Opinion
12192-20
03-01-2022
GEORGIA CRUSHED STONE, LLC, GREENCONE INVESTMENTS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge
This case involves a charitable contribution deduction claimed by Georgia Crushed Stone, LLC (GCS), for a conservation easement. The Internal Revenue Service (IRS or respondent) disallowed the deduction and determined penalties. Petitioner timely petitioned this Court for readjustment of the partnership items. On December 15, 2021, this case was assigned to the undersigned for trial or other disposition.
On September 23, 2021, respondent filed a motion for partial summary judgment, contending that the IRS properly denied the deduction because the conservation purpose was not "protected in perpetuity." § 170(h)(5)(a). That is so, respondent contends, because petitioner failed to comply with the baseline documentation requirements of Treas. Reg. § 1.170A-14(g)(5)(i). Petitioner timely objected to that motion and, on November 10, 2021, filed a cross-motion for summary judgment. In its cross-motion petitioner urges that it is entitled to judgment in its favor because it has demonstrated "satisfaction of all section 170 elements." We will deny both motions.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following facts are derived from the pleadings, the parties' motion papers, and the exhibits and declarations attached thereto. They are stated solely for pur- poses of deciding the motions and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
GCS is a Georgia limited liability company. It is treated as a partnership for Federal income tax purposes, and petitioner Greencone Investments, LLC, is its tax matters partner. GCS had its principal place of business in Georgia when the petition was filed.
In November 2015 GCS acquired by capital contribution roughly 139 acres of land (Property) located in Newton County, Georgia. The Property was part of a 1, 548-acre tract that had been purchased in December 2014 for $10 million. When acquiring the Property a year later, GCS showed its adjusted basis as $938,460.
On December 16, 2016, GCS granted to the Oconee River Land Trust (Oconee or grantee) a conservation easement over the Property. GCS filed Form 1065, U.S. Return of Partnership Income, for its 2016 tax year. On that return it claimed a charitable contribution deduction of $23,518,815 for the donation of the easement.
The deed of easement recites the conservation purposes and generally prohibits commercial or residential development. The conservation purposes include protection of water resources, subsurface water, and the water quality of streams. The deed reserves certain rights to GCS, including (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; (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. GCS generally must notify (and secure approval from) Oconee before exercising such rights.
The IRS selected GCS's return for examination. Following examination of that return the IRS issued petitioner, on August 7, 2020, a timely notice of final partnership administrative adjustment (FPAA) disallowing the charitable contribution deduction and determining penalties under sections 6662 and 6662A. The FPAA disallowed the deduction on the ground that GCS had "failed to establish that it satisfied all the requirements of I.R.C. §170 and the corresponding Treasury Regulations for deducting a noncash charitable contribution."
Discussion
The purpose of summary judgment is to expedite litigation and avoid costly, unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant summary judgment regarding an issue as to which there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(b); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment or partial summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520.
A. Respondent's Motion
Respondent has moved for partial summary judgment on the question whether the conservation purpose underlying the easement was "protected in perpetuity." § 170(h)(5)(a). The Code generally restricts a taxpayer's charitable contribution deduction for the donation of "an interest in property which consists of less than the taxpayer's entire interest in such property." § 170(f)(3)(A). But there is an exception for a "qualified conservation contribution." § 170(f)(3)(B)(iii), (h)(1). For the donation of an easement to be a "qualified conservation contribution," the conservation purpose must be "protected in perpetuity." § 170(h)(5)(A); see TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th 1354, 1362 (11th Cir. 2021); PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 201 (5th Cir. 2018).
The regulations set forth detailed rules for determining whether this "protected in perpetuity" requirement is met. Of importance here are the rules governing the "[p]rotection of conservation purpose where [the] taxpayer reserves certain rights." See Treas. Reg. § 1.170A-14(g)(5). If a donor reserves rights on the land underlying an easement, the donor must provide the donee with certain documentation (e.g., surveys, maps, and aerial photographs) before effecting the donation. Id. subdiv. (i). This material is commonly called "baseline documentation." The baseline documentation must be "sufficient to establish the condition of the property at the time of the gift," thus enabling the grantee to ascertain whether the grantor's exercise of any reserved right would "have an adverse impact on the conservation interests." Id. subdivs. (i) and (ii).
The easement deed recites, among its conservation purposes, the protection of water quality, water resources, and subsurface water. Respondent contends that the baseline documentation that GCS supplied to Oconee was insufficient to establish the condition of these water resources on the date of the gift. As a result, respondent urges that Oconee would be unable to make a reasoned determination as to whether GCS's exercise of a reserved right would adversely affect the conservation purpose.
We conclude that this issue is not appropriate for summary adjudication. Cf. Corning Place Ohio, LLC v. Commissioner, T.C. Memo. 2022-12, at *9 (reasoning similarly regarding documentation requirements for historic preservation façade easement). "[T]he question whether a conservation interest is 'protected in perpetuity' [i]s a question of fact." Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. 247, 280 (2018), aff'd in part, rev'd in part on other issues, 978 F.3d 1200 (11th Cir. 2020) (citing Glass v. Commissioner, 124 T.C. 258, 282-283 (2005), aff'd, 471 F.3d 698 (6th Cir. 2006)). Resolution of this question may depend on testimony from expert witnesses and the contracting parties at trial. In any event, because this case (unless settled) will proceed to trial on valuation, we see little to be gained by attempting a definitive disposition of the "protected in perpetuity" question now.
In opposing respondent's motion petitioner contends, not only that its baseline documentation was adequate, but also that the regulation governing this subject, Treas. Reg. § 1.170A-14(g)(5), is substantively and procedurally invalid. Cf. Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev'g and remanding T.C. Memo. 2020-89 (addressing validity of Treas. Reg. § 1.170A-14(g)(6)). Depending on our disposition of other arguments respondent has advanced, it may be unnecessary for us to address the application and/or validity of the baseline documentation regulation. We accordingly decline to address at this juncture petitioner's challenge to the regulation's validity.
B. Petitioner's Motion
Petitioner has moved for summary judgment, asserting that GCS "satisfied all section 170 elements" needed to secure allowance of its claimed charitable contribution deduction. The "section 170 elements" necessarily include whether GCS correctly valued the gift, see Treas. Reg. § 1.170A-1(c), and whether the conservation purpose underlying the easement was "protected in perpetuity," see § 170(h)(5)(A).
Respondent represents that the parties no longer disagree about certain sub-issues, e.g., whether GCS "conveyed a real property interest in Georgia real estate to Oconee." We are confident that the parties will be able to stipulate relevant facts about which they do not disagree. But we will deny petitioner's motion because genuine disputes of material fact do exist, at least with respect to the following issues:
(1) A major issue in dispute concerns the easement's fair market value. "The correct value of a conservation easement is 'the fair market value of [it] at the time of the contribution.'" TOT Prop. Holdings, 1 F.4th at 1369 (quoting Treas. Reg. § 1.170A-14(h)(3)(i)). It is well established that "[t]he determination of the fair market value of property is a question of fact." Estate of Newhouse v. Commissioner, 94 T.C. 193, 217 (1990). Because valuation disputes require the Court to weigh evidence at trial (usually expert testimony), see ibid., resolution is generally inappropriate at the summary judgment stage. See TOT Prop. Holdings, 1 F.4th at 1369 (stating that the "determination of fair market value is a mixed question of fact and law"). We will accordingly deny petitioner's motion insofar as it seeks summary judgment on valuation.
(2) We have concluded that genuine disputes of material fact prevent us from granting respondent's motion for partial summary judgment on the "protected in perpetuity" question. See § 170(h)(5)(A). We will deny petitioner's cross-motion on this point for the same reason.
(3) The Code disallows a charitable contribution deduction of the magnitude claimed unless GCS secured and attached to its return a "qualified appraisal" executed by a "qualified appraiser." See § 170(f)(11). Respondent urges that GCS did not satisfy these requirements. We conclude that genuine disputes of material fact require that this issue be tried.
(4) Section 170(f)(11)(A)(ii)(II) excuses failure to satisfy the regulatory requirements specified above if such failure was "due to reasonable cause and not to willful neglect." Whether the taxpayer can demonstrate reasonable cause and the absence of willful neglect presents questions of fact. See Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, at *24 (citing Crimi v. Commissioner, T.C. Memo. 2013-51, at *99). Petitioner's motion must be denied to the extent it seeks summary judgment on this point.
It is accordingly
ORDERED that respondent's Motion for Partial Summary Judgment, filed September 23, 2021, is denied. It is further
ORDERED that petitioner's Motion for Summary Judgment, filed November 10, 2021, is denied. It is further
ORDERED that the parties shall file, on or before March 31, 2022, a status report (jointly if possible, otherwise separately) expressing their views as to the conduct of further proceedings in this case.