Academic journal article Journal of Accountancy

IRS, Historic Hotel Face off over Facade

Academic journal article Journal of Accountancy

IRS, Historic Hotel Face off over Facade

Article excerpt

The Tax Court held that the Uniform Standards of Professional Appraisal Practice (USPAP) are not the sole measure of an expert witness's reliability. The witness had been called upon to provide a value of a conservation easement restricting the use of real property, or "servitude." Based on that testimony, the court upheld the Service's denial of the full claimed value of the servitude as a deduction for a charitable contribution.

Whitehouse Hotel, a limited partnership, purchased Maison Blanche, a historic building near the French Quarter of New Orleans, and adjoining property. Whitehouse developed the parcel into a hotel operated by Ritz-Carlton. It also transferred to the Preservation Alliance of New Orleans a conservation servitude guaranteeing to maintain the historic appearance of the building's facade in good condition. Whitehouse claimed on its 1997 federal income tax return a charitable contribution deduction for $7.44 million, the amount an appraiser determined as reflecting the property's reduction in value by the servitude. The IRS determined that the allowable deduction should have been $1.15 million.

Both Whitehouse and the IRS used expert witnesses at trial. Whitehouse argued that the government's expert was disqualified because (1) he was not experienced with this type of transfer and (2) his report did not conform with USPAP, since he used only the sales approach, rejecting the cost and income approaches. …

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