In Uncategorized on 01/28/2013 at 16:36

Kicking off T. C. Volume 140, B. V. Belk, Jr., and Harriet C. Belk learn from Judge Vasquez that a thing of beauty must not only be a joy forever, but must be the same thing of beauty forever, which means you can’t swap one thing of beauty with another. See 140 T. C. 1, filed 1/28/13.

BV Jr. and Harriet had a couple of hundred acres of North Carolina adjacent to, if not on top of, Old Smoky, which was held by Olde Sycamore, LLC, the membership interests of which BV Jr and Harriet owned 99% and 1%, respectively. BV Jr and Harriet subdivided the land and sold homesteads thereon, reserving 185 acres for a golf course, around and among which lay the homesteads in question.

Olde Sycamore wanted to subject the golf course to a Section 170(h) scenic easement, incidentally picking up a $10 million charitable deduction. See my blogpost “Valuable Consideration?” 10/3/12, for a similar gambit.

Olde Sycamore’s problem wasn’t the “ten dollars and other valuable consideration” boilerplate, but rather BV Jr and Harriet trying to play mix-and-match with the golf course.

Their deal with the fetchingly-named Smoky Mountains National Land Trust, n/k/a Southwest Regional Land Conservancy, a 501(c)(3) whose purpose was keeping unspoiled our national patrimony, included a provision allowing B V Jr. and Harriet to swap other land for the golf course, to which Smoky couldn’t unreasonably object, provided the conservation purpose was maintained.

The latter is designed to satisfy Section 170(h)(5) conservation purpose. But Judge Vasquez says that doesn’t satisfy the Section 170(h)(2)(C) perpetuity purpose. The two are separate. Section 170(h)(5) allows for a form of cy pres where changed circumstances make the originally donated property unsuitable for continued conservation purposes. But the property has to satisfy Section 170(h)(2)(C) to begin with, that is, subject to the restriction in perpetuity.

So the real issue is the Section 170(h)(2)(C) use requirement that a partial interest in real property must be restricted in perpetuity. And Judge Vasquez says this is a case of first impression, thus a Tax Court full-dress opinion is warranted.

Judge Vasquez: “Petitioners [BV Jr and Harriet] argue it does not matter that the conservation easement agreement permits substitution because it permits only substitutions that will not harm the conservation purposes of the conservation easement. However, as discussed above, the section 170(h)(5) requirement that the conservation purpose be protected in perpetuity is separate and distinct from the section 170(h)(2)(C) requirement that there be real property subject to a use restriction in perpetuity. Satisfying section 170(h)(5) does not necessarily affect whether there is a qualified real property interest. Section 170(h)(2), as well as the corresponding regulations and the legislative history, when defining qualified real property interest does not mention conservation purpose. There is nothing to suggest that section 170(h)(2)(C) should be read to mean that the restriction granted on the use which may be made of the real property does not need to be in perpetuity if the conservation purpose is protected.

“We find it is immaterial that SMNLT must approve the substitutions. There is nothing in the Code, the regulations, or the legislative history to suggest that section 170(h)(2)(C) is to be read to require that the interest in property donated be a restriction on the use of the real property granted in perpetuity unless the parties agree otherwise. The requirements of section 170(h) apply even if taxpayers and qualified organizations wish to agree otherwise.” 140 T. C. 1, at pp. 19-20 (Footnote omitted).

So mixing-and-matching or swapping is out. And so is BV Jr’s and Harriet’s deduction.


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