Opinion
12519-16
06-24-2022
PLATEAU HOLDINGS, LLC, WATERFALL DEVELOPMENT MANAGER, 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 Plateau Holdings, LLC (Plateau), for conservation easements. On its Federal income tax return for 2012, Plateau claimed a deduction of $25,449,000 for the donation of the easements. On June 23, 2020, we issued an opinion disallowing the deduction in full because the judicial extinguishment clauses of the easement deeds did not protect the conservation purpose in perpetuity. See Plateau Holdings, LLC v. Commissioner (Plateau I), T.C. Memo . 2020-93. Our opinion relied on § 170(h)(5)(A) and Treas. Reg. § 1.170A-14(g)(6) (“proceeds regulation”). Specifically, we held that the deeds contained impermissible carve-outs for donor improvement and prior claims, which would improperly reduce the charitable grantee's share of the proceeds if the property were sold following judicial extinguishment of the use restrictions. Petitioner did not challenge, at trial or in its post-trial briefs, the validity of the proceeds regulation.
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.
In Plateau I we also addressed applicable penalties. We held that the correct value of the easements was $2,691,200 and that a 40% penalty applied to the portion of the underpayment that resulted from Plateau's gross overvaluation of the easements. We left for further proceedings the question whether a 20% penalty applied to the “lower tranche” of the underpayment, i.e., the portion of the underpayment that was not attributable to a valuation misstatement. On November 30, 2021, we issued a second opinion, this time holding that Plateau qualified for the “reasonable 1 cause" defense with respect to the 20% penalty. See Plateau Holdings, LLC v. Commissioner (Plateau II), T.C. Memo. 2021-133. We subsequently ordered the parties to submit computations for entry of decision under Rule 155.
Currently before the Court is petitioner's Motion for Reconsideration of Findings or Opinion Pursuant to Rule 161, filed March 24, 2022. Petitioner contends that our ruling in Plateau I-that the deeds did not comply with Treas. Reg. § 1.170A-14(g)(6)-should be reconsidered in light of Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev'g and remanding T.C. Memo. 2020-89. Petitioner urges that Hewitt, issued by the Eleventh Circuit on December 29, 2021, constitutes an "intervening change in controlling law."
Under Rule 161, reconsideration is intended to correct substantial errors of fact or law and allow the introduction of newly discovered evidence that the moving party could not have introduced by the exercise of due diligence. See Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998). The granting of a motion for reconsideration rests within our discretion, and we generally deny such a motion unless unusual circumstances or substantial error is shown. See Alexander v. Commissioner, 95 T.C. 467, 469 (1990), aff'd, 999 F.2d 544 (9th Cir. 1993). Reconsideration "is not the appropriate forum for rehashing previously rejected legal arguments." Turner v. Commissioner, 138 T.C. 306, 307-08 (2012) (quoting Estate of Quick, 110 T.C. at 441-42). Nor is it a proper forum for "tendering new legal theories" that could have been, but were not, advanced by the party at trial. Estate of Quick, 110 T.C. at 442; see also Morales v. Commissioner, 633 Fed.Appx. 884, 886 (9th Cir. 2015) ("A motion for reconsideration may not be used to raise arguments . . . for the first time when they could reasonably have been raised earlier in the litigation."), aff'g T.C. Memo. 2013-192.
Rule 161 motions must generally be filed within 30 days after the opinion is issued. We issued Plateau I on June 23, 2020, more than two years ago. However, we may exercise our discretion to review an untimely motion when there has been an "intervening change in the law." See Mitchell v. Commissioner, T.C. Memo. 2013-204, 106 T.C.M. (CCH) 215, 217, aff'd, 775 F.3d 1243 (10th Cir. 2015). Petitioner argues that Hewitt constitutes an "intervening change in the law" and that reconsideration therefore is warranted.
In Hewitt the Eleventh Circuit held that "the Commissioner's interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the value of post-donation improvements . . ., is arbitrary and capricious and therefore invalid under the APA's [Administrative Procedure Act's] procedural requirements." 21 F.4th at 1353; contra Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700, 717-18 (6th Cir. 2022) (disagreeing with Hewitt and finding the regulation to be valid), aff'g 154 T.C. 180 (2020). Plateau had its principal place of business in Georgia when its petition was filed. Absent stipulation to the contrary, this case would thus be appealable to the Eleventh Circuit. See § 7482(b)(1)(E).
Respondent acknowledges that, under Hewitt, a charitable deduction may not be disallowed solely on the ground that an easement deed reduces the grantee's share 2 of post-extinguishment proceeds by the value of any post-donation improvements. However, respondent contends that reconsideration is not warranted because we held in Plateau I that the easement deeds had "a second problem"-viz., that the grantee's share of the sale proceeds would be reduced by "prior claims." Plateau I, 119 T.C.M. (CCH) 1619, 1625. We ruled that this defect, which was also present in Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126, 145 n.5 (2019), constituted an alternative ground for disallowing Plateau's deduction. See ibid.
For two reasons, we decline to exercise our discretion to consider petitioner's untimely Motion. First, petitioner failed to challenge the validity of the "proceeds regulation" at trial or in its post-trial briefs. We accordingly had no occasion to address in Plateau I the argument it now seeks to raise. A motion for reconsideration is not the appropriate vehicle for urging new legal arguments that could have been, but were not, advanced at trial. Estate of Quick, 110 T.C. at 441-42; Morales, 106 T.C.M. (CCH) 152, 154 ("A motion for reconsideration is not a forum to test new arguments when an opportunity to do so has been previously given."), aff'd on this point, 633 Fed.Appx. 884 (9th Cir. 2015).
Second, our holding in Plateau I rested on two independent grounds-the carve-out for donor improvements and the (similarly problematic) carve-out for prior claims. Although we are obligated to follow the law as established by the Eleventh Circuit, see Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), it is not clear whether the Eleventh Circuit invalidated the proceeds regulation in its entirety, or whether the court invalidated that regulation only insofar as it is interpreted to disallow deductions where the donee's share is reduced on account of donor improvements. See Hewitt, 21 F.4th at 1353 ("[T]he Commissioner's interpretation of [the proceeds regulation] to disallow the subtraction of the value of post-donation improvements . . . is arbitrary and capricious . . . .").
In our view, there has been no clear intervening change in the law with respect to the "prior claims" issue. The Eleventh Circuit did not address prior claims in its opinion, and we hesitate to opine on the scope of that opinion before the authoring court has had the chance to do so. See Lardas v. Commissioner, 99 T.C. 490, 495 ("[W]e should be careful to apply the Golsen doctrine only under circumstances where the holding of the Court of Appeals is squarely on point."). We accordingly will deny petitioner's Motion for Reconsideration.
Upon due consideration, it is
ORDERED that petitioner's Motion for Reconsideration of Findings or Opinion Pursuant to Rule 161, filed March 24, 2022, is denied. It is further
ORDERED that the parties shall file computations for entry of decision under Tax Court Rule 155 on or before July 29, 2022. 3