Conservation Easement Litigation

Date01 April 2020
Published date01 April 2020
April 2020 5
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
received by an independent contractor for performance
of services constitutes self-employment income; (4) vir-
tual currency paid by an employer as remuneration for
services constitutes wages for employment tax purposes;
(5) payments made using virtual currency are subject to
backup withholding; and (6) taxpayers can be subject to
penalties for failure to comply with the tax laws.
For US tax purposes, transactions using virtual cur-
rency must be reported in US dollars. Therefore, taxpay-
ers are required to determine the fair market value of
virtual currency in US dollars as of the date of payment
or receipt. If a virtual currency is “listed on an exchange
and the exchange rate is established by market supply
and demand, the fair market value of the virtual currency
is determined by converting the virtual currency into U.S.
dollars (or into another real currency which in turn can
be converted into U.S. dollars) at the exchange rate, in a
reasonable manner that is consistently applied.”
Charitable Deduction Law
One of these two answers (35) states that charitable
organizations can assist their donors of virtual currency
by providing, when required, a contemporaneous written
acknowledgment of the gift (IRC § 170(f)(8)). This answer
also references the Form 8283 filing requirement and the
more-than-$5,000-in-value rule concerning appraisals
(IRC § 170(f)(11)(C)). The answer does not state outright
that the appraisal rules apply to contributions of virtual
currency, but that is the obvious implication.
The other answer (36) states that charities that
receive gifts of virtual currency must report them on
Schedule M of the annual information return and refer-
ences the Form 8282 filing requirement.
A partnership conveyed to a qualified charitable
organization an easement that restricts use of the
covered property and generally prohibits construc-
tion or occupancy of any dwellings. The donor, how-
ever, retained the right to build single-family units in
specified areas, subject to the donee’s approval. The
US Tax Court held that the uses permitted within
the building areas prevented achievement of the
conservation purposes in the easement in its entirety,
thus causing the easement to fail one of the tax reg-
ulation’s perpetual protection requirements (Carter
v. Commissioner (February 3)). The court rested its
conclusion on the Pine Mountain Preserve case (sum-
marized in the March 2019 issue), in which the court
rebuffed the Fifth Circuit’s entreaty to not interpret
the conservation easement rules too narrowly (BC
Ranch II, LP v. Commissioner (summarized in the
October 2017 issue)).
An organization executed a conservation easement
deed in favor of a qualified charitable organization.
This deed provided that if the easement was extin-
guished and proceeds were allocated between the
donor and donee, the charity “shall be entitled to
a portion of the proceeds at least equal to the fair
market value of the conservation easement . . . as
of the date of this conservation easement,” rather
than be entitled to a proportionate share of the pro-
ceeds.” The US Tax Court agreed with the IRS that
the claimed deduction for this gift must be denied
in its entirety, because the deed does not create a
proportion that represents the donee’s share of the
property right and “hence a corresponding frac-
tion of proceeds to which the donee is perpetually
entitled” (Railroad Holdings, LLC v. Commissioner
(February 5)). The court analogized to its finding in
Coal Property Holdings (summarized in the January
2020 issue), where the deed there “achieved an
impermissible diminution in the donee’s entitlement
by expressly subtracting the increase in value that
was attributable to subsequent improvements.”
The court added: “The deed here achieves such a
diminution by applying its formula to a date-of-gift
value that would exclude subsequent appreciation.
Neither of these approaches complies with the
A limited liability company made a charitable gift
of a conservation easement, claiming an $8 million
charitable deduction. The IRS denied the deduction
in its entirety, because the donor did not attach a fully
completed appraisal summary to its tax return. Specif-
ically, the donor did not disclose the basis amount of
the contributed property. The US Tax Court held that
the donor did not strictly comply with the requisite
requirements (Oakhill Woods, LLC v. Commissioner
(Feb. 13)). The donor supplied the requisite informa-
tion three years after its return was filed and only after
learning that the IRS examination, in the court’s words,
“might have an unhappy ending.” The court observed
that the tax regulations create a “prophylactic rule
designed to provide the IRS with information to help
it decide whether to commence an examination”
and that the regulations “would be meaningless if
a taxpayer could cure noncompliance ex post facto,
after learning that an examination had begun and
was headed toward an adverse outcome.” The court
was skeptical of the donor’s position, which was that
the underlying land appreciated in value “by more
than 800 percent over three and a half years amid
the worst real estate crisis since the Great Depres-
sion.” Nonetheless, the court declined to grant com-
plete summary judgment to the government, noting
that disputes of material fact exist as to whether the
donor had reasonable cause for its failure to supply a
fully completed appraisal summary. [9.7]

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT