Morgan Run Partners, LLC v. Commissioner, T.C. Memo 2022-61 (U.S.T.C. June 14, 2022)
About This Legal Opinion
Summary of Facts and Issues: In November 2016, Greenwood Partners, LLC, acquired a 94% membership interest in Morgan Run Partners (Morgan) by contributing roughly 232 acres of land in Jefferson County. One month later, Morgan granted a conservation easement on the property to the National Farmer's Trust (NFT). The IRS disallowed the charitable contribution deduction, arguing that the termination proceeds provision violated the regulations. The easement did not explicitly require that any extinguishment occur through a judicial proceeding. Rather, it expressed the parties' intention that "no change in conditions … will at any time or in any event result in the extinguishment" of the easement. The easement further states that Morgan Run and NFT could agree to appropriate amendments, with the limitation that NFT would have no power to agree to any amendment that would violate Code section 170(h). And it included language requiring a proportionate share of proceeds would be owed to NFT in the event of an eminent domain award. The IRS also argued that this provision was flawed because it allowed for the subtraction of prior claims.
Holding: Based on the above-quoted changed conditions language and amendment provision, the Tax Court determined that Morgan Run had a reasonable argument that the easement did not violate the judicial extinguishment requirement in the regulations, and denied the IRS’s motion for summary judgment. On the prior claims issue, the Tax Court again sided with the taxpayer, finding that because the prior claims would be subtracted from both parties’ shares, and not just NFT’s, there was no clear violation of the regulations. Therefore, the Tax Court denied the IRS motion for summary judgment and the case proceeds to trial.
Analysis and Notes: This is a surprisingly lenient opinion by Judge Lauber, especially on the judicial proceeding requirement.
State: Alabama
Procedural Status: Case active.
Date: 2022
Keywords: Charitable deduction; Internal Revenue Code; private conservation easement; proceeds provision; syndication; termination; valuation.
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