*1 547 consent,” v. Nich waived United States (5th
ols, 972, 1992), II, L.P., F.2d 974 Cir. and BC RANCH also 977 known as Bos implied.” “can either be or express que Canyon II, L.P.; consent Ranch BC Ranch Palmer, 215, 122 United States v. F.3d 218 I, Incorporated, Partner, Tax Matters 1997). (5th rejecting Cir. Montano’s Petitioners-Appellants claim, Jeopardy Double the Texas court v. appeals impli that Montano concluded edly consented the mistrial and there COMMISSIONER OF INTERNAL rights. his Jeopardy fore waived Double REVENUE, Respondent- Montano, parte Ex 451 See S.W.3d at 880. Appellee However, appeal not the record does transcripts other contain Bosque Canyon Ranch, L.P.; Ranch, BC trial proceedings materials from the neces Incorporated, Partner, Tax Matters sary adjudicate pro whether Montano Petitioners-Appellants such consent. The record “evi vided actually place dence” as what took v. proceeding comes the form of state Revenue, Commissioner of Internal of appeals opinion, the Texas court Respondent-Appellee reproduces snippets the record of its
course decision. No. 16-60068 court not Because district did ad- Cons w/16-60069 Jeopardy Double claim dress Montano’s Appeals, Court of United States sufficiently and because the record is Fifth Circuit. developed to enable us do so the first See, instance, e.g., it. we do address 11, August Filed 2017 Gonzalez, Fed.Appx. United States v. 540 (5th 2013) (“The 267, is not 268 Cir. record
adequately developed to us to re- enable
view Gonzalez’s IAC claim the in- first
stance, so we decline address it on appeal.”).
direct
IV.
Accordingly, because Montano has ex-
hausted all available state remedies precedent, with our RE-
accordance we of his peti- the dismissal habeas
VERSE adjudication REMAND Jeopardy
his Double claim.8 I.N.S., (5th 1997); grant Montano asks us to him see a certificate Cir. F.3d States, appealability. correctly Because Montano is v. United 416 F.3d Padilla proceeding certifi (5th under U.S.C. 2005). Ojo required. appealability cate of See
wrongfully disallowed their charitable de- for two ductions conservation easements. Appellants ruling contend Commission, wrongfully the Tax Court *3 of partnership classified the sale limited disguised interests as wrongfully sales and imposed gross a valuation misstatement penalty. We vacate and remand. I. Proceedings and
Facts A. Background Factual 2003, I, 3,744 BCR a purchased acre tract of Bosque Canyon Ranch called ' P.C., (the “ranch”). 2005, Levinger, Levinger, 20, Jeffrey Scott On BCR December Sewell, Wynne 1,866 Albright, conveyed Val J. I approximately Gardere acre? L.L.P,, Cecere, Jr., Joseph Attorney, the ranch II. to BCR Carl Cecere, P.C., Dallas, TX, for Petitioners- 1. The Conservation Easements
Appellants. Beginning developers ranch Hauser, Bethany Esq., Buck U.S. De- worked with North American Trust Land Division, Justice, partment of Tax Appél- (“NALT”) to if the ranch would U.S; determine Section, Trolio, Di Tax late Robert R. qualify for a tax-deductible conservation Court, Kathryn Keneally, Gilbert Steven easement. NALT. advised them Rothenberg, Esq., Attorney, Senior U.S. qualify ranch one would and that benefit Justice, Division, Department of Tax U.S. such an permanently would be to easement Justice, Division, Department Ap- protect nesting areas and habitat Wilkins; pellate Section,'William Inter- J. gold-cheeked warbler, a listed endan- Service, DC, Washington, nal Revenue gered species. Respondent-Appellee. Extensive documentation was assembled Asimos, George Esq., Ewing, Saul visits, including NALT’s various site L.L.P., PA, Harrisburg, Harry Dean Sha- visit, photographs from a. aerial Baltimore, L.L.P., piro, Esq., Ewing, Saul ranch, photograph of prop- numerous MD, Amicus Curiae for NORTH AMERI- erty maps, of the site a details visit of LAND CAN TRUST. maps NALT biologist, gold- and WIENER, DENNIS, Before warbler On cheeked habitat. NALT’s rec- HAYNES, Judges. ommendation, Circuit Integrated ranch hired (“IES”) Environmental to con- Solutions
WIENER, Judge: Circuit sult plant ecology biology on and avian I, provide Petitioners-Appellants, BC Ranch recommendations how (“BCR I”), II, developed L.P. L.P. and B.C. ensure Ranch should (“BCR II”), (collectively compliance Endangered the “BCR with the Species Part- nerships” “Appellants”), completed report claim Re- a Act. included IES spondent-Appellee, photographs topograph- the Commissioner detailed aerial “Commissioner”), (the ic maps depicting surveys Internal con- Revenue the habitat conservation, recreational, 2005, of the land for April December ducted purchaser of a agricultural use. Each gold-cheeked proba- showing the warblers’ partnership required limited interest nesting Ultimately, areas. NALT ble agreement subscription a assembled two execute the BCR $350,000per detailing capital make contribution a binders “baseline documents” partner a of BCR I. unit become limited easements. the conservation grant conservation If BCR I elected a I easement BCR donated on property, “at BCR II on December NALT convey” partner to each limited later date conservation easement donated twenty-four simple the fee title to one September 2007. Both ease- parcels. five-acre substantially identical contained *4 partner promised convey to each limited (1) protected preserved They terms. and “to membership “a interest” be gold-cheeked for the warblers the habitat Bosque Canyon Ranch formed Associa- (2) watershed, game, other birds and and (“BCRA”), tion” all of which would own vistas, (4) (3) and mature forest. scenic the ranch other the home- “voluntarily, The easements unconditional- Twenty-four partners parcels.1 site limited NALT, ly, absolutely” granted its suc- and 2006, April BCR I. In were admitted assigns, ease- “perpetual cessors and one was deeded five-acre gross” over conservation ment[s] to each of them. areas, subjecting property to a series perpetu- Subsequently, partner- BCR II offered of “covenants and restrictions residential, ship substantially com- the same ity” prohibit most interests on mercial, industrial, ranging agricultural capital uses. terms for contributions $367,500 $550,000. Twenty-three rights to from The easements reserved narrow II. grantors partners that NALT and the BCR limited were admitted BCR Partnerships agreed January Between October “could conducted having parcels ... an- effect on five-acre homesite were deeded without adverse protected Purpose.” partners the limited of BCR II. Conservation only The easements could be amended Background B. Procedural consent then with NALT’s partnership I its tax BCR filed federal modify par- the boundaries of the homesite 2005, claiming year for tax a chari- return cels, not to areas but increase their above $8,400,000for table deduction of the value five acres. NALT continues to monitor the that it the conservation easement had repeatedly area has conservation II to NALT. BCR filed its return donated good found it to be in and in condition year claiming for tax a deduction compliance with the terms of the ease- $7,500,000for the value the conservation ments. that it donated to NALT. Partnership partners’ 2. The Limited Interests Each return listed the limited their capital contributions and shares February Around BCR started the charitable deduction. partnership to market It limited interests. specified partners limited could build The Commissioner the chari- disallowed (the ranch homes on select five-acre sites table deductions and asserted that gross liable for parcels”) “homesite the rest BCR were reserved 10, 2007, 1. On October BORA formed. penalties. Congress provided Each a tax
valuation misstatement has deduction for partnership separate petition for filed a the charitable contribution of a conserva- Court, readjustment the Tax before easement, enjoyed which has decades that court consolidated. bipartisan To support.6 entitled
Following trial, 170(h) almost four weeks deduction under the Inter- Tax Court its Memorandum issued Find- (“IRC”), nal Revenue Code which section ings of Fact Opinion. It disallowed the governs easements, taxpay- conservation a (1) deductions, holding that charitable “qualified er must contribute a prop- real qualify conservation failed as erty “qualified to a organization interest” deductible charitable contributions because ... exclusively pur- (2) given perpetuity, were not poses.” taxpayer may a Such deduct the partnership sales of the interests limited value of a of partial contribution a interest actually disguised of partner- sales the contribution constitutes (3) property, ship gross valuation “qualified conservation contribution.”8 A applicable. misstatement penalty was “qualified conservation contribution” is de- Partnerships timely appealed The BCR fined of “qualified. contribution real ruling. Tax Court’s filed Brief 501(c)(3) property interest” an IRC Curiae, *5 urging Amicus reversal of organization, exclusively for conservation rulings.2 Tax Court’s purposes.9 qualifies An easement under this of the IRC if it section is “restriction
II. (granted in perpetuity) on the use which of Standard Review may property.”10 of the real be made We review the Tax Court’s deci using sions the same that are standards Analysis 2. applicable district court decisions.3 We findings review issues law novo and de Perpetuity Requirement a. The of fact for clear error.4 noted,
As
both easements at issue
III.
created,
part,
this case were
at least
gold-cheeked
preserve
habitat
Analysis
warbler,
endangered species,
aswell
A. The Charitable Deductions
habitats of other
and animals.
birds
Applicable
1.
Law
Partnerships “voluntarily, un
The BCR
granted
conditionally
absolutely”
taxpayer
prov
A
has the
burden
(a
501(c)(3)
§
organization), its suc-
ing entitlement
claimed
NALT
deduction.5
Act,
L.
many policy
2.
sets
reasons for
6. See Tax Treatment Extension
Pub.
NALT
forth
96-541,
6(b),
(1980).
flexibility
respect
§
with
to conservation ease-
Stat.
3206
No
94
maintains
the Tax Court’s
opinion will chill
interest of landowners in
170(h)(l)(A)-(C);
§
26
26 C.F.R.
U.S.C.
making conservation easement donations.
§ 1.170A-14.
Comm'r,
(5th
Rodriguez
v.
722 F.3d
308
170(f)(3)(B)(iii).
§
U.S.C.
2013).
Cir.
Comm'r,
Software,
4. BMC
Inc.
F.3d
170(h)(1), (3)(B).
9. 26 U.S.C.
(5th
2015).
170(h)(2)(C).
10. 26 U.S.C.
142(a).
5. See Tax Court Rule
agreed
The
assigns, “perpetual
ease-
Court
with
Commis-
Tax
eessors
gross.” They subjected,
boundary
modifi-
ments]
sioner
by the
series
covered
provision
perpetuity
re-
to.
cation
violated
perpetuity”
and restrictions “in
covenants
170(h)(2)(C).
§of
quirement
court
residential, commercial,
prohibited
held
because .the homesite
industrial,
agricultural
most
uses
over
changed
boundaries could be
include
including
property,
the cutting
easement,
original
property within
trees,
dumping, changing
topography,
granted in perpetuity.
It
easement was
or
plant
and the introduction
non-native
prop-
Belk
for the
cited
v. Commissioner11
species in the
areas.
animal
qualified
osition
an1
easement
specified a
The easements
few “reserved
real
the boundaries
Partner-
rights” that
and the
subject
be
ships agreed
...
“could
conducted
distinguishable.
We
Belk as
modified.
view
having an
effect on the
adverse
without
case,
In that
Circuit
Fourth
affirmed
Purposes.” These
protected Conservation
holding
provision
the Tax
that a
Court’s
constructing
rights included
staff
reserved
oth-
parties
which allowed
to substitute
barns,
buildings,
meeting
recreational
er land
originally
land that was
shelters,
areas, swimming
pa-
pools, ponds,
under
restricted
the easement did
vilions,
stations,
skeet-shooting
facilities
requirement
meet
stands, roads,
utilities, deer-hunting
170(h).12
trails,
driveways.
consent, the property cov-
With NALT’s
Here,
reliance
Court’s
Belk
amended,-
by the easements
ered
misplaced.13The easements at
issue
only to
the limited extent needed
but
markedly
from the ease-
case differ
modify the
of the five-acre
*6
boundaries
distinctions,
Among
in Belk.
other
parcels,
wholly
homesite
and even then
only
instant
the
the
allow
easements
in-
within the ranch
and without
parcels’
homesite
boundaries
to
be
creasing
parcels above five
the homesite
(1)
changed
only
and then
the
within
occur,
For
acres.
such
a modification
subject
tracts that are
to the easements
NALT,
Partnerships,
the BCR
the
and
(2)
acreage
the
increasing
without
question
of the
in
parcel
owner
homesite
the
in question. They
homesite
do
agreement.
have to
in
would
be
Modifica-
any change
not
in
exterior
allow
(1)
only
permitted
tion
be
if:
“[t]he
would
or in
easements
boundaries
their
not,
line
in
boundary
modification does
Thus,
.
acreages.
neither
exterior
reasonable'judgment, directly or
[NALT’s]
acreage
nor the
total
boundaries
indirectly
any
in
material
result
adverse
change: Only
easements will ever
instant
any
effect on
of the Conservation Pur-
the lot lines
one or more the five-acre
(2)
poses,”
area
each Homestead
“[t]he
potentially subject
are
parcels
hoinesite
(3)
increase,”
not
Parcel
[does]
(1)
change
then
within
ease-
properly
modification is
documented
(2)
ments
NALT’s consent.
recorded.
with
T.C, 1,
(2013); aff'd,
no other
10-11
13.The
Court cited
case law to
774 F.3d
holding
argument
(4th
2014).
support
or the
that
change
boundary
of an
dis-
easement
becoming
qualifies
such easement
12.
of of division-like primarily acres rural purposes—acreage tiguity proximity or close each other various conservation for con- available providing that would never become interior road land-owning potential donors servation ingress egress public to and of to the traditional method were limited roads, Plan of Conservation Easement i.e., transferring the full fee conveyance, any realistic visually the ranch eschews Therefore, properties. such simple title of significant changes future likelihood of strict construction of intentional- the usual most, only location—at homesite theoreti- is not ly adopted loopholes applicable tax sum, changes. hypothetical cal or Ex- grants easements made conservation that, visually realistically A confirms hibit 170(h). Rather, analyze pursuant we perpetuity require- practically, grant for the of conserva- tax deductions is not ment of the Conservation Easement pursuant to that arti- easements made tion provision for invalidated ordinary stan- IRC cle under parcel adjustment. To otherwise conclude And, statutory construction. when dard universally recog- violate here, apply that of construction we level maxim, de minimis non curat lex.21 nized are satisfied that our treatment we fu- any potential are satisfied that We perpetuity issue stands test. tweaking of or ture the boundaries of one picture proverb, Mindful of the old “One homesite locations cannot conceiv- few 10,000 words,”20 more than we worth ably pur- detract from the conservation copy to this Exhibit opinion, as attach for poses which these easements were Bos- of the Conservation Easement Plan of light require- granted, especially Ranch, que Canyon prepared prior approval NALT’s filed as an the trial of this exhibit change. such therefore We conclude 3,729.22 It pictures trape- acre case. adjustment provision the homesite does (1) contains Conserva- zoid grants of prevent the conservation (2) 1,750.1 acres, Area of the 2007 satisfying easements here at issue from acres, 1,731.63 Conservation Area requirement (3) totaling the 47 homesites five-acre 170(h)(2)(C) prevent and thus does not immediately ap- This exhibit makes acres. grantors these easement from tak- (1) majority parent facts that the vast ing applicable charitable deductions. clustered, tightly of the homesites are largely contiguous, and located b. The “Baseline Documentation” (2) ranch; togeth- northernmost tip Requirements er, they closely typical subur- resemble If the donor of a ease subdivision; (3) every homesite ban almost rights property subject ment retains one or two common side line bound- shares easement “the exercise of which homesites; with one more other aries *8 a (4) impair the conservation interests ... on or in most homesites are located to be ... the the deduction allowable donor proximity close road inside donee, easements, the to prior sole must make available to provides which road the (Route made, is public to roads the time the donation documenta access the nearest 1070). tion to County 22 and Given this sub- sufficient establish the condition Road Quotations, Bartlett, 14th 20. John Familiar "The does not concern law itself with tri- lex, Edition, 1968, fles.” De minimis non curat p. 149. Black's Law Dictionary 2014). (10th ed. property gift.”22 lighted the at the time of the The that the description of ranch the requirement, of this re- purpose 2004, which is April was from but the deed was documentation,” ferred to as is to “baseline 2005, in executed December and the de- “protect the conservation interests associ- scription of property the no longer the property, although ated with same because develop- construction and easement, protected perpetuity by during the interim. adversely by affected exercise But, us, inexplicably reaching right.”23 of the reserved determination the Tax Court failed to con- governing regulation The doc- “baseline significant sider information contained (1) they uments,” states include: record, (1) including: photo- aerial survey maps showing property line (2) graphs maps, and detailed photographs areas, (2) protected other ofmap by the ranch taken biologist NALT on showing improvements, area man-made 1,2004, (3) April the “Habitat Assessment” vegetation, (including flora and fauna rare IES, report prepared by based on site locations), (3) species history, land use surveys in April 2004 (4) and December features, pho- distinct natural an aerial (4) photographs of the ranch taken tograph property taken as close as donation, 2003, (5) possible president August to the date of NALT’s (5) photographs appropri- taken at on-site biologist’s April report NALT on property.24 ate locations on the By using presence approximate habitat “may the words include” .rather (6) warblers, gold-cheeked a site include,” regulation “shall makes clear plan September BCR sent that the list flexible and illustrative rath- depicting the location of homesite rigid. er than parcels in relation the habitat areas that Together identified. with the docu- appellants The Court held IES acknowledge failed make documentation Tax Court available did § 1.170A-14(g)(5)(i). NALT that satisfied opinion, documents are its more these The court labeled the documentation that than sufficient establish the condition “unreliable, they incomplete, did furnish property prior to the donation. and insufficient to establish condition for timing, As the statute relevant of the relevant date prescribed photographs requires aerial respective granted.” easements were possible be “taken as close as (1) Tax court determined that the docu- the date the donation made.”25 The rest (2) untimely, mentation was some of the documentation must be “ma[d]e (3) early, too documents created donee, prior available to the to the time of the documents too some were created the donation is made.”26 The six items (4) late, some of the documents were great listed show a of collabora- above deal inaccurate. The court focused on the fact prior the donee and donor between that documentation the December 2005 donation, making that the donee sure com- report easement included that was convey the in March 15 months had documentation sufficient to pleted after the high- date transfer. The Tax Court also condition of the at the time 1.170A-14(g)(5)(i)(C). 1.170A-14(g)(5)(i). 22. 26 C.F.R. 26 C.F.R. Id. *9 1.170A-14(g)(5)(i). § 26. 26 C.F.R. 1.170A-14(g)(5)(i)(D). § 24. 26 C.F.R.
gift.27 Survey Report” contrary The the for such and are “Site which documentation Tax Court found to “too it very late” because of the statute. If purpose left actually the of March was bore date undoubtedly place, holding that dis- compilation Christopher a *10 npt partner part- Appellants
is tax-free both do contest the de “(i) If of nership.33 money The transfer parcels that termination the homesite were not have other been consideration sales; the objects disguised of rather of property; made for the but transfer contest the Tax-Court’s-holding that the (ii) In cases in which the transfers partners’ limited contributions were entire simultaneously, subsequent made disguised from receipts The sales. Com dependent entrepre- is transfer expert missioner’s valued the homesite partnership operations,” of neurial risks $16,500. parcels at The local tax assessor such a is considered dis- contribution $28,000. parcels valued homesite at ' - income;34 guised sale and treated that, Appellants contend attributing even “appurtenant rights” to the homesite Analysis parcels, the fair market par value following The Tax that Court held rights cels and such are nowhere near the facts and circumstances established that amount that partners entire the limited from Part- transfers the BCR contributed, ranged $350,000 from nerships to the partners limited were dis- $550,000.35 (1) timing guised sales: “the and amount The Commissioner that the un- counters partners to the the distributions limited ranch encumbered area and the determinable cer- were with reasonable partners amount that the limited believed tainty accept- the partnerships the time (2) a pass-through would be tax deduction for partners’ the limited payments”; ed partners legally “the limited enforce- in- conservation easement should be LP rights, pursuant agreements, able cluded the amount is that attributable to parcels appur- their receive Homesite disguised sale. Commissioner’s The ex- (3) rights”; tenant “the effect- transactions pert valued the’unencumbered area exchanges of bur- uated the benefits and $10,338,8Í4.36 ranch at The Commissioner ownership relating to the Homesite dens $100,000 claims that paid by the amount (4) part- parcels”; “the to the distributions partners each limited is attributable to the large in disproportionately ners were rela- attempt purchase a tax deduction. Com- partners’ tion to the limited interest bining these values with value (5) partnership profits”; and “the limited homesite con- parcels, Commissioner partners parcels their Homesite received disguised cludes the value each sale simple obligation fee without re- $336,500 per approximately limited partnerships.” turn them the The Tax partner.37 Court BCR Partner- concluded ships’ receipt partners’ limited en- Appurtenant Rights a. contributions, $350,000 ranging tire from appears “appurtenant It $550,000, disguised the term receipts rights” partners’ refers to the- limited sales. 36. The Commissioner contends 1.703-3(b)(1)(i), (ii). this value as the limited It not clear what the Tax Court § 721. Reg. U.S.C. [26] See partners’ "appurtenant the 47 limited 34. Treas. partners, includes dividing rights.” each 37. The paid limited mately with who value the value paid $350,000 the best view $220,000. Commissioner asserts partners’ disguised $550,000 paid by and that the limited interest woúld sale. obtained equating those limited partners partners approxi- parcels greater close *11 support any specific in common areas of the ranch. the inclusion rights imagine disguised how fair market for a sale attribut- cannot dollar amount We rights equal of such the entire rights.” value “appurtenant able to the partner amount limited contributions. Pass-Through 6. The Tax Deduction in the ownership
There is no interest partners’ The common areas: limited The Commissioner contends that only are limited rights those areas $100,000 paid by amount each limit- claims rights of use. The Commissioner attempt to partner is to'the ed attributable that, stipulated each Appellants under purchase tax for the a charitable deduction agreement, part- the limited subscription in- easement and should (via “ownership is entitled such ner disguised sale.39 cluded the value of I partner’s limited interest in BCR [or Nothing opinion sug- Court’s is in the appropriate]) BCR II—whichever gests in deter- that value included such II], includ- assets of BCR BCR [or mining entirety that the limited Bosque Canyon portion ed the Ranch partners’ contributions should be included by BCR I BCR To the [or owned II].” addition, disguised we cannot sales. agree- contrary partnership the limited an comprehend how such inclusion would each unambiguously that ments are clear be consistent with the Tax Court’s deter- (1) five- partner receives one limited mination appellants that were entitled (2) parcel, a future member- acre homesite to such a deduction. ship yet-to-be-formed interest in the (3) BCRA, ownership an interest 3. Conclusion partnerships—not part- one of the underlying evi- vacate nership’s property. The We the Tax Court’s determina- beyond cavil part- dence in this case confirms entirety that the the limited Partnerships sales, the BCR retain owner- disguised that ners’ contributions were of, viz., to, areas, as ship title the common for that court to and we remand40 deter- right significant portions as the well sell any mine the taxable amount correct of the common There is no evidence areas. disguised income results from holding the Partnerships that the BCR are sales. for the of the limited “benefit
partners.”38 Penalty C. Gross Valuation Misstatement is Neither there record evidence Applicable Law right of the partners’ the value limited 6662(h) taxpayer provides IRC that a use common evidence areas. Without portion for a right, nothing penalty value of such is liable 40% there agree alleges limited partners 38.It is trae that limited Commissioner provided Partnerships partners encouraged that the BCR to think would eventually $100,000 com However, contribute the ranch get a tax deduction. there BCRA;however, mon areas to would not is also evidence that the transfer of the common areas partners cautioned the that the IRS limited merely partners They re limited themselves. might disallow the charitable deduction. membership Fur ceived a interest BCRA. thermore, non-profit corporation, as a Texas remanding, 40. Because we are we need not prohibited distributing proper BCRA is argu- circularity potential consider the State, ty to its See members. Blocker v. the tax benefit itself of a charitable (Tex App.—Houston [1st S.W.2d deduction is taxable value. writ, n.r.e.). Dist.] ref’d ible, underpayment liability partners of tax the limited should be as gross gross attributable valuation misstate- sessed valuation misstatement ment.41 BCR I’s and BCR II’s statements penalty. The court cited sup one case to governed by different standards. Un- port gross its pen valuation misstatement *12 6662(h) (2005), § applies der IRC which case, United In alty, States that Woods. return, percent gross BCR I’s a 40 valua- imposed gross the IRS valuation mis penalty may tion misstatement be assessed penalty on underpay statement based any underpayment if “is tax attributable” “resulting ments from a basis-inflating misstatement,” “gross to a valuation which subsequently disregarded transaction for (or any property occurs when value of “the lack of economic substance.”45 adjusted any property) the basis of Appellants On appeal, the Commis- any on percent claimed return ... is 400 agree that holding sioner the and reason- or more of the amount determined ing in is not applicable Woods to this correct amount or such valuation addition, above, In as case.46 we concluded contrast, adjusted basis.”42 By IRC easements are disallowable 6662(h) (2006), § applies to BCR charitable deductions on based return, specifies gross II’s that valua- grounds by relied on the tax court. tion only by misstatement need 200 The Commissioner main- nevertheless percent.43 When the actual value that, regardless tains of the Tax Court’s property is zero and claimed is the value misplaced Woods, reliance on zero, penalty any greater gross amount applicable remains because the easements penalty applies.44 valuation misstatement grossly themselves were overvalued. The Analysis argues Commissioner that because Con- gress has it more burdensome for made argue that Appellants because the denial taxpayers who overvalue charitable deduc- the charitable based on deductions was rely on grounds only, “reasonable- any underpayment technical exception penal- cause” to which most tax was not attributable a misstatement subject, policy ties behind the stat- about the value property. The gross supports Court held that there is no distinction ute the conclusion legal penalty appro- between valuation is and factual misstatements misstatement that, here, if priate because BCR even the misstatement was But, explicitly easements were not deduct based value.47 6662(e), (h). § 41. 26 U.S.C. Court to file the motion because denied leave 30-day it filed deadline. after 6662(e), (h) (2005). § 42. 26 U.S.C. year, taxpayer I’s 47.For BCR tax each 6662(e), (h) (2006). §
43. 26 U.S.C. rely on the ex- allowed to “reasonable-cause” ception "qualified obtained Reg. 1.6662-5(g). § 44. See Treas. appraisal” "qualified appraiser” from a investigation good faith "made a value - 557, 560, -, property.” U.S. 134 S.Ct. the contributed 26 U.S.C. (2013). (2005). 6664(c)(2) Congress elimi- L.Ed.2d exception nated the alto- "reasonable-cause” gether gross In a motion for leave file a valuation misstatement of motion reconsider, explained property. deduction See 26 the Commissioner charitable U.S.C. 6664(c)(3). opined Woods did not hold "whenever a claimed The Tax Court adjusted might is be entitled to a "reasonable cause" deduction disallowed the value basis of it had the item deducted is zero.” The Tax defense easement because granted perpetuity, as re pres- were easements themselves values , 170(h)(2)(c), entirely by different thus question quired ent a that' IRC did partnerships’ from the entitlement to a qualified not constitute real inter for the easements. charitable.. deduction develop ests for which Partners acknowledge parties Both the Tax initially protected by the ease that was finding Court not make a the values did by hips claim simply $15.9 a differ- that there easements and million in charitable contribution income between the values ence advanced majority opinion tax deductions.1 by the Appellants’ appraiser and Commis- impermissibly lax applies standard appraiser,48 sioner’s deduction, reviewing when claimed *13 to instruc contrary Court’s Supreme the 3. Conclusion INDOPCO, C.I.R., tions in Inc. v. 503 U.S. Tax Court We remand vacate and the 1039, 79, 84, 112 226 117 L.Ed.2d S.Ct. gross for whether- the valu- -.determine (1992), “strictly con tax deductions be is penalty applicable ation misstatement n clearly of strued” that “the burde so, penal- of proper any the amount if showing right the claimed deduction the ty. taxpayer,” split on is the and creates a by refusing with the Circuit the Fourth IV. apply the rule established Belk v. Com (4th 2014). missioner, 221 Cir. 774 F.3d Conclusion judgment matter, VACATE the Tax Court’s As an initial must We we be mindful for it to rule anew accord- REMAND deduc well-established rule tax ing foregoing opinion. legislative grace, tions a of matter “strictly are therefore construed DENNIS, Judge, L. JAMES Circuit provi is only there a allowed clear part: dissenting part concurring INDOPCO, 84, at sion therefor.” 503 U.S. (internal quotations 112 1039 S.Ct. view, majori my In Part III.A.2.a of the removed). the-majori Contrary citations ty Tax opinion erroneously the reverses assertion,2 ty applies this rule opinion’s holding that the ease Court’s for granted by equal the BCR with force a deduction report appraiser” "qualified of a I the easements obtained 1. Because conclude that good investigation a and had conducted faith requirement,’ perpetuity to meet I failed However, of 2005 easements’ value. need discuss Tax Court’s alternative problems Tax went on to discuss the Court respect conclusions with to baseline docu- documents,” then with “baseline deter- mentation. any mined that BCR I had failed to make plausible sufficient contentions to establish support In of that "the usual its assertion cause,” Court "reasonable Should intentionally adopted strict construction of grossly 2005 conclude overvalued, easement was loopholes applicable grants tax is not might argu- havé a valid pursuant made conservation easements cause.” "reasonable 170(h),” majority opinion that the *14 170(f)(3)(A). § circumstances. One such ed meaningless permitted if a donor quali- circumstance exists the donation change of boundaries conservation fies “qualified as a conservation contribu- easement after donation was made and 170(f)(3)(B)(iii). § tion.” The Code defines claimed, Belk, the deduction was see 774 “qualified conservation a contribution” as Thus, F.3d at 226-27. “a conservation (A) “a of a qualified real contribution govern easement must a defined and static (B) interest, property qualified organ- a parcel.” requires Id. at 227. Code a “[T]he ization, (C) exclusively for conservation grant donor to an single, easement a 170(h)(1). purposes.” The Code further parcel immutable at the outsét to qualify “qualified provides that a property inter- (footnote for a charitable Id. deduction.” (granted est” “a restriction includes omitted). emphasis perpetuity) may on the use which be made 170(h)(2)(C). property.” present of real easement at issue in the As convincingly reasoned, case fails Belle court real con- because of placement subject the article ‘the’ before tributed is not to a use “[t]he ‘real property’ Belk, makes clear that a perpet- restriction perpetuity. As “[t]he decision, majority opinion's part I panels am sensitive to the im a in our of As Court this plication interpretation reiterate, broader recently citing have occasion by § 170(h) would assist conservation efforts Supreme prece recent and established Court encouraging donation of conservation dent, legislativ tax deductions matters are y However, all easements. tax deductions are grace ”); "and must be construed! narrowl designed public good yet some serve Dosher v. F.2d United 730 376 States. narrowly strictly are construed. It is not (5th 1984) ("[Tax Cir. deductions] exclu goal to decide our domain that the served sively legislative grace. items of Deductions'in important this is more deduction by weighing the code are not found balanc by any See other. served Battelstein v. Internal ing equities; they by parsing are discovered Serv., (5th 631 Revenue F.2d and, legislative language, in the case of 1980) ("We note that even were this further ambiguity, a legislative review of the histo opinion equita Court that there are ... narrowly ry. Deductions are construed and favoring ble case considerations taxpayer proving bears the burden enti [taxpayers], long it has established that been tlement.”). may we play such allow considerations develop property, could be Id. purports to restrict easement moved.”
[e]asement for a rights defined how this 9-10. do see distinction land, satisfying the parcel upon but expressed by concern obviates the provision, in the [modification] conditions using provi- Belli court: the modification from that taxpayers may remove land sion, can lift the other land.” parcel substitute defined swap previously unpro- easement ma contrary to the F.3d at 226. And initially pro- five-acre homesites tected assertion, jority opinion’s this effect land, thereby converting conserva- tected no merely more than minimis. There is de development. tion habitat into residential time which the homesite modi limit within brief, opening the BCR Partner- no limit their fications must occur. There is upon or the times a ships the distance number likened “a slice can be relocated the outer cheese,” within forty-seven with five-acre Swiss forty-seven of the tract. The boundaries representing the holes. The homesites “de- be substitut five-acre homesites Belli, property,” of real fined represent initially-protected with land ed 225, to F.3d at which the conservation 3,509-aere percent 6.69 of the easement initially particu- attached is one easement significant portion tract—a total. See of the cheese, lar in specific slice with holes Investments, Balsam Mountain LLC just locations. like the in a holes slice And (CCH) (T.C. C.I.R., 109 T.C.M. at *3 cheese, of cheese are themselves 2015) (an “qualified real not a forty-seven part homesites are not a type interest” of the described by the protected ease- 170(h)(2)(C) even where modification By permitting ment. the BCR Partner- provision “only allowed substitution ships change placement *15 initially subject 5%” of the to the parcels, provi- the modification easement). not Because the does easement permits the expressly sion substitution govern parcel of a “defined and static” nonprotected within land—land land, “qualified it not does constitute protect- originally holes—for land was 170(h), conservation contribution” under by the easement. Such ed substitution in holding the Tax Court was correct changes subject what real is not enti the BCR words, In other modifi- easement. to claim a the contribu tled deduction for produces cation a different slice cheese Belli, tion. at 226-27. 774 F.3d pattern with of holes. This is a different majority opinion attempts to distin- precisely the Fourth disal- what Circuit Respectfully, I at- guish Belk. find the Belle, (“The in See id. at 226 Ease- lowed As the tempted unpersuasive. distinction purports development to restrict ment notes, majority opinion correctly “[t]he rights perpetuity parcel for a in defined that, court Belli because reasoned land, satisfying upon but the conditions develop of the easement donor provision, taxpayers the substitution promised protect, same land that it parcel may remove land that defined simply by lifting moving the easement and land.”). other and substitute That the sub- elsewhere, granted perpe- it not stitution occurs within the bound- outer tuity.” Op. opinion at majority 553. The 3,744-acre aries total ranch tract impli- concern not states that same meaningful no makes difference. Even present “[o]nly in the because cated case initially-protected most of the land will parcels, five-acre residential en- discrete undeveloped, tirely remain the easements do within the exterior boundaries initially in perpetuity important attach to de is that provi- the modification pareel property. of real See id. at fined sion change. would allow such a Congress 225; see also Balsam Invest Mountain possibly did intend for enormous tax ments, LLC, (CCH) 1214, 109 T.C.M. deductions to be based on the likelihood *3. agreement continued between the donor- taxpayer non-profit donee as
Similarly, majority opinion’s reliance designated subject the land con- on the Easement Plan of Conservation easement; rather, servation it specifically Canyon Ranch Bosque misplaced. We unequivocally required a qualified to look at are bound what the easement do, perpetual. be parties allows the not what 170(h). plan on parties actually doing. See (a 170(h)(2)(C) “qualified property inter- Furthermore, I do not think that Com (granted “a in per- est” includes restriction Simmons, missioner v. 9-11 F.3d use petuity) may made (D.C. 2011), Cir. v. Shul Kaufman added)); property” emphasis the real see man, (1st 2012), 687 F.3d 27-28 Belk, (“The F.3d at 226 [e]ase- cites, majority opinion which the are rele purports development to restrict vant the case at hand. The modification rights parcel a defined provisions in Simmons al and Kaufman land, upon satisfying but the conditions in lowed the donee trusts to consent provision, taxpayers [modification] physical modifications of the historic build may remove land from that defined ings’ They permit facades. did modifi (emphasis and substitute other land.” add- themselves, cations of the ed)). words, picture may 10,000 A be worth is, changes protect to what property was replace plain language it cannot but case, ed. Unlike in Belk in this governing statutory the easements or the same real in those cases re regulatory provisions. The terms of protected perpetuity. mained The ma the easements would allow the limited opinion “the common jority asserts that anywhere to move the partners homesites reasoning that [Simmons sense Kauf within the of the ranch outer boundaries i.e., espoused, that an easement man] tract, subject NALT’s “reasonable changed promote underlying con
judgment”; nothing there is the modifi- *16 interests, applies equally servation here.” provision stop cation that would the limit- nothing in Op. 553. there is the record But partners deciding they ed from later that suggest provisions that the modification organized would rather be as a stereo- promote designed in this case were typical spread subdivision and the sites underlying conservation interests. While or from deciding across the tract at the BCR asserted oral prefer the homesites be argument provisions that the modification grouped in the northwest corner could if the be used move easement rather than the northeast. Fur- original location to be thermore, site’s was discovered Ias read section 3.21 of the nesting grounds endangered for an easements, nothing prevent there bird, contrary majority opinion’s partner seeking limited modification suggestion, terms of the easement do of his or her homesite after a ranch even any requirement that the modi home has include been constructed. While the In grounds declining purposes. have to fication NALT could serve modification, stead, approve provision merely requires such a not, doing any have reasons for not so. modification [the What is “does judgment, directly or NALT’s] reasonable EXXONMOBIL PIPELINE
indirectly any result material adverse Petitioner, COMPANY, any effect Pur Conservation poses.” subprovision suggests This likely modifications will more be made OF DEPARTMENT UNITED STATES of, by, and the benefit Part TRANSPORTATION; Pipeline nerships and rather than the homeowners Safety Adminis Materials Hazardous by-the NALT or for of conser the benefit tration; Pipeline Safety, Office Re goals.4 vation spondents. Following persuasive reasoning, Belk’s No. 16-60448 Supreme mindful Court’s di- of Appeals, States Court United strictly con- rection deductions Fifth Circuit. INDOPCO, strued, see at U.S. 1039, I S.Ct. must conclude that ease- August Filed comply issue case did 170(h)(2)(C) requirement with the
that a defined real
protected perpetuity. Part Because III. directly majority opinion
A.2.a
inexplicably principles, conflicts with these part. respectfully dissent from that
% foregoing in the as noted dissent
Except in vacating the footnote I concur judgment remanding
Tax Court’s majority purposes
for the stated
opinion. *17 subdivision, swap gether typical appears It to me as a residential initially-protected five-acre tract wildlife valuable for conserva- are would in instances be detrimental to the most purposes as land within heart purposes easement. Be- 3,744-acre tract. grouped cause to- most the homesites notes Wil- courage future conservation and hinder son,^ biologist, April NALT had documentation be- easements. ranch, prior visit to the to the donation. than fore more sufficient that was Survey Report” Neither was the “Site “too property pri- the establish condition because, record, early” by as reflected the donation the conservation change, other than did not clearly The Tax Court easement. erred improvements,” during “common ranch contrary. finding time visit between Wilson’s grant. 3. Conclusion n Appellantsclaim the Tax Court holding the Tax Court’s re- We vacate this case a is the first disallow ever garding of the easements deduction for the contribution a conser- documentation, and the baseline and we inadequacy on the vation easement based this case to that court to remand consider documentation,” “baseline by the other asserted the Com- grounds30 authority no Commissioner cites support disqualification missioner contrary.28 holding a contradicts the Such as charitable but deductions language provision very states the Tax addressed Court.31 that the in- baseline documentation potential on docu- clude these the list B. Disguised Sales32 ments, indicating approach flexible documentation is appropriate.29 Applicable Law hyper-technical requirements Tax Court’s capital documentation, partner contri- When makes for baseline if allowed stand, exchange to a for an by impos- partnership bution uncertainty would create subjective ing' ambiguous partnership, standards interest the transaction 30. The Commissioner other conten- 27. Id. advanced support tions in of the disallowance of the deduction, conservation easement charitable Appellants also assert that all 1.170A- including,, not exclu- the .easements 14(g)(5)(i) requires compli "substantial sively purposes, for conservations They analogous provision, ance.” cite an intent, lacked charitable 1.170A-13(e)(3) has in which the tax court that, even if the easements were deduct- requirement "is found a similar directo ible, they were Red. overvalued. ry, compliance, requiring rather substantial mandatory, compliance." requiring strict Appellants request that this clar- court 2014-161, Comm'r, Zarlengo at v. T.C. Mem. ify ruling regarding the Tax Court’s whether (2014). *13 "the doctrine of It is true that may be allocated to charitable deductions compliance applied been most substantial has partners, question This is more the limited involving procedural regulatory often in cases appropriately first addressed instance at Comm’r, requirements.” T.C. Mem. Averyt at the Tax Court level. (2012). 2012-198, However, *4 n.5 compli need not decide "substantial court disguised question 32. The sales was not appropriate ance" standard in case is the raised.in Commissioner’s notice of final complied appellants with what to find that partnership adjustment ap- administrative required documentation.” for "baseline pellants new matter before and was a the Tax Court, held that That court the Commissioner 1.170A-14(g)(5)(i)(D). point. on this 29. See 26 C.F.R. met burden
Notes
notes addition, appellants agree the ”is- overwhelming provision adopted "by an was , gross pen- sue [of valuation misstatement majority Op. at Never be Congress.” alty] court ... remanded to the tax should fore relied on size has court nature this, disallow- Court reverses tax court’s statutory provision majority which a ance of deductions based passed scope. its order determine requirements.” and baseline documentation 561 Belle, a donation of conservation easement.3 ual use attach restriction to a must de at 225 (applying 774 INDOPCO to F.3d fined real rather than pro the conservation easement deduction (or simply any some or interchangeable vision); C.I.R., see also 796 v. of) Minnick parcels property.” real 774 F.3d (9th 2015) (same); Cir. F.3d (citing Slater, Bus Ass’n v. American C.I.R., 148, 154 755 F.3d Scheidelman (D.C. 2000)). 4-5 F.3d Cir. Further 2014) (2d (same); Esgar Cir. Corp. v. more, requirement the statutory that “[i]n C.I.R., (10th 2014) 744 F.3d the case of contributions (same). deduction more than $500*000 qualified qualified appraisal value ... a of such charitable claimed during year return, contribution made property” accompany taxable must the tax 170(a)(1). deduction. If 170(f)(11)(D), allowed as regula 26 U.S.C. and the partial charitable contribution is tory requirement that a donor of a conser property—“an interest in in prop- interest vation easement make available the do- erty which consists less the tax- nee “documentation sufficient to establish payer’s property”— entire interest such Reg. condition Treas. property,” the Code a deduction allows in limit- § 1.170A-14(g)(5)(i), would be rendered