Conservation Easements and the Tax Court

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Belair Woods, LLC v. Comm’r, T.C. Memo. 2020-112 | July 22, 2020 | Lauber, J. | Dkt. No. 19493-17

Short SummaryThe case involved charitable contribution deductions for conservation easements. It arose on the IRS’s motion for partial summary judgments, contending that the charitable contribution deduction claimed by Belair Woods, LLC (Belair), was properly disallowed because the conservation purpose underlying the easement was not “protected in perpetuity” as required by section 170(h)(5)(A).

In December 2008 Belair acquired, by contribution from HRH Investments, LLC (HRH), a 145-acre tract of land in Effingham County, Georgia. On December 30, 2009, Belair donated a conservation easement over 141 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization” for purposes of section 170(h)(3).

The deed recognizes the possibility that the easement might be extinguished at some future date. In the event the property were sold following judicial extinguishment of the easement, paragraph 17 provided that “[t]he amount of the proceeds to which Grantee shall be entitled, after the satisfaction of any and all prior claims, shall be determined, unless otherwise provided by Georgia law at the time, in accordance with the Proceeds paragraph.” Paragraph 19, captioned “Proceeds,” specified that the deed granted the Conservancy “a real property interest, immediately vested in Grantee,” and that this vested property interest entitled the Conservancy to receive, in the event of an extinguishment, a share of any future proceeds determined by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of this conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement.

Key Issue:  Whether the charitable contribution deductions related to conservation easements should be recognized. Ultimately, the issue turned on whether the underlying deed granting the easement satisfied the Treasury Regulation’s “protected in perpetuity” requirement.

Primary HoldingsThe Court granted the IRS’s Motion for Summary Judgment, holding, that Belair’s deed fails to satisfy the “protected in perpetuity” requirement. 

Key Points of Law:

InsightThis case raises substantially the same issues raised in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12, 2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); and Carroll v. Commissioner, 146 T.C. 196 (2016). It is yet another example of the IRS’s continued focus on syndicated conservation easements and its substantial devotion of enforcement resources towards attacking their validity.  The case, as many prior cases, has ultimately turned on technical issues related to the underlying deed and its legal descriptions, rather than valuation or other issues.