Tax Court In Brief | Thompson v. Commissioner | Conservation Easements: Donor Improvement Carve-Outs And Supervisory Approval For Valuation Penalties

• Published date: 26 July 2022
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

Thompson v. Commissioner, T.C. Memo. 2022-80 | July 20, 2022 |Lauber | Dkt. 8792-20.

Short Summary:

Petitioner made a conservation easement donation and claimed charitable contribution deductions. The IRS disallowed the deductions and asserted accuracy-related penalties (I.R.C. ' 6662(a)). The Petitioner timely field for redetermination. In its Answer, the Commissioner asserted additional penalties for valuation misstatements (I.R.C. ' 6662(e), (h)) and later filed for summary judgment.

Key Issues:

The court evaluated whether there was a genuine of material fact that:

• The IRS properly disallowed the deductions because the easement's conservation purpose was not "protected in perpetuity" consistent with I.R.C. ' 170(h)(5)(A) and
• The IRS secured supervisory approval of the penalties consistent with I.R.C. ' 6751(b)(1).

Protection in Perpetuity.

The Commissioner argued that the deed of easement improperly carved-out proceeds for "donor improvements" from a hypothetical sale of the property in the event the easement is extinguished.

Penalties.

Petitioner argued that the Commissioner failed to authenticate penalty approval forms and a sworn declaration. Therefore, he asserted the IRS would have to prove prior written approval at trial and that its personnel should be subject to cross-examination. Additionally, the Petitioner contended that prior written approval of the valuation penalties was ineffective because the relevant personnel lacked "real estate expertise" and failed to consult with a property valuation expert.

Primary Holdings:

• The Commissioner did not prove as a matter of law that the deed failed to protect the easement's conservation purpose in perpetuity. A prior Tax Court ruling supported the Commissioner's contention, but the Tax Court was bound by contradictory case law from the Eleventh Circuit.
• There was no genuine issue of material fact whether the IRS complied with prior supervisory approval requirement. The penalty approval forms and the supervisor's declaration were sufficient proof. Prior written supervisory approval for valuation penalties generally do not require explanation of assessments or comprehensive depth. Further, no appraisal was necessary because the Petitioner's own deductions presupposed a nearly 900% increase in value in just over a year, which the Court implied was not credible. Further, Petitioner failed to introduce a genuine issue of material fact because Petitioner did not allege that IRS communicated with him...