Partnership Challenges Denial of Conservation Easement Deduction

MONTGOMERY-ALABAMA RIVER, LLC,
PARKWAY SOUTH, LLC,
TAX MATTERS PARTNER,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent. 

PETITION FOR READJUSTMENT OF PARTNERSHIP ITEMS UNDER CODE SECTION 6226¹

Parkway South, LLC (“Petitioner”) files this Petition to dispute the notice of final partnership administrative adjustment (“FPAA”) dated March 7, 2019, pertaining to the 2014 Form 1065 (U.S. Return of Partnership Income) for Montgomery-Alabama River, LLC (“MAR”).² As the basis for its case, Petitioner alleges as follows:

1. MAR is a Georgia limited liability company.

2. MAR's current address and principal place of business is 1266 West Paces Ferry Road, Suite 181, Atlanta, Georgia 30327.

3. MAR's taxpayer identification number is set forth in the Statement of Taxpayer Identification Number, which is attached to this Petition.

4. Petitioner is the Tax Matters Partner (“TMP”) for MAR.

5. Petitioner filing this Petition within the 90-day period set forth in Section 6226(a) in its capacity as TMP.

6. The FPAA was issued by the Internal Revenue Service, 135 High Street, Hartford, Connecticut 06103. A copy of the FPAA is attached to this Petition as Exhibit A.

7. All the proposed adjustments in the FPAA are in dispute. In asserting the adjustments:

a. Respondent erred in asserting any adjustment for any amount;

b. Respondent erred in asserting an adjustment to “contributions — conservation easement” in the amount of $12,675,000;

c. Respondent erred in asserting an adjustment to “contributions — fee simple donation” in the amount of $3,682,000;

d. Respondent erred in asserting that MAR did not satisfy the requirements of Section 170 for the charitable contributions;

e. Respondent erred in asserting penalties based, alternatively, on gross valuation misstatement, substantial understatement of income tax, negligence or disregard of rules and regulations, or reportable transaction understatement;

f. Respondent erred in determining that the highest and best use (“HBU”) of the real property owned by MAR located in Elmore County, Alabama consisting of approximately 132 acres (“Property”) was not mining the sand and gravel reserves;

g. Respondent erred in determining that the proven sand and gravel reserves on the Property had no value; and

h. Respondent erred in each and every determination adversely affecting the charitable contributions under Section 170.

8. Based on information and belief, the facts, and mixed points of fact and law, upon which Petitioner relies include, but are not limited to, the following:

General

a. MAR is a Georgia limited liability company.

b. MAR is treated as a partnership for federal tax purposes.

c. Montgomery River Group, LLC owned 95 percent of the profit, loss, and capital of MAR on December 31, 2014.

d. Robert T. Ayers (“Todd Ayers”) owned three percent of the profit, loss, and capital of MAR on December 31, 2014.

e. Tonia Ayers owned one percent of the profit, loss, and capital of MAR on December 31, 2014.

f. Petitioner owned one percent of the profit, loss, and capital of MAR on December 31, 2014.

g. As of December 31, 2014, as of the date of filing the 2014 Form 1065, and as of the date of filing this Petition, MAR met the net worth requirements described in Section 7430(c)(4)(A(ii) and Section 7491(a)(2)(C).

Due Diligence

h. MAR owned the Property in 2014.

i. The Property is located in an area with significant mineral resources and a history of sand and gravel mining.

j. MAR investigated the feasibility of various investment and development options concerning the Property, including (i) operating a sand and gravel mine on the Property, (ii) leasing the Property to a mining company, or (iii) holding the Property for long-term investment and appreciation.

k. MAR analyzed the historic ownership of the Property.

l. Qualified, licensed attorneys prepared a title opinion letter for the Property (“Title Opinion Letter”).

m. The Title Opinion Letter states that there is good record title to the Property, free of mortgages, liens, and encumbrances, except for certain listed exceptions and requirements.

n. None of the exceptions or requirements listed in the Title Opinion Letter impact any surface rights related to potential sand or gravel mining on the Property.

o. MAR analyzed the potential mineral development of the Property.

p. Qualified, licensed geologists prepared a Mineral Remoteness Evaluation.

q. The Mineral Remoteness Evaluation concludes that the Property is located in an area with deposits of sand and gravel, and is suitable for economically extracting sand and gravel.

r. MAR obtained a geotechnical exploration of the sand and gravel on the Property.

s. Qualified, licensed engineers prepared a Report of Geotechnical Exploration (“Geotechnical Exploration Report”).

t. The geographical exploration of the Property included the use of nine Standard Penetration Test borings to determine the subsurface conditions.

u. Each boring sample was analyzed by a qualified, licensed engineer and subjected to laboratory testing to determine potential commercial value.

v. The Geotechnical Exploration Report documents the composition and grainsize of the boring samples.

w. The Geotechnical Exploration Report concludes that the sand and gravel on the Property has commercial value, including use in construction and road projects.

x. MAR obtained a market analysis of the sand and gravel mining industry in the vicinity of the Property.

y. Qualified consultants prepared a Market Analysis for Construction Sand and Gravel Production near Montgomery, Alabama and Surrounding Areas (“Market Analysis”).

z. The Market Analysis documents the production, competition, demand, and consumption of various sand and gravel products in the area surrounding the Property.

aa. The Market Analysis concludes that MAR has the potential to take advantage of increased demand for sand and gravel because of construction and other economic activity, including Alabama Department of Transportation projects.

ab. MAR obtained a mining business plan for the Property.

ac. Qualified, licensed mining experts prepared an Aggregate Resource Market, Operations, and Valuation Analysis (“Mining Business Plan”).

ad. The lead mining engineer for the Mining Business Plan has over 30 years of mining experience, and is licensed as a professional engineer in numerous states, including Alabama.

ae. The Mining Business Plan analyzes the market, competition, permitting process, Geotechnical Exploration Report, and projected revenue and expenses for a sand and gravel mining operation located on Property.

af. The Mining Business Plan concludes that a sand and gravel mining business on the Property would be an economically profitable venture.

ag. The Mining Business Plan projects a net present value (“NPV”) of at least $17 million for a commercial sand and gravel mining business on the Property.

ah. In determining the NPV, the Mining Business Plan takes into account, among other things, start-up costs, on-going operating expenses, surety and contingency expenses, and reclamation costs.

ai. Despite the fact that it was more than reasonably probable that the Property could be used as a commercial mine, the partners/members of MAR voted to conserve the Property in perpetuity by donating a conservation easement to a qualified organization.

Donation of Conservation Easement

aj. MAR donated a conservation easement on the Property to the National Wild Turkey Federation Research Foundation, Inc. (“Wild Turkey Federation”) on December 15, 2014.

ak. Wild Turkey Federation is a “qualified organization” for purposes of Section 170 and the underlying regulations.

al. Wild Turkey Federation is an “eligible donee” for purposes of Section 170 and the underlying regulations.

am. The conservation easement on the Property constitutes a “qualified real property interest” for purposes of Section 170 and the underlying regulations.

an. The Property was not zoned for any specific use at the time of the donation of the conservation easement.

ao. The Property was not encumbered by a mortgage at the time of the donation of the conservation easement.

ap. Todd Ayers acquired the Property in two conveyances, on May 13, 2002, and June 11, 2003.

aq. Todd Ayers conveyed/contributed the Property to Alabama River Parkway Group, LLC on September 12, 2014.

ar. Alabama River Parkway Group, LLC conveyed/contributed the Property to MAR on September 26, 2014.

Deed of Conservation Easement

as. The Deed of Conservation Easement was granted on December 15, 2014.

at. The Deed of Conservation Easement was recorded with the Judge of Probate of Elmore County, Alabama on December 15, 2014.

au. The Deed of Conservation Easement identifies various conservation purposes, including (i) preserving open space (including farmland and forestland) where such preservation is pursuant to a clearly delineated federal, state, or local governmental policy, and will yield a significant public benefit, (ii) preserving valuable forest, watershed, and silvicultural resources in Alabama, which will significantly benefit the public, (iii) preserving land areas for outdoor recreation by, and education of, the general public, and (iv) preserving a relatively natural habitat of fish, wildlife, plants, or similar ecosystems.

av. Preservation of open space (including farmland and forestland), where such preservation is pursuant to a clearly delineated federal, state, or local governmental policy, and will yield a significant public benefit, meets the conservation purpose described in Section 170(h)(4)(A)(iii)(II).

aw. Protection of a relatively natural habitat of fish, wildlife, plants, or similar ecosystem meets the conservation purpose described in Section 170(h)(4)(A)(ii).

ax. Preservation of land areas for outdoor recreation by, or the education of, the general public meets the conservation purpose described in Section 170(h)(4)(A)(i).

ay. The Deed of Conservation Easement describes the purpose of the easement as assuring that the Property will be maintained forever predominantly in its natural condition and preventing any use of the Property that will impair or interfere with the conservation values.

az. The Deed of Conservation Easement prohibits surface mining on the Property, including, among other things, the filling, excavating, dredging, and/or mining of sand, rock, gravel, peat, or any other minerals.

ba. The Deed of Conservation Easement grants Wild Turkey Federation the right, and imposes the duty, to preserve and protect the conservation values in perpetuity.

bb. The Deed of Conservation Easement grants Wild Turkey Federation the right to enter the Property at reasonable times, to inspect the Property, and to monitor compliance with and enforce the purposes of the conservation easement.

bc. The restrictions on use enumerated in the Deed of Conservation Easement are binding on all current and future owners of. the Property in perpetuity.

bd. The Deed of Conservation Easement provides that Wild Turkey Federation is entitled to a proportionate share of any proceeds that may result from a sale, exchange, or involuntary conversion of the Property, if the conservation easement is extinguished in future legal proceedings.

be. The Deed of Conservation Easement provides a formula for calculating Wild Turkey Federation's proportionate share of extinguishment proceeds that meets the requirements of Treas. Reg. § 1.170A-14(g)(6)(ii).

Baseline Documentation Report

bf. A qualified, independent biologist prepared a Baseline Documentation Report (“Baseline Report”) dated December 10, 2014.

bg. The Baseline Report documents the conservation values on the Property, as well as the physical condition of the Property at the time of the donation of the conservation easement.

bh. The Baseline Report concludes that the Property possesses significant natural, aesthetic, watershed, wildlife, forest, agricultural, open space, and plant habitat features.

bi. The Baseline Report concludes that the Property is composed of a mosaic of natural and artificial habitats that support a number of plant and wildlife species.

bj. The Baseline Report contains numerous maps covering the Property, including U.S. Geological Survey topographic maps and aerial photographs.

bk. The Baseline Report contains numerous photographs taken at various locations on the Property, which document the physical condition of the Property at the time of the donation of the conservation easement.

Qualified Appraiser for Conservation Easement

bl. A qualified, licensed appraiser with over 35 years of experience appraising land and conservation easements (“Qualified Appraiser”) prepared an “Appraisal Report” dated December 16, 2014 (“Easement Appraisal”) to determine the fair market value of the conservation easement donated to Wild Turkey Federation.

bm. The Qualified Appraiser has local knowledge and experience in preparing appraisals related to conservation easements.

bn. The Form 8283 (Noncash Charitable Contributions) for the conservation easement is signed by the Qualified Appraiser and contains a certification that (i) he performs appraisals on a regular basis, (ii) he is qualified to make appraisals of the type of property being valued, (iii) the fee charged for the appraisal is not based on a percentage of the appraised property value, (iv) he is not one of the persons described in Treas. Reg. § 1.170A-13(c)(5)(iv), (v) he understands that an intentionally false or fraudulent overstatement of the value of the property may subject him to a civil penalty under Section 6701, and (vi) he is not barred from presenting evidence or testimony by the Office of Professional Responsibility.

bo. The statements made in the certification described immediately above were accurate.

bp. The Qualified Appraiser did not claim or report a deduction under Section 170 for the donation of the conservation easement.

bq. The Qualified Appraiser was not a party to the transaction in which MAR acquired the Property.

br. The Qualified Appraiser is not the donee of the conservation easement.

bs. The Qualified Appraiser is not an employee of (i) MAR, (ii) a direct or indirect partner of MAR, (iii) a party to the transaction in which MAR acquired the Property, or (iv) Wild Turkey Federation.

bt. The Qualified Appraiser is not “related” under Section 267(b) to any of the persons described immediately above.

bu. The Qualified Appraiser performed a majority of his appraisals in 2014 for persons other than MAR.

Qualified Appraisal of Conservation Easement

bv. The Easement Appraisal is dated December 16, 2014, which is before the due date for filing the 2014 Form 1065 on which the charitable contribution deduction was claimed.

bw. The Easement Appraisal is signed and dated by the Qualified Appraiser.

bx. The Easement Appraisal contains a detailed legal description of the Property and a description of the conservation easement.

by. The Easement Appraisal contains a description of the physical condition of the Property.

bz. The Easement Appraisal states that the date of the contribution of the conservation easement to Wild Turkey Federation was December 15, 2014.

ca. The Easement Appraisal contains a description of the terms of the Deed of Conservation Easement.

cb. The Easement Appraisal contains the name, address, and appraiser certification license number of the Qualified Appraiser, and contains the name, address, and taxpayer identification number of his company.

cc. The Easement Appraisal explains the qualifications of the Qualified Appraiser, including his background, experience, education, and membership in professional appraisal associations.

cd. The Easement Appraisal contains a statement that it is being prepared for income tax purposes.

ce. The Easement Appraisal states that the fair market value of the Property is based on market conditions as of December 2, 2014.

cf. The Easement Appraisal concludes that the fair market value of the Property, before being encumbered by the conservation easement, was $16,900,000.

cg. The Easement Appraisal concludes that the fair market value of the Property, after being encumbered by the conservation easement, was $4,225,000.

ch. The Easement Appraisal concludes that the fair market value of the conservation easement was $12,675,000.

ci. The Easement Appraisal concludes that the conservation easement does not enhance the value of any other property owned by MAR or any person related to MAR.

cj. In determining the value of the conservation easement as stated in the Easement Appraisal, the Qualified Appraiser used the sales-comparison method and the income method.

ck. The Easement Appraisal concludes that the HBU for the Property before the donation of the conservation easement would have been sand and gravel mining.

cl. The Easement Appraisal concludes that sand and gravel mining was legally permissible before the donation of the conservation easement.

cm. The Easement Appraisal concludes that sand and gravel mining was physically possible before the donation of the conservation easement.

cn. The Easement Appraisal concludes that sand and gravel mining was financially feasible before the donation of the conservation easement.

co. In determining the fair market value of the Property before the donation of the conservation easement under the sales-comparison method, the Qualified Appraiser analyzed eight comparable land sales in the general area of the Property.

cp. In determining the fair market value of the Property before the donation of the conservation easement under the income method, the Qualified Appraiser utilized a Discounted Cash Flow (“DCF”) analysis of a potential sand and gravel mining business on the Property.

cq. The DCF method is an acceptable appraisal method for valuing real property that contains a significant amount of underlying mineral reserves.

cr. The Easement Appraisal concludes that the HBU for the Property after the donation of the conservation easement is agricultural use, recreational use, and public enjoyment.

cs. The Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are legally permissible after the donation of the conservation easement.

ct. The Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are physically possible after the donation of the conservation easement.

cu. The Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are financially feasible after the donation of the conservation easement.

cv. In determining the fair market value of the Property after the donation of the conservation easement under the sales-comparison method, the Qualified Appraiser analyzed seven sales of comparable properties encumbered by conservation easements.

cw. The appraisal fee charged by the Qualified Appraiser for the preparation of the Easement Appraisal was not based on a percentage of the appraised value of the conservation easement.

cx. The appraisal fee charged by the Qualified Appraiser for the preparation of the Easement Appraisal was not based on a percentage of the amount allowable as a charitable contribution deduction under Section 170.

cy. MAR obtained a second appraisal of the conservation easement (“Secondary Easement Appraisal”).

cz. The Secondary Easement Appraisal was done by another qualified, independent, licensed appraiser (“Secondary Appraiser”).

da. The Secondary Appraiser has local knowledge and experience in preparing appraisals related to conservation easements.

db. The Secondary Easement Appraisal is dated December 15, 2014, which is before the due date for filing the 2014 Form 1065 on which the charitable contribution deduction was claimed.

dc. The Secondary Easement Appraisal is signed and dated by the Secondary Appraiser.

dd. The Secondary Easement Appraisal contains a detailed legal description of the Property and a description of the conservation easement.

de. The Secondary Easement Appraisal contains a description of the physical condition of the Property.

df. The Secondary Easement Appraisal states that the date of the contribution of the conservation easement to Wild Turkey Federation was December 15, 2014.

dg. The Secondary Easement Appraisal contains a description of the terms of the Deed of Conservation Easement.

dh. The Secondary Easement Appraisal contains the name, address, and appraiser certification license number of the Secondary Appraiser, and contains the name, address, and taxpayer identification number of his company.

di. The Secondary Easement Appraisal contains an explanation of the qualifications of the Secondary Appraiser, including his background, experience, education, and membership in professional appraisal associations.

dj. The Secondary Easement Appraisal contains a statement that it is being prepared for income tax purposes.

dk. The Secondary Easement Appraisal states that the fair market value of the Property is based on market conditions as of November 30, 2014.

dl. The Secondary Easement Appraisal concludes that the fair market value of the Property, before being encumbered by the conservation easement, was $17,400,000.

dm. The Secondary Easement Appraisal concludes that the fair market value of the Property, after being encumbered by the conservation easement, was $4,350,000.

dn. The Secondary Easement Appraisal concludes that the fair market value of the conservation easement was $13,050,000.

do. The Secondary Easement Appraisal concludes that the conservation easement does not enhance the value of any other property owned by MAR or any person related to MAR.

dp. In determining the value of the conservation easement as stated in the Secondary Easement Appraisal, the Secondary Appraiser used the sales-comparison method and the income method.

dq. The Secondary Easement Appraisal concludes that the HBU for the Property before the donation of the conservation easement would have been sand and gravel mining.

dr. The Secondary Easement Appraisal concludes that sand and gravel mining was legally permissible before the donation of the conservation easement.

ds. The Secondary Easement Appraisal concludes that sand and gravel mining was physically possible before the donation of the conservation easement.

dt. The Secondary Easement Appraisal concludes that sand and gravel mining was financially feasible before the donation of the conservation easement.

du. In determining the fair market value of the Property before the donation of the conservation easement under the sales-comparison method, the Secondary Appraiser analyzed eight comparable land sales in the general area of the Property.

dv. In determining the fair market value of the Property before the donation of the conservation' easement under the income method, the Secondary Appraiser utilized a DCF analysis of a potential sand and gravel mining business on the Property.

dw. The Secondary Easement Appraisal concludes that the HBU for the Property after the donation of the conservation easement is agricultural use, recreational use, and public enjoyment.

dx. The Secondary Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are legally permissible after the donation of the conservation easement.

dy. The Secondary Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are physically possible after the donation of the conservation easement.

dz. The Secondary Easement Appraisal concludes that agricultural use, recreational use, and public enjoyment are financially feasible after the donation of the conservation easement.

ea. In determining the fair market value of the Property after the donation of the conservation easement under the sales-comparison method, the Secondary Appraiser analyzed seven sales of comparable properties encumbered by conservation easements.

eb. The appraisal fee charged by the Secondary Appraiser for preparation of the Secondary Easement Appraisal was not based on a percentage of the appraised value of the conservation easement.

ec. The appraisal fee charged by the Secondary Appraiser for preparation of the Secondary Easement Appraisal was not based on a percentage of the amount allowable as a charitable contribution deduction under Section 170.

Contemporaneous Written Acknowledgement of Conservation Easement

ed. Wild Turkey Federation issued a letter to MAR dated December 15, 2014, acknowledging receipt of the donation of the conservation easement.

ee. The acknowledgment letter from Wild Turkey Federation dated December 15, 2014, confirms that it did not provide any goods or services in exchange for the donation of the conservation easement.

ef. The acknowledgement letter from Wild Turkey Federation constitutes a “contemporaneous written acknowledgement” for purposes of Section 170 and the underlying regulations.

eg. Wild Turkey Federation issued another letter to MAR on December 15, 2014, acknowledging receipt of a check for $15,503 (i.e., a cash endowment).

eh. The second acknowledgment letter from Wild Turkey Federation dated December 15, 2014, confirms that it did not provide any goods or services in exchange for the donation of the cash endowment.

ei. The second acknowledgement letter from Wild Turkey Federation constitutes a “contemporaneous written acknowledgement” for purposes of Section 170 and the underlying regulations.

Donation of Fee Simple Interest

ej. MAR donated the fee simple interest in the Property to American Upland Land Trust, LLC (“American Upland”) on December 22, 2014, via Warranty Deed.

ek. The Warranty Deed was recorded with the Judge of Probate of Elmore County, Alabama on December 22, 2014.

el. American Upland is a “qualified organization” for purposes of Section 170 and the underlying regulations.

em. American Upland is an “eligible donee” for purposes of Section 170 and the underlying regulations.

en. The Property was not subject to a mortgage or any other financial encumbrance at the time of the fee simple donation.

Qualified Appraiser for Fee Simple Donation

eo. The Qualified Appraiser also prepared an “Appraisal Report” dated December 20, 2014 (“Fee Simple Appraisal”) to determine the fair market value of the fee simple interest in the Property donated to American Upland.

ep. The Form 8283 for the fee simple donation of the Property is signed by the Qualified Appraiser and contains a certification that (i) he performs appraisals on a regular basis, (ii) he is qualified to make appraisals of the type of property being valued, (iii) the fee charged for the appraisal is not based on a percentage of the appraised property value, (iv) he is not one of the persons described in Treas. Reg. § 1.170A-13(c)(5)(iv), (v) he understands that an intentionally false or fraudulent overstatement of the value of the Property may subject him to. a civil penalty under Section 6701, and (vi) he is not barred from presenting evidence or testimony by the Office of Professional Responsibility.

eq. The statements made in the certification described immediately above were accurate.

er. The Qualified Appraiser did not claim or report a deduction under Section 170 for the fee simple donation of the Property.

es. The Qualified Appraiser was not a party to the transaction in which MAR acquired the Property.

et. The Qualified Appraiser was not the donee of the Property.

eu. The Qualified Appraiser is not an employee of (i) MAR, (ii) a direct or indirect partner of MAR, (iii) a party to the transaction in which MAR acquired the Property, (iv) Wild Turkey Federation, or (v) American Upland.

ev. The Qualified Appraiser is not “related” under Section 267(b) to any of the persons described above.

ew. The Qualified Appraiser performed a majority of his appraisals in 2014 for persons other than MAR.

Qualified Appraisal for Fee Simple Donation

ex. The Fee Simple Appraisal is dated December 20, 2014, which is within the 60-day period before the donation of the fee simple interest in the Property, and before the due date for filing the 2014 Form 1065 on which the charitable contribution deduction was claimed.

ey. The Fee Simple Appraisal is signed and dated by the Qualified Appraiser.

ez. The Fee Simple Appraisal contains a detailed legal description of the Property.

fa. The Fee Simple Appraisal contains a description of the physical condition of the Property.

fb. The Fee Simple Appraisal contains the name, address, and Alabama appraiser certification license number of the Qualified Appraiser, and contains the name, address, and taxpayer identification number of his company.

fc. The Fee Simple Appraisal explains the qualifications of the Qualified Appraiser, including his background, experience, education, and membership in professional appraisal associations.

fd. The Fee Simple Appraisal contains a statement that it is being prepared for income tax purposes.

fe. The Fee Simple Appraisal states that the Property was valued as of December 19, 2014.

ff. The Fee Simple Appraisal concludes that the fair market value of the fee simple interest in the Property, as subject to the conservation easement, was $4,225,000.

fg. In determining the fair market value as stated in the Fee Simple Appraisal, the Qualified Appraiser used the sales-comparison method.

fh. In determining the fair market value as stated in the Fee Simple Appraisal, the Qualified Appraiser analyzed seven sales of comparable properties encumbered by conservation easements.

fi. The appraisal fee charged by the Qualified Appraiser for the preparation of the Fee Simple Appraisal was not based on a percentage of the appraised value of the Property.

fj. The appraisal fee charged by the Qualified Appraiser for the preparation of the Fee Simple Appraisal was not based on a percentage of the amount allowable as a charitable contribution deduction under Section 170.

fk. MAR obtained a second appraisal of the fee simple interest in the Property (“Secondary Fee Simple Appraisal”) from the Secondary Appraiser.

fl. The Secondary Fee Simple Appraisal is dated December 22, 2014, which is before the due date for filing the 2014 Form 1065 on which the charitable contribution deduction was claimed.

fm. The Secondary Fee Simple Appraisal is signed and dated by the Secondary Appraiser.

fn. The Secondary Fee Simple Appraisal contains a detailed legal description of the Property.

fo. The Secondary Fee Simple Appraisal contains a description of the physical condition of the Property.

fp. The Secondary Fee Simple Appraisal contains the name, address, and Alabama appraiser certification license number of the Secondary Appraiser, and contains the name, address, and taxpayer identification number of his company.

fq. The Secondary Fee Simple Appraisal explains the qualifications of the Secondary Appraiser, including his background, experience, education, and membership in professional appraisal associations.

fr. The Secondary Fee Simple Appraisal contains a statement that it is being prepared for income tax purposes.

fs. The Secondary Fee Simple Appraisal states that the Property was valued as of December 19, 2014.

ft. The Secondary Fee Simple Appraisal concludes that the fair market value of the fee simple interest in the Property, as subject to the conservation easement, was $4,350,000.

fu. In determining the fair market value as stated in the Secondary Fee Simple Appraisal, the Secondary Appraiser used the sales-comparison method.

fv. In determining the fair market value as stated in the Secondary Fee Simple Appraisal, the Secondary Appraiser analyzed seven sales of comparable properties encumbered by conservation easements.

fw. The appraisal fee charged by the Secondary Appraiser for preparation of the Secondary Fee Simple Appraisal was not based on a percentage of the appraised value of the Property.

fx. The appraisal fee charged by the Secondary Appraiser for preparation of the Secondary Fee Simple Appraisal was not based on a percentage of the amount allowable as a charitable contribution deduction under Section 170.

Contemporaneous Written Acknowledgement of Fee Simple Donation

fy. American Upland issued a letter to MAR on December 22, 2014, acknowledging receipt of the donation of the fee simple interest in the Property.

fz. The acknowledgment letter from American Upland dated December 22, 2014, confirms that it did not provide any goods or services in exchange for the donation of the fee simple interest in the Property.

ga. The acknowledgement letter from American Upland constitutes a “contemporaneous written acknowledgement” for purposes of Section 170 and the underlying regulations.

gb. American Upland issued another letter to MAR on December 22, 2014, acknowledging receipt of $16,666.67 (i.e., a cash endowment).

gc. The second acknowledgment letter from American Upland confirms that it did not provide any goods or services in exchange for the donation of the cash endowment.

gd. The second acknowledgment letter from American Upland in connection with the cash endowment constitutes a “contemporaneous written acknowledgement” for purposes of Section 170 and the underlying regulations.

Tax Filings

ge. MAR filed a timely 2014 Form 1065.

gf. The 2014 Form 1065 reports the donation of a qualified conservation contribution to Wild Turkey Federation.

gg. The 2014 Form 1065 also reports the donation of the fee simple interest in the Property to American Upland.

gh. Schedule K (Partner's Distributive Share Items) of the 2014 Form 1065 filed by MAR shows, among other items, a charitable contribution deduction of $16,932,170 related to the donation of the conservation easement, the fee simple interest in the Property, and the related cash endowments.

gi. Statement 1 to the 2014 Form 1065 indicates that the total charitable contribution deduction of $16,932,170 was comprised of (i) a non-cash charitable contribution of $12,675,000 (i.e., the conservation easement donated to Wild Turkey Federation), (ii) a non-cash charitable contribution of $4,225,000 (i.e., the fee simple interest in the Property donated to American Upland), and (iii) cash charitable contributions of $32,170 (i.e., cash endowments to Wild Turkey Federation and American Upland).

gj. MAR attached to the 2014 Form 1065 the Easement Appraisal.

gk. MAR attached to the 2014 Form 1065 the Fee Simple Appraisal.

gl. MAR attached to the 2014 Form 1065 a Form 8283 and a document entitled “Attachment to Form 8283” related to the conservation easement donated to Wild Turkey Federation.

gm. MAR attached to the 2014 Form 1065 a Form 8283 related to the fee simple interest donated to American Upland.

gn. The two Forms 8283 and corresponding document entitled “Attachment to Form 8283” contain all the information required by Treas. Reg. § 1.170A-13.

Form 8283 for Donation of the Conservation Easement

go. Form 8283 for the donation of the conservation easement indicates that MAR made a qualified conservation contribution with a value of $12,675,000 to Wild Turkey Federation.

gp. Form 8283 for the donation of the conservation easement is signed and dated by the Director of Wild Turkey Federation.

gq. Form 8283 for the donation of the conservation easement is also signed and dated by the Qualified Appraiser.

gr. Form 8283 for the donation of the conservation easement contains the name and taxpayer identification number of MAR.

gs. The “Attachment to Form 8283” for the donation of the conservation easement contains a detailed legal description of the Property.

gt. The “Attachment to Form 8283” for the donation of the conservation easement contains a summary of the physical condition of the Property at the time of the donation.

gu. The Form 8283 and “Attachment to Form 8283” for the donation of the conservation easement contain a description of the manner and date of MAR's acquisition of the Property.

gv. Form 8283 for the donation of the conservation easement reports MAR's basis in the Property.

gw. Form 8283 for the donation of the conservation easement contains the name, address, and taxpayer identification number of Wild Turkey Federation.

gx. Form 8283 for the donation of the conservation easement identifies the date on which Wild Turkey Federation received the donation as December 15, 2014.

gy. Form 8283 for the donation of the conservation easement contains the name, address, and Preparer Tax Identification Number of the Qualified Appraiser.

gz. Form 8283 for the donation of the conservation easement lists the appraised fair market value of the conservation easement at the time of the donation as $12,675,000.

ha. Form 8283 for the donation of the conservation easement contains a certification by the Qualified Appraiser certifying that (i) he performs appraisals on a regular basis, (ii) he is qualified to make appraisals of the type of property being valued, (iii) the fee charged for the appraisal was not based on a percentage of the appraised property value, (iv) he is not one of the persons described in Treas. Reg. § 1.170A-13(c)(5)(iv), (v) he understands that an intentionally false or fraudulent overstatement of the value of the property may subject him to a civil penalty under Section 6701, and (vi) he is not barred from presenting evidence or testimony by the Office of Professional Responsibility.

Form 8283 for Donation of the Fee Simple Interest

hb. Form 8283 for the donation of the fee simple interest in the Property indicates that MAR made a fee simple donation of real estate with a value of $4,225,000 to American Upland.

hc. Form 8283 for the donation of the fee simple interest in the Property is signed and dated by the Chief Financial Officer of American Upland.

hd. Form 8283 for the donation of the fee simple interest in the Property is also signed and dated by the Qualified Appraiser.

he. Form 8283 for the donation of the fee simple interest in the Property contains the name and taxpayer identification number of MAR.

hf. Form 8283 for the donation of the fee simple interest in the Property reports MAR's basis in the Property.

hg. Form 8283 for the donation of the fee simple interest in the Property contains the name, address, and taxpayer identification number of American Upland.

hh. Form 8283 for the donation of the fee simple interest in the Property lists the date on which American Upland received the donation as December 22, 2014.

hi. Form 8283 for the donation of the fee simple interest in the Property contains the name, address, and Preparer Tax Identification Number of the Qualified Appraiser.

hj. Form 8283 for the donation of the fee simple interest in the Property lists the appraised fair market value of the fee simple interest in the Property at the time of the donation as $4,225,000.

hk. Form 8283 for the donation of the fee simple interest in the Property contains a certification by Qualified Appraiser certifying that (i) he performs appraisals on a regular basis, (ii) he is qualified to make appraisals of the type of property being valued, (iii) the fee charged for the appraisal is not based on a percentage of the appraised property value, (iv) he is not one of the persons described in Treas. Reg. § 1.170A-13(c)(5)(iv), (v) he understands that an intentionally false or fraudulent overstatement of the value of the property may subject him to a civil penalty under Section 6701, and (vi) he was not barred from presenting evidence or testimony by the Office of Professional Responsibility.

History of the Tax Dispute

hl. The audit began on April 14, 2016, when Respondent sent an audit-selection letter to MAR.

hm. Respondent issued a Notice of Beginning of Administrative Proceedings (“NBAP”), dated July 8, 2016, with respect to the 2014 Form 1065.

hn. MAR maintained all records required with respect to the 2014 Form 1065.

ho. MAR cooperated with Respondent during the audit.

hp. MAR cooperated with all reasonable requests by Respondent for information, documents, meetings, interviews, and witnesses.

hq. Respondent's Revenue Agent issued approximately six Information Document Requests (“IDRs”) during the audit.

hr. MAR timely responded to each IDR, providing responsive documents and explanations.

hs. MAR's representative participated in an interview with Respondent's Revenue Agent on June 2, 2016.

ht. MAR's representative conducted a site visit of the Property with Respondent's Revenue Agent on January 11, 2017.

hu. Respondent never issued a Summons to MAR during the audit.

hv. Respondent never issued a Formal Document Request to MAR during the audit.

hw. Respondent never issued a Summary Report to MAR before issuing the FPAA.

hx. Respondent never issued an Engineering Report to MAR before issuing the FPAA.

hy. Respondent's refusal to issue a Summary Report or Engineering Report before issuing the FPAA deprived MAR of the opportunity to potentially resolve matters at the audit level or with the Appeals Office.

Lack of Due Diligence by Respondent

hz. Respondent did not hire, contract, or otherwise retain an outside, independent biologist, environmental scientist, or similar professional (i) to help determine the conservation worthiness of the Property, and/or (ii) to analyze the Baseline Report obtained by MAR.

ia. Respondent did not hire, contract, or otherwise retain an outside, independent attorney or similar professional (i) to conduct a title search of the Property during the audit, or (ii) to analyze the Title Opinion Letter obtained by MAR.

ib. Respondent did not hire, contract, or otherwise retain an outside, independent geologist or similar professional (i) to help determine the potential for mining the Property during the audit, and/or (ii) to analyze the Mineral Remoteness Evaluation obtained by MAR.

ic. Respondent did not hire, contract, or otherwise retain an outside, licensed engineer or similar professional (i) to conduct a geotechnical exploration of the Property during the audit, and/or (ii) to analyze the Geotechnical Exploration Report obtained by MAR.

id. Respondent did not hire, contract, or otherwise retain an outside, independent consultant or similar professional (i) to conduct a market study or analysis for sand and gravel production near the Property during the audit, and/or (ii) to analyze the Market Analysis obtained by MAR.

ie. Respondent did not hire, contract, or otherwise retain an outside, independent mining expert or similar professional (i) to prepare a mining business plan during the audit, and/or (ii) to analyze the Mining Business Plan obtained by MAR.

if. Respondent did not hire, contract, or otherwise retain an outside, independent appraiser with local knowledge and valuation experience (i) to help determine the value of the conservation easement donation during the audit, and/or (ii) to analyze the Easement Appraisal or Secondary Easement Appraisal.

ig. Respondent did not hire, contract, or otherwise retain an outside, independent appraiser with local knowledge and valuation experience (i) to help determine the value of the fee simple donation during the audit, and/or (ii) to analyze the Fee Simple Appraisal or Secondary Fee Simple Appraisal.

ih. Respondent only relied on its own employees to determine the value of the conservation easement on the Property.

ii. Respondent only relied on its own employees to determine the value of the fee simple donation of the Property.

ij. Respondent only relied on its own employees to determine the value of the sand and gravel reserves on the Property.

ik. Respondent only relied on its own employees to make all other determines in the FPAA.

Content of FPAA

il. The FPAA asserts a complete disallowance of the charitable deduction for the conservation easement donation in the amount of $12,675,000.

im. The grounds stated by Respondent in the FPAA for this complete disallowance of the conservation easement deduction is that it “does not meet the requirements of section 170 of the Internal Revenue Code (IRC).”

in. The FPAA also asserts a partial disallowance of the charitable deduction for the fee simple donation, reducing it from $4,225,000 to $543,000.

io. The grounds stated by Respondent in the FPAA for asserting this partial disallowance of the fee simple donation deduction is that “[i]t is determined that the $4,225,000.00 claimed as a fee simple donation under contributions on Schedule K for the tax year 2014 is not allowed over $543,000.”

ip. If the Tax Court determines that the charitable donations meet the requirements of Section 170, the alternative grounds stated by Respondent in the FPAA is that the total allowable deduction, combining the conservation easement donation and the fee simple interest donation, is $543,000.

iq. The FPAA contains no specific facts, legal theories, tax theories, or analysis for asserting the adjustments to the 2014 Form 1065 filed by MAR.

ir. The FPAA contains no specific facts, legal theories, tax theories, or analysis for possible defenses and/or exceptions for the asserted penalties.

is. The FPAA does not assert an accuracy-related penalty for a substantial valuation misstatement.

it. The penalties asserted in the FPAA were not personally and timely approved by an appropriate supervisor.

iu. After conducting an examination, meeting with MAR's representatives, issuing and receiving responses to at least six IDRs, and conducting a site visit of the Property, the Form 886-A (Explanation of Items) attached to the FPAA consists of just two pages.

Notable Omissions from the FPAA

iv. The FPAA does not allege that the conservation easement placed on the Property does not constitute a “qualified real property interest” for purposes of Section 170.

iw. The FPAA does not allege that Wild Turkey Federation is not a “qualified organization” for purposes of Section 170.

ix. The FPAA does not allege that Wild Turkey Federation is not an “eligible donee” for purposes of Section 170.

iy. The FPAA does not allege that the conservation easement does not meet any one of the “conservation purpose” requirements of Section 170(h)(4)(A).

iz. The FPAA does not allege that the restrictions found in the Deed of Conservation Easement are not enforceable and binding on current and future owners of the Property in perpetuity.

ja. The FPAA does not allege that the conservation purposes of the easement are not protected in perpetuity.

jb. The FPAA does not allege that the Baseline Report failed to adequately document the physical condition of the property at the time of the donation of the conservation easement.

jc. The FPAA does not allege that the Easement Appraisal was not a “qualified appraisal.”

jd. The FPAA does not allege that the Qualified Appraiser is not a “qualified appraiser” with respect to the donation of the conservation easement.

je. The FPAA does not allege that the Qualified Appraiser failed to use acceptable appraisal standards and methods with regard to the Easement Appraisal.

jf. The FPAA does not allege that the Form 8283 attached to the 2014 Form 1065 with respect to the conservation easement was incomplete or inaccurate.

jg. The FPAA does not allege that American Upland is not a “qualified organization” for purposes of Section 170.

jh. The FPAA does not allege that American Upland is not an “eligible donee” for purposes of Section 170.

ji. The FPAA does not allege that the Fee Simple Appraisal was not a “qualified appraisal.”

jj. The FPAA does not allege that the Qualified Appraiser is not a “qualified appraiser” with respect to the donation of the fee simple interest in the Property.

jk. The FPAA does not allege that the Qualified Appraiser failed to use acceptable appraisal standards and methods with regard to the Fee Simple Appraisal.

jl. The FPAA does not allege that the Forms 8283 attached to the 2014 Form 1065 with respect to the donation of the fee simple interest was incomplete or inaccurate.

Compliance and Related Efforts

jm. MAR fully complied with Section 170 and the underlying regulations with respect to the donation of the conservation easement on the Property.

jn. MAR substantially complied with Section 170 and the underlying regulations with respect to the donation of the conservation easement on the Property.

jo. MAR fully complied with Section 170 and the underlying regulations with respect to the donation of the fee simple interest in the Property.

jp. MAR substantially complied with Section 170 and the underlying regulations with respect to the donation of the fee simple interest in the Property.

jq. In connection with the donation of the conservation easement on the Property and the subsequent fee simple interest in the Property, MAR relied on extensive due diligence, including, but not limited to, the Title Opinion Letter, Mineral Remoteness Evaluation, Geotechnical Exploration Report, Market Analysis, Mining Business Plan, Baseline Report, Easement Appraisal, Secondary Easement Appraisal, Fee Simple Appraisal, and Secondary Fee Simple Appraisal.

9. The content of the FPAA, particularly the unsupported allegations that the charitable deduction related to the conservation easement should be $0, and that the charitable deduction related to the fee simple donation should be no more than $543,000, is erroneous, unfair, unreasonable, arbitrary, and capricious.

10. Respondent bears the burden of proof as to all matters.

WHEREFORE, Petitioner requests that the Tax Court:

(i) Determine that the 2014 Form 1065 is accurate as filed;

(ii) Determine that there are no adjustments, penalties, additions to tax, or other amounts with respect to the 2014 Form 1065;

(iii) To the extent that the evidence presented at trial demonstrates that MAR undervalued the conservation easement and/or the fee simple interest in the Property, determine that MAR is entitled to an appropriate refund for 2014, plus interest;

(iv) Determine that Respondent bears the burden of proof as to all issues; and

(v) Grant such other and further relief that it deems appropriate.

Date: 6/4/2019

Respectfully submitted,

HALE E. SHEPPARD
Tax Court Bar No. SH0819
Chamberlain, Hrdlicka, White, Williams & Aughtry
191 Peachtree Street, N.E.
Forty-Sixth Floor
Atlanta, Georgia 30303
(404) 658-5441
(404) 658-5541 Facsimile

Date: 6/4/2019

JEFFREY S. LUECHTEFELD
Tax Court Bar No. LJ1040
Chamberlain, Hrdlicka, White, Williams & Aughtry
191 Peachtree Street, N.E.
Forty-Sixth Floor
Atlanta, Georgia 30303
(404) 658-5462
(404) 659-1852 Facsimile

Date: 6/4/2019

MICHAEL B. COVERSTONE
Tax Court Bar No. CM0738
Chamberlain, Hrdlicka, White, Williams & Aughtry
191 Peachtree Street, N.E.
Forty-Sixth Floor
Atlanta, Georgia 30303
(404) 658-5409
(404) 658-5509 Facsimile

COUNSEL FOR PETITIONER