Opinion
13271-20
07-31-2023
TIGNER PROPERTY, LLC, TIGNER INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Mark V. Holmes, Judge
This case arises from a charitable-contribution deduction claimed by Tigner Property, LLC, for a conservation easement. The Commissioner disallowed the deduction and determined that penalties applied. Tigner filed a timely petition. The Commissioner moved for partial summary judgment and the motion was assigned to this division of the Court for disposition. The usual rules on summary judgment apply.
This case is as complex as other syndicated conservation easement cases, but the motion here raises but a single issue: Did Tigner comply with the requirements of Treasury Regulation 1.170A-14(g)(5)(i)?
Background
In December 2016, Tigner executed a “Deed of Conservation Easement” on 185 acres of land that it owned. The easement granted in the deed was executed for the benefit of Oconee River Land Trust. Tigner recorded the deed before the end of the year and claimed a charitable-contribution deduction of more than $18 million on its 2016 return.
The deed recites the conservation purposes and generally prohibits commercial and some residential development. The conservation purposes are protection of forestry and agricultural resources, the water quality of streams, and a variety of significant natural habitats, including granite outcrops. Tigner also reserved quite a few rights:
• vegetation management, which includes planting and removing vegetation and prescribed burning;
• forest management, which includes herbicide application and prescribed burning;
• agriculture, which includes planting and cultivating crops, livestock grazing, and drilling for water;
• road construction and maintenance;
• construction and maintenance of temporary structures;
• trail construction and maintenance;
• installation of fences that do not impede the passage of wildlife;
• installation of some shielded outdoor lighting;
• utility construction, maintenance, and replacement;
• use of the property for education;
• use of the property for recreation; and
• maintenance and repair of an existing duck impoundment.
Discussion
Section 170(a)(1) of the Code allows a taxpayer to deduct charitable contributions. A taxpayer may not, as a general rule, claim a deduction for contributions of less than his entire interest in property. See § 170(f)(3)(A). The long list of Tigner's reserved rights would bar a deduction of the value of the easement but for a notable exception-section 170 allows a deduction for the donation of a “qualified conservation contribution.” See § 170(f)(3)(B)(iii).
The regulations are quite detailed, even for tax regulations. A “qualified conservation contribution” is a contribution: (1) consisting of a qualified real property interest, (2) to a qualified organization, and (3) exclusively for conservation purposes. § 170(h)(1). A contribution is not treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity. Id. subpara. (5)(A).
This motion is all about that perpetuity requirement. And here again the regulations get into detail. Both parties agree that Treasury Regulation 1.170A- 14(g)(5)(i) is what applies here. We begin our analysis with a block quote in which we emphasize one word in the first sentence:
…when the donor reserves rights the exercise of which may impair the conservation interests associated with the property, for a deduction to be available under this section the donor must makes available to the donee, prior to the time the donation is made, documentation sufficient to establish the condition of the property at the time of the gift.Treas. Reg. § 1.170A-14(g)(5)(i)(emphasis added).
This is commonly called the "baseline documentation" requirement and it only kicks in if a donor's reserved rights may impair a protected conservation interest. Id.
So has this requirement kicked in for Tigner? We don't know at this stage. That's because the necessary question-whether Tigner's reserved rights actually threaten the conservation efforts-is one of fact, not law, so we can't justly answer this at summary judgment. Put another way, we can't rule against Tigner for failing to comply with a requirement when we haven't yet established that the requirement even applies. This reason alone would defeat the Commissioner's motion.
In Atkinson v. Commissioner, we noted that where a deed permits chemical use and the baseline report fails to investigate or consider chemical usage, that failure "would make it difficult (if not impossible) to assess the long-term impact of chemical use on the…property." 110 T.C.M. (CCH) 550. Our reasoning, however, was based in part on the failure of testifying experts to consider the baseline condition of the land at the time it was conveyed. This was a finding of fact for the specific land at issue based on evidence presented at trial, and not at the summary judgment stage.
Let us assume, however, that Tigner's reserved rights would impair the stated conservation purposes. That would demand Tigner satisfy the baseline documentation requirement. The regulation again goes into detail: subdivision 1.170A-14(g)(5)(i) tells us that "such documentation may include" (emphasis added) survey maps, maps of the area drawn to scale, and aerial and on-site photographs of the property. There is an extra requirement when a deed, such as Tigner's, states that its purpose is to protect natural resources:
If the terms of the donation contain restrictions with regard to a particular natural resource to be protected, such as water quality or air quality, the condition of the resource at or near the time of the gift must be established. The documentation, including the maps and photographs, must be accompanied by a statement signed by the donor and a representative of the donee clearly referencing the documentation and in substance saying, "This natural resources inventory is an accurate representation of [the protected property] at the time of the transfer.".Treas. Reg. 1.170A-14(g)(5)(i)(D)(emphasis added).
The Commissioner argues that this means Tigner had to survey the condition of the property's water and soil at or near the time of the gift-and then had to give documentation of this survey to Oconee River Land Trust along with the requisite signed statement. Since Tigner failed to do these things, the Commissioner argues Tigner did not satisfy the baseline documentation requirement. And this failure to satisfy this requirement means that it has not protected the property in perpetuity.
Tigner, however, points out that subdivision § 1.170A-14(g)(5)(i) does not require any particular documentation. Tigner reads this clause of the regulation as a list of some ways to satisfy the baseline documentation requirement-again note the "may"-but reads each subdivision on documentation examples as distinct, and the requirements for each limited to the example they appear in. In Tigner's reading, the requirement for establishing the condition of the natural resource at or near the time of the gift appears only in subdivision (g)(5)(i)(D)-so it only comes into play if a donor tries to use on-site photographs to fulfill his baseline documentation requirement.
We agree with Tigner on this one. The Fifth Circuit, in BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017), vacating and remanding T.C. Memo 2015-130, emphasized that section 1.170A-14(g)(5)(i) is a nonexhaustive list of what materials may satisfy the baseline documentation requirement. This case is presumptively appealable to the Eleventh Circuit, but we find the Fifth Circuit persuasive: "By using the words 'may include' rather than 'shall include,' the regulation makes clear that the list is flexible and illustrative rather than rigid." BC Ranch II, 867 F.3d at 555.
The Commissioner distinguishes BC Ranch II by saying that § 1.170A-14(g)(5)(i)(D) uses the word "must" and not "may." But in our reading a donor must establish certain things only if he chooses to use on-site photography to satisfy the baseline documentation requirement, which he may do under the regulation.
Tigner objects to the Commissioner characterizing the last two sentences of Treas Reg. § 1.170A-14(g)(5)(i)(D) as "flush language." The term "flush language" refers to wording that is beneath a section or subsection, appears flush with both margins, and applies to the entirety of the section or subsection in which it appears. See Estate of Shelfer v. Commissioner, 86 F.3d 1045, 1048 (11th Cir. 1996), rev'g 103 T.C. 10 (1994) (finding certain flush language did not apply to an entire subsection because the language contained an express limitation).
The Eleventh Circuit has held that it will "construe regulations 'in much the same way we interpret statutes,' so we start with the text-and, if we find it clear, we end there as well." Young v. Grand Canyon University, Inc., 980 F.3d 814, 818 (11th Cir. 2020)(quoting Washington v. Commissioner of Soc. Sec., 906 F.3d 1353, 1362 (11th Cir. 2018)). The Eleventh Circuit has also acknowledged that methods of statutory interpretation "do not necessarily carry over wholesale to regulatory interpretation." Butterworth v. Bowen, 796 F.2d 1379 (11th Cir. 1986). Reading the flush language as applicable to the entirety of a section or subsection it is found is one method of interpretation. But reading the words in a section or subsection as applicable to only the immediate section or subsection in which they appear-absent some other indicator-is simply the practice of starting with the text. This second approach has the endorsement of the Eleventh Circuit.
On this point we also have to agree with Tigner. As we read it in the CFR, the last two sentences are part of section 1.170A-14(g)(5)(i)(D) and are not flush language as a matter of typography. That means that those sentences apply to subdivision (g)(5)(i)(D) and not to all of (g)(5)(i). This may be a bit strange - that language uses the phrase "documentation including the maps and photographs," after all - but we have to look at the regulation as written. And it is written so that the additional restrictions to establish the "condition of the resource[s] at or near the time of the gift" apply only when using on-site photography to satisfy the baseline documentation requirement.
It is therefore
ORDERED that respondent's motion for partial summary judgment, filed on February 23, 2022, is DENIED. It is also
ORDERED that this case is restored to the general docket.