In Uncategorized on 12/27/2018 at 16:55

No, this is not a Helvetian patriot’s hymn to the Alpine cantonments. Rather, we have a 116-page (count ‘em, 116 pages) battle of the heavyweights between Judge Albert G (“Scholar Al”) Lauber and Judge  Morrison, over whether one can move the holes in a slice of Emmenthaler by cutting new holes and filling the old ones, thus encumbering said slice in perpetuity. We also review Belk and Bosque, diss 5 Cir’s take on Bosque and end up with one $4 million deduction (out of three tries) for Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 151 T. C. 14, filed 12/27/18.

The Pine Mountaineers lose Easement One because they could build too much and move around where they could build. And Judge Scholar Al (and the majority) like how Judge Dennis of 5 Cir, dissenting in Bosque, put it.

“Our thinking about this issue is well captured by the ‘Swiss cheese’ metaphor that Judge Dennis employed.  See BC Ranch II, L.P., 867 F.3d at 562 (Dennis, J., dissenting).  For this purpose one must imagine the entire easement related area as a large slice of Emmenthaler cheese.  The cheese represents the real property initially restricted by the conservation easement.  The holes represent the zones reserved for commercial or residential development.  Section 170(h)(2)(C) requires that the land restricted by the conservation easement be protected from development in perpetuity.  The statute thus bars the developer from putting any new holes in the cheese.

“As relevant here, the developer could consider two techniques for putting new holes in the cheese.  First, he could put new holes in the cheese and make up for it by adding an equal amount of previously unprotected land to the conservation area.  That was the pattern in Belk.  Alternatively, he could put new holes in the cheese and make up for it by plugging the same number of holes elsewhere in the conservation area.  That was the pattern in Bosque Canyon and in the instant case.  In each instance the acreage subject to the easement remains exactly the same.  But in both instances the developer has achieved the impermissible objective of putting new holes in the cheese, i.e., subjecting to commercial or residential development land that was supposed to be protected in perpetuity from such development.

“Like Judge Dennis, we are unable to discern any meaningful legal distinction between these two paths to the same bottom line.  In both scenarios, the developer has retained the right to develop a portion of the conservation area by substituting other property.  The only difference among Belk, Bosque Canyon, and this case is whether the other property lies inside or adjacent to the conservation area.  We do not see why it matters where the other property lies.  What matters is whether there is a perpetual use restriction on ‘the real property’ covered by the easement at the time the easement is granted.  Sec. 170(h)(2)(C).” 151 T. C. 14, at pp. 43-44.

The majority are JJ. Foley, Gale, Thornton, Marvel, Gustafson, Kerrigan, Buch, Nega, Pugh, and Ashford.

But Judge Morrison, dissenting, says yes it does. The easement area is protected in Easement Two, which the majority dumped. While some building can go on, the entire parcel is guarded by the easement. He does dump Easement Two on other grounds, viz., said easement allows inconsistent uses sufficient to knock out preservation for conservation. If the most exhaustive (and exhausting) analysis of put-and-take scenic easementing to date floats your boat, this is the real deal.

Everyone agrees that Easement Three, which permits a water tower and piping and nothing else, is OK. And Judge Morrison does a King Solomon in evaluating the worth of that easement in Pine Mountain Preserve, LLLP f.k.a. Chelsea Preserve, LLLP, Eddleman Properties, LLC, Tax Matters Partner, 2018 T. C. Memo. 214, filed 12/27/18, taking 50% of petitioner and 50% of IRS, as the errors made by each side’s expert cancel out those of the other’s.

“Using an equally weighted average, we conclude that the value of the…easement is $4,779,500, equal to 50% of [Pine Mountaineers’] $9,110,000 value plus 50% of [IRS’] $449,000 value.” 2018 T. C. Memo. 214, at p. 36.

Shutdown or no shutdown, Tax Court is in there pitching.


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