LLC Challenges Denial of Easement Deduction in Tax Court

i. The Commissioner erred by determining that the charitable contribution deduction in the amount of $17,000,000 for the donation of a qualified conservation contribution in the form of a conservation easement over 68.929 acres of real property to Oconee River Land Trust, Inc. in 2016 is not allowed.

ii. The Commissioner erred by disallowing the deduction on the basis that "[y]ou have not established that Wilkes Rock South LLC made a contribution or gift of a conservation easement during the short tax year December 30, 2016 to December 31, 2016."

iii. The Commissioner erred by disallowing the deduction on the basis that "you failed to establish that the gift or contribution satisfied all the requirements of IRC Section 170 and the corresponding Treasury Regulations for deducting a noncash charitable contribution."

iv. The Commissioner's determination lacks sufficient explanation of the legal grounds for the adjustment such that Petitioner may identify specific evidence to refute that determination.

v. The Commissioner's determination lacks specific allegations of fact and/or the application of fact to law such that the proffered determination is arbitrary, capricious and clearly erroneous, resulting in an invalid FPAA.

vi. The Commissioner's determination lacks specific allegations of fact and/or the application of fact to law to avoid shifting the burden of proof to the Commissioner.

vii. The Commissioner erred in determining that Wilkes Rock South did not make a contribution or gift of a qualified conservation easement to be entitled to a charitable contribution deduction in the amount of $17,000,000 for its qualified conservation contribution in 2016.

viii. The Commissioner erred in determining that Wilkes Rock South did not satisfy all of the requirements of Section 170 necessary to be entitled to a charitable contribution deduction in the amount of $17,000,000 for its qualified conservation contribution in 2016.

ix. The Commissioner erred by reducing Petitioner's 2016 charitable contribution deduction in the amount of $17,000,000 without adequate basis in law or fact.

i. The Commissioner erred in the FPAA by determining in that "you have not established that the value of the contributed property claimed on your U.S. Return of Partnership Income (Form 1065) for the ¡short tax year December 22, 2016 to December 31, 2016 was greater than $107,000."

ii. The Commissioner's FPAA does not identify or explain the methodology used to arrive at a value of $107,000 in Petitioner's contributed property interest.

iii. The Commissioner's FPAA does not explain the basis to arrive at a value of $107,000 in Petitioner's contributed property interest.

iv. The Commissioner's determination of value lacks sufficient explanation of the legal grounds for the adjustment such that Petitioner may identify specific evidence to refute that determination.

v. The Commissioner's determination of value in the Commissioner's FPAA lacks any specific allegations of fact that Petitioner might reasonably dispute.

vi. The Commissioner's determination of a value without identification of a factual or methodological basis in the FPAA is fundamentally defective such that the proffered determination is arbitrary, capricious and clearly erroneous, resulting in an invalid FPAA.

vii. The Commissioner erred in disregarding the value of the contributed property in the amount of at least $17,000,000 as established by Wilkes Rock South through the production of a qualified appraisal by a qualified appraiser which conforms to the specific requirements of Section 170 and Treas. Reg. Sec. 1.170A-13

viii. The Commissioner's determination of value in the FPAA lacks specific allegations of fact to avoid shifting the burden of proof to the Commissioner to establish that the proffered value of the contributed property does not exceed $107,000.

i. The Commissioner erred in the FPAA by determining that "you have not established that, in substance, the partners were bona fide partners."

ii. The Commissioner's determination as to the Wilkes Rock partners lacks sufficient explanation of the legal grounds for the determination and adjustment such that Petitioner may identify specific evidence to refute that determination.

iii. The Commissioner's determination as to the Wilkes Rock partners lacks any specific allegation of fact that Petitioner might reasonably dispute.

iv. The Commissioner's determination as to the Wilkes Rock partners fails to allege any fact and lacks any application of fact to law such that the proffered determination is arbitrary, capricious and clearly erroneous, resulting in an invalid FPAA.

v. The Commissioner's determination as to the Wilkes Rock partners lacks any specific allegation of fact and/or lacks any application of fact to law, thereby shifting the burden of proof to the Commissioner to establish that the Wilkes Rock South partners are not bona fide partners.

i. The Commissioner erred in the FPAA by determining that "you have not established that . . . the property contribution was bona fide."

ii. The Commissioner's determination that the presentation under examination of a duly recorded deed of conservation easement over 68.929 acres of real property in Oglethorpe County, Georgia, to Oconee River Land Trust, Inc. in 2016 does not establish a bona fide property contribution lacks sufficient explanation of the legal grounds for the adjustment such that Petitioner may identify specific evidence to refute that determination.

iii. The Commissioner's determination that Petitioner has not established a bona fide property contribution lacks any specific allegation of fact that Petitioner might reasonably dispute.

iv. The Commissioner's determination that Petitioner has not established a bona fide property contribution fails to allege any fact and lacks any application of fact to law such that the proffered determination is arbitrary, capricious and clearly erroneous, resulting in an invalid FPAA.

v. The Commissioner's determination that Petitioner has not established a bona fide property contribution lacks any specific allegation of fact and/or lacks any application of fact to law, thereby shifting the burden of proof to the Commissioner to establish that the donation of a real property interest in the form of a duly recorded deed of conservation easement over 68.929 acres of real property in Oglethorpe County, Georgia to Oconee River Land Trust, Inc. in 2016 was not a bona fide property contribution.

i. The Commissioner erred by asserting that the underpayment of tax resulting from the adjustment of partnership items is attributable to a gross valuation misstatement under Section 6662(a), as defined in Section 6662(h), such that a 40% addition to tax may apply.

ii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the gross valuation misstatement penalty for the 2016 year because the initial determination of the assessment of the gross valuation misstatement penalty was not properly approved in writing.

i. The Commissioner erred by asserting that the underpayment of tax resulting from the adjustment of partnership items is attributable to a substantial valuation misstatement under Section 6662(a), as defined under Section 6662(e), such that a 20% addition to tax may apply.

ii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the substantial valuation misstatement penalty for the 2016 year because the initial determination of the assessment of the substantial valuation misstatement penalty was not properly approved in writing.

i. The Commissioner erred by asserting that the underpayment of tax resulting from the adjustment of partnership items is attributable to negligence or disregard of rules and regulations under Section 6662(b)(1), as defined under Section 6662(c), such that a 20% addition to tax may apply.

ii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the accuracy-related penalty for the 2016 year because the initial determination of the assessment of the accuracy related penalty was not properly approved in writing.

i. The Commissioner erred by asserting that the underpayment of tax resulting from the adjustment of partnership items is attributable to a substantial understatement of income tax under Section 6662(b)(2), as defined under Section 6662(d), such that a 20% addition to tax may apply.

ii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the substantial understatement of income penalty for the 2016 year because the initial determination of the assessment of the substantial understatement of income penalty was not properly approved in writing.

i. The Commissioner erred by asserting that the underpayment of tax resulting from the adjustment of partnership items is attributable to a reportable transaction penalty under Section 6662A such that a 20% addition to tax may apply.

ii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the reportable transaction penalty for the 2016 year because the initial determination of the assessment of the reportable transaction penalty was not properly approved in writing.

i. Petitioner, Wilkes Investments South, is a Georgia limited liability company with a principal place of business in South Carolina. Wilkes Investments South is the Tax Matters Partner of Wilkes Rock South.

ii. Wilkes Rock South is a Georgia limited liability company treated as a partnership for federal income tax purposes.

i. The Wilkes Rock South Property is located in Oglethorpe County, Georgia.

ii. The Wilkes Rock South Property is located in the Southern Outer Piedmont subsection of the Piedmont Ecoregion of Georgia.

iii. The Wilkes Rock South Property is located in the Broad River Watershed which is considered a High Priority Watershed for protection as defined by the Georgia Department of Natural Resources in the Georgia State Wildlife Action Plan.

iv. Parts of the Wilkes Rock South Property lie within particular watershed units which are ranked in the Georgia State Wildlife Action Plan as being "of Global Significance."

v. The Wilkes Rock South Property contains High Priority Natural Habitats under the Georgia Comprehensive Wildlife Conservation Strategy, such as Mesic Hardwood Forest, Bottomland Hardwood Forest, Oak-Hickory-Pine Forest and streams.

i. On December 30, 2016, Wilkes Rock South donated a conservation easement over 68.929 acres of the Wilkes Rock South Property by executing a Deed of Conservation Easement (the "Easement Deed").

ii. The Easement Deed was properly recorded in Oglethorpe County, Georgia on December 30, 2016.

iii. The Easement Deed encumbered economically and ecologically valuable areas within the Wilkes Rock South Property (the "Easement Property").

i. The Easement Property was donated to Oconee River Land Trust, Inc. ("Oconee River Land Trust"). Oconee River Land Trust was at all times recognized by the Internal Revenue Service as a publicly supported, Section 501(c)(3) charitable organization as described in Sections 509(a)(1) and 170(b)(1)(A)(vi).

ii. Oconee River Land Trust was at all relevant times a "qualified organization" authorized to receive deductible conservation easements pursuant to section 170(h)(1)(B).

iii. Oconee River Land Trust has the expertise and resources to monitor the Easement Property and enforce the terms of the Easement Deed. Oconee River Land Trust declared its intent to monitor and enforce the rights granted to it under the Easement Deed.

iv. Oconee River Land Trust has ensured compliance with the Easement Deed since it was granted.

i. In connection with the donation of the Easement Property, qualified individuals working for or under the direction of Oconee River Land Trust prepared and issued a baseline documentation report (the "Baseline Report") to Wilkes Rock South.

ii. The Baseline Report contains an evaluation of certain conservation values and purposes present within the Easement Property protected by the Easement Deed.

iii. The Baseline Report documents the condition of the Easement Property contemporaneous with the grant of the Easement Deed and identifies various conservation values present within the Easement Property.

i. The highest and best economical use of the Wilkes Rock South Property immediately preceding the grant of the Easement Deed was for a granite quarry mining operation.

ii. The highest and best use of the Wilkes Rock South Property dramatically changed following the grant of the Easement Deed as it could no longer be used for quarry mining operations or any other development.

i. The Easement Property meets at least one of the four conservation purposes required under Section 170(h)(4)(A) and Treas. Reg. Section 1.170A-14(d).

ii. The Easement Property provides for the protection of a relatively natural habitat of fish, wildlife, or plant, or similar ecosystem.

iii. The Easement Property provides for the preservation of open space, where such preservation is pursuant to delineated governmental conservation policy which will yield a significant public benefit.

iv. The Wilkes Rock South Property contains Mesic Hardwood Forests Bottomland Hardwood Forest, Oak-Hickory-Pine Forest and streams, each of which is listed as High Priority Habitats in the Piedmont Ecoregion of Georgia by the Georgia Department of Natural Resources and the State Wildlife Action Plan.

v. The Commissioner has made no determination that the conservation easement of the Easement Property did not meet any of the four conservation purposes described in Section 170(h)(4).

i. The appraisal of value performed by Mr. Hayter and used as the basis for the charitable contribution deduction taken for the qualified conservation contribution of the Easement Deed was a "qualified appraisal" as that term is defined under Section 170(f)(11)(E) or Treas. Reg. Section 1.170A-13(c)(3).

ii. The appraisal performed by Mr. Hayter accurately determined the value of the Easement Property at the time of the donation to Oconee River Land Trust.

iii. Wilkes Investments South and Wilkes Rock South reasonably relied upon the appraisal of values performed by Mr. Hayter in establishing the amount of the charitable contribution deduction for the qualified conservation contribution reported on the Wilkes Rock South 2016 tax return. Wilkes Investments South and Wilkes Rock South's reliance on Mr. Hayter was reasonable and in good faith.

iv. Wilkes Rock South satisfied all other requirements necessary to be entitled to a charitable contribution deduction for the donation of the Easement Property.