Supreme Court Update

Published date01 September 2020
Date01 September 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
The TE/GE Division is said to acknowledge that its
scoring methods “are limited because it does not utilize
modern data practices.”
The report includes a detailed summary of the TE/GE
examination structure within the IRS and of the exami-
nation-selection processes. (See the article beginning on
p. 6.) [27.6(b)]
In what is now the sixth recent decision on the point,
the US Tax Court, by opinion dated June 17, held that a
claimed charitable deduction for a gift of a conservation
easement is not allowable because the easement deed
contains a defective judicial extinguishment clause (He-
witt v. Commissioner). This opinion is thus not notable
for that finding.
Not surprisingly, the government sought imposition
of accuracy-related penalties on the donor in the form
of the 40-percent gross valuation misstatement penalty
(IRC § 6662(h)) and, alternatively, the 20-percent pen-
alty for negligence or disregard of rules or regulations
and substantial understatements of income tax (IRC §
6662(a), (b)(1), (2)). As to the first of these penalties
and ascertainment as to whether fair market value was
overstated (by at least 200 percent), often a court will
consider expert opinions; that happened in this case.
Unusually, however, the court also relied on the testi-
mony of the donor, which the court found “credible,”
“helpful,” “reliable,” and “persuasive.”
As to the 20-percent penalty, courts may excuse the
penalty if there was reasonable cause and good faith,
if there was reasonable reliance on professional advice.
While that was found in this case, the court was also
impressed with the donor’s credibility and sincerity. The
court even excused the failure to provide the information
about basis on the Form 1023 (cf. Blau v. Commissioner
(summarized in the August 2019 issue)). Rarely has a
fact witness performed so well and been so positively
recognized by a court. [9.7]
The US Court of Appeals for the Sixth Circuit, on
June 17, declined to provide a full-court hearing
of its decision that a deemed-approval clause in a
contribution agreement that accorded the donee a
45-day window in which to prevent certain changes
to a façade easement arrangement was a violation of
the in-perpetuity requirement (Hoffman Properties II,
LP v. Commissioner). The decision of the three-judge
panel on the point is summarized in the July 2020
issue. [9.7]
June 23 brought three more opinions from the Tax
Court concerning defective judicial extinguishment
clauses in easement deeds involving charitable con-
tributions (see the previous article) (Plateau Holdings,
LLC v. Commissioner; Lumpkin One Five Six, LLC v.
Commissioner; Lumpkin HC, LLC v. Commissioner).
One of these cases (Plateau Holdings) nicely
illustrates application of accuracy-related penalties
in this context, involving gross valuation misstate-
ments, where a misstatement is gross if the value
of property claimed on a return is 200 percent or
more of the correct amount (IRC § 6662(e)(1)(A), (h)
(2)(A)(i)). This case involves charitable gifts of two
conservation easements, with the donor claiming a
charitable deduction of approximately $25.5 million.
The determination as to whether there is a valuation
misstatement is made on a “property-by-property
basis” (Reg. § 1.6662-5(f)(1)). The court found that
the value claimed by the donor for one easement is
852 percent of its correct value; the other claimed
value is 1,031 percent of its correct value.
July 9 witnessed four more of these opinions (Village
at Effingham, LLC v. Commissioner; Riverside Place,
LLC v. Commissioner; Maple Landing, LLC v. Com-
missioner; Englewood Place, LLC v. Commissioner),
followed by another on July 13 (Smith Lake, LLC v.
Commissioner). [9.7]
The US Supreme Court, on July 8, upheld the Trump
administration’s regulations providing exceptions to
the contraceptive mandate enacted as part of the
Patient Protection and Affordable Care Act (Little
Sisters of the Poor v. Pennsylvania). This decision
(7-2) is essentially predicated on the fact that the
act authorizes government regulators to create
these exemptions; the administration’s exceptions
are broader than those promulgated by the Obama
administration. The Court’s majority wrote that the
“plain language of the statute clearly allows” the
creation of “preventive care standards as well as the
religious and moral exemptions.”
The Court, also on July 8, reiterated and expanded
the ministerial exception to employment discrimina-
tion laws, articulated by the Court in 2012 (opinion
summarized in the March 2012 issue), by applying
the exception to teachers employed by religious
schools (Our Lady of Guadalupe School v. Morris-
sey-Berru; St. James School v. Darryl Biel). The Court’s

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