Herman v. Commissioner

J. Maurice Herman (plaintiff) sought reconsideration of the Internal Revenue Service’s (IRS) (defendant) determination that Herman had an income-tax deficiency of over $5 million, based on the IRS’s contention that Herman’s contribution of a conservation easement did not qualify as a tax deduction under Section 170 of the Internal Revenue Code. The easement pertained to a building in the Upper East Side Historic District of New York City that Herman owned for over 20 years before transferring ownership to his wholly owned company, Windsor Plaza, LLC (Windsor), which then transferred back to Herman all of the unused development rights associated with the building. The building was located in a historic district under the jurisdiction of the local Landmarks Preservation Commission and was also designated by the National Park Service as a certified historic structure. In 2003, Herman donated a conservation easement on the building to the National Architectural Trust, Inc. (NAT), with Windsor cosigned as the “Confirming Party.” The conservation easement proscribed Herman from developing 10,000 unspecified square feet of air space above the building, and Windsor agreed to be bound by the easement and local ordinances. Herman claimed the value of his donation as a deduction on his taxes, but the IRS rejected the donation as a deduction because contribution of the easement did not have the exclusive purpose of preserving historically important land or a certified historic structure, as defined in Section 170(h). The IRS moved for partial summary judgment.