In Uncategorized on 11/16/2020 at 17:42

The conservation easement games are a gift that keeps on giving. As they say in GA, “whatever shall I do?” when Tax Court paddles up Dawson’s Creek on Friday? So I’ll gather my somewhat faded rosebuds whilst I may. And there are some growing in this designated hitter from St. Andrews Plantation, LLC, Joseph N. McDonough, Tax Matters Partner, Docket No. 20849-17, filed 11/16/20. That Obliging Jurist, Judge David Gustafson, is sorting disputed from undisputed factoids.

There are three (count ’em, three) iterations of the easement grant, a deed and two amendments. But Par. 4, never amended, leaves post-granting improvements to the servient tenement (that’s the property subject to the easement, not a crashpad for Fifty Shades of Grey extras) out of the extinguishment split. IRS says that craters the deal.

“However, in fact, paragraph 4 of the Deed, ‘Reserved Rights’, contains no provision that reserves to St. Andrews the right to construct or maintain any ‘improvements”, ‘buildings’, or ‘structures’. It likewise reserves no rights to construct or maintain any ‘permitted residences’.” Order, at p. 6.

There’s mostly slash pine, roads (that can’t be widened), and a metal fence. The St. Andy’s expert says that whatever rights the St. Andys have to do anything per the Deed as amended are worth bupkis (please pardon the arcane technical expression). And IRS doesn’t challenge that. Order, at pp. 7-8. While value doesn’t matter for perpetuity, the Deed does prevent any future improvements beyond what existed at granting. So Swiss cheesing, mining, homebuilding, et hoc genus omne are off the reservation.

Maybe the 501(c)(3) defender-preserver isn’t getting short-changed after all. But that’s a fact question. So no summary J for IRS.

But the St. Andy’s didn’t disclose their basis in their “see attached” 8283. So what, say the St. Andys, check out the 1065.

“Petitioner alternatively argued that the information disclosed with St. Andrews’ [year at issue] Form 1065 was sufficient to constitute substantial compliance. But even if petitioner is correct that the basis of the donated property might possibly be deduced from information reported on the return, a taxpayer’s making it possible for the IRS to deduce that basis is not equivalent to the taxpayer’s explicitly disclosing that basis. Moreover, deducing that information would require the IRS to make implicit assumptions about St. Andrews’s other activities during the tax year that require guesswork–i.e., ‘looking for clues about what the taxpayer’s cost basis might be’–to an extent that falls far short of compliance with the obligation to report the cost or adjusted basis of donated property on Form 8283.” Order, at p. 16. (Citation omitted).

But the St. Andys claim reasonable cause for the omission, so that’s another fact issue for trial.

The St. Andys also want to continue the fight over the validity of Reg. sec. 170A-13(c), but Judge Gustafson says Oakbrook buried that one.

So IRS wins on the omitted statement of basis. But the St Andys can still establish reasonable cause on the trial. The extinguishment split is still up for trial. And did I mention that since there’s a $16 million claimed deduction there’ll be a trial on the appraisal?

So much to which to look forward after Dawson’s Creek subsides.


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