel
                              - 21 -

borders Logan Circle Park.   Because the view from the Logan

Circle parcel is of Logan Circle Park, Mr. Donnelly increased his

valuation by $50,000 to account for the view.   Respondent’s

expert reports indicate that Mr. Wolman’s decision not to make an

upward adjustment in value was based on conversations with real

estate agents in the Logan Circle neighborhood to the effect that

the view of Logan Circle Park would not affect the value of the

Logan Circle parcel.

     We find petitioner’s “before” valuations to be reasonable

and adopt them.   Petitioner’s appraisals were completed closer to

when the easements were granted.   Further, we found Mr.

Donnelly’s testimony credible that the Logan Circle parcel’s view

would be taken into account when determining the fair market

value of the property.   Before petitioner granted the easements,

the Logan Circle and Vermont Avenue parcels had fair market

values of $1,250,000 and $845,000, respectively.

     The parties’ disagreement concerns how the easements affect

the fair market values of the properties.   Petitioner’s

appraisals apply a 13-percent decline in value to the Logan

Circle parcel and an 11-percent decline to the Vermont Avenue

parcel.

     Respondent’s expert reports did not find any change in the

fair market value of either property as a result of the granting

of the easements.   Mr. Wolman’s report came to the conclusion
                              - 22 -

that the properties’ zoning, site, and improvements would not

change as a result of the easements because the deeds prevented

material alteration of the facades.    Mr. Wolman also determined

that the highest and best use of the parcels remained unchanged

by the granting of the easements because before petitioner’s

grants, the parcels were already subject to Washington, D.C.,

historic preservation laws.   Because the historic preservation

laws already prevented any material changes to the facades or

improvements on the properties, Mr. Wolman reasoned that the

easements were superfluous and did not prevent anything not

already covered by District of Columbia preservation laws.

     We note, however, that respondent’s expert reports also

indicate that easements granted to L’Enfant did affect the sale

prices of some of the “after” comparable properties.   As

discussed above, Mr. Wolman used comparable properties subject to

easements granted to L’Enfant to calculate the “after” values of

petitioner’s properties.   These properties all sold subject to

easements.   In researching the sales of one Logan Circle-

comparable property and one Vermont Avenue-comparable property,

respondent’s expert learned that the sellers of those comparable

properties had not disclosed the easements to the respective

buyers.   After disclosure of the easements, the sellers of the

two comparable properties later agreed to credit the respective

buyers $10,000 to make up for the nondisclosure of the easements.
                               - 23 -

     After researching the comparable “after” properties, Mr.

Wolman contacted the buying and selling agents who had taken part

in the sales of those comparables.      Mr. Wolman’s report indicates

that these agents informed him that the easements granted to

L’Enfant did not affect the negotiated selling prices of the

comparable properties and that the $10,000 credits were simply to

expedite the sales closings.   Respondent points to this

information in his expert reports as evidence that the easements

did not affect the fair market values of petitioner’s properties.

Respondent lastly argues that petitioner is not entitled to any

deductions because the easements simply duplicate requirements

imposed by District of Columbia rules and regulations.

Respondent points to testimony of Mr. Maloney that his office

would have to issue permits before any changes could be made to

petitioner’s buildings’ facades.

     Petitioner disputes this contention and argues that L’Enfant

does in fact impose certain financial obligations on donors that

the District of Columbia does not.      Petitioner points to

testimony by Carol Goldman (Ms. Goldman), president of L’Enfant,

for support.   Ms. Goldman testified that L’Enfant regulates paint

color, which the District of Columbia does not.      Ms. Goldman also
                              - 24 -

testified that the District of Columbia allows certain repairs to

covered homes that L’Enfant does not.4

     Petitioner also focuses on the heightened enforcement of its

easements by L’Enfant.   Petitioner contends that because the

District of Columbia lacks funding to enforce its own rules and

regulations and because L’Enfant continually monitors its

easements, the L’Enfant easements increase petitioner’s burdens

even though the restrictions are similar.

     We agree with petitioner that the easements granted do

affect the fair market values of the subject properties.

However, we do not agree with the amounts of the charitable

contribution deductions petitioner claimed.   While we are

inclined generally to accept the more persuasive expert valuation

amongst those proffered, we are not required to accept that

valuation in its entirety.   See Symington v. Commissioner, 87

T.C. 892, 902 (1986); Buffalo Tool & Die Manufacturing Co. v.

Commissioner, 74 T.C. 441, 452 (1980).   Although we adopt

petitioner’s “before” valuations, we have considered the expert

reports and testimony and find that the easements resulted in



     4
      Ms. Goldman provided as an example a brick-exterior home
for which L’Enfant holds an easement. A common problem with
older brick homes is degradation in the exterior. The District
of Columbia often allows a homeowner to simply patch the masonry
as problems develop. However, too much patching can ultimately
lead to a need to paint the house. Ms. Goldman testified that
L’Enfant does not allow patching but instead requires the entire
home to be “re-tucked”, a more expensive process.
                               - 25 -

only a 5-percent reduction in the values of the subject

properties.    This decrease stems from the heightened financial

burdens of an eased facade and L’Enfant’s affirmative enforcement

of its easements.    Because the restrictions imposed by the

easements are the same for both the Logan Circle and Vermont

Avenue parcels, the subject properties are entitled to the same

reductions.

       Although respondent argues that the properties were already

subject to District of Columbia preservation laws, this does not

prevent any charitable contribution deductions.    We have

previously allowed charitable contribution deductions even if the

property was subject to local preservation laws before the

granting of an easement.    See, e.g., Griffin v. Commissioner,

T.C. Memo. 1989-130; Nicoladis v. Commissioner, T.C. Memo. 1988-

163.    Although the easements were duplicative in some respects,

it is important to note that granted easements to L’Enfant meant

that petitioner would be subject to a higher level of enforcement

than that provided by the District of Columbia.    L’Enfant

actively enforces its easements in a way that the District of

Columbia does not.    Ms. Goldman credibly testified that in

previous situations the District of Columbia had consented to

changes to a historic building only to have L’Enfant later

intervene and prevent those changes.    L’Enfant could also dictate
                              - 26 -

what types of supplies and materials had to be used when work was

being done on a donated easement.

     Even if we were to accept respondent’s contention that the

easements did not impose any restrictions on petitioner over and

above those imposed by the District of Columbia, the easements

still added an additional level of approval before any changes

could be made to the properties.    See Nicoladis v. Commissioner,

supra.   Petitioner is required to obtain L’Enfant’s consent to

make any changes to the facades, even if those changes are

allowable under District of Columbia preservation laws.

     Further, respondent’s expert reports acknowledge instances

where an easement affected the final sale price of a comparable

parcel of real estate.   We do not find respondent’s expert

reports credible insofar as they maintain that an easement would

have absolutely no effect on the fair market value of valuable

real estate.

     As discussed above, we have adopted petitioner’s “before”

valuations of the Logan Circle and Vermont Avenue parcels of

$1,250,000 and $845,000, respectively.   Applying a 5-percent

reduction in fair market value, we value the easements at $56,250

and $42,250, respectively.   Accordingly, petitioner is entitled

to charitable contribution deductions of $56,250 for 2003 and

$42,250 for 2004.
                        - 27 -

To reflect the foregoing,

                                  Decisions will be entered

                             under Rule 155.
