Page 153 - TaxAdviser_Jan_Apr23_Neat

Valuation of the conserva-
After Glade Creek filed its appeal, the Eleventh tion easement at the time of
donation: In Champions Retreat Golf
Circuit issued its ruling in Hewitt, invalidating Founders,50 the Tax Court addressed
the proceeds regulation. a question about the proper valuation
of a conservation easement donation.
Previously in the case, the Tax Court
In Thompson and Sparta, the IRS found that the apportionment for- had affirmed the IRS’s determination
contended that the easement deed failed mula in the deed was consistent with that Champions Retreat Golf Founders
to satisfy the protected-in-perpetuity the regulation. LLC was not entitled to a deduction
requirements, in that carve-outs im- Also in Corning Place, the IRS in tax year 2010 for a qualified con-
properly reduced the donee’s share disputed whether the taxpayer had servation contribution because it did
of post-extinguishment proceeds for complied with substantiation and not satisfy the conservation purpose
donor improvements. The Tax Court qualified appraisal requirements under requirement of Sec. 170(h).51 In 2020,
was obligated to follow the Eleventh Secs. 170(h) and 170(f). The appraisal the Eleventh Circuit reversed this deci-
Circuit precedent established in Hewitt that the taxpayer had included as sup- sion and remanded the case, directing
invalidating the judicial extinguish- port for the deduction omitted the the Tax Court to determine the proper
ment proceeds regulation as having appraiser’s qualifications, which were amount of the deduction.52
been adopted without following proper supplied to the IRS subsequently. The The value of a charitable contribu-
notice-and-comment rule-making Tax Court noted that, while the tax- tion deduction for a conservation
procedures47; therefore, the court ruled payer did not comply with the relevant easement is the FMV of the easement
that summary judgment for the IRS was requirements literally, there remained at the time of the contribution. The
not appropriate. material facts regarding substantial appraisal submitted by the taxpayer
In Pickens Decorative Stone, Morgan compliance or reasonable cause that in support of the deduction relied on
Run Partners, Thompson, and Sparta, the would benefit from further explanation the “before and after” method to value
IRS assessed penalties in conjunction at trial. The court denied the IRS’s mo- the easement. If the “before and after”
with the disallowance of charitable con- tion for partial summary judgment. method is used, the valuation must
tribution deductions for the donation of Finally, in Glade Creek Partners, the consider the current use of the property
conservation easements. The Tax Court Tax Court ruled after a trial that the as well as its potential “highest and best
granted IRS motions for partial sum- taxpayer improperly took a charitable use.”53 This is where the controversy
mary judgment that it complied with contribution deduction for a conserva- arose. The taxpayer’s appraisers thought
the Sec. 6751(b) requirement for writ- tion easement donation because the that the property’s pre-donation high-
ten supervisory approval for penalties. easement deed did not comply with the est and best use was as an 18-hole golf
Therefore, the penalties will stand if the judicial extinguishment proceeds regu- course and residential subdivision. They
court eventually disallows the conserva- lation and therefore did not satisfy the valued the easement at $10,427,435.
tion easement contribution deductions. protected-in-perpetuity requirement The appraiser for the IRS asserted that
In Corning Place Ohio, the IRS under Sec. 170(h)(5).48 Glade Creek the pre-donation highest and best use
argued that the charitable contribution appealed to the Eleventh Circuit. After was as a 27-hole golf course. He as-
deduction for a conservation ease- Glade Creek filed its appeal, the Elev- signed a value of $20,000. All apprais-
ment donation was properly disallowed enth Circuit issued its ruling in Hewitt, ers agreed that the highest and best use
because the easement deed violated invalidating the proceeds regulation.49 after the easement was as a 27-hole
the judicial extinguishment proceeds Accordingly, the Eleventh Circuit golf course. In the end, the court modi-
regulation and therefore did not satisfy vacated the Tax Court decision and fied one of the taxpayer’s appraiser’s
the protected-in-perpetuity require- remanded the case to the Tax Court valuations and settled on a value of
ment under Sec. 170(h)(5). The court for reconsideration. $7,834,091.54

47. Regs. Sec. 1.170A-14(g)(6)(ii). 51. Champions Retreat Golf Founders, LLC, T.C. Memo. 2018-146.
48. Glade Creek Partners, T.C. Memo. 2020-148, vac’d in part, No. 21-11251 52. Champions Retreat Golf Founders, LLC, 959 F.3d 1033 (11th Cir. 2020).
(11th Cir. 8/22/22). 53. Regs. Secs. 1.170A-14(h)(3)(i) and 1.170A-14(h)(3)(ii).
49. Hewitt, 21 F.4th 1336 (11th Cir. 2021). 54. Champions Retreat Golf Founders, LLC, T.C. Memo. 2022-106.
50. Champions Retreat Golf Founders, LLC, T.C. Memo. 2022-106.

www.thetaxadviser.com March 2023 39