Donor Secures Major Win in Quid Pro Quo Contribution Case

• Date: 01 October 2020
• DOI: http://doi.org/10.1002/npc.30777
• Published date: 01 October 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

4 October 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

• Final regulations relating to publication of informa-

tion about exempt organizations to state officials

(IRC § 6104(c)) (low priority). The proposed regula-

tions are summarized in the May 2011 issue.

• Final regulations identifying the high-level Treasury

official authorized to initiate church tax inquiries

and examinations (IRC § 7611) (low priority). The

proposed regulations are summarized in the October

2009 issue. ◆

…AND HERE IS THE

ACCOUNTANTS’ LIST

The American Institute of Certified Public Accountants

submitted, by letter dated August 7, its suggestions re-

garding the contents of the Priority Guidance Plan. Here

is the list in the exempt organizations setting:

• Final regulations concerning the bucketing rule, plus

regulations concerning the methods of allocating

expenses relating to dual-use facilities.

• Final regulations as to payment of the tax on excess

compensation.

• Final regulations as to the college and university

investment income tax.

• Proposed regulations concerning the donor-advised

fund rules.

• Guidance as to philanthropic businesses.

• Final regulations relating to publication of informa-

tion about exempt organizations to state officials.

• Final regulations concerning the church audit rules.

• Guidance, in the self-dealing context, regarding a

private foundation’s investment in a partnership in

which disqualified persons are also partners.

• Final regulations concerning supporting organiza-

tions. Proposed regulations were issued in 2016

(summarized in the April 2016 issue).

• Final regulations concerning ABLE programs. Pro-

posed regulations were issued in 2015 (summarized

in the August 2015 issue).

• Guidance regarding the treatment of Paycheck Pro-

tection Program loan forgivenesses from the stand-

point of characterization on annual information

returns and the public support tests. ◆

IRS KEEPS ON WINNING IN

CONSERVATION EASEMENT

GIFT DEDUCTION CASES

Another case denying a charitable contribution de-

duction for a charitable gift of a conservation easement

because of a defective judicial extinguishment clause

was decided by the US Tax Court on July 22 (Belair

Woods, LLC v. Commissioner). Recent decisions on this

point, finding transgression of the “in perpetuity” re-

quirement (IRC § 170(h)(5)(A)), are summarized in the

August and September 2020 issues.

This opinion is notable only in that the petitioner

proffered in support of its position, in the words of the

court, “several arguments that we have not previously

addressed.” All were rejected.

One of these arguments was that judicial estoppel

prevents the IRS from disallowing the charitable deduc-

tion because, in another case, the government stipulated

that an easement deed with an analogous extinguish-

ment clause satisfied the requirement in the regulations

(Reg. § 1.170A-14(g)(6)) (DMB Realco LLC v. United

States (D. Ariz. 2016)). But the government’s stipulation

was dismissed as “simply a concession” made to facili-

tate the entry of summary judgment on another theory.

Another contention was based on the rule that the

charitable donee must be entitled to a proportionate

share of proceeds from a subsequent sale, exchange,

or involuntary conversion of the “subject property.”

The donor asserted that the subject property is only the

“underlying land,” not improvements at issue in the

case. The court ruled (citing IRC § 170(h)(2)(C)) that the

restriction imposed by the easement deed apply to both.

A third rejected argument was that these future

improvements “would not meaningfully increase the

value” of the property involved. But the court wrote that

“[r]oads, driveways, irrigation systems, water pipes, elec-

tric cables, and septic systems have value intrinsically and

as furnishing essential services to [the donor’s] adjoining

residential parcels.”

Thereafter, the IRS picked up two more Tax Court

wins on the basis of this issue. In these cases, dated

August 4, the court ruled that the easement deed

involved violated the regulations because they provide

that the portion of the proceeds required to be allocated

to the donee in the event of an extinguishment must be

reduced by the value of any improvements to the land

made by the donor after grant of the easement (Cotton-

wood Place, LLC v. Commissioner; Red Oak Estates, LLC

v. Commissioner). [9.7] ◆

DONOR SECURES MAJOR

WIN IN QUID PRO QUO

CONTRIBUTION CASE

A real estate developer obtained approval for an af-

fordable housing project. On two occasions during the

process, he contributed acreage to the town involved,

claiming a charitable contribution deduction of $1.5

million on one occasion and $2.5 million on the other.

The IRS disallowed carryover deductions on the grounds

that the properties were transferred without charitable