Partnership Challenges Denial of Charitable Contribution Deduction

i. The Commissioner erred by determining that the charitable contribution deduction in the amount of $28,552,599 for the donation of a qualified conservation contribution in the form of a conservation easement over 634.93 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 Stroud Road Henry 640 LLC made a contribution or gift of a conservation easement during the tax year ended 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 of the requirements of IRC Section 170 and the corresponding Treasury Regulations for deducting a noncash charitable contribution."

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

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

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

vii. The Commissioner erred in determining that Stroud Road did not make a noncash charitable contribution in the amount of $28,520,000 for its qualified conservation contribution in 2016.

viii. The Commissioner erred in determining that Stroud Road did not satisfy all of the requirements of Section 170 necessary to be entitled to a charitable contribution deduction in the amount of $28,552,599 for its qualified conservation contribution in 2016.

ix. The Commissioner erred in disregarding the value of the contributed property in the amount of at least $28,520,000 as established by Stroud Road through the production of a qualified appraisal by a qualified appraiser which conforms to the specific requirements of Section 170 and Treasury Regulation Sections 1.170A-13 and 1.170A-14.

x. The Commissioner erred by reducing Petitioner's 2016 charitable contribution deduction in the amount of $28,520,000 without adequate basis in law or fact.

i. The Commissioner erred in the FPAA by determining in the alternative that "you have not established that the value of the contributed property claimed in your Return of Partnership Income (Form 1065) for tax year ended December 31, 2016 was greater than $3,501,000."

ii. The Commissioner's FPAA does not identify the methodology used to arrive at a value of $3,501,000 in Petitioner's contributed property interest.

iii. The Commissioner's FPAA does not explain the methodology used to arrive at a value of $3,501,000 in Petitioner's contributed property interest.

iv. The Commissioner's FPAA does not explain the basis to arrive at a value of $3,501,000 in Petitioner's contributed property interest.

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

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

vii. 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.

viii. The Commissioner erred in disregarding the value of the contributed property in the amount of at least $28,520,000 as established by Stroud Road 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.

ix. 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 $3,501,000.

i. The Commissioner erred in the FPAA by determining that other expenses on Schedule K, line 13d in the amount of $859,500 were not fully substantiated.

ii. The Commissioner erred in the FPAA by determining that other expenses in the amount of $859,500 were not ordinary and necessary during the tax year.

iii. The Commissioner erred in the FPAA by determining that other deductions in the amount of $859,500 should be classified as nondeductible organization or syndication expenses subject to capitalization and amortization.

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 erred by asserting that the penalties defined under Section 6662(h) applicable to adjusted partnership items "shall be imposed . . . upon the completion of the TEFRA proceedings" in contravention of the plain language of Section 6221.

iii. The Commissioner erred by asserting in the alternative that the penalties defined under Section 6662(h) applicable to adjusted partnership items "should be asserted at the partner level" in contravention of the plain language of Section 6221.

iv. 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 under Section 6662(b)(3), as defined under Section 6662(e), such that a 20% addition to tax may apply.

ii. The Commissioner erred by asserting that the penalties defined under Section 6662(e) applicable to adjusted partnership items "shall be imposed upon the completion of the TEFRA proceedings" in contravention of the plain language of Section 6221.

iii. The Commissioner erred by asserting in the alternative that the penalties defined under Section 6662(e) applicable to adjusted partnership items "should be asserted at the partner level" in contravention of the plain language of Section 6221.

iv. 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 in the alternative 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 erred by asserting in the alternative that the penalties defined under Section 6662(d) applicable to adjusted partnership items "should be asserted at the partner level" in contravention of the plain language of Section 6221.

iii. The Commissioner failed to comply with Section 6751(b)(1) in asserting the substantial understatement penalty for the 2016 year because the initial determination of the assessment of the substantial understatement 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 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 erred by asserting in the alternative that the penalties defined under Section 6662(c) applicable to adjusted partnership items "should be asserted at the partner level" in contravention of the plain language of Section 6221.

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

i. The Commissioner erred by asserting that neither the partnership nor its partners have made a showing of reasonable cause or any other defense to the asserted penalties.

ii. The Commissioner erred by asserting that the partners did not make a showing of reasonable cause or any other defense to penalties in contravention of the plain language of Section 6221.

iii. The Commissioner's assertion regarding the partnership's reasonable belief regarding its position is legally and factually insufficient to avoid the Commissioner's burden of proof regarding penalties in this de novo proceeding.

i. The Commissioner erred by asserting that the adjustment of partnership items is attributable to a reportable transaction under Section 6707A(c).

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

iii. The Commissioner erred by asserting in the alternative that penalties under Section 6662A applicable to adjusted partnership items "should be asserted at the partner level" in contravention of the plain language of Section 6221.

iv. 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. The Commissioner erred by asserting that the adjustments of partnership items are attributable to a position for which no substantial authority has been established.

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

iii. The Commissioner's assertion regarding the partnership's reasonable belief regarding its position is legally and factually insufficient to avoid the Commissioner's burden of proof regarding penalties in this de novo proceeding.

i. The Commissioner erred by asserting that the adjustments of partnership items are attributable to a position for which neither the partnership nor the partners had a reasonable belief that the position taken was more likely than not the correct treatment of the transaction.

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

iii. The Commissioner's assertion regarding the partnership's reasonable belief of the correct treatment of the transaction regarding its position is legally and factually insufficient to avoid the Commissioner's burden of proof regarding penalties in this de novo proceeding.

i. Petitioner, Stroud Road Manager, is a Delaware limited liability company with a principal place of business in Georgia. Stroud Road Manager is the Tax Matters Partner of Stroud Road.

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

iii. Stroud Road is a bona fide partnership in the business of investing in real estate.

i. Stroud Road owned 640.86 acres of property in 2016 (the "Stroud Road Property").

ii. The Stroud Road Property is located in Henry County, Georgia.

iii. The Stroud Road Property is in the Atlanta — Sandy Springs — Roswell, Georgia metropolitan statistical area ("Atlanta MSA").

iv. The Atlanta MSA is the largest metropolitan statistical area in the state of Georgia.

v. Mackey Creek and Island Shoals Creek travel through the Stroud Road Property.

vi. Mackey Creek meets the South River 3.3 miles from the Stroud Road Property.

vii. The Stroud Road Property contains beaver ponds and freshwater marshes.

i. In December 2016, Stroud Road donated a conservation easement over 634.93 acres of the Stroud Road Property by executing a Deed of Conservation Easement (the "Easement Deed").

ii. The Easement Deed was properly recorded in Henry County, Georgia on December 29, 2016.

iii. The Easement Deed encumbered economically and ecologically valuable areas within the Stroud Road 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)(l)(A)(vi).

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 sent Stroud Road a letter acknowledging the donation of the Easement Property in compliance with Section 170(f)(8).

v. 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 report (the "Baseline Report") to Stroud Road.

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

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

i. The potential highest and best economical use of the Stroud Road Property immediately preceding the grant of the Easement Deed was for a senior residential development including assisted living and various forms of independent living.

ii. Alternatively, the potential highest and best economical use of the Stroud Road Property immediately preceding the grant of the Easement Deed was for residential development.

iii. The highest and best use of the Stroud Road Property dramatically changed following the grant of the Easement Deed, as it could no longer be used for assisted senior living/senior independent living development, residential development, 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 Treasury Regulation Section 1.170A-14(d).

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

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

iv. The Easement Property contains a Freshwater Marsh, which is listed as a High Priority Habitat in the Piedmont Ecoregion of Georgia by the Georgia Department of Natural Resources and the State Wildlife Action Plan.

v. The Easement Property maintains a forested and open pastoral viewshed for the public along Stroud Road and Woodstown Road, which are heavily traveled paved roads.

vi. 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. Ronald S. Foster, MAI, of Ronald S. Foster & Company, Inc. performed the appraisal of values of the Easement Property.

ii. Mr. Foster was, at the time of the appraisal, a "qualified appraiser" as that term is defined in Section 170(f)(11)(E) and Treasury Regulation Section 1.170A-13(c)(5).

i. The appraisal of value performed by Mr. Foster 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 Treasury Regulation Section 1.170A-13(c)(3).

ii. There was no substantial record of marketplace sales available to use as a meaningful or valid comparison to the Easement Property.

iii. Mr. Foster determined the potential highest and best use value of the easement property before contribution of the conservation easement to be $29,156,000 pursuant to Treasury Regulation Section 1.170A-14(h)(3)(ii).

iv. Mr. Foster determined the potential highest and best use value of the easement property after contribution of the conservation easement to be $634,930 pursuant to Treasury Regulation Section 1.170A-14(h)(3)(ii).

v. Mr. Foster determined the value of the conservation easement to be $28,520,000 using the before and after method pursuant to Treasury Regulation Section 1.170A-14(h)(3).

vi. The appraisal performed by Mr. Foster accurately determined the value of the Easement Property at the time of the donation to Southern Conservation Trust.

vii. The appraisal of value performed by Mr. Foster 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) and Treasury Regulation Section 1.170A-13(c)(3).

viii. The appraisal performed by Mr. Foster accurately determined the value of the Easement Property in accordance with the applicable Treasury Regulations at the time of the donation to Southern Conservation Trust.

ix. Stroud Road Manager and Stroud Road reasonably relied upon the appraisal of values performed by Mr. Foster in establishing the amount of the charitable contribution deduction for the qualified conservation contribution reported on the Stroud Road 2016 tax return. Stroud Road Manager and Stroud Road's reliance on Mr. Foster was reasonable and in good faith.

x. Stroud Road Manager and Stroud Road made an independent investigation of the value of the Easement Property.

xi. Stroud Road and its partners satisfied all other requirements necessary to be entitled to a charitable contribution deduction in the amount of $28,520,000 for the donation of the Easement Property in the 2016 tax year.

i. Stroud Road Manager and Stroud Road reasonably relied on the Qualified Appraisal in establishing the value of the Easement Property and the amount of the charitable contribution deduction.

ii. Stroud Road Manager and Stroud Road provided all of the necessary information to its Certified Public Accountant ("CPA") and believed the CPA prepared an accurate return.

iii. Stroud Road Manager and Stroud Road reasonably relied on its CPA to prepare an accurate tax return.

i. The Section 6662A penalty only applies if the Commissioner cannot prove the gross valuation misstatement penalty, the substantial valuation misstatement penalty, the substantial understatement penalty, or the accuracy-related penalty.

ii. Stroud Road and its partners relied on competent advisors, acted in good faith, and made a good faith investigation of the donation of the Easement Property.

iii. Stroud Road timely submitted a Form 8886, Reportable Transaction Disclosure Statement, to the Commissioner for the donation of the Easement Property.

m. The Commissioner has made no other adjustments, determinations, disallowances or assessments to the Stroud Road 2016 tax return other than those specifically described in paragraphs 7.a. through 7.k. or those specifically identified in the FPAA dated July 8, 2020.