Partnership Challenges Denial of Charitable Contribution Deduction

a. Respondent erred in determining that the Partnership did not make a noncash charitable contribution of a conservation easement during the tax year ending December 31, 2016.

b. Respondent erred in determining that the Partnership failed to establish that the noncash charitable contribution satisfied all the requirements of Section 170¹ and the corresponding Treasury Regulations for deducting a noncash charitable contribution.

c. Respondent erred in disallowing the Partnership's charitable contribution deduction in the amount of $5,000,000 for the 2016 tax year.

d. Respondent's FPAA does not meet the notice requirements of Section 7522(a) because it fails to adequately describe the basis for the adjustment to the Partnership's 2016 tax return. Petitioner is unable to respond to the FPAA with any specificity because Respondent does not state which requirements of Section 170 or the corresponding Treasury Regulations that he alleges Petitioner did not satisfy.

e. Respondent's failure to identify the specific requirements of Section 170 and the corresponding Treasury Regulations that Petitioner allegedly failed to meet make the FPAA and its allegations arbitrary and capricious, resulting in an invalid FPAA for the 2016 tax year under the Administrative Procedure Act and other relevant law.

f. Respondent erred in determining that the Partnership is liable for the 40 percent gross valuation misstatement penalty under Section 6662(h) for the 2016 tax year.

g. Respondent erred in determining, alternatively, that any underpayments of tax are attributable to (1) negligence or disregard of rules or regulations, (2) substantial understatements of income tax, and (3) substantial valuation misstatements, as provided in Sections 6662(c), 6662(d), and 6662(e), respectively, and that, therefore, to the extent that penalties under Sections 6662(h) and Section 6662A are found not to apply to any portion of the misstatement of understatement, the Partnership and its partners are liable for the 20 percent penalty as a result of Sections 6662(c), 6662(d), and 6662(e).

h. Respondent erred in asserting that adjustments to partnership items are attributable to a listed transaction under Section 6707A(c) and result in a reportable transaction understatement as defined in Section 6662A(b).

i. The Respondent erred in determining that the Partnership and/or any of its partners did not act in good faith and have not established reasonable cause with respect to any underpayments resulting from Respondent's proposed adjustments.

j. Respondent has not complied with Section 6751(b) in asserting penalties for the 2016 tax year.

a. Partnership. The Partnership was formed on December 12, 2014 as a limited liability company under the laws of Georgia.

b. The Partnership acquired 257 acres of real property in Floyd County, Georgia from SRM Holdings, LLC on December 15, 2014 (the “Property”).

c. On December 16, 2016, the Partnership donated a conservation easement to Georgia-Alabama Land Trust, Inc. (the “Trust”) on approximately 200.377 acres of the Property (the “Conservation Easement”).

d. The Conservation Easement was donated by way of a Deed of Conservation Easement (the “Conservation Deed”) and recorded in Floyd County, Georgia on December 29, 2016.

e. The Conservation Deed is a legally enforceable deed that restricts the use of the Property in perpetuity and prevents use of the retained interest inconsistent with its conservation purpose.

f. Tax Return. The Partnership timely filed its Form 1065, U.S. Return of Partnership Income, for the 2016 tax year (“Partnership Tax Return”).

g. The Partnership Tax Return included all required information and attachments.

h. The Partnership Tax Return attached a properly completed Form 8283.

i. The Partnership Tax Return reported a charitable contribution deduction for the donation of the Conservation Easement in the amount of $5,000,000 pursuant to a qualified appraisal.

j. Donee. The Trust is a tax exempt public charity under Section 501(c)(3), as described in Section 509(a)(1) and 170(b)(1)(A)(vi).

k. The Trust was at all relevant times a qualified organization under Section 170(h)(3) and eligible to receive deductible conservation easements pursuant to Section 170(h)(1)(B).

l. The Trust has the experience and means to monitor and enforce the Conservation Easement.

m. Petitioner received a letter acknowledging the donation of the Conservation Easement in compliance with Section 170(f)(8).

n. The Conservation Deed conveys to the Trust the right to enforce the terms of the Conservation Deed and to protect the conservation purposes in perpetuity.

o. Baseline Report. In connection with the donation of the Conservation Easement, qualified individual(s) issued a baseline report and accompanying documentation (the “Baseline Report”) for the Conservation Easement.

p. The Baseline Report contains an evaluation of certain conservation values and purposes protected by the Conservation Easement.

q. The Baseline Report documents the conditions of the Property at the time of the donation and lists several of the conservation values present within the Conservation Easement.

r. Conservation Purpose. The Conservation Easement meets at least one of the four conservation purposes required under Section 170(h)(4)(A) and Treas. Reg. § 1.170A-14(d), as documented by the Baseline Report, the Conservation Deed, and the attributes of the Property.

s. Respondent has made no determination that the Conservation Easement failed to preserve any one of the four conservation purposes described in Section 170(h)(4).

t. Appraisal. The appraisal of the values of the Conservation Easement (“Appraisal”) was performed by Ronald S. Foster, MAI.

u. Mr. Foster was, at the time of the Appraisal, a “qualified appraiser” as described in Treas. Reg. § 1.170A-13(c)(5) (the “Qualified Appraiser”).

v. The Appraisal performed by the Qualified Appraiser, and used as a basis for the charitable contribution deduction taken by the Partnership for the donation of the Conservation Easement, was a “qualified appraisal” as defined in Treas. Reg. § 1.170A-13(c)(3).

w. Respondent has made no determination that the Qualified Appraiser was not a qualified appraiser as defined in Treas. Reg. § 1.170A-13(c)(5).

x. Respondent has made no determination that the Appraisal was not a qualified appraisal, as defined in Treas. Reg. § 1.170A-13(c)(3).

y. The Appraisal correctly determined the value of the Conservation Easement donated by the Partnership.

z. Reliance on Experts. The Partnership reasonably relied on the Appraisal in establishing the value of the Conservation Easement and the amount of the charitable contribution deduction.

aa. The Partnership's reliance was reasonable and in good faith, and the Partnership made an independent investigation of the value of the Conservation Easement.

bb. The Partnership provided all of the necessary information to a Certified Public Accountant (“CPA”) and believed the CPA prepared an accurate tax return.

cc. The Partnership reasonably relied on the CPA to prepare an accurate tax return.

dd. The Partnership satisfied all other requirements necessary to be entitled to a charitable contribution deduction for the donation of the Conservation Easement, as reported on its Partnership Tax Return for the 2016 tax year.

ee. Pursuant to Section 7491, the burden should be shifted to Respondent as to both the deductibility and the value of the Conservation Easement because the Partnership has produced credible evidence establishing it is entitled to a charitable contribution deduction for the Conservation Easement in the amount of $5,000,000 for the 2016 tax year, and has otherwise maintained all records, cooperated with Respondent in all phases of the examination process, and complied with all requirements of the Internal Revenue Code and Treasury Regulations.

i. Dismiss the FPAA as invalid;

ii. Determine that the Partnership is entitled to a charitable contribution deduction for the donation of a conservation easement during the 2016 tax year;

iii. Determine that the Partnership is entitled to a charitable contribution deduction from the donation of a conservation easement in the amount of $5,000,000 for the 2016 tax year;

iv. Determine that penalties are inappropriate;

v. Determine that Respondent bears the burden of proof as to all issues; and

vi. Grant such other and further relief as it deems appropriate.