Rev. Rul. 64-205

Advice has been requested as to the deductibility, for Federal income tax purposes, of a gratuitous conveyance of a restrictive easement in perpetuity to the United States of America.

The taxpayer owns a parcel of land in state X . The parcel is part of a larger area which presents a generally wooded appearance and scenic view to a nearby Federal highway. The United States is interested in preserving the appearance of the area so as to maintain the scenic view afforded the highway. The surrounding landowners, including the taxpayer, gratuitously conveyed to the United States perpetual restrictive easements in their properties. By the terms of the deed conveying the easement to the United States the taxpayer agreed to certain restrictions on the use of his properties. By the terms of the restrictions pertain to the type and height of buildings and type of activities for which they may be used, removal of trees, erection of utility lines, dumping of trash, use of signs, erection of sales booths and the size of parcels which are sold.

Section 170 of the Internal Revenue Code of 1954 provides, in part, that there shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year.

Section 170(c)(1) of the Code defines a charitable contribution as meaning a contribution or gift to or for the use of a State, a Territory, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

Section 1.170-1(c) of the Income Tax Regulations provides, in part, that if a contribution is made in property other than money, the amount of the deduction is determined by the fair market value of the property at the time of the contribution. The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Under the law of state X , a restrictive easement constitutes a valuable property right or interest in favor of the party for whose benefit the easement is created and is enforceable by that party.

Based upon the above facts, it is held that the gratuitous conveyance to the United States of America use of his property. Generally, property is a charitable contribution within the meaning of section 170(c) of the Code. Accordingly, the taxpayer is entitled to a deduction under section 170 of the Code in the manner and to the extent therein under section 170 of the Code value of the restrictive easement. The basis of the taxpayer's property, however, must be adjusted by eliminating that part of the total basis which is properly allocable to the restrictive easement granted.