Tax Court in Brief | Corning Place Ohio, LLC v. Comm’r | Non-cash Charitable Contributions and Conservation Easements

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Tax Court in Brief | Corning Place Ohio, LLC v. Comm’r | Non-cash Charitable Contributions and Conservation Easements

The Tax Court in Brief – February 28th – March 4th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of February 28, 2022, through March 4, 2022

Corning Place Ohio, LLC v. Comm’r, T.C. Memo. 2022-12 | February 28, 2022| Lauber, J. | Dkt. No. 12428-20


Short Summary: This case involves a review of a motion for summary judgment on the issue of whether the IRS’s denial of a charitable contribution deduction for a conservation easement was proper. In 2015, Corning Place Ohio, LLC (LLC) purchased for $6 million, a building that was built in 1893 for sons of President James A. Garfield on land owned by John D. Rockerfeller. After making renovations, LLC deeded a façade easement to a “qualified organization” within the meaning of section 170(h)(3). The deed provided for a split of sales proceeds between LLC and the organization if the property was sold following judicial extinguishment of the easement. For tax year 2016, LLC claimed a charitable contribution deduction of $22,601,000. The IRS disallowed the deduction.

Issues: Was the IRS entitled to a summary judgment on the denial of the charitable contribution deduction when: (1) LLC reserved a right to sales proceeds, thus challenging the “perpetuity” of the conservation easement; and/or (2) in LLC’s applicable tax return, LLC failed to include (i) the $500 statutory filing fee and (ii) the qualifications of the appraiser?

Primary Holdings:

  • No. LLC’s reserved interest in sales proceeds from a judicial extinguishment adequately tracked the applicable regulations that permit such an interest for a qualified conservation easements. And, there remained a dispute as to whether LLC’s late submission to the IRS of the $500 filing fee and the appraiser’s qualifications were sufficient under the Code and regulations. Thus, a summary judgment favoring the IRS was not proper.

Key Points of Law:

  • The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Relief in a summary judgment proceeding may be granted when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law.
  • Section 170 sets the rules for the deductibility of charitable contributions, and there are regulations that go into much greater detail. See Treas. Reg. § 1.170A-13.  Those regulations distinguish between cash and noncash contributions.  See id.
  • One type of noncash charitable contribution is the donation of a partial interest in real estate. The Code generally disallows a charitable contribution deduction for a gift of real property that consists of less than the taxpayer’s entire interest in such property.  But, there is an exception for the donation of conservation easements. See 26 U.S.C. § 170(f)(3)(A)-(B)(iii).
  • A qualified conservation contribution is a contribution: (A) of a qualified real property interest; (B) to a qualified organization; (C) exclusively for conservation purposes.  A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity. See id. at § 170(h)(1), (5)(A).
  • The Treasury Regulations recognize that a subsequent unexpected change in the conditions surrounding the property can make impossible or impractical the continued use of the property for conservation purposes. Reg. § 1.170A-14(g)(6)(i). Thus, the regulations permit a conveyance to contain certain qualified divisions of sales proceeds in the event of a judicial extinguishment of the easement. These requirements, though, are strictly construed, and the deed in question is reviewed pursuant to applicable state law.
  • A taxpayer claiming a deduction for donating a conservation easement must include with its return a “qualified appraisal.” as defined in section 170(f)(11)(E). The appraisal must set forth, among other things, the qualifications of the appraiser. See Reg. § 1.170A-13(c)(3)(ii)(F). The taxpayer must also include with its return photographs of the building’s exterior. 26 U.S.C. § 170(h)(4)(B)(iii)(II).
  • “No deduction shall be allowed with respect to any contribution [of a facade easement] unless the taxpayer includes with the return for the taxable year of the contribution a $500 filing fee.” 26 U.S.C. § 170(f)(13)(A).

Insights:  Conservation easements are under scrutiny by the IRS. Taxpayers seeking to deduct noncash charitable contributions in the form of conservation easements should take due care to “cross the t’s and dot the i’s” in the conveyances themselves as well as in the tax returns in which the charitable deduction is requested. And, by all means, submit the $500 statutory filing fee, especially when requesting a charitable contribution deduction of $22,601,000.

Related Freeman Law Sources:

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts and Penalty Defenses

Syndicated Conservation Easements (and Other Tax Schemes) Beware