The Tax Court and Conservation Easements

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Jason B. Freeman

Jason B. Freeman

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Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

The Tax Court and Conservation Easements

Englewood Place, LLC v. Comm’r, T.C. Memo. 2020-105 | July 9, 2020 | Lauber, J. | Dkt. No. 1560-18

Short SummaryThe case involved charitable contribution deductions for conservation easements.

In December 2008 Englewood acquired, by contribution from HRH Investments, LLC (HRH), a 135-acre tract of land in Effingham County, Georgia. On July 29, 2011, Englewood donated a conservation easement over 130 acres of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organization” for purposes of section 170(h)(3).

The easement deed recited the conservation purposes and generally prohibits commercial or residential development. But it reserves certain rights to Englewood as grantor, including the rights to conduct commercial agricultural and timber-harvesting activities within the conserved area.

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 of the deed 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 grantee’s share of any future proceeds would be 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 Issues:  Whether the taxpayer is entitled to a charitable deduction for its grant of a conservation easement.

Primary Holdings: The Taxpayer is not entitled to a charitable deduction for the gran of the conservation easement.  The conservation purpose underlying the easement was not “protected in perpetuity” as required by section 170(h)(5)(A).

Englewood’s deed failed to satisfy the “protected in perpetuity” requirement for two reasons.

Key Points of Law:

InsightThe questions presented in this case are substantially identical to those previously decided adversely to the taxpayers 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); Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159.  The case illustrates the IRS’s continued focus on conservation easements.  The opinion was issued along with several other conservation-easement opinions on the same date based on substantially the same facts, reasoning, and legal authorities.

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