conservation easement tax court Published on February 13, 2020 Edit article View stats call firstStatus is online call first Speaker, author expert witness at VEBA LLC 185 articles The recent case of Harbor Lofts Associates, Crowninshield Corporation, Tax Matters Partner v. Commissioner, 151 T.C. No. 3 (Aug. 27, 2018) teaches yet another lesson on the importance of the perpetuity requirements when claiming a charitable deduction for the donation of a conservation easement. Last October I blogged about another conservation easement case, Palmolive Building Investors v. Commissioner, 149 T.C. No. 18 (Oct. 10, 2017). I did not get into the substance of the law in that blog, but instead focused on the Golsen rule and why the Tax Court needed to put its best analytical foot forward. I referred readers to Peter Reilly’s great blog post on Palmolive for the substance.
I encourage readers who don't know the Golsen rule to review the Golsen post, because Harbor Lofts is a case that the taxpayers may appeal to the First Circuit Court of Appeals. That is important because it’s the First Circuit who disagreed with the Tax Court’s position regarding the subordination requirement at issue in Palmolive. While today’s case involves a different part of the perpetuity requirement (and so there is no First Circuit precedent to bind the Tax Court), the Tax Court is again agreeing with the IRS in reading the perpetuity requirement strictly, this time finding that a long-term lease is not sufficient to meet the perpetuity requirements. If the Tax Court’s opinion is appealed to the First Circuit, the First Circuit may decide to take the same liberal interpretation of the perpetuity requirement as it did in Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012), the case that was like Palmolive.
Today’s post will therefore comment on the Tax Court’s approach to interpreting the perpetuity requirements for conservation easements. Long story short, I agree with it. The First Circuit’s liberal approach, while understandable, is wrong. This post will explain why. To do so, I will have to dip into the substantive law with the caveat, as always, that what I say is subject to correction from alert readers who know this area better than I do. In particular, I will doubtless expose my ignorance by asking why the taxpayers did not structure the donation differently. It was likely for a reason that I just cannot see. The fun starts below the fold.
The Law: Getting To Perpetuity
Section 170(a) allows taxpayers a deduction for a “charitable contribution.” Section 170(c) defines that term as “a contribution or gift to or for the use of” a qualified organization and then lists the types of organizations that qualify. Section 170(f)(3)(B) generally disallows a “contribution... of an interest in property which consists of less than the taxpayer’s entire interest in such property....” Section 170(f)(3)(B) then carves out three exceptions to the general rule, the third one of which is for “a qualified conservation contribution.” Section §170(h)(1) says a contribution will be a qualified conservation contribution if it meets three requirements: (A) it is a qualified real property interest; (B) it is to a qualified organization; and (C) it is “exclusively for conservation purposes.” Section 170(h)(2) says a
conservation easement tax court
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Speaker, author expert witness at VEBA LLC
185 articles
The recent case of Harbor Lofts Associates, Crowninshield Corporation, Tax Matters Partner v. Commissioner, 151 T.C. No. 3 (Aug. 27, 2018) teaches yet another lesson on the importance of the perpetuity requirements when claiming a charitable deduction for the donation of a conservation easement. Last October I blogged about another conservation easement case, Palmolive Building Investors v. Commissioner, 149 T.C. No. 18 (Oct. 10, 2017). I did not get into the substance of the law in that blog, but instead focused on the Golsen rule and why the Tax Court needed to put its best analytical foot forward. I referred readers to Peter Reilly’s great blog post on Palmolive for the substance.
I encourage readers who don't know the Golsen rule to review the Golsen post, because Harbor Lofts is a case that the taxpayers may appeal to the First Circuit Court of Appeals. That is important because it’s the First Circuit who disagreed with the Tax Court’s position regarding the subordination requirement at issue in Palmolive. While today’s case involves a different part of the perpetuity requirement (and so there is no First Circuit precedent to bind the Tax Court), the Tax Court is again agreeing with the IRS in reading the perpetuity requirement strictly, this time finding that a long-term lease is not sufficient to meet the perpetuity requirements. If the Tax Court’s opinion is appealed to the First Circuit, the First Circuit may decide to take the same liberal interpretation of the perpetuity requirement as it did in Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012), the case that was like Palmolive.
Today’s post will therefore comment on the Tax Court’s approach to interpreting the perpetuity requirements for conservation easements. Long story short, I agree with it. The First Circuit’s liberal approach, while understandable, is wrong. This post will explain why. To do so, I will have to dip into the substantive law with the caveat, as always, that what I say is subject to correction from alert readers who know this area better than I do. In particular, I will doubtless expose my ignorance by asking why the taxpayers did not structure the donation differently. It was likely for a reason that I just cannot see. The fun starts below the fold.
The Law: Getting To Perpetuity
Section 170(a) allows taxpayers a deduction for a “charitable contribution.” Section 170(c) defines that term as “a contribution or gift to or for the use of” a qualified organization and then lists the types of organizations that qualify. Section 170(f)(3)(B) generally disallows a “contribution... of an interest in property which consists of less than the taxpayer’s entire interest in such property....” Section 170(f)(3)(B) then carves out three exceptions to the general rule, the third one of which is for “a qualified conservation contribution.” Section §170(h)(1) says a contribution will be a qualified conservation contribution if it meets three requirements: (A) it is a qualified real property interest; (B) it is to a qualified organization; and (C) it is “exclusively for conservation purposes.” Section 170(h)(2) says a