Attorney-at-Law

“GUDE FAITH, HE MAUNNA’ FA’ THAT” – PART DEUX

In Uncategorized on 06/17/2020 at 19:14

Once again, Scotland’s Greatest comes to the fore, in David F. Hewitt and Tammy K. Hewitt, 2020 T.C. Memo. 89, filed 6/17/20. Even though Dave’s conservation easement craters for tax purposes, he has saved his daddy’s farm from the mobile homesters. And his subsequent fall from grace doesn’t change that.

Dave’s problem (Tammy never had title, and AL isn’t a community property State) is that he saved five homesteads for his and Tammy’s babies, in locations to be determined. Judge Goeke may or may not like Swiss cheese on rye, but Swiss cheese in a conservation easement doesn’t get it. See my blogposts “Perpetually Swiss,” 12/27/18, and “Swiss Cheese,” 2/3/20.

IRS blew Year One of Dave’s deduction when they left it off the SNOD, but the two-year big carryforwards are toast. There’s an extinguishment problem (the 501(c)(3) gets short-sheeted), but the Swiss cheese is enough for Judge Goeke.

Happily for him, good faith saves Dave the 40% overvaluation chop.

A business acquaintance turned Dave on to a knowledgeable CPA firm, who in turn set Dave up with a 501(c)(3). The CEO thereof, a Ph.D. conservation biologist, scoped out Dave’s domain and did baseline reports. Dave put the easement on the part of his farm most likely to be used as a mobile home park: near the highway to Atlanta and Birmingham, flat and accessible, unlike the back acreages, hilly and wooded.

There’s the usual argy-bargy about Reg. 1.170A-14(g)(6), but that has yet to be overturned on appeal.

The new wrinkle concerns PLR200836014 (June 3, 2008). Dave claims IRS switched its position, and that ambushed him. “Petitioners further argue that we should consider the 2008 private letter ruling because the Court of Appeals for the Eleventh Circuit, to which this case is appealable, has recognized that while not binding precedent under section 6110(k)(3) courts may treat private letter rulings as ‘persuasive authority because they ‘do reveal the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws.’ Davis v. Commissioner, 716 F.3d 560, 569 n.26 (11th Cir. 2013) (quoting Hanover Bank v. Commissioner, 369 U.S. at 687), aff’g T.C. Memo. 2011-286; see sec. 6110(k)(3) (providing that written determinations such as private letter rulings cannot be cited as precedent).” 2020 T. C. Memo. 89, at p. 21.

Judge Goeke tosses that, saying the PLR didn’t analyze Section 170(h)(5), so it isn’t “the agency’s fair and considered judgment on the matter in question.” 2020 T. C. Memo. 89, at pp. 21-22. (Citation omitted).

Practice tip: Get the citations and argument here. Someday might want to wildcard in some PLRs that look good for you.

Howbeit, Dave’s valuers beat IRS’. Dave bought other land near his farm, and the prices he paid are in line. His valuers delivered the goods, while IRS’ seems to be a professional lowballer.

“We find that petitioners did not grossly misstate the value of the easement by claiming a deduction of $2,788,000. Mr. [IRS’ valuer] was unduly pessimistic in his valuation and incorrectly applied a uniform value to the entire Hewitt property. Our decision not to impose the gross valuation misstatement penalty does not depend solely on expert valuations. Mr. Hewitt gave credible testimony that the easement property was the most valuable part of the Hewitt property, confirming Mr. B’s and Mr. V’s opinions. Mr. Hewitt believed that the easement property was the portion of his family’s land that most needed protection from development. He has lived in Randolph County his entire life and has experience in land acquisition. We find his testimony helpful and reliable.” 2020 T. C. Memo. 89, at p. 35. (Names omitted).

And Dave ducks the 20% chops as well. Although the 8283 didn’t have disclosure of basis, that doesn’t vitiate good faith, and the easement was dead on other grounds. Dave really wanted to save the old homestead.

Now Dave wasn’t just a pore ol’ dirt farmer. “However, after [granting the easement] Mr. Hewitt began a troubling practice of purchasing rural, undeveloped land and selling interests in pass-through entities that he created to hold the land. Numerous entities associated with Mr. Hewitt granted conservation easements on the recently purchased land, and the investors, including Mr. Hewitt, claimed charitable contribution deductions for the easement donations far in excess of the original purchase prices for the recently purchased, underlying properties. Respondent asserts that Mr. Hewitt has realized over $3.5 million in gain from these transactions and the investors claimed millions of dollars of improper charitable contribution deductions. Petitioners claimed the carryover deductions at issue here for years during which Mr. Hewitt was engaging in this activity.” 2020 T. C. Memo. 89, at pp. 40-41.

But Dave’s fall from grace post-granting this easement doesn’t mean hitting him with chops for this easement.

“Mr. Hewitt’s activities of land purchases and conservation easements after [granting easement] are problematic. However, we find that under the circumstances of the easement donation of his family’s farm land Mr. Hewitt reasonably and in good faith relied on [CPA]’s experienced advice. We have weighed Mr. Hewitt’s post-[granting easement] activities against his sincere intent to preserve his family’s farm land for his father and children. The reasonable cause defense depends on the particular facts and circumstances of each case. Petitioners claimed a deduction for the easement that aligned with Mr. Hewitt’s opinion of the easement property’s fair market value. We disallowed the easement deduction because the deed did not satisfy technical requirements for a conservation easement deduction. We do not expect petitioners to understand these technical requirements. They made a sufficient good-faith effort to assess their tax liability and reasonably relied on professional advice when claiming the easement deduction.” 2020 T. C. Memo. 89, at p. 42.

 

 

 

 

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