Government Responds to Letter in Conservation Easement Case

Glade Creek Partners, LLC, et al.
v.
Commissioner

U.S. Department of Justice
Tax Division

January 6, 2022

David J. Smith, Esquire
Clerk, U.S. Court of Appeals for the Eleventh Circuit
56 Forsyth St., N.W.
Atlanta, GA 30303

Re: Glade Creek Partners, LLC, et al. v. Commissioner
(11th Cir. — No. 21-11251-HH)

Dear Mr. Smith:

The Commissioner submits this response to appellants' letter concerning David F. Hewitt, et al. v. Commissioner, No. 20-13700 (11th Cir. 2021). At issue in Hewitt, and among the issues in this case, is the validity of the judicial extinguishment proceeds formula in Treas. Reg. § 1.170A-14(g)(6)(ii). (See Ans. Br. at 5 n.3.)

In Hewitt, a panel of this Court recently resolved that issue, holding “that § 1.170A-14(g)(6)(ii) — as read by the Commissioner to prohibit subtracting the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment” — is invalid under the APA. (Op. 28; see also Op. 36 (concluding that the provision is invalid to the extent it “disallow[s] the subtraction of the value of post-donation improvements to the easement property in the extinguishment proceeds allocated to the donee”).) Hewitt is not final, however, as the deadlines have not passed for the Commissioner to file any petition for rehearing or certiorari. The Solicitor General has the authority to decide whether to file any such petition.

In the Tax Court, moreover, the Commissioner advanced several alternative reasons to disallow (or partially disallow) the $17.5 million charitable-contribution deduction at issue here, including that (1) the deemed consent provision in § 12 of the Easement deed and, separately, the merger provision in § 23.13, violate the perpetuity requirements in I.R.C. § 170(h); and (2) because the Easement was placed on real property that was an inventory item in the hands of the contributing partner, I.R.C. § 170(e)(1) limits any deduction by Glade to its adjusted basis in the donated asset. (Ans. Br. 50-51.) The Tax Court resolved this case based on the violation, in Glade Creek's Easement deed, of the judicial extinguishment proceeds formula in § 1.170A-14(g)(6)(ii). The Tax Court, accordingly, has not yet considered the Commissioner's alternative arguments for disallowing or partially disallowing the deduction at issue in this case. In any remand, the Tax Court should have the opportunity to do so. (Ans. Br. 50-51.)

Finally, we note that the valuation-penalty issue (Ans. Br. 51-67) is unaffected by Hewitt.

Sincerely,

Norah E. Bringer
Attorney for the Commissioner