Tax Court in Brief | Pickens Decorative Stone, LLC v. Comm’r | Syndicated Conservation Easement and “In Perpetuity”

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Tax Litigation:  The Week of March 14, 2022, through March 18, 2022

Pickens Decorative Stone, LLC v. Comm’r, T.C. Memo. 2022-22 | March 17, 2022 |Lauber, J. | Dkt. No. 13614-20

Opinion

Short Summary: This case involves a syndicated conservation easement scheme. In 2015, an entity purchased 163 acres for $490,010 and contributed it to Pickens Decorative Stone, LLC (“Pickens”), a partnership for Federal income tax purposes. Pickens, after soliciting investors through a private placement memorandum, granted to Foothills Land Conservancy a conservation easement over most of the property. The easement deed recites conservation purposes, but it reserved a number of rights-of-use to Pickens. The deed required Pickens to notify Foothills of any use that was not consistent with the conservation purposes, and, if Foothills did not timely object, it would be deemed to have consented to such inconsistent and non-conservation uses. Pickens claimed a charitable contribution deductions of $24,700,000 for the donation of the conservation easement. The IRS disallowed the deduction, believing that the easement’s conservation purpose was not “protected in perpetuity” as required by 26 U.S.C. § 170(h)(5)(A). The IRS sought a summary judgment on that issue as well as on the issue of authority of an IRS supervisor to approve penalties.

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. Where a grantor reserves certain rights of use to the property deeded as a conservation easement, then the holder of the conservation easement should have, maintain, and adopt policies, procedures, and practices designed to enforce the conservation purposes of the grant. Otherwise, the IRS may deem a sham (and thus, disallow the claimed charitable contribution deduction) the proposed dedication for conservation purposes “in perpetuity”.