Academic journal article The University of Memphis Law Review

Are Tenant-Stockholders Entitled to a Charitable Contribution Deduction When a Cooperative Housing Corporation Donates a Preservation Easement?

Academic journal article The University of Memphis Law Review

Are Tenant-Stockholders Entitled to a Charitable Contribution Deduction When a Cooperative Housing Corporation Donates a Preservation Easement?

Article excerpt

INTRODUCTION ............................................................................. 515

I. BACKGROUND ...................................................................... 518

A. Legal Structure of Cooperative Housing Corporations .............................................................. 518

B. Taxation of Cooperative Housing Corporations .............................................................. 521

C. Taxation of Tenant-Stockholders ............................... 522

D. Preservation Easements ............................................. 525

II. PROTECTING HISTORIC COOPERATIVES WITH DONATIONS OF PRESERVATION EASEMENTS BY COOPERATIVE HOUSING CORPORATIONS ..................................................... 527

III. DONATIONS OF QUALIFIED CONSERVATION CONTRIBUTIONS BY TENANT-STOCKHOLDERS ...................... 533

IV. THE IRS SHOULD ISSUE GUIDANCE ON CHARITABLE CONTRIBUTION DEDUCTIONS FOR TENANT-STOCKHOLDERS ...................................................... 538

CONCLUSION ................................................................................. 541

INTRODUCTION

The percentage of common-interest communities organized as cooperatives may be small, but they include in their ranks some famous, and not so famous, buildings listed on the National Register of Historic Places ("National Register"). Cooperatives are synonymous with New York City, and, not surprisingly, the National Register includes several well known New York cooperatives, such as the Dakota Apartments and the Dunbar Apartments, as well as cooperatives located in other cities, such as the charming Chatham Village in Pittsburgh.1

Most tenant-stockholders of a cooperative housing corporation ("CHC") view themselves as the owners of their apartments, a perception encouraged by die Internal Revenue Code ("Code"), under which the tenant-stockholders enjoy most of the tax benefits commonly associated witìi home ownership. Vernacular usage treats them as the owners of their apartments. The Code underscores this perception by equating them with homeowners for purposes of those tax benefits most commonly associated with home ownership.2 Tenant-stockholders typically purchase cooperative apartments in order "[t]o combine the convenience of apartment dwelling and the economics of home ownership . . . ."3 Consequently, they view themselves as homeowners and assume that they are entitled to all the attendant benefits. Questions exist, however, whether the tax advantages granted to tenantstockholders are co-extensive with those enjoyed by other homeowners.

This Article explores the question of whemer tenantstockholders who live in cooperatives listed on the National Register enjoy the federal tax incentives designed to encourage preservation of historic homes. The Code encourages homeowners and other owners of listed buildings to protect their historic buildings with a preservation easement by allowing a charitable contribution deduction equal to the resulting decline in the value of their property.4 The CHC, as donor of the preservation easement, is entitled to claim the charitable contribution deduction, but the statutory constraints placed on the amount of income a CHC may recognize make the deduction illusory.5 Unless the tenant-stockholders can claim a deduction when the CHC encumbers its historic cooperative6 with a preservation easement, there is no tax benefit from the donation.

This Article posits that tenant-stockholders expect to deduct their proportionate share of a CHCs charitable contribution deduction, just as they deduct their proportionate share of mortgage interest and real estate taxes paid by the CHC.7 Section 216 of the Code, which authorizes tenant-stockholders to deduct their proportionate share of carrying charges paid by the CHC, does not include the deduction for charitable contributions in its list of carrying charges qualifying for deduction by both a CHC and its tenant-stockholders. …

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