Conservation Easement | TaxConnections

09 Nov 2022

Conservation Easements And Retained Mineral Interests: An Area Of IRS Focus And Litigation

Retained Surface Mining Rights in Conservation Easement Deeds: CCA 202236010

Introduction: Separating the Surface Estate from the Retained Mineral Interest

As we have discussed in prior posts, conservation easements remain an area of focus for the IRS. The Service has spent significant effort challenging and litigating conservation easements to ensure that only donations that meet the strict standards of section 170(h) of the Code are permitted. In a recent Chief Counsel Advice, CCA 202236010 [1] the IRS addressed whether a conservation easement satisfies the requirements of section 170(h) where (i) the easement donor retains a qualified mineral interest, (ii) the ownership of the surface estate and the mineral interest has never been separated, and (iii) under the terms of the deed the donor can use a surface mining method to extract the subsurface materials with the donee’s approval.

As discussed below, the IRS concluded that the conservation easement did not meet the requirements of section 170(h), and in particular, the requirement that the conservation easement was contributed “exclusively for a conservation purpose” because the qualified mineral interest was never separated from the surface estate and the deed retained the possibility of surface mining to extract the subsurface materials. Donors seeking to claim a charitable contribution deduction for a conservation easement should be sure to separate the qualified mineral interest from the surface estate and that the deed to the property permits the owner of the qualified mineral interest to extract or remove the minerals by a surface-mining method.

Written by Andrew Mirisis | Posted in Conservation Easement • IRS Litigation

08 Nov 2022

Conservation Easements And Retained Mineral Interests

Retained Surface Mining Rights in Conservation Easement Deeds: CCA 202236010

Introduction: Separating the Surface Estate from the Retained Mineral Interest

Written by Andrew Mirisis | Posted in Conservation Easement

25 Oct 2022

Tax Court In Brief: Charitable Contribution Deduction Regarding Champions Retreat Golf Course Conservation Easement

Champions Retreat Golf Founders, LLC v. Comm’r, T.C. Memo. 2022-106 | October 17, 2022 | Pugh, J. | Dkt. No. 4868-15

Summary: This 43-page opinion is another lengthy chapter in over ten years of litigation regarding a charitable contribution deduction for the donation of a conservation easement given in 2010 by Champions Retreat to North American Land Trust (NALT) that covered about 348 acres of a private golf course designed by Gary Player, Arnold Palmer, and Jack Nicklaus. This opinion (we will call Champions III) supplements Champions Retreat Golf Founders, LLC v. Comm’r (Champions I), T.C. Memo. 2018-146, the latter of which was vacated and remanded by the U.S. Court of Appeals for the 11^th Circuit in Champions Retreat Golf Founders, LLC v. Comm’r (Champions II), 959 F.3d 1033 (11^th Cir. 2020). The focus of Champions III is the determination of the proper amount of the charitable deduction applicable to the charitable contribution, which required that the Tax Court value the conservation easement at the time of the donation.

Champions Retreat and the IRS’s experts agreed that the before and after method applied. However, Champions Retreat claimed a $10,427,435 charitable contribution deduction on its Form 1065, U.S. Return of Partnership Income, for the 2010 taxable year, for its grant of the easement to NALT. Champions Retreat’s claim was supported by an appraisal performed by Claud Clark III, which relied on the “before and after” method to value the easement. See Treas. Reg. § 1.170A-14(h)(3)(i), (ii). Clark concluded that the highest and best use of the property unencumbered by the easement was as a residential subdivision. The IRS, on the other hand, engaged an expert real estate appraiser, David G. Pope, who concluded that the highest and best use of the property before and after the easement grant was the operation of the golf course. Pope opined that the fair market value of the conservation easement was $20,000.

Key Issues:

Written by Jason Freeman | Posted in Conservation Easement • Qualified Conservation Easement • Tax Court In Brief

09 Feb 2021

Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts And Penalty Defenses

The Tax Court’s recent decision in Sells shows that the IRS is continuing to aggressively pursue conservation easement deductions where it believes the transaction is overly aggressive. However, the case also demonstrates potential defenses against proposed penalties.

Sells v. Comm’r, T.C. Memo. 2021-12, January 28, 2021 | Holmes, J. | Dkt. Nos. 6267-12, 6801-12, 6835-12, 6836-12, 6837-12, 6838-12, 19246-12, 13553-13

Opinion

Short Summary: In August 2002, Burnish Bush Farms, LLC was formed with eight members—each a 12.5% owner. Later, Mr. and Mrs. Moses sold mountainous land to Burnish Bush for $1.4 million. In 2003, Burnish Bush deeded a conservation easement on the acres that it owned to Chattoawah Open Land Trust, Inc. The conservation deed contained various provisions, including an extinguishment-proceeds clause.

Written by Jason Freeman | Posted in Conservation Easement • Freeman Law • Texas

17 Dec 2020

Settling Conservation Easement Penalties: The IRS And Some New Insights

The Internal Revenue Service has yet again publicly reiterated its commitment to challenge syndicated conservation easement transactions—transactions that it has, in recent years, labeled as “listed” transactions, tax-speak for “buyer beware.” In a recent press release, the IRS warned yet again that it believes that these easement deductions are “abusive transactions” and hinted that taxpayers can expect to face “new arguments” from its arsenal of legal theories. To add insult to injury, the IRS further cautioned that its newly-established “Office of Fraud Enforcement and the National Fraud Counsel are coordinating . . . to canvas cases for additional fraud considerations,” including civil fraud penalties and referrals to criminal investigation. The stakes, in other words, remain high for participants in syndicated conservation easement transactions.

What are Conservation Easement Transactions?

Written by Jason Freeman | Posted in Conservation Easement • Conservation Easement Penalties

01 Sep 2020

Settlements Begin In Syndicated Conservation Easement Transaction Initiative

As part of a continuing effort to combat abusive transactions, the Internal Revenue Service announced the completion of the first settlement under its initiative to resolve certain docketed cases involving syndicated conservation easement transactions.

On June 25, 2020, the IRS Office of Chief Counsel announced that it would offer to settle certain cases involving abusive syndicated conservation easement transactions. Since then, Chief Counsel has sent letters to dozens of partnerships involved in these transactions whose cases are pending before the U.S. Tax Court.

“We are seeing movement on these settlements,” said IRS Chief Counsel Mike Desmond. “Given the potential for significant penalties, we anticipate more taxpayers will take similar actions and ultimately accept these offers, and we encourage them to do so.”

Written by IRS | Posted in Conservation Easement