The National Architectural Trust, the country's fastest-growing historic preservation organization, has stopped soliciting facade easement donations after complaints that homeowners have used the donations to claim millions of dollars in excessive income tax deductions.
Some homeowners in the process of making such gifts to the Washington-based charity have decided not to follow through, a trust official said. Meanwhile, the official said the charity has severed its business relationship with Springfield Management Services, a for-profit company owned by the trust's founders.
_____Rich With History_____
Interactive: How historic easements work and who profits from them.
Graphic: The number of property owners applying to have their home or commercial building certified as contributing to a designated historical district has increased dramatically.
Map: Washington is the nation's leading city for historic facade easements, with easements protecting about 960 properties, many clustered in upscale neighborhoods.
Loophole Pays Off on Upscale Buildings (The Washington Post, Dec 12, 2004)
Panel Advises Ending Tax Breaks for Easements (The Washington Post, Jan 28, 2005)
Senators Vow to End Tax Break on Easements (The Washington Post, Dec 18, 2004)
Tax Break Turns Into Big Business (The Washington Post, Dec 13, 2004)
Local Laws Already Bar Alterations (The Washington Post, Dec 12, 2004)
Why One Building Lost Its Character While Another Didn't (The Washington Post, Dec 12, 2004)
As Word Spreads, Clamor to Donate Grows (The Washington Post, Dec 13, 2004)
Under a previous contract, Springfield Management collected millions of dollars a year from the trust for processing paperwork and explaining the benefits of the tax breaks to property owners across the eastern United States.
"It could be perceived as a conflict of interest, and the trust wanted to remove that," said Steven McClain, a founder of the trust and co-owner of Springfield Management.
Another Washington-based charity, the Capitol Historic Trust, has halted its schedule of sales seminars handled by Springfield Management, the trust's Web site shows. Capitol Historic Trust President Florence Muller would not say whether her organization has severed its contract with the company.
The changes follow recent articles in The Washington Post that examined the financial windfall the donations had bestowed on homeowners, nonprofit trusts and the for-profit companies that process the easements.
Under the system, property owners promise they will not change the outward appearance of their historic homes without permission. They "donate" the promises -- known as easements -- to preservation organizations and deduct an amount estimated to represent the gifts' cash value from their income taxes as a charitable contribution, just as though they had given an armful of old coats to the local thrift shop.
But preservation laws in the District and many other cities already forbid unapproved changes to the exterior of historic homes, meaning that homeowners largely are collecting tax breaks that one expert told The Post amounted to "money for nothing."
The tax write-offs often reach as much as 15 percent of a home's market value and are supposed to represent the decline in the home's worth attributable to the restriction on altering the facade.
Real estate specialists said, however, that the easements generally do not hurt resale, making the tax breaks unwarranted. Homes with easements often are worth more than $1 million, and the write-offs routinely exceed six figures, The Post found. The trusts typically ask homeowners to donate 10 percent of their potential tax write-offs to the trusts as a charitable contribution.
After the newspaper articles appeared in December, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) issued a stinging statement: "It's very discouraging to find yet another example of snake oil salesmen using charities to make a fast buck. Unfortunately many well-intentioned people are getting conned by promoters peddling tax schemes, and it seems facade easements are just the newest scam around."
Grassley and other committee members announced on Dec. 17 that they planned to introduce legislation to fine property owners, promoters and appraisers involved in transactions that lead to excessive tax breaks. The penalties would cover any excessive write-off claimed for the 2004 tax year.
Last week, Internal Revenue Service agents visited the District's historic preservation office to inquire into policies there and to ask whether facade easements actually created any additional restrictions on property owners, said Lisa Burcham, the city's historic preservation officer. They mentioned the newspaper articles and asked for details about one property with a facade easement, she said.
Burcham declined to identify the property. In a statement to The Post last month, IRS Commissioner Mark W. Everson said the agency was cracking down on abusive easement write-offs, had launched audits of individual donors and planned to take "a closer look" at some historic trusts.
Such developments have both the National Architectural Trust and Springfield Management reevaluating their future, McClain said.
"There are no solicitations until we know, or have a better understanding, what the changes to the program might be. A number of donations have stopped because of the uncertainty," McClain said.
"There are still donations being processed, but a letter is being sent out to all the [donors who made donations] post-December 17, advising them of Senator Grassley's statement and asking if they want to go forward."
After being contacted by The Post last year, Springfield Management announced that McClain and his business partner, James Kearns, planned to donate the company's assets to the trust, to remove any perception of impropriety. That plan now has been scuttled, McClain said.
"It's not going to happen," he said. "The board [of the trust] didn't want to take on the obligation of SMS and the program, until Grassley had made more statements about the legislative changes, and we knew what was going to happen in the future. They didn't want that obligation."
McClain said he remains on the board of both the trust and of Springfield Management. Asked whether Springfield would remain in business, he replied: "It depends on the legislative changes."
The National Architectural Trust says it has accepted, or is in the process of accepting, easements on more than 600 properties across the eastern United States. Springfield Management has shepherded through hundreds of additional easement donations to other nonprofit trusts in Washington and elsewhere.