Page 152 - TaxAdviser_Jan_Apr23_Neat

INDIVIDUALS

doctrine of substantial compliance ap- including a proportionate value of post-
An acknowledgment plies to a failure to meet a regulatory re- donation improvements.
During the pre–rule-making public
quirement, not a statutory requirement.
is contemporaneous Thus, taxpayers must strictly follow the notice period, some comments on the
if the charitable documentation requirements set out by proposed regulations had disagreed with
organization provides Congress in the statute to qualify for the this approach. In Hewitt, the Eleventh
charitable contribution deduction.
Circuit ruled that the IRS failed to
it within 30 days respond to “significant comments” con-
of the contribution. Sec. 170(h): Qualified cerning the extinguishment proceeds
conservation contribution
calculation, violating the APA’s proce-
Owners of real property sometimes dural requirements.39 The court thus
agree to limit the use of their property found the regulation’s allocation method
is contemporaneous if the charitable for conservation purposes. Sec. 170(h) for post-extinguishment proceeds pro-
organization provides it within 30 allows a charitable contribution for the cedurally invalid. But in Oakbrook Land
days of the contribution. Addition- fair market value (FMV) of a quali- Holdings, the Sixth Circuit upheld the
ally, the recipient organization must fied conservation contribution, which procedural and substantive validity of
provide the IRS with the information is defined as a contribution “(A) of a the extinguishment proceeds regula-
contained in the acknowledgment. qualified real property interest, (B) to a tion.40 Oakbrook Land Holdings LLC
With his 2010 Form 1040-X, qualified organization, (C) exclusively petitioned the U.S. Supreme Court to
Amended U.S. Individual Income Tax for conservation purposes”36 The Code review the Sixth Circuit’s ruling, hoping
Return, the taxpayer, Joe Alfred Izen and accompanying Treasury regulations the justices would step in to resolve the
Jr., provided a letter from the donee delineate the requirements to be met circuit split. However, on Jan. 9, 2023,
organization, but it was addressed before a contribution is deductible. A the Court denied Oakbrook’s petition.41
to Philippe Tanguy, not Izen. Also, variety of issues can arise.37 Conservation purpose must
the letter did not mention Izen or Validity of judicial extinguish- be protected in perpetuity: In
include his TIN. Izen also submit- ment proceeds regulations: In Pickens Decorative Stone,42 Morgan Run
ted a copy of a donation agreement recent decisions, two federal circuits split Partners,43 Thompson,44 Sparta,45 and
between him, Tanguy, and the society, on whether the IRS violated the notice- Corning Place Ohio,46 the issue arose
but it, too, lacked his TIN. Finally, and-comment rule-making requirements whether the IRS properly disallowed
although Izen attached Form 8283 of the Administrative Procedure Act charitable contribution deductions for
to his Form 1040-X, the Form 8283 (APA) when it promulgated the judicial conservation easement donations be-
did not include his TIN and was not extinguishment proceeds regulation.38 cause the easement deeds did not satisfy
signed contemporaneously. This regulation, issued in 1986, ad- the protected-in-perpetuity requirement
Izen argued that he substantially dresses how a conservation easement under Sec. 170(h)(5). In all the cases, the
complied with the rules and that donor and donee should divide the Tax Court denied IRS motions for par-
the documents he submitted should proceeds if the easement is subsequently tial summary judgment on this issue.
be read together with his tax return judicially extinguished. Under the In Pickens and Morgan Run, the court
to support the claimed deduction. regulation, the donee must be entitled denied the IRS’s motions because mate-
The court denied the substantial- to at least a minimum proportionate rial fact issues were ill suited to sum-
compliance argument because the share of post-extinguishment proceeds, mary judgment.

36. Sec. 170(h)(1). 38. Regs. Sec. 1.170A-14(g)(6)(ii).
37. Several provisions relating to qualified conservation contributions were 39. Hewitt, 21 F.4th 1336 (11th Cir. 2021).
included in the SECURE 2.0 Act, which was enacted in December 2022, 40. Oakbrook Land Holdings, LLC, 28 F.4th 700 (6th Cir. 2022).
after the period covered by this update. The legislation provides safe 41. Oakbrook Land Holdings, LLC, No. 22-323 (U.S. 1/9/23) (cert. denied).
harbors to allow taxpayers to correct easement deed language regard- 42. Pickens Decorative Stone, T.C. Memo. 2022-22.
ing extinguishment clauses and boundary line adjustments; the IRS is 43. Morgan Run Partners, T.C. Memo. 2022-61.
directed to develop safe-harbor language for this purpose. In addition, 44. Thompson, T.C. Memo. 2022-80.
certain limitations are placed on charitable deductions for conservation 45. Sparta, T.C. Memo. 2022-88.
easements by passthrough entities. See Section 605 of the SECURE 2.0 46. Corning Place Ohio, T.C. Memo. 2022-12.
Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, P.L.
117-328).

38 March 2023 The Tax Adviser