Government Argues Easement Deed Still Violates Regulation

Oakbrook Land Holdings, et al.
v.
Commissioner

U.S. Department of Justice
Tax Division

January 4, 2022

Deborah S. Hunt
Clerk of Court
U.S. Court of Appeals for the Sixth Circuit
540 Potter Stewart U.S. Courthouse
100 E. Fifth Street
Cincinnati, Ohio 45202-3988

Re: Oakbrook Land Holdings, et al. v. Commissioner (6th Cir. No. 20-2117)

Dear Ms. Hunt:

Pursuant to FRAP 28(j), this letter responds to Oakbrook's letter concerning the Eleventh Circuit's decision in Hewitt v. Commissioner. Oakbrook contends that Hewitt “held that Treasury Regulation § 1.170A-14(g)(6)(ii) (the 'Proceeds Regulation') is procedurally invalid under the Administrative Procedure Act.” (Letter at 1.)

Oakbrook's description of Hewitt's holding is inaccurate. The Hewitt court did not invalidate the Proceeds Regulation; it invalidated one aspect of that regulation. Specifically, the court held that the Proceeds Regulation “as read by the Commissioner to prohibit subtracting the value of post-donation improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment” is invalid. (Op. 28; see also Op. 36 (concluding that the Proceeds Regulation is invalid to the extent it “disallow[s] the subtraction of the value of post-donation improvements to the easement property in the extinguishment proceeds allocated to the donee”).) But, as Oakbrook itself concedes (see Gov't Br. 34 n.9), Oakbrook's deed violates the Proceeds Regulation for an additional reason: it provides for a capped amount of donee extinguishment proceeds, contrary to the regulation's proportionate value requirement. (See Gov't Br. 33-34, 46.) In short, this case also concerns a distinct aspect of the Proceeds Regulation, which Hewitt did not invalidate.

Oakbrook's letter also contains arguments completely untethered to Hewitt — including the argument in the letter's final paragraph, which appears nowhere in Oakbrook's briefs. Regardless, Oakbrook's new argument fails. The Commissioner's statutory argument — viz., that (as Judge Toro concluded below) a fixed-dollar cap on extinguishment proceeds payable to the donee is inconsistent with the “real property interest” contemplated in I.R.C. § 170(h)(2) and violates the protected-in-perpetuity requirement of § 170(h)(5)(A) — is entirely consistent with the State-law exception in the Proceeds Regulation. See Oakbrook, 154 T.C. at 206 n.6 (Toro, J., concurring) (acknowledging that, since property interests are defined by State law, any particular State could alter the foregoing conclusions by “mandat[ing] that the donor receive all amounts from any judicial extinguishment,” as the regulatory State-law exception recognizes).

Sincerely yours,

NATHANIEL S. POLLOCK
Attorney
Appellate Section