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SPECIAL GIFT SITUATIONSformed to acquire, rehabilitate, and operate a building, which became designatedas a certified historic structure. 193 The partnership “substantially rehabilitated”the building, causing it to become a qualified rehabilitation building. 194The partnership incurred qualified rehabilitation expenditures 195 in the amountof $2.8 million in the course of restoring the building. Later in the same year, thepartnership deeded a facade and conservation easement to a charitable organizationformed to preserve and protect the architectural heritage of the stateinvolved. The easement was granted in perpetuity, was intended to benefit thepublic, and constituted a qualified conservation contribution. 196 Thus, the transactionqualified as a charitable contribution. 197 The fair market value of the easementwas $422,000. The parties stipulated that the easement value was allocableas follows: $4,413 to the building “shell,” $41,267 to the land, and $376,320 to therehabilitated building. The partnership claimed a rehabilitation tax credit in theamount of $2.2 million—the amount expended during the year in rehabilitationof the building. The IRS concluded, and the court agreed, that the tax creditshould be $1.8 million—the amount expended less the portion of the easementvalue allocated to the rehabilitated building ($376,320).The law is that if property for which an investment tax credit 198 has been takenin prior years is disposed of, or otherwise ceases to qualify for the credit before theend of the useful life used in computing the credit, a portion of the tax credit mustbe recaptured. 199 The tax regulations provide that this requirement is triggeredwhen a person disposes of a portion of the basis of a qualified rehabilitated buildingthat is attributable to qualified rehabilitated expenditures. In this case, the IRStook the position that the donation of the facade easement was a disposition of theproperty. The partnership contended that the federal tax law does not require therecapture of a portion of a rehabilitation tax credit upon the donation of a facadeeasement. It also argued that the charitable donation of a facade easement is not adisposition for these purposes because it is not a gift within the meaning of theregulations. The court, however, concluded that the “plain meaning” of the termdisposition is “to transfer or otherwise relinquish ownership of property.” 200 Thecourt added that “[w]e believe that requiring recapture of a portion of the rehabilitationtax credit upon the donation of a facade easement is in accordance withCongress’ purpose in enacting” these rules. 201The matter troubling the court was the creation of a double deduction if thisrecapture was not required. Therefore, it ruled that the donation of the facadeeasement was a gift. Because the easement qualified as property eligible for aninvestment tax credit, the court followed the tax regulations stating that this dispositiontriggered the recapture provision. Thus, the court announced that the“rehabilitation credit, like the investment tax credit, is subject to recapture in the193 IRC § 48(g)(3).194 IRC § 48(g)(1)(A).195 IRC § 48(g)(2)(A).196 IRC § 170(h)(1).197 IRC § 170(f)(3)(B)(iii).198 IRC § 38.199 IRC § 47(a).200 Rome I Ltd. v. Commissioner, 96 T.C. 697 (1991).201 Id. at 704. 292