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The Opinion Letter
Blanco, Tackabery, Combs & Matamoros, P.A., Kaplan’s
law firm, has provided an opinion letter stating that
various parts of the lease agreement indicate that
title to the leasehold improvements immediately vested
with KQC and that Texas had only possessory rights
subject to the lease agreement. According to this
letter, the following are specific provisions of the
lease that support this interpretation:
• In the event of an entire condemnation, the
award for any such taking shall be paid to
the Lessor;
• Property owned by KQC is identified to in-
clude “improvements erected or located on the
Parcel, or affixed thereto”;
• All insurance proceeds with regard to the
building and improvements are the property of
KQC;
• Texas is required, upon termination of the
lease, to surrender the possession of the
premises, which includes all improvements.
The Lease
The Lease Agreement contains no specific mention of
conveying the title to the improvements. See the Lease
Agreement, dated April 1997, for specific lease terms
and conditions negotiated between Texas and KQC.
ISSUES
Were the leasehold improvements made by Texas the
property of KQC prior to the termination of the lease,
thereby entitling KQC to a charitable contribution
deduction under IRC �170(b)(1)(C) equal to the fair
market value of the renovated property?
CONCLUSION
There is exposure in taking the position that once the
improvements to the property were made [by TMC], title
to such improvements vested immediately with KQC. Due
to the substantial dollar amount involved, the IRS is
likely to question the ownership of the improvements
located on the property. Based on previous determina-
tions made in this area, it is very likely that the IRS
will take the position that these improvements should
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