Opinion
12104-19
06-07-2022
NORTH BY NORTHWEST IV, LLC, BRYAN W. KELLEY, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth Crewson Paris Judge
This case involves respondent's disallowance of petitioner's 2014 conservation easement as not being a qualified conservation easement under section 170(h). On April 8, 2020, at docket entry 25, respondent filed a Motion for Partial Summary Judgment on the grounds that petitioner's conservation easement deed fails to meet the perpetuity requirements of section 170(h)(5)(A), and Treasury Regulation § 1.170A-14(g)(6). On July 2, 2020, at docket entry 42, petitioner filed a Response in Opposition to Respondent's Motion for Partial Summary Judgment asserting nine different grounds, including that Treasury Regulation § 1.170A-14(g)(6)(ii) is invalid.
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.
Included in the record at docket entry 17 is a First Stipulation of Facts, in which the parties have stipulated that North by Northwest IV, LLC, is a Georgia limited liability company, organized on December 27, 2012, whose principal place of business is in Georgia and which was classified as a partnership for federal income tax purposes subject to TEFRA for the tax year at issue. The parties also have stipulated that Bryan Kelley is the tax matters partner of North by Northwest IV, LLC, having been designated as a successor tax matters partner after December 31, 2014. 1
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401-407, 96 Stat. 324, 648-71 (repealed by the Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 1101(a), 129 Stat. 584, 625).
The First Stipulation of Facts includes a copy of a document titled "Deed of Conservation Easement" dated December 20, 2014, between petitioner and The Atlantic Coast Conservancy, Inc. (Conservancy), a nonprofit Georgia corporation registered with the West Virginia Secretary of State. Ex. 10-J. The subject property consists of 308.54 acres, the legal description of which was attached as Exhibit A. Id. at 28. The deed was recorded with the Fayette County, West Virginia, Register of Deeds on December 22, 2014. Id. at 1. The Conservancy is the qualified organization in this case.
The above-described deed, in relevant parts, provides:
15.1 Extinguishment. If circumstances arise in the future that as [sic] render the purpose of this Easement impossible to accomplish, this Easement can only be terminated or extinguished, whether in whole or in part, by judicial proceedings . . . and the amount of the proceeds to which Conservancy shall be entitled . . . shall be determined to be at least equal to the perpetual conservation restriction's proportionate value unless otherwise provided by West Virginia law at the time, in accordance with Subsection 15.2 below. Conservancy shall use all such proceeds in a manner consistent with the Conservation Values.
Id. at 21 (emphasis added).15.2 Proceeds. This Easement constitutes a real property interest immediately vested in Conservancy. . . . [T]he parties stipulate that this Easement shall have at the time of Extinguishment a fair market value determined by multiplying the then fair market value of the Property unencumbered by the Easement (minus any increase in value after the date of this grant attributable to improvements) by the ratio of the value of the Easement at the time of this grant to the value of the Property, without deduction for the value of the Easement, at the time of this grant. The value at the time of this grant shall be the donation value used to calculate the deduction for federal income tax purposes allowable by reason of this grant, pursuant to Section 170(h) of the Code. Grantor shall within ninety (90) days of this grant provide to the Conservancy copies of all appraisals seeking to establish the value of the donated Easement at the time of this grant. For the purposes of this paragraph, the ratio of the value of the Easement to the value of the Property unencumbered by the Easement shall remain constant.
The deed language in subsections 15.1 and 15.2 is the subject of respondent's Motion for Partial Summary Judgment, described above.
On June 17, 2020, this Court released its opinion in Hewitt v. Commissioner, T.C. Memo. 2020-89. Hewitt addressed many of the issues raised in this case, including the procedural and substantive validity and proper interpretation of 2 Treasury Regulation § 1.170A-14(g)(6)(ii). On September 15, 2020, petitioners in Hewitt filed their Notice of Appeal of the Tax Court's decision to the U.S. Court of Appeals for the Eleventh Circuit. In the present case, the property subject to the conservation easement is located wholly in the state of West Virginia, and significant state property law questions may exist. But the parties have filed the above-described First Stipulation of Facts, and at paragraph 2 therein, the parties have stipulated that the partnership at issue, North by Northwest IV, LLC, has a principal place of business in the state of Georgia, rendering Hewitt relevant. § 7482(b).
On February 15, 2022, at docket entry 84, respondent filed a Notice of Supplemental Authority informing the Court that, on December 29, 2021, the Eleventh Circuit issued an opinion in the above-described Hewitt matter. 21 F.4th 1336, rev'g and remanding T.C. Memo. 2020-89.
Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Under Rule 121(b), we may grant summary judgment when there is no genuine dispute as to any material facts and a decision may be rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). A partial summary adjudication may be made which does not dispose of all the issues in the case. Id. However, the nonmoving party may not rest upon the allegations or denials in its pleadings but must set forth specific facts showing that there is a genuine issue for trial. Rule 121(d); see Sundstrand Corp., 98 T.C. at 520.
Respondent notified the Court that an opinion has been issued in the above-described Hewitt matter. Both the present case and Hewitt involved a charitable contribution claimed under section 170(h) for a "qualified conservation contribution," which must be "exclusively for conservation purposes." § 170(h)(1)(C). A contribution is not treated as having been made exclusively for conservation purposes "unless the conservation purpose is protected in perpetuity." § 170(h)(5)(A). Treasury Regulation § 1.170A-14(g)(6)(i) states that a conservation purpose may still be treated as protected in perpetuity if restrictions are extinguished by a judicial proceeding and the donee's proceeds determined under paragraph (g)(6)(ii) of that section are used in a manner consistent with the original conservation purposes. See Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 184 (2020), aff'd, 28 F.4th 700 (6th Cir. 2022); PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 205 (5th Cir. 2018).
The Eleventh Circuit held in Hewitt that respondent's interpretation of Treasury Regulation § 1.170A-14(g)(6)(ii), which did not permit certain deed language, was invalid because the Internal Revenue Service failed to comply with procedural requirements of the Administrative Procedure Act in promulgating the 3 regulation.
Administrative Procedure Act, Pub. L. No. 79-404, 60 Stat. 237 (1946) (codified at 5 U.S.C. § 551 et seq.).
Respondent, in his above-described Motion for Partial Summary Judgment, contends that Treasury Regulation § 1.170A-14(g)(6) disallows extinguishment and proceeds paragraphs similar to the provisions contained in petitioner's easement deed.
Respondent recognizes in the above-described Notice of Supplemental Authority, however, that, under the Golsen rule, this Court will now apply the Eleventh Circuit's holding in Hewitt that Treasury Regulation § 1.170A-14(g)(6)(ii), alone, does not operate to disallow a charitable contribution deduction in cases in which the easement deed subtracts the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
The Court will rely on respondent's Notice of Supplemental Authority for purposes of resolving his Motion for Partial Summary Judgment, treating the notice similar to a notice of no objection to petitioner's response in opposition to the motion, limited to this case.
After due consideration, it is
ORDERED that respondent's Motion for Partial Summary Judgment, filed April 8, 2020, at docket entry 25, is denied without prejudice. 4