Building not a certified historic structure

The Tax Court held that a building that was not listed in the National Register of Historic Places (the National Register) was not a certified historic structure under Sec. 170(h)(4)(C). Therefore, the donation of a façade easement that preserved the building did not have a valid conservation purpose, so it was not a deductible qualified conservation contribution.

Background

In December 2014, Capitol Places II Owner LLC (CPII) donated a façade easement over the Manson Building, located in Columbia, S.C., to a historic preservation organization. The Manson Building is a three–story classical revival masonry building designed by James Urquhart, an architect prominent in early 20th century Columbia. While the Manson Building is in a historic district listed in the National Register (the Columbia Commercial Historic District), the building itself is not and has never been listed in the National Register. Relying on a professional appraisal of the value of the façade easement it donated, CPII claimed a charitable contribution deduction of $23.9 million for a Sec. 170(h) qualified conservation contribution on its 2014 tax return.

A qualified conservation contribution is defined in Sec. 170(h)(1) as a contribution of a qualified real property interest (Sec. 170(h)(1)(A)) to a qualified organization (Sec. 170(h)(1)(B)) exclusively for conservation purposes (Sec. 170(h)(1)(C)). As relevant to CPII’s donation of the façade easement over the Manson Building, under Sec. 170(h)(4)(A)(iv), conservation purposes include “the preservation of an historically important land area or a certified historic structure.” A “certified historic structure” is defined in Sec. 170(h)(4)(C) as “(i) any building, structure, or land area which is listed in the National Register, or (ii) any building which is located in a registered historic district (as defined in section 47(c)(3)(B)) and is certified by the Secretary of the Interior to the Secretary [of the Treasury] as being of historic significance to the district.”

The IRS examined CPII’s partnership return and issued a notice of final partnership administrative adjustment (FPAA) in which it disallowed CPII’s charitable contribution deduction. CPII challenged the IRS’s determination in the FPAA in Tax Court.

In Tax Court, the IRS moved for partial summary judgment, arguing that the donation of the façade easement was not a qualified conservation contribution as defined in Sec. 170(h)(1) because it was not “exclusively for conservation purposes” as required by Sec. 170(h)(1)(C). CPII countered that the donation of the façade easement was for the Sec. 170(h)(4)(A)(iv) conservation purpose of the preservation of a historically important land area or a certified historic structure. Therefore, to determine if CPII was entitled to its claimed charitable contribution deduction, the Tax Court was required to analyze the requirements for a building to be a certified historic structure as defined in Sec. 170(h)(4)(C).

The Tax Court’s decision

The Tax Court held that the Manson Building was not a certified historic structure under Sec. 170(h)(4)(C) because the building was not listed in the National Register and the secretary of the Interior had not issued a certification of historic significance to the secretary of the Treasury. Thus, the LLC was not entitled to a charitable contribution deduction for the donation of the façade easement because the donation did not have a valid conservation purpose and consequently was not a deductible Sec. 170(h) qualified conservation contribution.

Listed in the National Register: The Tax Court noted that Sec. 170(h)(4)(C)(i) provides that “any building, structure, or land area which is listed in the National Register” constitutes a “certified historic structure” and that the Keeper of the National Register had unequivocally stated in a sworn declaration that the Manson Building is not individually listed in the National Register and that there was no record that it had ever been listed there. Nonetheless, CPII argued that the Manson Building was listed in the National Register because it was within the boundaries of a historic district listed in the National Register.

To determine whether CPII’s interpretation of Sec. 170(h)(4)(C)(i) was correct, the Tax Court, following the rules of statutory interpretation, looked to the language of the statute itself. In particular, the court analyzed the meaning of the word “listed.” Because “listed” was not defined in the statute, under the rules of statutory construction, the court interpreted the word as taking its ordinary, common meaning at the time the statute was enacted.

Referring to a dictionary from the time of the statute’s enactment, it found that “list” was defined as “1. To make a list of; itemize. 2. To enter in a list; register or catalogue” (American Heritage Dictionary of the English Language (1st ed. 1969)). Under this definition, the court stated, “We struggle to see how the Building can be ‘listed’ where it plainly has not been entered into the relevant list, i.e., the National Register.”

Further, the Tax Court, pointing to the general rule that a statute should be read to avoid rendering any part of it superfluous, found that the broader statutory context of Sec. 170(h)(4)(C) also blocked CPII’s interpretation. Comparing Secs. 170(h)(4)(C)(i) and (ii), the court concluded that by following CPII’s interpretation that a building is necessarily “listed in the National Register” as required by Sec. 170(h)(4)(C)(i) simply by being within the boundaries of a property listed in the National Register, such as a registered historic district, Sec. 170(h)(4)(C)(ii) would be rendered superfluous.

Certification of historic significance: Under the second definition of “certified historic structure” in Sec. 170(h)(4)(C)(ii), to be a certified historic structure, a building must be located in a registered historic district and certified by the secretary of the Interior as being of “historic significance to the district.” According to the Tax Court, the undisputed facts showed that the secretary of the Interior had not made this certification for the Manson Building.

CPII argued that the acceptance of a building as a resource “contributing to” the historic district (as part of the certification of the Columbia Commercial Historic District as a historic district in 2014) in which it was located counted as a certification by the secretary of the Interior of the building’s “historic significance to the district” for purposes of Sec. 170(h)(4)(C)(ii). The Tax Court disagreed, finding that in 1977 the Department of the Interior had set out procedures for how a taxpayer could obtain a historic–significance certification, which required the submission of a written application and the use of a particular form. While the court assumed that, in some circumstances, a building might conceivably qualify for a certification of historic significance because it is a resource “contributing to” a registered historic district, the court found that CPII “plainly” did not obtain a historic–significance certification for the Manson Building, so CPII could not claim that the building was a certified historic structure under Sec. 170(h)(4)(C)(ii).

Alternative argument: CPII argued in the alternative that even if the Manson Building did not constitute a certified historic structure, the façade easement deed nonetheless contained a valid conservation purpose in that its restrictions protected a “historically important land area” under Sec. 170(h)(4)(A)(iv). The Tax Court stated that, generally, it considers only those purposes stated in an easement deed when determining whether an easement is exclusively for conservation purposes as required by Sec. 170(h)(1)(C) and that one party (here, CPII) could not unilaterally modify the agreed–upon conservation purpose in an easement deed to suit its own benefit.

After reviewing the relevant language in the façade easement deed, the Tax Court determined that the deed’s scope was limited to the façade of the Manson Building and the development rights to it. Thus, the court found that the easement deed preserved a building, not a historically important land area.

CPII based its argument that the Manson Building’s preservation counted as the preservation of a historically important land area on Regs. Sec. 1.170A–14(d)(5)(ii)(B), which provides that a historically important land area can include “[a]ny land area within a registered historic district including any buildings on the land area that can reasonably be considered as contributing to the significance of the district.” The Tax Court determined, however, that in attempting to apply this regulation, CPII misread Sec. 170(h)(4)(A)(iv) to avoid the requirements of Sec. 170(h)(4)(C). Citing its own precedent in Turner, 126 T.C. 299 (2006), the court found that, to satisfy the conservation purpose of protecting a historically important land area, there must be a land area that is protected. In the court’s view, a single façade easement protecting a single building did not protect a land area.

Reflections

As is clear from the case, CPII would not have run afoul of the “exclusively for conservation purposes” requirement if the Manson Building had been listed in the National Register. In 2000, an owner of the Manson Building before CPII had applied with the National Park Service (NPS) to have the building listed in the National Register. By that time, the building had been through what the Tax Court described as “its fair share of alterations and remodeling.” This included the addition of a stucco façade in the 1960s to its two top floors, the later removal of which damaged the building’s original brick and flush stone ornamentation. NPS denied the application, finding that the building “does not appear to meet the criteria for individual listing on the National Register” because it “has lost important character–defining features” and “[m]any of the storefronts on the first floor have also been altered.”

Capitol Places II Owner, LLC, 164 T.C. No. 1 (2025)

Contributor

James A. Beavers, CPA, CGMA, J.D., LL.M., is The Tax Adviser‘s tax technical content manager. For more information about this column, contact thetaxadviser@aicpa.org.