In a recent article, I discussed the trials and tribulations of the Whitehouse Hotel Partnership as it attempted to deduct the donation it had made of a facade easement for an historic building it had purchased back in 1995.  See Ecuyer, "Mr. Bingle Goes Back to Tax Court," 246 BNA Daily Tax Rpt. p. J-1 (12/26/12). The issue in the case was strictly that of valuation.  The taxpayer attempted to deduct $7.4 million while the IRS argued that the facade easement was only worth $1.15 million.  The taxpayer lost in the Tax Court.  On appeal, the Fifth Circuit seemed somewhat favorable to the taxpayer's position, but did not specifically overrule the Tax Court where it mattered -- as far as the valuation was concerned.  On remand, the Tax Court stuck to its guns and, at times, defied the Fifth Circuit's mandates.

To me, the most interesting aspect of the case was the taxpayer's argument that the value of the facade should also include the value of its not being able to build on top of the nearby Kress Building (which the taxpayer also owned) due to the facade easement granted to a preservation society of the Maison Blanche building located right next door.  Both the Tax Court and the Fifth Circuit spent an inordinate amount of space and time analyzing this issue.  The Tax Court came to the conclusion (TWICE) that there was no burden on the Kress building -- both by looking at pictures of what was seemingly included in the conveyance (i.e., the pictures of the Kress building were not included) and analyzing Louisiana law in light of the conveyance documents granting the facade easement.  The Fifth Circuit refused to look at the pictures of what was included, and merely looked at a strict reading of what was included.

The Fifth Circuit building is located about six or seven blocks from the Maison Blanche building.  I'm not sure if the Fifth Circuit could have simply taken judicial notice of the building surface that was at issue, or if the pictures presented showed the building surface.  However, a walk down to the Maison Blanche building would have shown that there really wasn't any facade to value.  As picture above illustrates, the area rising above the Kress building is simply a stark grey wall.  There is no real "façade" on that portion of the Maison Blanche building that rises above the Kress building.  There are a few windows with even more windows cemented over.  Perhaps this is why the taxpayer tried to argue that it was a "sight of view" easement, and not a "facade easement."  However, neither court discussed this issue.  Also, it's unclear whether the IRS even made this argument or presented pictures showing the nondescript wall that the taxpayer was claiming as part of its facade easement.  But it seems that a simple common sense approach could have saved both courts a lot of time, effort and analysis in determining whether there was an easement on that portion of the Maison Blanche building rising above the Kress building.

At this point, I wonder whether the taxpayer will pursue this case.  Clearly, the Tax Court has thumbed its nose up at the Fifth Circuit.  But, given the amounts involved, one has to wonder whether it is worth it from a monetary aspect to pursue this litigation.  There are already three separate somewhat lengthy opinions.  Plus, the taxpayer has had to pay numerous "experts."  Already, this case is illustrative for future litigants in valuing facade easements.  To me, the two most important lessons to be learned from these opinions are: (1) don't get greedy in your valuation; and (2) pick and choose a LOCAL expert wisely.

Joseph J. Ecuyer, J.D., LL.M.