IRS claims Judge David Gustafson threw shade on the beloved “bright line” test that laser-erased conservation easements, both great and small, by not applying the split-of-extinguishment-proceeds test in St. Andrews Plantation, LLC, Joseph N. McDonough, Tax Matters Partner, Docket No. 20849-17, filed 3/4/21.

All y’all will doubtless recollect that IRS went one for three against the St. Andys just before Dawson’s Creek wiped out Tax Court (and I’ll have a lot more to say about the wipe-out, so watch this space). The omitted basis was the win, but did the St. Andys have reasonable cause therefor? Fact question, so no summary J for IRS. And IRS lost summary J on the extinguishment split-up. Fact question: Were the “improvements” worth anything? See my blogpost “Ya Can’t Improve on That,” 11/16/20.

IRS counsel, paid at least bi-weekly (win, lose, or draw) can ignore the wise advice of Frantic Frank Agostino, Head Honcho of the Jersey Boys, as expressed in yesterday’s free CLE from Rutgers Law School (thanks, Frank; poor zoom, great show). “Do you really think a Judge, having spent months crafting an order or opinion, is gonna overturn it just because you lost?” True for us practitioners, with clients to serve, mindful of interest running on a deficiency and concerned about billing legal fees at least arguably unnecessary because futile.

We have a New York Rule 137 for fee dispute arbitration. Better not to go there.

Judge Gustafson isn’t gonna overturn his own order and opinion.

“To the extent the Commissioner argues that our prior opinions established a ‘bright-line rule’ compelling the conclusion that a deed allocating proceeds in the event of an extinguishment that contains the language ‘minus any increase in value after the date of this Conservation Easement attributable to improvements’ will always, despite any other language in the deed, and despite the context of the agreement as a whole, violate the requirements of section 170(h)(5), we disagree.” Order, at p. 3.

All the blow-up cases involved rights for grantor to make substantial improvements to the servient tenement; I’ve blogged Belair, Cottonwood and Red Oak, on which IRS relies.

IRS seems to think that an order denying summary J differs somehow from all other orders. That doesn’t fly.

“To the extent the Commissioner argues that the Deed as a whole violates the requirements of section 170(h)(5), the Commissioner has done nothing more than re-argue his motion for summary judgment, which is not a proper basis for reconsideration. We held in our order that genuine disputes of fact precluded summary adjudication on this issue; we find no reason sufficient to revisit this conclusion. We are unaware of any authority that directs us to apply a different standard to a motion for reconsideration made after the denial of a motion for summary judgment (and the Commissioner cites none). To the contrary, we have previously applied the ‘unusual circumstances or substantial error’ standard…to a motion for reconsideration made after a denial of summary judgment.” Order, at p. 4. (Citations omitted).