Tax Court Holds Conservation Easement Wasn't Granted in Perpetuity

Michael A. Raiken, Elizabeth C. Mourges, and Nancy M. Gilmore, for respondent.

RUWE, Judge: Respondent determined deficiencies in petitioners' Federal income tax and accuracy-related penalties as follows:

                                             Accuracy-related penalty

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.³

Petitioners resided in Maryland when they filed their petition.

On June 1, 1985, petitioner Douglas G. Carroll III (Dr. Carroll) became the sole owner of approximately 25.8533 acres of land on Greenspring Valley Road in Lutherville, Maryland (subject property).⁴ The subject property consists of two parcels, primarily of open pastureland and woodland, and is part of the Green Spring Valley National Register Historic District. The first parcel (parcel 1) was approximately 3.92 acres, and the second parcel (parcel 2) was approximately 21.83 acres. The diagram below illustrates the layout of the two parcels.

 

 

The Gift Deed

On November 14, 2005, Dr. Carroll sent (via facsimile) a handwritten letter to Attorney David Haile⁵ requesting that Mr. Haile draft a deed transferring ownership of the subject property from Dr. Carroll to (1) Dr. Carroll, (2) Dr. Carroll's wife (Ms. Smith), and (3) petitioners' three minor children, as tenants in common. In his letter to Mr. Haile, Dr. Carroll instructs, in pertinent part:

Lot Line Adjustment

On September 20, 2005, Dr. Carroll sent a letter to the Baltimore County Agricultural Land Preservation Advisory Board (BCALPAB) requesting a lot line adjustment for the subject property. Dr. Carroll's request was to change the lot line dividing parcels 1 and 2 to create one 18-acre parcel and one 7.8-acre parcel. On October 19, 2005, BCALPAB recommended that parcel 1 be at least 20 acres. On December 7, 2005, Dr. Carroll sent (via facsimile) a letter dated October 20, 2005, to BCALPAB proposing a new lot line adjustment. The letter proposed to create one 20.93-acre lot and one 4.8-acre lot. On December 13, 2005, BCALPAB met and recommended approval of Dr. Carroll's December 7, 2005, request for a lot line adjustment. Following the lot line adjustment, both the Carroll residence and the tenant house were located on parcel 1. The diagram below illustrates the layout of the two parcels following the lot line adjustment.

 

 

On December 15, 2005, petitioners and Dr. Carroll as custodian of petitioners' three minor children executed a deed of conservation easement (conservation easement) for no consideration on parcel 1 of the subject property in favor of MET⁷ and LPT⁸ as joint easement holders.⁹ Respondent concedes that both MET and LPT are qualified organizations as defined in section 170(h)(3). The terms of the conservation easement provide that it was executed to "maintain the significant conservation features * * * and the dominant scenic, cultural, rural, agricultural, woodland and wetland characteristics of the Property, and to prevent the use or development of the Property for any purpose or in any manner that would conflict with these features and characteristics and the maintenance of the Property in its open-space condition." Article I of the conservation easement provides:

Article III of the conservation easement authorizes MET and LPT to "enter the Property at reasonable times for the purpose of inspecting the Property to determine whether the Grantors are complying with the Terms of this Conservation Easement". In the event that petitioners are found to be in breach of the terms of the conservation easement, Article III authorizes MET and LPT to (1) institute a lawsuit to enforce the terms of the conservation easement or (2) require that the subject property be restored promptly pursuant to the conservation easement.

Exhibit B attached to the conservation easement provides:

The following public open space conservation values are associated with the Property:

On March 8, 2006, MET mailed petitioners a letter acknowledging receipt of the conservation easement. On a date not included in the record, the conservation easement was accepted by MET's board of directors and ratified by the Maryland board of public works (which is composed of the Governor of Maryland, the Comptroller of Maryland, and the Treasurer of Maryland) as being consistent with MET's policies and procedures. On a date not included in the record, the conservation easement was accepted by LPT's board of trustees as being consistent with its mission to preserve and encourage conservation easements in Baltimore County, Maryland.

On October 17, 2006, respondent received petitioners' 2005 Federal income tax return reporting their donation of the conservation easement valued at $1.2 million. This was 100% of Mr. Dunkin's value undiminished by any amount attributable to the interests of petitioners' children in the property. Petitioners attached to their 2005 Federal income tax return a Form 8283, Noncash Charitable Contributions, signed by Mr. Dunkin. Petitioners claimed a $495,356 noncash charitable contribution deduction on Schedule A, Itemized Deductions, of their 2005 return and carried forward $704,644 of the remaining $1.2 million easement contribution to subsequent tax years. On October 23, 2007, October 20, 2008, and October 19, 2009, respondent received petitioners' 2006, 2007, and 2008 tax returns, respectively. On their respective Schedules A petitioners claimed carryover noncash charitable contribution deductions of $196,008 for 2006, $406,467 for 2007, and $55,539 for 2008.

Notice of Deficiency

On January 30, 2013, respondent issued to petitioners a notice of deficiency for the years in issue. In the notice of deficiency respondent disallowed petitioners' claimed noncash charitable contribution deductions for the years in issue. Petitioners timely filed a petition with this Court disputing the determinations in the notice of deficiency.

Respondent concedes that petitioners' conservation easement was granted to qualified organizations -- i.e., MET and LPT -- in satisfaction of section 170(h)(1)(B). However, respondent argues that petitioners' conservation easement does not constitute a qualified real property interest under section 170(h)(1)(A) and was not contributed exclusively for conservation purposes under section 170(h)(1)(C). We begin our discussion by addressing whether petitioners' donation of the conservation easement is a qualified real property interest.

A. Qualified Real Property Interest

The term "qualified real property interest" includes "a restriction (granted in perpetuity) on the use which may be made of the real property." Sec. 170(h)(2)(C). Section 1.170A-14(b)(2), Income Tax Regs., provides the following with respect to section 170(h)(2)(C):

B. Conservation Purpose

In order for a contribution of property to constitute a "qualified conservation contribution" it must be donated "exclusively for conservation purposes". Sec. 170(h). A contribution is made "exclusively for conservation purposes" if it meets the requirements of section 170(h)(4) and (5). Section 170(h)(4)(A) provides that a contribution is for conservation purposes only if it serves one of four delineated conservation purposes:

The general requirements necessary to establish that the contribution of a conservation easement preserves open space pursuant to a clearly delineated Federal, State, or local governmental policy are set forth in section 1.170A-14(d)(4)(iii)(A), Income Tax Regs., which provides:

C. Significant Public Benefit

In order for petitioners' conservation easement to satisfy the conservation purpose requirement of section 170(h)(4)(A)(iii) the easement must also "yield a significant public benefit". The regulations under section 170(h)(4)(A) provide factors to be considered when evaluating whether the contribution of a conservation easement yields a significant public benefit. Section 1.170A-14(d)(4)(iv)(A), Income Tax Regs., provides:

Section 1.170A-14(g), Income Tax Regs., elaborates on the protected-in-perpetuity requirement of section 170(h)(5)(A) by setting forth substantive rules to safeguard the conservation purpose of a contribution. Most pertinent to the instant case, section 1.170A-14(g)(6), Income Tax Regs., addresses subsequent unexpected changes in the conditions surrounding the donated property that make it impossible or impractical to continue using the property for the intended conservation purpose. Section 1.170A-14(g)(6), Income Tax Regs., provides as follows:

The taxpayers in Kaufman claimed a charitable contribution deduction for their donation of a facade easement on their Boston rowhouse to a nonprofit organization. Kaufman I, 134 T.C. at 184. Consistent with section 1.170A-14(g)(6), Income Tax Regs., the facade easement granted the nonprofit organization a proportionate share of future extinguishment proceeds, as follows:

The taxpayers in Kaufman appealed to the Court of Appeals for the First Circuit. Kaufman III, 687 F.3d at 21. Although absent a stipulation to the contrary an appeal of the instant case lies with the Court of Appeals for the Fourth Circuit, the Court of Appeals for the First Circuit's opinion in Kaufman III is instructive on several points. The Court of Appeals in Kaufman III upheld as valid section 1.170A-14(g)(6), Income Tax Regs., and explained that the regulation is "designed in case of extinguishment both (1) to prevent taxpayers from reaping a windfall if the property is destroyed or condemned and they get the proceeds from insurance or condemnation and (2) to assure that the donee organization can use its proportionate share of the proceeds to advance the cause of historic preservation elsewhere." Id. at 26 (fn. ref. omitted). In vacating our decision the Court of Appeals found that the Government's interpretation of section 1.170A-14(g)(6), Income Tax Regs., was unreasonable, explaining that "given the ubiquity of super-priority for tax liens, the IRS's reading of its regulation would appear to doom practically all donations of easements, which is surely contrary to the purpose of Congress." Id. at 27. The Court of Appeals further explained that section 1.170A-14(g)(6), Income Tax Regs., did not require that the donee have an absolute right to the extinguishment proceeds. Rather, it was sufficient that the donee have an absolute right against the donor for its proportion.Id.¹²

Although the issue in the instant case involves the application of section 1.170A-14(g)(6), Income Tax Regs., the determinative facts are distinguishable from those in Kaufman, which involved the claim priority of a donee organization and a mortgagee with respect to extinguishment proceeds. In the instant case the issue is whether the donee has an absolute right against the donor upon extinguishment. The matter sub judice involves the method of determining the numerator of the formula in section 1.170A-14(g)(6)(ii), Income Tax Regs., for purposes of calculating the donees' entitlement to extinguishment proceeds.

For purposes of deciding this case, we will follow the principles of the Kaufman opinions upon which both this Court and the Court of Appeals agree with respect to the application of section 1.170A-14(g)(6), Income Tax Regs. No reported cases have specifically addressed the formula in section 1.170A-14(g)(6)(ii), Income Tax Regs., and thus this is an issue of first impression in this Court.

Article VI.D, subparagraphs (1) and (2), of petitioners' conservation easement provides:

The issue is whether, in the event of an extinguishment of petitioners' conservation easement, MET and LPT would be guaranteed a proportionate share of extinguishment proceeds as required by section 1.170A-14(g)(6)(ii), Income Tax Regs. According to the express terms of Article VI.D, subparagraph (1), of the conservation easement, the grantors (i.e., petitioners) agree that in the event of a change in circumstances giving rise to an extinguishment of the conservation easement, the grantees (i.e., MET and LPT) would be entitled to a proportionate share of the proceeds arising from the extinguishment. However, the value of MET's and LPT's proportionate interest is specifically defined in Article VI.D, subparagraph (1), to be determined by the ratio of "the deduction for federal income tax purposes allowable by reason of this grant, pursuant to Section 170(h) of the Code" over the value of the subject property as a whole on the date of the gift. This provision does not comply with the requirement of section 1.170A-14(g)(6)(ii), Income Tax Regs., that the proportionate share of extinguishment proceeds be determined by the fair market value of the easement on the date of the gift over the fair market value of the whole property on the date of the gift.

The Court of Appeals for the First Circuit in Kaufman III, 687 F.3d at 26, explained that section 1.170A-14(g)(6), Income Tax Regs., was designed to prevent taxpayers from reaping a windfall if encumbered property was subsequently destroyed or condemned. Inconsistent with this purpose, Article VI.D, subparagraph (1), of petitioners' conservation easement violates section 1.170A-14(g)(6)(ii), Income Tax Regs., by providing petitioners (or petitioners' heirs) with a potential windfall in the event that a change of conditions extinguishes the conservation easement. For example, if the Internal Revenue Service denies petitioners' charitable contribution deduction for Federal income tax purposes for reasons other than valuation and the easement is extinguished in a subsequent judicial proceeding, the numerator used pursuant to Article VI.D, subparagraph (1), of the conservation easement will be zero, and MET and LPT will not receive a proportionate share of extinguishment proceeds.

Petitioners appear to argue on brief that the deduction referenced in the conservation easement was simply a method of determining the value of the easement. But there is no evidence of why this provision was in the conservation easement. Deductions for conservation easements can be denied for many reasons unrelated to valuation. At the time the conservation easement was granted, petitioners' deduction faced many hurdles that were unrelated to the value of the easement.¹³ Indeed, in this case respondent has made many arguments for disallowance that are not based on valuation.

In the event of extinguishment, if the deductions were disallowed, petitioners or their heirs could argue that petitioners never received a tax deduction and, therefore, MET and LPT would not be entitled to extinguishment proceeds. This argument is supported by the literal terms of the easement, and there is no evidence of a different intent. This would provide petitioners or their heirs with a windfall and deprive the donees of their ability to use a share of the extinguishment proceeds for conservation purposes. See Kaufman III, 687 F.3d at 26. We conclude that Article VI.D, subparagraphs (1) and (2), of petitioners' conservation easement violates the requirements of section 1.170A-14(g)(6)(ii), Income Tax Regs., by not guaranteeing MET and LPT a proportionate share of extinguishment proceeds based on the fair market value of the conservation easement at the time of the gift. Because the purpose of petitioners' contribution is not protected in perpetuity, it does not qualify as a qualified conservation contribution, and therefore petitioners are not entitled to a carryforward charitable contribution deduction for the years in issue.

Petitioners argue that respondent ignores the last sentence of section 1.170A-14A(g)(6)(ii), Income Tax Regs., which provides an exception to the proportionality requirement if "state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction." According to petitioners, Maryland law requires that extinguishment proceeds be distributed to easement donors without regard to the conservation easement. Specifically, petitioners cite Md. Code Ann., Real Prop. sec. 12-104(g) (LexisNexis 2016), which provides:

Petitioners also contend that respondent's rationale is "circular in nature", arguing that the disallowance of their charitable contribution deduction under section 1.170A-14(g)(6), Income Tax Regs., hinges on the possibility that respondent may disallow petitioners' deduction on another ground. This argument is unpersuasive. The regulatory requirements set forth in section 1.170A-14(g), Income Tax Regs., are designed to protect the conservation purpose of a conservation contribution and must be satisfied at the outset for a contribution to be deductible. Although section 1.170A-14(g)(6)(ii), Income Tax Regs., imposes a technical requirement, it is a requirement intended to preserve the conservation purpose, and petitioners could have avoided this adverse outcome by strictly following the proportionality formula set forth in the regulation. This Court is obligated to apply statutes as written and follow accompanying regulations when consistent therewith. See Michaels v. Commissioner, 87 T.C. 1412, 1417 (1986).

Petitioners also argue that respondent "ignores the safe harbor from unlikely events" in section 1.170A-14(g)(3), Income Tax Regs.¹⁴ Petitioners emphasize that "[r]espondent has not cited to a single instance where a conservation easement actually has been extinguished, nor has [r]espondent offered any potential reasons why the Easement donated by [p]etitioners ever would be extinguished." In Kaufman III, 687 F.3d at 27, the Court of Appeals for the First Circuit specifically agreed with our rationale in Kaufman II, 136 T.C. at 313, that "[o]ne does not satisfy the extinguishment provision [in section 1.170A-14(g)(6), Income Tax Regs.] * * * merely by establishing that the possibility of a change in conditions triggering judicial extinguishment is unexpected." (Alteration in original.) To accept petitioners' argument would effectively nullify the proportionality requirement of section 1.170A-14(g)(6), Income Tax Regs., because, by its own terms, the regulation applies to "unexpected" changes in conditions, which likely encompass events that are "so remote as to be negligible". See sec. 1.170A-14(g)(3), Income Tax Regs. Thus, petitioners cannot circumvent the strict requirement of section 1.170A-14(g)(6), Income Tax Regs., by showing that the probability of extinguishment is so remote as to be negligible under section 1.170A-14(g)(3), Income Tax Regs.

There is a substantial understatement of income tax for any taxable year if the amount of the understatement of income tax for the taxable year exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000. Sec. 6662(d)(1)(A). On their 2005 tax return petitioners claimed a $1.2 million charitable contribution deduction for their donation of a conservation easement on the subject property. A portion of that deduction was carried over to each of petitioners' 2006, 2007, and 2008 returns. We have concluded that petitioners are not entitled to a carryforward charitable contribution deduction for any of the years in issue, and therefore, their understatement of income tax for each of the years in issue exceeds the greater of 10% of the tax required to be shown on their return or $5,000. Thus, respondent has met his burden of production with respect to the section 6662(a) substantial understatement penalty.

Section 6664(c)(1) provides that the penalty under section 6662(a) shall not apply to any portion of an underpayment if it is shown that there was reasonable cause for the taxpayer's position and that the taxpayer acted in good faith. See Higbee v. Commissioner, 116 T.C. at 448. The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all of the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Generally, the most important factor is the extent of the taxpayer's effort to assess his or her tax liability. Id. Reliance on professional advice may constitute reasonable cause and good faith, but "it must be established that the reliance was reasonable." Freytag v. Commissioner, 89 T.C. 849, 888 (1987), aff'd on other grounds, 904 F.2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868 (1991). We have previously held that a taxpayer must satisfy a three-prong test to be found to have reasonably relied on professional advice to negate a section 6662(a) accuracy-related penalty: (1) the adviser was a competent professional who had sufficient expertise to justify the reliance; (2) the taxpayer provided necessary and accurate information to the adviser; and (3) the taxpayer actually relied in good faith on the adviser's judgment. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002).

Petitioners argue that they had reasonable cause because their conservation easement deduction "was based on a qualified appraisal by a qualified appraiser, and the taxpayer made a good-faith investigation of the value of the contributed property." We agree with petitioners that their conservation easement deduction was based on an appraisal by a qualified appraiser. However, we have held that it is the language found in Article VI.D, subparagraph (1), of the conservation easement, not the valuation of the subject property, which caused the disallowance of petitioners' carryforward contribution deductions. Petitioners do not qualify for the section 6664(c)(1) reasonable cause exception because they have not shown that they acted with reasonable cause and in good faith with respect to the protected-in-perpetuity requirement of section 1.170A-14(g)(6), Income Tax Regs. Dr. Carroll testified that he personally handled the conservation easement and did not consult with an attorney or other adviser.

The testimony and other evidence presented at trial demonstrate that Dr. Carroll is a highly educated medical school graduate and had previous experience with conservation easements. Although Dr. Carroll did hire Mr. Haile in 2005 to draft a gift deed for the subject property, Mr. Haile is not a tax attorney and does not answer tax-related questions or give tax advice. Petitioners offered no evidence which would explain why the terms of the conservation easement varied from the requirements of section 1.170A-14(g)(6), Income Tax Regs., nor do they clarify why Dr. Carroll failed to seek competent advice from a tax attorney or other adviser to ensure the conservation easement's compliance with pertinent regulations. In the light of Dr. Carroll's high level of sophistication and experience with conservation easements, we conclude that petitioners have not demonstrated that they acted with reasonable cause and in good faith in not seeking competent tax advice regarding the conservation easement.¹⁶ Accordingly, we hold that petitioners are liable for accuracy-related penalties under section 6662(a).

Substantial and/or Gross Valuation Misstatement Penalties

Respondent did not determine an accuracy-related penalty under section 6662(e) or (h) in the notice of deficiency¹⁷ or in his answer. In his pretrial memorandum respondent asserts that petitioners are liable for substantial and/or gross valuation misstatement penalties. Respondent also indicates in his pretrial memorandum that he anticipates making a motion that the pleadings conform to the facts to increase the accuracy-related penalty from 20% to 40%; however, respondent never filed such motion.

Rule 41(a) provides that, when more than 30 days have passed after an answer has been served, "a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires." Whether a party may amend his pleading lies within the sound discretion of the Court. Estate of Quick v. Commissioner, 110 T.C. 172, 178 (1998). In determining whether to allow a proposed amendment, the Court must consider, among other things, whether an excuse for the delay exists and whether the opposing party would suffer unfair surprise, substantial inconvenience, or other prejudice. See Foman v. Davis, 371 U.S. 178, 182 (1962). The Court looks with disfavor on untimely requests for amendment that, if granted, would prejudice the other party. See, e.g., Farr v. Commissioner, 11 T.C. 552, 566-567 (1948), aff'd sub nom. Sloane v. Commissioner, 188 F.2d 254 (6th Cir. 1951).

Respondent has not explained his delay in asserting the section 6662(e) and (h) penalties. In his pretrial memorandum respondent indicates that he anticipates filing a motion to amend the pleadings to assert the substantial and/or gross valuation misstatement penalties. Without further explanation respondent argues in his pretrial memorandum that petitioners are liable for substantial and/or gross valuation misstatement penalties. However, at no time did respondent file a motion with this Court requesting leave to amend his answer as required by our Rules. Accordingly, we will not consider respondent's assertion of substantial and/or gross valuation misstatement penalties under section 6662(e) or (h).

In reaching our decision, we have considered all arguments made by the parties, and to the extent not mentioned or addressed, they are irrelevant or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.

² In his pretrial memorandum respondent asserts that petitioners are liable for substantial and/or gross valuation misstatement penalties for the years in issue. Respondent indicates on page 2 of his pretrial memorandum that he anticipates making a motion that the pleadings conform to the facts to increase the penalty from 20% to 40%. Respondent never filed such motion.

³ Pursuant to sec. 7491(a) the burden of proof on factual issues may shift to the Commissioner where the taxpayer complies with certain requirements. Petitioners argue that the burden of proof should shift to respondent. Respondent argues that petitioners did not meet the requirements of sec. 7491(a) to shift the burden of proof. Because our conclusions are based on a preponderance of the evidence, the allocation of the burden of proof in this case is immaterial. See Foster v. Commissioner, 138 T.C. 51, 53 n.4 (2012); McGowen v. Commissioner,T.C. Memo. 2011-186, 2011 Tax Ct. Memo LEXIS 185, at *5 n.3.

⁴ The subject property has been owned by Dr. Carroll's family since 1920.

⁵ Mr. Haile is a general practice attorney licensed to practice law in Maryland who focuses on real property transfers. Mr. Haile does not answer tax questions or give tax advice.

⁶ Dr. Carroll testified that when the gift deed was executed petitioners' minor children were ages 9, 13, and 15, respectively.

⁷ MET is a land trust created by the Maryland General Assembly pursuant to subtitle 2 of title 3 of the Natural Resources Article of the Annotated Code of Maryland (1983 repl. vol.) in 1967 to conserve, improve, and perpetuate Maryland's natural environment. One of MET's most active programs is statewide work pertaining to conservation easements. The focus of MET is on agricultural properties and properties that are considered environmentally sensitive (such as critical areas, wildlife habitats, farms, and wetlands) and are larger than 25 acres.

⁸ LPT is a sec. 501(c)(3) organization whose mission is, among other things, to preserve and encourage conservation easements.

⁹ The benefits of multiple agencies holding a conservation easement include sharing the responsibilities of monitoring and enforcing the terms of the conservation easement and accessing resources available to the coholding agency.

¹⁰ Ms. Benjamin further stated that, in MET's opinion, petitioners' conservation easement serves many conservation purposes, including: being consistent with the county master plan and various other government policies and plans, being productive agricultural land, having historic value, being within the Green Spring Valley Historic District, being part of a larger conservation area, providing a vegetative buffer strip, and being consistent with MET policy.

¹¹ The perpetuity requirement of sec. 170(h)(5)(A) is separate and distinct from the perpetuity requirement discussed in sec. 170(h)(2)(C). See Belk v. Commissioner, 140 T.C. 1, 12 (2013) ("Section 170(h)(2)(C) requires that the interest in real property donated by taxpayers be subject to a use restriction in perpetuity, whereas section 170(h)(5) requires that the conservation purpose of the conservation easement be protected in perpetuity."), supplemented by T.C. Memo. 2013-154, aff'd, 774 F.3d 221 (4th Cir. 2014).

The Court of Appeals for the Fourth Circuit further noted this distinction by stating: "Though both requirements speak in terms of 'perpetuity,' they are not one and the same. The provision at issue here, § 170(h)(2)(C), governs the grant of the easement itself, while the provision at issue in * * * Kaufman, § 170(h)(5)(A), governs its subsequent enforcement." Belk v. Commissioner, 774 F.3d at 228.

¹² As the Court of Appeals for the First Circuit later explained:

¹³ In Graev v. Commissioner, 140 T.C. 377, 396-397 (2013), we stated: There are multiple requirements in section 170 and the corresponding regulations that, if not followed, may lead to disallowance -- and valuation is only one of them. For example, an easement contribution may be disallowed where --

• The donee fails to be a "qualified organization" described in section 170(h)(3).

• The property subject to the easement fails to be of a "historically important land area" or a "certified historic structure." Sec. 170(h)(4)(iv); see Turner v. Commissioner, 126 T.C. 299, 316 (2006).

• The taxpayer fails to contribute a "qualified real property interest". Sec. 170(a)(2); see Belk v. Commissioner, 140 T.C. 1 (2013).

• The easement fails to preserve conservation purposes "in perpetuity". Sec. 170(h)(5); see Carpenter v. Commissioner, T.C. Memo. 2012-1; Herman v. Commissioner, T.C. Memo. 2009-205.

• The parties fail to subordinate the rights of a mortgagee in the property "to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity." 26 C.F.R. sec. 1.170A-14(g)(2); see Mitchell v. Commissioner, 138 T.C. 324, 331-332 (2012).

• The taxpayer fails to "[a]ttach a fully complete appraisal summary * * * to the tax return". 26 C.F.R. sec. 1.170A-13(c)(2)(B). But see Kaufman v. Shulman, 687 F.3d 21, 28-30 (1st Cir. 2012), aff'g in part, vacating and remanding in part Kaufman v. Commissioner, 136 T.C. 294 (2011), and 134 T.C. 182 (2010).

• The appraisal fails to be a "qualified appraisal". 26 C.F.R. sec. 1.170A-13(c)(3); see Friedberg v. Commissioner, T.C. Memo. 2011-238.

• The appraiser fails to be a "qualified appraiser". 26 C.F.R. sec. 1.170A-13(c)(5); see Rothman v. Commissioner, T.C. Memo. 2012-218 (reserving the question on whether an appraiser was "qualified").

• The parties fail to record the easement or otherwise fail to effect "legally enforceable restrictions". 26 C.F.R. sec. 1.170A-14(g)(1); see Satullo v. Commissioner, T.C. Memo 1993-614, aff'd without published opinion, 67 F.3d 314 (11th Cir. 1995).

• The taxpayer fails to "[m]aintain records" necessary to substantiate the charitable contribution. 26 C.F.R. sec. 1.170A-13(c)(2)(C), Income Tax Regs.

¹⁶ Petitioners concede that they failed to report: (1) $2,545 of taxable State refunds, credits, or offsets for 2006; (2) $8,496 of ordinary dividends, $6,000 of rental income, $7,397 of qualified dividends, and $107,227 of long-term capital gains for 2007; and (3) $14,826 of rental income, $958 of qualified dividends, and $4,944 of interest income for 2008. Respondent concedes that petitioners are entitled to additional capital losses of $30,772 for 2008.

¹⁷ On Form 4089, Notice of Deficiency -- Waiver, attached to the notice of deficiency, respondent states: