Tax Court in Brief | Oxbow Bend, LLC v. Comm’r | Conservation Easement and “Initial Determination” of Penalties

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The Tax Court in Brief – March 21st – March 25th, 2022

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Tax Litigation:  The Week of March 21, 2022, through March 25, 2022

Oxbow Bend, LLC v. Comm’r, T.C. Memo. 2022-23 | March 21, 2022 | Lauber, J. | Dkt. No. 12718-19

Short Summary: This case involves a charitable contribution deduction claimed by Oxbow Bend, LLC (Oxbow) for a conservation easement. In 2014, Oxbow owned interests in 133 acres and from those, Oxbow granted a conservation easement to an organization. For tax year 2014, Oxbow claimed charitable contribution deductions of near $17,000,000 combined for the donated easement and fee simple interest. The IRS examined Oxbow’s 2014 Form 1065, U.S. Return of Partnership Income. During a call with Oxbow, the reviewing agent verbally explained the anticipated adjustments and penalties that were under consideration. Thereafter, the agent sent her the notice of proposed adjustment (NOPA) to, and received signed approval from, her manager. The IRS issued the final partnership administrative adjustment (FPAA) disallowing the charitable contribution deduction for the easement (near $13 million), reducing the deduction for the fee simple donation, and determining penalties. Oxbow challenged that later determination, claiming it was untimely because it was not the “initial determination” of the assessed penalty.

Primary Holdings:

Key Points of Law:

Insights: Conservation easements, especially syndicated 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. If a Form 1065 return is examined, and if penalties are assessed pursuant to Section 6662 and 6662A, the timeliness of the “initial determination” under Section 6751(b) is determined by the first “formal written communication” to the taxpayer against whom the penalties are being asserted. Fleeting or hypothetical mentions of penalties during a phone call with the reviewing agent will, more likely than not, be insufficient to constitute an “initial determination” under Section 6751.


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