2014 U.S. Tax Ct. LEXIS 8
T.C.2014Background
- The Wachter family (Michael, Patrick, Louise, and spouses) owned interests in WW Ranch (partnership) and Wind River Properties LLC; they claimed cash and noncash charitable deductions (2004–2006) for bargain-sale conservation easements and cash gifts to conservation organizations.
- Federal program (Farm and Ranch Lands Protection Program) and a cooperative agreement required easements to “run with the land in perpetuity” (or minimum term where State law prohibited permanence); NRCS participation involved appraisals and required Form 8283 when a landowner donated value.
- WW Ranch sold conservation easements to a land trust (AFW) funded in part by North Dakota Natural Resource Trust (NRT); the taxpayers computed charitable deduction amounts by subtracting sale proceeds from differences between two appraisals (agricultural vs. development values).
- North Dakota law (N.D. Cent. Code §47‑05‑02.1) caps easement duration at 99 years; by operation of State law the donated easements would expire in 99 years.
- IRS issued deficiency notices disallowing the easement-related deductions and asserting accuracy‑related penalties; respondent moved for partial summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ND 99‑year cap prevents conservation easements from being “granted in perpetuity” under §170(h)(2)(C) (qualified real property interest) | Wachters: 99‑year statutory reversion is effectively a remote/faint possibility; remainder is essentially valueless, so the restriction should not defeat perpetuity | IRS: State law makes divestment inevitable (not remote), so easements are not granted in perpetuity and cannot qualify | Held: ND law made divestment inevitable on donation dates; easements were not “in perpetuity” → no qualified conservation contribution (partial SJ for respondent) |
| Whether State law prevents contributions from being “exclusively for conservation purposes” under §170(h)(5) | Wachters: same remote‑event argument; conservation purpose satisfied despite statutory term | IRS: failure of perpetuity means failure of the exclusivity/perpetuity requirement | Held: Because easements are not perpetual, they fail §170(h)(5) as well (consequence of perpetuity failure) |
| Whether cash contributions (≥$250) are supported by contemporaneous written acknowledgments under §170(f)(8) | Wachters: checks, NRT letters, and a 2004 agreement together can satisfy the contemporaneous written‑ack requirement; documents may be supplemented/authenticated | IRS: letters are deficient — not addressed to donor entity, unsigned (2005), fail to disclose goods/services (appraisals, partial funding) or their values | Held: Material factual disputes exist (authenticity, undisclosed benefits/expectations, timing); summary judgment denied on cash deductions |
| Whether taxpayers received or expected goods/services (which if undisclosed would vitiate cash deduction) | Wachters: deny or dispute receipt/expectation; record can be supplemented | IRS: asserts taxpayers received/appreciated benefits (appraisals, funding) that were not disclosed in acknowledgments | Held: Disputed material fact — cannot resolve on summary judgment; issue reserved for trial |
Key Cases Cited
- United States v. Nat’l Bank of Commerce, 472 U.S. 713 (federal law governs tax treatment of state‑defined property rights)
- North Dakota v. United States, 460 U.S. 300 (State statute limiting easement duration conflicted with federal interests for certain federal acquisitions)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden principles)
- Naftel v. Commissioner, 85 T.C. 527 (summary judgment in Tax Court standard)
- Belk v. Commissioner, 140 T.C. 1 (failure to meet perpetuity requirement defeats qualified conservation contribution)
- United States v. Little Lake Misere, 412 U.S. 580 (importance of certainty and finality in federal land commitments)