Opinion
10646-21
01-24-2024
SILVER MOSS PROPERTIES, LLC, SILAS MINE INVESTMENTS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Cary Douglas Pugh Judge
This case is one of several related but not consolidated cases in which a taxpayer challenges the Commissioner's disallowance of a deduction of a conservation easement donation. On June 2, 2023, respondent filed a Motion for Partial Summary Judgment along with a supporting Memorandum and Declaration. Petitioner filed a Response to Motion for Partial Summary Judgment on July 17, 2023, along with an opposing Declaration.
Assigned to this Division of the Court are Silver Moss Properties, LLC v. Commissioner, Docket No. 10646-21; Sydney Roads, LLC v. Commissioner, Docket No. 30287-21; Joint Star Properties, LLC v. Commissioner, Docket No. 30289-21; and Jackson Pines, LLC v. Commissioner, Docket No. 6800-23. Additionally, there are two related cases, McKinley Brooks, LLC v. Commissioner, Docket No. 26125-21 and Econfina Resources, LLC v. Commissioner, Docket No. 12980-22, that are assigned to another judge. The common element among these cases is that the conservation easements at issue came from subdivided parcels of the same property, the "South Parcel," discussed below.
In tax year 2017, Silver Moss Properties, LLC (Silver Moss) owned 196.789 acres of land in Taylor County, Florida. It donated a conservation easement on that land and claimed a deduction under section 170. On its partnership return, Silver Moss reported that its holding period in the land began in March 2008. Respondent seeks summary adjudication that Silver Moss' holding period in the land began on December 21, 2017, which would mean it held the land for less than one year. The holding period matters because section 170(e)(1)(A) limits a charitable deduction of land held for less than one year to the donor's basis in the land.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. Some dollar amounts are rounded to the nearest dollar.
Background
The following background is drawn from the parties' pleadings and Motion papers. This background is stated solely for purposes of resolving the pending Motion for Partial Summary Judgment and not as findings of fact in this case.
I. The "South Parcel"
A. Perry Pines
Perry Pines, LLC (Perry Pines) purchased land in Taylor County in March 2008. In August 2016, Aegis Equity Partners, LLC (Aegis) sent Perry Pines a memorandum indicating its interest in purchasing the land. Perry Pines and Aegis then negotiated the details of the land purchase, exchanging several draft letters of intent between September and December 2016. At some point within that time frame, Heritage Land Partners LLC (Heritage) replaced Aegis in the negotiations, and negotiations shifted from the purchase of land to the purchase of a member interest in a partnership.
B. Agreement for Purchase and Sale of Member Interest
In January 2017, Perry Pines and Heritage signed an Agreement for Purchase and Sale of Member Interest (Member Purchase Agreement). The Member Purchase Agreement, among other things, stated that Perry Pines owns an approximately 2,140-acre parcel of land referred to as the "South Parcel." It required Perry Pines to form a wholly-owned entity, convey the South Parcel to this entity, and sell to Heritage a 99% member interest in the entity for $15.5 million. Heritage reserved the right to assign its rights under the Member Purchase Agreement to an affiliated entity and Perry Pines reserved the right to assign the remaining 1% member interest to a third party of its choosing. Heritage subsequently assigned its rights to Legacy West Acquisitions, LLC (Legacy West).
II. Execution of the Member Purchase Agreement
Perry Pines organized Taylor Limestone Mining LLC (Taylor Limestone) and, on December 20, 2017, it conveyed the South Parcel to Taylor Limestone. Taylor Limestone also was the sole member of Silver Moss. The parties' Motion papers do not explain how Taylor Limestone came to hold that member interest.
The following day, December 21, 2017, Perry Pines contributed a 1% interest in Taylor Limestone to the Econfina Corporation (Econfina), its wholly-owned subsidiary. It and Econfina also executed an operating agreement for Taylor Limestone. On the same day, Perry Pines sold a 99% member interest in Taylor Limestone to Legacy West.
Also on the same day, Taylor Limestone deeded 196.789 acres of the South
Parcel to Silver Moss (the Subdivided Parcel). Taylor Limestone distributed 99% and 1% member interests in Silver Moss to Legacy West and Econfina, respectively. Legacy West, in turn, distributed its 99% member interest in Silver Moss to Silver Moss Acquisitions, LLC.
III. Post-Execution Events
A week after the sale, on December 28, 2017, Silver Moss created a conservation easement on the Subdivided Parcel and donated the easement to the Atlantic Coast Conservancy, Inc. On its 2017 partnership return, Silver Moss reported a basis in the Subdivided Parcel of $1,035,478 and a date acquired of March 2008.
Discussion
I. Summary Judgment
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). Generally, we may grant summary judgment 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). A partial summary adjudication is appropriate if some but not all of the issues in the case may be decided as a matter of law. See Rule 121(b); Turner Broad. Sys., Inc. & Subs. v. Commissioner, 111 T.C. 315, 323-24 (1998). In deciding whether to grant partial summary judgment, we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party (petitioner in this instance). Sundstrand Corp., 98 T.C. at 520 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, the nonmoving party may not rest only upon the allegations or denials in its pleadings but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
II. Respondent's Arguments
Respondent's Motion focuses on Perry Pines' sale of a 99% member interest in Taylor Limestone to Legacy West. He asserts that Legacy West did not inherit Perry Pines' holding period, but started a new holding period in the member interest upon acquisition. His primary argument is that the sale fits within the fact pattern contemplated in situation 1 of Revenue Ruling 99-5, 1999-1 C.B. 427, 434-35. Alternatively, he argues that the sale of the Taylor Limestone member interest was substantively a sale of the South Parcel. We discuss each argument in turn.
A. Revenue Ruling 99-5
Revenue Ruling 99-5, 1999-1 C.B. at 434-35, describes two situations in which A, the owner of a single-member limited liability company (LLC) that is treated as a disregarded entity, sells a 50% interest in the LLC to B. Only situation 1 is relevant here. In situation 1, B purchases 50% of A's ownership interest for $5,000. Id. A does not contribute any portion of that $5,000 to the LLC. Id. Thereafter, A and B operate the LLC as co-owners. Id. The ruling concludes that:
B's purchase of 50% of A's ownership interest in the LLC is treated as the purchase of a 50% interest in each of the LLC's assets, which are treated as held directly by A for federal tax purposes. Immediately thereafter, A and B are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership.Id. The ruling also concludes that A's holding period in the partnership interest includes his holding period in the assets contributed, while B's holding period in his partnership interest begins the day after he purchased his 50% ownership interest from A. Id. at 435.
Analogizing to situation 1, respondent argues that Taylor Limestone was not a partnership at the time of the sale, but rather a disregarded entity as it had only one owner, Perry Pines. See Treas. Reg. § 301.7701-3(b)(1)(ii) (providing that a domestic eligible entity that did not file a classification election is "[d]isregarded as an entity separate from its owner if it has a single owner."). This assertion leads him to argue that because Legacy West paid Perry Pines directly for its 99% member interest in Taylor Limestone, the purchase is treated as a purchase of 99% of the South Parcel, that immediately thereafter is contributed to a partnership between Perry Pines and Legacy West. Respondent concludes, therefore, that Perry Pines kept its holding period, but Legacy West's holding period began on December 21, 2017.
Assuming that respondent's understanding of the facts was correct, Legacy West's holding period would not have begun on December 21, 2017, but on December 22, 2017. See Rev. Rul. 99-5, 1999-1 C.B. at 435 (stating that "the holding period of a purchased asset is computed by excluding the date on which the asset is acquired." (citing Rev. Rul. 66-7, 1966-1 C.B. 188, 189)).
Petitioner counters that Taylor Limestone was a partnership at the time of the sale. The difference between the parties' renditions of the transactions of December 21, 2017, is that respondent appears to view the 1% member interest contribution to Econfina as occurring after the sale of the Taylor Limestone member interest. Petitioner views the contribution as occurring before the sale.
The documents attached to the parties' Declarations support petitioner's rendition. Exhibits 10 and 11 to respondent's supporting Declaration and Exhibit B to petitioner's opposing Declaration indicate that Perry Pines contributed a 1% member interest in Taylor Limestone to Econfina before the sale of a 99% member interest in Taylor Limestone. Exhibit 10, an "Assignment of Interest" between Perry Pines and Legacy West, states that Perry Pines assigns a 99% member interest in Taylor Limestone to Legacy West and that the assignment "does not include the 1% membership interest in [Taylor Limestone] retained by the Econfina Corp., a Delaware corporation." Exhibit 11, a "Capital Contribution & Assignment of Interest" between Perry Pines and Econfina, states that Perry Pines conveys a 1% member interest in Taylor Limestone to Econfina as a capital contribution under section 351. Petitioner's Exhibit B is an "Operating Agreement of Taylor Limestone Mining, LLC" between Perry Pines and Econfina.
Exhibit 10's reference to Econfina's 1% member interest in Taylor Limestone suggests that Taylor Limestone had two members at the time of the sale, which means that Taylor Limestone was a partnership. See Treas. Reg. § 301.7701-3(b)(1)(i) (a domestic eligible entity that did not file a classification election is a "partnership if it has two or more members."). The operating agreement also confirms that Taylor Limestone was a partnership before the sale to Legacy West. Revenue Ruling 99-5 is therefore distinguishable from this case. At the least, these documents raise a factual dispute as to the order of the transactions of December 21, 2017.
B. Substance Over Form Doctrine
Alternatively, respondent urges that the events described above should be recharacterized as a direct sale of the South Parcel under the substance over form doctrine. See Gregory v. Helvering, 293 U.S. 465, 467-69 (1935) (establishing the substance over form doctrine). The application of the substance over form doctrine is inherently factual and generally not appropriate for summary judgment. See United States v. Cumberland Public Service Co., 338 U.S. 451, 456 (1950) ("It is for the trial court, upon consideration of an entire transaction, to determine the factual category in which a particular transaction belongs."). In Andantech L.L.C. v. Commissioner, T.C. Memo. 2002-97, 2002 WL 531143, at *23, aff'd in part and remanded on other grounds, 331 F.3d 972 (D.C. Cir. 2003), we synthesized our prior holdings as follows:
Substance over form and related judicial doctrines all require "a searching analysis of the facts to see whether the true substance of the transaction is different from its form or whether the form reflects what actually happened." The issue of whether any of those doctrines should be applied involves an intensely factual inquiry.(citations omitted). Nothing in the record before us suggests to us that we would face a different analysis here.
III. Conclusion
For the foregoing reasons and for cause, it is ORDERED that respondent's Motion for Partial Summary Judgment, filed June 2, 2023, is denied.