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TAX MATTERS

of post-easement property improve- the Hewitts contended that the IRS’s in the extinguishment proceeds allocated
ments before determining the donee’s interpretation of the regulations was to the donee was arbitrary and capri-
share of proceeds is not permitted under arbitrary and capricious. cious and was thus invalid. Because the
Regs. Sec. 1.170A-14(g)(6)(ii), the Tax In determining the regulation’s interpretation was invalid, the court also
Court held. The Hewitts appealed to the validity under the APA, the Eleventh reversed the Tax Court’s disallowance
Eleventh Circuit. Circuit examined whether the IRS had of the Hewitts’ carryover charitable
Issues: Sec. 170 permits a charitable followed the APA’s three-step procedure deductions related to the conservation
contribution deduction for contributions for notice-and-comment rulemaking, easement and remanded the case to the
of qualified conservation easements. The that agencies must: (1) issue a notice of Tax Court.
contribution must be exclusively for con- proposed rulemaking, (2) give interested ■ Hewitt, 21 F.4th 1336 (11th
servation purposes (Sec. 170(h)(1)(C)), parties the opportunity to participate Cir. 2021)
which must be protected in perpetuity and voice concerns, and (3) consider
(Sec. 170(h)(5)(A)). and respond to any significant com- — Shannon Veyon Jemiolo, CPA, Ph.D.,
Regs. Sec. 1.170A-14(g) provides ments received. is an assistant professor of accounting, and
rules for establishing that conservation During the comment period for the Ian Redpath, J.D., LL.M., is a professor
purposes are protected by enforceable proposed regulations that included the of accounting, both at Canisius College in
restrictions in perpetuity. Among them regulation at issue, the IRS received Buffalo, N.Y.
is a special rule for when a subsequent, more than 90 comments. Thirteen of
unexpected change in conditions these specifically addressed the proposed
surrounding the property makes its extinguishment proceeds regulation, with
continued use for conservation purposes one specifically commenting on whether
impractical or impossible. In this case, the the value of post-easement improvements
conservation purpose can be treated as should be included in the extinguishment
protected in perpetuity if the restrictions proceeds formula. In the preamble to the
are extinguished by a judicial proceeding Treasury Decision adopting the regula-
and all the donee’s proceeds from a sale tions as final, this comment was not spe-
or exchange of the property are used in a cifically addressed; rather, the IRS stated
manner consistent with the original con- that it had “consider[ed] … all comments
tribution’s conservation purposes (Regs. regarding the proposed amendments.”
Sec. 1.170A-14(g)(6)(i)). In addition, The IRS also stated in the preamble that, IRS levy trumps
decedent’s children’s
under Regs. Sec. 1.170A(g)(6)(ii), the since the regulations were interpretative,
donee must be entitled to a portion of the although it had solicited comments, the claim to money held in
proceeds at least equal to the restriction’s APA’s procedural requirement of notice
usufruct
value, which must be at least equal to the and public comment had not applied.
proportion that the value of the restric- Before the Eleventh Circuit, the IRS State law treats heirs as
tion bore to the value of the property as contended that none of the 13 comments
a whole at the time of the gift and have on the regulation at issue were suf- unsecured creditors.
remained constant from that time. ficiently significant to require a response By Alistair M. Nevius, J.D.
The Eleventh Circuit noted that it because they did not cast doubt on
had recently rejected arguments that “any its reasonableness. The Fifth Circuit affirmed a district
amount, including that attributable to Holding: The Eleventh Circuit sided court decision that an IRS levy against
improvements, may be subtracted out” with the Hewitts and held that the a decedent’s estate for unpaid taxes took
from the constant proportionate value of IRS had violated the APA’s procedural precedence over his children’s claims
a perpetual conservation restriction under requirements, finding that the com- to the money, which the decedent held
the regulation (TOT Property Holdings, ments regarding the extinguishment in usufruct under Louisiana law, since
LLC, 1 F.4th 1354 (11th Cir. 2021)). proceeds calculation were significant the children were essentially unse-
However, the court noted, it had not in and the IRS had failed to respond to the cured creditors.
the earlier case addressed whether Regs. comments. Consequently, the court held Facts: Henry and Tonia Goodrich,
Sec. 1.170A(g)(6)(ii) is procedurally valid that the IRS’s interpretation of Regs. a married couple who lived in Louisi- IMAGE BY YURIY ALTUKHOV/ISTOCK
under the APA. Sec. 1.170A-14(g)(6)(ii) to disallow the ana, owned community property that
Besides arguing that the regulation subtraction of the value of post-donation included shares of stock and stock
is procedurally invalid under the APA, improvements to the easement property options in Goodrich Petroleum Co. (the

36 | Journal of Accountancy May 2022