This will put you out on the diamond, but in Tax Court it will defeat summary J. Long Branch Investments, LLC,  Greencone Investments, LLC, Tax Matters Partner, Docket No. 12249-20, filed 6/7/22, are GA boondockers claiming a $13.83 million conservation easement, which draws a FPAA.

IRS plays the “perpetuity” gambit, baseline variation. IRS says “…because the condition of a natural resource (at or near the time of conveyance), with regard to which the deed of easement contained express restrictions, was not established through baseline documentation as required under Treasury Regulation §1.170A-14(g)(5)(i); consequently… the conservation purpose of the contribution was not ‘protected in perpetuity’ under section 170(h)(5)(A).” Order, at p. 1.

The Longbranchs play the Hewitt countergambit. “… Treasury Regulation § 1.170A-14(g)(5)(i) does not apply to the contribution at issue, and that even assuming arguendo that it did, Long Branch satisfied the regulation nonetheless. Greencone also challenged the substantive and procedural validity of Treasury Regulation § 1.170A-14(g)(5)(i) under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,  Inc., 467 U.S. 837 (1984), and the Administrative Procedure Act (APA), respectively.” Order, at pp. 1-2 (Footnote omitted, but it’s the Hewitt you-didn’t-address-the-comments mainline play.)

The resource to be protected is the water on the property, which cannot be defiled, diverted, or discombobulated. Except “(T)he deed also reserves certain rights to Long Branch, including inter alia: (1) vegetation management, which includes planting and removing vegetation and prescribed burning; (2) forest management, which includes herbicide application and prescribed burning; (3) maintenance of existing roads and construction of new roads under certain conditions; (4) building and maintenance of a residential dwelling and associated structures, such as garages, sheds, pools, and gardens; and (5) construction, maintenance, and replacement of utilities, including power, water, and septic systems to support approved structures or uses on the Property.” Order, at p. 2.

Of course, the 501(c)(3) protector and defender must be notified of all, and approve of some, proposed exercises of the Longbranchs’ rights.

Reg § 1.170A-14(g)(5)(i) requires baseline documentation where reserved activities may impair the conservation of interests associated with the property. But could these reserved activities do so?

Judge Courtney D (“CD”) Jones isn’t sure, so let’s have a trial. And let’s duck the Hewitt counterattack while we’re at it.

“We conclude that this issue is not appropriate for summary adjudication.  Although respondent appropriately points to the deed’s express restrictions with respect to the Property’s water resources, his argument rests on the assumption that the exercise of Long Branch’s reserved rights ‘may impair the conservation interests associated with the property.’ See Treas. Reg. § 1.170A-14(g)(5)(i). Whether the exercise of any reserved right could impair the easement’s conservation purposes is a disputed question of fact. Because resolution of this question—which the parties are free to otherwise resolve via stipulation—will determine whether the baseline documentation requirements apply to the contribution at issue, we also conclude that it is inappropriate to consider at this time Greencone’s challenge to the substantive and procedural validity of Treasury Regulation § 1.170A-14(g)(5)(i) under Chevron and the APA, respectively.” Order, at p. 4.

Stipulate, don’t capitulate.