Attorney-at-Law

SWISS CHEESE

In Uncategorized on 02/03/2020 at 16:12

But No Boss Hoss

Nathaniel A. Carter and Stella C. Carter, 2020 T. C. Memo. 21, filed 2/3/20, had a “Swiss cheese” conservation easement permitting the building of eleven (count ‘em, eleven) homes at various undisclosed locations on the old plantation in Glynn County, GA. While the 501(c)(3) beneficiary of this easement in gross is OK, the Swiss cheesery fails the Pine Mountain test, for which see my blogpost “Perpetually Swiss,” 12/27/18.

“Regardless of whether building houses on each of 11 two-acre lots would impair conservation purposes in the easement area as a whole, it would impede the achievement of those purposes within each building area.  Pine Mountain establishes that the building of a single family home on a given site does not preserve the site itself as an open space or protect natural habitats or similar ecosystems within the site.  Petitioners’ argument might establish their easement’s compliance with section 170(h)(5)’s perpetual protection requirement; it does not establish compliance with section 170(h)(2)’s perpetual restriction requirement, as interpreted by Pine Mountain.” 2020 T. C. Memo. 21, at p. 21.

And Judge James S (“Big Jim”) Halpern says mox nix that the Carters and their partner Ralph claim the homesites will be developed only for them and their families, not for commercial sale. The deed of easement doesn’t say that, and anyway, a home is a home, regardless who lives there.

And even though 5 Cir shot down Tax Court in Bosque, (see my blogpost above-cited), the Carters are Golsenized to 11 Cir.

But the RA on this case fired off Letters 5153 and his Revenue Agent’s Report (RAR) before getting the Boss Hoss Section 6751(b) sign-off.

“That the RARs were sent with Letters 5153 rather than 30-day letters appears to have been attributable solely to petitioners’ unwillingness to provide Appeals sufficient time to consider their cases.  Under the circumstances, the absence of 30-day letters did not indicate a lack of formality or finality in Agent Dickerson’s determination.” 2020 T. C. Memo. 21, at p. 30.

A Letter 5153 is a transmittal for the RAR, telling the addressee to pay up, talk about payment plans, or extend IRS’ time to assess tax to let Appeals have a whack; but if the addressee does nothing by a date certain, IRS will give them a SNOD at no extra charge.

That’s enough for Judge Big Jim. That the Boss Hoss signed off eleven (count ‘em, eleven) days later doesn’t help. So substantial valuation misstatement chops go by the board.

  1. […] Taishoff has Swiss Cheese noting the same thing I did. He discusses the penalty issue in his usual colorful […]

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  2. […] Taishoff has Swiss Cheese noting the same thing I did. He discusses the penalty issue in his usual colorful […]

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  3. […] Taishoff has Swiss Cheese noting the same thing I did. He discusses the penalty issue in his usual colorful […]

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  4. […] Taishoff has Swiss Cheese noting the same thing I did. He discusses the penalty issue in his usual colorful […]

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  5. If the plantation has a market value of $1M initially, and after establishing the easement saying 88% of the land can’t be built on still has a market value of $950,000, because people with big houses in the country only want lawns on 12% of the land anyway and like having the rest be woods, is the tax deduction $50,000, or something bigger? I suspect it should be $50,000 in theory but is $880,000 in practice, or maybe $1M. But maybe the IRS theory allows it to be bigger than $50,000 too. Any thoughts?

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  6. To the extent this comment is directed to me, I can only quote Judge Holmes’ dissent in Oakbrook: “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.

    “Congress, however, enacted these sections of the Code and presumably wanted reasonably valued conservation easements to be allowed. Yet we’ve come to a point where we are disallowing a great many conservation-easement deductions altogether, not for exaggeration of their value or lack of conservation purpose, but because of very contestable readings of what it means for an easement to be perpetual.” Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, 154 T. C. 10, at pp. 126-127.

    To answer your question (with a question, as is my wont), what are the before-and-after valuations, and how are they supported by credible evidence? If these support your numbers, you are right.

    And arguments about Swiss cheese or judicial extinguishment, while attractive because susceptible to summary J, throw out valid easements as well as phonies. Which was Judge Holmes’ point.

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