Partnership Challenges Denial of $20.5 Million Charitable Deduction

i. The Commissioner erred by determining that the charitable contribution deduction in the amount of $20,532,000 for the donation of a qualified conservation contribution in the form of a conservation easement over 144.79 acres of real property to Southern Conservation Trust, Inc. in 2016 was not allowed.

ii. The Commissioner erred by disallowing the deduction on the basis that "[y]ou have not established that Pauls Farm Properties, LLC made a contribution or gift of a conservation easement during the short tax year December 23, 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."¹

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 Pauls Farm did not make a contribution or gift of a qualified conservation easement to be entitled to a charitable contribution deduction in the amount of $20,532,000 for its qualified conservation contribution in 2016.

viii. The Commissioner erred in determining that Pauls Farm did not satisfy all of the requirements of Section 170 necessary to be entitled to a charitable contribution deduction in the amount of $20,532,000 for its qualified conservation contribution in 2016.

ix. The Commissioner erred by reducing Petitioner's 2016 charitable contribution deduction in the amount of $20,532,000 without adequate basis in law or fact.

i. The Commissioner erred in the FPAA by determining 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 ended December 23, 2016 to December 31, 2016 was greater than $97,500."

ii. The Commissioner's FPAA does not identify or explain the methodology used to arrive at a value of $97,500 in Petitioner's contributed property interest. 

iii. The Commissioner's FPAA does not explain the factual basis to arrive at a value of $97,500 in Petitioner's contributed property interest.

iv. The Commissioner's valuation 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 allegedly substantive determination of a value of $97,500 in the Commissioner's FPAA lacks any specific allegations of fact that Petitioner might reasonably dispute.

vi. The Commissioner's determination of 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 $20,532,000 as established by Pauls Farm 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 $97,500.

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 that the Pauls Farm partners are not bona fide partners 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 the Pauls Farm partners are not bona fide partners lacks any specific allegation of fact that Petitioner might reasonably dispute.

iv. The Commissioner's determination 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 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 Pauls Farm partners are not bona fide partners.

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

ii. The Commissioner's determination that the donation of a qualified conservation contribution in the form of a conservation easement over 144.79 acres of real property to Southern Conservation Trust, Inc. in 2016 was not 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 the donation of a qualified conservation contribution in the form of a conservation easement was not a bona fide property contribution lacks any specific allegation of fact that Petitioner might reasonably dispute.

iv. The Commissioner's determination 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 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 qualified conservation contribution in the form of a conservation easement over 144.79 acres of real property to Southern Conservation 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 in the alternative 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 in the 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 in the 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, Eco Terra 2016 Fund, is a Georgia limited liability company with a principal place of business in

Georgia. Eco Terra 2016 Fund is the Tax Matters Partner of Pauls Farm.

ii. Pauls Farm is a Georgia limited liability company treated as a partnership for federal income tax purposes.

i. The Pauls Farm Property is located in Oglethorpe County, Georgia.

ii. The Pauls Farm Property is located in the Southern Outer Piedmont subsection of the Piedmont Ecoregion of Georgia.

iii. The Pauls Farm Property contains mature mixed oak-hickory slope forest, granite outcrops, beaver swamp and Piedmont Streams, each of which are High Priority Habitats under the Georgia Comprehensive Wildlife Conservation Strategy.

iv. A tributary to Indian Creek runs through the Property west to east, in two places. Indian Creek joins Little Indian Creek and downstream joins Macks Creek, Long Creek, and then the Broad River. The Broad River is part of the Savannah River Basin. Long Creek, the Broad River, and the Savannah River are designated as High Priority Waters by the Georgia Department of Natural Resources. The Broad River Watershed is considered a High Priority Watershed for protection by Georgia Department of Natural Resources as provided in the Georgia Comprehensive Wildlife Conservation Strategy.

i. On December 23,2016, Pauls Farm donated a conservation easement over 144.79 acres of the Pauls Farm Property by executing a Deed of Conservation Easement (the "Easement Deed").

ii. The Easement Deed was properly recorded in Oglethorpe County, Georgia on December 27, 2016.

iii. The Easement Deed encumbered economically and ecologically valuable areas within the Pauls Farm Property (the "Easement Property").

i. The Easement Property was donated to Southern Conservation Trust, Inc. ("Southern Conservation Trust"). Southern Conservation 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), having received a determination letter to that effect from the Commissioner of Internal Revenue.

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

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

iv. Southern Conservation 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 Southern Conservation Trust prepared and issued a baseline documentation report (the "Baseline Report") to Pauls Farm.

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

iv. 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 Pauls Farm Property immediately preceding the grant of the Easement Deed was for a granite quarry and surface mining operation.

ii. The highest and best use of the Pauls Farm Property dramatically changed following the grant of the Easement Deed as it could no longer be used for 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 significant, relatively natural habitat of fish, wildlife, or plant, or similar ecosystem. 

iii. The Pauls Farm Property contains mature mixed oak-hickory slope forest, granite outcrops, beaver swamp and Piedmont Streams, each of which are High Priority Habitats under the Georgia Comprehensive Wildlife Conservation Strategy.

iv. A tributary to Indian Creek runs through the Property west to east, in two places. Indian Creek joins Little Indian Creek and downstream joins Macks Creek, Long Creek, and then the Broad River. The Broad River is part of the Savannah River Basin. Long Creek, the Broad River, and the Savannah River are designated as High Priority Waters by the Georgia Department of Natural Resources. The Broad River Watershed is considered a High Priority Watershed for protection by Georgia Department of Natural Resources as provided in the Georgia Comprehensive Wildlife Conservation Strategy.

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. Weibel 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. Weibel accurately determined the value of the Easement Property at the time of the donation to Southern Conservation Trust. 

iii. Eco Terra 2016 Fund and Pauls Farm reasonably relied upon the appraisal of values performed by Mr. Weibel in establishing the amount of the charitable contribution deduction for the qualified conservation contribution reported on the Pauls Farm 2016 tax return. Eco Terra 2016 Fund and Pauls Farm's reliance on Mr. Weibel was reasonable and in good faith.

v. Pauls Farm satisfied all other requirements necessary to be entitled to a charitable contribution deduction for the donation of the Easement Property.