1991 U.S. Tax Ct. LEXIS 35">*35
This case was submitted for the limited purpose of deciding whether the partnership must recapture a portion of the rehabilitation tax credit and reduce its basis in the underlying rehabilitated property upon its donation of a historical facade easement in the same year it claimed the credit under
96 T.C. 697">*698 OPINION
This is a proceeding pursuant to section 6226 for a readjustment of partnership items of Rome I, Ltd., a partnership, for the taxable year ending December 31, 1984. The facts of this case have been fully stipulated, and are so found. The relevant facts are summarized below.
After concessions, the sole issue in this case is whether the partnership must recapture a portion of the rehabilitation tax credit and reduce its basis in the underlying rehabilitated property upon its donation of a historical facade easement in the1991 U.S. Tax Ct. LEXIS 35">*37 same year it claimed the credit under
All section references are to the Internal Revenue Code of 1954 as amended and in effect for the year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
1.
Petitioner is a Texas corporation located in Roswell, Georgia. Petitioner, E.C. Systems, Inc. (ECS), is the tax 96 T.C. 697">*699 matters partner of Rome I, Ltd. (the partnership), a limited partnership formed under the Uniform Limited Partnership Act of Texas, with its principal place of business at Roswell, Georgia, at the time the petition in this case was filed.
The partnership maintained its books and records and filed its tax returns on a calendar year basis using the accrual method of accounting.
Respondent issued a notice of final partnership administrative adjustment (FPAA) on April 27, 1988, determining adjustments to the partnership's return for taxable year 1984. Respondent disallowed deductions of the partnership's rehabilitation1991 U.S. Tax Ct. LEXIS 35">*38 tax credit in the amount of $ 2,288,400 for 1984.
The parties agree that the amount of qualified investment in 1984 is either (a) $ 1,807,935, or (b) $ 2,184,255. We will decide the amount of qualified investment based on our resolution of the
2.
The partnership was formed to acquire, rehabilitate, and operate commercial property (the property) in Rome, Georgia. The property consisted of the three-story Battey Machinery Co. Building (Battey Building) containing approximately 55,000 square feet situated on approximately two acres of land at 100-108 West 2d Avenue in the Three Rivers Historic District in Rome, Georgia. The Battey Building was constructed in 1890. The partnership intended to restore the exterior of the Battey Building, construct apartments and shops inside, and by doing so, help revive the Three Rivers Historic District.
The partnership1991 U.S. Tax Ct. LEXIS 35">*39 purchased the property on July 23, 1984, from ECS for $ 270,000. The basis of the property for tax purposes was allocated $ 30,000 to the Battey Building and $ 240,000 to the underlying land.
The partnership submitted a historic preservation certification application to the Department of the Interior-National 96 T.C. 697">*700 Park Service. On January 12, 1988, the National Park Service issued the final certification of the Battey Building, and the Battey Building was designated a certified historic structure within the meaning of
The partnership satisfied its obligation to report on its 1984 return the receipt of the historic preservation certification for the Battey Building, as required by
3.
In mid-1984, the partnership entered into a contract to rehabilitate the Battey Building for $ 2.597 million.
The partnership "substantially rehabilitated" the Battey Building in 1984 within the meaning of
The partnership incurred "qualified rehabilitation expenditures" under
4.
On November 15, 1984, the partnership deeded a facade and conservation easement (easement) to the Georgia Trust for Historic Preservation, Inc. (GTHP), a charitable corporation organized to preserve and protect the architectural heritage of the State of Georgia and authorized to accept easements in restored historic properties. The easement prevented the modification, construction, remodeling, demolition, or extension of the facade of the Battey Building without the prior express written consent of the GTHP.
The easement was granted in perpetuity, was intended to benefit the public, and constituted a "qualified conservation contribution" (as defined in
5.
In
Petitioner contends that
Solely for purposes of deciding the
The partnership's qualified investment is $ 1,807,935 if we conclude that the position set forth in
Respondent determined the following adjustments with respect to the partnership's 1984 Federal income tax return:
1984 adjustment | |
Item | per FPAA |
(a) Depreciation expenses | $ 4,005 |
(b) Cost guarantee agreement fee | 10,000 |
(c) Development fee | 18,000 |
(d) Management assistance fee | 15,000 |
(e) Supplemental service fee | 7,000 |
(f) Amortization | 1,667 |
(g) Rehabilitation credit-qualified investment | 2,288,400 |
(h) Charitable contribution | 578,600 |
(i) Investment expenses | 55,115 |
The sole issue in this case is whether the donation of a facade easement in a qualified rehabilitated building to a historical preservation group, in a transaction that qualifies as a charitable contribution under
This Court or any other court may adopt the conclusion and rationale of a revenue ruling; however, revenue rulings typically do not constitute substantive authority for a position, since "absent special circumstances, a revenue ruling merely represents the Commissioner's position with respect to a specific factual situation."
(a) General Rule. -- Under regulations prescribed by the Secretary --
(1) Early disposition, etc. -- If during any taxable year any property is disposed of, or otherwise ceases to be
1991 U.S. Tax Ct. LEXIS 35">*46 Respondent's position is that the donation of the facade easement is a disposition of property for purposes of
A "disposition" is not defined in
The term "disposition" includes a sale in a sale-and-leaseback transaction, a transfer upon the foreclosure of a security interest, and a1991 U.S. Tax Ct. LEXIS 35">*47 gift, but does not encompass a transfer of title to a creditor upon creation of a security interest.
In determining the ordinary usage of words, it is appropriate to consult dictionaries.
We find that "disposition" means to transfer or otherwise relinquish ownership of property. We do not find anything in the statute1991 U.S. Tax Ct. LEXIS 35">*48 or legislative history that gives the term "disposition" something other than its plain meaning. The rationale for the recapture of investment tax credit upon the disposition of
1991 U.S. Tax Ct. LEXIS 35">*49 We believe that requiring recapture of a portion of the rehabilitation tax credit upon the donation of a facade easement is in accordance with Congress' purpose in enacting
Petitioner asserts that to require recapture of a rehabilitation tax credit on the contribution of a historical facade1991 U.S. Tax Ct. LEXIS 35">*50 easement would frustrate Congress' purpose in enacting
The House Ways and Means Committee Report states:
Presently, there is a similar concern about the declining usefulness of existing, older buildings throughout the country, primarily in central cities and older neighborhoods of all communities. * * *
The committee believes that it is appropriate now to extend1991 U.S. Tax Ct. LEXIS 35">*51 the initial policy objective of the investment credit to enable business to rehabilitate and modernize existing structures. This change in the investment credit should promote greater stability in the economic vitality of areas that have been developing into decaying areas.
[H. Rept. 95-1445 (1978), 1978-3 C.B. (Vol. 1) 181, 260.]
The Senate Finance Committee Report states that:
the preservation of our country's natural resources and cultural heritage is important, and the committee recognizes that conservation easements now play an important role in preservation efforts. [S. Rept. 96-1108, at 9 (1980).]
96 T.C. 697">*706 Here, the fact that the two tax benefits claimed by petitioner are based on separate statutory provisions, i.e., the
The phrase "charitable contribution" as used in
Respondent argues that by deeding the property's facade easement to the GTHP, petitioner disposed of a portion of the property by gift in 1984. Because a gift is a disposition of
When a qualified real property interest (facade easement) is donated for conservation purposes, the basis of the donor's remaining property is adjusted by eliminating that part of the total basis of the property that is properly allocable to the donated qualified1991 U.S. Tax Ct. LEXIS 35">*53 real property interest.
1991 U.S. Tax Ct. LEXIS 35">*54 Respondent further maintains that not only must the basis of the property be reduced to reflect the facade easement contribution, but the basis reduction must be allocated between the building and the real property. The amount of basis that is allocated to the qualified real property interest must bear the same ratio to the total basis of the property that the fair market value of the qualified real property interest bears to the fair market value before the granting of the qualified real property interest. Thus, respondent argues,
We hold that petitioner must recapture a portion of the rehabilitation tax credit and reduce its basis accordingly upon the donation of a historical facade easement. We agree with the conclusion reached in
We have considered the parties' alternative arguments on this issue, and conclude that they are unpersuasive.
Due to concessions,
1. The amount of the reduction in the partnership's qualified investment ($ 376,320) is the amount stipulated by the parties (solely for purposes of this litigation) that the value of the rehabilitated Battey Building declined as a result of the donation of the facade easement.↩
2.
(3)
3. S. Rept. 1881, 87th Cong., 2d Sess. 18 (1962),
To guard against a quick turnover of assets by those seeking multiple credit -- the bill provides (in
4.
(iii).