Opinion
20849-17
02-01-2023
ST. ANDREWS PLANTATION, LLC, JOSEPH N. MCDONOUGH, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
David Gustafson Judge
We will schedule a telephone conference with the parties to develop a schedule for further proceedings in this case.
26 C.F.R. § 1.170A-14(g)We previously issued an order (Doc. 37) denying the Commissioner's motion (Doc. 17) for partial summary judgment on the "extinguishment clause" issue, involving the "protected in perpetuity" requirement of I.R.C. section 170(h)(5)(A) and 26 C.F.R. § 1.170A-14(g)(1), stating:
We find plausible petitioner's assertion that the only rights that St. Andrews reserved in the Deed were mere 'maintenance rights'. St. Andrews may be able to establish at trial that such future improvements as limited by the Deed could not increase the fair market value of the subject property or that any increase in value would be truly de minimis. Thus petitioner may plausibly contend that the improvements clause in the Deed in this case would not cause GLT to receive less than its proportionate share of the proceeds in the event the Property were sold following judicial extinguishment of the easement. Viewing the facts and the inferences to be drawn from the facts in the light most favorable to petitioner, we conclude that a
genuine dispute of material fact dictates that we deny respondent's motion for partial summary judgment on this issue. [Doc. 37 at 14.]
We further denied petitioner's cross-motion and sustained the substantive and procedural validity of the -14(g) regulations, citing our case law. See Doc. 37 at 15. However, in Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), the Court of Appeals for the Eleventh Circuit reversed our opinion in T.C. Memo. 2020-89 upholding the validity of the -14(g) regulations. The Eleventh Circuit is the court that would have venue for an appeal in this case. The Court of Appeals for the Sixth Circuit later affirmed our position in Oakbrook Land Holdings v. Commissioner, 28 F.4th 700 (6th Cir. 2022), aff'g 154 T.C. 180 (2020); but the U.S. Supreme Court recently denied the taxpayer's petition for writ of certiorari in Oakbrook. See 2023 WL 124412 (Jan. 9, 2023). Thus, an unresolved "split" exists between these two courts of appeals; but in this case, under the "Golsen rule", see Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), aff'd 445 F.2d 985 (10th Cir.1971), we will follow the jurisprudence of the governing court of appeals- presumably the Eleventh Circuit-and consistent with Hewitt we must presume the invalidity of the -14(g) regulations.
IRS Notice 2017-10
By an amended answer (Doc. 54, para. 12(d)), the Commissioner pleaded:
For any understatement to which the gross valuation misstatement penalty does not apply, the section 6662A(a) reportable transaction penalty applies. The reportable transaction penalty applies to any understatement from a reportable transaction. I.R.C. § 6662A(b)(2)(A). Here, St. Andrews admitted on Forms 8886, Reportable Transaction Disclosure Statements, that the easement transactions were reportable transactions under IRS Notice 2017-20 [evidently a typographical error for Notice 2017-10]. Thus, the reportable transaction penalty applies to any understatements.
However, in Green Valley Invs., LLC v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022), we recently barred "the imposition of section 6662A penalties . . . since Notice 2017-10 was issued without notice and comment as required under the APA".
Qualified appraisals
The valuation of the contributed easements in this case bears on several related issues-(1) petitioner's compliance (whether strict or substantial) with the substantiation requirements of section 170(f)(11), and the presence of "reasonable cause" for any non-compliance; (2) the amount of any deduction to which petitioner may be entitled; and (3) petitioner's liability for value-based penalties.
Now pending before us is the Commissioner's motion (Doc. 61) for partial summary judgment on one aspect of the first of those issues. The motion asserts that for four reasons the appraisals that petitioner submitted are not "qualified appraisals": "[1] they failed to include a description of the property contributed; [2] they failed to identify the fair market value on the expected date of contribution; [3] the appraiser failed to use an accepted method of valuation; and [4] the appraiser failed to provide a specific basis for the valuation." (Doc. 77, para. 1.) Even if the Commissioner is correct that there was not strict compliance with the relevant requirements, it would seem that, in order to assess substantial compliance, we must evaluate the seriousness of any defects. Such an evaluation might be better undertaken at trial rather than under Rule 121 (under which we would not find facts about the presence or absence of substantial compliance but rather would make holdings as to the presence or absence of genuine disputes concerning the facts about the presence or absence of substantial compliance).
Moreover, even if we were to grant partial summary judgment to the Commissioner on the "qualified appraisal" issue, it would seem that facts and disputes about the appraisals would be subjects at trial as we thereafter evaluate "reasonable cause" for the noncompliance. (As the Commissioner acknowledges, "Candidly, facts remain in dispute as to St. Andrews's allegation that its failure to comply with the qualified appraisal requirements was due to reasonable cause and not willful neglect under section 170(f)(11)(A)(ii)(II). . . . The reasonable cause determination should be left for trial (as it has been with respect to St. Andrews's failure to properly report basis on its 2011 Form 8283)." (Doc. 77, para. 37.)) And even if we held that substantial compliance was lacking, that there was no reasonable cause, and that therefore petitioner was not entitled to the deduction, we would still face the actual valuation issue when we addressed the penalties.
As the Commissioner himself states in his motion (Doc. 61, para. 63), "'Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials.' Florida Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988)." But given what we have observed above about the valuation-related topics that must be the subject of trial in any event, it is unclear whether addressing the Commissioner's motion now would actually save the Court and the parties any substantial expense of time or trouble.
It is therefore
ORDERED that the parties shall contact the Chambers Administrator of the judge signing this order (at 202-521-0850) for the purpose of scheduling a telephone conference with the Court, at which a routine and schedule for further proceedings in this case can be discussed. That conference should take place on or before February 24, 2023. Before that phone conference, the parties should confer to determine whether and to what extent they can make joint recommendations. They should also discuss (and petitioner is ordered to initiate a discussion about) whether all possibilities of settlement (in whole or in part) have been exhausted, in light of the developments in Hewitt/Oakbrook and Green Valley.