Appeals Court Reverses Tax Court in Conservation Easement Case

• DOI: http://doi.org/10.1002/npc.30373
• Published date: 01 October 2017
• Date: 01 October 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

APPEALS COURT

REVERSES TAX COURT

IN CONSERVATION

EASEMENT CASE

The US Court of Appeals for the Fifth Circuit, on August 11, vacated and

remanded findings of the US Tax Court, which held that charitable deductions are

not available because certain homesite boundary modification provisions violated

the conservation easement perpetuity rule (IRC § 170(h)) and that the donors

failed to make documentation available to the charity that satisfy the baseline

documentation rule (Reg. § 1.170A-14(g)(5)(i)) (BC Ranch II, LP v. Commissioner).

The Tax Court opinion is summarized in the September 2015 issue.

Facts

The Bosque Canyon Ranch is owned by two limited liability companies, both

of which contributed conservation easements to a qualified public charity. The

easements contain substantially identical terms. They protect and preserve a

habitat for gold-cheeked warblers and other birds and game, a watershed, scenic

vistas, and a forest. The easements are said in the gift agreements to be perpetual.

The easements can be amended with the charity’s consent but only to modify

the boundaries of certain homesite parcels, and even then only within the ranch

property but not to increase the dimensions of the parcels above five acres.

Analysis

The Tax Court held that, because the homesite parcel boundaries could be

changed to include property within the original easement, the easement was

not granted in perpetuity, citing Belk v. Commissioner (summarized in the April

2013 issue). The court of appeals, however, distinguished Belk, noting that the

restrictions in this case “do not allow any change in the exterior boundaries of

the easements or in their acreages” and that “changing the boundaries of some

of the homesite parcels would not return any value to the easement donors.”

The easements in this case were found to more closely resemble the façade

easements in Commissioner v. Simmons (summarized in the August 2011 issue) © 2017 Wiley Periodicals, Inc.

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DOI:10.1002/npc

Analysis of current developments in tax

and related law for nonprofit organiza-

tions and their professional advisors.

Volume 34 Number 10

October 2017

Also in This issue...

Tax Court Uses Merger Clause

to Find Adequate Substantiation 2

Exempt Club Held Liable for

UBI Tax on Investment Income;

Offsetting Losses Disallowed 3

Donors of Easement Ruled to

Not Be Qualified Farmers, Thus

No Higher Charitable Deduction 3

Effort to Expand Contraceptive

Mandate Exemption Rejected 4

Trust Conversion Ruled Not

Self-Dealing Because Siblings

Are Not Disqualified Persons 5

Hospital Loses Charitable Status

for Noncompliance With CHNA

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Private Benefit Ruled to Become

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Consulting Services Preclude

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Case Study: How Not to Frame a

Charity’s Dissolution Clause 7

Organization Manages to

Generate Four Ways to Preclude

Exemption as Social Club 7

Nonexempt Business League

Corner 7

Private Benefit (and Lots of It)

Corner 8

Other Recent IRS Private Letter

Rulings 8