Attorney-at-Law

EXTINGUISHMENT EXTINGUISHED – AGAIN

Woodland Property Holdings, LLC, Woodland Land Manager, LLC, Tax Matters Partner, 2020 T. C. Memo. 55, filed 5/13/20, is yet another extinguished judicial extinguishment clause in a conservation easement deed.

I understand my colleague, Peter Reilly, CPA, now celebrating seven (count ‘em, seven) years of single-shinglehood, has convoked a “brains trust” to analyze conservation easements.

I cannot think Judge Albert G (“Scholar Al”) Lauber’s opinion will cause the trust to decompose too much brain tissue on this one. It’s the boilerplate fixed-at-inception split of extinguishment proceeds between grantor and grantee, with grantee getting the short end.

“The regulation requires, in short, that the donee receive a proportionate share of the sale proceeds, as determined by the fraction set forth in the regulation. The easement deed in this case does not satisfy this requirement. The deed defines the donee’s share of the sale proceeds as the FMV of the easement, determined ‘as of the date of this Conservation Easement.’ The donee’s share is thus restricted to ‘a date-of-gift value that would exclude subsequent appreciation.’ The donee would accordingly ‘watch its proportion of potential extinguishment proceeds shrink over the years if the underlying property appreciates.’ This shrinking value does not equal the ‘proportionate value’ of the sale proceeds that the regulation mandates that the donee receive.” 2020 T. C. Memo. 55, at pp. 7-8. (Citation omitted, but it’s our old chums the Coalholders, for which see my blogpost “Diamonds Are Forever,” 10/28/19.)

Now let’s see how the Oakwood guys make out taking down Reg. 1.170A- 14(g)(6).

Of course, even if the Oakwood guys defeat the reg, the Woodlanders still have to sustain their valuation, which gave the syndicate a four-and-a-half for one tax writeoff. 2020 T. C. Memo. 55, at p. 3.

 

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