Another Appellate Court Reverses in Conservation Easement Case

• DOI: http://doi.org/10.1002/npc.30806
• Date: 01 January 2021
• Published date: 01 January 2021

Bruce R. Hopkins’ NONPROFIT COUNSEL

2 January 2021 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

ANOTHER APPELLATE COURT

REVERSES IN CONSERVATION

EASEMENT CASE

Perhaps contributing to a trend, the US Court of Ap-

peals for the Eleventh Circuit, by decision dated October

22, reversed the US Tax Court, holding that conservation

easements satisfy the granted-in-perpetuity requirement

of the federal tax law, notwithstanding the donor’s

reservation of certain development rights, giving rise to

charitable deductions (Pine Mountain Preserve, LLLP v.

Commissioner). The Tax Court decision is summarized in

the March 2019 issue.

The donor contributed conservation easements over

large parcels of land to a qualified public charity, claim-

ing charitable contributions. The IRS’s denial of these

deductions was upheld by the Tax Court, which held that

the easements at issue were not granted in perpetuity

(IRC § 170(h)(2)(C)) because, although the donor agreed

to extensive restrictions on its use of the underlying land,

it reserved to itself limited development rights within the

conservation areas.

The appellate court held that these easements

qualify for the deductions because they constitute a

“restriction” on “the use … of the real property.” The

court stated that this restriction “burdens what would

otherwise be the landowner’s fee-simple enjoyment of—

and absolute discretion over—the use of its property.”

The restriction, the court added, does so “in perpetuity”

because “nothing in the grant envisions a reversion of

the easement interest to the landowner, its heirs, or

assigns.”

In so holding, the court of appeals rebuked the Tax

Court for being overly narrow in its reading of the law

(the potential emerging trend), writing that a “broad

limitation on the use of the property that applies to the

parcel as a whole satisfies the statutory test,” even if

“within that parcel there exists certain narrow excep-

tions to that limitation.” The court rejected the IRS’s

view that “every inch of land” must be subject to the

restriction in perpetuity, stating that the “common-law

provenance” of the term perpetuity is to be applied.

It will be recalled that the Tax Court constructed

a “Swiss cheese” analogy in this case, with the entire

conservation area serving as the slice of cheese and the

development zones the holes in the cheese. That court’s

view was that the entire slice must be protected from

development in perpetuity and that the holes cannot

be relocated. But the appellate court countered with

a “Pepper Jack” cheese analogy. That is, the court of

appeals stated that the reserved rights do not introduce

holes into the conservation-easement slice, inasmuch

as the entire slice is subject to “a restriction” (i.e., the

conservation easement). Rather, the reserved rights are

“embedded pepper flakes,” and “so long as they don’t

alter the actual boundaries of the easement,” the grant-

ed-in-perpetuity requirement is satisfied.

This aspect of this line of law started when the Tax

Court disqualified an easement arrangement where

the landowner had the right to substitute an area of

land contiguous to the conservation area for an area of

land within the conservation area (Belk v. Commissioner

BRUCE R HOPKIN S’ NONPROFIT COUNSEL

(Print ISSN: 1542-8 419; Online ISSN: 1542-8427) is pub lished monthly by Wi ley Periodicals LLC , 111 River St., Hoboken, NJ 07030-5774 USA .

Postmaster: Send all address c hanges to

BRUCE R HOPKIN S’ NONPROFIT COUNSEL

, Wiley Periodi cals LLC, c/o The Sher idan Press, PO Box 465 , Hanover, PA 17331 USA.

Copyright a nd Copying (in any f ormat): Copyright © 2021 W iley Periodicals LLC. A ll rights reserve d. No part of this publi cation may be reprodu ced, stored or transm itted in any form

or by any means wit hout the prior permiss ion in writing from the c opyright holder. Auth orization to copy item s for internal and perso nal use is granted by the cop yright holder for lib raries

and other user s registered with the ir local Reproduc tion Rights Organi sation (RRO), e.g. Copyr ight Clearance Cente r (CCC), 222 Rosewood Drive, D anvers, MA 01923, USA (www.copyright.

com), provided the ap propriate fee is pa id directly to the R RO. This consent doe s not extend to oth er kinds of copying s uch as copying for g eneral distribu tion, for advert ising and promoti onal

purposes, fo r republicatio n, for creating ne w collective wo rks or for resal e. Permissions for s uch reuse can be ob tained using the R ightsLink “Requ est Permission s” link on Wiley Online L ibrary.

Special requests should be addressed to: permissions@wiley.com.

Delivery Terms and Legal Title: Where the subscription pri ce includes print iss ues and delivery is to t he recipient’s addre ss, delivery term s are Delivered at Pl ace (DAP); the recipi ent

is responsible f or paying any impor t duty or taxes. T itle to all issues tran sfers FOB our shipp ing point, freigh t prepaid. We will ende avour to fulfil claim s for missing or damage d copies within

six months of pub lication, within o ur reasonable disc retion and subjec t to availability.

Information for subscribers:

Bruce R Hopkins’ Non profit Counsel

is published in 12 issu es per year. Subscript ion prices for 2021 are: Institutional: Online Only: $1118 (The Americas),

£573 (UK), €726 (Eu rope), $1118 (rest of the world). Institutional: Print + Online: $1397 (The Americas), £717 (UK), € 907 (Europe), $1397 (rest of the w orld). Institutional: Print Only:

$1118 (The Americas), £573 (UK), € 726 (Europe), $1118 (rest of the world). Personal: Online Only: $597 (The Ameri cas), £306 (UK), €3 86 (Europe), $597 (rest of the wor ld). Personal:

Print + Online: $689 (The Americ as), £531 (UK), €632 (Europe), $689 (re st of the world). Personal: Print Only: $597 (The Americ as), £306 (UK), €386 (Euro pe), $597 (rest of the

world). Price s are exclusive of tax. A sia-Pacific GST, Canad ian GST/HST and European VAT wil l be applied at the appro priate rates. For more in formation on current t ax rates, please go to

https://onlinelibrary.wiley.com/library-info/products/price-lists/payment. T he price includes on line access to the curr ent and all online back files to January 1, 2017, where avail able. For other

pricing options, including access information and terms and conditions, please visit https://onlinelibrary.wiley.com/library-info/products/price-lists. Terms of us e can be found here: htt ps://

onlinelibrary.wiley.com/terms-and-conditions.

Back issues: Single issues fr om current and recen t volumes are availabl e at the current singl e issue price from cs- journals@wile y.com.

Disclaimer: The Publisher and Ed itors cannot b e held responsib le for errors or a ny consequenc es arising from t he use of informa tion containe d in this journal; th e views and opini ons express ed

do not necessa rily reflec t those of the Publi sher and Editors , neither does th e publication of a dvertiseme nts constitu te any endorsem ent by the Publishe r and Editors of the p roducts ad vertised.

Wiley’s Corpor ate Citizenship init iative seeks to ad dress the environ mental, social, ec onomic, and ethic al challenges face d in our business and w hich are importa nt to our diverse sta keholder

groups. Since la unching the initia tive, we have focuse d on sharing our conte nt with those in nee d, enhancing commu nity philanthro py, reducing our car bon impact, cr eating global guid elines

and best prac tices for paper us e, establishin g a vendor code of et hics, and engag ing our colleagu es and other stake holders in our ef forts. Fo llow our progres s at www.wiley.com/go/citizenship.

Wiley is a foundi ng member of the UN-b acked HINARI, AGO RA, and OARE init iatives. They are no w collectively kn own as Research4L ife, making online sc ientific content av ailable free or at

nominal cost to re searchers in devel oping countries . Please visit Wiley ’s Content Access – Corp orate Citizenship sit e: http://ww w.wiley.com/Wile yCDA/Sect ion/id-390082 .html

Journal Customer Services: For ordering information, claims and any enquiry concerning your journal subscription please go to https://hub.wiley.com/community/support/onlinelibrary or

contact your nearest office. Americas: Email: cs-j ournals@wiley.c om; Tel: +1 781 388 8598 or +1 800 835 6770 (toll free i n the USA & Canada). Euro pe, Middle East a nd Africa: Email:

cs-journals @wiley.com; Tel: +44 (0) 1865 778315. Asia Pacific: Em ail: cs-journals@wi ley.com; Tel: +65 6511 8000. Japan: For Japanese s peaking support, E mail: cs-japan@wile y.com.

Visit our Online Customer Help available in 7 languages at https://hub.wiley.com/community/support/onlinelibrary.

Editor: Bruce R. Hopkin s. Production Editor: Mary Jean Jones. Address for Editorial Correspondence: Bru ce R. Hopkins. email : brucerhopkins@brucerhopkinslaw.com. For submis-

sion instructions, subscription and all other information visit: wileyonlinelibrary.com /journal/npc

View this journ al online at wileyonlinelibrary.com/ journal/npc

Printed in the US A by The Sheridan Pres s.