In Uncategorized on 07/14/2015 at 16:10

Until the Golden-Cheeked Warbler Sings

Unhappily, this delightful little creature’s warble can’t save the Section 170 conservation easement deduction for Bosque Canyon Ranch, L.P., BC Ranch, Inc., Tax Matters Partner, 2015 T. C. Memo. 130, filed 7/14/15, as Judge Foley finds the Bosquers story is for the birds.

As a point of interest, “…the golden-cheeked warbler, [is] an endangered species of bird endemic to, and nesting only in, Texas.” 2015 T. C. Memo. 130, at p. 4.

The lands now or formerly of the Bosquers included the habitat of the golden-cheeked warbler, but the deed of conservation easement also provided for the Bosquers and the North American Land Trust (NALT), the Section 501(c)(3) guardian of the conserved, to make internal shifts of the servient tenement (no, not the crash pad for extras from “Fifty Shades of Grey,” rather the encumbered premises).

Besides that, the Bosquers also “…retained various rights relating to the property, including rights to raise livestock; hunt; fish; trap; cut down trees; and construct buildings, recreational facilities, skeet shooting stations, deer hunting stands, wildlife viewing towers, fences, ponds, roads, trails, and wells.” 2015 T. C. Memo. 130, at p. 5. Hardly “forever wild,” even by Texas standards.

Finally, the Bosquers sold partnership interests in the deal (for which they claimed an $8.4 million charitable deduction on account of Warblerville) to various unrelated types, who incidentally got homesites in land adjoining Warblerville.

So we have non-partnership with a disguised sale. Disguised sale applies even where a partnership isn’t a partnership; “See sec. 1.707-3(a)(3), Income Tax Regs. (‘If a person purports to transfer property to a partnership in a capacity as a partner, the rules of this section apply * * * even if it is * * * [subsequently] determined * * * that such person is not a partner.’).” 2015 T. C. Memo. 130, at p. 15, footnote 5.

Now all the disguised sale business comes up post-TEFRA, but that’s OK, as IRS has burden of proof and sustains it.

Finally, when it comes to the conservation easement, we have The Case of the Incoherent Conservator.

“The reference to the Site Survey Report in the 2005 baseline documentation’s table of contents indicates that the table of contents was not prepared until March 2007, at the earliest. In addition, the Site Survey Report included in the 2007 baseline documentation was based on a 2004 … visit. Thus, it failed to provide a timely and accurate description of the property subject to the 2007 easement. Petitioners also could not explain why the 2007 baseline documentation included photographs taken in November 2008. In rambling, incoherent testimony, A, president of the NALT, failed to clarify these glaring inconsistencies. He appeared to be unfamiliar with the baseline documentation; did not know when it had been prepared or who had prepared various portions; and admitted he ‘never felt that we had to stop preparing a baseline at some artificial date’ and that portions of the documentation (e.g., a map purporting to reflect the habitat of the golden-cheeked warbler) were ‘fairly imprecise’. 2015 T. C. Memo. 130, at p. 14. (Name omitted.)

Now there was a decent appraisal in there somewhere, so the Bosquers wanted the good faith bailout from the 40% overvaluation chop (the conservation easement was worth zero after the Bosquer reservations were done with it).

But Judge Foley isn’t having any. “Notwithstanding its actions relating to the qualified appraisal of the 2005 easement, [Bosquers] did not act reasonably or in good faith with respect to the documentation requirements of section 1.170A-14(g)(5)(i), Income Tax Regs. The 2005 baseline documentation was insufficient, unreliable, and incomplete, and [Bosquer]’s submission of this documentation to the NALT did not constitute a reasonable attempt to comply with section 170 and the related regulations. R failed to effectively supervise or review the NALT’s slipshod preparation of the baseline documentation and [Bosquers] thereby failed to satisfy its responsibility relating to the preparation of the documentation. Any reliance on the NALT by [Bosquers] was accordingly unreasonable.” 2105 T. C. Memo. 130, at p. 21.

The golden-cheeked warbler sang.

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