Opinion
19189-19
03-30-2023
IVEY BRANCH HOLDINGS, LLC, IVEY BRANCH INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Travis A. Greaves, Judge
The Internal Revenue Service (IRS or respondent) issued a Notice of Final Partnership Administrative Adjustment (FPAA) to Ivey Branch Investors, LLC (IB Investors), the tax matters partner for Ivey Branch Holdings, LLC (IB Holdings or grantor) for the tax year ending December 31, 2015 (year at issue). The FPAA disallowed a conservation easement charitable contribution deduction that IB Holdings claimed under section 170 and determined section 6662 and section 6662A accuracy-related penalties.
IB Holdings filed two partnership returns for 2015: one for November 14, 2015, through December 29, 2015, and another for the two-day tax period at issue December 30, 2015, through December 31, 2015.
Unless otherwise noted, all section references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent filed a motion for partial summary judgment wherein respondent contends that the easement deed failed to protect conservation purposes in perpetuity and the restrictions on the use that could be made of the conserved land are not granted in perpetuity. Thereafter, respondent filed a second motion for partial summary judgment with respect to the penalties. For the reasons below, we deny respondent's first motion for partial summary judgment. Because respondent's second motion with respect to penalties is derivative of his first motion, we deny respondent's second motion as well.
Background
IB Holdings is a Georgia limited liability company and treated as a partnership for Federal tax purposes. On December 30, 2015, IB Holdings granted an easement in favor of Foothills Land Conservancy (Foothills or grantee) with respect to an approximately 141-acre tract of unimproved rural land in Jefferson County, Georgia (property), pursuant to a Deed of Conservation Easement (deed).
The deed laid out certain intended conservation purposes of the easement, including: (1) preservation of open space for the scenic enjoyment of the general public, (2) protection of the natural habitat of fish, wildlife, plants, or similar ecosystems, and (3) preservation of open space "pursuant to a clearly delineated Federal, state, and local government conservation policy . . . ." Paragraph 4 of the deed includes an expansive list of specific rights that are reserved for the Grantor of the easement (reserved rights). Paragraph 4 begins with a general provision that reserves all rights accruing from the ownership of the property, but which do not interfere with the conservation purpose or value of the property:
Grantor reserves to itself and to its successors and assigns, all rights accruing from their ownership of the Property, including the right to engage in, or permit or invite others to engage in all uses of the Property that are not expressly prohibited herein and not inconsistent with the purpose of the Easement. Nothing herein shall be construed as a grant to the general public of any right to enter upon any party of the Property. In addition, nothing in this Paragraph 4 shall give Grantor, its successors and assigns, the right to engage in, or permit or invite others to engage in, any use of Property, or a portion thereof, that in Grantee's judgment, shall result in or have an adverse effect upon the Conservation Purposes or the Conservation Values in any material respect. Without limiting the generality of the foregoing, and subject to the terms of Paragraph 3, the following rights are expressly reserved (sometimes referred to herein as the "Reserved Rights):
Paragraph 4 also includes 22 subparagraphs that detail the reserved rights. These rights include, but are not limited to, the following: (i) constructing barns or sheds for storage of maintenance equipment, (ii) constructing ponds, (iii) installing service vehicle trails, (iv) grazing and farming operations, (v) constructing alternative energy sources, (vi) commercial forestry activities, and (vii) constructing a new cabin or dwelling within a designated building area as defined in the deed. In addition to the new cabin, the reserved rights allow the grantor to construct and maintain within the building area "ancillary buildings and structures and supporting buildings that are customarily accessory to a cabin used as a single family cabin or hunting cabin and or customarily accessory to a single family dwelling (e.g., garages and gazebos)."
Most of the subparagraphs delineating the reserved rights include language allowing the exercise of the reserved right only if it would not compromise or have an adverse effect on the conservation purposes or conservation values of the easement. In addition, several of the reserved rights require prior notice to and approval from Foothills before the grantor may exercise such rights. Paragraph 5 of the deed provides the process for notice and approval. Paragraph 5 states in part that the purpose of requiring the grantor to notify grantee prior to undertaking certain permitted activities is to afford the grantee sufficient opportunity to monitor the activities and ensure that they are performed in a manner that is not inconsistent with the purpose of the easement.
Paragraph 5 requires the grantor to notify the grantee in writing at least 30 days prior to undertaking any activity that requires notice under the deed. It also describes the details required to be in the notice, including the nature, scope, design, location, timetable and any other information required to enable the grantee to make an informed decision as to whether the proposed activity conforms to the purpose of the easement. Further, paragraph 5 states:
If Grantee does not approve or withhold approval of the requested action within thirty (30) days of receipt of Grantor's written request therefore, Grantee is deemed to have granted approval of such requested action and Grantor is expressly authorized to proceed therewith EXCEPT WHERE the requested action is clearly prohibited by the terms of the Easement or would result in an adverse effect on the Conservation Purposes or Conservation Values in any material respect.
In connection with the conveyance, Martin H. Van Sant and Thomas F. Wingard of Van Sant & Wingard, LLC prepared an appraisal of the property (appraisal) and listed the respective fair market values of the property as $24,600,000 and $212,000 before and after the conveyance.
IB Holdings reported on its Form 1065, U.S. Return of Partnership Income, for the year at issue a $24,388,000 noncash charitable contribution deductionunder section 170 for the conveyance of the easement to Foothills. Following an examination of IB Holdings' return for the year at issue, respondent issued an FPAA determining that IB Holdings was not entitled to the charitable deduction because it did not meet the requirements of section 170. The FPAA also determined several accuracy-related penalties under section 6662, including a 40% gross valuation misstatement penalty under section 6662(e) and (h) (gross valuation misstatement penalty). Respondent also determined in the alternative that the partners of IB Holdings should be liable for the 20% accuracy-related penalty under section 6662A on understatements with respect to reportable transactions (reportable transaction understatement penalty).
This deduction flowed through to IB Holdings' partners, including IB Investors.
IB Holdings' return for the year at issue is subject to audit and litigation procedures under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648, which was in effect for the year at issue. TEFRA was repealed by the Bipartisan Budget Act of 2015, Pub. L. 114-74, sec. 1101(a), 129 Stat. at 625, for partnership tax years after December 31, 2017.
Under TEFRA, partnership-related tax matters are addressed in two stages. First, the IRS initiates a proceeding at the partnership level to adjust "partnership items", i.e., those relevant to the partnership as a whole. §§ 6221 and 6231(a)(3). The IRS issues an FPAA notifying the partners of any adjustments to partnership items, and the partners may seek judicial review of those adjustments. § 6226(a), (b). Once any adjustments to partnership items become final, the IRS may undertake further proceedings at the partner level to make any resulting "computational adjustments" in the tax liability of the individual partners. § 6231(a)(6).
Petitioner timely petitioned for a readjustment of partnership items under section 6226(a). Respondent thereafter filed the following outstanding motions: (1) a motion for partial summary judgment (first motion) on April 17, 2020, (2) a motion to stay proceedings on April 22, 2020, pending resolution of the first motion, and (3) a second motion for partial summary judgment on April 13, 2021, asking that the gross valuation misstatement penalty and reportable transaction understatement penalty provisionally apply to petitioners (second motion). Pursuant to orders from the Court and its own motions for leave that we granted, petitioner filed oppositions to both of respondent's motions and several supplements thereto. Likewise, respondent also filed responses to petitioner's objections and several supplements to his original motions.
Any applicable penalty would provisionally apply subject to each partner's resulting income tax deficiency. United States v. Woods, 571 U.S. 31, 39 (2013); § 301.6231(a)(6)-1(a)(3), Proced. & Admin. Regs.
Discussion
I. Summary Judgment, Burden of Proof and Production, and Review Standard
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 a motion for summary judgment, or partial summary judgment regarding an issue, when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). Furthermore, the party opposing summary judgment is to be afforded the benefit of all reasonable doubt, and any inference to be drawn from the underlying facts contained in the record must be viewed in a light most favorable to the nonmoving party. Barnhill v. Commissioner, 155 T.C. 1, 8 (2020) (citing Espinoza v. Commissioner, 78 T.C. 412, 416 (1982)); see also Bd. of Educ., Island Trees Union Free Sch. Dist. No. 26 v. Pico, 457 U.S. 853, 862 (1982) (explaining that "any doubt as to the existence of a genuine issue of material fact must be resolved against" the moving party). The nonmoving party may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); Bond v. Commissioner, 100 T.C. 32, 36 (1993).
The taxpayer bears the burden of proving that the Commissioner's determinations in an FPAA are erroneous. See Rule 142(a); Republic Plaza Props. P'ship v. Commissioner, 107 T.C. 94, 104 (1996) (citing Welch v. Helvering, 290 U.S. 111, 115 (1933)). Furthermore, a taxpayer bears the burden of proving entitlement to a claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Petitioner properly commenced this case as a partnership-level proceeding under TEFRA. Accordingly, this Court has jurisdiction to determine not just partnership items, but also the applicability of any penalty which relates to an adjustment to a partnership item. §§ 6221 and 6226; United States v. Woods, 571 U.S. 31, 39-42 (2013) (stating that if this Court determines the applicability of penalties at the partnership-level proceeding then the penalties are not imposed until a later partner-level proceeding); cf. Highpoint Tower Technology, Inc. v. Commissioner, 931 F.3d 1050, 1064-65 (11th Cir. 2019) (limiting this Court's jurisdiction with respect to penalties in a partner-level proceeding). Additionally, respondent does not bear the burden of production with respect to penalties in a TEFRA partnership action. Dynamo Holdings, L.P. v. Commissioner, 150 T.C. 224, 236 (2018). The taxpayer has the burden of showing that penalties do not apply in a TEFRA case, including any defenses to penalties. Id. at 236-37.
II. Section 170 Overview and Extinguishment Regulation
Section 170(a)(1) allows a deduction for any charitable contribution made within the taxable year. Generally, a taxpayer may not deduct gifts of property that consist of less than the taxpayer's entire interest in that property. § 170(f)(3)(A). An exception to this rule applies where a taxpayer makes a "qualified conservation contribution" of a partial interest in property. § 170(f)(3)(B)(iii). For a contribution to constitute a qualified conservation contribution, the taxpayer must show that the contribution is "of a qualified real property interest [(QRPI)] to a qualified organization exclusively for conservation purposes." § 170(h)(1). For this purpose, QRPI is defined as, among other things, an interest in real property that is subject to "a restriction (granted in perpetuity) on the use which may be made of the real property" (perpetual use restriction). § 170(h)(2)(C). A contribution is not treated as "exclusively for conservation purposes" within the meaning of section 170(h)(1) unless the conservation purpose is protected in perpetuity. § 170(h)(5)(A).
The regulations set forth detailed rules for determining whether the "protected in perpetuity" requirement is met. Of importance here are the rules governing the mandatory division of proceeds in the event the property is sold following a judicial extinguishment of the easement. See Treas. Reg. § 1.170A-14(g)(6). This regulation recognizes that "a subsequent unexpected change in the conditions surrounding the [donated] property * * * can make impossible or impractical the continued use of the property for conservation purposes." Treas. Reg. § 1.170A-14(g)(6)(i). Despite that possibility, "the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding" and all of the donee's proceeds from such a subsequent sale or exchange, as determined under the proceeds clause of Treasury Regulation § 1.170A-14(g)(6)(ii) (proceeds clause), "are used by the donee organization in a manner consistent with the conservation purposes of the original contribution." Id. The proceeds clause provides in relevant part that:
In effect, the "perpetuity" requirement remains satisfied because the sale proceeds act to replace the easement as an asset deployed by the donee "exclusively for conservation purposes." Oakbrook v. Commissioner, 154 T.C. 180, 184 (2020).
[A]t the time of the gift the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right,
immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time. Treas. Reg. § 1.170A-14(g)(6)(ii).
Respondent argued that the easement did not satisfy the proceeds clause because the deed provides that proceeds Foothills would receive upon a judicial extinguishment of the property would be reduced by any increase in the value of the property attributable to improvements, as well as the satisfaction of prior claims on the property.
A. Validity of the Regulation
Among other arguments in its opposition to respondent's motion, petitioner challenges the validity of Treasury Regulation § 1.170A-14(g)(6) because the Department of the Treasury did not comply with the notice and comments procedures of the Administrative Procedures Act (APA) in promulgating the regulation.
In Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), and Hewitt v. Commissioner, T.C. Memo. 2020-89, this Court upheld and applied Treasury Regulation § 1.170A-14(g)(6). However, the U.S. Court of Appeals for the Eleventh Circuit, in which venue would lie for an appeal in this case, reversed Hewitt and 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 procedural requirements." Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev'g and remanding T.C. Memo. 2020-89. A few months after the Eleventh Circuit's reversal in Hewitt, the Court of Appeals for the Sixth Circuit affirmed the Tax Court's view of the regulation in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), aff'g 154 T.C. 180, 189-200 (2020), causing a "split" in the Circuits. Petitioner in Oakbrook filed a petition for writ of certiorari with the Supreme Court, which the Supreme Court denied on January 9, 2023. No. 22-323, 2023 WL 124412 (Jan. 9, 2023).
In light of the Supreme Court's denial of certiorari, we will follow Eleventh Circuit precedent with respect to the issue of the validity of Treasury Regulation § 1.170A-14(g)(6). See Golsen v. Commissioner, 54 T.C. 742, 756-57 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971). Accordingly, respondent is not entitled to judgment as a matter of law based on his interpretation of § 1.170A-14(g)(6)(ii), i.e., prohibiting the subtraction of the value of post-donation improvements to the property on which a conservation easement exists from the proceeds in the event of judicial extinguishment. See Hewitt 21 F.4th at 1339.
Respondent, however, makes two additional arguments relating to the proceeds clause. First, respondent argues that the calculation of proceeds upon judicial extinguishment under the deed fails to strictly comply with the proceeds clause. Second, respondent argues that the proceeds clause applies not only to the subtraction of post-donation improvements, but also to subtractions from proceeds due the satisfaction of prior claims. Paragraph 9(a) of the deed explains that the easement can be extinguished only through a judicial proceeding and provides how any such proceeds are to be distributed under such a scenario:
The amount of the proceeds to which Grantee shall be entitled, after the satisfaction of prior claims, from any sale, exchange, or involuntary conversion of all or any portion of the [p]roperty subsequent to such termination or extinguishment, shall be the stipulated fair market value of the [e]asement, or proportionate part thereof, as determined in accordance with Paragraph 9(b) or 26 C.F.R. Section 1.170A-14, if different. (emphasis added)
At the moment, it is not entirely clear whether the Eleventh Circuit invalidated Treasury Regulation § 1.170A-14(g)(6)(ii) in its entirety, or whether the court invalidated that regulation only insofar as it is interpreted to disallow deductions based on carve-outs for donor improvements. Compare Hewitt, 21 F.4th at 1353 (holding that "the Commissioner's interpretation of [the regulation] to disallow the subtraction of the value of post-donation improvements . . . is arbitrary and capricious"), with id. at 1339 n.1 ("[W]e conclude that § 1.170A-14(g)(6)(ii) is procedurally invalid under the APA[.]").
Given the uncertainty of the scope of the Eleventh Circuit's holding in Hewitt and the continued evolution of the law in this area, we do not think resolution of these issues by summary judgment is appropriate at this time. We will thus deny respondent's motion for partial summary judgment with respect to these issues, without prejudice to respondent advancing these arguments at trial and in post-trial briefs should he choose to do so.
B. Donor's Reserved Rights
To protect a contribution's conservation purpose in perpetuity, any interest in the property retained by the donor must be subject to legally enforceable restrictions that are sufficient to enable the donee to prevent or remedy any use of the property inconsistent with the conservation purpose. Treas. Reg. § 1.170A-14(e)(1) and (g)(1); see also Zarlengo v. Commissioner, T.C. Memo. 2014-161. Treasury Regulation § 1.170A-14(g)(5) specifies the requirements for protecting the conservation purpose of a donation where, as here, the taxpayer reserves certain rights. First a taxpayer must provide sufficient documentation to establish the condition of the property at the time of the gift. See Treas. Reg. § 1.170A-14(g)(5)(i). Respondent does not challenge whether petitioner satisfies this requirement. Rather, respondent focuses on Treasury Regulation § 1.170A-14 (g)(5)(ii), which provides:
Donee's right to inspection and legal remedies. In the case of any donation referred to in paragraph (g)(5)(i) of this section, the donor must agree to notify the donee, in writing, before exercising any reserved right, e.g. the right to extract certain minerals which may have an adverse impact on the conservation interests associated with the qualified real property interest. The terms of the donation must provide a right of the donee to enter the property at reasonable times for the purpose of inspecting the property to determine if there is compliance with the terms of the donation. Additionally, the terms of the donation must provide a right of the donee to enforce the conservation restrictions by appropriate legal proceedings, including but not limited to, the right to require the restoration of the property to its condition at the time of the donation.
Respondent maintains that the deed does not provide Foothills with the right to prevent uses contrary to conservation purposes after 30 days' notice by stating the following in his memorandum in support of the first motion:
Pursuant to Paragraph 5, IB Holdings is obligated, if it wishes to engage in any potentially inconsistent uses of the property listed in Paragraph 4, to submit to Foothills a description of, and timetable for, the proposed activity. Foothills must then either approve or disapprove of the proposed plan within 30 days after receiving IB Holding's proposal. If Foothills does not respond within 30 days, Foothills is 'deemed to have granted approval of such requested action and [IB Holdings] is expressly authorized to proceed therewith ....' (emphasis added)
The highlighted language is respondent's direct quotation from the deed exhibit in the record. Interestingly, respondent's decision to use an ellipse instead of quoting the full text of the sentence leaves out clearly relevant language which petitioner cites to undercut respondent's argument. The full text of the sentence reads as follows:
If Foothills does not respond within 30 days, Foothills is deemed to have granted approval of such requested action and [IB Holdings] is expressly authorized to proceed therewith EXCEPT WHERE the requested action is clearly prohibited by the terms of this Easement or would result in an adverse effect on the Conservation Purposes or Conservation Values in any material respect (capitalization in original, additional emphasis added).
Respondent argues that the "deemed approval" provision of the deed fails the perpetual protection requirement because "it does not provide the donee with the right to prevent uses contrary to conservation purposed after 30 days notice." Respondent further maintains that the "deemed consent" provision permits the grantor to "undertake a proposed activity that is inconsistent with the deed's conservation purpose if it submits a proposal to [Foothills] and [Foothills] does not respond within 30 days."
Petitioner counters that the emphasized language immediately above provides that any deemed approval that violated the terms of the easement or resulted in an adverse effect on the conservation purposes of values would not be effective. Petitioner further argues that the deemed consent provision of the deed would not prevent Foothills from enforcing the provisions of the deed after consent is "deemed". Specifically, petitioner points to Paragraph 6(g) of the deed, which provides:
Forbearance by Grantee to exercise its rights under this Easement in the event of any term of this Easement by Grantor shall not be deemed or construed to be a waiver by Grantee of such term or of any subsequent breach of the same or any other term of this Easement or of any of Grantee's rights under this Easement. No delay or omission by Grantee in the exercise of any right or remedy upon any breach by Grantor shall impair such right or remedy or be construed as a waiver.
On the basis of the record before us, petitioner has the stronger arguments regarding the proper construction of the deed. Further, under the facts presented, we do not think the "deemed consent" issue can be decided as a matter of law. The issue as to whether the exercise of a reserved right upon which consent may be deemed given would impair any conservation purpose presents questions of material fact. For this reason, we will deny respondent's motion on this point. See Pickens Decorative Stone, LLC v. Commissioner, T.C. Memo 2022-22.
C. "Movable Reserved Rights"
Pursuant to our precedent in Pine Mountain Pres., LLLP v. Commissioner, 151 T.C. 247 (2018) aff'd in part, rev'd in part and vacated 978 F.3d 1200 (11th Cir 2020) respondent originally argued that because the deed provided for "movable reserved rights" that did not attach to a defined parcel of real property, the easement violated the "granted in perpetuity" requirement under section 170(h)(2)(C). The Eleventh Circuit then reversed and remanded Pine Mountain on this issue while stating that reserved rights are more appropriately analyzed under section's 170(h)(5)(A) "protected in perpetuity" requirement.
In response, respondent abandoned his section 170(h)(2)(C) argument, but now attempts to follow the Eleventh Circuit by raising a new argument that the "movable reserved rights" contributes to the contribution failing to comply with section 170(h)(5)(A). As explained above, section 170(h)(5)(A) provides that "a contribution shall not be treated as exclusively for conservation purposes unless the conservation is protected in perpetuity." Specifically, respondent maintains that under the provisions of the deed, the grantor reserved rights for building a cabin and related structures on an area within the easement (building area) that is not defined with respect to its location or its size. Respondent posits that because the building area may be moved from one unprotected location of the easement to another protected location of the easement, that the conservation purpose will not be protected in perpetuity with respect to the movable area. We do not agree with respondent's reading of the deed.
As an initial matter, we are not convinced that any "movable rights" as defined by respondent actually exist. Respondent focuses on the word "potential" being used seven times in the deed to assert that the deed fails to set the location or size of the building area. The deed describes what respondent refers to as "movable rights" as follows:
Grantor may, upon satisfaction of the conditions set forth below, have the right to construct up to one (1) new Structure (hereinafter defined) to be located within (1) new area located and also identified on Exhibit B attached hereto (hereinafter called the "Building Area")….Grantor may also construct roads and driveways as necessary to gain access to the Building Area and may maintain, construct, and install underground utilities (including sanitary septic fields and wells for water) needed to service the Structure.
The location and dimensions of the Building Area shall have been reviewed and approved by Grantee. The location of the Building Area must not, in Grantee's judgment, result in any adverse effect on any of the Conservation Purposes or Conservation Values, in any material respect. Grantor hereby identifies one (1) potential location for the Building Area, and the potential location and approximate proposed size of the potential location are set forth on Exhibit D attached hereto and the potential location is also identified on the Exhibit B survey attached hereto. At such time as Grantor desires to construct a Structure within the potential Building Area, Grantor shall contact Grantee in writing and, in response to such contact, Grantee shall review and evaluate the specific Building Area so identified (and Grantee shall approve or not approve said potential location in accordance with the provisions hereof).
The deed includes attachments that designate the latitude and longitude of one building area, along with the appropriate size of 2 acres, which in our view sufficiently defines the building area. At the time that the grantor wishes to construct a structure on the potential building area the grantor must contact the grantee to obtain approval. Prior to obtaining approval, the building area is a single defined potential site that is subject to either approval or rejection by the grantee. Once the approval or rejection is made, the "potential" label will no longer apply. Upon an approval, the potential building site becomes the approved building site upon which improvements may be made. Upon a rejection, the deed does not provide a mechanism for the selection of an alternate building site to be selected by the Grantor. While respondent's reading is possible, we think the better interpretation is what respondent describes as movable rights, are not actually movable as petitioner asserts.
In his new arguments respondent further contends that other reserved rights, including those relating to forest management and commercial forestry activities, contribute to the easement failing to comply with section 170(h)(5)(A). With respect to forest management and commercial forestry activities, the deed requires that they be conducted in accordance with (i) a written Forest Management Plan approved by grantee, (ii) the Georgia Forestry Commission Best Practices Guidelines, (iii) applicable county, state, and federal forestry laws, and (iv) other detailed requirements including the requirements that the grantee review the Forest Management Plan for consistency with the terms of the easement prior to granting or denying approval. In sum, the deed's terms appear designed to ensure that any forestry activities that may be done pursuant to the reserved rights are conducted in accordance with the terms of the deed designed to protect the conservation purposes and values of the easement.
Overall, many of respondent's arguments take specific sentences or phrases from the deed, that read in isolation, do not provide an accurate picture of the actual terms in their full context. Most of the subparagraphs delineating the deed's reserved rights include language allowing the exercise of the reserved right only if it would not compromise or have an adverse effect on the Conservation Purposes or Conservation Values of the easement. Others require advanced written approval of Foothills before exercising the reserved right. In sum, while respondent may be able to present additional factual evidence at trial to try to establish that the easement fails to comply with section 170(h)(5)(A), respondent is not entitled to judgment as a matter of law on this issue.
III. Penalties
Respondent asks in his second motion that, should this Court disallow petitioner's charitable donation under section 170, the gross valuation misstatement penalty provisionally apply to petitioner's underpayment of tax attributable to an alleged gross valuation misstatement and that the reportable transaction understatement penalty provisionally apply to any portion of petitioner's understatement of tax attributable to the Ivey Branch transaction on which the gross valuation misstatement penalty is not imposed.
Respondent assessed additional section 6662 penalties in the FPAA that do not form a part of his second motion.
Because we are denying respondent's motion with respect to disallowing petitioner's charitable deduction under section 170, we likewise deny respondent's second motion. Respondent may still pursue his penalty theories at trial.
It is therefore
ORDERED that respondent's first motion for partial summary judgment, filed on April 17, 2020, is denied. It is further
ORDERED that respondent's second motion for partial summary judgment, filed on April 13, 2021, is denied. It is further
ORDERED that respondent's motion to stay proceedings, filed on April 22, 2020, is denied as moot.