Chief Counsel catalogs 121 charitable-contribution cases
Apply this to your situation
This page covers one taxpayer's ruling from 2020, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Plain-English summary
Chief Counsel prepared an updated case list covering 121 selected charitable-contribution decisions and orders from 2012 through April 15, 2020. Most entries concern conservation easements, including perpetuity, extinguishment proceeds, mortgage subordination, conservation purpose, ownership, recordation, valuation, and quid-pro-quo issues. The memorandum also tracks substantiation requirements such as qualified appraisals, Form 8283 disclosures, contemporaneous written acknowledgments, and the limits of substantial-compliance and reasonable-cause defenses. Other entries address disguised sales, anticipatory assignment of income, appraisal and promoter penalties, and written supervisory approval of penalties. Each numbered entry gives the issue, holding, or procedural status and cross-references related opinions, making the memorandum a research digest rather than a ruling on a particular taxpayer's deduction.
Ruling snapshot
- Question: What had courts held in selected charitable-contribution cases from 2012 through mid-April 2020?
- Outcome: advice given through a 121-entry case digest
- Key authorities: IRC § 170, especially § 170(f) and (h); IRC §§ 6662, 6664, and 6751; Treas. Reg. §§ 1.170A-13 and 1.170A-14
Full text (IRS public release)
Office of Chief Counsel
Internal Revenue Service
memorandum
CC:ITA Third Party Communication: None
MASP-110174-20 Date of Communication: Not Applicable
Number: 202020002
Release Date: 5/15/2020
UILC: 170.14-00
date: April 22, 2020
to: Carina Campobasso
(CC:SBSE)
from: Theresa Melchiorre
(CC:ITA:2)
subject: Caselist
Select Charitable Contribution Cases
2012 Forward (updated April, 15, 2020)
1. Carpenter v. Commissioner, T.C. Memo. 2012-1 (on respondent’s partial
summary judgment motion) (see also #32)
Issue: If deed language allows extinguishment of the easement either by judicial
proceedings or by mutual written agreement of the parties, is the easement
nevertheless granted in perpetuity?
Holding: No. Deduction denied because easement was not granted in perpetuity; Court
rejects petitioners’ arguments that a judicial proceeding was required (by application of
the cy pres doctrine) under petitioners’ theory that the easement is a restricted gift or
the deed created a charitable trust.
Decision to extinguish “should not be made solely by interested parties”.
2. Cohan v. Commissioner, T.C. Memo. 2012-8
Issues: (1) Are petitioners entitled to a charitable contribution deduction in connection
with their bargain sale agreement?
(2) Are petitioners liable for the section 6662(a) accuracy-related penalties?
MASP-110174-20 2
Holdings: (1) No, petitioners received consideration that was not disclosed by the
charity on the contemporaneous written acknowledgment. Any claimed reliance by
petitioners on the acknowledgment was unreasonable.
(2) Petitioners are not liable for the section 6662(a) penalties and underpayments with
respect to the 2001 transaction because they reasonably relied on professionals’ advice
for that transaction, but negligence penalties under section 6662(a) and (b)(1) are
sustained with regard to the denial of charitable contribution deductions and
underreporting on certain gains.
- Esgar Corp. v. Commissioner, T.C. Memo. 2012-35 (see #39)
Issues: (1) Did petitioners overvalue the easements (what was the highest and best
use of the land--gravel mining or agriculture-- before the easements were donated)?
(2) Should accuracy-related penalty apply?
Holdings and Findings: (1) Tax Court agrees with IRS’s highest and best use as
agricultural; easement was overvalued.
(2) Petitioners met the reasonable cause and good faith exception to the accuracy-
related penalty because their tax advisor was a competent professional with whom
petitioners had worked for over 25 years, petitioners provided him with all relevant
information, and they relied on his advice in good faith.
- Butler v. Commissioner, T.C. Memo. 2012-72
Issues: (1) Is there a protection of a relatively natural habitat under
section 170(h)(4)(A)(ii)?
(2) Can baseline documentation be considered part of the deeds even though not
separately recorded?
(3) Did petitioners overvalue the deductions?
Holdings and Findings: (1) Yes, and IRS did not show by expert witness testimony that
destruction of habitat, an inconsistent use, was permitted.
(2) Yes, under Georgia law, because they are incorporated by reference.
(3) Yes, but they had reasonable cause and acted in good faith with respect to their
underpayment.
- Mitchell v. Commissioner, 138 T.C. 324 (2012) (see also #33)
MASP-110174-20 3
Issue: Does a 2-year delay in receiving a mortgage holder’s subordination for a
conservation easement violate the subordination regulations and statutory perpetuity
requirement?
Holding: Yes, perpetuity requirements must be satisfied at the time of the gift.
- Dunlap v. Commissioner, T.C. Memo. 2012-126
Issue: Did the petitioners meet their burden to show donated easement had value?
Finding: No. Petitioners failed to meet their burden of proof to show that the value of
the façade easement was greater than zero. Also, in section discussing reasonable
cause exception to accuracy-related penalty, Court held that petitioners substantially
complied with the substantiation requirements of the appraisal summary despite
omission of date, manner of acquisition, and cost basis required under section 1.170A-
13(c)(4)(ii)(D) and (E).
- Durden v. Commissioner, T.C. Memo. 2012-140
Issue: Did petitioners properly substantiate under section 170(f)(8) their contributions
by cash and check?
Holding: No. Petitioners’ contemporaneous acknowledgment did not contain the goods
or services statement.
- Mohamed v. Commissioner, T.C. Memo. 2012-152
Issue: Was land donation of “extremely valuable real estate” properly substantiated
with a qualified appraisal and fully completed appraisal summary?
Holding: No, the TP, who is also the donee in his capacity as the trustee of the trust,
cannot be a qualified appraiser. “The most important requirement [in the regulations] is
that the appraisal be done by a qualified appraiser, which the regulations say cannot be
the donor claiming the deduction or the donee. . . .There is no way we can possibly find
he was a qualified appraiser”. Also, the attached statements were not appraisal
summaries (bases omitted, no bargain sale statement, no statements from a qualified
appraiser). “We recognize that this result is harsh—a complete denial of charitable
deductions to a couple that did not overvalue. . . .[but the problems of mis-valued
property are so great that Congress was quite specific about what the charitably inclined
have to do to defend their deductions, and we cannot in a single sympathetic case
undermine those rules.”
- Rothman v. Commissioner, T.C. Memo. 2012-163 (see also #13)
MASP-110174-20 4
Issue: Was petitioners’ conservation easement appraisal a qualified appraisal?
Holding: No.
- Scheidelman v. Commissioner, unpublished opinion (2d Cir. 2012), vacating
and remanding the opinion of the Tax Court (see #22)
Issue: Did petitioner substantiate her easement deduction with a qualified appraisal that
meets the requirements of section 1.170A-13(c)(2)(ii)(J) and (K)?
Holding: Yes. Section 1.170A-13(c)(2)(ii)(J) and (K) are met. (J) only requires
identification of the method used. (K) is satisfied by a percentage.
- Wall v. Commissioner, T.C. Memo. 2012-169
Issue: Does the deduction fail because of absence of letter from lender that complies
with section 1.170A-14 (g)(6)?
Holding: Yes, Kaufman I applies. (caveat: note that the 1st Circuit subsequently
reaches a contrary result in Kaufman III).
- Averyt v. Commissioner, T.C. Memo. 2012-198
Issue: Does the conservation easement deed meet the requirements of
section 170(f)(8)?
Holding: Yes, under these facts, because the deed, taken as a whole, provides that no
goods or services were received in exchange for the contribution.
- Kaufman v. Commissioner, 687 F.3d 21 (1st Cir. 2012) (see also #41 and 55)
Issues: (1) Did petitioners meet the appraisal summary requirements?
(2) Did petitioners overstate the value of their conservation easement?
(3) Does section 1.170A-14(g) require bank to give up its priority interest upon
extinguishment?
Holdings and findings: (1) Yes, omissions of date, manner of acquisition, and cost basis
did not doom the appraisal summary, (2) value of easement is for determination of Tax
Court on remand, (3) No, “given the ubiquity of super-priority for tax liens, the IRS’s
reading . . . would appear to doom practically all donations of easements”.
MASP-110174-20 5
- Rothman v. Commissioner, T.C. Memo. 2012-218 (supplemental
memorandum opinion reconsidering prior opinion in light of Scheidelman v.
Commissioner, 682 F.3d 189 (2d Cir. 2012)
Issue: Is petitioners’ conservation easement appraisal a qualified appraisal?
Holding: No, even in light of Scheidelman, it “still fails to satisfy 8 of 15 requirements”.
- Trout Ranch v. Commissioner, unpublished order and judgment (10th Cir.
2012)
Issue: Did Tax Court properly exercise discretion by incorporating post valuation data
into the income?
Holding: Yes.
- Foster v. Commissioner, T.C. Summ. Op. 2012-90
Issue: Did petitioners meet their burden of establishing the value of the easement?
Holding: No, valuation method employed by the petitioners’ appraiser is not persuasive.
- R.P. Golf, LLC v. Commissioner, T.C. Memo. 2012-282 (motion for summary
judgment)
Issues: (1) Did petitioner satisfy section 170(f)(8) with respect to the easement?
(2) Did easement protect a relatively natural habitat?
(3) Did easement preserve open space pursuant to a clearly delineated governmental
policy?
Holdings: (1) The Grant of Permanent Conservation Easement suffices under
section 170(f)(8).
(2) Habitat issue is question of material fact, reserved for trial.
(3) Petitioner concedes that easement was not pursuant to clearly delineated
governmental policy.
- Whitehouse Hotel Limited Partnership v. Commissioner, 139 T.C. 304 (2012)
(on remand from 5th Cir.) (see #44)
Issues: (1) Did petitioner overstate the value of the easement?
MASP-110174-20 6
(2) Does the reasonable cause exception apply?
Findings and Holdings: (1) Yes.
(2) No.
- Irby v. Commissioner, 139 T.C. 371 (2012)
Issues: (1) Was perpetuity met in bargain sale where upon extinguishment,
government funding entities would be repaid?
(2) Is appraisal a qualified appraisal even though it does not state it was prepared for
income tax purposes?
(3) Did petitioners obtain an acknowledgment that meets the requirements of section
170(f)(8)?
Holdings: (1) Yes, because donee would receive its proper share upon
extinguishment.
(2) Yes, because the appraisal stated that the purpose of the appraisal was to value a
donation of a conservation easement under section 170(h).
(3) Yes, a number of “documents, taken in their totality, constitute contemporaneous
written acknowledgment”.
- Minnick v. Commissioner, T.C. Memo. 2012-345 (see #60)
Issue: Is easement nondeductible because Bank’s mortgage was not subordinated at
time of the grant?
Holding: Yes, regulations require subordination, so easement is not deductible.
- Historic Boardwalk Hall, LLC v. Commissioner, 694 F.3d 425 (3d Cir. 2012)
Issue: Was purported partner claiming rehabilitation tax credits a bona fide partner?
Holding: No; partner’s investment had no meaningful upside potential or downside risk.
- Scheidelman v. Commissioner, T.C. Memo. 2013-18 (on remand from 2d Cir.)
(see #10)
Issue: What is the fair market value of the easement?
MASP-110174-20 7
Holding: The preponderance supports respondent’s position that the easement had no
value for charitable contribution purposes.
- Belk v. Commissioner, 140 T.C. 1 (2013) (see also #29 and 52)
Issue: Is the conservation easement disallowed because it was not granted in
perpetuity.
Holding: Yes, easement was not in perpetuity under section 170(h)(2)(C) because
agreement permitted petitioners to remove real property from the easement restrictions.
- Pollard v. Commissioner, T.C. Memo. 2013-38
Issue: Is petitioner entitled to a charitable contribution deduction for conservation
easement?
Holding: No; easement was granted to Boulder County in exchange for grant of a
subdivision exemption.
- Boone Operations Co., LLC. v. Commissioner, T.C. Memo. 2013-101
Issue: Is petitioner entitled to a charitable contribution deduction related to alleged
bargain sales of fill dirt?
Holding: No, section 170(f)(8) requirement of good faith estimate of value of goods and
services provided. The substantial compliance doctrine does not excuse failure to
provide a contemporaneous written acknowledgment. Also, petitioner did not meet
burden of proving that it transferred property that exceeded the fair market value of
consideration received.
- Evenchik v. Commissioner, T.C. Memo. 2013-34
Issues: (1) Did petitioners meet the “qualified appraisal” requirements for contributions
of stock?
(2) Did petitioners substantially comply with the qualified appraisal requirements?
Holdings: (1) No, the appraisals did not appraise the correct asset, and the appraisal did
not strictly comply with the regulations.
(2) A TP can’t substantially comply with the qualified appraisal requirements if the
appraisal fails to meet the essential requirements of the governing statute—here the
appraisals had gaping holes of required information.
- Crimi v. Commissioner, T.C. Memo. 2013-51
MASP-110174-20 8
Issues: (1) Did fair market value of the donated land exceed the price paid by the
donee?
(2) Did petitioners properly substantiate their contribution?
Holdings: (1) Yes.
(2) Yes, the acknowledgment as a whole meets the requirements of section 170(f)(8).
Any failure to comply with section 170(f)(11) is excused on ground of reasonable cause
(petitioners relied on tax advisors for over 20 years). But see #36, where reasonable
cause is not met.
- Mountanos v. Commissioner, T.C. Memo. 2013-138 (see #38 and 69)
Issue: (1) Is petitioner entitled to carryover deductions for an easement?
(2) Is petitioner liable for an accuracy-related penalty?
Holdings: (1) No, petitioner failed to show that the easement had any value; he failed to
show that the before and after highest and best uses differed.
(2) On his original return for the year of contribution, petitioner claimed a value that was
400% or more of the correct amount.
- Belk v. Commissioner, T.C. Memo. 2013-154, motion for reconsideration
denied.
Issue: Was petitioners’ easement subject to a use restriction in perpetuity under section
170(h)(2)(C)?
Holding: No, because the amendment provision (intended by the parties to permit
substitutions) does not limit substitutions to impossible or impractical situations.
- Graev v. Commissioner, 140 T.C. 377 (2013) (see #76)
Issue: Was easement a nondeductible conditional gift because side agreement
between the donors and donee allowed the easement to be extinguished if deduction is
disallowed.
Holding: Yes, the easement was a conditional gift, and the possibility that the easement
would be defeated was not “so remote as to be negligible”.
- Pesky v. US (D. ID 2013), cross motions for summary judgment denied.
MASP-110174-20 9
Issues:(1) Was this a quid pro quo transaction?
(2) Did acknowledgment falsely state that no goods or services were provided?
(3) Is qualified appraisal requirement inapplicable because of reasonable cause?
Holding: there are genuine issues of material facts.
- Carpenter v. Commissioner, T.C. Memo. 2013-172, denying petitioners’
motion to reconsider (see also #1)
Issues: (1) Is extinguishment possible without a judicial proceeding?
(2) Does Kaufman III sanction extinguishment by mutual agreement?
Holding: No (to both questions).
- Mitchell v. Commissioner, T.C. Memo. 2013-204, denying petitioner’s motion
to reconsider.
Issue: Does 1st Cir. decision in Kaufman III apply to CO case with 2-year delay in
obtaining lender’s subordination?
Holding: No, because Kaufman III was different issue and different circuit.
- Gorra v. Commissioner, T.C. Memo. 2013-254
Issues: (1) Façade easement deduction.
(2) Gross valuation misstatement penalty.
Findings and Holdings: (1) Burden of proof did not shift to IRS.
(2) Easement more restrictive than Landmarks Law.
(3) Conservation purpose requirements are met.
(4) Perpetuity satisfied.
(5) Easement was qualified real property interest.
(6) Easement was exclusively for conservation purposes.
(7) “Market value” in appraisal means fair market value.
MASP-110174-20 10
(8) Appraisal is qualified appraisal.
(9) Easement value in $104,000 (2% diminution) not $605,000.
(10) 40% Gross valuation misstatement applies.
- 61 York Acquisition, LLC v. Commissioner, T.C. Memo. 2013-266
Issue: Can a partnership grant an easement restricting the entire exterior of the building
as required by section170(h)(4)(B)(i)(I) when the partnership does not own the entire
exterior?
Holding: No.
- Alli v. Commissioner, T.C. Memo. 2014-15
Issues: (1) In the case of a contribution of an apartment building, did TP’s appraisals
and appraisal summary meet the requirements of section 170(f) (11)?
(2) If not, is this noncompliance excused under the judicial doctrine of substantial
compliance or statutory exception for reasonable cause?
Holdings: (1) No, the TP’s substantiation provides false information in part and omits
required information.
(2) No, the substantial compliance doctrine should not be liberally applied, citing
Mohamed. Courts have routinely declined to apply the substantial compliance doctrine
where substantive requirements set forth in the qualified appraisal regulations are not
met or entire categories of required information are omitted. Petitioners did not meet
their burden of establishing reasonable cause based on their alleged reliance upon
professional advice—they produced no reliable evidence of their paid preparer’s
qualifications, no reliable evidence that they provided him with complete information, no
reliable evidence of the content of his advice, and no reliable evidence that they
reasonably relied on that advice. Also, they did not call him as a witness. Furthermore,
they did not meet their burden with respect to their reliance on their appraisers.
- Route 231, LLC v. Commissioner, T.C. Memo. 2014-30
Issues: (1) Is TP engaged in a disguised sale under section 707?
(2) If so, were proceeds from the disguised sale income to TP?
Holdings: (1) Yes, citing Va. Historic Tax Credit Fund 2001 LP v. Commissioner, 639
F.3d 129 (4th Cir. 2011).
MASP-110174-20 11
(2) Yes.
- Mountanos v. Commissioner, T.C. Memo. 2014-38 (Supplemental
Memorandum Opinion) (“Mountanos II”) (see #28)
Issue: Will the Tax Court address alternative grounds for disallowing the deduction?
(Tax Court notes that the TP was seeking to avoid the accuracy-related penalty that
was to be imposed under Mountanos I).
Holding: No. Addressing alternative grounds would have no impact on disposition of
the case.
- Esgar Corp. v. Commissioner, 744 F.3d 648 (10th Cir. 2014) (see #3)
Issue: Was the Tax Court clearly erroneous in determining that gravel mining was not
the property’s highest and best use?
Holding: No. The Tax Court applied the correct highest and best use standard, looking
for the use that was most reasonably probable in the reasonably near future, and it did
not clearly err by concluding that use was agriculture.
- Wachter v. Commissioner, 142 T.C. 140 (2014) (IRS moves for summary
judgment)
Issues: (1) If easement expires after 99 years by operation of state law, does this
prevent easement from being granted in perpetuity and does this prevent the easement
from being deductible under section 170(h)?
(2) Has the TP substantiated his cash contribution with a contemporaneous written
acknowledgment?
Holdings: (1) Because the easement will expire after 99 years, it does not meet the
perpetuity requirement and is therefore not deductible.
(2) Material facts remain in dispute as to the contemporaneous written
acknowledgment, so that issue remains for resolution after trial.
Note: Order dated June 16, 2014, petitioners’ motion for reconsideration denied.
- Kaufman v. Commissioner, T.C. Memo. 2014-52 (“Kaufman IV”) (see also #13
and 55)
Issues: (1) What is the fair market value of the façade easement?
(2) Should accuracy-related penalties be imposed?
MASP-110174-20 12
Holdings: (1) Zero. Because the typical buyer would find the easement restrictions no
more burdensome than the restrictions already imposed by the South End Standards
and Criteria, the easement has no fair market value.
(2) Yes. Reported value exceeds correct value by 400% or more, IRS met its burden
that it is proper to impose the valuation misstatement penalty. Reasonable cause and
other exceptions to the penalties do not apply because TPs did not prove that they
made a good faith investigation that confirmed that the value of the easement was as
claimed, they failed to prove the underpayments resulted from good-faith reliance on
professional advice; they failed to show a reasonable basis for claimed deduction; and
they failed to show substantial authority supports their tax treatment of the easement.
- Palmer Ranch Holdings Ltd. v. Commissioner, T.C. Memo. 2014-79 (see #65
and 74)
Issues: (1) Did Partnership overstate the fair market value of its conservation
easement?
(2) Is Partnership liable for an accuracy-related penalty?
Holdings: (1) Yes.
(2) No.
The Court concludes that a zoning change was “reasonably probable” and that there is
no penalty because Partnership retained a qualified appraiser who provided a qualified
appraisal and retained an experienced tax attorney and a land planning and engineering
firm, and Partnership relied on these advisors in good faith.
- Chandler v. Commissioner, 142 T.C. 279 (2014)
Issues: (1) Did TPs prove their easements had any value?
(2) Are TPs liable for a gross valuation misstatement penalty for their 2006
underpayment (carryover year) because law in effect when they filed their return in 2006
not provide a reasonable cause exception (even though the reasonable cause
exception was in effect on the date of the easement contribution)?
Holdings: (1) No; they failed to prove their façade easements had any value and are
therefore not entitled to claim related charitable contribution deductions.
(2) Yes.
MASP-110174-20 13
- Whitehouse Hotel Limited Partnership v. Commissioner, 755 F.3d 236 (5th Cir.
2014) (Whitehouse IV)
Issues: (1) What is the highest and best use of the property?
(2) Did Tax Court err in rejecting the reproduction cost and income valuation methods?
(3) Did TP have “reasonable cause” for its undervaluation as to avoid the gross
undervaluation penalty?
Holdings: (1) Either a luxury hotel or non-luxury hotel.
(2) No.
(3) Yes.
- Scheidelman v. Commissioner, 755 F.3d 148 (2d Cir. 2014) (Scheidelman V)
Issue: Did the Tax Court err in finding that the easement had no negative impact on the
value of the property?
Holding: No. Neither the Tax Court nor any Circuit Court of Appeals has held that the
grant of a conservation easement effects a per se reduction in the fair market value of
the underlying property.
- Seventeen Seventy Sherman St. LLC v. Commissioner, T.C. Memo. 2014-124
Issue: Is deduction disallowed for failure to disclose a quid pro quo (favorable zoning)?
Holding: Yes, deduction disallowed. Negligence penalty imposed, but no gross
valuation misstatement penalty or substantial valuation misstatement penalty because
respondent’s appraisers were not found by the Tax Court to be credible on the value of
the exterior easement.
- Schmidt v. Commissioner, T.C. Memo. 2014-159
Valuation case in which T.C. does not find either expert report to be complete and
convincing.
- Zarlengo v. Commissioner, T.C. Memo. 2014-161
Issues: (1) Under New York law, if the deed was executed in Sept. 2004 but not
recorded until Jan. 2005, what is the year of the donation?
(2) Does an easement have value, or is it merely duplicative of local law?
MASP-110174-20 14
(3) Does “substantial compliance” or “does not relate to the essence of section 170”
excuse the following: (a) appraisal prepared earlier than 60 days before contribution
date, (b) description omits easement terms, (c) omits date or expected date of
contribution, (d) omits terms (but includes sample deed), (d) omits “income tax
purposes” language, (e) sometimes uses “market value” instead of “fair market value”,
(f) omits signature of appraiser’s helper.
Holdings: (1) 2005, because NY law requires conservation easements to be recorded
and purchaser before recording would not be bound.
(2) Has value, not merely duplicative.
(3) Noncompliance with appraisal regulations excused, based on Bond and substantial
compliance.
- Smith v. Commissioner, T.C. Memo. 2014-203
Deduction in excess of $500 claimed for contributions of clothing or household items but
TP presented no evidence that they were in “good used condition or better” and did not
furnish a qualified appraisal with his return. Petitioner claimed deduction in excess of
$5000 without obtaining a qualified appraisal or attaching a fully completed appraisal
summary. Acknowledgment did not constitute CWA.
- Reisner v. Commissioner, T.C. Memo. 2014-230
Facts: Parties stipulated that façade easement donated to NAT had a value of zero but
dispute whether TPs are liable for the gross valuation misstatement penalty for 2006.
Holding: The section 6664(c)(3) elimination of the reasonable cause exception applies
to the underpayment in the carryover or carryback year.
- Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014)
Quote from case: “a conservation easement must govern a defined and static parcel.”
Deduction denied, pursuant to section 170(h)(2)(C) (defining a qualified real property
interest to include a restriction granted in perpetuity). A perpetual use restriction must
attach to a defined parcel of real property rather than simply some or any (or
interchangeable parcels of) real property.
- Mitchell v. Commissioner, 775 F.3d 1243 (10th Cir. 2015), affirming 138 T.C.
324 (see #5 and 33)
Requiring subordination at the time of the donation is consistent with the IRC’s
requirement that the conservation purpose be protected in perpetuity. The
MASP-110174-20 15
Commissioner is entitled to demand strict compliance with the mortgage subordination
provision.
- Balsam Mountain, LLC v. Commissioner, T.C. Memo. 2015-43
Twenty-two-acre easement boundaries may shift by up to 5% during a 5-year period;
therefore, no perpetuity (citing Belk opinions).
Held: The easement is not a “qualified real property interest” of the type described in
section 170(h)(2)(C). “[A]n interest in real property is a “qualified real property interest”
of the type described in section 170(h)(2)(C) only if it is an interest in an “identifiable,
specific piece of real property.”
- Kunkel v. Commissioner, T.C. Memo. 2015-71
Facts: TPs claimed noncash contributions in TY 2011 in amount of $37,000. Except for
a spreadsheet they created during the audit and undated doorknob hangers left by
Purple Heart and Vietnam Veterans (saying thank you for your contribution) TPs had no
substantiation or receipts or CWAs for the noncash contributions.
Holding: no deduction, because no CWA, receipts not adequate, did not present
credible evidence that the allegedly donated household items were in good used
condition or better in accordance with section 170(f)(16)(C).
- Kaufman v. Commissioner, 784 F.3d 56 (1st Cir. 2015) (Kaufman V) (see also
13 and 41)
Held: The TPs failed to make a good faith investigation as required to raise the (then-
applicable) reasonable cause defense to the gross valuation misstatement penalty. Tax
Court decision on this point was affirmed.
- Costello v. Commissioner, T.C. Memo. 2015-87
Held: (1) TP failed to obtain a qualified appraisal of a conservation easement.
(2) TP’s Form 8283 did not comply with the regulations (no donee’s signature, no
disclosure of quid pro quo).
(3) Appraisal and appraisal summary did not “substantially comply”; numerous
categories of important information were omitted, including accurate description of the
donated property, the salient terms of the agreement, signature of the donee,
explanation of the quid pro quo received, and the date of the contribution. Appraisal did
not even mention “conservation easement” or “land preservation easement”. TPs claim
of substantial compliance rejected.
MASP-110174-20 16
(4) Grant of a conservation easement was not deductible, because it was part of a quid
pro quo transaction. TP was required to convey the easement in order to sell
development rights.
(5) TPs liable for accuracy-related penalties.
- Davis v. Commissioner, T.C. Memo. 2015-88
Held: Deduction for bargain sale of land allowed.
- Isaacs v. Commissioner, T.C. Memo. 2015-121
Facts: TP donated fossils to charity in late December 2006 and late December 2007.
TPs’ appraiser did not write or recognize the letters purported to be his appraisals, and
the purported appraisals were not admitted into evidence. No reliable written records of
the contribution, no CWA, no qualified appraisal.
Holding: Deduction denied.
- Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo. 2015-130 (see # 88)
Facts: Partnerships donated conservation easements. Purchasers of partnership units
would each receive a fee simple interest in an undeveloped 5-acre parcel (homesite)
that was not subject to the easements. Purchasers of the partnership units were
permitted by deed to modify the easement boundaries by agreement with the donee
land trust (“by mutual agreement”). The Court found the baseline documentation to be
unreliable, incomplete, and insufficient.
Held: (1) The homesite transfers were disguised sales, and the partnerships were
required to recognize gain from the sales.
(2) The boundary line adjustment rules in the deed violated the section 170(h)(2)(C)
“granted in perpetuity” requirement; therefore, no deduction for the easements.
(3) The section 1.170A-14(g)(5)(i) baseline requirements were not met; no substantial
compliance.
(4) Partnerships are liable for gross valuation misstatement penalties; zero was the
correct value because the partnership was not entitled to a deduction (citing Woods v.
US, 571 US __ (2013)).
- Minnick v. Commissioner, 796 F.3d 1156 (9th Cir. 2015), affirming T.C. Memo.
2012-345 (see #20)
MASP-110174-20 17
Held: Section “1.170A-14(g)(2) requires that the mortgage be subordinated at the time
of the gift for the gift to be deductible”.
- Legg v. Commissioner, 145 T.C. 344 (2015)
Facts: Parties stipulated that the legal requirements for a charitable contribution of a
conservation easement were met and the value of the easement was $80,000. They
initially valued the donation at $1,418,500. Issue was whether the 40% gross valuation
misstatement penalty applied even though examination report calculated the penalty at
20%. Construction of section 6751(b) was at issue.
Holding: 40% penalty was proper.
- Atkinson v. Commissioner, T.C. Memo. 2015-236
TPs donated conservation easements on an operating golf course. The IRS challenged
conservation purpose and valuation. The court held that the easements did not protect
a relatively natural habitat, and that TPs “failed to establish that the easement area
exists for the scenic enjoyment of the general public or yields a significant public
benefit”.
- Gemperle v. Commissioner, T. C. Memo. 2016-1
TPs contributed a façade easement on a building that was a certified historic structure
in a registered historic district, but they failed to attach a qualified appraisal to the return
for the tax year of the contribution as required by section 170(h)(4)(B)(iii)(I). On that
basis alone, the Tax Court disallowed the deduction. TPs were also found liable for the
40% substantial valuation misstatement penalty because the Tax Court found that the
maximum value of the easement was $35,000 and the TPs’ valuation, $108,000, was
more than $200% of the correct value.
- Mecox Partners LP v. US , 11 CIV, 8157 (S.D.N.Y 2016)
Holdings: (1) The deed of easement is not effective until it was recorded (in the year
following the year of the deduction). Also (fn 6) no “protection in perpetuity” before
recordation.
(2) An appraisal prepared more than 60 days before the date of recordation does not
meet the federal substantiation requirements.
- Palmer Ranch v. Commissioner, 812 F.3d 982 (11th Cir. 2016) (see #42 and
74)
MASP-110174-20 18
Holdings: (1) Because both parties’ appraisers used the comparable sales method, the
Tax Court’s departure from that method, without explanation of its departure,
disapproval of the method, or acknowledgement of the departure, was in error.
(2) Tax Court’s highest and best use determination affirmed, but valuation reversed.
- French v. Commissioner, T.C. Memo. 2016-53
Holding: Deed here is not a CWA because it does not specifically, or as a whole,
address goods or services. Factors that would have supported compliance are that the
deed recites no consideration other than preservation and the deed states that it is the
entire agreement of the parties.
- Carroll v. Commissioner, 146 T.C. 196 (2016)
Motion for reconsideration denied, by Order, July 29, 2016 (appeal pending).
Holding: P’s deed is inconsistent with section 1.170A-14(g)(6)(ii) because it bases the
donee’s right to proceeds (on extinguishment) on P’s deduction amount rather than
proportionate share as the regs. require. Therefore, the perpetuity requirements are not
met and there is no deduction.
- R.P. Golf v. Commissioner, T.C. Memo 2016-80, aff’d, 860 F.3d 1096 (8th Cir.
2017) (see #83)
Holdings: (1) No charitable contribution deduction for an easement on a parcel the
donor did not own.
(2) Unsubordinated mortgages on the date of the grant and for 3 ½ months thereafter
violate perpetuity.
-
Mountanos v. Commissioner, unpublished opinion (9th Cir. 2016), affirming
Tax Court opinion (see #28 and 38) -
Palmolive v. Commissioner, Order, Docket No. 23444-14 (Aug. 26, 2016)
Quote: “to propose that the mortgagee is subordinate except as to such proceeds would
seem problematic. The mortgagee’s defining right and interest is presumably in
receiving proceeds, and it is that right and interest that must be subordinated”.
- PBBM-Rose Hill Ltd v. Commissioner, US Tax Court (bench opinion Sept. 9,
2016) (see #96)
MASP-110174-20 19
Facts: TP owned a golf course in a gated community. After filing a bankruptcy petition,
TP contributed a conservation easement to a land trust, burdening 234 acres of the golf
course and claiming a $15 million charitable contribution deduction for the easement.
Issues: (1) Was there a conservation purpose under section 170(h)?
(2) Were the extinguishment/perpetuity requirements met?
(3) Were the appraisal summary requirements met?
(4) Was there a qualified appraisal?
(5) Was the value correct?
(6) Does the 40% penalty apply?
Held: (1) No conservation purpose (very limited public access, either physical or visual,
not a relatively natural habitat).
(2) The perpetuity/extinguishment requirements were not met (TP failed to comply with
section 1.170A-14(g)(6)(ii) formula).
(3) TP “substantially complied” with the appraisal summary requirements (missing
information on Form 8283 was attached to the return).
(4) TP’s appraisal was a qualified appraisal.
(5) The value was $100,000, and (6) the 40% penalty under section 6662(h) applies.
- Cave Buttes, LLC v. Commissioner, 147 T.C. 338 (2016)
Facts: Bargain sale of real property to local government. IRS appraiser based his
appraisal on the assumption that the parcel was landlocked, with no legal access. TP’s
appraiser assumed legal access, but with a cost to obtain the access. The IRS position
was that the appraisal failed to comply with 5 separate requirements in the -13 regs.
Legal issue: Was there a qualified appraisal even though there was some failure to
strictly comply with the regulations?
Held: The TP undervalued the property by $650,000; there was legal access; and the
TP complied either strictly or substantially with the -13 regs.
Reasoning: The Court concluded that the TP should be treated as obtaining a “qualified
appraisal” under the -13 regulations. The Court opined that TP substantially complied
with the signature requirement on the appraisal, with the “prepared for income tax
purposes” requirement, definition of FMV, and valuation date. The Court also
MASP-110174-20 20
concluded that the TP’s inclusion of “address and characteristics” strictly complied with
the description requirement.
- Sells v. Commissioner, Tax Court Order (Sept 22, 2016)
Facts: Amendment clause allows parties to amend the deed of easement but only if the
amendment doesn’t endanger qualification under section 170(h). The subordination
agreement was not recorded until four years after the date of contribution. IRS moved
for summary judgment, which the Court denied.
Issues: (1) Does amendment clause cause easement to be nondeductible?
(2) Does extinguishment clause violate perpetuity?
(3) Does a delay in the recording of the subordination violate perpetuity?
Tax Court: (1) Words in the deed in this case are not a problem; for example, a clause
that enabled an amendment that adds property subject to a conservation easement
would not violate section 170(h).
(2) Terms in the extinguishment clause in this case don’t affect perpetuity.
(3) There is a genuine factual issue about whether the subordination agreement was
referred to in an endorsement to the recorded mortgage note.
- Palmer Ranch Holding, Ltd. v. Commissioner, T.C. Memo. 2016-190 (see #42
and 65)
Held: TP’s valuation used; respondent failed to use comparable sales data to support
an adjustment for declining market.
- Partita Partners, LLC v. US S.D.N.Y. (Oct. 26, 2016)
Facts: Easement donated on a building in a registered historic district in NYC. The
deed allowed for additional construction on the building, conditioned on the donee’s
approval. TP testified that development rights were reserved to add a couple of floors
on the roof and potentially to extend the ground floor. The deed of easement required
that any exercise of development rights may not interfere with the conservation
purposes of the easement.
Holding: No deduction; statute unambiguously requires preservation of the entire
exterior of this building. Motion for Summary Judgment granted in favor of the US.
- Graev v. Commissioner, 147 TC 460 (2016)
MASP-110174-20 21
Issues: (1) Did the notice of deficiency comply with the requirement of section 6751(a)
to include a computation of the 20% penalty?
(2) Did the IRS comply with the section 6751(b) requirement that the agent’s immediate
supervisor personally approve the assessment of the penalty in writing?
(3) Did the TPs show reasonable cause and good faith (section 6664(c)), substantial
authority (section 6662(d)(2)(B)(i)), or adequate disclosure and reasonable basis for the
return position (section 6662(d)(2)(B)(ii))?
Held: (1) Yes.
(2) Argument is premature.
(3) No.
- 15 West 17th Street LLC v. Commissioner, 147 T.C. 557 (2016)
Facts: TP claimed a $64.5 M charitable contribution deduction in 2007. In 2011, the
IRS commenced an examination of TP’s 2007 return. In 2014, the donee filed an
amended Form 990 for 2007 that included the language that is required to be included
in a CWA.
Issue: May the TP rely on reporting by the donee on an information return filed with the
IRS to meet the requirements of section 170(f)(8)?
Holding: No. Although the IRS has discretionary authority under section 170(f)(8)(D) to
allow for this, the IRS has not exercised that authority. “We conclude that the
rulemaking authority delegated in subparagraph (D) is discretionary, not mandatory, and
that subparagraph (D) is not self-executing in the absence of regulations.”
- McGrady and Antoniacci v. Commissioner, T.C. Memo. 2016-233
Facts: TPs contributed an easement in one parcel and a fee interest in another parcel
as “components of a “complex conservation planning”. The Court found that they
negotiated for 18 months to determine the contributions that each party would be
required to make.
Holding: The Court rejected the IRS’s argument that the transfers were part of a quid
pro quo exchange and lacked charitable intent. The Court did find an overvaluation.
- O’Connor v. Commissioner, Docket No. 2472-11, US Tax Court (Jan. 23, 2017)
(motion for reconsideration denied March 27, 2017)
MASP-110174-20 22
Facts: Donation of a fee interest in land. The deed stated that the land would not be
open to the public, and no permanent structures could be built on the property. The
appraisal did not take into account these deed restrictions.
Issue: Can an appraisal that fails to take into account restrictions that could limit the
property’s marketability be a qualified appraisal?
Held: No; no deduction allowed. Even under a substantial compliance standard, this
appraisal falls short.
- Izen v. Commissioner, 148 T.C. 71 (2017)
Facts: Alleged deduction first claimed on April 14, 2016 (Form 1040X), for gift of a 40-
year old airplane in TY 2010. IRS argued that TP failed to satisfy the substantiation
requirements of section 170(f)(12), which is the contemporaneous written
acknowledgment requirement for motor vehicles, including airplanes.
Held: In the absence of a CWA meeting the statute’s demands, no deduction shall be
allowed. “The doctrine of substantial compliance does not apply to excuse the failure to
obtain a CWA meeting the statutory requirements.” The requirement that a CWA be
obtained for charitable contributions described in section 170(f)(8) and (12) is a strict
one. In the absence of a CWA meeting the statute’s demands, no deduction shall be
allowed. “The doctrine of substantial compliance does not apply to excuse the failure to
obtain a CWA meeting the statutory requirements.”
- Ten Twenty-Six Investors v. Commissioner, T.C. Memo. 2017-115
Facts: Motion for partial summary judgment. Partnership granted a façade easement
on a warehouse to the National Architectural Trust. The deed was executed by the
parties in December 2004, but not recorded until December 2006. IRS argued that
under NY law, the easement had no legal effect until recorded and, citing
section 1.170A-14(g)(1), was therefore not deductible in 2004.
Held: No deduction in 2004 because the deed was not recorded in that year;
recordation is necessary for easement to be enforceable in perpetuity. The possibility of
the deed being unenforceable was not so remote as to be negligible.
- ORC Partners, LLC v. Commissioner, TL-1041-16 (Order June 16, 2017)
IRS’s Motions for Summary Judgment Denied.
IRS contended: (1) the deed evidences the intent of the TP and donee to allow
extinguishment by merger, and (2) the amendment clause in the deed allows
inconsistent use under section 1.170A-14(e)(2).
MASP-110174-20 23
Court’s analysis: Both issues raise genuine factual disputes as to material facts. The
Court reserved for trial the question of whether there is only a negligible possibility that
the donee would agree to extinguish the easement upon merger. The Court also
reserved for trial the question of whether, under the donee’s policies, the donee would
agree to an amendment that would harm one of the purported conservation purposes of
the easement.
- R. P. Golf, 860 F.3d 1096 (8th Cir. 2017) (see #68)
Held: The 8th Circuit Court of Appeals affirmed the Tax Court judgment and held that
because the bank mortgages were not subordinated before the easement conveyance,
the deduction for the year of conveyance was disallowed.
- RERI Holdings I, LLC v. Commissioner, 149 T.C. No. 1 (2017), aff’d sub. nom.,
Blau v. Commissioner, No. 17-1266 (D.C. Cir. 2019) (see #104)
Facts: Contribution of a remainder interest in property to a University. Cost or other
basis was missing from the Form 8283. TP relied on the standard actuarial tables
under section 7520, but in fact there were limitations under the covenants.
Held: (1) TP’s failure to comply with section 1.170A-13(c)(4)(ii)(E) (the regulations
requiring disclosure of cost or other basis on the Form 8283) requires full disallowance
of the deduction. “[B]ecause RERI’s omission of its basis … on the Form 8283 it
attached to its 2003 return prevented the appraisal summary from achieving its intended
purpose, RERI’s failure to meet the requirement of section 1.170A-13(c)(4)(ii)(E),
Income Tax Regs., cannot be excused by substantial compliance…. The significant
disparity between the claimed fair market value and the price RERI paid to acquire [it],
had it been disclosed, would have alerted respondent to a potential overvaluation.”
(2) The actuarial tables under section 7520 do not apply because of limitations on
remedies under the agreement.
- Partita Partners LLC v. US, Memorandum and Order (S.D.N.Y. July 10, 2017)
(see #75)
TPs’ motion for summary judgment denied—Court rules that a valuation misstatement
penalty could be imposed, even if the underlying deduction was disallowed in its entirety
on grounds other than a valuation misstatement. Court also rules that effect of
purported approvals for penalties will be decided at trial.
- Hoffman Properties II, LP v. Commissioner, TL-14130-15, (Tax Court Order
dated July 12, 2017) (see also #94, 95, and 121)
Facts: The deed, recorded on December 31, 2007, gives the TP conditional rights to
alter the building’s exterior unless the donee, within 45 days, rejects the donor’s
MASP-110174-20 24
proposal to exercise those rights (45-day default provision). There was no written
agreement signed by the donor and the donee certifying under penalty of perjury that
the donee is qualified with a purpose specified in section 170(h)(4)(B)(ii)(I) and has the
resources and commitment described in section 170(h)(4)(B)(ii)(II) (sworn statement
requirement).
Order Granting IRS’s Partial Summary Judgment Motion: Deficiency in the deed is not
cured by a subsequent agreement that is unrecorded and does not portend to amend
the easement. The deed does not satisfy section 170(h)(4)(B)(i), which requires
preservation of the entire exterior of the building. Failure to satisfy the sworn statement
requirement results in a conservation contribution failing to be considered exclusively for
conservation purposes under section 170(h)(4)(B).
- Rutkoske v. Commissioner, 149 T.C. No. 6 (2017)
Issue: IRS motion for partial summary judgment granted on question of whether TPs
were “qualified farmers” at the time of their bargain sale of a conservation easement.
Held: For a conservation contribution to qualify for the special rule of section
170(b)(1)(E)(iv), the IRS will consider the income derived from the sale of agricultural
and/or horticultural products created rather than income derived from the sale of land on
which the products were grown
- BC Ranch II L.P., also known as Bosque Canyon Ranch II, L.P. v.
Commissioner, 867 F3d 547 (5th Cir. 2017)
Decision of the Tax Court in Bosque Canyon Ranch LP v. Commissioner , T.C. Memo.
2015-130 (see #59) vacated and remanded.
Held: (1) “homesite adjustment provision” does not violate perpetuity and does not
result in disallowance of deduction. Belk distinguished.
(2) Baseline was more than sufficient.
(3) Tax Court needs to determine correct amount of taxable income resulting from
disguised sale.
(4) Tax Court needs make a finding of the values of the easements and determine
whether the gross valuation misstatement penalty is applicable.
- 310 Retail, LLC v. Commissioner, T.C. Memo. 2017-164
Issues: (1) Can a Form 990 be a CWA under section 170(f)(8)(D)?
(2) Is a Deed of Easement a CWA?
Holding: (1) No, see 15 West (see #77)
MASP-110174-20 25
(2) Yes, under the facts of this case. Rationale for holding (2) that deed is a CWA:
“The deed here is the same in all material respects as the deed in RP Golf, the deed
was contemporaneous, the deed has a clause that indicates it is the entire agreement of
the parties, and the deed does address consideration in a boilerplate clause that has
“no legal effect for purposes of section 170(f)(8)”. The court then says, “Taken as a
whole, therefore, the deed of easement includes the required affirmative indication that
[the donee] supplied LLC with no goods or services in exchange for its contribution.”
- Gardner v. Commissioner, T.C. Memo. 2017-165
Facts: Donation of hunting specimens to an ecological foundation. TP valued the
specimens using replacement cost (cost that a hunter would incur), but IRS valued the
specimens using the market approach and comparable sales.
Held: If an active market exists, we generally rely on comparable sales. Replacement
cost may be a relevant measure of value where the property is unique, the market is
limited, and there is no evidence of comparable sales.
- Big River Development v. Commissioner, T.C. Memo 2017-166
Held: a deed of easement constitutes a valid CWA where it was properly executed by
the donee, provided a good faith estimate of the value of services rendered, and stated
that it represented the entire agreement of the parties.
- Palmolive Building Investors, LLC v. Commissioner, 149 T.C. No. 18
(October 10, 2017) (on cross-motions for partial summary judgment)
Facts: Façade easement deed gave 2 mortgagees insurance and condemnation claims
prior to that of the donee.
Held: Deed did not comply with sections 1.170A-14(g)(6)(ii) or 1.170A-14(g)(2). The
Tax Court will not follow the First Circuit Court of Appeals decision in Kaufman v.
Shulman because the Palmolive case is appealable to the Seventh Circuit, not the First
Circuit. The savings clause does not cure the deed. Therefore, the easement is not
protected in perpetuity and fails to qualify under section 170(h)(5)(A).
- Salt Point Timber, LLC v. Commissioner, T.C. Memo. 2017-245.
Held: No charitable contribution deduction because the easement deed permitted the
holder of a replacement easement to be an entity other than a qualified organization.
- Hoffman v. Commissioner, TL-14130-15, (Tax Court Order dated March 14,
2018) (see also #86, 95, and 121)
MASP-110174-20 26
Tax Court denied TP’s request to reconsider its July 12, 2017, Order (Hoffman
Properties II, LP v. Commissioner, TL-14130-15, (Tax Court Order dated July 12, 2017)
86) granting the Commissioner’s first motion of August 5, 2016 TP argued
unsuccessfully that the Attorney General of Ohio’s right to prevent TP from altering or
modifying the building’s façade in a manner inconsistent with the building’s historic
character satisfied the requirements of section 170(h)(4)(B) despite the 45-day default
provision in the agreement. Also, TP argued unsuccessfully that a notary’s signature on
an affidavit ensured that the affidavit was made under penalty of perjury.
- Hoffman v. Commissioner, TL-14130-15, (Tax Court Order dated
March 14, 2018) (see also #86, 94, and 121)
The Tax Court granted the Commissioner’s August 25, 2017, First Amended Motion for
Partial Summary Judgment challenging a deduction under section 170(h)(5)(A) for a
conservation easement purportedly protecting the “open space features” or air space of
a historic building. The terms of the deed provided that if the TP wants to impinge on
the air space of the building, the TP must seek permission of the donee. If the donee
does not object to the proposed impingement within 45 days, the impingement is
deemed granted.
Commissioner successfully argued that the 45-day deemed consent provision curtails
the donee ability to both prevent TP from taking inconsistent uses and to seek legal or
equitable remedies of such inconsistent uses
- Wendell Falls Development, LLC v. Commissioner, T.C. Memo. 2018-45
(April 4, 2018)
Facts: Easement on 125 acres to be used as a park was donated in connection with a
“planned unit development” or “PUD”.
Held: No charitable contribution deduction because the donor expected to receive a
substantial benefit (quid pro quo) from the donation and because the easement had no
value. As the prospective seller of the residential lots, the TP would benefit from the
increased value to the lots from the park as an amenity.
- Triumph Mixed Use Investments III, LLC v. Commissioner, T.C. Memo. 2018-
65
Facts: TP transferred real property and development credits to a city in exchange for a
development plan approval and with the expectation of a future development plan
approval. TP did not report these expected benefits to the IRS.
Held: No deduction allowed. Transfer was part of a quid pro quo arrangement, and TP
did not report or establish FMV of what it received. A transfer of real property in
MASP-110174-20 27
exchange for development approvals or the expectation of future development
approvals is a benefit and precludes a finding of the requisite intent for a charitable gift.
Cases cited by the court: US v. American Bar Endowment, 477 U.S. 105 (1986),
Seventeen Seventy Sherman v. Commissioner, T.C. Memo. 2014-124, Pollard v.
Commissioner, T.C. Memo. 2013-38. McGrady v. Commissioner, T.C. Memo. 2016-
233 distinguished as a case in which the TP received only a small benefit of privacy.
- PBBM-Rose Hill, Ltd. V. Commissioner, 900 F.3d 193 (5th Cir. 2018), affirming
71
Held: (1) Outdoor recreation conservation purpose is met because the terms of the
deed protect land for outdoor recreation “for use by the general public”.
(2) Deduction fails because the extinguish clause does not comply with section 1.170A-
14(g)(6)(ii); the value of improvements could decrease the amount of proceeds below
the minimum the donee must receive.
(3) Court should rely on language of deed to determine satisfaction of conservation
purpose requirement and should not look to actual use unless the donor knew that the
access would be significantly less than indicated by the deed.
(4) Future rezoning should be disregarded if not reasonably probable.
(5) Section 6751(b) managerial approval requirement met for gross valuation
misstatement penalty where the managerial signature is on the cover page of a
summary report on the examination of TP.
- Harbor Lofts Associates v. Commissioner, 151 T.C. No. 3 (August 27, 2018)
Held: (1) A party that does not have a fee interest in the buildings cannot contribute a
conservation restriction in perpetuity; only the owner of real property or holder of a fee
interest is able to grant a perpetual conservation restriction.
(2) A lessee is not entitled to a deduction under section170(h) for joining the fee owner
in granting a conservation easement.
- Champions Retreat Golf Founders, LLC. v. Commissioner, T.C. Memo. 2018-
146
Facts: 350-acre easement on a golf course, with purposes of preserving habitat for
“species of conservation concern”, and open space for scenic enjoyment of general
public and pursuant to clearly delineated governmental policy.
Issue: Was the easement contribution “exclusively for conservation purposes” within
the meaning of section 170(h)(1)(C) and (h)(4)(A)(ii) and (iii)?
MASP-110174-20 28
Held: No
Basis: (1) Habitat purpose not met because there is insufficient presence of rare,
endangered, or threatened species and easement area is not a natural area.
(2) Even taking into account the annual charity events held at the golf club, the public
does not have sufficient physical access to enjoy the easement area.
(3) TP does not cite any law or program that meets the clearly delineated government
policy purpose within the meaning of section 1.170A-14(d)(4)(iii)(A).
- Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159 (see also #113)
Facts: TP claimed a $4.8 deduction for contribution of a conservation easement. TP
did not disclose its “cost or adjusted basis” on its Form 8283 but attached a statement to
the Form 8283 stating that the basis was omitted because the basis is not relevant to
the calculation of the deduction and the easement was long-term capital gain property.
Issue: Is TP’s deduction denied on account of cost basis being omitted from the
Form 8283?
Held: (1) TP did not strictly or substantially comply with the regulatory requirement that
cost basis be included on the Form 8283. Court cites full Tax Court opinion in RERI
Holdings I v. Commissioner with approval.
(2) Disputes of material fact exist as to whether the omission is excused by the defense
of “reasonable cause” under section 170(f)(11)(A)(ii)(II).
- Chrem v. Commissioner, T.C. Memo. 2018-164
Tax Court denies cross motions for summary judgment. Individuals claimed charitable
contribution deductions for donation of securities that were not publicly traded.
Facts: Acquiring Corp (SDI) and Target Corp (Comtrad) are related parties. Acquiring
Corp announced a proposal to acquire 100% of stock in Target Corp. Target Corp
shareholders subsequently transferred their shares in Target Corp to charity, and
Acquiring Corp purchased them from the charity shortly thereafter.
Issues: (1) Were TPs liable for tax on the disposition of the shares, under the
anticipatory assignment of income doctrine?
(2) Is an appraisal of the entire company that was prepared for ERISA compliance
purposes and that does not comply with the requirements of section 1.170A-13(c)(3)
treated as a qualified appraisal under the substantial compliance doctrine?
MASP-110174-20 29
(3) Can failure to attach a qualified appraisal to the return under section 170(f)(11)(D)
for contributions of property for which a deduction of more than $500,000 is claimed be
excused under the substantial compliance doctrine?
(4) Does reasonable cause excuse the section 170(f)(11) failures set out in (2) and (3)?
Held: (1) The evidence may support respondent’s contention that the charity agreed in
advance to tender its shares to Acquiring Corp. and that all steps in the transaction
were prearranged, but there are genuine disputes of material facts.
(2) and (3): If TPs prevail on the reasonable cause defense, it will be unnecessary to
decide whether they complied with the appraisal reporting requirements.
(4) The reasonable cause defense presents genuine issues of material facts.
- Presley v. Commissioner, T.C. Memo. 2018-171 (October 15, 2018) (see also
109)
This case involves charitable contribution deductions for improvements to land owned
by the donee and a mower. The Tax Court denied the 2010 gift of the improvements
because (1) the petitioners failed to substantiate the expenses; (2) the expenses were
incurred before 2010; (3) the petitioners failed to satisfy section 1.170A-1(g)’s
requirement that the expenses be incurred in the course of performing services to the
church; (4) the petitioners didn’t establish that they satisfied the CWA requirements ;
and (6) the petitioners received a benefit from the improvements.
The Tax Court denied the gift of the mower because the petitioners failed to comply with
the section 170 reporting requirements and their failure was not due to reasonable
cause and not to willful neglect under section 170(f)(11)(A)(ii)(II).
The Tax Court denied the gift of the personal residence because the petitioners failed to
comply or substantially comply with section 170’s substantiation requirements for this
gift, and their failure was not due to reasonable cause citing section 170(f)(11)(A)(ii)(II).
The Tax Court noted the petitioner did not obtain a timely qualified appraisal, and the
Form 8283was not complete.
Finally, the Tax Court found that petitioners were liable for the accuracy-related penalty
under section 6662(a).
- Pine Mountain Preserve v. Commissioner, 151 T.C. No. 14 (151 T.C. 247)
(December 27, 2018) (appeal pending) (See also #105)
Facts: Deeds allowed homesites on the easement property, but they could be moved
with the consent of the donee.
MASP-110174-20 30
Issues: (1) Do moveable homesites cause the deduction to be disallowed?
(2) Is an amendment clause that allows amendments upon agreement of the donor and
the donee that are “consistent with conservation purposes” a violation of perpetuity?
Held: (1) Yes, because if the homesite is moveable, there is no restriction granted in
perpetuity and therefore no “qualified real property interest”. Deductions for TY 2005 a
TY 2006 disallowed.
(2) No, because a charitable organization will respect its charitable purpose, and
because a deed is a form of a contract. Deduction for TY 2007 allowed.
- Pine Mountain Preserve v. Commissioner, T.C. Memo. 2018-214
(December 27, 2018) (see also #104)
Issue: Valuation of 2007 easement.
Held: Court gives equal weight to the donor’s appraisal and the IRS’s appraisal.
Basis: IRS’s comparables were inferior to the subject property because IRS expert
incorrectly assumed that the property would not be developed. TP’s appraisal did not
take into account the increased value (positive external effects) on contiguous parcels
by preserving scenic views of the ridgelines and preserving the ridgelines for
recreational purposes. Also, TP’s expert should not have used the “before and after
approach” because the easement was on “highly developable property”. IRS expert
has to comply with the -14 regs because the regulation is not a “verification regulation”.
Errors by each expert have effects of “roughly the same magnitude”.
- Roth v. Commissioner, No. 18-9006 (10th Cir. 2019)
Held: Tax Court opinion affirmed on issue of whether IRS properly obtained written,
supervisory approval for its initial determination of a penalty assessment as required by
section 6751(b).
-
Blau v. Commissioner, No. 17-1266 (D.C. Cir. 2019), RERI Holdings I, LLC v.
Commissioner (#84) affirmed -
Evergreen Church Road, LLC v. Commissioner , No. 8493-17 (Order served
June 5, 2019)
Facts: TP did not report cost basis on Form 8283, stating that basis “is not taken into
account in computing deduction.” Also, the extinguishment clause had a carve out for
the value of improvements.
MASP-110174-20 31
Court: granted partial summary judgment to Commissioner on issue of basis omission,
citing RERI and Belair Woods. The Court stated that the TP “did not comply, strictly or
substantially, with the reporting regulation, assuming it is valid.” The Court also stated
that TP’s argument that the reg. is invalid and unpersuasive but reserved the issue for
further consideration. The Court denied the Commissioner’s motion for summary
judgment on the improvements clause, stating that a genuine issue of material facts
exists.
- Presley v. Commissioner, United States Court of Appeals, Tenth Circuit.
October 25, 2019--- Fed.Appx. ----2019 WL 5491552124 A.F.T.R.2d 2019-64702019-
2 USTC P 50, 267 (see also #103)
This is an appeal from Presley v. Commissioner, T.C. Memo. 2018-171
(October 15, 2018) #103
The Court upheld the Tax Court in denying the petitioners’ claimed charitable
deductions. The Court also upheld the Tax Court’s imposition of penalties.
- Coal Property Holdings, LLC v. Commissioner, 153 T.C. No. 7
(October 28, 2019)
On IRS’s Motion for Partial Summary Judgment, deduction denied in its entirety.
Issues: (1) Does extinguishment clause, which reduces donee’s proceeds on account
of improvements, comply with section 1.170A-14(g)(6)(ii)?
(2) Does the deed protect the conservation purpose in perpetuity as is required by
section 170(h)(5)(A)?
(3) Does savings clause cure this defect?
Held: (1) No, the TP’s formula for proceeds on extinguishment does not strictly comply
with the regulations. Tax Court cites Carroll v. Commissioner, 146 TC 196 (2016), and
PBBM-Rose Hill v. Commissioner, 900 F.3d 193 (5th Cir. 2008).
(2) Because of the defective extinguishment clause, the deed did not protect the
conservation purpose in perpetuity.
(3) TP’s clause was a “condition subsequent savings clause”, which is ineffective
because it purports to countermand the plain text of the Easement Deed. Tax Court
cites Belk v. Commissioner, 774 F.3d 221, 225 (4th Cir. 2014, aff’g 140 T.C. 1 (2013)).
- U.S. v. Zak, Slip Opinion, 2019 WL 7476435, 124 A.F.T.R.2d 2019-6993
(December 10, 2019) in the United States District Court, N.D. Georgia, Atlanta
Division.
MASP-110174-20 32
The US brought five counts against Nancy Zak (a conservation manager, consultant,
and project manager who assists in the planning and execution of conservation
easement donations and conservation easement syndicates) and Claud III Clark (an
appraiser) for involvement in 96 conservation easement syndications involving real
property in Alabama, Georgia, Indiana, Kentucky, North Carolina, South Carolina,
Tennessee, and Texas. Zak and Clark moved to dismiss certain of these counts.
The Court dismissed the second count against Zak and no counts against Clark. The
five counts were (1) section 6700, abusive tax shelters; (2) section 6695A(a), penalty on
appraisers; (3) section 6694, penalty on tax return preparers for understating tax
liability; (4) section 7402, injunctive order preventing Zak and Clark from participation in
future conservation easement syndications; and (5) section 7402, disgorgement. The
Court dismissed the second count against Zak because section 6695A applies only to
appraisers and not to those who assist appraisers.
- TOT Property Holdings, LLC v. Commissioner, Docket # 5600-17 (Bench
Opinion issued December 13, 2019)
Facts: 2017 contribution of an easement by an LLC. TOT claimed a charitable
contribution deduction of $6.9 million on its return for donation of an easement on 637
acres of property in rural Tennessee. Extinguishment clause in the deed denied the
donee proceeds attributable to improvements. The highest and best use before and
after remained the same (recreational use and timber harvesting).
Issues: (1) Does extinguishment clause violate perpetuity?
(2) Does merger clause violate perpetuity?
(3) Were the reserved rights impermissible inconsistent use?
(4) Was there overvaluation?
(5) Were the penalties properly approved in advance?
Held: (1) Extinguishment clause violates perpetuity because of improvements
language (citing Coal Property #106); condition subsequent savings clause does not fix
the problem, deduction denied (citing #106 and Palmolive (#92).
(2) FMV was $496,00 because there was no difference in highest and best use before
and after the easement was granted; Tax Court accepted the valuation of the IRS
expert.
(3) Penalty was properly approved in advance because the Letter 1807 transmitting the
agent’s summary report detailing the penalties was signed by the supervisor.
MASP-110174-20 33
- Belair Woods, LLC v. Commissioner, 154 T.C. No. 1 (January 6, 2020) (see
also #101)
This opinion deals with penalties. The Tax Court held that the issuance of a Letter 1807
and summary report, setting forth the Examination Division’s tentative proposed
adjustments and inviting petitioner to a conference to discuss them, did not constitute
“the initial determination of * * * [a penalty] assessment” necessitating prior supervisory
approval under section 6751(b)(1).
The Tax Court also held that the IRS agent had secured written supervisory approval on
the Civil Penalty Approval Form before the 60-day letter was issued to petitioner,
formally communicating to petitioner the Examination Division’s definite determination to
assert those penalties. Therefore, three penalties the IRS imposed satisfied the
requirements of section 6751(b)(1).
Finally, the Tax Court held that the IRS did not satisfy the requirements of
section 6751(b)(1) with respect to the fourth penalty because IRS agent did not show
timely supervisory approval of that penalty.
- Loube v. Commissioner, T.C. Memo. 2020-3 (January 8, 2020)
Facts: Petitioners hired Second Chance (the donee) to deconstruct a single-family
home. On their 2013 income tax return, petitioners claimed a charitable contribution
deduction for the value of the property salvaged by the donee. Respondent disallowed
the deduction.
Respondent argued that petitioners are barred from deducting a charitable contribution
deduction because their Form 8283 failed to include the date the donated property was
acquired or its cost basis, as well as its purporting to donate the salvaged items yet
valuing the entire house.
The Tax Court concluded that petitioners failed to “strictly comply” with DEFRA
section 155 and the regulations thereunder because their Form 8283 failed to provide
the basis and the acquisition date of the contributed property. Petitioners also failed to
attach to the Form 8283 an explanation of reasonable cause for the failure. The court
also found that the petitioners did not “substantially comply” with DEFRA’s
requirements.
- Carter v. Commissioner, T.C. Memo. 2020-21 (February 3, 2020)
TP conveyed to North American Land Trust (NALT) a conservation easement on 500
acres of a 5,245-acre tract of land.TP retained the right to build a single-family dwelling
on each of 11 building areas the locations of which were to be determined, subject to
NALT's approval.
MASP-110174-20 34
The IRS denied all the claimed deductions and imposed gross valuation misstatement
penalties under section 6662(a), (b)(3), (e), and (h).
The revenue agent who initially determined those penalties, sent to petitioners
examination reports that proposed their imposition before having received written
approval of the penalties from his immediate supervisor. Because petitioners had not
agreed to extend the period of limitations on assessment, the revenue agent's reports
did not include "30-day letters" giving petitioners the right to challenge at the Office of
Appeals the adjustments and penalties proposed in the revenue agent’s reports.
The Tax Court denied the claimed charitable deductions because the 11 building areas
had not been selected as of the date of the contribution. This violated the granted in
perpetuity requirement of section 170(h)(2)(C). With respect to the penalties, the Court
held that the revenue agent's reports communicated to petitioners his initial
determination of gross valuation misstatement penalties. Further, the Court did not
sustain the section 6751(b)(1) penalties because the written approval of the gross
valuation misstatement penalties by the revenue agent's immediate supervisor came
only after the revenue agent sent reports to petitioners that advised them of his initial
determination of the penalties.
- Railroad Holdings LLC v. Commissioner, T.C. Memo. 2020-22
(February 5, 2020)
Railroad Holdings LLC contributed a conservation easement on property to the
Southeast Regional Land Conservancy, Inc. The extinguishment clause in the deed
denied the benefit of an increase in the fair market value of the property to the donee in
the event the easement is extinguished. Specifically, the deed determined a
proportionate value at the time of the gift that was to remain constant.
- Brannan Sand & Gravel Co., LLC v. Commissioner, TL-27474-16 (Tax Court
Order dated February 7, 2020)
The case involves the donation of water storage rights. The appraisal petitioner
provided is by an attorney who is not an appraiser and does not include an analysis of
the water storage rights. The order requires that the parties show cause why the
remaining issue in this case should not be decided against petitioner by reason of
petitioner's failure to present an appraisal in support of the claimed charitable
contribution deduction.
- Rock Creek Property Holdings, LLC v. Commissioner, TL-5599-17 (Tax Court
Order dated February 10, 2020)
The Tax Court found that the extinguishment clause in this case was similar to the one
in Railroad Holdings LLC v. Commissioner (#116) and denied the charitable contribution
MASP-110174-20 35
deduction. The Tax Court stated “Exactly like the deed in Railroad Holdings, the deed
at issue here establishes only a floor for the amount of proceeds--one that is not
required to rise with the value of the property. Fixing a minimum amount that does not
provide the donee with the proportionate share of potential appreciation to which the
donee is entitled does not satisfy the requirements of section 1.170A-14(g)(6)(ii).”
- Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24
(February 13, 2020)
The Tax Court granted in part IRS’s motion for summary judgment, finding that TP failed
to attach a fully completed Form 8283 appraisal summary to its return. The Tax Court
found, however, that disputes of material fact exist as to whether TP had reasonable
cause for its failure. TP stated that it relied upon the donee and a CPA.
The Tax Court also upheld as valid section 1.170A-13(c) but declined to address TP’s
argument that section 1.170A-14(g)(6)(ii) is invalid, noting that that question is pending
in Oakbrook Land Holdings, LLC v. Commissioner, T.C. Dkt. No. 5444-13; Briarcreek
Pres. LLC v. Commissioner, T.C. Dkt. No. 1547-18; and Englewood Place, LLC v.
Commissioner, T.C. Dkt. No. 1560-18.
- Campbell v. Commissioner, T.C. Memo 2020-41 (April 7, 2020)
TP donated designer eyeglass frames to a qualified charity through a program designed
by a promoter. The Tax Court found that the appraisal attached to TP’s return was not
a qualified appraisal because it did not appraise the specific eyeglass frames TP
donated as required by section 1.170A-13(c)(3)(ii)(A). Instead, it appraised a larger
number of frames that included TP’s frames. Further, the CWA the charity provided TP
failed to include a statement that no goods or services were provided as consideration
for the contributed property as required by section 1.170A-13(f)(2)(ii). The Tax Court
rejected the TP’s substantial compliance arguments. Finally, the Tax Court found that
reasonable cause under section 170(f)(11)(A)(ii)(II) did not apply because the advisor
who TP relied upon was a promoter of the eyeglass frame donation program.
- Hoffman Properties II, LP v. Commissioner, --- F.3d ----, 2020 WL 1861974
(6th Cir.) (April 14, 2020) (see also #86, 94, and 95)
This opinion is in response to the TP’s July 23, 2019, appeal from the Tax Court’s
decision in this case entered on May 6, 2019. In the decision, the Tax Court denied the
TP’s entire charitable deduction ($15,025,463) for the donation of a conservation
easement on the facade of an historic building and imposed a 40% gross valuation
misstatement penalty. The decision cites Tax Court orders dated July 12, 2017 (#86)
and March 14, 2018 (#94 and 95). In the orders, the Tax Court granted the
Commissioner’s motions for summary judgement denying the TP’s claimed charitable
deduction because the donation wasn’t exclusively for conservation purposes.
MASP-110174-20 36
The 6th Circuit upheld the Tax Court’s decision to deny the claimed donation deduction
because the protected in perpetuity requirement in section 170(h)(5)(A) was violated by
a provision in the donation agreement. This provision stated that the charitable donee
is deemed to have approved the TP’s proposed changes to the donated façade that are
contrary to the applicable historic standards if the donee does not object to the
proposed changes within 45-days of receipt.
This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.
Please call (202) 317-7011 if you have any further questions.
Get today's answer for your situation
You just read what the IRS ruled for one taxpayer in 2020, and it can't be cited as precedent. Ezel checks the current Internal Revenue Code and IRS guidance and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.