The great post-Oakbrook turkey shoot season has opened, and IRS has Buckelew Farm, LLC F.K.A. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 11/22/21* all lined up, but Judge Christian N. (“Speedy”) Weiler says subordination doesn’t control split-at-extinguishment.

For Oakbrook, see my blogposts “They Always Must Be With Us,” 5/12/20, and “Keeping Things in Proportion,” of even date therewith, as my expensive colleagues would say.

For some backstory on the Buckelews, see my blogposts “Ins and Outs,” 10/28/21, and “Whitefish and Silt,” 5/13/20.

The Buckelew fight is the usual: a $47.5 million conservation easement write-off of GA boondocks. The Buckelews want to amend the deed of gift to cut the 501(c)(3) protector, preserver, and defender in on the improvement goodies if the easement is judicially extinguished. Of course, the 501(c)(3) is down with that, there being better odds that the Islanders will win the Cup than that any government will raise taxes to stump up cash to buy this.

The Buickelews want to “fight old battles o’er,” and relitigate the validity of the Proceeds Reg, 1.170A-14(g)(6)(ii), which mandates the improvements-in split-up, but Judge Speedy Weiler is quick to jettison that line.

“The Court is not convinced by petitioner’s challenge to the Proceeds Regulations. We comprehensively addressed and rejected these arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 189-200 (2020). We need not repeat that analysis here.” Order, at p. 6.

OK, so what about the correction deed? The Buckelews want a trial, with testimony about who intended what, and much briefing of GA law that says you can correct mutual mistakes by way of a correction deed. IRS says you have to have all the requirements met at Day One, so whether GA lets you amend or correct is beside the point. IRS relies on Ramona Mitchell (see my blogpost “Subordinate or You Lose,” 4/3/12; note that 10th Cir affirmed Tax Court). But Ramona’s problem was an insubordinate mortgagee, Lonesome Charley Sheek. Although Lonesome Charlie eventually became a good subordinate, it was too late to save Ramona’s deduction.

No mortgage here, so insubordination plays no part.”Although respondent relies on Mitchell to argue that all of the requirements of section 170 must be met at the time of the grant, we find the issues in Mitchell to be distinguishable from the issues in the instant case. In Mitchell, the Tenth Circuit held, inter alia, that a taxpayer’s grant of a conservation easement was not ‘protected in perpetuity’ due to a violation of the mortgage subordination provision of the conservation easement regulations. Mitchell v. Commissioner, 775 F.3d at 1251. However, in Mitchell, the third party mortgagees did not subordinate their mortgages until after the easements were donated and section 1.170A-14(g)(2) was therefore held not to have been satisfied. We find the Tenth Circuit’s reasoning in Mitchell to be specific to the mortgage subordination provision of the regulation.” Order, at p. 8. (Footnotes omitted).

Note Judge Tamara Ashford (then Acting AAG) was on the brief in Mitchell. And note no one mentioned Gordo and Lorna Kaufman and their insubordinate mortgagees at 1st Cir; see my blogpost “A Joy Forever? – Maybe Not,” 7/20/12.

While Tax Court and the Circuits have not allowed amendments to change the tax consequences of completed transactions, there’s an outlier, where a scrivener’s error was allowed under GA law.

“Although the Court is doubtful that equitable reformation can operate to change the Federal tax consequences of a completed transaction; since the Court has found there remains a genuine dispute of material fact precluding summary adjudication, it is not necessary for the Court to determine now whether the facts of this case warrant the equitable remedy of reformation under Georgia law.”

Taishoff says, I’m not sure what this material fact might be. The Reg was in existence long before the initial deed. If there was a mistake, it was a unilateral mistake of law at best. The 501(c)(3) is exempt from tax. In any case, the risk of judicial extinguishment is so remote as to be negligible. This is just one more case of highly-contestible readings of what it means for an easement to be “perpetual.”

Judge Holmes is right; the trial should be on valuation, not about what some lawyers and highly-interested parties claim they thought years after the fact.

*Buckelew Farm LLC Docket No 14273-17 11 22 21