In the case of Capitol Places II Owner, LLC, et al v. Commissioner,[^1] the Tax Court denied a charitable contribution deduction for a facade easement, finding the building in question did meet the definition of a certified historic structure under IRC §170(h)(4).

Facts of the Case

The case, Capitol Places II Owner, LLC v. Commissioner, involved a dispute over a charitable contribution deduction claimed by Capitol Places II Owner, LLC (CPII). The deduction was related to a facade easement donated to a historic preservation organization. The core of the dispute was whether the donation met the requirements for a “qualified conservation contribution” under I.R.C. § 170(h).

Key Parties

Petitioner: Capitol Places II Owner, LLC (CPII), the owner of the Manson Building and the entity that donated the easement and claimed the charitable contribution deduction.
Respondent: The Commissioner of Internal Revenue, representing the IRS, who disallowed the deduction.
Historic Columbia Foundation: The organization that received the facade easement from CPII.

The Donation

In December 2014, CPII donated a facade easement over the Manson Building, an early 20th-century structure located in a historic district of Columbia, South Carolina.
The easement was granted to the Historic Columbia Foundation.
CPII claimed a charitable contribution deduction of $23,900,000 for this donation on its 2014 tax return.

The Building

The Manson Building was described as an early 20th-century building located in a historic district.
The deed stated that the Building was a contributing resource of the Columbia Commercial Historic District, which was listed in the National Register of Historic Places in 2014.
The Building itself was not individually listed in the National Register.
The Building’s facade was defined as the entire exterior including the front, side, and rear exterior walls, height, roof, roof lines, color, building materials, and windows.

The Easement Deed

The easement was specifically limited to the Building Façade and Development Rights.
The stated purpose was to ensure the Building Façade was retained and maintained in its rehabilitated condition, exclusively for conservation and preservation purposes.
The deed also specified that the easement was intended for the scenic, cultural, and historic enjoyment of the general public and to prevent changes inconsistent with the building's historical character.

IRS’s Objections

The Commissioner moved for partial summary judgment, arguing the donation did not qualify as a “qualified conservation contribution”. The IRS raised several key points:

Not a Certified Historic Structure: The IRS contended the building did not meet the definition of a “certified historic structure” under I.R.C. § 170(h)(4)(C).
- To qualify, a building must be either listed in the National Register or be located in a registered historic district and certified by the Secretary of the Interior as historically significant to the district.
- The IRS stated that the Building was not individually listed in the National Register.
- The IRS also stated that the Secretary of the Interior had not certified the Building as being of historic significance to the district.
Invalid Conservation Purpose: The IRS argued that the easement deed failed to protect any of the conservation purposes recognized by the Code. Specifically, it was argued that the deed did not protect a “historically important land area”.
Attempted Amendment: The IRS noted that CPII could not unilaterally alter or amend the conservation purposes listed in the easement deed after the fact.

Court's Position

The Court’s decision was based on the facts presented in the parties’ pleadings, motion papers, and declarations.
The Court emphasized the summary judgment standard, noting that it could grant summary judgment when there is no genuine dispute of material fact.
The Court stated that the facts are undisputed: the Building was not itself listed in the National Register, but the district was.

Summary of Key Facts

CPII donated a facade easement and claimed a large charitable deduction. The IRS challenged this deduction, asserting that the building was not a "certified historic structure" because it was not individually listed in the National Register and the Secretary of Interior had not certified it as historically significant. The IRS also argued that the easement deed failed to protect a qualifying conservation purpose. The court found that there were no genuine issues of material fact and that the matter could be decided on legal grounds via summary judgment. The court's decision will turn on an analysis of the statutory requirements for a "certified historic structure" and a valid conservation purpose.

The Court’s Decision

The Tax Court looked to the underlying statute to determine if the property qualified for a charitable contribution deduction.

Court’s Approach to Statutory Interpretation

The Tax Court, in Capitol Places II Owner, LLC v. Commissioner, began its analysis with the language of the statute itself. The Court cited United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989), for this principle. The Court also noted that statutory interpretation requires looking at “the language itself, the specific context in which that language is used, and the broader context of the statute as a whole,” citing Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) and Fischer v. United States, 144 S. Ct. 2176, 2183 (2024). It also emphasized the need to give effect to every clause and word of the statute, citing Williams v. Taylor, 529 U.S. 362, 404 (2000).

I.R.C. § 170(h): Qualified Conservation Contribution

The core of the case revolved around I.R.C. § 170(h), which defines a “qualified conservation contribution” and sets forth the requirements for a charitable deduction related to such contributions. The Court focused on the specific requirements to qualify for the deduction.

I.R.C. § 170(h)(1)(C): This section requires that a qualified conservation contribution be “exclusively for conservation purposes.”
I.R.C. § 170(h)(4): This subsection defines “conservation purposes.” The Court specifically analyzed two of the categories that can be conservation purposes under this section.
- I.R.C. § 170(h)(4)(A)(iv): This provides a conservation purpose as the preservation of an historically important land area.
- I.R.C. § 170(h)(4)(C): This subsection defines “certified historic structure,” which is the focus of the court’s analysis. It states that a certified historic structure includes:
  - (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 and is certified by the Secretary of the Interior to the Secretary of the Treasury as being of historic significance to the district.

Analysis of “Certified Historic Structure” Under I.R.C. § 170(h)(4)(C)

The Court’s analysis focused on whether the Manson Building qualified as a “certified historic structure” under I.R.C. § 170(h)(4)(C).

Listing in the National Register (I.R.C. § 170(h)(4)(C)(i)):
- The Court noted that the building was not itself listed in the National Register, but the district was. CPII argued that being within the boundaries of a listed property (the historic district) meant the building should be considered “listed”.
- The Court rejected this argument, holding that the plain language of the statute requires the specific building to be listed, not just a district in which it is located. The Court relied on the principle of statutory interpretation that it should “avoid rendering superfluous any parts thereof,” citing Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 112 (1991). If merely being within a listed district qualified a building as “listed,” then section 170(h)(4)(C)(ii) would be redundant.
- The Court also looked at the regulations of the Department of the Interior when the statute was enacted to show how the term “listed” was understood at the time. The Court stated that the regulations advised owners to “consult the listing of National Register properties in the Federal Register (found in most large libraries)” “[t]o determine whether or not a property is individually listed,” citing 36 C.F.R. § 67.4 (1978) and 36 C.F.R. § 67.4(b) (2011).
- The Court concluded that to be “listed” the property must be published in an official list. This shows that the building must be specifically named or identified on the list of historic places.
- The Court also referred to existing regulations, noting that they clearly require an application to be filed with the Secretary of the Interior to certify to the Secretary of the Treasury that the building contributes to the significance of the historic district.
- The Court stated that Congress was aware of these existing regulations when they enacted this provision of the IRC in 1980. This shows that they were presumably aware of how the term “listed” was being used and intended to continue that usage of the term in the code.
Certification of Historic Significance (I.R.C. § 170(h)(4)(C)(ii)):
- The Court stated that I.R.C. § 170(h)(4)(C)(ii) requires that a building located in a registered historic district must be “certified by the Secretary of the Interior to the Secretary as being of historic significance to the district”.
- The Court found that it was undisputed that CPII made no written application to the Secretary of the Interior for such certification. There was also no evidence that any such certification was made.
- CPII argued that the acceptance of the building as a “contributing resource” within the historic district should be considered a certification.
- The Court rejected this argument, citing the 1977 Interior regulations which required a written application using a specific form to obtain the certification. The Court noted that when Congress later used the same certification language in 1980, they were aware of these established procedures and did not intend to deviate from them.
- The Court also found that CPII’s argument was inconsistent with the plain language of the code. Specifically, the code states that the building be “certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.” The Court stated that, in effect, CPII was trying to argue that, instead of reading “certified by the Secretary of the Interior to the Secretary,” the Code should be read as “deemed certified because it contributes to the historic district”.
- Thus, the Court concluded that CPII did not obtain the necessary certification, which was fatal to their claim.

Analysis of CPII's Alternative Argument

CPII argued, alternatively, that even if the building did not constitute a “certified historic structure”, the easement deed still had a valid conservation purpose because it protected a "historically important land area" under I.R.C. § 170(h)(4)(A)(iv). The Court rejected this argument, stating:

Deed Restrictions: The Court noted that it generally only considers the purposes explicitly stated in the easement deed when determining if the easement is “exclusively for conservation purposes”. The Court referenced Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129 and Murphy v. Commissioner, T.C. Memo. 2023-72. It stated this was consistent with South Carolina state law, which holds that the grantor's intent must be found within the four corners of the deed, citing Windham v. Riddle, 672 S.E.2d 578, 583 (S.C. 2009). The Court noted that CPII had not demonstrated that the deed language protected an area of historical importance under 170(h)(4)(A)(iv).
General vs. Specific: The Court also relied on the principle of statutory construction that “the specific terms of a statutory scheme govern the general ones,” citing D.B. v. Cardall, 826 F.3d 721, 735 (4th Cir. 2016). The Court noted that Congress had defined “certified historic structure” with more specificity than the definition of a “historically important land area,” indicating an intention that taxpayers comply with the requirements of the specific definition. The Court also noted that CPII’s reading of “historically important land area” would swallow the more specific definition of “certified historic structure,” making that provision superfluous. The Court cited RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 645 (2012).

Conclusion

The Court concluded that CPII failed to establish that the building satisfied the definition of a “certified historic structure"” under I.R.C. § 170(h)(4)(C). Additionally, the Court found that the easement did not protect a “historically important land area,” which would have been an alternate route to obtaining the deduction. In summary, the Court’s reasoning was based on a strict interpretation of the statutory language of I.R.C. § 170(h), its legislative history, and applicable regulations. The Court rejected CPII’s arguments that a building within a historic district should be considered “listed” and that the acceptance of the building as a contributing resource should be deemed to be certification by the Secretary of Interior. The Court also upheld that the more specific requirements of a “certified historic structure” should take precedence over the more general “historically important land area.” The Court’s decision underscores the importance of adhering to the precise requirements of the tax code, especially in complex areas like conservation easements. CPAs should advise clients that, for buildings in a historic district to qualify for the conservation contribution deduction, they must be either specifically listed in the National Register or obtain a formal certification from the Secretary of the Interior to the Secretary of the Treasury. Further, it shows that a deed for a conservation easement must adhere strictly to the specific language necessary to qualify for the deduction.

[^1]: Capitol Places II Owner, LLC, et al v. Commissioner, 164 TC No. 1, January 2, 2025, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/building-not-certified-historic-facade-easement-deduction-denied/7q0s6