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LLC Asks Tax Court to Certify Easement Question to State Court

OCT. 30, 2020

Montgomery-Alabama River LLC et al. v. Commissioner

DATED OCT. 30, 2020
DOCUMENT ATTRIBUTES

Montgomery-Alabama River LLC et al. v. Commissioner

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

UNITED STATES TAX COURT

J. Albert G. Lauber

PETITIONER'S MOTION FOR CERTIFICATION OF A QUESTION
TO THE ALABAMA SUPREME COURT

PETITIONER'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Pursuant to Tax Court Rule 50 and Alabama Rule of Appellate Procedure 18, Petitioner Montgomery Alabama River, LLC, Parkway South, LLC, Tax Matters Partner, moves the Court to certify to the Alabama Supreme Court (1) the question of whether, under Alabama law, the holder of the Deed of Conservation Easement would be entitled to receive compensation in the event of a judicial extinguishment of the easement, and (2) any other questions of Alabama law that would assist the Court in deciding this case.

Concurrently with this motion, Petitioner is filing both (1) Petitioner's Response to Respondent's Motion for Partial Summary Judgment and Memorandum in Support of Petitioner's Motions for Partial Summary Judgment and for Certification of a Question to the Alabama Supreme Court ("Petitioner's Response") and (2) Petitioner's Motion for Partial Summary Judgment. Petitioner incorporates and adopts herein the facts and arguments set forth in those filings.

Respondent has argued that the proceeds clause in Petitioner's Deed of Conservation Easement does not protect the conservation purposes in perpetuity because of how any proceeds attributable to improvements would be allocated upon any judicial extinguishment of the easement. To the contrary, as explained in more detail in Petitioner's Response, the Deed of Conservation Easement at issue in this case satisfies the perpetuity requirement because its express terms, and Alabama state law, comply with the State Law Exception to the general rule that holders of conservation easements must be entitled to receive a minimum percentage of the proceeds of any judicial extinguishment of the easement. See Treas. Reg. § 1.170A-14(g)(6)(ii) (donees must be entitled to a specified minimum percentage of proceeds "unless state law provides that the donor is entitled to full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction"). Under Alabama law, restrictive covenant holders are not entitled to receive compensation upon an extinguishment of their interest. See Burma Hills Dev. Co. v. Marr, 229 So. 2d 776 (Ala. 1969).

Petitioner respectfully submits that Burma Hills remains the law of Alabama until overruled by statute or further decision of the Alabama Supreme Court. Nevertheless, to the extent that this Court perceives any uncertainty on this point, Petitioner moves the Court to certify any open questions to the Alabama Supreme Court pursuant to Alabama Rule of Appellate Procedure 18, which provides that:

When it shall appear to a court of the United States that there are involved in any proceeding before it questions or propositions of law of this State which are determinative of said cause and that there are no clear controlling precedents in the decisions of the Supreme Court of this State, such federal court may certify such questions or propositions of law of this State to the Supreme Court of Alabama for instructions concerning such questions or propositions of state law, which certified question the Supreme Court of this State, by written opinion, may answer.

This Court has in appropriate circumstances granted motions to certify questions to state supreme courts, see, e.g., Grant Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322, 328-29 (1988) (granting petitioner's motion to certify question to Montana Supreme Court), and this case may present such circumstances.

Based upon the foregoing, Petitioner respectfully requests that the Court certify to the Alabama Supreme Court (1) the question of whether, under Alabama law, the holder of the Deed of Conservation Easement would be entitled to receive compensation in the event of a judicial extinguishment of the easement, and (2) any other questions of Alabama law that would assist the Court in deciding this case.

Dated: October 30, 2020

Respectfully Submitted,

MICHAEL TODD WELTY
Todd Welty, P.C.
Counsel for Petitioner
4279 Roswell Rd NE
Suite 208, #352
Atlanta, GA 30342
Tax Court Bar No. WM0494
Telephone: (214) 289-9693
Email: todd@toddweltypc.com


PETITIONER'S RESPONSE TO RESPONDENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM IN SUPPORT OF PETITIONER'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND FOR CERTIFICATION OF A QUESTION TO THE ALABAMA SUPREME COURT


TABLE OF CONTENTS

PRELIMINARY STATEMENT

LEGAL FRAMEWORK AND SUMMARY JUDGMENT STANDARD

STATEMENT OF AGREED FACTS

General Background

The Property

Evaluating Investment Opportunities for the Property

Decision to Make Charitable Contributions

Deed and Donation of Conservation Easement

Valuation of Conservation Easement

Donation of Fee Simple Interest

Valuation of the Fee Simple Interest

Relevant Provisions of Deed of Conservation Easement

"Improvements" to the Property

I. IMPROVEMENTS LANGUAGE IN PARAGRAPH 18'S PROCEEDS CLAUSE DOES NOT INVALIDATE PETITIONER'S CHARITABLE CONTRIBUTION DEDUCTION

A. The Deed of Conservation Easement meets the perpetuity requirement because its terms, as construed under Alabama law, meet the State Law Exception to the Treasury Regulation

B. MAR's donations of the Conservation Easement and the Fee Simple pursuant to a single partner vote satisfies the perpetuity requirement

C. MAR preserves other arguments regarding the Treasury Regulation for further review

II. PETITIONER'S CONSERVATION DONATION PROTECTS THE CONSERVATION PURPOSES IN PERPETUITY

A. MAR's Conservation Easement donation complied with the perpetuity and other requirements of Treasury Regulation section 1.170A-14(g)(6)

B. The subsequent actions of the Wild Turkey Federation and American Upland do not undermine MAR's compliance with Treasury Regulation section 1.170A-14(g)(6)

Table of Authorities

Cases

Anderson v. Lynch, 3 S.E.2d 85 (Ga. 1939)

Ark. State Highway Comm. v. McNeill, 381 S.W.2d 425 (Ark. 1964)

BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017)

Bd. of Pub. Instruction of Dade Cty. v. Bay Harbor Islands, 81 So. 2d 637 (Fla. 1955)

Belk v. Commissioner 774 F.3d 221 (4th Cir. 2014)

Blalock v. Conzelman, 751 So. 2d 2 (Ala. 1999)

Bull v. Salsman, 435 So.2d 27 (Ala. 1983)

Burke v. Oklahoma City, 350 P.2d 264 (Okla. 1960)

Burma Hills Dev. Co. v. Marr, 229 So. 2d 776 (Ala. 1969)

Carroll v. Commissioner, 146 T.C. 196 (2016)

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)

Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019)

Doan v. Cleveland Short Line Ry. Co., 112 N.E. 505 (Ohio 1915)

Forest View Co. v. Town of Monument, 464 P.3d 774-81 (Colo. 2020)

Georgia v. Tennessee Copper Co., 206 U.S. 230 (1907)

Grant Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322-29 (1988)

Harco Drug, Inc. v. Notsla, Inc., 382 So. 2d 1 (Ala. 1980)

Hewitt v. Commissioner, T.C. Memo. 2020-89

Hosp. Serv. Dist. No. 2 v. Dean, 345 So. 2d 234 (La. Ct. App. 1977)

Irby v. Commissioner, 139 T.C. 371 (2012)

Kaufman v. Commissioner, 687 F.3d 21 (1st Cir. 2012)

Moses v. Hazen, 69 F.2d 842 (D.C. Cir. 1934)

New State Ice Co. v. Liebmann, 285 U.S. 262 (1932)

Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54

Oconee Land Property, LLC v. Commissioner, Docket No. 11 814-19 (Aug. 18, 2020)

Portersville Bay Oyster Co. v. Blankenship, 275 So. 3d 124 (Ala. 2018)

PPBM-Rose Hill Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018)

Scheuer v. Britt, 21 8 Ala. 270-72 (Ala. 1928)

Smith v. Clifton Sanitation Dist., 300 P.2d 548 (Colo. 1956)

State ex rel. Wells v. City of Dunbar, 95 S.E.2d 457 (W. Va. 1956)

Sundstrand Corp. v. Commissioner, 98 T.C. 518 (1992)

United States v. Certain Lands in Jamestown, 112 F. 622 (Cir. Ct. R.I. 1899)

United States v. Craft, 535 U.S. 274 (2002)

Wharton v. United States, 153 F. 876 (1st Cir. 1907)

Statutes

32 Pa. Cons. Stat. Ann. § 5055(d)(2), (e)

Alabama Uniform Conservation Easement Act, A. §§ 35-18-1 et seq.

Ala. Code § 35-18-2

Ala. Code §§ 35-18-10 (1997)

Ala. Code. § 35-18-3

I.R.C. § 170

I.R.C. § 6662

Md. Code. Ann., Real Prop. Sec. 12-104(g)

National Conference of Commissioners on Uniform State Laws, Uniform Conservation Easement Act, Commissioners' Prefatory Note at 3 (1982)

Neb. Rev. Stat. § 76-2,117

Tax Treatment Extension Act of 1980, Pub. L. No. 96-541, Sec. 6

Tax Reduction and Simplification Act of 1977, Pub. L. No. 95-30, Sec. 309

Va. Code Ann. § 10.1-1010(F)

Rules

Alabama Rule of Appellate Procedure 18

T.C. Rule 121(b)

Other

Proposed Rule on Qualified Conservation Contribution, 48 Fed. Reg. 22940, 22940 (May 23, 1983)

H.R. Rep. No. 96-1278 (1980)

S. Rep. No. 96-1007 (1980)

Treas. Reg. § 1.170A

Treas. Reg. § 301.7701-2(a)


PRELIMINARY STATEMENT

In December 2014, pursuant to a single vote by its partners, Montgomery Alabama River LLC ("MAR") made two charitable contributions for which it claimed deductions: (1) It donated a conservation easement on Alabama land to the National Wild Turkey Federation Research Federation, Inc. (the "Wild Turkey Federation") (a "qualified organization" within the meaning of section 170(h)(3))1, and (2) it also donated the underlying fee simple interest in the land to American Upland Land Trust, LLC ("American Upland"), which is a subsidiary (and disregarded entity for federal tax purposes) of the Wild Turkey Federation. The conservation easement donation met the perpetuity requirement and all relevant requirements of Treasury Regulation section 1.170A-14(g)(6).

Respondent moves for partial summary judgment based on several recent Tax Court cases that found defects in the perpetuity of other donated conservation easements because of issues with their treatment of value attributable to future improvements in their "proceeds-upon-extinguishment" clauses. See, e.g., Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54. There are two primary reasons why — even if those cases were correctly decided-the easement donation in this case complies with the Treasury Regulations governing deductions for gifts of conservation easements:

  • First, under the State Law Exception in Treasury Regulation section 1.170A-14(g)(6)(ii), the improvements language in the proceeds clause in the easement deed at issue in this case has no legal effect. The Treasury Regulations governing perpetuity generally prescribe a formula under which the donee must receive a minimum percentage of the proceeds of any judicial extinguishment, but the regulations provide an exception to the required formulary apportionment where the relevant state law provides that the donor is entitled to the full proceeds of any judicial extinguishment. That is exactly what the state law of Alabama provides. Because the easement donation at issue here satisfies the State Law Exception, it meets the perpetuity requirement. To the extent there is any dispute about Alabama law on this point, Petitioner respectfully moves the Court to certify any open questions to the Alabama Supreme Court for resolution.

  • Second, pursuant to a single vote of its partners, MAR made contemporaneous charitable donations of both a conservation easement and the underlying fee simple interest in the property to a qualifying charitable organization. These linked donations ensure that the property will be protected in perpetuity, that MAR will not reap any windfall if the easement is judicially modified or extinguished, and that the donee organization will receive its fair share of any proceeds to advance the cause of conservation elsewhere.

These are two independent bases for denying Respondent's motion for partial summary judgment now. In addition, Petitioner expressly preserves for further review arguments that the Tax Court's interpretation of the requirements of the Treasury Regulations with respect to improvements has been incorrect, as well as arguments that the Treasury Regulation is invalid.

Moreover, although Respondent has not challenged Petitioner's compliance with other aspects of the "proceeds-upon-extinguishment clause" that Respondent has challenged in other recent cases, Respondent has refused to stipulate that the proceeds-upon-extinguishment provision at issue in this case satisfies the requirements of Treasury Regulation section 1.170A-14(g)(6) other than the "improvements" language that Respondent has challenged. Petitioner therefore respectfully moves for partial summary judgment that the conservation easement deed at issue complies with all requirements of Treasury Regulation section 1.170A-14(g)(6) and adequately protects the Wild Turkey Federation's interest in the Deed of Conservation Easement in perpetuity.

LEGAL FRAMEWORK AND SUMMARY JUDGMENT STANDARD

The Internal Revenue Code generally disallows deductions for charitable gifts of partial interests in property, but it makes an exception for donations of qualified conservation contributions. See Code §§ 170(f)(3)(A); 170(f)(3)(B)(iii). In order to qualify as a qualified conservation contribution, a donation must meet several requirements, including that it be made exclusively for conservation purposes. See Code § 170(h)(1)(C). Donations made exclusively for conservation purposes must ensure that the conservation purpose is protected in perpetuity. See Code § 170(h)(5)(A). "Perpetuity" is a long time, and unanticipated events (such as governmental exercise of the power of eminent domain) may occur that frustrate the original conservation purpose. The Treasury Regulations provide that the perpetuity requirement can nonetheless be met if (1) the conservation easement grants a perpetual conservation restriction on the property, (2) the conservation easement creates a property right for the donee organization that is immediately vested at the time of the grant, and (3) the donee organization's financial interest in the property is protected by allowing it to share in the proceeds of any future sale or exchange of the property from a condemnation or other judicial proceeding that terminates the easement. See Treas. Reg. § 1.170A-14(g)(6).

With respect to the future division of proceeds between the donor and the donee, the Treasury Regulations specify a minimum percentage of the proceeds that the donee must receive-at least equal to the fair market value of the conservation easement at the time of the grant over the fair value of the entire property (without diminution for the value of the easement) at the date of the grant. See Treas. Reg. § 1.170A-14(g)(6)(ii). The Regulations do not explicitly address how the value of any improvements on the property must factor into the formula, but in Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126 (2019), this Court held that the value of any improvements (even if funded exclusively by the donor) must be included in the "proceeds" to be divided by formula and allocated between the donor and the donee.

However, the Treasury Regulations provide an exception (the "State Law Exception") to the proceeds formula rule: In some states, state law awards all of the proceeds from judicial extinguishment of a conservation restriction to the owner of the land, and none of the proceeds to the holder of the conservation restriction. Treasury did not believe that taxpayers who donate easements in those states should be categorically barred from claiming corresponding charitable contribution deductions. Therefore, the Treasury Regulations include a State Law Exception, which provides that donors in those states can be entitled to retain 100 percent of the proceeds of judicial extinguishment and nonetheless still satisfy the perpetuity requirement. See Treas. Reg. § 1.170A-14(g)(6)(ii) (donees must be entitled to a specified minimum percentage of proceeds "unless state law provides that the donor is entitled to full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction").

Respondent's motion for partial summary judgment, and Petitioner's motion for partial summary judgment, address whether the donations in this case meet the perpetuity requirement. Under Tax Court Rule 121(b), the Court should grant partial summary judgment on a particular issue where there is no genuine dispute of material fact, and a decision can be made as a matter of law. See Sundstrand Corp. v. Commissioner, 98 T.C. 518 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).

For the reasons detailed below, Respondent is not entitled to partial summary judgment that the conservation easement deed in this case is deficient under the Treasury Regulations. Petitioner's donation of the conservation easement does not run afoul of the perpetuity requirements of Treasury Regulation section 1.170A-14(g)(6) as a result of its improvements clause.

To the contrary, the Court should grant Petitioner's motion for partial summary judgment because there are no genuine disputes of material fact that, under relevant law, Petitioner satisfied all of the requirements of Treasury Regulation section 1.170A-14(g)(6).

STATEMENT OF AGREED FACTS

For purposes of Petitioner's Response to Respondent's Motion for Partial Summary Judgment and its own Motion for Partial Summary Judgment, Petitioner generally agrees with Respondent on the material facts, except where noted below. Petitioner disputes many of the Respondent's characterizations of the transactions and of the parties' motivations for making charitable donations, but Respondent's characterizations are legally irrelevant to the pending motions for partial summary judgment.

Petitioner believes that the agreed-upon facts that are relevant to the Tax Court's determination on the parties' Motions for Partial Summary Judgment are set forth below. Petitioner has identified where there is disagreement with Respondent on specific facts.

General Background

1. MAR is a limited liability company created under the laws of Georgia on July 20, 2014. (Respondent's Exhibit H "Operating Agreement of Montgomery Alabama River LLC" dated July 30, 2014)2

2. MAR is treated as a partnership for federal income tax purposes. (Respondent's Exhibit A)

3. MAR timely filed its Form 1065, U.S. Return of Partnership Income, for the tax year ended December 31, 2014 on April 14, 2015. (Respondent's Exhibit A)

4. MAR claimed a charitable contribution deduction for granting a conservation easement on certain property located in Elmore County, Alabama (the "Property"). MAR claimed a deduction of $12,675,000 related to the donation of the conservation easement. The conservation easement was granted to the Wild Turkey Federation, a qualified conservation organization for purposes of Internal Revenue Code Section 170. (Respondent's Exhibit A)

5. MAR also claimed a charitable contribution deduction in the amount of $4,225,000 for the donation of the fee simple interest in the Property (the "Fee Simple") to American Upland, a qualified organization and wholly owned subsidiary of the Wild Turkey Federation that is disregarded for federal tax purposes as an entity separate from the Wild Turkey Foundation. (Respondent's Exhibit A)

6. Respondent issued the Final Partnership Administrative Adjustment on March 7, 2019, denying MAR's claimed contribution deductions for the Deed of Conservation Easement and Fee Simple donations relating to the Property in the amounts of $12,675,000 and $4,225,000 respectively. (Respondent's Exhibit B)

7. Respondent's FPAA also proposed a penalty for a gross valuation misstatement under Code Section 6662(h) and in the alternative penalties under Sections 6662(b) and (e). (Respondent's Exhibit B)

The Property

8. The Property consists of approximately 132.46 acres of land in Elmore County, Alabama. (Respondent's Exhibit U "Baseline Documentation Report for Montgomery Alabama River, LLC" dated December 10, 2014 ("Baseline Report"))

9. The Property was originally part of a larger parcel of land in Elmore County that was owned by Robert T. Ayers ("Todd Ayers"). (Respondent's Exhibits C "Warranty Deed by Travis Crosby, III" dated May 12, 2014, and D "Warranty Deed by Southern Land Traders, Inc." dated June 11, 2003)

10. On May 3, 2002, Todd Ayers acquired 363.33 acres of land in Elmore County. (Respondent's Exhibit C)

11. On June 11, 2003, Todd Ayers acquired an additional 85.85 acres of adjacent land in Elmore County giving him a total of 449.18 acres of contiguous property in Elmore County. (Respondent's Exhibit D)

12. In September 2014, Todd Ayers formed Alabama River Parkway Group, LLC ("ARPG") and contributed the 449.18 acres of land in Elmore County to it. (Respondent's Exhibit E "Warranty Deed of Todd Ayers" dated September 12, 2014)

13. On September 26, 2014, ARPG contributed 132.36 acres of land to MAR. (Respondent's Exhibit I "Warranty Deed of Alabama River Parkway Group, LLC" dated September 26, 2014)

Evaluating Investment Opportunities for the Property

14. The Property is located in an area with significant sand and gravel resources and a history of sand and gravel mining. (Respondent's Exhibit U Baseline Report; Petitioner's Exhibit A "Aggregate Resource Market, Operations, Valuation Analysis" prepared by Blethen Mine Consultants, dated November 7, 2014 ("Mining Business Plan"))3

15. MAR investigated several possibilities for commercial development of the Property, including (i) operating a sand and gravel mine on the Property, (ii) leasing the Property to a mining company, and (iii) holding the Property for long-term investment and appreciation. (Petitioner's Exhibit B "Montgomery Alabama River LLC Investor Information Packet").

16. MAR engaged a mining engineering firm, Carmichael Engineering, Inc. ("Carmichael") to conduct a geotechnical exploration of the sand and gravel deposits on the Property. Carmichael prepared a "Report of Geotechnical Exhibits A through H. Exploration" (the "Geotechnical Report") regarding the sand and gravel on the Property. (Respondent's Exhibit X).

17. As part of the geotechnical exploration, Carmichael drilled nine bore holes on the Property, and then analyzed the composition and grain sizes of the bore samples. (Respondent's Exhibit X at 2)

18. MAR hired a mining engineer, Marvin Blethen, to prepare an "Aggregate Resource Market, Operations and Valuation Analysis" for a potential mining operation on the Property (the "Mining Business Plan"). (Petitioner's Exhibit A)

19. Mr. Blethen has over 30 years of mining experience and is licensed as a professional engineer in several states, including Alabama. (Petitioner's Exhibit A at 13)

20. The Mining Business Plan analyzed the market competition, permitting process, and Geotechnical Report, and projected revenue and expenses for a sand and gravel mine on the Property. (Petitioner's Exhibit A at 2-9)

21. The Mining Business Plan determined that MAR could operate a profitable sand and gravel mine on the Property. (Petitioner's Exhibit A at 18)

22. Contrary to the Government's assertion, the Mining Business Plan was prepared specifically for the Property. Petitioner's Exhibit A is a copy of the Mining and Business Plan prepared by mining engineer Marvin Blethen specifically for Montgomery Alabama River LLC. (Petitioner's Exhibit A)

23. The Mining Business Plan determined that the net present value of a potential sand and gravel mine on the Property, in 2014, was at least $17 million. (Petitioner's Exhibit A at 12)

Decision to Make Charitable Contributions

24. In December 2014, MAR partners were presented with a number of options to maximize the value of the Property. These options included holding the property for investment, leasing the property for mining of its surface materials, and developing a mining operation on the Property. The MAR partners voted to forgo those opportunities. (Petitioner's Exhibit C, "Montgomery Alabama River LLC — Member Approval Forms")

25. Instead, the MAR partners voted to approve a conservation plan under which (a) MAR would grant a conservation easement to a qualified conservation organization and (b) MAR would make a charitable donation of the Fee Simple. (Petitioner's Exhibit C)

Deed and Donation of Conservation Easement

26. MAR granted the conservation easement (the "Conservation Easement") on the Property on December 15, 2014, to the Wild Turkey Federation. (Respondent's Exhibit O)

27. The Wild Turkey Federation is a qualified organization for purposes of Code Section 170 and the regulations thereunder. (Petitioner's Exhibit D "Letter of Acknowledgement from the National Wild Turkey Federation Research Foundation, Inc." dated December 15, 2014)

28. The Deed of Conservation Easement was executed on December 15, 2014. (Respondent's Exhibit O)

29. The Deed of Conservation Easement was recorded with the Probate Court of Elmore County, Alabama on December 15, 2014. (Respondent's Exhibit O)

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

Valuation of Conservation Easement

31. MAR hired Clayton M. Weibel, of Weibel & Associates, Inc., to prepare an appraisal of the value of the Conservation Easement as of the date of the grant. (Respondent's Exhibit V "Appraisal Report" dated December 16, 2014)

32. Mr. Weibel is a qualified appraiser who has more than 25 years of experience in valuating real estate, including valuing conservation easements and mining operations. (Respondent's Exhibit V at 10)

33. Weibel's appraisal ("Appraisal") used the before-and-after method of valuing the Conservation Easement. (Respondent's Exhibit V)

34. Mr. Weibel, relying in part on Marvin Blethen's Mining Business Plan, determined that the "highest and best" use of the Property for purposes of valuing the Conservation Easement under Treasury Regulation section 1.170A-14(h) was as a sand and gravel mining operation. (Respondent's Exhibit V at 48-53)

35. The Appraisal determined that the fair market value the Property was $16,900,000 before the Conservation Easement was granted. (Respondent's Exhibit V at 123)

36. The Appraisal determined that the fair market value of the Property after the Conservation Easement was granted was $4,225,000. (Respondent's Exhibit V at 123)

37. The Appraisal therefore determined that the fair market value of the Conservation Easement was $12,675,000, based upon the before-and-after valuation method. (Respondent's Exhibit V at 123)

38. MAR hired Lucus Von Esh, of Lucus Mason, Inc., to perform a secondary valuation of the Conservation Easement and Fee Simple interests in the Property.(Petitioner's Exhibit E "Appraisal Report" dated December 22, 2014, prepared by Lucus Von Esh of Lucus Mason, Inc.)

39. Mr. Von Esh had more than 10 years of experience as a real estate appraiser at the time of his appraisal in 2014, including appraising a number of conservation easements throughout the United States. (Petitioner's Exhibit E at 9-10)

40. Mr. Von Esh also relied on Marvin Blethen's Mining Business Plan in determining that the highest and best use of the Property was a sand and gravel mining operation.

41. Mr. Von Esh also performed a before-and-after valuation of the Property to determine the value of the Conservation Easement. Mr. Von Esh determined that the Property had a value of $17,400,000 before the Conservation Easement, and a value of $4,350,000 after the Conservation Easement was granted. (Petitioner's Exhibit E at 2)

42. Based upon the before-and-after valuation method, Mr. Von Esh determined that the Conservation Easement had a value of $13,050,000 as of December 15, 2014, when it was granted. (Petitioner's Exhibit E at 2)

Donation of Fee Simple Interest

43. MAR donated the Fee Simple to American Upland, a wholly owned subsidiary of the Wild Turkey Federation, on December 22, 2014. (Respondent's Exhibit P "Warranty Deed" from MAR to American Upland Land Trust, LLC dated December 22, 2014)

44. American Upland is a qualified conservation organization for purposes of Internal Revenue Code Section 170. (Petitioner's Exhibit F)

45. The Warranty Deed for MAR's donation of the Fee Simple was recorded with the Probate Court of Elmore County, Alabama on December 22, 2014. (Respondent's Exhibit P)

Valuation of the Fee Simple Interest

46. Mr. Weibel was engaged to value the Fee Simple interest in the Property. (Respondent's Exhibit V)

47. Mr. Weibel determined that the Fee Simple had a value of $4,225,000. (Respondent's Exhibit V)

48. Mr. Von Esh was also engaged to value the Fee Simple interest in the Property. (Petitioner's Exhibit E at 2)

49. Mr. Von Esh concluded that the Fee Simple had a value of $4,350,000. (Petitioner's Exhibit E at 2)

Relevant Provisions of Deed of Conservation Easement

50. Paragraphs 16 through 18 of the Deed of Conservation Easement address the possibility of a condemnation or other judicial proceeding in which the Property would be taken, and the conservation easement terminated. Paragraph 16 address the extinguishment or termination of the conservation easement as follows:

16. Extinguishment or Termination. It is the unequivocal intention of Grantor and Grantee that the Purpose of this Conservation Easement be carried out in perpetuity. If circumstances arise in the future such as render the Purpose of this Conservation Easement impossible to accomplish, this Conservation Easement can only be terminated or extinguished, whether in whole or in part, by judicial proceedings in a court of competent jurisdiction pursuant to Ala. Code. § 35-18-3(b). The amount of proceeds to which Grantee shall be entitled shall be determined in accordance with the Proceeds paragraph below, unless state law provides otherwise. Any and all prior claims shall first be satisfied by Grantor's portion of the proceeds before Grantee's portion is diminished in any way. Grantee shall use all such proceeds in a manner consistent with the Purpose of the Conservation Easement including but not limited to the costs to monitor, enforce and preserve any portions of the Property that remain subject to this Easement, or, if no remaining portion of the Property is subject to this Easement, to monitor and enforce other easements held by Grantee that are comparable to this Easement and to conserve properties subject to such other easements in a manner consistent with Grantee's conservation purposes under this Easement. Grantor and Grantee agree that changed economic conditions shall not be considered as circumstances justifying the termination or extinguishment of this Conservation Easement.

51. Paragraph 17 of the Deed of Conservation Easement addresses any potential condemnations of the Property and the conservation easement and states the following:

17. Condemnation. If this Conservation Easement is taken, in whole or in part, by exercise of the power of eminent domain or acquired by purchase in lieu of condemnation, Grantee shall be entitled to that portion of the proceeds from the Property's subsequent sale, exchange, or involuntary conversion in accordance with the Proceeds paragraph below, unless state law provides otherwise, and Grantor and Grantee agree to join in all necessary and appropriate actions to recover the full value of such condemnation, including all incidental damages.

52. Paragraph 18 of the Deed of Conservation contains the so-called "proceeds upon extinguishment provision," which governs the allocation of any proceeds from a condemnation or other judicial proceeding in which the Property is taken or the conservation easement is terminated. The proceeds-upon-extinguishment provision reads as follows:

18. Proceeds. This Conservation Easement constitutes a real property interest, immediately vested in Grantee at the time Grantor conveys this Conservation Easement to Grantee. As required under Treas. Reg. § 1.170A-14(g)(6)(ii), the parties stipulate to have a current fair market value determined by multiplying the fair market value of the Property unencumbered by this Conservation Easement (minus any increase in value after the date of this Conservation Easement attributable to improvements) by the ratio of the value of the Conservation Easement at the time of the conveyance to the value of the Property at the time of this conveyance without deduction for the value of the Conservation Easement. The value of this Conservation Easement at the time of the conveyance, and the value of the Property at the time of the conveyance without deduction for the Conservation Easement, shall be determined according to that certain property appraisal report, on file at the office of the Grantee, prepared on behalf of Grantor to establish the value of this Conservation Easement for purposes pursuant to § 170(h) of the Code. For the purposes of this Paragraph, the ratio of the value of the Conservation Easement to the value of the Property unencumbered by the Conservation Easement shall remain constant.

"Improvements" to the Property

53. Other than access roads to the Property, there were no improvements on the Property before the Conservation Easement was granted. (Respondent's Exhibit U)

54. In the same vote in December 2014, the MAR partners voted both to donate the conservation easement and to give away any potential increase in value of the Property attributable to improvements by donating the Fee Simple. (Petitioner's Exhibit C)

55. MAR made no improvements to the Property after the donation of the conservation easement.

56. On December 22, 2014, MAR donated the Fee Simple to American Upland. (Petitioner's Exhibit F) After that date, MAR had no ability to make future improvements on the Property.

Sale of Fee Simple Interest

57. On March 12, 2019, American Upland sold the fee simple interests in three properties located in Elmore County, Alabama to Woolard Farms, Inc., including the fee simple interest donated by MAR to American Upland. (Petitioner's Exhibit G "Warranty Deed from American Upland Trust, LLC to Woolard Farms LLC," dated March 12, 2014.)

58. American Upland sold the three fee simple interests in the properties to Woolard Farms for a total price of $875,000. (Petitioner's Exhibit G).

Amendment to MAR's Conservation Easement Deed

59. On July 1, 2020, the Wild Turkey Federation amended the MAR Conservation Easement Deed to allow Woolard Farms to build a limited number of structures in a different area than the original building envelope that was set forth in the MAR Conservation Easement Deed. (Petitioner's Exhibit H "Amendment to Conservation Easement Deed," dated July 1, 2020).

60. Under the Amendment, the area in which Woolard Farms was permitted to build was smaller than the original building envelope, but it had access to the existing roads on the Property. (Petitioner's Exhibit H)

61. In reviewing and allowing the proposed Amendment to the Conservation Easement Deed, the Wild Turkey Federation and Woolard Farms determined that the smaller building area permitted by the Amendment would have less negative impact on the property than the area permitted as the building envelope in the original MAR Conservation Easement Deed. (Petitioner's Exhibit H p.2).

I. IMPROVEMENTS LANGUAGE IN PARAGRAPH 18'S PROCEEDS CLAUSE DOES NOT INVALIDATE PETITIONER'S CHARITABLE CONTRIBUTION DEDUCTION

Respondent's motion for partial summary judgment contends that paragraph 18 of the Deed of Conservation Easement violates the perpetuity requirement. According to Respondent, under Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126 (2019), paragraph 18 violates the perpetuity requirement because it excludes value attributable to improvements from the proceeds to be divided by formula between donor and donee.

Although Respondent is correct that the improvements language in the Deed of Conservation Easement is similar to that in Coal Property Holdings, there are three independent reasons why Petitioner's charitable donations satisfy the perpetuity requirement. For each of these reasons, the Court should deny Respondent's motion for partial summary judgment.

First, the State Law Exception set forth in Treasury Regulation section 1.170A-14(g)(6)(ii) permits the donor of a conservation easement to meet the perpetuity requirement and to be entitled to retain the full proceeds from any subsequent judicial extinguishment of the easement. That is exactly what the Deed of Conservation Easement and Alabama law provide. Second, as part of a single partner vote, MAR made charitable donations of both the Conservation Easement and the underlying Fee Simple. As a result, MAR met the perpetuity requirement by ensuring that it did not retain any impermissible interest in the value of any Improvements. Third, recent Tax Court precedents (including Coal Property Holdings) have misinterpreted the language of the relevant regulation governing proceeds from extinguishment, and have erroneously declined to invalidate Treasury Regulation section 1.170A-14(g)(6) under the Administrative Procedure Act and under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Petitioner expressly preserves these arguments for further review.

A. The Deed of Conservation Easement meets the perpetuity requirement because its terms, as construed under Alabama law, meet the State Law Exception to the Treasury Regulation

Paragraph 18 of the Deed of Conservation Easement excludes from the value of the Proceeds formula "any increase in value after the date of this Conservation Easement attributable to improvements," and Respondent contends as a result that the formula does not meet the requirements of the Treasury Regulations as interpreted by Coal Property Holdings. Respondent's argument fails because Alabama law provides that conservation easements are not compensable interests, and therefore the rights and method for calculating extinguishment proceeds in Paragraph 18 are moot.

Paragraph 16 provides: "The amount of the proceeds to which Grantee shall be entitled shall be determined in accordance with the Proceeds paragraph [18] below, unless state law provides otherwise." (Emphasis added.) Paragraph 17 similarly provides: "If this Conservation Easement is taken, in whole or in part, by exercise of the power of eminent domain or acquired by purchase in lieu of condemnation, Grantee shall be entitled to that portion of the proceeds from the Property's subsequent sale, exchange, or involuntary conversion in accordance with the Proceeds paragraph [18] below, unless state law provides otherwise." (Emphasis added.)

Alabama law does indeed provide otherwise; under Alabama law, the proceeds of any extinguishment, termination, or condemnation would inure entirely to the owner of the Fee Simple. Therefore, the Deed of Conservation Easement satisfies the State Law Exception (set forth in Treasury Regulation section 1.170A-14(g)(6)(ii)) to the general rule requiring formulary allocation of proceeds. As a result, the Deed of Conservation Easement is fully consistent with Code section 170(h)(5)(A).

To the extent that the Court perceives any uncertainty regarding Alabama law on this point, Petitioner respectfully moves the Court to certify the question to the Alabama Supreme Court pursuant to Alabama Rule of Appellate Procedure 18.

1. Treasury Regulations governing extinguishment defer to state property law

Each state in our federal system "serve[s] as a laboratory" for democracy. New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). The results of their experiments are often different rules on how to treat identical items. In our Federal tax system, Congress and the courts defer to state definitions of what constitutes property. The Internal Revenue Code then "attaches consequences, federally defined, to rights created under state law." See, e.g., United States v. Craft, 535 U.S. 274, 278 (2002) (citation omitted). Treasury deferred to the variety of state approaches to conservation restrictions on property when it crafted the Extinguishment Regulation.

The Treasury Regulations recognize that "a subsequent unexpected change in the conditions" may make "impossible or impractical the continued use of the property for conservation purposes." Treas. Reg. § 1.170A-14(g)(6)(i). Treasury Regulation section 1.170A-14(g)(6) provides that a donation will nonetheless satisfy the perpetuity requirement if the restrictions are extinguished by judicial proceeding and the donee uses the proceeds from a judicial extinguishment in a manner consistent with the conservation purposes of the original contribution. Id. The regulation also prescribes how proceeds of any such judicial extinguishment are to be allocated between donor and donee. In the Regulation, Treasury provided that the donor generally must receive a specified minimum percentage of the proceeds, but it also created a State Law Exception to the general rule:

Accordingly, when a change in conditions give rise to the extinguishment of a perpetual conservation restriction under paragraph (g)(6)(i) of this section, the donee organization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.

Treas. Reg. § 1.170A-14(g)(6)(ii) (emphasis added).Through the State Law Exception, Treasury expressly recognized that at least some state laws grant the donor 100 percent of extinguishment proceeds, instead of sharing the proceeds with the donee as contemplated by Treasury Regulation section 1.170A-14(g)(6)(ii). In that case, Treasury specified that state law supersedes the split otherwise required by Treasury Regulation section 1.170A-14(g)(6). Conservation easement deeds applying that state law still comply with Section 170(h)(5)(A) and with Treasury Regulation section 1.170A-14(g)(6).

2. The State Law Exception furthers Congressional intent

Treasury's State Law Exception reflects a careful balancing in an attempt to effectuate congressional intent with respect to conservation easement donations. On the one hand, the Extinguishment Regulation ensures that donees of conservation easements will receive their fair share of the proceeds of any judicial extinguishment in states where those proceeds are shared by the donor and the donee. On the other hand, the State Law Exception ensures that in states that have made the policy decision to award such proceeds entirely to the donor, the federal tax benefits associated with conservation easement donations are not categorically denied.

Prior to 1980, the Code limited deductions for conservation restrictions on property to "a lease on, option to purchase, or easement with respect to real property granted in perpetuity . . . exclusively for conservation purposes." Tax Reduction and Simplification Act of 1977, Pub. L. No. 95-30, Sec. 309.In 1980, Congress expanded the types of restrictions that would qualify for deductions. Specifically, Congress expanded Section 170(h)(2) to include "a general category covering 'a restriction (granted in perpetuity) on the use which may be made of the real property.'" S. Rep. No. 96-1007, at 10 (1980); see also H.R. Rep. No. 96-1278, at 15-16 (1980); Tax Treatment Extension Act of 1980, Pub. L. No. 96-541, Sec. 6. In doing so, Congress intended to "cover easements and other interests in real property that under State property laws have similar attributes (e.g., a restrictive covenant)." Id. The predecessor to Treasury Regulation section 1.170A-14(g)(6) included an identical State Law Exception to "reflect the major policy decisions made by the Congress and expressed in [Senate Report 96-1007 and House Report 96-1278]." Proposed Rule on Qualified Conservation Contribution, 48 Fed. Reg. 22940, 22940 (May 23, 1983).

As of 1983, at least 10 jurisdictions, including Alabama, had affirmatively held that restrictive covenants, negative easements, equitable servitudes, or similar restrictions on the use of property (collectively, "restrictive covenants") were not compensable property rights ("Minority Rule"). See Burma Hills Dev. Co. v. Marr, 229 So. 2d 776 (Ala. 1969); Ark. State Highway Comm. v. McNeill, 381 S.W.2d 425 (Ark. 1964); Smith v. Clifton Sanitation Dist., 300 P.2d 548 (Colo. 1956); Moses v. Hazen, 69 F.2d 842 (D.C. Cir. 1934); Bd. of Pub. Instruction of Dade Cty. v. Bay Harbor Islands, 81 So. 2d 637 (Fla. 1955); Anderson v. Lynch, 3 S.E.2d 85 (Ga. 1939); Hosp. Serv. Dist. No. 2 v. Dean, 345 So. 2d 234 (La. Ct. App. 1977); Doan v. Cleveland Short Line Ry. Co., 1 12 N.E. 505 (Ohio 19 15); Burke v. Oklahoma City, 350 P.2d 264 (Okla. 1960); United States v. Certain Lands in Jamestown, 112 F. 622 (Cir. Ct. R.I. 1899), aff'd sub nom. Wharton v. United States, 153 F. 876 (1st Cir. 1907); State ex rel. Wells v. City of Dunbar, 95 S.E.2d 457 (W. Va. 1956).

This divide continues today. Earlier this year, the Colorado Supreme Court affirmed that the Minority Rule continues to apply in Colorado and holders of restrictive covenants do not have compensable property rights. See Forest View Co. v. Town of Monument, 464 P.3d 774, 779-81 (Colo. 2020). By retaining the State Law Exception, the Treasury Regulations continue to account for the differing views of the fifty states on whether holders of conservation easements should receive any compensation upon extinguishment.

3. Conservation Easements are restrictive covenants under Alabama law

Alabama law has long recognized the difference between property interests allowing the use of another landowner's property (e.g., positive easements) and restrictive covenants limiting the use of property. The primary distinction between an easement and a restrictive covenant under Alabama law is whether the holder has a right to use the property. Easements permitting the use of property are generally acquired by prescription or by express agreement or conveyance. A prescriptive easement is acquired when a person's actions amount to exclusive, continuous, and uninterrupted use of the easement property for a period of20 years. Bull v. Salsman, 435 So.2d 27, 29 (Ala. 1983). Use of the property is crucial to acquiring a prescriptive easement.An express easement provides the easement holder and landowner with concurrent rights to use the property. Blalock v. Conzelman, 751 So. 2d 2, 6 (Ala. 1999). In contrast, a restrictive covenant restricts a landowner's use of their property. Scheuer v. Britt, 218 Ala. 270, 271-72 (Ala. 1928) (noting that restrictive covenants in deeds, leases, and agreements limit the use of property in a specified manner, or prescribe a particular use).

The Deed of Conservation Easement created a restrictive covenant under Alabama law. Paragraph 1 confirms that the Deed of Conservation Easement is meant to retain the property in its present state and to prevent any uses that will impair or interfere with the Conservation Values. Respondent's Exhibit O ¶ 1. Paragraph 1 further states: "Grantor intends that this Conservation Easement will confine the use of the Property to such activities as are consistent with the Purpose of this Conservation Easement." Id.

The remaining terms of the Deed of Conservation Easement are consistent with Paragraph 1. Paragraphs 3 and 4 explicitly limit MAR's use of the Property. Paragraph 26 forever terminates all development rights associated with the Property. The Deed of Conservation Easement does not provide the Wild Turkey Federation with any right to use the Property. Instead, it limits MAR's use. Since the Deed of Conservation Easement does not provide the Wild Turkey Federation the right to use the Property, it created a restrictive covenant under Alabama law.

4. Alabama law does not provide compensation for restrictive covenants

Alabama follows the Minority Rule regarding restrictive covenants — restrictive covenant holders do not receive compensation upon an extinguishment of their interest. In Burma Hills Development Co. v. Marr, 229 So. 2d 776 (Ala. 1969), the Alabama Supreme Court analyzed whether holders of restrictive covenants should receive compensation in an extinguishment proceeding. Id. at 779-782. In analyzing this issue, the Court considered the competing views on whether a restriction on use of property is a compensable interest. Id. at 779. After analyzing cases in other jurisdictions following the Minority Rule, including Anderson v. Lynch, 3 S.E.2d 85 (Ga. 1939), the Court expressly embraced the Minority Rule and concluded that restrictive covenants in Alabama are not a type of property right or interest that is entitled to receive compensation in an extinguishment action. Id. at 781-82. Notably, Burma Hills and the cases from other Minority Rule states, including Anderson, focused on the type of interest (i.e., a restrictive covenant) and not the type of extinguishment action (i.e., condemnation, an action to quiet title, etc.).

Burma Hills remains good law. Alabama Courts have not limited Burma Hills to mutual covenants, or a subset of restrictive covenants (e.g., building restrictions as opposed to conservation easements). Thus, Alabama law does not recognize conservation easements as compensable property interests.

5. The Alabama Uniform Conservation Easement Act did not limit Burma Hills

Burma Hills continues to apply to conservation easements in Alabama. Neither subsequent case law nor the enactment of the Alabama Uniform Conservation Easement Act changes the law related to the payment of compensation upon the extinguishment of a conservation easement. Alabama adopted the Alabama Uniform Conservation Easement Act, Ala. Code §§ 35-18-10 (1997), et seq., in 1997. At the time, and to this day, the Uniform Conservation Easement Act confirmed that compensation after a taking is determined under state law. See National Conference of Commissioners on Uniform State Laws, Uniform Conservation Easement Act, Commissioners' Prefatory Note at 3 (1982). Alabama expanded the language of the Uniform Conservation Easement Act by adding Ala. Code § 35-18-2(e) to expressly permit condemnation. Importantly, the Alabama Code remained silent on compensation. This crucial distinction was noted by the Court in Hewitt v. Commissioner, T.C. Memo. 2020-89, when it acknowledged that the Alabama Uniform Conservation Easement Act permits condemnation, but does not "expressly state that the easement holder is entitled to compensation." Hewitt v. Commissioner, T.C. Memo. 2020-89, at *23 n.8. However, Hewitt failed to take this distinction to the only supportable conclusion; if a conservation easement is condemned and the holder of the easement is not entitled to compensation as a matter of state law, the State Law Exception, by its terms, must apply.

By remaining silent as to compensation, the Alabama Code stands in stark contrast to other states that provided express compensation rights for holders of conservation easements in condemnation actions in their state codes. See Va. Code Ann. § 10.1-1010(F); 32 Pa. Cons. Stat. Ann. § 5055(d)(2), (e); Neb. Rev. Stat. § 76-2,117. It also stands in contrast to Maryland, which follows the majority rule regarding restrictive covenants, but made the affirmative decision to prevent certain conservation easement holders from receiving compensation. See Md. Code. Ann., Real Prop. Sec. 12-104(g). By staying silent on the issue, Alabama left unchanged existing state law from Burma Hills that restrictive covenants were not compensable interests.

In Hewitt, the Court relied on Harco Drug, Inc. v. Notsla, Inc., 382 So. 2d 1 (Ala. 1980) and Portersville Bay Oyster Co. v. Blankenship, 275 So. 3d 124 (Ala. 2018), to conclude that a conservation easement holder was entitled to compensation in condemnation action under Alabama Law. Harco Drug and Portersville remain consistent with Burma Hills. In fact, neither case involved a conservation easement or restrictive covenant. In Harco Drug, the Alabama Supreme Court held that a lessor was required to share condemnation proceeds with a lessee operating a business on the condemned property because the lessee's use of the property amounted to shared ownership of the property. 382 So. 2d at 6. In Portersville, the court held that oyster farmers were entitled to compensation in an inverse condemnation action because the shellfish aquaculture easement, like a leasehold interest, allowed the oyster farmers to use a property right held by the owner of the property. 275 So. 3d at 134. Consistent with Burma Hills, the courts in Harco Drug and Portersville concluded that the right to use property was a compensable interest; restrictions on the use of property, like the conservation easement at issue here, remained non-compensable.

Alabama law governs the Deed of Conservation Easement. Respondent's Exhibit O ¶ 27(a); Resp. MPSJ ¶ 33. Under Paragraphs 16 and 17 of the Deed of Conservation Easement, the Wild Turkey Federation will receive a proportionate share of extinguishment proceeds, as calculated in Paragraph 18, subject to the condition precedent, "unless state law provides otherwise." Because Alabama law confirms that restrictive covenants, like the conservation easement at issue here, are not compensable interests, the grant of rights and method for calculating proceeds in Paragraph 18 is moot. See Burma Hills, 229 So. 2d at 781-82. Said another way, Alabama law provides otherwise, thus halting any analysis with regard to a division of proceeds before ever reaching Paragraph 18. Accordingly, the Wild Turkey Federation will not receive any extinguishment proceeds pursuant to proceeds allocation in Paragraph 18. Because Burma Hills remains controlling law in Alabama and precludes this result, Paragraph 18 never applied and the Wild Turkey Federation never received a property right compensable under Alabama law.

The Alabama Uniform Conservation Easement Act, A. §§ 35-18-1 et seq., supports the conclusion that the Wild Turkey Federation does not have a compensable interest, as the Alabama State Legislature (i) knew the Uniform Act did not address compensation after an extinguishment or condemnation, (ii) specifically permitted the condemnation of conservation easements, but (iii) did not give conservation easement holders a right to compensation. Because the State Law Exception applies to conservation easements donated in Alabama, the Wild Turkey Federation, as a matter of law, will not receive any share of extinguishment proceeds under Treasury Regulation section 1.170A-14(g)(6)(ii).

6. Petitioner moves the Court to certify any uncertain issues of Alabama state law to the Alabama Supreme Court

Long ago, the Supreme Court explained that "the state has an interest independent of and behind the titles of its citizens, in all the earth and air within its domain. It has the last word as to whether its mountains shall be stripped of their forests and its inhabitants shall breathe pure air. It might have to pay individuals before it could utter that word, but with it remains the final power." Georgia v. Tennessee Copper Co., 206 U.S. 230, 237 (1907). The state's right to specify rules of real property law is a core aspect of state sovereignty in our dual-sovereign federal system, and Petitioner has not located any recent binding Alabama precedent explicitly addressing whether the holder of a conservation easement is entitled to any portion of the proceeds awarded upon judicial condemnation or extinguishment.

Petitioner respectfully submits that Burma Hills remains the law of Alabama until overruled by statute or further decision of the Alabama Supreme Court. Nevertheless, to the extent that this Court perceives any uncertainty on this point, Petitioner moves the Court to certify any open questions to the Alabama Supreme Court pursuant to Alabama Rule of Appellate Procedure 18, which provides that:

When it shall appear to a court of the United States that there are involved in any proceeding before it questions or propositions of law of this State which are determinative of said cause and that there are no clear controlling precedents in the decisions of the Supreme Court of this State, such federal court may certify such questions or propositions of law of this State to the Supreme Court of Alabama for instructions concerning such questions or propositions of state law, which certified question the Supreme Court of this State, by written opinion, may answer.

This Court has in appropriate circumstances granted motions to certify questions to state supreme courts, see, e.g., Grant Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322, 328-29 (1988) (granting petitioner's motion to certify question to Montana Supreme Court), and this case may present such circumstances. An Alabama Supreme Court ruling that holders of conservation easements are not entitled to any share of the proceeds upon judicial extinguishment would be determinative of Respondent's motion for partial summary judgment (and, as explained below, Petitioner's motion for partial summary judgment). With respect, Petitioner suggests that issues of state condemnation and property law are far from the core tax expertise of this Court, and in the heartland of the Alabama Supreme Court's expertise. Petitioner is aware that there are other tax controversies (both in this Court and in various stages of IRS examination) involving donations of Alabama conservation easements with similar model deeds, a fact that suggests that this issue has broader significance than just to Petitioner. Petitioner therefore moves the Court to certify any questions of perceived uncertainty regarding Alabama law to the Alabama Supreme Court.

B. MAR's donations of the Conservation Easement and the Fee Simple pursuant to a single partner vote satisfies the perpetuity requirement

Pursuant to a single vote of the MAR partners, MAR made contemporaneous donations of both the Conservation Easement and the Fee Simple to qualified organizations (one of which was the subsidiary of the other). There were no improvements on the Property when the Conservation Easement was donated, and none was constructed during the intervening handful of days before the donation of the Fee Simple. There was thus no possibility that MAR could retain an impermissible interest in the proceeds of any judicial extinguishment of the easement. The Treasury Regulations governing the charitable donations expressly recognize that charitable contributions of different interests in property (such as donation of the income to Charity A and donation of the principal to Charity B) can be analyzed jointly to determine whether sufficient interest has been donated to meet the requirements of the Code. See Treas. Reg. § 1.170A-7(a)(2)(ii). MAR's joint donation of the Conservation Easement and the Fee Simple satisfies the perpetuity requirement.

1. MAR donated both the Conservation Easement and the Fee Simple pursuant to a single partner vote and thereby ensured that the donee would receive 100 percent of any proceeds from easement extinguishment

In December 2014, the partners of MAR voted to approve a conservation plan under which the manager was authorized to donate a Conservation Easement and also to donate the underlying Fee Simple interest in the Property. There were no improvements on the Property at any point during December 2014. The Deed of Conservation Easement was executed on December 15, 2014, for the benefit of the Wild Turkey Federation, and then one week later MAR donated the Fee Simple to American Upland, a subsidiary of the Wild Turkey Federation. These donations were made pursuant to a unified plan in which MAR parted with a conservation easement, any right to make any improvements on the property, any potential upside from such improvements, and ultimately from any interest in the Property whatsoever. This vote ensured that the Property would be conserved in perpetuity, and that 100 percent of the proceeds of any extinguishment of the easement would inure to the donee (and its subsidiary), not to the MAR partners.

2. These donations met the perpetuity requirement

Courts have explained the purpose of the proceeds-upon-extinguishment provision of Treasury Regulation section 1.170A-14(g)(6) in a number of cases. The leading case addressing the purpose of the regulation is the First Circuit's opinion in Kaufman v. Commissioner, 687 F.3d 21 (1st Cir. 2012). In Kaufman, the Court made the following observation:

Although the extinguishment provision was unexplained when first promulgated, . . . [it] appears designed in case of extinguishment both (1) to prevent taxpayers from reaping a windfall if the property is destroyed or condemned and they get the proceeds from insurance or condemnation and (2) to assure that the donee organization can use its proportionate share of the proceeds to advance the cause of historic preservation elsewhere.

Kaufman, 687 F.3d at 26.

Other courts, including the Tax Court, have recognized the purpose of the proceeds upon extinguishment regulation as explained in Kaufman. See Carroll v. Commissioner, 146 T.C. 196 (2016); PPBM-Rose Hill Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018); Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54.

Where the purposes described in Kaufman are served, the Tax Court has allowed a deduction even where the technical terms of Treasury Regulation section 1.170A-14(g)(6)(ii) are not met. In Irby v. Commissioner, 139 T.C. 371 (2012), the taxpayers contributed two conservation easements on their ranch in Colorado to the Colorado Open Lands, a qualified land trust. The Irbys did not make a completely gratuitous contribution of the conservation easements; instead, the transfers of the two conservation easements were structured as a "bargain purchase" in which the Irbys sold the conservation easements to Colorado Open Land for 75 percent of the value of the easements. The Irbys claimed a charitable contribution for the amount equal to the 25 percent discount on the value of the conservation easements.

Three government agencies funded the purchase of the conservation easements on behalf of Colorado Open Lands: (1) the Farm and Ranch Protection Program ("FRPP"), which was administered by a branch of the U.S. Agriculture Department, (2) Great Outdoors Colorado ("GOCO"), a Colorado State program, and (3) the Gunnison County Land Preservation Board ("GCLPB"), a local land preservation program.

As required under Treasury Regulation section 1.170A-14(g)(6)(ii), Colorado Open Lands was entitled to its proportionate share of the proceeds of any sale or exchange in a condemnation proceeding based on the fair market value of the conservation easement over the fair market value of the entire property at the time of the donation of the two easements. However, as a condition of funding the bargain purchase of the conservation easement, each government agency demanded a share of the proceeds upon a condemnation based upon their share of funding for the bargain purchase of the easements. Thus, the three agencies were to receive approximately 75 percent of the proceeds from a condemnation sale or other extinguishment of the conservation easement.

The IRS argued that the allocation of the condemnation proceeds violated the Treasury Regulation section 1.170A-14(g)(6)(ii) because Colorado Open Lands had to reimburse the government agencies for funding the bargain purchase and therefore was not entitled to its proportionate share of the proceeds from condemnation as required under the regulation.

The Tax Court rejected the IRS's position. In reaching this holding, the Tax Court examined the intent of the proceeds-upon-extinguishment regulation and found that the provisions in the Irby conservation deeds did not violate that intent. Citing Kaufman, the Tax Court stated that the purposes of the Proceeds-upon-Extinguishment provision in the regulation were served.

No such diversion of extinguishment proceeds from Colorado Open Lands would occur — Colorado Open Lands holds an absolute right to the condemnation proceeds vis-a-vis Irby Ranches, LLC, and petitioners. There is no risk that Irby Ranches, LLC, or petitioners could ever reap a windfall should the east Irby and/or west Irby parcels be condemned. Significantly, any extinguishment proceeds which Colorado Open Lands is obligated to pay to others will go to governmental entities, each of which is an organization described in section 170(c)(1). The proceeds so paid by Colorado Open Lands would be used by those entities in a manner consistent with the original conservation purposes of the contribution by Irby Ranches, LLC. See infra pp. [383-385]. We therefore find that the deeds of conservation easement meet the requirements of section 1.170A-14(g)(6)(ii), Income Tax Regs.

Irby, 139 T.C. at 382. The Tax Court determined that the intention of the Treasury Regulation was served by the Irby conservation easement deeds because (1) the Irbys as grantors would not receive a windfall in any condemnation sale of the underlying properties, and (2) the organizations with which Colorado Open Lands was to share the proceeds of a condemnation — the FRPP, GOCO, and GCLP — were governmental agencies that each had a purpose of conservation and protecting the land. Accordingly, each of the agencies receiving any of the proceeds of a future condemnation would use those funds to further conservation purposes.

The reasoning of Kaufman and Irby applies with full force here. In this instance, both elements of the Kaufman and Irby tests for Treasury Regulation section 1.170A-14(g)(6)(ii) are satisfied by virtue of MAR's donation of Fee Simple in the Property in addition to the Conservation Easement. Because MAR donated both the Conservation Easement and the Fee Simple, neither MAR nor its members could benefit from any future proceeds from an insurance policy or condemnation proceeds. Further, as in Irby, although there may be some allocation issues between the Wild Turkey Federation and American Upland, no matter which entity receives the allocated proceeds from a future condemnation of the property, the conservation purposes will be served because both organizations are dedicated to conserving land. The Wild Turkey Federation received control of 100 percent of the financial interest in the Property by virtue of holding the Conservation Easement, and owning 100 percent of its disregarded entity American Upland, see Treasury Regulation section 301.7701-2(a), which received the donation of the Fee Simple interest in the Property. Accordingly, the Wild Turkey Federation at the time of the Fee Simple donation controlled and stood to benefit financially from 100 percent ownership of the Property either directly or indirectly, through American Upland.

3. This case does not present the same issues as the easement in Coal Property Holdings

The fact that MAR donated both the Conservation Easement and the Fee Simple pursuant to a single partner vote renders Coal Property Holdings inapplicable to this case. In Coal Property Holdings, the taxpayer and grantor of the conservation easement reserved the right to make improvements that did not interfere with the conservation purpose of the easement. In order to protect its financial investment in any such improvements, the taxpayer included an improvements clause in its proceeds-upon-extinguishment provision allocating the proceeds in accordance with the following formula:

[A] fair market value determined by multiplying (a) the fair market value of the Property unencumbered by this Easement (minus any increase in value after the date of this grant attributable to improvements) by (b) a fraction, the numerator of which is the value of this Easement at the time of the grant and the denominator of which is the value of the Property without deduction of the value of this Easement at the time of this grant.

Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126, 131 (2019) (emphasis added) (citation omitted).

The Tax Court determined that the "improvements" clause violated the requirements of Treasury Regulation section 1.170A-14(g)(6) by potentially reducing the amount that the donee organization holding the conservation easement would receive in the event of a sale or exchange pursuant to a condemnation or other judicial termination of the conservation easement. The Tax Court determined that the conservation easement holder must, at a minimum, be entitled to its proportionate share of the proceeds from the sale or exchange of the property in the covered circumstance. The Tax Court held that those "proceeds" for this purpose include all proceeds from the sale or exchange of the property including the proceeds attributable to any increase in value of the property attributed to improvements on the property.

The Tax Court found that, by subtracting out the amounts attributable to the increase in value of the improvements, the conservation easement deed's proceeds-upon-extinguishment provision did not protect the financial interest of the donee organization holding the conservation easement and thus violated Treasury Regulationsection1.170A-14(g)(6)(ii).

The Deed of Conservation Easement at issue in this case does contain improvements language similar to the donation deemed deficient in Coal Property Holdings. But the Code and Treasury Regulations require a complete analysis of the nature of the bundle of legal rights donated by MAR to the Wild Turkey Federation and its subsidiary American Upland, not just a parsing of the language of the Deed of Conservation Easement. In Treasury Regulation section 1.170A-7(a)(2)(ii), Treasury provided that a donor could meet the Code's requirements for parting with a sufficient interest to qualify for a charitable deduction by making multiple donations, each of which alone would be insufficient to qualify for a charitable deduction:

A deduction is allowed without regard to this section for a contribution of a partial interest in property if such contribution constitutes part of a charitable contribution not in trust in which all interests of the taxpayer in the property are given to a charitable organization described in section 170(c). Thus, if on March 1, 1971, an income interest in property is given not in trust to a church and the remainder interest in the property is given not in trust to an educational organization described in section 170(b)(1)(A), a deduction is allowed for the value of such property.

In the example in the regulation, the issue was whether two separate donations of partial interests (an income interest and a remainder interest) could be considered together as a donation of an entire interest, such that the donor could overcome the general prohibition on deductions for donations of partial interests. The reasoning of the regulation is equally applicable in determining whether a donor has given away a sufficient percentage of the right to proceeds upon extinguishment and ensured that the donee's financial interest in the Property is protected. In the example in the regulation, of course, both donations occurred on the same exact date, but the text of the regulation does not require that the donations occur on the same day. The relevant question is whether they can rightly be considered "part of a charitable contribution," in the language of the regulation. Here, the donations occurred within a handful of days pursuant to a single plan voted on by the MAR partners. No improvements to the Property were made at that time, so the donee's interests were fully protected.

Analyzing the full context of the donations in this case is consistent with the reasoning of Judge Lauber's recent order denying the government's summary judgment motion in Oconee Land Property, LLC v. Commissioner, Docket No. 11814-19 (Aug. 18, 2020). Although the order is not precedential, the Court in that case held that the presence of an improvements clause with language similar to that found in Coal Property Holdings was not sufficient to grant summary judgment to the government. The Court looked beyond the language of the improvements clause to take into account the entire context of the charitable gift. In Oconee Land, the proceeds-upon-extinguishment clause language was similar to the Coal Property Holdings language, but the Oconee Land deed of conservation easement strictly limited the types of improvements that were permitted. The only permissible improvements were potentially low-value items such as a nature trail or a hunting blind. The Court held that there were contested issues of fact regarding whether the permitted improvements could ever result in material changes to the value of the property (or to the percentage of proceeds to be allocated upon extinguishment to the donee), and therefore that it was inappropriate to grant summary judgment based on the language of the improvements clause alone. The same analysis applies in this case.

MAR's contemporaneous donations to the Wild Turkey Federation and its subsidiary American Upland satisfied the purposes of the regulation, as described by the First Circuit in Kaufman: (1) to prevent the grantor of the conservation easement from obtaining a windfall if the property is condemned, and (2) to allow the donee organization to use the proceeds from a condemnation sale or other similar exchange to further serve its conservation purposes. 687 F.3d at 26. MAR could not obtain a windfall from any future condemnation sale of the property or other similar event under the improvements clause because it gave up all ownership in the Property through the donation of the Fee Simple. As a result of MAR's donation of the Fee Simple interest to American Upland, the entire value of the Property would now be used for conservation purposes. The Wild Turkey Federation would receive the entire financial benefit of any future sale or exchange of the Property by virtue of holding the conservation easement directly, and through its indirect ownership of the Fee Simple interest by its wholly owned subsidiary American Upland.

C. MAR preserves other arguments regarding the Treasury Regulation for further review

MAR recognizes that, under the interpretation of the Treasury Regulation in Coal Property Holdings, the language in its proceeds clause with respect to Improvements, if considered outside the context of MAR's donation of the Fee Simple, would have issues with meeting the perpetuity requirement. Petitioner expressly preserves arguments that (a) Coal Property Holdings and its progeny incorrectly interpret the relevant Treasury Regulation and (b) Treasury Regulation section 1.170A-14(g)(6) is invalid both as a procedural matter under the Administrative Procedure Act and because it reflects an unreasonable interpretation of the statute under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

With respect to the APA and Chevron arguments, Petitioner incorporates and adopts Judge Holmes's dissenting APA arguments and Judge Toro's concurring Chevron arguments in Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. No. 10 (2020).

With respect to Coal Property Holdings, Petitioner respectfully submits that in the case of improvements that may be constructed on the Property after the donation of the conservation easement, those post-donation improvements were not part of the "property" being valued at the time that the conservation easement is donated, and thus should be considered a separate class or category of property when allocating the proceeds from a condemnation sale or similar event with respect to the property.

Allocating a portion of a condemnation sale or similar event between the grantor and the holder of a conservation easement without taking into account improvements that a grantor of a conservation easement funds and causes to be constructed on the property after the grant of the conservation easement simply creates a windfall for the holder of the conservation easement and deprives the grantor of its financial interest attributable to those improvements.

A simple example should help to demonstrate the point. Grantor A donates undeveloped land to Organization X, a qualified land trust, in year 1. The land has a value of $10 million. The land consists of 20 acres of undeveloped land. The restrictions in the conservation deed restrict A from ever developing the property commercially such as building factories, apartments, condominiums or other commercial real estate projects. But the conservation easement deed does allow X to construct a home on a one-acre section of the land. At the date of the grant, a qualified appraisal values the conservation easement at $5 million and the land after the conservation easement at $5 million. In year 5, A builds a home with a value of $1 million.

In year 10, the state condemns the property, and it is determined that the land is now worth $20 million and the home on the land is worth $1.5 million. The state pays a total of $21.5 million to the parties in the condemnation proceeding. Under the Tax Court's holding in Coal Property Holdings and its progeny, A and X would need to share in the total proceeds of $21.5 million equally based upon the formula in Treasury Regulation section 1.170A-14(g)(6)(ii) so that each would receive $10,750,000.

In the example, the land appreciated $10 million over the ten-year period. A's home appreciated $500,000 over a five-year period from year 5 to year 10. A spent $1 million of his own funds to build the home in year 5. But, under the formula, A is only getting back $750,000 attributable to the home even though he spent $1 million on the home and it appreciated $500,000 in five years.

In the example, Organization X is receiving a windfall for $750,000 attributable to the home constructed on the property for which X contributed nothing. That should not be the correct answer.

The appropriate way to read the regulation in order to avoid the unjust result is to focus on the concept of "property." Treasury Regulation section 1.170A-14(g)(6)(ii), which sets forth the formula that must be used to allocate the proceeds in a condemnation sale or similar event, states in relevant part that donee organization's share should be based upon "fair market value that is at least equal to the proportionate value that the perpetual conservation at the time of the gift, bears to the value of the property as a whole at that time." (Emphasis added.)

The "property" that is being used and valued for purposes of the denominator of the fraction to be used in allocating the proceeds is the property that existed at the time of the grant. In cases where post-donation improvements are made to the property, those improvements did not exist at the time of the grant and any proceeds attributable to post-donation improvements should not be included in the allocation of condemnation sale or similar proceeds upon the termination of a conservation easement. The only proceeds that should be allocated between the grantor and the donee organization are those attributable to the entire property that existed at the time of the grant of the conservation easement.

If a grantor is required to allocate funds attributable to post-donation improvements, it provides a windfall to the donee organization and deprives the grantor of funds attributable to an improvement for which the grantor provided the funding.

Under Kaufman, the two purposes of Treasury Regulation section 1.170A-14(g)(6) are served by this allocation method. The grantor does not obtain a windfall because the grantor funded the post-donation improvements that did not exist at the time that the conservation easement and property were valued. The second purpose is also served because the donee organization receives a proportionate share of the proceeds attributable to the property that existed as of the date of the grant of the conservation easement.

Treasury Regulation section 1.170A-14(g)(6)(ii) should be read to fairly protect the donee organization's financial interest in the event of a condemnation sale or similar event. It should not, however, be read to provide a windfall to the donee organization and deprive the grantor of funds attributable to post-donation improvements.

II. PETITIONER'S CONSERVATION DONATION PROTECTS THE CONSERVATION PURPOSES IN PERPETUITY

In addition to opposing Respondent's motion for partial summary judgment with respect to the improvements language, Petitioner moves for partial summary judgment that MAR's donation of a Conservation Easement complied with all requirements of Treasury Regulation section 1.170A-14(g)(6) and that it adequately protected the conservation purposes in perpetuity as required by Internal Revenue Code section 170(h)(5).

A. MAR's Conservation Easement donation complied with the perpetuity and other requirements of Treasury Regulation section 1.170A-14(g)(6)

Treasury Regulation section 1.170A-14(g)(6) requires that the donor of a conservation easement: (1) grant a perpetual conservation restriction on the property, (2) that the conservation easement create a property right for the donee organization that is immediately vested as of the date of the grant, and (3) that the donee organization's financial interest in the property be protected by allowing it to share in any future sale or exchange of the property from a condemnation or other judicial proceeding that terminates the conservation easement.

There is no dispute about either the first or the second requirement. Paragraph 16 of the MAR Conservation Easement Deed states: "It is the unequivocal intention of Grantor and Grantee that the Purpose of this Conservation Easement be carried out in perpetuity." Moreover, it provides that the Conservation Easement can only be terminated through an order from a court with competent jurisdiction over the Property and the Conservation Easement. Paragraph 18 of the MAR Conservation Easement Deed states: "This Conservation Easement constitutes a real property interest, immediately vested in Grantee at the time Grantor conveys this Conservation Easement to Grantee." The MAR Conservation Easement deed states unequivocally that the Conservation Easement deed (1) is an interest in the Property that immediately vested with the Grantee, the Wild Turkey Federation, and (2) that it is intended to exist in perpetuity.

With respect to the third requirement, Petitioner adopts the arguments set forth above made in opposition to Respondent's motion for partial summary judgment. This Court should find that Petitioner's donation satisfied the third requirement for three reasons. First, the Deed of Conservation Easement and Alabama law combine to satisfy the State Law Exception to the formula-based apportionment otherwise required of a proceeds clause. Second, because MAR donated the Conservation Easement and the Fee Simple to qualifying organizations (one a subsidiary of the other) pursuant to a single partner vote, its donation ensured that the donee organization would receive at least the minimum required percentage of the proceeds of any condemnation or other judicial proceeding that terminates the conservation easement. Third, under a proper reading of the law, the relevant Treasury Regulation is invalid (both as a matter of procedure and as a matter of substance) and donors are permitted to retain any increase in value attributable to post-donation improvements under Code section 170.

B. The subsequent actions of the Wild Turkey Federation and American Upland do not undermine MAR's compliance with Treasury Regulation section 1.170A-14(g)(6)

More than four years after MAR's donation, on March 12, 2019, American Upland sold the Fee Simple interest in the Property to Woolard Farms, LLC for $875,000. And in 2020, the Wild Turkey Federation agreed to a modification of the Deed of Conservation Easement requested by Woolard Farms — to erect improvements on the Property in a location that was different from the original building envelope. Neither of these events should have any effect whatsoever on the analysis of MAR's claim for a charitable contribution deduction when it made the donation in 2014. There is no requirement anywhere in the Code that the donor of a conservation easement ensure that the Fee Simple interest will never be sold or transferred, nor is there any requirement that the donor police future modifications to the Deed of Conservation Easement agreed to by the donee charitable organization.

With respect to the 2019 sale to Woolard Farms, as a result of that sale, American Upland, and indirectly its parent, the Wild Turkey Federation, obtained the financial benefit from owning and selling the Fee Simple Interest (including any hypothetical value attributable to rights to make Improvements, and rights to receive compensation for them in the event that the easement was judicially modified or extinguished). The new owner, Woolard Farms, LLC purchased the property subject to the Conservation Easement held for the benefit of the Wild Turkey Federation. Accordingly, all of the restrictions in the easement apply to Woolard Farms.

If a condemnation sale had taken place in 2016 while American Upland still owned the Fee Simple interest in the Property, the Wild Turkey Federation would have received a share of the proceeds attributable to the Conservation Easement directly, and it also would have received the remainder of the proceeds attributable to the Fee Simple interest in the Property indirectly through American Upland. Under that scenario, 100 percent of the proceeds from a condemnation sale or insurance recovery pursuant to a judicial extinguishment of the Deed of Conservation Easement would have gone to the Wild Turkey Federation and American Upland to be used for conservation purposes.

Instead, the Wild Turkey Federation and American Upland decided to sell the Fee Simple Interest to a third party. By selling the Fee Simple interest in the Property, American Upland and the Wild Turkey Federation were able to use the proceeds from the sale to further the conservation purposes of one or both organizations.

Any future allocation of condemnation proceeds between the Wild Turkey Federation and Woolard Farms, the new owner of the fee simple, should not be taken into account for purposes of Treasury Regulation section 1.170A-14(g)(6)(ii) because the Wild Turkey Federation has effectively been paid for the Fee Simple interest and was able to use the proceeds to further its conservation purpose.

With respect to the 2020 modification, the Wild Turkey Federation agreed to an amendment of the Conservation Easement to allow Woolard Farms to erect improvements on the Property in a location that was different from the original building envelope. MAR had no control over that modification, nor did it have any ability to influence it. Under the Conservation Easement, the Wild Turkey Federation is charged with making determinations on proposed amendments to the Conservation Easement, and is required to make a determination that the activities or actions permitted by the amendment to the Conservation Easement do not interfere with or adversely affect the conservation purposes of the Conservation Easement. MAR's charitable donation does not depend on how the Wild Turkey Federation chooses to exercise its responsibility to supervise the easement many years after the donation is made.

This is not a situation, as in Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014), and BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017), where the dispute centered on deed modifications contemplated by and provided for in the deed. In those cases, it was logical to examine whether amendment provisions within the deed itself undermined the perpetuity of the easement grant. That is not the case here. MAR made donations that satisfied the perpetuity requirement, and years after MAR ceased to own any interest in the property, subsequent owners of interests in the land agreed to a modification of the Deed of Conservation Easement. The Code relies on qualified organizations to exercise their fiduciary duties to protect conservation interests by not agreeing to amendments that would undermine the conservation purposes of the donated easements. Any IRS disagreement with the exercise of those duties does not affect the charitable contribution deduction for an easement that by its terms meets the perpetuity requirement at the time the easement is granted.

Based upon the foregoing, Petitioner respectfully request that its Motion for Partial Summary Judgment be granted, and that Respondent's Motion for Partial Summary Judgment be denied.

Dated: October 30, 2020

Respectfully Submitted,

MICHAEL TODD WELTY
Todd Welty, P.C.
Counsel for Petitioner
4279 Roswell Rd NE
Suite 208, #352
Atlanta, GA 30342
Tax Court Bar No. WM0494
Telephone: (214) 289-9693
Email: todd@toddweltypc.com

FOOTNOTES

1All "section" references are to the Internal Revenue Code of 1986, as amended, and in effect for the year at issue unless stated otherwise. All references to the Regulations are to the Treasury Regulations promulgated under the Code and as in effect for the year at issue unless stated otherwise.

2Respondent's Counsel Shawna A. Early submitted an Affidavit with Respondent's Motion for Partial Summary Judgment attesting to the true and correct copies of certain documents submitted with the MPSJ and attached to the Affidavit. Petitioner will refer to those Exhibits as Respondent's Exhibits A through X.

3Petitioner's Counsel Kevin Johnson has submitted a declaration in support of Petitioner's Motion for Partial Summary Judgment in which he has attested to the submission of true and correct copies of certain documents. Petitioner will refer to those documents as Petitioner's

END FOOTNOTES

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