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Partnership Challenges Denial of Charitable Contribution Deduction

APR. 30, 2019

Battelle Glover Investments LLC et al. v. Commissioner

DATED APR. 30, 2019
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Battelle Glover Investments LLC et al. v. Commissioner

BATTELLE GLOVER INVESTMENTS, LLC,
BATTELLE INVESTMENT GROUP, LLC,
TAX MATTERS PARTNER,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

PETITION FOR READJUSTMENT OF PARTNERSHIP ITEMS
UNDER CODE SECTION 6226

PETITIONER HEREBY PETITIONS for a readjustment of the partnership items set forth by the Commissioner of Internal Revenue (“Respondent”) in the Notice of Final Partnership Administrative Adjustment dated February 7, 2019 (hereinafter “FPAA”) issued to Battelle Glover Investments, LLC for the taxable year ending December 31, 2015. As the basis for its case, Petitioner alleges as follows:

1. Petitioner Battelle Investment Group, LLC is the Tax Matters Partner (“TMP”).

2. The legal residence of Petitioner is 3000 Andrews Drive N.W., Unit 1, Atlanta, Georgia 30305.

3. The Partnership is Battelle Glover Investments, LLC (“Partnership”), whose principal place of business is 3000 Andrews Drive N.W., Unit 1, Atlanta, Georgia 30305.

4. The FPAA was purportedly mailed to the TMP on February 7, 2019 and was issued by the Technical Services Legacy Territory Manager in Seattle, Washington. A copy of the FPAA is attached as Exhibit A.

5. The FPAA asserts partnership adjustments in the form of a charitable contribution disallowance in the amount of $150,935,000.

6. In the FPAA, Respondent has erred, inter alia, with respect to the following:

a. In violating the notice requirements of I.R.C. § 7522(a) by failing to describe the basis for the adjustment to the Partnership's tax return.

b. In determining that the Partnership is not entitled to the Section 170 charitable contribution deduction in the amount of $150,935,000 because the Partnership failed to establish all of the requirements of Section 170.

c. In determining, alternatively, that if the Partnership met all the requirement of Section 170, that the value of the contributed property interest was zero.

d. In determining that the Partnership is liable for the 40 percent gross valuation misstatement penalty under Section 6662(h) for the 2015 tax year.

e. In determining, alternatively, that the Partnership is liable for the 20 percent penalty under Section 6662(a) for either a substantial understatement of income tax, a substantial valuation misstatement, or negligence or disregard of rules and regulations for the 2015 tax year.

f. Respondent has not complied with Section 6751(b)(1) in asserting the relevant accuracy-related and other penalties for the 2015 tax year.

7. The facts upon which Petitioner relies are, inter alia, as follows:

a. Partnership. The Partnership was formed on December 19, 2011 as a Georgia limited liability company.

b. The Partnership acquired 1,155 acres of property in DeKalb County, Alabama on December 29, 2011 from Alexander S. Glover, Sr.

c. On November 25, 2015, the Partnership conveyed the same 1,155 acres, plus an additional 15 acres, less 330 acres, to Battelle Glover Investments, II, LLC.

d. A portion of the 330 acres of land the Partnership retained is suitable for a limestone aggregate mining operation (the “Battelle Mine Property”).

e. The Battelle Mine Property contains a considerable amount of high-calcium limestone, most of which is extractable aggregate reserves ideal for mining.

f. In 2015, the Partnership sought the expertise of independent consultants to confirm the availability and feasibility of a mining operation on a quarry stretching 115 acres (“Mining Area”) on the Battelle Mine Property to extract limestone aggregate reserves, and transport the reserves using an active rail service to a separate 30 acre parcel on the Battelle Mine Property.

g. A market study conducted by independent consultants in 2015 concluded the mining operation would be a profitable venture.

h. On December 17, 2015, the Partnership donated a conservation easement on approximately 97.8 acres of the Battelle Mine Property (“Conservation Property”) to Southeast Regional Land Conservancy, Inc. (“SERLC”) in a Conservation Easement and Declaration of Restrictions and Covenants (“Conservation Deed”).

i. The Conservation Deed was recorded in DeKalb County, Alabama on December 21, 2015.

j. At the time of the donation of the easement, the Partnership was owned 98% by Battelle Investment Group, LLC, 1.2% by The Glover Family Irrevocable Trust, 0.4% by Alexander S. Glover, Jr., 0.2% by Samuel Glover, and 0.2% by Lynn Holloway.

k. Tax Return. The Partnership timely filed its Form 1065, U.S. Return of Partnership Income, for the 2015 tax year (“Partnership Tax Return”).

l. The Partnership Tax Return contained all required attachments and information, including a properly completed Form 8283.

m. The Partnership Tax Return reported a charitable contribution deduction for a conservation easement in the amount of $150,935,000, pursuant to the qualified appraisal (the “Conservation Easement”).

n. Donee. SERLC expressed an intent to conserve the Conservation Property, in conjunction with its conservation values.

o. SERLC is a tax exempt public charity under Section 501(c)(3), as described in Sections 509(a)(1) and 170(b)(1)(A)(vi).

p. SERLC 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).

q. SERLC has the experience and means to monitor and enforce the Conservation Easement.

r. SERLC has made annual inspections of the Conservation Easement to ensure compliance with the terms of the Conservation Deed.

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

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

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

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

w. 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 Conservation Property.

x. 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).

y. Appraisal. The appraisal of the values of the Conservation Easement (the “Appraisal”) was performed by Dale W. Hayter, Jr. of Independent Appraisals, LLC. Mr. Hayter was, at the time of the Appraisal, a “qualified appraiser” as defined in Treas. Reg. § 1.170A-13(c)(5) (the “Qualified Appraiser”).

z. The Qualified Appraiser concluded the highest and best use of the Battelle Mine Property tract before donation of the Conservation Easement to be near term development of a granite aggregate quarry on approximately 127.8 acres (97.8 acre quarry, 30.0 acre loading site), and a buffer surrounding the quarry operation on approximately 202.2 acres.

aa. The Qualified Appraiser concluded that the Battelle Mine Property could no longer be mined after the donation of the Conservation Easement, which reduced the value of the property dramatically.

bb. The Qualified Appraiser determined the value of the conservation easement to be $150,935,000, using the before and after method pursuant to Treas. Reg. § 1.170A-14(h)(3).

cc. The effective date of the Appraisal was December 21, 2015.

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

ee. Respondent has made no determination that the Qualified Appraiser was not a qualified appraiser, or that the Appraisal was not a qualified appraisal, as defined in Treas. Reg. § 1.170A(c)(3) or (c)(5).

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

gg. Reliance on Experts. The Partnership reasonably relied upon the Appraisal in establishing the amount of the charitable contribution deduction.

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

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

jj. The Partnership reasonably relied on their CPA to prepare an accurate return.

kk. The Partnership satisfied all other requirements necessary to be entitled to a charitable deduction for the donation of the Conservation Easement, as reported on its Partnership Tax Return for the 2015 tax year.

ll. 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 $150,935,000 for the 2015 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 the Treasury Regulations.

WHEREFORE, Petitioner prays the Court finds that there is no deficiency in tax due from Petitioner for the tax year ending December 31, 2015; that Respondent bears the burden of proof as to all issues; and the Court grant such other and further relief as it deems appropriate.

Respectfully submitted this 26th day of April, 2019.

Vivian D. Hoard
Tax Court Bar No. HV0055
Counsel for Petitioner
Taylor English Duma LLP
1600 Parkwood Circle, Suite 400
Atlanta, GA 30339
(770) 541-2223
vhoard@taylorenglish.com

R. Brian Gardner, III
Tax Court Bar No. GR0812
Counsel for Petitioner
Taylor English Duma LLP
1600 Parkwood Circle, Suite 400
Atlanta, GA 30339
(678) 336-7180
bgardner@taylorenglish.com 

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