Government Answers Suit Challenging Denial of Easement Deduction

TS 27 CORPORTATION as Tax Matters Partner for SOUTH QUAIL RIDGE, LLC,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF GEORGIA
ALBANY DIVISION

UNITED STATES' ANSWER TO PLAINTIFF'S COMPLAINT

The United States responds as follows to the numbered paragraphs of plaintiff's complaint.

1. The United States admits that South Quail claimed a deduction for a purported donation of an interest in real property and that the claimed deduction was disallowed by the IRS. The United States also admits that the Notice of Final Partnership Administrative Adjustment determined that certain penalties were applicable. The United States denies that the claimed deduction satisfied the applicable statutory requirements and that the disallowance of the claimed deduction was contrary to Congressional intent. The United States lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

2. The United States admits that this is a petition for readjustment of partnership items pursuant to section 6226 as in effect for 2016, and denies that plaintiff is entitled to the relief sought on any of the issues presented. The United States also denies that any alleged overpayments by individual partners of South Quail Ridge are at issue in this partnership proceeding (other than plaintiff's jurisdictional deposit).

3. The United States admits that TS 27 is the TMP of South Quail; that the FPAA attached as Exhibit A is a true and correct copy; that the IRS's adjustments are set forth in the FPAA dated July 22, 2020 issued by the Internal Revenue Service office located in Boston, Massachusetts; and that plaintiff disputes the adjustments. The United States lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

4. Admits.

5. The United States admits that TS 27 Corporation is registered with the Georgia Secretary of State with a principal office address of 253 Whigham Dairy Road, Bainbridge, Georgia, 39817, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

6. The United States admits that TS 27 is listed as the Tax Matters Partner (“TMP”) of South Quail for the Taxable Year.

7. Admits.

8. Admits.

9. Admits.

10. The United States admits that this action is timely.

11. The United States admits that plaintiff deposited with the Secretary of the Treasury by check dated and postmarked October 19, 2020, in the amount of $28,908 and that the copy of the check is attached to plaintiff's complaint as Exhibit B is a true and correct copy, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

12. Denies. The Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201(a), expressly forbids declaratory relief in a case or controversy with respect to Federal taxes, subject to exceptions not applicable here.

13. Denies for the reasons set forth in response to paragraph 12, above.

14. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

15. The United States lacks knowledge or information sufficient to form a belief about whether the North American Land Trust was a “qualified donee” within the meaning of 26 U.S.C. § 170(h)(1)(B) with respect to the transaction at issue in this case and during the relevant time period.

16. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

17. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

18. The United States admits that the referenced Property is located off Attapulgas-Climax Road near Bainbridge in the southeastern portion of Decatur County, Georgia. The United States lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

19. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

20. The United States admits that the Gopher Tortoise is listed among the “High Priority Animal Species” in the 2015 Georgia State Wildlife Action Plan, but lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

21. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

22. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

23. The United States admits that the Easement Deed recorded on December 30, 2016, in Decatur County, Georgia, purports to concern a Conservation Easement made by and between South Quail Ridge, LLC, and North American Land Trust, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

24. The United States admits that the Easement Deed was properly recorded on December 30, 2016, in Decatur County, Georgia, at Book 406, Page 872.

25. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

26. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

27. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

28. The United States admits that the Easement Deed purports to give NALT certain enforcement rights and responsibilities as stated in the easement document, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

29. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

30. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

31. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

32. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

33. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

34. The United States admits that South Quail obtained an appraisal report purporting to establish the value of the Easement, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

35. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

36. The United States admits that the appraisal report purported to use the “before” and “after” approach to value the Easement at $7,277,000, but lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

37. The United States admits that the appraisal report states that it was prepared by Claud Clark III, of Clark and Davis, PC, but lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

38. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

39. The United States admits that South Quail filed a tax return claiming a charitable contribution deduction of $7,277,000, and denies that South Quail was entitled to the claimed deduction.

40. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

41. Admits.

42. Admits.

43. The United States admits that the FPAA informed TS 27 of options to respond to the FPAA, but denies that plaintiff's allegation describes all the available options.

44. Denies.

45. The United States admits that the IRS has disallowed the entire claimed deduction and stated in the FPAA that the charitable contribution does not satisfy all the requirements of 26 U.S.C. § 170 and corresponding Treasury Regulations. The United States denies the remaining allegations in this paragraph.

46. Denies.

47. The United States admits that IRS Notice 2017-10 concerned certain syndicated conservation easement transactions. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice.

48. The United States admits that IRS Notice 2017-10 concerned certain syndicated conservation easement transactions and that Section 2 of the notice describes the transaction subject to the notice. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice.

49. The United States admits that IRS Notice 2017-10 concerned certain syndicated conservation easement transactions. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice.

50. The United States admits that IRS Notice 2017-10 concerned certain syndicated conservation easement transactions. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice. Further, Treasury Regulation 1.6011-4 requires disclosure of certain transactions.

51. The United States admits that IRS Notice 2017-10 concerned certain syndicated conservation easement transactions. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice. Further, penalties are authorized by, inter alia, 26 U.S.C. 6662A and 6707A.

52. The United States admits that Notice 2017-10 was released to the public on December 23, 2016, and issued on January 23, 2017. The text of the notice is available at Notice 2017-10, 2017-4 I.R.B. 544, 2016 WL 7422633 (Dec. 23, 2016). The United States denies the allegations in this paragraph to the extent that they inaccurately describe or substantively diverge from the text of the notice.

53. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

54. The United States admits that Notice 2017-10 was not subject to notice and comment procedure before being issued.

COUNT I

55. The United States incorporates its responses to the paragraphs indicated.

56. The United States admits that this paragraph describes the nature of this action, and denies that plaintiff is entitled to the relief sought.

57. The United States admits that the FPAA states generally that South Quail Ridge was not entitled to the deduction sought under 26 U.S.C. § 170, and lacks knowledge or information sufficient to form a belief about the truth of the remaining allegations in this paragraph.

58. Denies.

59. The United States denies that South Quail is entitled to the determination sought.

COUNT II

60. The United States incorporates its responses to the paragraphs indicated.

61. The United States denies that the determination of the applicability of a 40% penalty under 26 U.S.C. § 6662(h) was improper.

62. The United States denies that the determination of the applicability of an alternative 20% penalty under 26 U.S.C. § 6662(c), (d), and (e) was improper.

63. Denies.

64. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

65. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

66. Denied as inaccurate summary of section 6751.

67. Denies.

68. The United States denies that South Quail is entitled to the determination sought.

COUNT III

69. The United States incorporates its responses to the paragraphs indicated.

70. The United States admits that 26 U.S.C. § 6662A provides for penalties on an understatement relating to certain reportable and listed transactions and that the IRS determined that a 20% reportable transaction penalty under § 6662A was applicable, but denies that this was erroneous.

71. Admits.

72. The United States denies that Notice 2017-10 was subject to notice and comment and denies that the Notice was not promulgated in compliance with the APA.

73. The United States denies that Notice 2017-10 was subject to notice-and-comment rulemaking requirements, that the notice was promulgated unlawfully, and that South Quail and its members have been adversely affected by any conduct. Moreover, the United States denies that plaintiff can state a claim for remedies under section 706 of the APA because plaintiff has an adequate non-APA remedy. 5 U.S.C. § 704.

74. The United States admits that 5 U.S.C. § 706(2) contains that language but denies that the language is applicable to this case.

75. Denies.

76. Denies.

77. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

78. The United States lacks knowledge or information sufficient to form a belief about the truth of the allegations in this paragraph.

79. Denied as inaccurate summary of section 6751.

80. Denies.

81. The United States denies that South Quail is entitled to the determination sought.

COUNT IV

82. The United States incorporates its responses to the paragraphs indicated.

83. The United States admits that 5 U.S.C. § 702 contains that language but denies that the language is applicable to this case.

84. The United States admits that 5 U.S.C. § 706(2) contains that language but denies that the language is applicable to this case. Moreover, the United States denies that plaintiff can state a claim for remedies under section 706 of the APA because plaintiff has an adequate non-APA remedy. 5 U.S.C. § 704.

85. This paragraph contains legal argument to which no response is required.

86. This paragraph contains legal argument to which no response is required. The United States admits that the cited regulation was subjected to notice and comment procedure before publication.

87. Admits.

88. Denies.

89. Denies.

90. Denies.

91. Denies.

92. Denies.

COUNT V

93. The United States incorporates its responses to the paragraphs indicated.

94. The United States denies that the Court has authority to issue a declaratory judgment in this case for the reasons stated in response to paragraph 12, above.

95. The United States denies that the Court has authority to issue a declaratory judgment in this case for the reasons stated in response to paragraph 12, above.

96. Denies that notice and comment was required for the Notice.

97. Denies.

98. The United States denies that the Court has authority to issue a declaratory judgment in this case for the reasons stated in response to paragraph 12, above, and denies that South Quail is entitled to the determination sought.

WHEREFORE, the United States respectfully requests that plaintiff take nothing, that plaintiff's claims for relief be denied, that this Court dismiss plaintiff's Complaint, and that the United States be awarded costs and such other appropriate relief as the Court determines.

Dated: March 5, 2021

Respectfully submitted,

David A. Hubbert
Acting Assistant Attorney General

Cory A. Johnson
Senior Litigation Counsel
Illinois State Bar No. 6211233
Lead Counsel
Gregory L. Jones
Oregon State Bar No. 065807
Trial Attorney
Tax Division
U.S. Department of Justice
P.O. Box 14198
Ben Franklin Station
Washington, D.C. 20044
202-307-3046 (Johnson)
202-305-3254 (Jones)
Fax: 202-514-4963
Cory.A.Johnson@usdoj.gov
Gregory.L.Jones@usdoj.gov

Of Counsel:

Peter D. Leary
Acting United States Attorney
Middle District of Georgia