This month, the Tax Court revived a method to defeat conservation deductions with its October 10 opinion published as Palmolive Building Investors LLC et al. v. Commissioner, No. 23444-14; 149 T.C. No. 18 (Oct. 10, 2017), holding that if a taxpayer donates a conservation easement, the Treasury Regulations’ requirement that any mortgage must be subordinated to the conservation easement includes subordination of the mortgagee’s rights to insurance and condemnation proceeds.
On September 27, 2017, California Governor Jerry Brown signed an extension of the Urban Agricultural Incentive Zones Act. Rather than sunsetting on January 1, 2019, the Act now extends until January 1, 2029.
The Act, originally authored by Assemblymember Phil Ting and enrolled in 2013 as Government Code Section 51042, permits certain local governments to voluntarily enter into contracts with property owners who commit to using their property for agricultural use in exchange for property tax breaks.
In many cases California’s property tax rules automatically penalize insufficiently counseled individuals who inherit interests in real estate-owning legal entities from a family member upon their death. To avoid this penalty, recipients of these interests need to ensure that Form BOE 100-B is filed within 90 days of their family member’s death, a task few are prepared to undertake at that time.
Individuals who acquire real estate often do so using legal entities they control, such as corporations, LLCs, or partnerships to protect themselves from any personal liability that could arise with respect to the real estate.
California’s property tax rules require that individuals who hold interests in real estate-owning legal entities notify the Board of Equalization (“BOE”) when they transfer interests in those legal entities in two situations:
Those familiar with conservation easements know that to qualify for a federal tax deduction, a conservation easement must meet several rigorous requirements found in Internal Revenue Code Section 170 and Section 1.170A-14 of the Treasury Regulations, not the least of which is the requirement that the easement be granted “in perpetuity.” In addition, the easement must be subject to “legally enforceable restrictions” (such as by recordation) that will prevent uses inconsistent with the conservation purposes of the donation.
Due to increased valuation of public and private equities, coupled with the upcoming end of the sunset provision that allows hedge fund managers to defer taxation on fees earned offshore, there is an increased interest among hedge fund and private equity managers to donate a portion of their fund interests to charity. The goal is to allow a manager to avoid ordinary income or capital gains tax and/or to obtain a tax deduction while accomplishing his or her philanthropic goals. In order to make the most of any such charitable giving plan, managers need to appreciate that the amount of any charitable deduction will vary depending on the character of the donated property and the type of organization that receives the gift.
The February 15, 2017 deadline for nonprofit organizations in California seeking to initially obtain or renew exemption from property taxes is quickly approaching, and there are changes to the reporting requirements if your organization allows third parties to use your property.
An increased concern amongst many tax-exempt organizations is how to report use of their property by private persons or non-exempt organizations.
On November 4, 2016, the IRS updated its Conservation Easement Audit Techniques Guide (CE Audit Guide) for the first time since March 15, 2012.
According to the IRS’s introduction on its Audit Techniques Guide website, Audit Techniques Guides (ATGs) are developed to help IRS examiners during audits by explaining issues and accounting methods within specific industries. ATGs are also meant to provide guidance to small business owners and tax professionals for tax planning purposes within those industries. However, each ATG contains a disclaimer that it is not “an official pronouncement of the law or position of the Service and cannot be used, cited, or relied upon as such.” This article will not explain the CE Audit Guide in depth, but rather discuss the specific updates made in November.
A new private ruling may be of great interest to clients with substantial real estate interests who wish to contribute one or more properties to a family foundation. The ruling suggests that payment by the foundation to a property management entity controlled by the donor may be permissible under the personal services exception.
The case of Salus Mundi Foundation et al v. Commissioner
On August 15, 2016, the Tax Court decided in Salus Mundi Foundation et al v. Commissioner, T.C. Memo. 2016-154, that two foundations were liable as transferees for a corporation’s unpaid federal tax liability after another foundation distributed to the foundations the proceeds of the sale of the corporation’s stock.
The history in this case involves a marital trust that initially owned all of the stock in a C corporation called Double-D Ranch. Later, a portion of the stock was transferred to the Diebold Foundation in New York. Subsequent to that, the Diebold Foundation in New York sold the stock and distributed the proceeds from the sale of Double-D Ranch stock to three foundations formed by the Diebold children, pursuant to a New York state-approved plan of dissolution.
The Tax Court, in a case of first impression, has recently ventured into the perpetuity minefield. One Dr. Douglas Carroll and spouse Deirdre Smith, of Baltimore, Maryland, conveyed a conservation easement in 2005 over approximately 26 acres of open land in Maryland, mostly pastureland zoned for agricultural uses, to the Maryland Environmental Trust (MET) and the Land Preservation Trust (LPT). The former organization is a quasi-governmental agency, the latter a private, nongovernmental exempt organization. The protected property consisted of two parcels of unequal size; upon the smaller parcel sat the taxpayers’ two-story primary residence, and, on the larger, a small (1,000-square-foot) house where a farmhand tenant resided.