Republican US Senate nominee Gabriel E. Gomez claimed a $281,500 income tax deduction in 2005 for pledging not to make any visible changes to the facade of his 112-year-old Cohasset home, a concession so valuable that it is classified as a charitable contribution under a federal law designed to protect historic homes.
But Gomez and his wife, Sarah, were already barred from making any changes to the exterior of their home under the bylaws of the local Historical Commission, raising the question as to whether their donation — the price of which is based on the loss of value in their real estate — had any monetary worth.
The Gomezes, whose 59 Highland Ave. home is located within the Cohasset Common Historic District, gave the historical easement to the National Architectural Trust, a Washington-based organization whose marketing of tax-deductible easements to homeowners has been targeted by the US Department of Justice.
Five weeks after the Gomezes claimed the deduction, the Internal Revenue Service listed programs such as this — that involve the “contribution of a historic facade easement to a tax-exempt conservation organization” — as one of its “Dirty Dozen tax scams.”
“In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous,” the agency wrote in its annual rundown of questionable tax practices. “Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property.”
Facade easements, which apply to residential and commercial buildings, are not common. But they do have significant value. According to the November 2011 Journal of Accountancy, there were 1,132 claimed facade easement deductions nationwide in 2005, averaging $271,629 each. In 2007, the number dropped to 242 easements, the Journal reported, citing IRS income data.
Gomez’s campaign spokesman Will Ritter provided the amount of the deduction, but said Gomez would not speak to a reporter seeking more details on the tax arrangement for the 6,500-square-foot house, which appears to be the first and only one of its kind in Cohasset.
In an e-mailed statement, Ritter cited several court cases in which the IRS’s challenges to easement donations were overturned by the Tax Court. He also argued that Gomez’s agreement goes further in its restrictions than the Cohasset zoning laws. He pointed to the town’s bylaw that allows homeowners judicial redress if the Historical Commission denies their requests for changes.
But the language in the Gomezes’ easement also leaves open the option for a judicial review. It states that the consent for a change cannot be “unreasonably withheld,” language that leaves them the right to litigate the issue.
One specialist in conservation easement law, Scott Knott, a tax partner in The Ferraro Law Firm in Washington, D.C., said that if easements mandated by local laws are already in place, homeowners have nothing to claim as a tax deduction.
“The key is the valuation of the easement and if there is already a restriction on the property, the value is not diminished by the easement,’’ said Knott. “The value of any easement that has the same restriction already in place is zero.’’
Under federal tax law, homeowners are able to receive compensation in the form of a tax deduction by giving control of their home’s exterior to a tax-exempt nonprofit preservation trust. It is then treated as a donation to the trust. It is unclear how much money the deduction saved Gomez, who has not released his 2005 tax returns.
The trust that the Gomezes dealt with has been a frequent target of criticism by the Department of Justice, the IRS, and some members of Congress. Since 2005, it has changed its name to the Trust for Architectural Easements.
In a complaint filed in 2011, the Justice Department alleged that the Trust had marketed its preservation easement program with claims that IRS rules allow for charitable deductions of between 10 to 15 percent of the property value. The agency has no such policy, the complaint says.
It also alleged the Trust was steering donors to appraisers who would use a 10 to 15 percent valuation method and lead to unwarranted deductions.
Neither the Trust nor Gomez would discuss the appraisal used to calculate the worth of Gomez’s easement. The Gomezes, who said the Trust had provided the appraiser, bought the house in November 2004, for $2.1 million. The $281,500 deduction represents 13.4 percent of that price.
The Justice Department, citing IRS estimates, says the tax revenue lost to the government from 2002 through 2006 as of result of the Trust’s easement program is $250 million.
As a result of the complaint, a federal court in 2011 issued an injunction barring the Trust from promoting what it called “a scheme that . . . encouraged taxpayers . . . to claim unwarranted charitable deductions.”
The lawyer for the Trust, Jeffrey S. Tenenbaum, said his client denied the allegations in the federal suit, but signed a settlement in which it agreed to not engage in marketing and appraisal practices that the government said produced baseless charitable tax deductions.
He said the Trust’s work plays an important role in backstopping historic preservation.
“Local preservation commissions — and the rules they apply — may vary from year to year, depending on the commissioners serving and local political, economic, and development pressures in a community at any given time,’’ he said. “The Trust is immune to those local political and economic pressures.”
Critics assert that the Trust and other firms like it, which charge fees for processing easement paperwork, are profiting by taking advantage of a well-intentioned historical conservation program, particularly by targeting very wealthy people seeking to take huge, undeserved tax deductions.
Dean Zerbe, former senior counsel for the Senate Finance Committee, who investigated abusive tax breaks, asserts the deduction for facade easements is “unconscionable” because it is almost exclusively for the “one percent.”
“All this is a tax break shenanigan that all the blue bloods on Beacon Hill and the swells in Georgetown take advantage of,’’ said Zerbe, who worked for Republican Senator Charles Grassley of Iowa when he chaired the committee. “It is wealthy people playing fast and loose. Nobody is taking tax breaks on mobile homes.’’
Ritter said the IRS did not challenge the Gomezes as they did with hundreds of others who had used the deduction.
In the year before the Gomezes signed over the easement in December 2005, the special tax break had come under heavy fire in Congress after an investigative report by the Washington Post uncovered abuses in the Washington area in which homeowners would inflate the values of properties.
Steven McClain, president of Trust, did not respond to requests for comment.
A Senate Finance Committee inquiry, which led to some reforms in 2006 in the program and tightened up procedures, prompted criticism on Capitol Hill of the nonprofit historic preservation firms that were marketing the tax deduction.
“It is very discouraging to find yet another example of snake oil salesmen misusing tax-exempt status and abusing the tax laws intended to encourage charitable giving, all for the purpose of making a fast buck,’’ Grassley, then chairman of the Committee on Finance, said in a December 2004 press release.Frank Phillips can be reached at firstname.lastname@example.org.