LLC Challenges Denial of Conservation Easement Deduction

BROSIS PROPERTIES, LLC, BEAR CREEK LAND MANAGEMENT, 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, BEAR CREEK LAND MANAGEMENT, LLC, HEREBY PETITIONS, under Section 6226(a)¹ for a readjustment of the partnership items set forth in the Notice of Final Partnership Administrative Adjustment dated May 28, 2021 ("FPAA"), pertaining to the U.S. Return of Partnership Income (Form 1065) for BroSis Properties, LLC ("BroSis") for the period ending December 31, 2017 ("2017 Form 1065"). As the basis for its case, Petitioner alleges as follows:

1. The current address and principal place of business for BroSis is 109 Railroad Street, Hartwell, Georgia 30643-1995.

2. BroSis is a Georgia limited liability company. 

3. BroSis is treated as a partnership for federal income tax purposes.

4. Bear Creek Land Management, LLC ("Bear Creek") is the Tax Matters Partner ("TMP") for BroSis with respect to its 2017 U.S. Partnership Return.

5. BroSis's taxpayer identification number is set forth in the Statement of Taxpayer Identification Number, which is attached to this Petition.

6. Petitioner is filing this Petition within the 90-day period set forth in Section 6226(a) in its capacity as TMP of BroSis.

7. The IRS Office at 801 Broadway, MDP 26, Nashville, Tennessee, 37203 issued the FPAA. A copy of the FPAA is attached as Exhibit A.

8. Petitioner disputes all FPAA adjustments and penalties.

9. Respondent made, among other, the following errors in the FPAA:

a. By "willful ignorance" of the contents of his own file;

b. By issuing an erroneous, excessive, and arbitrary FPAA;

c. By asserting any adjustment for any amount, much less disregarding the conservation contribution in its entirety;

d. By failing to describe any meaningful factual, tax, or other legal basis for disallowing BroSis's conservation contribution;

e. By ignoring the file stamped, recorded Conservation Deed in his file in order to assert the known falsehood that BroSis did not establish that it made a non-cash charitable contribution;

f. By again ignoring the contents of his file and asserting that BroSis did not establish that its non-cash charitable contribution satisfied all the requirements of Section 170 and corresponding regulations for deducting a noncash charitable contribution;

g. Again contrary to the contents of his file, Respondent erred by asserting BroSis did not establish the value of the charitable contribution;

h. By asserting penalties based on gross valuation misstatement pursuant to Section 6662(h), a reportable transaction understatement pursuant to Section 6662A, negligence or disregard of rules and regulations pursuant to Section 6662(c), substantial understatement of income tax pursuant to Section 6662(d), or valuation misstatement under Section 6662(e);

i. By failing to provide "notice and comment" before issuing Notice 2016-66, disregarding the timely filed Form 8886, and still asserting a penalty under Section 6662A;

j. By ignoring, inter alia, the substantial legal and factual authority for the positions which BroSis reported; and

k. Respondent erred by not increasing the amount of the reported contribution to its full value.

10. Based on information and belief, the facts, and mixed points of fact and law, upon which BroSis relies include, but are not limited to, the following:

a. BroSis is treated as a partnership for tax purposes for 2017.

b. Bear Creek owned eight percent of the profit, loss, and capital of BroSis on December 31, 2017.

c. BroSis properly designated Bear Creek as Tax Matters Partner on its 2017 Form 1065. Respondent accepted that designation.

d. Respondent issued the FPAA to Bear Creek as TMP.

e. The FPAA only adjusts the noncash conservation contribution.

f. In 2005, BroSis purchased fee simple title in 87.36± acres of land in Franklin County, Georgia ("Property").

g. The Property is close to St. Mary's Sacred Heart Hospital.

h. In October 2017, BroSis arranged for the Property to be annexed by the City of Lavonia and rezoned as "Medical Campus District."

i. The rezoning (and the utilities available through annexation) changed the "highest and best use" of the Property.

j. On December 27, 2017, BroSis conveyed a real property interest in the Property to Southern Conservation Trust, Inc. ("Southern Conservation") via the Conservation Deed.

k. BroSis recorded the Conservation Deed with the Superior Court Clerk in Franklin County, Georgia on December 27, 2017.

l. No mortgage encumbered the Property on December 27, 2017.

m. The Conservation Deed is controlled by Georgia law 28.a).

n. By statute, Georgia law permits, encourages, and enforces conveyances of easements such as the Conservation Deed.

o. The Conservation Deed perpetually restricts residential, commercial, and industrial development on the Property.

p. Section 170(h) defines "qualified conservation contribution" as:

(i) A qualified property interest;

(ii) To a qualified organization;

(iii) Exclusively for conservation purposes.

q. In issuing his FPAA, Respondent "willfully ignores" the five dispositive documents in his own files that dispose of those (and other) Section 170 elements:

(i) The file-stamped recorded Conservation Deed;

(ii) The Environmental Baseline Documentation Report;

(iii) The Appraisal (lower of two appraisals);

(iv) The Contemporaneous Written Acknowledgment; and

(v) The Form 8283 (with attachment).

"Noncash Charitable Contribution" of "Qualified Real Property Interest"²

r. With the file-stamped recorded Deed of Conservation Easement ("Conservation Deed") in hand conveying the anti-development restrictions to a Section 501(c)(3) charitable organization, Respondent asserts as his primary FPAA position the known falsehood that "you have not established that BroSis Properties, LLC made a noncash charitable contribution during the tax year ended December 31, 2017." Ex. A., p. 7.

s. As a secondary canned FPAA position, Respondent asserts the extraordinarily vague contention that evades identifying a single (non-existent) Section 170 defect: "you failed to establish that [the contribution] satisfied all of the requirements of I.R.C. § 170 and the corresponding Treasury Regulations for deducting a noncash charitable contribution." Ex. A., p. 7.

t. The operative conveyance paragraph in the December 27, 2017 recorded Conservation Deed conveyed this noncash charitable contribution to Southern Conservation Trust, Inc.: 

NOW, THEREFORE, Grantor, as an absolute charitable gift with no consideration, other than the covenants, mutual agreements, conditions, and promises herein contained, does unconditionally and irrevocably hereby grant and convey unto Grantee, its successors and assigns, forever, a conservation easement as defined in the Georgia Uniform Conservation Easement Act, O.C.G.A. §§ 44-10-1 et seq. (without intending that the existence of this Conservation Easement be dependent on the continuing existence of such laws), in perpetuity, over the Property, of the nature and character hereinafter set forth, including the right to preserve and protect the Conservation Values of the Property. Grantee, by its execution hereof, accepts the foregoing grant of the Conservation Easement, and the recordation of this Conservation Easement shall constitute a "recordation of the acceptance" by Grantee within the meaning of O.C.G.A. § 44-10-3(B). Upon the recordation hereof, Grantee shall be entitled to enforce the Conservation Easement pursuant to O.C.G.A. § 44-10-4.

u. The final paragraph in the legally enforceable Deed of Conservation specifies its perpetual duration as follows:

TO HAVE AND TO HOLD this Conservation Easement unto Grantee and its successors and assigns, together with all and singular the rights, members, and appurtenances thereof to the same being, belonging or in anywise appertaining, to the only proper use and benefit of Grantee forever. The covenants agreed to and the terms, conditions, restrictions, arid purposes imposed as aforesaid shall not only be binding upon Grantor but also its successors, end assigns, and shall continue as an casement and servitude running in perpetuity with the Property.

v. On its face, the Conservation Deed satisfied the Section 170(h)(2) "qualified real property interest" by Paragraph 3 imposing 15 sets of anti-development "Use Limitations" that prohibit and/or restrict use of the Property. See Section 170(h)(2) defining "qualified real property interest" as "a restriction (granted in perpetuity) on the use of the property".

"Qualified [Charitable] Organization"

w. The grantee under the Conservation Deed remains Southern Conservation.

x. Since its inception, Southern Conservation has been a publicly supported nonprofit organization, created primarily for the conservation of the environment by dedicated biologists, educators, environmentalists, and others concerned with conservation. See https://sctlandtrust.org/.

y. Southern Conservation was a "qualified organization" under Section 170 and its regulations as of December 27, 2017.

z. Southern Conservation is and was at the time it accepted the Conservation Contribution a "qualified (charitable) organization" under Sections 501(c)(3) and 509(a)(2).

aa. Respondent himself recognized in his original charitable organization "determination" letter that Southern Conservation qualified under Section 501(c)(3) and 509(a)(2).

ab. Indeed, Respondent publishes to the world its list of qualified charitable organizations — including Southern Conservation.

ac. Southern Conservation remains a "qualified donee" for purposes of Section 170(h)(3).

"Exclusively for Conservation Purposes"

ad. The Conservation Deed filed December 27, 2017 constitutes "a contribution . . . exclusively for conservation purposes."

ae. The Conservation Deed identifies various conservation purposes, including (i) preservation of a relatively natural habitat, (ii) preservation of open space for the scenic enjoyment of the public, and (iii) preservation of open space (including farmland and forestland) where such preservation is pursuant to a clearly delineated federal, state, or local governmental policy. The State of Georgia recognizes these purposes as providing significant public benefit and being worthy of permanent protection.

af. The Conservation Deed identifies protection of a relatively natural habitat of fish, wildlife, plants, or similar ecosystem as a conservation purpose.

ag. The Conservation Deed identifies protection of "high priority wildlife habitats" consistent with state wildlife conservation policies as a conservation purpose.

ah. The Conservation Deed identifies preservation of open space, where such preservation is for the scenic enjoyment of the general public and yields a significant public benefit, as a conservation purpose.

ai. The Conservation Deed identifies preservation of open space (including farmland and forestland) pursuant to a clearly delineated federal, state, or local governmental policy, and will yield a significant public benefit, as a conservation purpose.

aj. The Conservation Deed protects the Property as a relatively natural habitat of fish, wildlife, plants, or similar ecosystem, which qualifies as a conservation purpose as defined by Section 170(h)(4)(A)(ii).

ak. The Conservation Deed protects the Property as open space, where such preservation is for the scenic enjoyment of the general public and yields a significant public benefit, which qualifies as a conservation purpose as defined by Section 170(h)(4)(A)(iii).

al. The Conservation Deed protects the Property as an open space (including farmland and forestland), where such preservation is pursuant to a clearly delineated federal, state, or local governmental policy, and will yield a significant public benefit, which qualifies as a conservation purpose as defined by Section 170(h)(4)(A)(iii)(II).

am. BroSis need only satisfy one of those purposes to satisfy the Section 170(h) conservation purpose requirement.

an. The Conservation Deed specifies the purposes of that Deed.

ao. Paragraph 1 of the legally enforceable Conservation Deed specifies its purpose as follows:

1. PURPOSE. The purpose (hereinafter “Purpose") this Conservation Easement is to protect the Conservation Values, as enumerated above in the recitals, to prevent any use of die Property that will significantly impair or interfere with the Conservation Values of the Property, and to preserve the Property in perpetuity for the following:

a natural habitat and biological diversity; and

b. wetland protection and water quality; and

c. preservation of scenic view, and open space; and

d. the preservation of those conservation purposes set forth in the Code that are more particularly described herein as being promoted by this Conservation Easement; and

e. the protection of these Conservation Values by stewardship, enforcement, and monitoring in perpetuity by the Grantee,

Grantor covenants that no acts or uses, other than those (i) specifically reserved in Paragraph 4 below (to the extent such activities are not inconsistent with the Purpose of this Conservation Easement), or (ii) any other acts or uses that are not inconsistent with the Purpose of this Conservation Easement, or harmful to the Conservation Values, shall be permitted on the Property.

ap. "More than an insignificant portion" of the Property can be seen by the public from Ga. Hwy. 59 and/or Allen Farm Road.

aq. Pages 2-7 of the Conservation Deed identify some of the significant governmental conservation policies that benefit the public which the BroSis Conservation Contribution serves — including state and federal clean water policies, and priority habitats under the district-specific Georgia Wildlife Action Plan.

ar. The Deed incorporates the Environmental Baseline Report.

as. Paragraph 2 of the BroSis Conservation Deed specifies the legally enforceable rights of Southern Conservation as follows:

2. Rights of Grantee. To accomplish the Purpose of this Conservation Easement the following rights are conveyed to Grantee by Grantor;

(a) Generally. To preserve and protect the Conservation Values of the Property, including, without limitation, the right to enforce the obligations of foe Grantor hereunder,

(b) Monitoring. To enter upon the Property at reasonable times in order to monitor, document (including through the use of photographs), and defend Grantor's compliance with anti otherwise enforce the terms of this Conservation Easement. Grantee's entry shall not unreasonably interfere with Grantor's use and quiet enjoyment of the Property and shall be upon prior reasonable notice to Grantor, except in emergency eases where Grantee reasonably determines that immediate entry is required to prevent, terminate, or mitigate a violation of this Conservation Easement.

(c) Conservation. To prevent any activity on or use of the Property that is inconsistent with the Purpose of this Conservation Easement and to require the restoration of such areas or features of the Property that may be damaged by any inconsistent activity or use, pursuant to Paragraph 7 hereof.

(d) Notices. Notwithstanding any other provision in this Conservation Basement to the contrary, Grantee requires written notice prior to Grantor's exercise of certain reserved rights, as described herein, as required trader a literal reading of Treas, Reg. § 1.170A-14(g)(5)(ii), Notice, pursuant to this Paragraph 2(d) shall be provided in accordance with Paragraph 5 below or as stipulated otherwise herein.

at. Southern Conservation, as grantee, recognizes its stewardship responsibilities on this Conservation Contribution.

Protection of the Conservation Purposes and Values

au. Paragraph 3 of the BroSis Conservation Deed imposes "Use Limitations" in perpetuity on the Property.

av. Most, if not all, of the limitations in Paragraph 3 protect the Conservation Purposes and/or Values.

aw. Paragraph 3 of the Conservation Deed specifies 15 sets of "USE LIMITATIONS" that prohibit and/or restrict commercial, residential, and industrial development and other uses.

Conservation Deed Prohibits Inconsistent Use

ax. The Conservation Deed prohibits any activity or use of the Conservation Contribution that is inconsistent with the purposes of the easement and requires restoration of areas or features that may be damaged by any inconsistent activity or use.

ay. As noted, Paragraph 2 of the legally binding Conservation Deed grants Southern Conservation, among other rights, (i) the right to monitor compliance with and otherwise enforce the terms of the Conservation Easement in accordance with Paragraph 9, (ii) the right to prevent any activity on, or use of, the Property that is inconsistent with the Purposes of the Conservation Easement, and (iii) the right to require restoration of such areas or areas that may be damaged by any inconsistent use to their condition as of the date of the Conservation Easement.

az. In defining "USE LIMITATIONS", Paragraph 3 of the legally enforceable Conservation Deed imposes this overarching prohibition:

Notwithstanding any other provision in this Conservation Easement to the contrary, any activity on, or use of, the Property which is inconsistent with the Purpose of this Conservation Easement is prohibited.

ba. Consistent with Paragraph 3, Paragraph 4 of the legally enforceable Conservation Deed limits the "RESERVED RIGHTS" of the grantor and provides that the reserved rights are permitted only "to the extent that such rights are consistent the Purpose of this Conservation Easement and would not significantly impair or interfere with the Conservation Values of the Property."

 

bb. That Conservation Deed grants the grantee the right to enforce that protection of the Conservation Values and Purposes.

bc. Paragraph 7 of the Conservation Deed prescribes "GRANTEE'S REMEDIES" including notice to grantor of violation, demand for corrective action, and demand for restoration to the condition existing at the time of the contribution.

bd. Absent adequate corrective action, Paragraph 7 then authorizes Southern Conservation to bring an action at law or in equity in a court of competent jurisdiction to enforce the terms of the Easement, seek injunctive relief, and recovery of damages.

be. Paragraph 11 of the Conservation Deed provides for waiver of defenses of laches, estoppel, or prescription by the grantor.

bf. Under the terms of Paragraphs 2, 3, and 7 of the Conservation Deed (enforceable under the controlling Georgia law), the Conservation Deed (i) prohibits activities and uses inconsistent with the Conservation Values and Purposes and (ii) provides remedies to Southern Conservation to enforce that prohibition.

bg. The Conservation Deed identifies the conservation values.

bh. The Baseline Report also identifies the conservation values.

bi. The Deed grants Southern Conservation the right to perpetually preserve and protect the conservation values of the Property.

bj. The Conservation Deed imposes on Southern Conservation the duty to protect the conservation values in perpetuity.

bk. The Conservation Deed grants Southern Conservation the right to enter the Property, to inspect it, to monitor compliance with the Conservation Deed, and to enforce the Deed purposes.

bl. The Conservation Deed prohibits BroSis and all future owners of the Property from exploration for, or extraction of, oil, gas, minerals, hydrocarbons, soils, or other surface or subsurface materials on the Property.

bm. The Conservation Deed restrictions on the use of the Property are binding on BroSis and all future owners.

bn. The Conservation Deed grants Southern Conservation an immediately vested right to a proportionate share of any proceeds that may result from a sale, exchange, or involuntary conversion of the Property, if the Conservation Deed is extinguished in future legal proceedings.

bo. The extinguishment provisions of the Conservation Deed comply with the requirements of Treas. Reg. § 1.170A-14(g)(6)(h).

bp. Southern Conservation acknowledges in its December 27, 2017 letter that it accepts stewardship responsibilities as to the Conservation Contribution.

bq. Under its non-profit charitable organizational documents, Southern Conservation remains obligated to enforce the conservation purposes and values under the Conservation Deed.

Baseline Documentation Report

br. By text, maps, and photographs in a 57-page Conservation Baseline Documentation Report dated December 12, 2017, Amy Egoroff, Senior Biologist with Environmental 360, Inc., described the condition and conservation values of the Property shortly before the Contribution.

bs. As confirmed by her report in Respondent's possession, Ms. Egoroff is a wildlife biologist who:

(i) Received a Bachelors Degree in Biology from the University of California at San Diego, and completed graduate studies in Restoration Ecology;

(ii) Has prepared environmental documents required by the National Environmental Policy Act, the Clean Water Act, the Endangered Species Act, and other agencies; and

(iii) Has worked on projects including wetland permitting, natural resource assessments and permitting, NEPA compliance, land use permitting, and environmental permitting and compliance.

bt. Ms. Egoroff was (and is) qualified to prepare the Baseline Report on the 87.3 6± acres.

bu. Ms. Egoroff inspected all major portions of the 87.3 6± acres and each habitat type located on the Property.

bv. The Treasury Regulations note but do not require the presence of "rare, endangered, or threatened" species or that the baseline report include a species delineation study.

bw. A full species delineation study would confirm that additional protected species can and do use the habitat at BroSis.

bx. The Baseline Report was completed for Southern Conservation before BroSis donated the Conservation Deed.

by. The Baseline Report concluded that the Property possessed significant scenic, natural, aesthetic, watershed, wildlife, forest, agricultural, open space, and plant habitat features.

bz. The Baseline Report confirmed that the Property contains bottomland hardwood forest and streams, which the Georgia Wildlife Action Plan designates as "High Priority Habitats."

ca. The Baseline Report concluded that the Conservation Deed will protect these "High Priority Habitats."

cb. The Baseline Report noted that wetlands and tributaries of Bear Creek lie on the Property, inside the Broad River watershed.

cc. The Baseline Report concluded that the Conservation Deed's protection of these wetlands and tributaries will also help to improve the overall water quality in the watershed.

Contemporaneous Written Acknowledgement

cd. At least three times, Southern Conservation timely acknowledged receipt of the Conservation Contribution.

ce. First, Southern Conservation confirmed the contribution, the absence of any consideration, and its status as a Section 501(c)(3) organization in the Conservation Deed itself.

cf. Second, the Executive Director of Southern Conservation wrote to BroSis on December 27, 2017, acknowledging receipt of the Conservation Deed ("Property Acknowledgment Letter"),

cg. Like the Deed, that Letter also confirms Southern Conservation provided no goods or services in exchange for the donation.

ch. The Property Acknowledgement Letter constitutes a "contemporaneous written acknowledgement."

ci. Third, the Executive Director of Southern Conservation again acknowledged the Contribution by signing the Form 8283 Summary of Appraisal (filed with the return) on April 4, 2018.

cj. On the Form 8283, Southern Conservation "acknowledges that it is a qualified organization under Section 170(c) and that it received the donated property as described in Section B, Part I, above on the following date: 12/27/2017."

ck. At least one of the acknowledgments satisfies the requirement of a written acknowledgement by the charitable donee.

cl. This triangulation of the three written acknowledgements corroborates the mutual intent of the parties to the Conservation Deed to preserve the 87.36± acres in a manner that comports with Georgia and federal conservation rules.

"Qualified Appraiser" and "Appraisal"

cm. Two Georgia Certified General Real Property Appraisers ("Appraisers") prepared the "Appraisal Report for BroSis Properties, LLC and Southern Conservation Trust on BroSis Properties, LLC 87.36 Acres of Easement Encumbered Land Located at 455 Tiger Tail Road, South of State Highway 59, City of Lavonia, Franklin County, Georgia" ("Appraisal").

cn. Neither Appraiser was a direct or indirect partner of BroSis.

co. The Appraisers did not claim, report, or otherwise take a deduction under Section 170 or any other tax provision for the donation of the Conservation Deed.

cp. The Appraisers were not a party to the transaction in which BroSis acquired the Property.

cq. The Appraisers were not the donee of the Conservation Deed.

cr. The Appraisers were not an employee of (i) BroSis, (ii) a direct or indirect partner of BroSis, (iii) a party to the BroSis acquisition of the Property, (iv) Southern Conservation, or (v) Bear Creek.

cs. The Appraisers were not "related" under Section 267(b) to any of the persons described immediately above.

ct. The Appraisers performed a majority of their appraisals in 2017 for parties other than BroSis.

cu. The Appraisers were "qualified appraisers," as defined under Section 170 and the underlying regulations.

cv. The Appraisers had local knowledge and experience in preparing appraisals related to conservation easements.

cw. The Appraisers performed extensive due diligence on the various development options for the Property.

cx. The Appraisers dated the Appraisal as December 27, 2017.

cy. The Appraisers dated the Appraisal the extended deadline for BroSis to file its 2017 Form 1065.

cz. The Appraisers signed and dated the Appraisals.

da. The Appraisals contain a legal description of the Property.

db. The Appraisals contain a description of the Conservation Deed.

dc. The Appraisals described the physical condition of the Property.

dd. The Appraisal states that the Conservation Deed was recorded prior to December 31, 2017.

de. The Appraisal contains the name, address, appraiser certification license number, and partial social security number of the Appraiser, and contains the name, address, and taxpayer identification number of the appraisal company.

df. The Appraisal contains a list of the qualifications of the Appraiser, including his background, experience, education, and membership in professional appraisal associations.

dg. The Appraisal states it was prepared for income tax purposes.

dh. The Appraisal states the basis for its conclusions as to the fair market value ("FMV") of the Conservation Deed.

di. The Appraisal states that the FMV of the Property was based on market conditions as of December 27, 2017.

dj. The Appraisal concludes that the highest and best use ("HBU") of the Property, before the donation of the Conservation Deed, was assisted living and senior housing, or similar use ("Before-Donation-HBU").

dk. The City of Lavonia, Georgia annexed the Property.

dl. BroSis rezoned the Property "MCD", Medical Campus District.

dm. The property is less than one mile from St. Mary's Sacred Heart Hospital.

dn. Brosis obtained a marketing study from Global Valuation and Consulting, Thomas G. Spears, ASA, MRICS and Greg Eidson, MAI, CCIM that addressed the "assisted living" market demand.

do. The Appraisal accurately concludes that the Before-Donation-HBU was legally permissible.

dp. The Appraisal accurately concludes that the Before-Donation-HBU was physically possible.

dq. The Appraisal accurately concludes that the Before-Donation-HBU was financially feasible.

dr. The Appraisal accurately concludes that the Before-Donation-HBU was maximally productive.

ds. The Appraisal accurately concludes that the HBU of the Property after the donation was recreation and public enjoyment use as permitted by the easement.

dt. The Appraisal accurately concludes that the After-Donation-HBU is legally permissible.

du. The Appraisal accurately concludes that the After-Donation-HBU is physically possible.

dv. The Appraisal accurately concludes that the After-Donation-HBU is financially feasible.

dw. The Appraisal accurately concludes that the After-Donation-HBU is maximally productive.

dx. The Appraisers did not base the appraisal fee charged for the preparation of the Appraisal on a percentage of the appraised value of the Conservation Deed.

dy. The Appraisers did not base the appraisal fee charged for the preparation of the Appraisal on a percentage of the amount allowable as a charitable contribution deduction

dz. The Appraisal constitutes a "qualified appraisal" under the Section 170(f) substantiation provisions.

ea. BroSis also obtained a second, independent appraisal as an effort in determining the most accurate value of the Conservation Deed.

eb. The second appraisal concluded a value of the Conservation Deed that exceeded the concluded value in the original appraisal.

ec. BroSis reported the more conservative value on its return.

Form 8283 Appraisal Summary

ed. In the Form 8283 filed with the return, the Appraisers certified that (i) they perform appraisals on a regular basis, (ii) they are qualified to make appraisals of the type of property being valued, (iii) the fee charged for the appraisal is not based on a percentage of the appraised property value, (iv) they are not one of the persons described in Treas. Reg. § 1.170A-13(c)(5)(iv), (v) they understand that an intentionally false or fraudulent overstatement of the value of the property may subject him to a civil penalty under Section 6701, and (vi) they are not barred from presenting evidence or testimony by OPR.

ee. The Form 8283 certification by the Appraisers was accurate.

ef. The Appraisers were neither Petitioner nor a direct or indirect partner of BroSis.

eg. The Appraisers did not claim a deduction under Section 170 for the contribution of the conservation easement on the Property.

eh. Neither of the Appraisers was a party to the transaction in which BroSis acquired the Property.

Proper Extinguishment Clause

ei. Southern Conservation is entitled to a proportionate share of any proceeds that may result from a sale, exchange, or involuntary conversion of the Conservation Contribution, if the conservation easement is extinguished in future legal proceedings.

ej. The Conservation Deed provides a formula for calculating Southern Conservation's proportionate share of extinguishment proceeds in accordance with Treas. Reg. § 1.170A-14(g)(6)(h).

Other Section 170 Elements

ek. Neither Respondent nor Petitioner can name any Section 170 defect in the BroSis Conservation Contribution.

el. None exists.

Deed Construction

em. Consistent with the terms of the Conservation Deed, Georgia law governs its construction.

en. Georgia law construes deeds and other contracts based on the mutual intent of the parties as reflected by the terms they chose.

eo. The mutual intent of the parties reflected in the Conservation Deed was (at the time and remains) to perpetually preserve the 87.3 6± acres consistent with its Conservation Purpose in the manner that satisfies the requirements for conservation easements.

ep. Georgia law permits parties to a deed or other contract to specify the construction they intend.

eq. Consistent with their mutual intent, both parties to the Conservation Deed properly agreed to the "choice of law" provision that this Deed between a Georgia Grantor and a Georgia (non-profit) Grantee relating to Georgia real estate would be controlled by Georgia law:

28. General Provisions.

(a) Controlling Law. The interpretation and performance of this Conservation Easement shall be governed by the laws of the State of Georgia.

er. Also consistent with the mutual intent of the Grantor and Grantee, the parties to the Conservation Deed agreed to these rules relating to the construction of the Deed:

(b) Liberal Construction. Any general rule of construction to the contrary notwithstanding, this Conservation Basement shall be liberally construed in favor of the grant to effect the Purpose of this Conservation Easement and the policy and purpose of O.C.O.A, §§ 44-KM, et seq. Grantor and Grantee acknowledge that each party has reviewed and revised this instrument and agree that, die rule of construction providing that ambiguities are to Ire resolved against the drafting party shall not be employed in the interpretation of this instrument If any provision in this instrument is found to be ambiguous, an interpretation consistent with the Purpose of this Conservation Easement that would render the provision valid shall be favored over any interpretation that would render it invalid.

(c) Severability. In the event any provision of this Conservation Easement is determined by the appropriate court to be void and unenforceable, all remaining terms will remain valid and binding.

(d) Entire Agreement. This instrument sets forth the entire agreement of the parties with respect to this Conservation Easement and supersedes all prior discussions, negotiations, understandings, or agreements, all of which are merged herein. No alteration or variation of this instrument shall be valid or binding unless contained in an Amendment that complies with the provisions of this Conservation Easement.

es. The Recitals ("Whereas" clauses) of the Conservation Deed accurately state the facts on which the Deed is premised. Respondent has no evidence contradicting any of those facts.

et. The Recitals of the Conservation Deed accurately cite the statutory and regulatory authorities on which that Deed is premised — specifically including the O.C.G.A. §§ 44-10-1, et seq. and 48-7-29.12; I.R.C. §§ 170(b)(1)(A)(vi) and (h)(4)(A)(ii) and 501(c)(3); and Treas. Reg. § 1.170A-14(c), (d), and (g).

Tax Filings

eu. BroSis timely filed its 2017 Form 1065 which reports, among other items, the donation of the Conservation Deed.

ev. BroSis attached the Appraisal to the timely 2017 Form 1065.

ew. BroSis attached to the 2017 Form 1065 a Form 8283.

ex. BroSis attached immediately after Form 8283 a document titled "Attachment to Form 8283: Noncash Charitable Contributions" ("Supporting Documentation").

ey. Form 8283 and the Supporting Documentation contain all the information required by Treas. Reg. § 1.170A-13(c)(4) with respect to the donation of the Conservation Deed.

ez. Form 8283 and the Supporting Documentation report the adjusted basis of BroSis in the Property.

fa. Form 8283 and the Supporting Documentation report the manner by which BroSis obtained the Property.

fb. Form 8283 and the Supporting Documentation report the date on which BroSis obtained the Property.

fc. The Supporting Documentation contains a detailed legal description of the Property.

fd. The Supporting Documentation contains a description of the manner and date on which BroSis obtained the Property.

History of the Tax Dispute

fe. BroSis maintained all records required with respect to the 2017 Form 1065.

ff. BroSis and its representatives cooperated with Respondent during the audit.

fg. BroSis and its representatives cooperated with all requests by Respondent for information and documents during the audit.

fh. Respondent issued Information Document Requests ("IDRs") during the audit.

fi. BroSis and its representatives timely responded to each IDR.

fj. BroSis provided the following critical documents to Respondent with the tax return and/or during the examination, prior to the issuance of the FPAA: the recorded Conservation Deed; the appraisal by Clayton M. Weibel, MAI and Phillip E. McGinnis, MAI; the appraisal by Rick Kenny, MAI, SRA and Douglas R. Kenny, MAI; the Vanasse Hangen Brustlin, Inc. (“VHB”) Phase 1 Environmental Site Assessment; VHB's Preliminary Waters Determination; the Environmental 360 Baseline Report; the Contemporaneous Written Acknowledgement; and Form 8283.

fk. Respondent never issued a Summons during the audit.

Contents of JEPAA

fl. The FPAA ignores those documents in Respondent's possession.

fm. The FPAA eliminates the entire noncash charitable contribution.

fn. The FPAA describes no specific facts, legal theories, or analysis for asserting the adjustment to the 2017 Form 1065.

fo. The FPAA describes no specific facts, legal theories, or analysis for rejecting penalty defenses.

fp. After conducting an examination, having communications with BroSis's representatives, and receiving responses to IDRs, the Fonn 886-A Explanation of Items attached to the FPAA consists of just one page.

fq. The FPAA does not propose any income tax adjustment to the 2017 Form 1065 filed by BroSis, other than disallowance of the noncash charitable contribution related to the Conservation Deed.

fr. The penalties alleged in the FPAA do not meet the requirements of Section 6751 (b).

Lack of Diligence in Issuing FPAA

fs. Respondent never hired an outside, independent appraiser, or other independent valuation expert to determine the fair market value of the Conservation Deed.

ft. Respondent never hired an outside, independent biologist, forester, or other independent conservation expert to determine whether the Conservation Deed donation satisfied the "conservation purpose" requirements of Section 170(h)(4)(A).

fu. Respondent only relied on his own employees in making the determinations set forth in the FPAA.

Exceptional Diligence and Reasonable Cause

fv. Respondent cannot name a single Section 170 defect, but forces BroSis to shadow box with his evasive allegation.

fw. The IRS refusal to name any (non-existent) Section 170 defect prevents BroSis from addressing the reasonable cause related to that unnamed non-existent defect.

fx. Still, BroSis strictly complied with Section 170 and its regulations as to the donation of the Conservation Deed.

fy. The Conservation Contribution also substantially complies with Section 170 and its regulations.

fz. In reporting the charitable contribution related to the Conservation Deed on its 2017 Form 1065, BroSis relied on the Conservation Deed, Baseline Report, Marketing Study, and Appraisals.

ga. BroSis also obtained a Phase I Environmental Site Assessment, a Jurisdictional Waters Report, and a Wetland Delineation Study as an exceptional level of due diligence.

gb. BroSis reasonably relied on the Conservation Deed, Baseline Report, and Appraisals.

gc. BroSis reasonably relied on the qualified, independent, informed professionals who prepared the Baseline Report and Appraisal.

gd. BroSis hired competent, independent professionals to prepare its 2017 Form 1065 ("Return Preparer").

ge. BroSis provided its Return Preparer with all the necessary information to prepare its 2017 Form 1065.

gf. BroSis's Return Preparer had the necessary qualifications and experience to prepare its 2017 Form 1065.

gg. BroSis filed its 2017 Form 1065 as prepared by Return Preparer.

gh. BroSis exercised reasonable cause and acted in good faith when it filed its 2017 Form 1065.

gi. By the time Respondent issued the FPAA, BroSis had given Respondent multiple copies of these critical documents: The recorded Conservation Deed; the appraisal by Clayton M. Weibel, MAI and Phillip E. McGinnis, MAI; the appraisal by Rick Kenny, MAI, SRA and Douglas R. Kenny, MAI; the Global Marketing Study; the Vanasse Hangen Brustlin, Inc.'s Phase 1 Environmental Site Assessment; and the Environmental 360 Baseline Documentation Report.

gj. Based on substantial legal and factual authority, BroSis possessed reasonable cause for believing:

(i) The Conservation Deed complied with Section 170.

(ii) The Conservation Deed properly and perpetually protected significant Conservation Purposes;

(iii) The Appraisers were and are "qualified appraisers";

(iv) The Appraisal is a "qualified appraisal"; and

(v) The Form 8283 was properly prepared.

11. In addition to Section 7491, the contents of the FPAA are erroneous, excessive, unfair, unreasonable, arbitrary, and capricious. Further, the FPAA fails to adequately describe any basis for its non-determinations.

12. Respondent also bears the burden of proof as to all matters.

WHEREFORE, Petitioner requests that the Tax Court:

(i) Determine that the 2017 Form 1065 is accurate as filed;

(ii) Determine that there are no adjustments, penalties, additions to tax, or other amounts with respect to the 2017 Form 1065;

(iii) If warranted by the facts presented at trial, determine that BroSis's partners are entitled to an appropriate refund for 2017, plus interest;

(iv) Determine that Respondent has the burden of proof as to all issues; and

(v) Grant such other and further relief that it deems appropriate.

Respectfully submitted,

Dated: August 26, 2021

DAVID AUGHTRY
Tax Court Bar No. AD0165

Dated: August 26, 2021

JASEN D. HANSON
Tax Court Bar No. HJ1646

CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY
191 Peachtree Street, N.E.
Forty-Sixth Floor
Atlanta, Georgia 30303
Telephone: (404) 659-1410
david.aughtry@chamberlainlaw.com
Jasen.hanson@chamberlainlaw.com

COUNSEL FOR PETITIONER