No Chop

I’m sure my readers remember Plateau Holdings, LLC, Waterfall Development Manager, LLC, Tax Matters Partner, 2021 T. C. Memo. 133*, filed 11/30/21. The Plateaus $25.4 million conservation easement was vaporized a year ago last June in 2020 T. C. Memo. 93. See my blogpost “Extinguished and Overvalued,” 6/23/20. But you’ll also remember that the figure of $2.6 million would have been the right number, had not the “highly contestable reading of what it means to be perpetual” (hi, Judge Holmes) been invoked. Judge Albert G (“Scholar Al”) Lauber, nowise loath to lay the 40% overvaluation chop on the $22.7 million highball, still wondered about the 20% overstatement chop on the $2.6 million.

Well, the Plateaus slide under the tag. “Gude faith, he maunna’ fa’ that,” as Scotland’s Greatest put it.

I can’t do better than to quote Judge Scholar Al.

“The easement deeds were prepared by Mark J, an attorney for the donee, Foothills Land Conservancy (Conservancy). Both Mr. J and the Conservancy had considerable experience in drafting easement deeds, and the deeds in this case were modeled after others shared through an alliance of land trusts. Although Mr. J was not Plateau’s lawyer, Plateau could reasonably have believed that he drafted the easements in a manner that was intended to comply with the regulations and to protect the Conservancy’s interests.

“When Plateau filed its 2012 return, the validity of such judicial extinguishment clauses had not been tested in litigation. All of the judicial opinions that have found such clauses wanting were issued well after Plateau executed the deeds (in December 2012) and filed its return (in April 2013).” 2021 T. C. Memo. 133, at pp. 5-6. (Name omitted).

All the improvements-out-on-extinguishment cases came down thereafter.

“The information available to Mr. J and Plateau in December 2012 arguably supported the acceptability of judicial extinguishment clauses resembling those here. In 2008 the IRS had issued a private letter ruling (PLR) suggesting that a clause of this sort would not necessarily prevent the allowance of a charitable contribution deduction. See Priv. Ltr. Rul. 200836014 (Sept. 5, 2008) (discussing an easement deed that reduced the donee’s proceeds by the value of the donor’s permissible improvements). The record in this case does not show that anyone associated with Plateau subjectively relied on this PLR when executing the easement deeds or preparing its 2012 partnership return. But the PLR does provide some objective support for the reasonableness of Plateau’s position. See Sells v. Commissioner, T.C. Memo. 2021-12, at *37-*40; Oakbrook Land Holdings, 119 T.C.M. (CCH) at 1361; sec. 1.6662-4(d)(3)(iii), Income Tax Regs. (stating that PLRs may constitute ‘authority’ in determining whether the taxpayer has ‘substantial authority’ for its return position).” 2021 T. C. Memo.  133, at pp. 6-7.

No 20% chop for the lower tranche.

OK, so as was known before now, these deeds were not all concocted by dodgefloggers. There were and are honest conservators of the environment, and Congress intended to encourage such as they. True, the gameplayers, dodgers, wits, wags, and wiseacres descended vulture-wise, combining dirt-cheap dirt with poosh-’em-up appraisals, to try to loot the fisc.

But as Judge Holmes and I have said, the hang-’em-all approach hangs the innocent as well as the guilty, using “highly-contestable readings of what it means to be perpetual.”

I hope I hardly need aver that I am no fan of dodgers and gameplayers. The façadefakers were brought down by their phony appraisals, when the local landmarks laws did not show the easements to be illusory. Same here.

*Plateau Holdings LLC 2021 T C Memo 133 11 30 21