Conservation Deed Amendment Clauses May Be Permissible

• DOI: http://doi.org/10.1002/npc.30733
• Date: 01 June 2020
• Published date: 01 June 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

June 2020 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

Clinic Brief

The clinic’s position rested heavily on the proposition

that it is indeed educational in nature. It characterizes

the US argument as meaning that, for federal tax pur-

poses, “an organization can be only medical or only edu-

cational; if it is both, it is ‘primarily’ neither.” As the clinic

sees it, “as part of its extensive educational activities, it

provides medical care and conducts medical research.”

The clinic, it is said, “specializes in education, research,

and patient care” — “[e]ach is a substantial function,

even if none predominates.”

The clinic, the brief reports, “operates five world-re-

nowned graduate medical schools, accredited by multi-

ple agencies, that offer M.D., Ph.D., and other degrees,

as well as residencies, fellowships, and continuing med-

ical education.” It has a “formal academic governance

structure, education committees, and determines the

schools’ faculty, programs, and curricula.” These and

other “undisputed attributes show that, at minimum,

education is one of [the clinic’s] primary functions.”

Other arguments are that the district court correctly

applied statutory construction canons, the references by

the US to other Code provisions are a mere “distraction,”

the statute involved is unambiguous and thus the regula-

tion’s history is not relevant, the fact that a regulation is of

long standing does not relieve a court of the responsibility

to determine its validity, congressional silence in the face of

a regulation is not a useful indicator of a statute’s mean-

ing, the US’s argument as to the meaning of the word

educational is newly offered on appeal and thus should be

rejected, and the statute is unambiguous and therefore the

appellate court should inquire no further. [4.4]

Commentary: On briefs, the US prevails. The govern-

ment’s brief includes an analogy that, in a nonlegal way,

sums up this case. It is that if a statute makes reference

to a green car, a white car with a green stripe does not

qualify. ◆

APP PROMOTER FAILS

TO QUALIFY AS EXEMPT

BUSINESS LEAGUE

The purpose of a nonprofit membership organization

is to provide a forum for the exchange of information

to educate and render assistance to users and potential

users of a particular software application. The members

are employees of businesses in a region that use this

software. Members receive training on the software.

Information collected during membership meetings is

shared with the software developers to enable them to

better understand the needs of users of the app.

The IRS ruled that this entity failed to qualify as an

exempt business league because it is not organized and

operated to benefit an industry as a whole or improve

the business conditions of an industry but only to

benefit the segment of a line of business (Priv. Ltr. Rul.

202013016). [14.2(a)] ◆

CONSERVATION DEED

AMENDMENT CLAUSES MAY

BE PERMISSIBLE

The IRS Chief Counsel, by advice memorandum

dated March 17, held that the fact that a conservation

easement deed includes an amendment clause does

not “necessarily” cause the easement arrangement to

fail to satisfy the gift deductibility rules (IRC § 170(h))

(CCAM 2020-001). The memorandum states that these

amendment clauses must be subjected to a case-by-case

analysis, considering the “context of the deed as a whole

and the surrounding facts and circumstances.”

A prototype compliant amendment provision is sup-

plied. It allows the easement deed to be amended

to “enhance” the property’s “conservation values” or

add real property subject to the deed’s restrictions. The

amendment may not, however, cause certain outcomes,

such as change the conservation purposes involved, affect

the easement’s perpetual duration, affect the status of

the easement as a qualified conservation contribution,

or “reduce the protection of the conservation values.”

[9.7] ◆

EYEWEAR GIFTS APPRAISAL

DOOMED CHARITABLE GIFT

DEDUCTION

The US Tax Court, by decision dated April 7, held

that a claimed charitable deduction for a gift of a set

of new designer eyeglass frames was properly disal-

lowed in its entirety by the IRS, principally because the

appraisal involved was not a qualified one (Campbell v.

Commissioner).

Pursuant to an eyewear charitable contribution

program, a company consolidated 349,629 designer

eyeglass frames into units of 3,432 and sold them for

$50,000 per unit. This promotion ostensibly enabled

each buyer to contribute, following a one-year holding

period, his or her unit of frames to a public charity, claim-

ing a charitable contribution deduction at the appraised

fair market value at the time of the gift. An offering

memorandum summarizing this promotion stated that

that value would be $225,596.

The appraiser opined, using the market approach

valuation method and a markup of the wholesale prices

of 35 percent, that the fair market value of the “donated

property” was $11,266,115.