151 T.C. 247
T.C.2018Background
- Pine Mountain Preserve (partnership) acquired 10 contiguous parcels in Shelby County, Alabama (6,224 acres) and between 2005–2007 conveyed three conservation easements to North American Land Trust (NALT): 2005 (559.48 acres), 2006 (499.23 acres), and 2007 (224.55 acres).
- The 2005 and 2006 easements reserved multiple "Building Areas" (10 in 2005; 6 in 2006) and allowed numerous owner/homeowner rights (barns, riding stables, ponds, piers, hunting blinds, trails, utilities); the 2006 Building Areas were not specifically located in the deed; the 2005 areas were shown but could be relocated with NALT consent.
- The 2007 easement did not reserve building areas or permit residential construction; allowed limited non‑development rights (e.g., water tower, hunting blinds, trails) and an amendment clause identical to the other easements.
- Pine Mountain claimed large charitable deduction amounts on partnership returns for the three easements; IRS issued FPAAs disallowing the deductions (or alternatively disputing valuation).
- Trial evidence included appraisals from petitioner’s expert (very high values) and respondent’s expert (values based on comparable per‑acre easement sales, far lower). Court decision addressed qualification and exclusivity under I.R.C. §170(h); valuation of the 2007 easement was resolved separately.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an easement is a “qualified real property interest” under §170(h)(2)(C) (i.e., a restriction granted in perpetuity on use of the real property) | The easements burden defined conservation areas; reserved rights do not remove the restrictions from the conserved land, so they are perpetual restrictions on identifiable parcels | Reserved rights (relocatable building areas, rights to construct residential/appurtenant structures, etc.) let owner convert protected land to development later, so restriction is not attached to a specific, immutable parcel | 2005 and 2006 easements are not qualified real property interests; 2007 easement is a qualified real property interest (restriction attaches in perpetuity) |
| Whether the 2007 easement was made “exclusively for conservation purposes” (§170(h)(1)(C) and §170(h)(5)(A)) | Donee’s expert testimony and deed terms protect conservation purposes in perpetuity; reserved limited rights do not impair those purposes | Reserved rights and amendment clause could permit changes that would defeat perpetuity of conservation purposes | Court found 2007 conservation purposes were protected in perpetuity and therefore the 2007 easement was exclusively for conservation purposes |
| Whether a general amendment clause (allowing amendments not inconsistent with conservation purposes) defeats the statutory perpetuity requirement | Amendment clause limits permissible amendments to those consistent with conservation purposes; courts should not treat such clauses as fatal | Amendment language creates a risk that donee could approve amendments undermining perpetuity, so restriction is not truly perpetual | Court held amendment clause did not defeat perpetuity requirement for 2007; amendment provisions generally not disqualifying where limited to changes consistent with conservation purposes (citing precedent) |
| Valuation of the 2007 easement | Petitioner’s appraisal (very high values based on before/after development feasibility) | Respondent’s appraisal (comparable easement sales; much lower per‑acre values) | Court determined valuation separately (see concurrent Memorandum Opinion); because 2005/2006 deductions were disallowed, only 2007 valuation required adjudication |
Key Cases Cited
- Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014) (easement permitting substitution of protected land defeats the required perpetual attachment to a defined parcel)
- BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017) (appellate decision addressing movability of homesite parcels; majority viewed flexibility as permissible; discussed in court’s analysis)
- Simmons v. Commissioner, 646 F.3d 6 (D.C. Cir. 2011) (amendment/consent/abandonment clauses do not by themselves negate perpetuity requirement)