Conservation Deeds And Consistency With Treasury Regulations

• Published date: 24 June 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation
• Law Firm: Freeman Law
• Author: Mr Micah Miller

Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner v. Comm'r, T.C. Memo. 2022-61 | June 14, 2022 | Lauber, J. | Docket No. 8669-20

Short Summary: Morgan Run Partners, LLC ("Morgan" or "Petitioner") petitioned the Tax Court for readjustment of partnership items after the IRS disallowed a deduction and assessed penalties. The IRS disallowed Morgan's charitable contribution deduction for a syndicated conservation easement, which it claimed on a timely Form 1065 and supported with an appraisal.

>Morgan granted to the National Farmer's Trust (the "Trust") a conservation easement over 232 acres of land. Petitioner timely filed a return and for 2016 and a deduction of $26 million for donation of the easement. The IRS then selected Morgan's return for an examination. The Revenue Agent (RA) recommended assessing penalties under IRC sections 6662 and 6662A. Her manager agreed and signed an approval form in September of 2019. In late October the RA mailed petitioner documents detailing the proposed adjustments and penalties. Then in January 2020, the IRS sent a notice of final partnership administrative adjustment (FPAA), including a Form 886-A, Explanation of Items.

Key Issues:

In a Motion for Summary Judgment, the IRS asked the Court to find that procedure was properly followed and attacked various aspects of the easement deed, arguing that certain of its terms did not comply with the requirement that a conservation easement's purpose must be "protected in perpetuity" to be deductible. See IRC ' 170(f)(3)(A), 170(f)(B)(iii), (h)(1), (5)(A); see TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th 1354, 1362 (11th Cir. 2021); PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 201 (5th Cir. 2018). The Tax Court's opinion evaluated whether:

• disallowing the deduction was appropriate because the easement's conservation purpose was not "protected in perpetuity" as required by IRC section 170(h)(5)(A); and
• the IRS secured timely supervisory approval of the penalties in compliance with section 6751(b)(1).

Primary Holdings:

• Despite apparent failures to formally provide certain legal provisions required in the relevant Treasury Regulations Morgan's easement deed did not conclusively fail to comply with the statutory requirement that a conservation easement be "protected in perpetuity" as interpreted under the Treasury Regulations such that the court would grant summary judgment.
• Petitioner's speculative assertions that the RA may have communicated...