Opinion
14954-20
04-28-2023
MAPLE EQUESTRIAN, LLC, JEFFRY BLAND, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth Crewson Paris Judge.
This case is before the Court on respondent's Motion for Partial Summary Judgment, filed February 22, 2023, docket entry 18. On September 28, 2020, respondent issued a Notice Of Final Partnership Administrative Adjustment (FPAA) for tax year 2011 to Jeffrey Bland as tax matters partner of Maple Equestrian, LLC (Maple Equestrian). In the FPAA respondent reduced the charitable contribution deduction that Maple Equestrian claimed for 2011 by $7,755,848 and determined penalties under section 6662(h), or, alternatively, under section 6662(c) and (d).
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.
Respondent contends in the Motion for Partial Summary Judgment, docket entry 18, that Maple Equestrian is not entitled to a charitable contribution deduction of $7,755,848 for the donation of a conservation easement because it "failed to attach a complete appraisal summary to its return as required by Treas. Reg. § 1.170A-13(c)." On April 5, 2023, at docket entry 20, petitioner filed a Response in Opposition to respondent's Motion.
On April 19, 2023, at docket entry 21, the parties filed a Joint Status Report indicating that respondent's Motion for Partial Summary Judgment, docket entry 18, is "substantially similar" to motions for partial summary judgment on which this Court ruled in Hickory Equestrian v. Commissioner, Docket No. 347-21, and High Rocks v. Commissioner, Docket No. 14944-20. We agree with the parties that respondent's Motion in this case is substantially similar to those already ruled-upon motions in Hickory and High Rocks. Accordingly, we will adopt similar reasoning to grant respondent's Motion for Summary Judgment in part and to deny it in part.
Background
The following facts are derived from the pleadings, the parties' motions, and the exhibits and declarations attached thereto. They are stated solely for purposes of deciding respondent's Motion 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).
Maple Equestrian is a Georgia limited liability company that is treated as a partnership for federal income tax purposes. Petitioner Jeffrey Bland is its tax matters partner. Maple Equestrian had its principal place of business in Georgia when the Petition was timely filed.
In November 2011 Maple Equestrian acquired approximately 409.9 acres of unimproved real property in DeKalb County, Alabama through a capital contribution. On December 30, 2011, Maple Equestrian donated a conservation easement over approximately 405.9 acres of the property to North American Land Trust (NALT). The deed of conservation easement was recorded that same day.
For its 2011 tax year, Maple Equestrian filed Form 1065, U.S. Return of Partnership Income. On that return it claimed a charitable contribution deduction of $7,768,348 for the donation of the easement. The 2011 return was signed in the paid preparer box by a tax preparer from the firm Haynes & Moore, LLC.
Petitioner also claimed a charitable deduction for a cash contribution of $12,500 to NALT. This deduction was allowed on the FPAA and is not at issue here.
Maple Equestrian included with its 2011 return page 2 of Form 8283, Noncash Charitable Contributions. On the Form 8283 Maple Equestrian described the donated property in box 5(a) as a "Conservation Easement under IRC 170(h) on land in DeKalb County, Alabama." Maple Equestrian did not fill in box 5(f) ("Donor's cost or adjusted basis"), instead writing "SEE ATTACHED" across boxes 5(d) and 5(e). In the attachment Maple Equestrian stated:
A declaration of the taxpayer's basis in the property is not included in Section B, Part 1, 5(f) of the attached Form 8283 because of the fact that the basis of the property (in this case a conservation easement) is not determinable. Moreover, since the taxpayer has a holding period in the donated property in excess of 12 months and such property otherwise qualifies as 'capital gain property,' such basis will not impact the amount of the claimed deduction.
Maple Equestrian also attached to its return a document titled "IRS SECTION 721 DISCLOSURE 2011 FORM 1065." This document indicated that the contributed property, which later became subject to the easement, had been purchased in 2002 for $329,900 by the original owner (the contributing member of Maple Equestrian, or its predecessor).
On September 28, 2020, respondent issued an FPAA to petitioner. In the FPAA respondent disallowed the noncash charitable contribution deduction of $7,755,848 claimed for 2011 on the ground that Maple Equestrian failed to "satisf[y] all the requirements of I.R.C. § 170 and the corresponding Treasury Regulations for deducting a noncash charitable contribution." Alternatively, respondent determined that, if any deduction were allowable, Maple Equestrian "ha[d] not established the value of the noncash charitable contribution." In addition, respondent determined a 40% penalty for gross valuation misstatement under section 6662(h), or, alternatively, a 20% penalty for negligence and substantial understatement of income tax under section 6662(c) and (d), respectively. Petitioner timely petitioned this Court for readjustment of the partnership items and penalties in the FPAA.
Discussion
I. Summary Judgment Standard
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). The Court may grant summary judgment upon any or all legal issues in controversy when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In determining whether to grant summary judgment, the Court reviews the facts in the record and draws inferences from them in the light most favorable to the nonmoving party (here, the petitioner). Bond v. Commissioner, 100 T.C. 32, 36 (1993); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). 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.
II. Basis Disclosure Requirement
Where a contribution of property (other than publicly traded securities) is valued in excess of $5,000, the taxpayer must "obtain[] a qualified appraisal of such property and attach[] to the return . . . such information regarding such property and such appraisal as the Secretary may require." § 170(f)(11)(C). The required information includes "a fully completed appraisal summary" that must be attached "to the tax return . . . on which the deduction for the contribution is first claimed (or reported) by the donor." See Treas. Reg. § 1.170A-13(c)(2). The IRS has prescribed Form 8283 to be used as the "appraisal summary." Jorgenson v. Commissioner, T.C. Memo. 2000-38.
A fully completed appraisal summary must include "[t]he cost or other basis of the property." Treas. Reg. § 1.170A-13(c)(4)(ii)(E). Failure to comply with this requirement generally precludes a deduction. See § 170(f)(11)(A) (providing that "no deduction shall be allowed" unless a taxpayer meets the appraisal summary requirements of section 170(f)(11)(C)).
Section B, Part I, box 5(f) of Form 8283 requires the taxpayer provide the "Donor's cost or adjusted basis." Maple Equestrian did not supply this information on Form 8283 or in its attached explanation; rather, it asserted in the latter document that "the basis of the property . . . [wa]s not determinable" and "w[ould] not impact the amount of the claimed deduction" because Maple Equestrian "ha[d] a holding period in the donated property in excess of 12 months."
Respondent contends that the deduction was properly disallowed because Maple Equestrian failed to report its cost or adjusted basis on Form 8283 and thus failed to submit a fully completed appraisal summary. Petitioner contends that Maple Equestrian substantially complied with the applicable reporting requirements. Alternatively, petitioner contends that Maple Equestrian reasonably relied on its advisors in preparing and filing its Form 8283.
A. Substantial Compliance
A taxpayer's failure to disclose the cost or adjusted basis of charitable contribution property cannot be excused by substantial compliance. RERI Holdings I, LLC v. Commissioner, 149 T.C. 1, 16-17 (2017), aff'd sub nom. Blau v. Commissioner, 924 F.3d 1261 (D.C. Cir. 2019). The Form 8283 that Maple Equestrian attached to its 2011 return shows no amount in the space provided for the "Donor's cost or other adjusted basis." Nor did Maple Equestrian disclose the basis on the attachment to the Form 8283. Accordingly, we hold that Maple Equestrian did not satisfy the basis disclosure requirement of Treasury Regulation § 1.170A-13(c)(4)(ii)(E). See RERI Holdings I, LLC, 149 T.C. at 17.
B. Reasonable Cause Defense
A taxpayer's failure to meet the reporting requirements of section 170(f)(11) may be excused if it was due to reasonable cause and not to willful neglect. We have construed section 170(f)(11)(A)(ii)(II) similarly to other sections of the Code providing reasonable cause defenses. See Oakhill Woods, LLC, T.C. Memo. 2020-24, at *28.
"Reasonable cause requires that the taxpayer have exercised ordinary business care and prudence as to the challenged item." Crimi v. Commissioner, T.C. Memo. 2013-51, at *99 (citing United States v. Boyle, 469 U.S. 241 (1985)). "The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances." Treas. Reg. § 1.6664-4(b)(1).
If a taxpayer alleges reliance on the advice of a tax professional, that "advice must generally be from a competent and independent advisor unburdened with a conflict of interest and not from promoters of the investment." Mortensen v. Commissioner, 440 F.3d 375, 387 (6th Cir. 2006), aff'g T.C. Memo. 2004-279. A taxpayer advancing this defense must also show that it actually relied in good faith on the advice it received. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98-99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002). This determination "is inherently a fact-intensive one." Alli v. Commissioner, T.C. Memo. 2014-15, at *60-61 (quoting Crimi, T.C. Memo. 2013-51).
Petitioner contends that Maple Equestrian, when completing Form 8283, reasonably relied on advice from the attorneys and accountants who helped prepare its return. Petitioner asserts that these advisers concluded that the instructions to Form 8283 were ambiguous and that Maple Equestrian could comply with its reporting obligations by stating on Form 8283 that its basis in the easement was "not determinable." We conclude resolution of this issue will require us to address several questions as to which genuine disputes of material fact appear to exist, and thus summary adjudication of this issue is inappropriate. See Oakhill Woods LLC, T.C. Memo. 2020-24, at *30. Accordingly, we reserve for trial the question of whether Maple Equestrian may avail itself of the "reasonable cause" defense in section 170(f)(11)(A)(ii)(II).
For premises considered, it is
ORDERED that respondent's Motion for Partial Summary Judgment, filed February 22, 2023, docket entry 18, is granted in part and denied in part, to the extent set forth in this Order. It is further
ORDERED that the parties shall file, on or before May 30, 2023, a Status Report (jointly if possible, otherwise separately) expressing their views regarding the conduct of further proceedings in this case, including potential consolidation of the related cases discussed in the April 19, 2023, Joint Status Report, docket entry 21.