Hewitt v. Commissioner

The 11th Circuit vacated part of the Tax Court decision that disallowed the charitable deduction based on the improvements clause in the termination proceeds provision but affirmed the Tax Court’s decision on the valuation penalty.

Tax Court denied the deduction due to the flawed termination proceeds language. 11th Circuit affirmed. IRS claimed that the easement’s forest management provisions were inconsistent reserved rights but this issue was not addressed or decided.

Whether a post-closing “correction” or “amendment” can cure a flawed termination proceeds provision has arisen in a handful of recent cases. In an order denying the IRS’ motion for summary judgment, the Tax Court declined to rule that the deed correction was ineffective as a matter of law.

Oconee Landing Property, LLC granted a conservation easement to the Georgia-Alabama Land Trust in 2015 and claimed a $20,670,000 deduction. The easement's termination proceeds provision subtracted any amount attributable to post-conveyance improvements. The IRS challenged the easement.

The Tax Court disallowed the deduction in its entirety because it held that the easement had zero value. The Tax Court found the taxpayers' expert witness appraisers unconvincing, based on numerous methodological flaws.

IRS disallowed a CE deduction in full due to missing basis on Form 8283.Tax Court found for the IRS that taxpayer had not substantially complied and that the information is reasonably obtainable and necessary. The tax court follows that of RERI Holdings I, LLC v. Commissioner, 149 T.C. No. 1.

In an unpublished order, the Tax Court denied the IRS’ motion for summary judgment reserving the proceeds issue for trial, found the deemed approval provision as not fatal because of the limitations, and rejected that the building area was “moveable.”

The Tax Court took bits and pieces of the experts' data, then conducted its own valuation analysis and allowed a deduction of $560,000, based on a pre-easement highest and best use as a 40-lot subdivision.

The IRS challenged a façade easement deduction both on 170(f)(8) grounds and on valuation. The donee submitted an amended Form 990 return for the year in which the donation was made. The tax court held that a traditional contemporaneous written acknowledgment was necessary and denied the deduction.

In a proceeds clause case with the improvement deduction language, the Tax Court denied the deductions in full, following Oakbrook Land Holdings LLC, v. Commissioner and Coal Property Holdings, LLC v. Commissioner. The Tax Court declined to consider the IRS' argument on the floating building areas.