Court Denies Conservation Easement Charitable Deduction

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Plateau Holdings, LLC, Waterfall Development Manager, LLC, TMP v. Comm’r, T.C. Memo. 2020-93 | June 23, 2020 | Lauber, J. | Dkt. No. 12519-16

Short SummaryPlateau Holdings, LLC (Plateau), a partnership for federal tax purposes, donated conservation easements related to two parcels of real property in Tennessee to Foothills Land Conservancy (Conservancy), a tax-exempt organization.  However, eight days before Plateau made this donation, an investor acquired, in an arm’s length transaction, a 98.99% indirect ownership interest in Plateau for less than $6 million.  On its 2012 federal income tax return (Form 1065), Plateau claimed a roughly $25.5 million charitable contribution deduction for the donation.

After audit, the IRS issued Plateau’s TMP a notice of final partnership administrative adjustment (FPAA) that disallowed the charitable contribution for donation of real property and determined a 40% gross valuation misstatement penalty under Section 6662(e) and (h).

Key Issue:  Whether Plateau:  (1) may claim a charitable contribution deduction for the conservation easements; and (2) is liable for the gross valuation misstatement penalty.

Primary Holdings

Key Points of Law:

InsightThe IRS has targeted syndicated contribution easements such as the one in Plateau.  However, on June 25, 2020, the IRS offered a settlement for those taxpayers with pending docketed Tax Court cases involving syndicated conservation easement transactions.  See IR-2020-130 (June 25, 2020).  The settlement, if accepted by the taxpayer, would require a concession of the income tax benefits the taxpayer received from the charitable contribution deduction.  In addition, the following requirements would have to be met:  (1) all partners must agree to settle and the partnership must pay the full amount of tax, penalties and interest before settlement; (2) partners may deduct the cost of acquiring their partnership interests and pay a reduced penalty of 10% to 20% depending on the ratio of the deduction claimed to partnership investment; and (3) partners who provided services in connection with any syndicated conservation easement transaction must pay the maximum penalty asserted by IRS (typically 40%) with no deduction for costs.  Taxpayers eligible for this offer will be notified by letter.


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