Judge Mark V. (“Vittorio Emanuele”) Holmes is finally vindicated, as the majority view in Oakbrook, from which he dissented back in 2020 (see my blogpost “They Always Must Be With Us,” 5/12/20), finally collapses when Hewitt rams Reg. Section 1.170A-14(g)(6)(ii) clean amidships.

Judge Courtney D. (“CD”) Jones sees that much-contemned Regulation section off in Valley Park Ranch, LLC, Reed Oppenheimer, Tax Matters Partner, 162 T.C. 6, filed 3/28/24.

The Valley Parkers did the conservation thing with 45.76 acres, be the same more or less as we dirt lawyers say, of Okie Boondocks. Their deed said the easement “can only be terminated or extinguished, whether in whole or in part, by judicial proceedings in a court of competent jurisdiction, and the amount of the proceeds to which [501(c)(3) guardian] shall be entitled, after the satisfaction of prior claims, from any sale, exchange, or involuntary conversion of all or any portion of the Property subsequent to such termination or extinguishment, shall be determined by the court, unless otherwise provided by State or Federal law at the time.” 162 T. C. 6, at p. 5.

Moreover, the deed went on “If the Easement is taken, in whole or in part, by exercise of the power of eminent domain, [Valley Park] and [501(c)(3) guardian] shall be entitled to compensation, by the entity declaring power of eminent domain, in accordance with applicable law, policy and procedures. Respective portions shall be determined by a Qualified Appraisal meeting standards as established by the United States Department of the Treasury.” Idem, as my expensive colleagues say.

Now Oakbrook was affirmed by 6 Cir, but Hewitt was overturned by 11 Cir. The Valley Parkers are 10 Cir, which has not ruled. Generally (love that word!), Tax Court doesn’t change course based on one reversal, except sometimes. Oakbrook didn’t need to consider the validity of the Reg Section, as the concurrence said. And if the dissenters here say this renders the law unstable, well, it’s already unstable.

“Moreover, Oakbrook I—decided just four years ago—is not entrenched precedent. To our knowledge, the Sixth and Eleventh Circuits are the only courts of appeals to speak on the issues we consider today.” 162 T. C. 6, at p. 11. So Judge CD Jones overhauls the whole tale of the adoption of Reg Section 1.170A-14(g)(6)(ii), with the New York Landmarks Conservancy (now brilliantly led by my friend Peg Breen) in the forefront.

At close of play, for the majority at least, the deed satisfies the statute. Prior claims means claims arising before the grant: here there aren’t any. IRS’ claim that an OK court might read a claim arising post-grant but before extinguishment as being prior is too great a stretch. And there’s no possibility of reverter of title to grantors, which stifles attempts to get deductions for give-and-go maneuvers.

Judges Foley, Urda, Toro, Greaves, Marshall, and Weiler agree.

Judges Buch and Copeland concur. Judge “Ingenuity” Buch says IRS’ attempts for a quick knockout of overvalued boondocks, wheresoever situate, via summary J has created more uncertainty than clarity. The best rule is RTFS = Read The Statute (the “F” is for emphasis). “We need not reach the question of the validity of the proceeds regulation to decide this case.” 162 T. C. 6, at p. 33.

Ch J Kerrigan, with Judges Nega, Pugh, and Ashford following, dissents. Oakbrook was decided after Hewitt, and 6 Cir wasn’t convinced by the Hewitt opinion.

“I am concerned that the Court’s reversing a prior position taken only four years ago and without compelling new legal argument will result in instability of the law in the area of conservation easements. Additionally, the opinion of the Court may result in challenges to regulations that have been relied upon for over 40 years. I reiterate here what I stated in my concurrence to 3M about ‘creat[ing] a slippery slope whereby courts would be constantly faced with determining whether comments are significant and whether the agency responded appropriately to them.” 3M Co. & Subs. v. Commissioner, No. 5816-13, 160 T.C., slip op. at 280 (Feb. 9, 2023) (Kerrigan, C.J., concurring).” 162 T. C. 6, at p. 39.

I didn’t have a lot to say about 3M, as I expected the trade press and blogosphere to make much of it.

But I must give a modest cough, and say that I was right two years ago: betting against 6 Cir in Oakbrook was taking the bookies’ money.