Attorney-at-Law

YES IN DEED

In Uncategorized on 07/16/2012 at 22:40

Another scenic easement case, not involving a façade but rather woodland wild, Gayle O. Averyt and Margaret F. Averyt, et al., T. C. Memo. 2012-198, filed 7/16/12.

Gayle and Maggie and the “al”s, via their LLC, gave about 1070 acres of wet South Carolina to the Wetlands America Trust,  Inc., a wholly-owned 501(c)(3) sub of Ducks Unlimited, Inc., via an easement to keep same forever wild and ducky.

The deed of gift (or easement) was drafted by someone who bothered to read Section 170(f)(8), the $250 misunderstanding provision. Here’s how a habendum clause should be drafted: “NOW, THEREFORE, the Grantor, in consideration of the foregoing recitations and of the mutual covenants, terms, conditions and restrictions hereinunder set forth and as an absolute and unconditional gift, subject to all matters of record, does hereby freely give, grant, bargain, donate and convey unto the Grantee, and its successors and assigns, the Easement over the Protected Property subject to the covenants, conditions and restrictions hereinafter set forth which will run with the land and burden the Protected Property in perpetuity.” T. C. Memo. 2012-198, at p. 4. And both the LLC and Wetlands signed the deed.

Of course, neither Wetlands nor Ducks give any of the LLC, or Gayle, or Maggie, or any of the “al”s the usual “no goods or services furnished in exchange” letter required by Section 170(f)(8)(a). The LLC passed the deduction for the easement on to Gayle, Maggie and the “al”s, and avoided TEFRA since the LLC was treated as a small partnership (under ten members, no pass-through members). And the FMV of the easement doesn’t seem to be an issue in this Rule 121 summary judgment case.

The letters Wetlands sent are indeed held defective, but Gayle and Maggie argue that the deed does the deed, and they don’t need no stinkin’ letters.

Judge Wells: “Respondent (IRS) contends that the instant case is more analogous to Schrimsher v. Commissioner, T.C. Memo. 2011-71, in which the Court held that the taxpayers’ contribution of a conservation easement was not deductible because the taxpayers did not receive a contemporaneous written acknowledgment from the donee organization. In Schrimsher, the deed recited as consideration ‘the sum of TEN DOLLARS, plus other good and valuable consideration’. Because that deed included no description and good faith estimate of the value of the ‘other good and valuable consideration’, the Court concluded that it failed to satisfy section 170(f)(8)(B)(ii) and (iii). However, we conclude that the instant case is distinguishable from Schrimsher because the conservation deed in the instant case states that the contribution of the conservation easement is made “in consideration of the foregoing recitations and of the mutual covenants, terms, conditions, and restrictions hereinunder set forth”, which include recitations of the property’s conservation value but include no consideration of any value besides the preservation of the property, states that the easement is an “absolute and unconditional gift”, and provides that the conservation deed constitutes the entire agreement between the parties regarding the contribution of the conservation easement. Accordingly, we reject respondent’s argument.” T. C. Memo. 2012-198, at pp. 13-14.

Barring the neologism “hereinunder”, an obvious conflation (or should I say “smoosh”?) of the words “herein” and “hereunder”, this is how to draft a deed.

Note to dirt lawyers: Please don’t use boilerplate printed real estate forms for making a conservation easement. The old “ten dollars and other good and valuable consideration” bargain and sale deed form, available at dime-store prices, might be good enough for a routine single-family house sale, but not for a big-time transaction with heavy-duty tax deductions on the table. Read the IRC; draft your language with great care. Have both grantor and grantee sign the deed. Use a proper integration clause. And remember Schrimsher, where somebody’s lawyer used a dime-store form and blew up their client.

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