Railroad Holdings, LLC v. Commissioner

Summary of Facts and Issues: In 2012, Railroad Holdings LLC granted a conservation easement on a 452-acre parcel to the Southeast Regional Land Conservancy and claimed a charitable contribution deduction of $16 million. The easement contained a termination proceeds provision that differed from the language of Reg. § 1.170A-14(g)(6)(ii). Instead of establishing the proceeds based on the donee's 'proportionate value' of the protected property, the easement used the 'fair market value' at the time of donation, which was to remain constant over time. The fair market value was thus a fixed dollar amount that would not change even if the value of the underlying protected property increases.

Holding: The Tax Court denied the deduction in its entirety based on the termination provision. The Court cited the recently decided Coal Property Holdings, LLC for the holding that the donee's entitlement to a proportionate share of the extinguishment proceeds must be absolute.

Analysis and Notes: This case is yet another reminder that easements for which a charitable deduction is claimed should use a termination proceeds provision that tracks the Regulations verbatim. Although not the focus of the opinion, the facts suggest a very aggressive appraisal. The land subject to the easement, along with an additional two acres, was purchased for $4 million in 2008, rendering the $16 million deduction four years later rather improbable. The same essential facts were presented, with the same disposition, in Rock Creek Property Holdings, LLC v. Commissioner, No. 5599-17 (U.S.T.C. Feb. 10, 2020) and Woodland Property Holdings, LLC v. Commissioner, T.C. Memo 2020-55 (U.S.T.C. May 13, 2020).