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Partnership Argues Tax Court Erred in Conservation Easement Case

JUL. 1, 2019

Pine Mountain Preserve LLLP et al. v. Commissioner

DATED JUL. 1, 2019
DOCUMENT ATTRIBUTES

Pine Mountain Preserve LLLP et al. v. Commissioner

PINE MOUNTAIN PRESERVE, LLLP,
f.k.a. CHELSEA PRESERVE,
LLLP,
EDDLEMAN PROPERTIES, LLC, TAX MATTERS PARTNER,

Petitioner-Appellant,
v
.

COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

United States Court of Appeals
for the
Eleventh Circuit

APPEAL FROM THE UNITED STATES TAX COURT

(Hon. Albert G. Lauber)

INITIAL BRIEF OF APPELLANT

David M. Wooldridge
Sirote & Permutt, P.C.
2311 Highland Avenue South Birmingham, AL 35205
T: (205) 930-5219

Gregory P. Rhodes
Sirote & Permutt, P.C.
2311 Highland Avenue South Birmingham, AL 35205
T: (205) 930-5445

Attorneys for Appellant.

CERTIFICATE OF INTERESTED PERSONS

Pursuant to 11th Circuit R. 26.1-1, 26.1-3, and 27-1, it is hereby certified that the following persons and entities have an interest in the outcome of this case or have participated as attorneys or judges in the adjudication of this case:

Christensen, Jacob, attorney, Tax Division, U.S. Department of Justice;

Cleverdon, Edwin B., Senior Attorney, Internal Revenue Service;

Crump, Horace, Associate Area Counsel, Internal Revenue Service;

Desmond, Michael J., Chief Counsel, Internal Revenue Service

Eddleman, Bill, Petitioner-Appellant;

Eddleman, Douglas, Petitioner-Appellant;

Eddleman Properties, LLC, Tax Matters Partner, Petitioner-Appellant;

Kelley, Matthew R., Attorney, Internal Revenue Service;

Lauber, Albert G., Judge, United State Tax Court;

Levin, Michelle Abroms, Attorney for Petitioner-Appellant;

Levitt, Ronald A., Attorney for Petitioner-Appellant;

Morrison, Richard T., Judge, United States Tax Court;

Pine Mountain Preserve, LLLP, Petitioner-Appellant;

Rhodes, Gregory P., Attorney for Petitioner-Appellant

Rothenberg, Gilbert S., Chief, Appellate Section, Tax Division, Department of Justice;

Ugolini, Francesca, Attorney, Tax Division, U.S. Department of Justice;

Wooldridge, David W., Attorney for Petitioner-Appellant;

Zuckerman, Richard E. Principal Deputy Assistant Attorney General, Tax Division, U.S. Department of Justice.

STATEMENT REGARDING ORAL ARGUMENT

This appeal seeks reversal of a United States Tax Court decision denying deductions for two conservation easement donations. At issue is a statutory interpretation that has far-reaching effects on donations of conservation easements.

The Tax Court rejected an interpretation of Internal Revenue Code § 170(h)(2)(C) adopted by the Fifth Circuit in BC Ranch II, LP v. Commissioner.1 Op. at 41. Instead, it based its interpretation on an erroneously expansive reading of the Fourth Circuit opinion in Belk v. Commissioner.2 Op. at 43-44. The Fifth Circuit in BC Ranch refused to extend the Belk ruling to facts similar to those in this appeal. 774 F.3d at 552 (“the Tax Court's reliance on Belk is misplaced”).

Appellant requests oral argument. The Tax Court’s rejection of the Fifth Circuit’s interpretation of the statute in favor of an erroneous extension of the Fourth Circuit’s interpretation raises an important question with broad implications. The issue is nuanced, and resolution may benefit from oral argument.


TABLE OF CONTENTS

CERTIFICATE OF INTERESTED PERSONS

STATEMENT REGARDING ORAL ARGUMENT

TABLE OF CONTENTS

TABLE OF AUTHORITIES

STATEMENT OF JURISDICTION

STATEMENT OF THE ISSUES

STATEMENT OF THE CASE

A. Procedural History

B. Rulings Presented for Review

C. Facts

STANDARD OF REVIEW

A. Standard of Review Applicable to Tax Court Decision

B. Interpretation of Charitable Contribution Statutes

SUMMARY OF ARGUMENT

ARGUMENT

A. The Tax Court Has Confused Two Distinct Perpetuity Requirements.

B. The Belk Ruling Applies to Facts Different Than Those Here

C. The Fifth Circuit in BC Ranch Rejected Extension of Belk to Internal Modifications of Conservation Easements

D. The 2005 and 2006 Easements Restrict the Uses of the Building Areas

E. The Tax Court Erred by Applying a “Meaningfulness” Standard to the Restrictions

F. The Land Trust's Discretion to Approve Modifications Ensures That the Restrictions are Perpetual

G. The Tax Court Failed to Give Appropriate Deference to the Commissioner’s Prior Guidance

H. Affirming the Tax Court Would Create Uncertainty for Taxpayers and Create a Circuit Split

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

Auer v. Robbins, 519 U.S. 452 (1997)

Balsam Mountain Invs., LLC v. Commissioner, T.C. Memo 2015-43, 109 T.C.M. (CCH) 1214

BC Ranch II, LP v. Commissioner, 867 F.3d 547 (5th Cir. 2017), rev’g and remanding sub nom. Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo 2015-130, 110 T.C.M. (CCH) 48

Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014), aff’g 140 T.C. 1 (2013), as supplemented by T.C. Memo. 2013-154, 105 T.C.M. (CCH) 1878

Birdman v. Office of the Governor, 677 F.3d 167 (3d Cir.2012)

Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo 2015-130, 110 T.C.M. (CCH) 48, rev’d and remanded sub nom. BC Ranch II, LP v. Commissioner, 867 F.3d 547 (5th Cir. 2017)

Butler v. Comm’r, T.C. Memo 2012-72, 2012 WL 913695

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

Comm’r v. Portland Cement Co. of Utah, 450 U.S. 156 (1981)

Commissioner v. Simmons, 646 F.3d 6 (D.C. Cir. 2011)

Davis v. Comm’r, 716 F.3d (11th Cir. 2013)

Decker v. Northwestern. Envtl. Def. Center, 568 U.S. 597 (2013)

Dennis v. U.S., 1992 WL 330398 (E.D. Va. Sept. 24, 1992)

Fannon v. Commissioner, T.C. Memo 1989-136

Glass v. Commissioner, 417 F.3d 698 (6th Cir. 2006)

Helvering v. Bliss, 293 U.S. 144 (1934)

Huff v. Commissioner, 743 F.3d 790 (11th Cir. 2014)

INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 84 (1992)

Estate of Jelke v. Commissioner, 507 F.3d 1317 (11th Cir. 2007)

Johnston v. Commissioner, T.C. Memo 1997-475, 1997 WL 643299

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

Kisor v. Wilkie, No.18-15, 2019 WL 2605554 (U.S. June 26, 2019)

Lowery v. Alabama Power Co., 483 F.3d 1184 (11th Cir. 2007)

Martin v. Heckler, 773 F.2d 1145 (11th Cir. 1985)

McLennan v. U.S., 23 Cl. Ct. 99 (1991)

Ocmulgee Fields, Inc. v. Commissioner, 613 F.3d 1360 (11th Cir. 2010)

Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1206 (2015)

Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. No. 14 (2018)

Pine Mountain Preserve, LLLP v. Commissioner, T.C. Memo. 2018-214

Rockefeller v. Commissioner, 676 F.2d 35 (2d Cir. 1982)

Schmidt v. Commissioner, T.C. Memo 2014-159

Swallows Holding, Ltd. v. Commissioner, 126 T.C. 96 (2006)

Symington v. Commissioner, 87 T.C. 892 (1986)

Thomas v. Fla. Power & Light Co., 764 F.2d 768 (11th Cir. 1985)

United States v. Cook, 494 F.2d 573 (5th Cir. 1974)

Estate of Wallace v. Commissioner, 965 F.2d 1038 (11th Cir. 1992)

Rules and Statutes

I.R.C. § 170(h)

I.R.C. § 170(h)(1)

I.R.C. § 170(h)(2)(C)

I.R.C. § 170(h)(3)

I.R.C. § 170(h)(5)(A)

I.R.C. § 6234

I.R.C. § 7442

I.R.C. § 7482(a)(1)

I.R.C. § 7482(b)

I.R.C. § 7805(a)

I.R.C. § 7805(b)

Treas. Reg. § 1.170A-14(b)(2)

Treas. Reg. § 1.170A-14(e)

Treas. Reg. § 1.170A-14(e)(2)

Treas. Reg. § 1.170A-14(e)(3)

Treas. Reg. § 1.170A-14(f)

Treas. Reg. § 1.170A-14(g)

Treas. Reg. § 1.170A-14(g)(5)

Other Authorities

I.R.S. Priv. Ltr. Rul. 200403044 (Jan. 16, 2004)

I.R.S. Priv. Ltr. Rul. 8233025 (May 18, 1982)

I.R.S. Priv. Ltr. Rul. 8248069 (Aug. 30, 1982)

I.R.S. Priv. Ltr. Rul. 8450065 (Sept. 13, 1984)

I.R.S. Priv. Ltr. Rul. 9603018 (Jan. 19, 1996)

Dep’t of the Treasury 8069, 51 FR 1496-01, 1498

NCED, National Conservation Easement Database (June 2019), https://www.conservationeasement.us/

S. Rep. No. 96-1007 (1980), 1980_2 C.B. 599

Tax Treatment Extension Act, Pub. L. No. 96-541 § 6(b), 94 Stat. 3204 (1980)


 STATEMENT OF JURISDICTION

This is an appeal of the February 7, 2019 final decision of the United States Tax Court, which determined that Appellant was not entitled to income tax deductions for charitable donations of conservation easements in 2005 and 2006. The Tax Court had jurisdiction pursuant to 26 U.S.C. §§ 6234 and 7442. This Court has jurisdiction to review decisions of the Tax Court pursuant to 26 U.S.C. § 7482(a)(1). Venue for this appeal is proper in the Eleventh Circuit under 26 U.S.C. §7482(b) because Appellant's principal place of business was in Alabama at the time the petition was filed in Tax Court.

STATEMENT OF THE ISSUES

This appeal involves the Tax Court's disallowance of income tax deductions for two conservation easement donations in 2005 and 2006. The Tax Court based its ruling on an erroneous interpretation of I.R.C. § 170(h)(2)(C).

A qualifying conservation easement donation must be inter alia a “qualified real property interest,” which includes “a restriction (granted in perpetuity) on the use which may be made of the real property.” Id. The conservation easements at issue reserved to the landowner rights to maintain certain homesites and related structures within the easement boundaries. Such rights are common in conservation easements and are permitted by IRS regulations. See, e.g., Treas. Reg. § 1.170A-14(e)(2), (3); (f)(exs. 4, 5); (g)(5).

Homesites within the 2005 Easement were fixed in location within the easement, and the boundaries of the homesites could be modified only upon certain conditions and with approval of the qualified organization that held the easement. Homesites allowed within the 2006 Easement were not fixed in location, but the location required prior approval by the qualified organization that held the easement. These reserved rights are the source of this controversy.

Issue 1: Did the Tax Court err in determining that the reserved right to maintain homesites within the fixed boundaries of the easements caused the conservation easements to fail to satisfy I.R.C. § 170(h)(2)(C), i.e., caused them not to be “a restriction (granted in perpetuity) on the use which may be made of the real property?”

Sub-issue A: Did the Tax Court err in determining that each conservation easement did not restrict a specific, identifiable piece of real property, even though modification of homesite boundaries within the easements was subject to approval of the qualified organization that held the easement?

Sub-issue B: Did the Tax Court err in determining that each conservation easement did not meaningfully restrict uses of the homesite building areas within the easements?

Sub-issue C: Did the Tax Court err by failing to apply Chevron and Auer deference to the Commissioner's regulations and prior interpretations of I.R.C. § 170(h), which permit landowners to reserve homesites within easements that were not fixed in location?

STATEMENT OF THE CASE

Conservation easements were donated by Pine Mountain Preserve, LLLP (“PMP”) in 2005, 2006 and 2007 to North American Land Trust (“NALT”), a “qualified organization” authorized to receive deductible conservation easements. Op. at 8, 29; see I.R.C. § 170(h)(3). The Internal Revenue Code allows a deduction for donation to a qualified organization of a “qualified real property interest” that perpetually protects certain conservation purposes. I.R.C. § 170(h)(1). To be a “qualified real property interest,” a conservation easement must be a “restriction (granted in perpetuity) on the use which may be made of the real property.” I.R.C. § 170(h)(2)(C).

The Commissioner's regulations and the legislative history of the statute recognize that landowners donating easements may retain rights to certain uses of the property, including homesites. See, e.g., Treas. Reg. § 1.170A-14(e)(2), (3); (f)(exs. 4, 5); (g)(5); S. Rep. No. 96-1007, at *9 (1980), 1980-2 C.B. 599, 603, explaining Tax Treatment Extension Act, Pub. L. No. 96-541 § 6(b), 94 Stat. 3204, 3206 (1980). The nature of the rights retained under the 2005 and 2006 Easements and the application of I.R.C. § 170(h)(2)(C) to those rights are the focus of this appeal.

A. Procedural History

PMP made donations in 2005, 2006 and 2007 of conservation easements on portions of a large tract of real property. The value of the easements based upon qualified appraisals3 was deducted by PMP on its income tax returns. Following an audit, the Commissioner denied the deductions in their entirety. PMP filed a petition in the Tax Court contesting these denials.

The case was tried before Judge Morrison in April 2014. On December 27, 2018, the Tax Court issued two opinions in the case. The first, 151 T.C. No. 14 (2018) (the “Primary Opinion”), was written by Judge Lauber.4 The Primary Opinion disallowed deductions for the easements donated in 2005 and 2006 (the “2005 Easement” and “2006 Easement”), but allowed the deduction for the 2007 easement (“2007 Easement”).5 Judge Morrison, the trial judge, dissented from the disallowance of the 2005 Easement and issued a lengthy dissenting opinion. Judge Morrison also issued the second opinion, T.C. Memo. 2018-214 (the “Value Opinion”). The Value Opinion determined the value of the 2007 Easement.

The Primary Opinion addressed two issues of statutory interpretation:

Amendment or Modification Clause. Each easement contained an Amendment or Modification clause allowing the landowner and the qualified organization that held the easement to amend the instrument by mutual consent, exercised in the sole discretion of each party, but only if the amendment was consistent with the stated conservation purposes. Op. at 54; Exs. 2-J at 25, 4-J at 24. Amendment provisions are common to most, if not all, agreements between parties.

Nevertheless, the Commissioner contended that the parties might agree to amendments pursuant to the provision that violated the perpetuity requirements of I.R.C. § 170(h)(2)(C) and (h)(5)(A). The Tax Court rejected this contention, noting “it is hard to imagine how NALT could conscientiously find such amendments [violating perpetuity] to be 'consistent with the conservation purposes' set forth in the easement.” Op. at 54-55.

This ruling is not being appealed. However, it is relevant to the statutory interpretation in the Primary Opinion concerning reserved rights.

Reserved Rights. The rights reserved to the landowner under the three easements differed regarding the landowner's right to have homesites and related improvements within the boundaries of the easement.

The 2007 Easement permitted no homesites, but allowed other improvements within the easement area, such a water tower, pipelines, fences, trails, raised walkways, and utility facilities. The locations of these permissible improvements were not fixed at the time of the donation, but their location required approval by the qualified organization that held the easement (NALT). The Tax Court concluded that improvements permitted by the 2007 Easement had “no effect on whether the use restriction attaches in perpetuity 'to a defined parcel of real property' as required by section 170(h)(2)(C).” Op. at 51-52. So, the Tax Court allowed a deduction for the 2007 Easement.

Conversely, the 2005 and 2006 Easements each permitted certain homesites and related improvements within the easement boundaries, in addition to most of the improvements permitted by the 2007 Easement. The homesites permitted within the 2005 Easement were fixed in location, and those boundaries could be modified only with approval of NALT. The homesites permitted within the 2006 Easement were not fixed in location initially, but the ultimate location required approval of NALT. The building areas for homesites would remain subject to the restrictions of the easements, allowing only limited construction.

The Tax Court ruled that the reserved right to construct homesites in the 2005 and 2006 Easements caused them to fail to satisfy I.R.C. § 170(h)(2)(C). It based this ruling on an erroneous determination that the homesite areas were not effectively subject to restrictions of the easements. On this basis the deductions for 2005 and 2006 were disallowed. Op. at 44-48. These are the rulings challenged in this appeal.

The Value Opinion. Because the Tax Court allowed a deduction for the donation of the 2007 Easement, it was necessary to determine the value of the easement. Op. at 52. The Value Opinion was issued by Judge Morrison, the trial judge, who also dissented from the Primary Opinion. He determined the value of the 2007 Easement was $4,779,500. This exceeded the amount originally deducted on the 2007 tax return, which was $4,100,000.6 T.C. Memo. 2018-214, at *36, *14 fn.4.

B. Rulings Presented for Review

The Tax Court ruled that the 2005 and 2006 Easements did not provide a “restriction (granted in perpetuity) on the use which may be made of the real property,” thereby violating I.R.C. § 170(h)(2)(C). Op. at 45, 48. These rulings were based upon an analysis of the reserved rights to maintain homesites and related structures within the easement.

The challenged rulings by the Tax Court relied on its previous opinions in Belk I,7 Balsam Mountain,8 and Bosque Canyon.9 These rulings conflict with the Fifth Circuit opinion in BC Ranch II,10 with the Tax Court's own opinion in Belk II,11 and with the Commissioner's regulations and previous guidance. BC Ranch II reversed Bosque Canyon. Belk II distinguished the ruling in Belk I from facts similar to those here. The Commissioner's regulations approve fact patterns similar to those here. See, e.g., Treas. Reg. § 1.170A-14(e)(2), (3); (f)(examples 4, 5); (g)(5). And the Commissioner has issued other guidance in the past approving similar fact patterns, which is discussed in the argument. The Primary Opinion takes no notice of, and provides no deference to, the Commissioner's interpretations of I.R.C. § 170(h)(2)(C) contained in his regulatory and other guidance.

The Commissioner has never issued guidance nor amended his regulations to forewarn taxpayers of his position in this case. And the Commissioner's failure to do so is notable considering that his position results in a total disallowance of the deduction for an easement donation. It allows no retroactive correction of the allegedly deficient easement donation. And the donor cannot rescind the easement donation and recover full use of his property.

Finally, the challenged rulings are internally inconsistent with the Tax Court's other ruling in this case that the easements' Amendment or Modification clauses do not violate the perpetuity provisions in subsections 170(h)(2)(C) and (h)(5)(A). An amendment or modification requires express approval by NALT, which must determine the amendment will be consistent with conservation purposes. Ex. 2-J at 25; Ex. 4-J at 24 (§ 6.7). The Tax court held that the Amendment or Modification clause did not violate the perpetuity requirements because “it is hard to imagine how NALT could conscientiously find such amendments to be 'consistent with the conservation purposes' set forth in the easement.” Op. at 54-55.

Any modification of homesite boundaries would likewise require approval of NALT. Exs. 2-J at 12; 4-J at 12 (§ 3.16). The initial location of a homesite within the 2006 Easement also would require approval of NALT. Ex. 4-J, at 8 (§3.1).12 In addition, the location or modification of a homesite must be accomplished by an amendment of the easement, thereby requiring the same NALT approvals relied upon by the Tax Court to approve the Amendment or Modification clause. Exs. 2-J at 25; 4-J at 25 (§ 6.7). The Tax Court makes no attempt to reconcile its determinations (i) that the general amendment clauses are permissible so long as approval is required by NALT, but (ii) that a more limited amendment to locate or modify a homesite boundary, but only with NALT's approval, is not permissible.

C. Facts

1. Statutory History of Conservation Easements

In 1980, Congress enacted legislation to encourage the conservation of natural resources and wildlife. This became I.R.C. § 170(h). Tax Treatment Extension Act, Pub. L. No. 96-541 § 6(b), 94 Stat. 3204, 3206 (1980). This legislation provided a deduction to landowners who donated non-possessory interests in real property to environmental stewardship organizations. One purpose of the legislation was to expand the types of partial interests qualifying for a deduction to include:

a general category [of interests] covering 'a restriction (granted in perpetuity) on the use which may be made of the real property.' This new language would cover easements and other interests in real property that under state property laws have similar attributes (e.g., a restrictive covenant).

S. Rep. No. 96-1007, at *10 (1980), 1980-2 C.B. 599, 603.

Congress's tax incentive was effective. Since 1980, landowners have protected over 27 million acres of land through over 158,000 conservation easement donations. See NCED, National Conservation Easement Database (June 2019), https://www.conservationeasement.us/.

2. PMP's Conservation Easements

In December 2005, PMP donated a conservation easement on 559 acres of a 2,881 acre tract it owned near Birmingham, Alabama (the “2005 Easement”). Ex. 2-J. In December 2006, PMP placed a second easement on 499 acres of the large tract, which by then was 5,028 acres (the “2006 Easement”). Ex. 4-J. The 2005 and 2006 Easements protected the valuable ridgelines on the larger tract from development. Exs. 2-J, 4-J, Tr. 137, Tr. 140, Tr. 242-244. See also Ex. 1-J, which is a map showing the tracts owned by PMP and the three easements. This protection furthered the conservation goals outlined in Shelby County's Comprehensive Plan. Ex. 3-P.

Both the 2005 and the 2006 Easements reserved to the landowner certain rights to construct a limited number of residences and related structures within the easement. The 2005 Easement allowed for 10 single-family homes, each in a separate “Building Area” not to exceed one acre. The 2006 Easement allowed for 6 single-family homes, each in a separate “Building Area” not to exceed one acre. See Op. at 44, 46, 114. It is common for landowners to reserve rights when donating a conservation easement to allow for some continued use of the property. Trial Tr. 214:10-18; see also Treas. Reg. § 1.170A-14(e)(2), (3); (f)(examples 4, 5); (g)(5). The reserved rights in the 2005 and 2006 Easements were approved by NALT, which determined that they would not adversely affect the conservation purposes or significant conservation values of the easements. Tr. 214:19-215:21.

3. The 2005 Conservation Easement Deed

The instrument creating the 2005 Easement (the “2005 Easement Deed”) defines the “Conservation Area” to be the entire 559 acres described by metes and bounds in its Exhibit A. Ex. 2-J at 2. Article 1 grants “a perpetual easement in gross over the Conservation Area.” Ex. 2-J at 4. The Building Areas permitted by section 3.1 of the 2005 Easement Deed are fully within the Conservation Area. See Ex. 2-J at 38, Ex. 59-J at 86.

Article 2 perpetually prohibits most uses of the Conservation Area, summarized below:

a) Residential, commercial, institutional, or industrial uses.

b) Building or installing any “structure” upon the Conservation Area. Structures include a building, tower, tank, antenna, or bulkhead.

c) Recreational activities other than those that “are likely to have no material adverse effect on the Conservation Values.” This would include using all-terrain vehicles or other motorized vehicles in the Conservation Area.

d) Building of signs, billboards, or outdoor advertising.

e) Surface mining, excavating, dredging, or drilling on the Conservation Area.

f) Dumping of ashes, trash, garbage, or other unsightly or offensive materials.

Ex. 2-J at 4-7.

Article 3 contains the rights reserved to the landowner. These are “narrow exceptions to the prohibitions and restrictions set forth in Article 2,” and they may be conducted only “as described below” in Article 3. Ex. 2-J at 8-9.

Section 3.1 reserves to the landowner the right to “construct, use and maintain” one single-family dwelling and accessory structures “within each of ten (10) areas designed as 'Building Area' on Exhibit C.” Ex. 2-J at 9. The owner must notify NALT in writing before exercising this right. Ex. 2-J at 17. NALT would not allow a homesite to be located in an area of conservation concern. Tr. 215.

Section 3.16 allows the landowner and NALT to agree, mutually, to modify the boundaries of the Building Areas, subject to the following conditions:

a) Modification of a boundary line does not, in [NALT's] reasonable judgment, directly or indirectly result in any material adverse effect on any of the Conservation Purposes.

b) The areas of a Building Area shall not be increased.

c) The modification shall be set forth in a written amendment signed by (NALT and the land owner]. . . .

Ex. 2-J at 12.

NALT has the right to enter onto and inspect the property and to enforce the easement prohibitions, including the right to require that the owner restore the Conservation Area to its original condition if there is noncompliance. Ex. 2-J at 3, 19-22. NALT may seek damages for violations and specific performance. Ex. 2-J at 19, 21. NALT thus has the power to enforce easement restrictions for prohibited activities in the Building Areas, such as dumping, construction of commercial or industrial structures or of apartments or multi-family dwellings, construction of billboards, signs or antennas, improper fences or other improvements, and most timber cutting. NALT would prohibit any activity in the Building Areas and homesites inconsistent with the 2005 and 2006 Easement Deeds. Tr. 215-18.

NALT and the land owner may mutually agree, “in their sole discretion,” to amendments to the easement “which are not inconsistent with the Conservation Purposes” of the easement. Ex. 2-J at 25 (Section 6.7).

4. The 2006 Conservation Easement Deed

The 2006 Easement document (the “2006 Easement Deed”) similarly defines the “Conservation Area” to be the 499 acres described by the metes and bounds in Exhibit A. Ex. 4-J at 2. Article 1 grants “a perpetual easement in gross over the Conservation Area.” Ex. 4-J at 4. The Building Areas permitted by section 3.1 of the 2006 Easement Deed are within the Conservation Area. Ex. 4-J at 8.

Article 2 perpetually prohibits the same uses as the 2005 Easement Deed. See Ex. 4-J at 4-7.

As with the 2005 Easement Deed, Article 3 contains reserved rights, which are “narrow exceptions to the prohibitions and restrictions set forth in Article 2” and which may be conducted only “as described below.” Ex. 4-J at 8.

Section 3.1 reserves to the landowner the right to establish six “Building Areas.” The location of each Building Area must be approved in advance by NALT, and must not, in NALT's judgment, “result in any material adverse effect on any of the Conservation Values or Conservation Purposes.” Id.; Tr. 215. Only one single-family residence (and accessory structures) may be constructed in each Building Area. No Building Area shall be greater than one acre. Structures must be designed based on illustrations in a specific “Design Book.” Id. The description of the Building Area and the structures must be reviewed and approved by NALT prior to construction and set forth in written and recorded amendment to the 2006 Easement Deed. Id. NALT would not allow a Building Area in a location inconsistent with conservation values. Tr. 215. NALT would inspect Building Areas to assure activities therein are in compliance with the 2006 Easement Deed. Tr. 215-18.

Boundaries of a Building Area may be modified only pursuant to a provision similar to the 2005 Easement. Id. at 12. NALT has the same rights of enforcement as in the 2005 Easement. Id. at 19-21. 

STANDARD OF REVIEW

A. Standard of Review Applicable to Tax Court Decision

The Eleventh Circuit reviews “a tax court's legal conclusions and interpretations of the tax code de novo.” Ocmulgee Fields, Inc. v. Comm'r, 613 F.3d 1360, 1364 (11th Cir. 2010). Conversely, “[t]he Tax Court's findings of fact are reviewed for clear error. Estate of Jelke v. Comm'r, 507 F.3d 1317, 1321 (11th Cir. 2007) (citing Estate of Blount v. Comm'r, 428 F.3d 1338, 1342 (11th Cir. 2005)). However, the “tax court's '[f]indings of ultimate fact which result from the application of legal principles to subsidiary facts are subject to de novo review.” Estate of Wallace v. Comm'r, 965 F.2d 1038, 1044 (11th Cir. 1992)(quoting Walter v. Comm'r, 753 F.2d 35, 38 (6th Cir. 1985)).

The errors identified by Appellant are legal errors in the Tax Court's application of I.R.C. § 170(h)(2)(C) and its interpretation of the restrictions in the 2005 and 2006 Easements. Therefore, the determinations at issue here are subject to de novo review.

B. Interpretation of Charitable Contribution Statutes

Generally, deductions are a matter of legislative grace that are strictly construed.13 However, in the case of charitable contributions “[c]ourts have consistently reaffirmed that public policy demands a broad and flexible interpretation of statutes governing charitable contribution.” Rockefeller v. Comm'r, 676 F.2d 35, 42 (2d Cir. 1982). See also Helvering v. Bliss, 293 U.S. 144, 150-51 (1934). In BC Ranch II, the Fifth Circuit concluded that “the usual strict construction of intentionally adopted tax loopholes is not applicable to grants of conservation easements made pursuant to § 170(h).” 867 F.3d at 554.

SUMMARY OF ARGUMENT

The parties stipulated that the conservation easements donated by PMP satisfied conservation purposes including protecting significant, relatively natural habitat and providing “open space” for the scenic enjoyment of the public and pursuant to clearly delineated governmental policies. Stipulation Facts at 28-29. Pine Mountain presented uncontroverted testimony that the “reserved rights” were consistent with these conservation purposes, thereby satisfying perpetuity of conservation purpose under I.R.C. § 170(h)(5)(A). Ex. 91; Tr. 200-18. Nevertheless, the Tax Court disallowed deductions for the 2005 and 2006 Easements by creating a new legal standard, purportedly under I.R.C. § 170(h)(2)(C). This standard would weigh the adequacy of easement restrictions independent of section 170(h)(5)(A), under which all previous authority evaluated such restrictions. This standard would have far-reaching implications for past and future conservation easement donations.

The Tax Court's interpretation of section 170(h)(2)(C) is in direct conflict with that of the Fifth Circuit in BC Ranch II. The Tax Court's interpretation in the case on appeal stretches even beyond BC Ranch II to disqualify conservation easements that permit homesites within the easements. These are common. If such homesite boundaries can be modified, an easement is disqualified, even if the modification cannot occur without express consent of the qualified organization charged with enforcing the easement and even if the homesites have no adverse impact on the conservation values of the easement. If this Court were to affirm the Tax Court's decision, it would unnecessarily create a circuit split in the federal courts, which the Eleventh Circuit has traditionally avoided. See, e.g., Martin v. Heckler, 773 F.2d 1145, 1153 (11th Cir. 1985).

The interpretation and application of I.R.C. § 170(h)(2)(C) by the Tax Court is erroneous because (1) it is logically inconsistent with the Tax Court's other rulings in its opinion, (2) it purports to create an absolute legal standard, but is impossible for taxpayers and the courts to apply in practice, (3) it conflicts with the Tax Court's own precedent, (4) it directly conflicts with the Commissioner's long-standing regulations and prior guidance, and (5) if upheld, it would create an unnecessary circuit split in the United States federal courts in an area of law needing nationwide uniformity — federal tax law.

The Tax Court's interpretation that a building area containing a single-family residence is impermissible as a matter of law if its boundaries may be modified, subject to land trust approval, is internally inconsistent with other rulings in its opinion. The Tax Court found the 2007 Easement to be qualified, even though the location of a water tower and related piping, and of certain other structures, could be modified. It also found that a more general provision allowing amendment or modification of the easement was permissible, if approval of the land trust was required. The Tax Court ignored the crucial fact that the homesites perpetually remain subject to the easement restrictions, regardless of whether their boundaries are modified. The 2005 and 2006 Easement Deeds do not allow an amendment or any action that would allow any portion of the easement property to become free of the easement restrictions.

The Tax Court's new standard will be applied to invalidate a great many recent easement donations. Future donors would have no way to know if structures permitted by an easement are like the water tower approved by the Tax Court or like the homesites disapproved. Under to the Tax Court's new legal standard, evidence regarding whether the structures are inconsistent with conservation purposes becomes irrelevant.

There is no indication in the legislative history of I.R.C. § 170(h) that Congress intended to treat reserved uses of easement property differently, except within the context of section 170(h)(5)(A). The legislative history shows that Congress contemplated buildings on easement property so long as they did not impair the conservation purposes protected.

The Tax Court's new legal standard is further problematic because it conflicts with a long line of the court's own decisions wherein easement donations with movable homesite boundaries were approved. It also directly conflicts with Belk v. Comm'r, 140 T.C. 1 (2013), the very precedent it purportedly relies on. In Belk, the Tax Court specifically clarified that it was not disapproving the common practice, endorsed by the Commissioner, of retaining the right to have “floating homesites.” See Belk II, T.C. Memo 2013-154 at *7-9. Donors have justifiably relied on this clarification. No court has ever determined that the ability to modify homesite boundaries or any other activity within the conservation easement encumbered property could run afoul of I.R.C. § 170(h)(2)(C).

The Tax Court's new standard is also irreconcilable with the Commissioner's regulations, which specifically allow a reserved right to homesites within an easement that are not initially in fixed locations. Similarly, the standard contradicts the Commissioner's internal guidance in multiple IRS private letter rulings. The Tax Court, over the express objection and caution of the trial judge, ignores the clear inconsistency between the Commissioner's regulation and the Tax Court's new rule. The Tax Court's decision to effectively invalidate the Commissioner's regulation and its prior internal guidance raise significant issues under Chevron, U.S.A., Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984); Auer v. Robbins, 519 U.S. 452, 461 (1997).

ARGUMENT

A. The Tax Court Has Confused Two Distinct Perpetuity Requirements

In 1980, Congress provided landowners an incentive to make charitable donations of conservation easements to promote conservation of our natural resources and cultural heritage. Tax Treatment Extension Act, Pub. L. No. 96-541 § 6(b), 94 Stat. 3204, 3206 (1980); see S. Rep. No. 96-1007, at *9 (1980), 1980-2 C.B. 599, 603. The provisions became I.R.C. § 170(h). This law adopted the category of property qualifying for deduction found in I.R.C. § 170(h)(2)(C) (“a restriction (granted in perpetuity) on the use which may be made of the real property”). The previous language was an “easement on real property granted in perpetuity.” Id. Senate Report No. 96-1007, accompanying the Act, explains: “This new language would cover easements and other interests in real property that under state property laws have similar attributes (e.g., a restrictive covenant).” Id. at *10. Although the new language described the property interest as a restriction on use, the Senate Report demonstrates this was meant to be simply a more inclusive description of easement-like property interests, an expansion of permitted property interests. Id. at *9.

Congress also recognized that a landowner would typically reserve rights to use the property.14 It did not intend to prohibit uses of the property, even such intrusive uses as selective cutting of timber or farming. Id. at *13. However, Congress was concerned that an allowed use of the property might be “destructive of other significant conservation interests.” And it added the requirement that “the conservation purpose is protected in perpetuity.” Id.; see I.R.C. § 170(h)(5)(A).

The Tax Court's decision is predicated on an erroneous interpretation of section 170(h)(2)(C). The Primary Opinion states that section 170(h)(2)(C) “requires that the land restricted by the conservation easement be protected from development in perpetuity.” Op. at 42 (emphasis added). This is incorrect. Section 170(h)(2)(C) does not prohibit any particular use. Uses that conflict with conservation purposes are restricted by a different provision, section 170(h)(5)(A).15 In fact, the Tax Court subsequently acknowledges that a reserved right to build a water tower on the underlying property does not violate section 170(h)(2)(C). Op. at 52. The Tax Court's focus on reserved homesites in the context of section 170(h)(2)(C) has no basis in the statute's legislative history, or its subsequent interpretation by the courts and the Commissioner.

Subparagraphs 170(h)(2)(C) and 170(h)(5)(A) focus on two very different concerns: (a) the restrictions of the easement are to perpetually encumber a tract of land, and (b) the conservation purposes are to be perpetually protected from otherwise-permitted uses of the property that could endanger conservation interests. See Belk I, 140 T.C. at *18. The regulations elaborate upon each requirement separately. Protection from inconsistent uses that endanger conservation purposes (section 170(h)(5)(A)) is addressed extensively. See Treas. Reg. § 1.170A-14(e), (f), (g). Conversely, the regulations say very little about I.R.C. § 170(h)(2)(C). See Treas. Reg. § 1.170A-14(b)(2).

Congress contemplated that the sufficiency of an easement's restrictions would be measured when evaluating whether the conservation purposes were protected in perpetuity, as required in I.R.C. § 170(h)(5)(A). Senate Report 96-1007 explains: “The contribution must involve legally enforceable restrictions on the interest in the property retained by the donor that would prevent uses of the retained interest inconsistent with the conservation purposes.” S. Rep. No. 96-1007 at *13 (1980). “[T]he relative weakness of the easement deeds' restrictions on the building areas is relevant only to whether the easements protect conservation purposes in perpetuity under section 170(h)(5)(A).” Op. at 91, (Morrison, J., dissenting).

Reserved rights to build homesites and recreation structures on easement property are ubiquitous in tax cases and have never served as the basis to disallow a deduction. See, e.g., Glass v. Comm'r, 417 F.3d 698 (6th Cir. 2006) (rights to cottage addition, day shelter, storage shed, overlook deck, and patio); Schmidt v. Comm'r, T.C. Memo 2014-159 at *4 (right to homesite); Butler v. Comm'r, T.C. Memo 2012-72, 2012 WL 913695 at *40 (rights to homesites, garages, gazebos, sheds, boat houses, farm buildings, and a headquarters building); Symington v. Comm'r, 87 T.C. 892, 893 (1986) (rights to farm buildings and homesites, including garages and pools); Johnston v. Comm'r, T.C. Memo 1997-475, 1997 WL 643299 at *16 (right to cabin); Fannon v. Comm'r, T.C. Memo 1989-136 (right to structures); McLennan v. U.S., 23 Cl. Ct. 99 (1991) (rights to four residences, and to cut timber and farm); Dennis v. U.S., 1992 WL 330398 (E.D. Va. Sept. 24, 1992) (rights to farm buildings and one residence with incidental outbuildings).

The Primary Opinion addresses only I.R.C. § 170(h)(2)(C). It based its ruling on Belk, and Belk is a section 170(h)(2)(C) case. However, the Tax Court sought to infuse into section 170(h)(2)(C) protections that are properly and directly within the purview of section 170(h)(5)(A). The difference in fact patterns between Belk and of BC Ranch demonstrate this.

Belk involved a donation of an easement on a specific land parcel. But the landowner reserved the right to remove all or part of the parcel from the easement (freeing it from the easement restrictions) and to substitute an entirely different parcel (making the substitute parcel subject to the restrictions). 140 T.C. at 3-4. Belk I and Belk III found this right of substitution prohibited by I.R.C. § 170(h)(2)(C), because as the Fourth Circuit stated, “[t]he placement of the article 'the' before 'real property' makes clear that a perpetual use restriction must attach to a defined parcel of real property rather than simply some or any (or interchangeable parcels of) real property.” 774 F.3d at 225. Belk did not involve any particular use of the easement property. The reserved right at issue in Belk was the right to substitute property.

BC Ranch also involved a donation of an easement on a specific parcel. However, under the BC Ranch easement, the parcel boundaries were immutable; the property description could not change. T.C. Memo 2015-130 at *2. What could change was the location, within those immutable boundaries, of certain permitted homesites. 867 F.3d at 552. “Thus, neither the exterior boundaries nor the total acreage of the instant easements will ever change: Only the lot lines of one or more the five-acre homesite parcels are potentially subject to change and then only (1) within the easements and (2) with NALT's consent.” Id.

In the Primary Opinion, the Tax Court evidences a concern for a particular use of the easement property, homesites. It sees no problem with other structures, such as water towers (permitted in the 2007 Easement, for which a deduction was allowed). The Tax Court's concern is one intended to be addressed pursuant to section 170(h)(5)(A), not section 170(h)(2)(C).

B. The Belk Ruling Applies to Facts Different Than Those Here

The Internal Revenue Code allows a deduction for donation to a qualified organization of a “qualified real property interest” that perpetually protects certain conservation purposes. I.R.C. § 170(h)(1). To be eligible, a conservation easement must be a “restriction (granted in perpetuity) on the use which may be made of the real property.” I.R.C. § 170(h)(2)(C). The Commissioner's regulations recognize that landowners donating easements may retain rights to certain uses of the easement property. See, e.g., Treas. Reg. § 1.170A-14(e)(2), (3); (f)(exs. 4, 5); (g)(5). So does the legislative history of the statute. See generally S. Rep. No. 96-1007.

Belk I was the first case to interpret I.R.C. § 170(h)(2)(C) substantively. 140 T.C. at 7. The Tax Court concluded that section 170(h)(2)(C) requires that the donated real property interest be subject to a use restriction in perpetuity. The Tax Court observed that the taxpayer was able to “remove portions of the [easement property] and replace them with property currently not subject to the conservation easement.” Id. at 11. Because the conservation easement permitted the landowner to change what property was subject to the conservation easement, the Tax Court ruled the use restriction was not granted on the donated property in perpetuity. Id. at 10.

In a supplemental opinion, the Tax Court reaffirmed its position, but took note of prior agency guidance that permitted homesites that had no initial fixed location within the easement boundaries. The court explained: “Belk I is not in conflict with these private letter rulings. Belk I does not speak to the ability of parties to modify the real property subject to the conservation easement; it simply requires that there be a specific piece of real property subject to the use restriction granted in perpetuity.” Belk II, T.C. Memo 2013-154 at *8-9.

On appeal, the Fourth Circuit confirmed the narrow holding of Belk I. The court parsed the use of the article “the” and the phrase “the real property” in the statute. 774 F.3d at 225-26. It concluded that the easement must restrict the use of the donated property in perpetuity to be valid. The Fourth Circuit agreed with the Tax Court that section 170(h)(2)(C) “requires a donor to grant an easement to a single, immutable parcel at the outset to qualify for a charitable deduction.” Id. at 227 (emphasis in original).

The Tax Court employed the Belk rationale in Balsam Mountain. Balsam Mountain Invs., LLC v. Comm'r, T.C. Memo 2015-43, 109 T.C.M. (CCH) 1214. There, the external boundaries of the easement could be redrawn to shift up to 5% of the acreage beyond the original boundaries. Id. *3. The new, previously-unrestricted easement acreage would be offset by withdrawal of equal acreage from the easement. Because some of the original acreage would be withdrawn from the easement restrictions as the boundaries shifted, the Tax Court ruled that there was not “an identifiable, specific piece of real property” restricted by the easement. Id. at *8 (citing Belk I).

Neither Belk nor Balsam Mountain involved the location or modification of anything within fixed, immutable external boundaries. See Belk II, T.C. Memo 2013-154 at *8-9. However, in Bosque Canyon, the Tax Court extended Belk to such a case. Bosque Canyon Ranch, L.P. v. Comm'r, T.C. Memo 2015-130, 110 T.C.M. (CCH) 48, rev'd and remanded sub nom. BC Ranch II, LP v. Comm'r, 867 F.3d 547 (5th Cir. 2017).

Bosque Canyon involved facts with many similarities to those of the PMP conservation easements in this case.

  • NALT was the land trust that held the easements in each case.

  • In each case, the external boundaries of the easements were fixed and could not be modified.

  • Many provisions of the easement documents were substantially similar, including the same Amendment or Modification clause and similar rights to construct improvements of various types (barns, fences, utilities, hunting stands and blinds, ponds, roads, wells, and signs), subject to similar limitations including in most cases approval of the land trust for the location of improvements.

  • Homesite parcels were permitted within the external easement boundaries. There were 24 homesites permitted within the Bosque Canyon easement. The PMP easements permitted 16.

  • A modification of homesite boundaries required approval of the land trust.

Id.

One significant difference between the cases is the nature of the homesites. In Bosque Canyon, the Conservation Area to which the easement restrictions applied was a metes and bounds description, less and except the areas defined as “Homestead Parcels.” In other words, the Homestead Parcels, as defined, were not part of the Conservation Area made subject to easement restrictions. The Homestead Parcels could not be monitored by NALT, which retained no rights therein. Conversely, the Building Areas in the 2005 and 2006 Easements in this case are included within the description of the Conservation Area, and are subject to NALT's enforcement. The restrictions of the PMP easements apply fully to the PMP Building Areas except to the extent expressly modified by the reserved rights in the 2005 and 2006 Easements. The reserved rights in the 2005 and 2006 Easements are “narrow exceptions to the prohibitions and restrictions.” Ex. 2-J at 7; Ex. 4-J at 8.

The Tax Court approached Bosque Canyon within the context of I.R.C. § 170(h)(2)(C) and Belk. It found that the Bosque Canyon easements permitted modifications of internal boundaries between Homestead Parcels (that were excluded from the Conservation Area) and Conservation Area property subject to easement restrictions. T.C. Memo. 2015-130 at *11-12. In a brief discussion, the Tax Court concluded: “As a result of the boundary modifications, property protected by the 2005 and 2007 easements, at the time they were granted, could subsequently lose this protection. Thus, the restrictions on the use of the property were not granted in perpetuity.” Id. at *12 (citing Belk I, 140 T.C. at 10-11). The Tax Court found it to be irrelevant that (i) boundary modifications required the land trust's approval, (ii) the external easement boundaries were fixed, (iii) the amount of land restricted by the easements could not decrease, and (iv) NALT retained the right to monitor and enforce the easement restrictions. Id.

C. The Fifth Circuit in BC Ranch Rejected Extension of Belk to Internal Modifications of Conservation Easements

Bosque Canyon was appealed to the Fifth Circuit and decided, sub nom., in BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (2017). The ruling of Bosque Canyon applying I.R.C. § 170(h)(2)(C) was vacated and remanded.

The Fifth Circuit was not concerned that the Homestead Parcels were carved out from the easement property, were not subject to the easement restrictions, and might be relocated within the easement by modifying their boundaries. The court rejected the Tax Court's expansive view of Belk, holding that an easement constituted a qualified real property interest if the outside boundary remained fixed.

867 F.3d at 552. The Fifth Circuit observed:

[T]he Tax Court's reliance on Belk is misplaced. The easements at issue in this case differ markedly from the easement in Belk. Among other distinctions, the instant easements allow only the homesite parcels' boundaries to be changed and then only (1) within the tracts that are subject to the easements and (2) without increasing the acreage of the homesite parcel in question. They do not allow any change in the exterior boundaries of the easements or in their acreages. Thus, neither the exterior boundaries nor the total acreage of the instant easements will ever change: Only the lot lines of one or more the five-acre homesite parcels are potentially subject to change and then only (1) within the easements and (2) with NALT's consent.

Unlike here, the easement in Belk could be moved, lock, stock, and barrel, to a tract or tracts of land entirely different and remote from the property originally covered by that easement.

867 F.3d at 552-53 (emphasis in original).

Also, the Fifth Circuit stressed the importance of requiring land trust approval for any modification of homesite boundaries. It found that NALT had virtually unrestricted discretion to withhold consent to any modification, under provisions substantially the same as the PMP 2005 and 2006 Easements. Id. at 553. And it endorsed an interpretation that allowed modifications of easements in order to promote the underlying conservation interests. Id.

Finally, the Fifth Circuit took issue with the hyper-technicality of the Tax Court's application of Belk to the Bosque Canyon facts. The Court endorsed the “common-sense reasoning” of the First and D.C. Circuits in Kaufman v. Shulman, 687 F.3d 21, 27-28 (1st Cir. 2012); and Commissioner v. Simmons' 646 F.3d 6, 9-11 (D.C. Cir. 2011). The Fifth Circuit adopted the views of these Courts of Appeals, that easements may be modified to promote the underlying conservation interests. “The need for flexibility to address changing or unforeseen conditions on or under property subject to a conservation easement clearly benefits all parties, and ultimately the flora and fauna that are their true beneficiaries.” 867 F.3d at 553.

D. The 2005 and 2006 Easements Restrict the Uses of the Building Areas

The 2005 Easement defines the “Conservation Area” to be the entire 559 acres described by metes and bounds. Ex. 2-J at 2. The easement provides “Owner intends to grant the easement and impose the restrictive covenants on the Conservation Area.” Id. at 4 (emphasis added). The 2006 Easement similarly defines the “Conservation Area” as the entire 499 acres identified in the deed. Ex. 4-J at 1-2. The Building Areas are not excluded from the Conservation Area. Ex. 2-J at 2; 4-J at 1-2.

Article 1 of each easement grants to NALT, “a perpetual easement in gross over the Conservation Area.” Ex. 2-J at 4, Ex. 4-J at 3. No part of the 559 or 499 acre Conservation Areas is excluded from this easement in gross. Article 2 of each easement lists the perpetual restrictions on uses of the Conservation Area (excepting only the Reserved Rights in Article 3). These restrict:

a) Residential, commercial, institutional, or industrial uses. (Exs. 2-J & 4-J, § 2.1)

b) Building or installing any “structure” upon the Conservation Area. Structures include a building, tower, tank, antenna, or bulkhead. (Id. § 2.2).

c) Recreational activities other than those that “are likely to have no material adverse effect on the Conservation Values.” This would include using all-terrain vehicles or other motorized vehicles in the Conservation Area. (Id. § 2.3).

d) Building of signs, billboards, or outdoor advertising. (Id. § 2.8).

e) Surface mining, excavating, dredging, or drilling on the Conservation Area (Id. § 2.9).

f) Dumping of ashes, trash, garbage, or other unsightly or offensive materials (Id. § 2.10).

There is a broad prohibition of any other use of the property which is inconsistent with the conservation purposes of the easement or materially threatens those purposes, unless expressly allowed by a reserved right. Ex. 2-J at 7, Ex. 4-J at 7 (§ 2.18). The reserved rights are recognized as “narrow exceptions to the prohibitions and restrictions set forth in Article 2.” Ex. 2-J at 8; Ex. 4-J at 8. 34

In the 2005 Easement, the landowner retains the right to “construct, use and maintain” one single-family dwelling (and other structures customarily accessory to residential use) within each of ten areas designated as “Building Areas.” Ex.2-J at 9 (§ 3.1). Before constructing the dwelling, the owner must notify NALT in writing. Ex. 2-J at 17. The 2006 Easement allowed the owner to establish six “Building Areas” that could not exceed one acre and that contained only one family dwelling and accessory structures. They must be in exact locations approved in advance by NALT. Ex. 4-J at 8 (§ 3.1). The 2006 Easement Deed further requires an amendment describing the Building Areas and the review and the approval by NALT before any construction. Id.

Therefore, the “uses” of the Building Areas - whether they are fixed to a specified location (2005 Easement) or to be situated through an amendment approved by NALT (2006 Easement) - were limited to the construction of single-family residences. They could not be used for duplexes, apartments, commercial or industrial buildings or activities, storage of chemicals, or retail shops, stores, or commercial workshops. Compare Exs. 2-J & 4-J, § 2.1-2.2 to § 3.1; see Trial Tr. 215:22-216:16.

NALT must be given notice prior to exercise of a retained right. Ex. 2-J at 16; Ex. 4-J at 15 (§ 3.25-26). It has the right to enter the property (including the Building Areas) to determine compliance. Exs. 2-J & 4-J, at 3. And NALT has a host of remedies to enforce the easements if there is a violation. Id. at 19.

The Primary Opinion concluded that the Building Areas “are not 'subject to the easements' in any meaningful sense.” Op. at 49. This is factually and legally incorrect, based on the restrictions, limitations and remedies discussed above. This error is refuted in great detail by Judge Morrison in his dissent. Op. at 80-98. In sum, uses were prohibited within the Building Areas such as multifamily housing, commercial and industrial structures and activity, billboards, and other uses that threatened the conservation values of the easement. Had such uses been undertaken, NALT would be able to employ its enforcement remedies.

Likewise, the Primary Opinion erroneously asserts: “It makes no difference to anyone — the land trust, the developer, or the homeowners — whether the 16 Building Areas are within or without those metes and bounds [of the Conservation Area].” This is not supported by facts in the record. More importantly, the statement is simply wrong.

If the Building Areas were excluded from the metes and bounds of the Conservation Area, NALT would have no right to monitor or prohibit various uses within a Building Area that could readily affect the conservation purposes of the easements. Likewise, if excluded, the landowner could develop the areas for a variety of uses beyond single-family dwellings. The parties in this case stipulated that each of the easements protected significant relatively natural habitats for plants and wildlife. Stipulation of Facts at 28-29. NALT required that most structures be located in confined areas in or around the Building Areas and that those structures relate to single-family dwellings and accessory structures. See Exs. 2-J at 8-14; 4-J at 8-15 (Article 3, “Reserved Rights”). NALT determined that these limited structures could be conducted without harm to conservation values of the property. Exs. 2-J at 8-9; 4-J at 8; Tr. 215-18. Because other uses were prohibited, NALT had the right and duty as a qualified organization to monitor and enforce restrictions on such other uses. Exs. 2-J at 18; 4-J at 19 (Holder Covenants). See also Exs. 2-J at 19-22; 4-J at 19-21 (Remedies); Tr. 217-18.

To support its determination that the reserved Building Areas undermine the restrictions of the Easements, the Primary Opinion relies on the “Swiss-cheese” analogy offered by the Fifth Circuit's dissenting opinion in BC Ranch. Op. at 42 (citing BC Ranch, 867 F.3d at 562). The Swiss-cheese analogy was only arguably appropriate in BC Ranch, where the homesites were completely excluded from the easement restrictions. Op. at 81 (Morrison, J., dissenting) (explaining that “by definition the land in the Conservation Area [in BC Ranch] was different from the land in the Homestead parcels”).

But the Swiss-cheese analogy does not apply to PMP's easements. The homesites remain within the PMP Conservation Areas and subject to the restrictions of the conservation easements. See Op. at 90 (Morrison J. dissenting) (“Bosque Canyon Ranch is therefore not relevant to the 2005 and 2006 Pine Mountain easements because the building areas defined in the easement deeds are governed by the restrictions in the deeds”).

The more appropriate analogy for the PMP easements would be Pepper Jack cheese, not Swiss. The location of the pepper flakes in the cheese may not be fixed, but they remain embedded in the cheese. And the pepper flakes must remain pepper flakes. They cannot be replaced by pimentos, or raisins, or any other use. Because the Easements do not permit holes in the cheese that could alter the boundaries within the slice, the real property subject to the conservation easement remains protected in perpetuity.

In Judge Morrison's dissent, he too found “it is unnecessary to decide whether the reasoning of the Court of Appeals in Bosque Canyon is correct because, as stated above, that case is distinguishable.” Op. at 79 (Morrison, J., dissenting). The Morrison dissent explains that the homesite parcels in this case are more akin to the reserved rights in BC Ranch to build “one or more recreational or meeting buildings, a swimming pool and a sports court” on the land subject to the easement. Op. at 83 (Morrison, J., dissenting) (quoting Bosque Canyon). The dissent notes that the Tax Court in Bosque Canyon did not hold that such reserved rights violated section 170(h)(2)(C), only the carved out building areas. “By its plain language it was concerned with the Homesite parcels — areas of land unrestricted by the easements that could be swapped for restricted land. The Bosque Canyon Ranch opinion was not about the right in article 3.1.3 [to build structures on land subject to the easement].” Id. at 84-85.

The distinction between PMP's “Building Areas” that remain subject to the easement restrictions and building areas that are exempt from the easement restrictions is important. By equating the two scenarios, the Tax Court has created an absolute rule of law that is illogical and impossible to apply. The error of the analysis is highlighted by the Tax Court's determination that a modifiable Building Area is impermissible as a matter of law, but a water tower and associated piping whose location is not fixed in advance is permissible. There is no evidence in the record to support the bare assumption that a homesite would be more damaging to the conservation values than a water tower and its associated piping (and maintenance). Indeed, the Tax Court seems to find, irrespective of any supporting evidence, that the mere fact that something is named a Building Area or homesite is determinative.

Finally, the Tax Court's conclusion stands in stark contrast to the many cases allowing deductions for conservation easements in which homesites, farm buildings, and similar structures were present and were not fixed in location. See cases cited in section 1 of this Argument.

E. The Tax Court Erred by Applying a “Meaningfulness” Standard to the Restrictions

The interpretation of I.R.C. § 170(h)(2)(C) in the Primary Opinion appears to invoke a new and nebulous standard for application of the statute to all conservation easements. The Tax Court appears to create a requirement that all portions of an easement be bound by “meaningful” restrictions. But, there is no support for a meaningfulness standard in the statute, the regulations, or the legislative history.

Furthermore, the Tax Court has constructed a per se rule concerning homesites within a conservation easement. They are deemed to be “development,” and development must trump any other restrictions that might apply to the homesite area. The Primary Opinion concludes that if the donor reserves the right to build a single-family dwelling and the location of that dwelling is not permanently fixed, the deduction is per se disallowed because the “use” of the land underlying the dwelling (or other structure) is not restricted.

The faulty premise underlying the Primary Opinion's conclusion is its determination that the homesites “are not 'subject to the easements' in any meaningful sense” and that “the 16 Building Areas are exempt from the conservation easement.” Op. at 49. This premise is both legally and factually incorrect, as discussed in the preceding sections of this Argument.

If section 170(h)(2)(C) contemplated a meaningfulness standard by which to judge the easement restrictions, then section 170(h)(5)(A) would be unnecessary. Any permitted use that might harm conservation purposes would not be “meaningfully” restricted. See Op. at 49 (concluding that the “Building Areas are exempt from the conservation easement because they permit uses antithetical to its conservation purposes”). The Tax Court's attempt to expand the scope of 170(h)(2)(C) essentially renders section 170(h)(5)(A) superfluous. The conservation purposes would be protected by section 170(h)(2)(C), without reference to section 170(h)(5)(A). This would violate long-standing principles of statutory interpretation. See Lowery v. Alabama Power Co., 483 F.3d 1184, 1204-05 (11th Cir. 2007) (rejecting the lower court's interpretation because it would “fail to give effect to every word and clause” in the statute, causing the later clauses to “be rendered mere surplusage.”)

The Primary Opinion demonstrates the problems with such a standard by haphazardly applying it to the facts of this case. The Primary Opinion concludes that the reserved right to build a water tower and underground pipes on the 2007 Easement is sufficiently restricted for purposes of I.R.C. § 170(h)(2)(C). Op. at 52. But it fails to provide any legal or factual basis for its determination. Uses are adequately restricted if there is a right to build a water tower, but unrestricted if there is a right to build a single-family home. In both cases, the uses of the property are, in fact and law, restricted, and the reserved rights are limited. How does section 170(h)(2)(C) inform us what is meaningful? The detailed regulations under section 170(h)(5)(A) do so, but not within the context of section 170(h)(2)(C). Are we to weigh the effectiveness of easement restrictions under two difference standards?

Judge Morrison's dissent appropriately notes that the Tax Court did not apply such a standard when facing a long list of reserved rights in Bosque Canyon. Op. at 83-85 (“The Bosque Canyon Ranch easement deeds reserve similar rights, but the Bosque Canyon Ranch Tax Court opinion does not hold that those rights violate the perpetual-use-restriction statutory test.”).

F. The Land Trust's Discretion to Approve Modifications Ensures That the Restrictions are Perpetual

The Tax Court also erred by disregarding the requirement that exercise of reserved rights requires approval by NALT. Conversely, the Fifth Circuit in BC Ranch gave considerable weight to this requirement, particularly concerning approvals for modification of Building Area boundaries. 867 F.3d at 552-53.

The 2005 and 2006 Easement Deeds provide that any homesite boundary modification must be approved by NALT, and that the boundaries can be moved only if, in NALT's reasonable adjustment, such modification does not adversely affect conservation purposes. Exs. 2-J, 4-J, at 12. Furthermore, boundary modifications must be memorialized in an amendment to the easement deed. Exs. 2-J at 12; and 4-J at 12. This requires the same approval by NALT that the Primary Opinion found to justify the Amendment or Modification clause in the 2007 Easement. See Exs. 2-J at 25; and 4-J at 24. As the Tax Court said, “it is hard to imagine how NALT could conscientiously find [amendments that violate 'perpetuity'] to be 'consistent with the conservation purposes' set forth in the easement.” Op. at 54.

If NALT would not agree to any amendment that would undermine perpetuity, it is difficult to see how NALT would allow for a Building Area to be moved in a manner that violated perpetuity. See also, BC Ranch, 867 F.3d at 554.

The significance of NALT's approval of any modification is also supported by the cases cited by the Fifth Circuit in BC Ranch: Kaufman v. Shulman, 687 F.3d 21, 27-28 (1st Cir. 2012); Commissioner v. Simmons, 646 F.3d 6, 9-11 (D.C. Cir. 2011); and 867 F.3d at 553. These cases found that the fiduciary obligations of the qualified organization that held the easement provided assurance of perpetuity. In Simmons, the D.C. Circuit explained, “Any donee might fail to enforce a conservation easement, with or without a clause stating it may consent to a change or abandon its rights, and a tax-exempt organization would do so at its peril.” 646 F.3d at 10.

G. The Tax Court Failed to Give Appropriate Deference to the Commissioner's Prior Guidance

The challenged rulings also fail to give appropriate deference to the Commissioner's regulations and prior guidance. Perhaps because the Commissioner is himself disregarding them, the Primary Opinion takes no notice of the Commissioner's interpretation of I.R.C. § 170(h)(2)(C) in his regulatory and other guidance. This failure runs counter to Chevron, U.S.A., Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837, 842-44 (1984); Auer v. Robbins, 519 U.S. 452, 461 (1997). See also Kisor v. Wilkie, No.18-15, 2019 WL 2605554 (U.S. June 26, 2019).

1. The Tax Court erred in failing to apply Chevron deference to the Treasury Regulations

Even if this Court were to accept the Tax Court's interpretation of 170(h)(2)(C) to preclude any reserved right to place or relocate homesites within a conservation easement, this court should nevertheless overturn the Tax Court's decision. The Tax Court erred when it adopted a new interpretation of the statute that contravened the Commissioner's existing interpretation of the Code in its legislative regulation. Without a determination that the Commissioner's regulations interpreting perpetuity under I.R.C. § 170(h) were arbitrary and capricious, the Tax Court was precluded from adopting a new contrary interpretation.

The regulations issued under I.R.C. § 170(h) have the force and effect of law. See T.D. 8069, 51 FR 1496-01, 1498 (Dep't of Treasury) (citing 26 U.S.C. § 7805 as authority for the issuance of the regulations and explaining the regulations were issued through notice and comment procedure of the APA). Courts are required to defer to those regulations. “We . . . must defer to Treasury Regulations that 'implement the congressional mandate in some reasonable manner.'” Comm'r v. Portland Cement Co. of Utah, 450 U.S. 156, 169 (1981) (quoting United States v. Correll, 389 U.S. 299, 307 (1967). The Commissioner, in turn, issues regulations to provide certainty to taxpayers in the application of the tax law. “The fact is that the Secretary routinely makes tax law more certain by using his regulatory authority under section 7805(a) to dredge safe harbors and stake-well defined boundaries.” Swallows Holding, Ltd. v. Comm'r, 126 T.C. 96, 175 (2006) (Holmes, J., dissenting). These regulations are entitled to Chevron deference:

If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Sometimes the legislative delegation to an agency on a particular question is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.

Chevron, U.S.A., Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837, 843-44 (1984)(emphasis added).

In 1986, the Commissioner issued regulations addressing the interaction between reserved rights in a conservation easement and the perpetuity requirements of section 170(h). Those regulations explicitly provide that a “donation qualifies for a deduction under this section” where the landowner reserves the right to develop 20 single-family homes in clusters on a 900-acre parcel “subject to site and building plan approval by the donee.” Treas. Reg. § 1.170A-14(f) (Ex. 4). The Tax Court should not substitute its own judgment in lieu of this regulation unless it first determined that the regulation was “arbitrary, capricious, or manifestly contrary to the statute.” 467 U.S. at 844.

Here, the Tax Court skirted its obligation to defer to the Commissioner's regulation simply by ignoring it altogether — despite references to the regulation by the dissent and in the taxpayer's post-trial brief. See Op. at 97-98; Pet.'s Br. at 124-25. This omission cannot be condoned.

Finally, an agency cannot make an end-run around its regulation simply by asking the Court to ignore the deference owed to it. Instead, the agency must “use the same procedures when they amend or repeal a rule as they used to issue the rule in the first instance.” Perez v. Mortg. Bankers Ass'n, 135 S. Ct. 1199, 1206 (2015) (citing FCC v. Fox Television Stations, Inc. 556 U.S. 502, 515 (2009)). Simply asking a court to adopt an agency position that is inconsistent with its own regulations circumvents the administrative rulemaking process put into place by the APA. See id.

Here, the deduction is consistent with the Commissioner's regulation and must be allowed. If the Commissioner has now determined that Code does not allow taxpayers to reserve the right to locate homesites within a conservation easement, the Commissioner must go through the same notice-and-comment process to amend his regulation. Likewise, if the Tax Court determined that the Commissioner's regulation did not correctly interpret the statute, the Tax Court was required to review the regulation to determine whether it was arbitrary, capricious, and manifestly contrary to the statute. Absent these actions, the court must defer to the Commissioner's regulation, and the deduction must be allowed.

2. The Tax Court Erred in Failing to Afford Auer Deference to Treasury's Interpretation of Its Regulations.

In Auer, the Supreme Court held that an agency's “interpretation of [its regulation] is, under our jurisprudence, controlling unless 'plainly erroneous or inconsistent with the regulation.'” Auer v. Robbins, 519 U.S. 452, 461 (1997) (internal citations omitted). That interpretation “need not be the only possible reading of a regulation — or even the best one — to prevail.” Decker v. Northwestern. Envtl. Def. Center, 568 U.S. 597, 613 (2013). In addition, the interpretation need not be part of a formal rule-making process, so long as it reflects “the agency's fair and considered judgment on the matter in question.” Auer, 519 U.S. at 462.16 This deference “reflects the well-known benefits of uniformity in interpreting genuinely ambiguous rules. . . . After all, judges are most likely to come to divergent conclusions when they are least likely to know what they are doing.” Kisor, No. 18-15, 2019 WL 2605554, 7. The Eleventh Circuit has recognized that while the Commissioner's private letter rulings are not binding precedent, they “do reveal the interpretation put upon the statute by the agency charged with the responsibility of administering the revenue laws.” Davis v. Comm'r, 716 F.3d, 560, 569 n.26 (11th Cir. 2013) (quoting Hanover Bank v. Comm'r, 369 U.S. 672, 687 (1962)).

The Commissioner has issued several private letter rulings on the issue of whether a conservation easement was a qualified real property interest when the donor reserved the right to locate homesites subject to the land trust's approval. In those rulings, the Commissioner consistently interpreted its regulations to provide that an easement is a qualified real property interest notwithstanding the reservation of a right to locate homesites within the easement. See, e.g., I.R.S. Priv. Ltr. Rul. 200403044 (Jan. 16, 2004) (location of reserved homesite is not agreed in advance, but donee must approve the location of those homesites); I.R.S. Priv. Ltr. Rul. 8233025 (May 18, 1982); I.R.S. Priv. Ltr. Rul. 8248069 (Aug. 30, 1982); I.R.S. Priv. Ltr. Rul. 8450065 (Sept. 13, 1984); and I.R.S. Priv. Ltr. Rul. 9603018 (Jan. 19, 1996). Under Auer, the Tax Court was required to defer to the Commissioner's interpretation of its regulation permitting the reserved right to locate a homesite subject to land trust approval.

The Commissioner's legislative regulations were issued pursuant to I.R.C. § 7805(b), which have the force and effect of law. United States v. Cook, 494 F.2d 573, 574 (5th Cir. 1974) (citations omitted). These regulations, like the Commissioner's private letter rulings, specifically allow a deduction where the owner reserves the right to locate a homesite within the easement. In fact, the regulations provide detailed guidance as to what action a landowner is required to take when reserving rights, including (1) documentation of the property at the time of the conservation easement, and (2) providing the donee with (a) the right to receive notice, in writing, before a reserved right is exercised, (b) the right to inspect the property, and (c) the right to enforce the easement by legal means, including the right to require the landowner to restore the easement property to its original condition if the exercise of the reserved right impairs the conservation purposes. Treas. Reg. § 1.170A-14(g)(5). The 2005 and 2006 Easements meet these requirements. Ex. 2-J at 20-21; Ex. 4-J at 19.

The specific right to locate a homesite, subject to land trust approval, is discussed in Example 4 of Treasury regulation § 1.170A-14(f). In this example, the landowner donates an easement over 900 acres, but reserves the right to limited residential development on not more than five nine-acre clusters (each cluster allowing for up to four houses). Although the landowner and land trust have identified sites where such development would not impair the conservation purposes, the ultimate locations of the homes and clusters is not specified. Instead, the subsequent development is “subject to site and building plan approval by the donee.” Id. As the dissent notes, this regulation clearly allows for a deduction where the owner has reserved the right to build a homesite on a location to be chosen at a later date. “A site that must be approved is not fixed.” Op. at 97 (Morrison, J., dissenting). In this example, the Commissioner concludes, “the donation qualifies for a deduction under this section.” Id. The Tax Court was required to defer to the Commissioner's consistent interpretation of this regulation in various private letter rulings to allow a deduction where a homesite's location is not fixed and subject of land trust approval.

H. Affirming the Tax Court Would Create Uncertainty for Taxpayers and Create a Circuit Split

The Tax Court, in this case, has expressly rejected the Fifth Circuit's interpretation of section 170(h)(2)(C) in BC Ranch. Affirming the decision would cause uncertainty by creating a circuit split. The Eleventh Circuit has traditionally avoided this whenever possible. See, e.g., Martin v. Heckler, 773 F.2d 1145, 1153 (11th Cir. 1985) (“In a case involving the construction of a statute which lends itself to varying interpretations, the law is well served by a court's attempt to achieve uniformity of decision, provided that attempt does not sacrifice integrity or compromise fundamental principles. Harmony among circuits should be a goal and not a fortuitous coincidence”); Thomas v. Fla. Power & Light Co., 764 F.2d 768, 770 (11th Cir. 1985) (“With no underlying ideological principles involved, the courts should not unnecessarily conflict on the application of regulatory laws such as the one at issue here.”); and Huff v. Comm'r, 743 F.3d 790, 795 (11th Cir. 2014); Birdman v. Office of the Governor, 677 F.3d 167, 177 (3d Cir.2012) (quoting Wash. Energy Co. v. United States, 94 F.3d 1557, 1561 (Fed.Cir.1996)).

The Tax Court's decision concerning reserved rights creates uncertainty over the types of reserved rights that are permitted within conservation easements, and whether such reserved rights may be modified. Interests of taxpayer fairness, uniformity and certainty should guide this Court to reverse the Tax Court's new legal conclusion that the reserved right to move a “building area” is necessarily inconsistent with section 170(h)(2)(C). Similarly, interests of certainty and consistency with within the circuits also councils this Court to adopt the rationale of the Fifth Circuit Court of Appeals.

CONCLUSION

The 2005 and 2006 Easements do not permit the boundaries of the easements to be modified. The Building Areas (even if they are modified) will always be subject to the restrictions of the 2005 and 2006 Easements. Thus, the boundaries and property subject to the easement are unequivocally fixed. Under the Tax Court's own precedent, such Building Areas cannot run afoul of section 170(h)(2)(C).

The interpretation of this statute by the Fifth Circuit in BC Ranch is well founded and persuasive. The Tax Court's interpretation runs contrary to congressional intent as to sections 170(h)(2)(C) and 170(h)(5)(A) and creates competing standards for evaluation of easement restrictions. The Tax Court departed from the Commissioner's regulatory and other guidance without due consideration.

Appellant asks that the ruling of the Tax Court disallowing deductions for the 2005 and 2006 Easements on the basis of section 170(h)(2)(C) be vacated.

Respectfully submitted,

SIROTE & PERMUTT, P.C.

DAVID M. WOOLDRIDGE
Sirote & Permutt, P.C.
2311 Highland Avenue South
Birmingham, AL 35205
205-930-5219 (telephone)
205-212-3814 (facsimile)
dwooldridge@sirote.com

GREGORY P. RHODES
Sirote & Permutt, P.C.
2311 Highland Avenue South
Birmingham, AL 35205
205-930-5445 (telephone)
205-212-2933 (facsimile)
grhodes@sirote.com

FOOTNOTES

1BC Ranch II, LP v. Comm’r, 867 F.3d 547 (5th Cir. 2017) (“BC Ranch”), rev’g and remanding sub nom. Bosque Canyon Ranch, L.P. v. Comm’r, T.C. Memo 2015-130, 110 T.C.M. (CCH) 48 (“Bosque Canyon”).

2Belk v. Comm’r, 774 F.3d 221 (4th Cir. 2014) (“Belk III”), aff’g 140 T.C. 1 (2013) (“Belk I”), as supplemented by T.C. Memo. 2013-154, 105 T.C.M. (CCH) 1878 (“Belk II”).

3The appraisals were conservative. The Tax Court's determinations of value for the 2005 and 2007 Easements were higher than the amounts deducted. Op. at 115-116 (Morrison, J. dissenting); T.C. Memo. 2018-214 at *2, 14.

4The Tax Court does not sit en banc, but certain opinions are reviewed by the judges in conference. The Primary Opinion was reviewed in that manner, and ten other Tax Court judges agreed with the opinion. Op. at 58.

5The decision allowing a deduction for the 2007 Easement is not one presented for review in this appeal.

6The trial judge also made a determination of the value of the 2005 Easement because he would have allowed a deduction for the 2005 donation. Op. at 59, Morrison dissenting. His determination of 2005 Easement value was $27,904,500. Op. at 59, 115-116. The amount originally deducted in 2005 was $16,550,000. Op. at 28.

7Belk v. Comm'r, 140 T.C. 1 (2013) (“Belk I”), as supplemented by T.C. Memo. 2013-154, 105 T.C.M. (CCH) 1878 (“Belk II”), aff'd, 774 F.3d 221 (4th Cir. 2014) (“Belk III”)

8Balsam Mountain Invs., LLC v. Comm'r, T.C. Memo 2015-43, 109 T.C.M. (CCH) 1214.

9Bosque Canyon Ranch, L.P. v. Comm'r, T.C. Memo 2015-130, 110 T.C.M. (CCH) 48, rev'd and remanded sub nom. BC Ranch II, LP v. Comm'r, 867 F.3d 547 (5th Cir. 2017) (“BC Ranch II”).

10BC Ranch II, LP v. Comm'r, 867 F.3d 547 (5th Cir. 2017), rev'g and remanding sub nom. Bosque Canyon Ranch, L.P. v. Comm'r, T.C. Memo 2015-130.

11T.C. Memo. 2013-154, 105 T.C.M. (CCH) 1878.

12The 2005 Easement fixed the initial boundaries of homesites located within that easement. Ex. 2-J, at 8.

13See INDOPCO, Inc. v. Comm'r, 503 U.S. 79, 84 (1992).

14Otherwise, the landowner would simply donate the entire fee interest.

15The Tax Court did not make any determination under section 170(h)(5)(A). Specifically, it did not determine that the reserved rights were inconsistent with conservation purposes in violation of section 170(h)(5)(A). Judge Morrison, in his dissent, says that he would have found a section 170(h)(5)(A) violation, but only relating to the 2006 easement. He would have allowed the 2005 Easement deduction. Op. at 98-100, 107.

16On June 26, 2019, the Supreme Court issued its decision in Kisor v. Wilkie, upholding Auer, explaining “we have adopted the presumption — though it is always rebuttable — that 'the power authoritatively to interpret its own regulations is a component of the agency's delegated lawmaking powers.' Or otherwise said, we have thought that when granting rulemaking power to agencies, Congress usually intends to give them, too, considerable latitude to interpret the ambiguous rules they issue.” No. 18-15, 2019 WL 2605554, at *6 (U.S. June 26, 2019) (internal citations omitted). The Supreme Court further clarified that Auer only applies when the regulation is ambiguous. Id. at *8. While it is Appellant's view, the dissent's view, and the Commissioner's long-standing view that the regulation unambiguously provides that a deduction is allowed when the donor reserves the right to locate a homesite, subject to land trusts approval, the Tax Court's decision to the contrary suggests that there may be ambiguity in the regulation. In such a case, the Tax Court was required to defer to the Commissioner's prior interpretations.

END FOOTNOTES

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