Watch Your Step: IRS Goes After Easement Deduction Abuse
Those brass medallions seen on the front of some homes around the town add a nice little design feature, but they are also known to the buyers of that house, contractors and real estate agents as a way to get a nice big tax deduction. It is part of the tax code and perfectly legal. When giving a donation to a non-profit whose mission is to maintain the historical nature of the neighborhood, the homeowner is assisted by the non-profit with the tax accounting paperwork. It then holds an easement on that home’s facade which can no longer be significantly changed by the new or any owner. A win-win situation, right? Not so fast, says the Internal Revenue Service.
A conflict of different interests involve the fact that places, such as Georgetown, already have significant constraints on a home’s or building’s facade through the likes of the Old Georgetown Board and the contention by the IRS that deductions taken by homeowners are excessive – especially when the new owner says by agreeing not to change, the facade the value of the property may decrease. The IRS is especially annoyed by groups which it insists exist only to promote those tax deductions. Such a case was decided last week.
The Department of Justice, on behalf of the IRS, related the following on July 18: “A District of Columbia federal court has entered a permanent injunction order against Steven McClain and the Trust for Architectural Easements, Inc. (formerly known as the National Architectural Trust). The civil court order bars the defendants from promoting a scheme that, according to the government complaint, encouraged taxpayers in Boston, New York City, Baltimore and Washington, D.C., to claim unwarranted charitable tax deductions for donations of façade conservation easements on historic buildings. The defendants consented to the injunction without admitting the allegations against them. The injunction order does not preclude the Internal Revenue Service from assessing monetary penalties against the defendants for past actions and also does not preclude the defendants from challenging any such penalties.”
According to the government complaint, the defendants falsely told prospective customers that, in exchange for donating easements on their historic properties preventing façade alteration, the customers could claim charitable deductions equal to 10 to 15 percent of the property value, and that this range reflected official IRS policy. In fact, the complaint alleges, the IRS never had any such policy, and the actual value of façade easements, if any, must be determined on a case-by-case basis. The complaint also alleges that the defendants manipulated the easement appraisal process by steering donors to appraisers who the defendants knew would employ the 10-to-15-percent valuation method, leading to improper appraisals that yielded large tax deductions regardless of the easements’ actual effect on property value.
Weeks before that decision, a different tone was struck on June 21 by the U.S. Court of Appeals for the District of Columbia: it affirmed the Tax Court’s 2009 ruling in Simmons v. Commissioner and concurred with the Tax Court that the donor of two preservation easements in the Logan Circle historic district qualified for a deduction despite IRS objections.
Here is what the Foundation for the Preservation of Historic Georgetown, which supported the Logan Circle property owner in her case, advises:
“Potential donors should be aware that despite Internal Revenue Service court losses to taxpayers in the United States Tax Court in its challenges to conservation easement deductions (e.g., Simmons v. Commissioner of Internal Revenue, T.C. Memo. 2009-208 (September 15, 2009)), the IRS continues to audit returns, disallow 100 percent of deductions and assert significant valuation penalties where taxpayers have donated conservation easements. This current IRS ‘zero deduction’ audit program has numerous cases pending in Washington, D.C., and other test cities, and the outcome of such cases will likely be decided between 2011 and 2012.
“On Feb. 4, the first federal court of appeals to consider the IRS ‘zero deduction’ audit program held an oral argument in the Simmons case. The two main issues before the Court of Appeals for the District of Columbia were whether the easements granted were exclusively for conservation purposes and the donated easement caused a diminution of value in the properties. The foundation joined the National Trust for Historic Preservation and L’Enfant Trust in filing an amici curia brief in support of the taxpayer, Dorothy Simmons.
“While the foundation strongly believes in its preservation mission and in the viability of a properly prepared and documented conservation easement donation, potential donors should consult with their own tax advisors about the advisability and timing of taking conservation easement deductions.”
Scientist Couple Ryuji Ueno and Sachiko Kuno Are New Owners of Evermay
Ryuji Ueno and his wife, Sachiko Kuno, founders of Bethesda-based Sucampo Pharmaceuticals and S&R Technology Holdings, have purchased Evermay, for $22 million, 55 percent off its 2008 asking price of $49 million. The purchase price of the historic 3.5-acre estate on 28th Street, which borders Oak Hill Cemetery at R Street, is a record sale for D.C.
The names of the new Evermay owners were first reported in the Wall Street Journal on July 22 in its “Private Properties” section. The buyers’ representative Mark McFadden of Washington Fine Properties spoke with the Georgetowner and confirmed that, indeed, Ueno and Kuno are the new owners of the 12,000-square-foot house and grounds, adding that they will continue the preservation of the estate, founded by Samuel Davidson in 1792 and sold by the Belin family two weeks ago, through a limited-liability company, Evermay LLC. The listing agent was Jeanne Livingston of Long and Foster, a Christie’s International Real Estate affiliate, whose other big sale was Katharine Graham’s estate on R Street. Livingston said the new owners would be “good stewards” of Evermay, a property which was once rumored to have caught the interest of Oprah Winfrey.
While the Japanese-born drug researchers Ueno and Kuno – who own a house on P Street – are not well known to most Washingtonians, they are known in philanthropic circles, such as the Washington Opera and the Smithsonian. The couple founded the S&R Foundation in 2000, a non-profit whose mission is to encourage and stimulate scientific research and artistic endeavors among young individuals – and “to recognize talented young scientists and artists for their distinguished work in fields of science and fine arts, especially those who contribute to U.S.-Japanese understanding.” Their foundation awards the S&R Washington Award and the S&R Ueno Award.
Ueno and Kuno’s Sucampo Pharmaceuticals, Inc., a biopharmaceutical company on Wisconsin Avenue in Bethesda, focuses on the development and commercialization of medicines based on prostones. Ueno, who is also a medical doctor, discovered “the therapeutic potential of prostones, which are bio-lipids that occur naturally in the human body.” The company markets the drug Amitiza for gastrointestinal disorders. One of the couple’s first successes was Rescula eye drops, the first bioactive lipid used to treat glaucoma.
Together, the accomplished couple holds several degrees from universities in Japan and the U.S. and have other interests as well. A Class A race car driver, Ueno is a member of the Leica Historical Society of America, Ferrari Club of America and Miles River Yacht Club. Involved in fundraising for the Washington Opera, Kuno was also cited by the Washington Business Journal two years ago in its list, “Women Who Mean Business.” She even studied in the neighborhood at Georgetown University’s International Business Management Certificate Program. Add to their resumes: “Keepers of Evermay.”
ANC Redistricting Underway
After redrawing the District’s wards, local politicians are now at work redrawing the boundaries of its advisory neighborhood commissions. For Ward 2, one of Georgetown’s ANC 2E commissioner Tom Birch heads up the work – with its individual ANCs getting their own subcommittee. For Georgetown’s and Burleith’s ANC 2E, commissioner Ron Lewis chairs the group along with Jennifer Altemus of the Citizen’s Association of
Georgetown and Lenore Rubino of the Burleith Citizen’s Association. As mentioned in the latest ANC meeting, anyone interested in working with them can contact the redistricting team, which is assisted by the Board of Elections and Ethics and the Office of Planning. ANC single-member districts serve approximately 2,000 citizens. The task force must report its progress on Aug. 1 and Sept. 1; its work must be completed before mid-October.
Requests for information on the process of redistricting should be directed to the Subcommittee on Redistricting. Call Drew Hubbard at the subcommittee – 202-724-8198. Direct requests for data in hard copy or electronic media can be made to the Office of Planning, which will provide at cost to the public 2010 Census maps and population data in hard copy or machine-readable form. The Office of Planning is located at 1100 4th Street SW, Suite E650, Washington, D.C. 20024 – 202-442-7600.
Under new redistricting, Ward 2 gains more of the Penn Quarter and Judiciary Square. It loses the Shaw neighborhood to Ward 6 but keeps the Washington Convention Center within its boundaries. Have any questions? Want to help with the ANC redistricting? Visit JackEvans.org.
Safeway Ready to Redevelop Retail, South of Store
Gone is the bagel shop, and pawn shop in the building on Wisconsin Avenue, just south of the Georgetown Safeway. The Safeway-owned property will be reconstructed with additional new space on the empty lot next to the grocery store’s driveway as well. So, get ready for construction activity between S Street and the store. It should begin in August or September and be completed in a year.
Retail spaces between 1,362 and 8,956 square feet will be available at the “neighborhood center” – 1815-1825 Wisconsin Ave., NW – broker Steve Combs of KLNB Retail told the Washington Business Journal. No leases have been signed, but plenty of retailers have expressed interest in the space, he said. It makes for a total 13,838-square-foot retail space, according to Safeway.
Georgetown Ministry at Grace Church Gets $100K Rehab
After more than a month of construction, the Georgetown Ministry Center, which has served the homeless of Washington since 1987, reopened July 14 – with expanded space, new computers (iMac desktops), spruced-up showers and a laundry room. GMC executive director Gunther Stern said he was pleased at the results of the $100,000 makeover and thankful for the donors to the non-profit housed along the alleyway of 1041 Wisconsin Ave., part of the Grace Church property. Stern is enthusiastic about the center’s “club house model.” Here, the homeless – who are also called clients – become members and must contribute with routine work for the center, such as helping the dishwasher or making coffee, and may attend staff meetings. Membership is open to all on an individual need basis, seven days a week.
Stern is also enthusiastic about how the digital world can help the homeless: “I use my MacBook as a computer and a phone. When I have internet available I just plug in my headphones and use Google Voice to receive phone calls. This comes from the focus of our work with homeless clients whom we are trying to train on the Google suite of tools. Perfect for a person without a home or phone. And it is free. Our database is simple and flexible and online. And the subscription is free, donated to us by Salesforce.com. Our payroll system is online. Everything is online.”
