Court Urged to Follow Eleventh Circuit Proceeds Reg Invalidation

January 3, 2022

Deborah S. Hunt
Clerk of Court
U.S. Court of Appeals for the Sixth Circuit
540 Potter Stewart U.S. Courthouse
100 E. Fifth Street
Cincinnati, Ohio 45202-3988

RE: Letter under Fed. R. App. P. 28(j) of Oakbrook Land Holdings, LLC in Docket No. 20-2117

Dear Ms. Hunt:

Oakbrook Land Holdings, LLC (“Oakbrook”) respectfully submits the enclosed Eleventh Circuit decision in Hewitt v. Commissioner, No. 20-13700 (Dec. 29, 2021). The Eleventh Circuit held that Treasury Regulation § 1.170A-14(g)(6)(ii) (the “Proceeds Regulation”) is procedurally invalid under the Administrative Procedure Act, reversing the Tax Court's disallowance of the Hewitts' deduction. The validity of the Proceeds Regulation is directly at issue here as the Tax Court's basis for disallowing Oakbrook's deduction.

The Eleventh Circuit held “NYLC's comment was significant and required a response by Treasury to satisfy the APA's procedural requirements.” Op. at 32. The Eleventh Circuit dismissed the Commissioner's claim that the Proceeds Regulation's primary purpose “was only to interpret § 170(h)(5)'s, 'protected in perpetuity' requirement.” Op. at 33. Rather, the committee reports relied upon by Treasury outlined the Congressional goal of “encourag[ing] donation for such easements.” Op. at 33-34. Thus, NYLC's concern that the proposed regulation “would discourage prospective donors . . . casted doubt on[ ] the reasonableness of the” proposed regulation. Id. at 34.

Oakbrook respectfully requests that this Court adopt the Eleventh Circuit's reasoning in Hewitt to invalidate the Proceeds Regulation and reject the Commissioner's new statutory interpretation of § 170(h)(5)(A), advanced for the first time in this appeal. As explained in Oakbrook's Reply, (1) the Commissioner waived his new argument, (2) it was not briefed by either party below, and (3) the legislative history does not support it. Reply Br. 4-12.

Moreover, Oakbrook notes again the incongruity of the Commissioner advancing a statutory argument that substantively invalidates the Proceeds Regulation he is defending. Specifically, the Commissioner now claims that the statute requires that the donee receive a minimum amount of proceeds following extinguishment. The State Law Exception in the Proceeds Regulation, by contrast, demonstrates that no such statutory requirement exists because it provides that the perpetuity requirement can be met even when the donee receives none of the proceeds of an extinguishment. See Treas. Reg. § 1.170A-14(g)(6)(ii) (“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.”).

Respectfully submitted,

David W. Foster
Skadden, Arps, Slate, Meagher & Flom LLP
Counsel for Appellant
Oakbrook Land Holdings, LLC

cc:
Counsel of Record