Too much of a good thing is bad. That’s the lesson Judge Travis A. (“Tag”) Greaves has for IRS in Ivey Branch Holdings, LLC, Ivey Branch Investors, LLC, Tax Matters Partner, Docket No. 19189-19, filed 3/30/23. IRS files for summary J twice, and comes up empty.

Need I say this is another Dixieland boondockery? Guess not.

IRS wants summary J tossing the Iveys for want of compliance with the improvements-in requirements of Reg. Section 1.170A-14(g)(6). This they don’t get because of the Hewitt-Oakbrook jumpball: did 11 Cir invalidate the Reg entirely, or only so much as pertained to condemnation awards for post-donation improvements going to donor-grantor?

“In Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), and Hewitt v. Commissioner, T.C. Memo. 2020-89, this Court upheld and applied Treasury Regulation § 1.170A-14(g)(6). However, the U.S. Court of Appeals for the Eleventh Circuit, in which venue would lie for an appeal in this case, reversed Hewitt and held that ‘the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA’s procedural requirements.” Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev’g and remanding T.C. Memo. 2020-89. A few months after the Eleventh Circuit’s reversal in Hewitt, the Court of Appeals for the Sixth Circuit affirmed the Tax Court’s view of the regulation in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), aff’g 154 T.C. 180, 189-200 (2020), causing a “split” in the Circuits. Petitioner in Oakbrook filed a petition for writ of certiorari with the Supreme Court, which the Supreme Court denied on January 9, 2023. No. 22-323, 2023 WL 124412 (Jan. 9, 2023).

“In light of the Supreme Court’s denial of certiorari, we will follow Eleventh Circuit precedent with respect to the issue of the validity of Treasury Regulation § 1.170A-14(g)(6). See Golsen v. Commissioner, 54 T.C. 742, 756–57 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Accordingly, respondent is not entitled to judgment as a matter of law based on his interpretation of § 1.170A-14(g)(6)(ii), i.e., prohibiting the subtraction of the value of post-donation improvements to the property on which a conservation easement exists from the proceeds in the event of judicial extinguishment. See Hewitt 21 F.4th at 1339.” Order, at pp. 7-8.

IRS also wanted summary J because the Iveys deed wants prior claims satisfied out of condemnation proceeds, but that founders on the same Hewitt-Oakbrook reef.

The Iveys reserved the right to build one structure within a defined two-acre piece of the property. IRS claims this doesn’t protect the property in perpetuity (see Section 170(h)(5)()A)), as these are “moveable rights.” Except Judge Tag Traves says the Iveys get only one shot at doing this, and if the donee 501(c)(3) shoots it down, they’re done. And IRS’ argument over forestry rights also fails, as there is enough protection provided by donee and State authorities.

Of course, IRS can try all this again at trial and in post-trial briefing.

In the second summary J motion, IRS sought gross valuation misstatement and reportable transaction underpayment chops if the Court invalidated the deductibility of the easement. But since they don’t get summary J on the first motion, they lose this one, but can try again.

Taishoff says this points up the need for the same kind of limitations our New York Civil Practice Law and Rules imposes on summary J motions. This salami-slice tactic is a waste of resources. I’m a great fan of summary J, as I’ve often said, but one size should fit all, and only come after discovery is complete. Ch J Kathleen (“TBS = The Big Shillelagh”) Kerrigan, respectfully submitted.