                              T.C. Memo. 2020-102



                        UNITED STATES TAX COURT



    VILLAGE AT EFFINGHAM, LLC, EFFINGHAM MANAGERS, LLC,
               TAX MATTERS PARTNER, Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2426-18.                          Filed July 9, 2020.



      Anson H. Asbury, Ethan J. Vernon, and Gilbert L. Carey, Jr., for petitioner.

      Christopher D. Bradley, Jason P. Oppenheim, John W. Sheffield III, and

John T. Arthur, for respondent.



                          MEMORANDUM OPINION


      LAUBER, Judge: This is one of many cases in this Court involving char-

itable contribution deductions for conservation easements. Currently before the

Court are cross-motions for partial summary judgment filed by the Internal Reve-
                                        -2-

[*2] nue Service (IRS or respondent) and by petitioner. The questions presented

by these motions are substantially identical to those decided adversely to the

taxpayers in PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir.

2018); Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. __ (May 12,

2020); Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019); Oakhill

Woods, LLC v. Commissioner, T.C. Memo. 2020-24; and Belair Woods, LLC v.

Commissioner, T.C. Memo. 2018-159. Following the analyses in those opinions

we will grant respondent’s motion and deny petitioner’s cross-motion.

                                    Background

      There is no dispute as to the following facts, which are drawn from the peti-

tion, the parties’ motion papers, and the attached declarations and exhibits.

Village at Effingham, LLC (Village), is a Georgia limited liability company (LLC)

that has operated at all times as a partnership for Federal income tax purposes.

Village had its principal place of business in Georgia when its petition was filed.

      In December 2008 Village acquired, apparently by contribution from HRH

Investments, LLC (HRH), a 175-acre tract of land in Effingham County, Georgia.

On December 28, 2010, Village donated a conservation easement over 165 acres

of that tract to the Georgia Land Trust (GLT or grantee), a “qualified organi-
                                         -3-

[*3] zation” for purposes of section 170(h)(3).1 We will refer to this 165-acre tract

as the conserved area or the Property. The deed of easement was recorded the

same day.2

      The easement deed recites the conservation purposes and generally prohibits

commercial or residential development. But it reserves certain rights to Village as

grantor, including the rights to conduct commercial agricultural and timber-

harvesting activities within the conserved area. Village also reserved the right to

construct within the conserved area “a limited number of improvements and

buildings.” These improvements could include the development of “woods roads”

for permitted agricultural and forestry activities, construction of agricultural

buildings (including barns and sheds) covering up to 50% of a designated one-acre


      1
        All statutory references are to the Internal Revenue Code (Code) in effect
for the year at issue, and all Rule references are to the Tax Court Rules of Practice
and Procedure. We round monetary amounts to the nearest dollar.
      2
       HRH or its affiliates contributed other tracts of land in Effingham County
to other LLCs, and Effingham Managers, LLC, petitioner in this case, served as
tax matters partner for most of these LLCs. Each LLC granted a conservation
easement to GLT. The IRS has challenged the charitable contribution deductions
claimed by the LLCs for those other donations. See Englewood Place, LLC v.
Commissioner, T.C. Memo. 2020-105; Maple Landing, LLC v. Commissioner,
T.C. Memo. 2020-104; Riverside Place, LLC v. Commissioner, T.C. Memo.
2020-103; Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24; Belair
Woods, LLC v. Commissioner, T.C. Memo. 2018-159; Red Oak Estates, LLC v.
Commissioner, T.C. Dkt. No. 13659-17; Cottonwood Place, LLC v. Commission-
er, T.C. Dkt. No. 14076-17.
                                        -4-

[*4] plot, maintenance of existing roads, and the construction of two residential

driveways and utilities (including water, septic, and power lines) to serve two

adjacent five-acre residential parcels owned by an affiliate of Village.

      The deed recognizes the possibility that the easement might be extinguished

at some future date. In the event the Property were sold following judicial extin-

guishment of the easement, paragraph 17 of the deed provided that “[t]he amount

of the proceeds to which Grantee shall be entitled, after the satisfaction of any and

all prior claims, shall be determined, unless otherwise provided by Georgia law at

the time, in accordance with the Proceeds paragraph.” (Neither party contends

that Georgia law “otherwise provide[s].”) Paragraph 19, captioned “Proceeds,”

specified that the grantee’s share of any future proceeds would be determined

      by multiplying the fair market value of the Property unencumbered by
      this Conservation Easement (minus any increase in value after the
      date of this Conservation Easement attributable to improvements) by
      the ratio of the value of the Conservation Easement at the time of this
      conveyance to the value of the Property at the time of this conveyance
      without deduction for the value of the Conservation Easement.

      Village timely filed Form 1065, U.S. Return of Partnership Income, for its

taxable year beginning December 22, 2010, and ending December 31, 2010. On

that return it claimed a charitable contribution deduction of $5,237,000 for its

donation of the easement. Village relied on an appraisal by David R. Roberts, who
                                        -5-

[*5] used the “before and after method” to determine the easement’s fair market

value (FMV).3

      Village included with its return a Form 8283, Noncash Charitable Contribu-

tions, executed by Mr. Roberts and GLT. When a taxpayer donates property

(other than publicly traded securities) valued in excess of $5,000, the taxpayer

must provide on Form 8283 specified information about the donated property,

including the date and method of acquisition and the donor’s “cost or adjusted

basis.” In the relevant boxes on Form 8283 Village wrote “see attachment” or

“SA” and appended a three-page attachment. The attachment stated that the Pro-

perty had been “acquired by donor” on December 17, 2008, by “purchase/-

exchange.” With respect to “cost or adjusted basis” Village stated:

      A declaration of the taxpayer’s basis in the property is not included in
      * * * the attached Form 8283 because of the fact that the basis of the
      property is not taken into consideration when computing the amount
      of the deduction.




      3
       Petitioner represents that Village’s cost basis for the 175-acre tract was
$300,989. Assuming that to be true, Mr. Roberts’ valuation supposed that the
Property had appreciated in value by more than 1,700% during one of the worst
financial crises to hit the United States since the Great Depression. Mr. Roberts
was the original appraiser in numerous other conservation easement cases that this
Court has decided. See, e.g., Plateau Holdings, LLC. v. Commissioner, T.C.
Memo. 2020-93; Woodland Prop. Holdings, LLC v. Commissioner, T.C. Memo.
2020-55; Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24.
                                        -6-

[*6] The IRS selected Village’s 2010 return for examination. On October 30,

2017, the IRS issued Village a timely notice of final partnership administrative

adjustment (FPAA) disallowing the charitable contribution deduction in full be-

cause Village had not shown that the requirements of section 170 were met. The

FPAA alternatively determined that, if any deduction were allowable, Village had

not established that the FMV of the easement exceeded $0. The FPAA determined

a 40% “gross valuation misstatement” penalty under section 6662(h) and (in the

alternative) a 20% accuracy-related penalty under other provisions of section

6662(a).

      Petitioner timely petitioned this Court for readjustment of the partnership

items, see sec. 6226(f), and the parties filed cross-motions for partial summary

judgment. Respondent contends that the charitable contribution deduction was

properly disallowed for two independently sufficient reasons. First, he contends

that the conservation purpose underlying the easement is not “protected in per-

petuity,” see sec. 170(h)(5)(A), because the easement deed fails to comply with the

regulations governing judicial extinguishment, see sec. 1.170A-14(g)(6), Income

Tax Regs. Second, he contends that Village did not attach to its 2010 return, as

the regulations require, a fully completed appraisal summary on Form 8283. See

sec. 1.170A-13(c)(2)(i)(B), Income Tax Regs. Petitioner contends that Village
                                        -7-

[*7] complied with all regulatory requirements and (if it did not) that the

regulations imposing these requirements are invalid. We have rejected all of

petitioner’s arguments in cases involving substantially similar deeds of easement,

and we do so again here.

                                     Discussion

A.    Summary Judgment Standard

      The purpose of summary judgment is to expedite litigation and avoid costly,

unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commis-

sioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment regard-

ing an issue as to which there is no genuine dispute of material fact and a decision

may be rendered as a matter of law. Rule 121(b); Elec. Arts, Inc. v. Commission-

er, 118 T.C. 226, 238 (2002). Petitioner has alleged no genuine dispute of materi-

al fact affecting the two questions that respondent has proposed for summary adju-

dication. We conclude that these issues may appropriately be adjudicated sum-

marily.

B.    Judicial Extinguishment

      The Code generally restricts a taxpayer’s charitable contribution deduction

for the donation of “an interest in property which consists of less than the taxpay-

er’s entire interest in such property.” Sec. 170(f)(3)(A). But there is an exception
                                        -8-

[*8] for a “qualified conservation contribution.” Sec. 170(f)(3)(B)(iii), (h)(1). For

the donation of an easement to be a “qualified conservation contribution,” the

conservation purpose must be “protected in perpetuity.” Sec. 170(h)(5)(A).

      The regulations set forth detailed rules for determining whether this “pro-

tected in perpetuity” requirement is met. Of importance here are the rules govern-

ing the mandatory division of proceeds in the event the property is sold following

a judicial extinguishment of the easement. See sec. 1.170A-14(g)(6), Income Tax

Regs. The regulations recognize that “a subsequent unexpected change in the con-

ditions surrounding the [donated] property * * * can make impossible or impracti-

cal the continued use of the property for conservation purposes.” Id. subdiv. (i).

Despite that possibility, “the conservation purpose can nonetheless be treated as

protected in perpetuity if the restrictions are extinguished by judicial proceeding”

and the easement deed ensures that the charitable donee, following sale of the

property, will receive a proportionate share of the proceeds and use those proceeds

consistently with the conservation purposes underlying the original gift. Ibid. In

effect, the “perpetuity” requirement is deemed satisfied because the sale proceeds

replace the easement as an asset deployed by the donee “exclusively for conserva-

tion purposes.” Sec. 170(h)(5)(A).
                                         -9-

[*9] The judicial extinguishment provisions of the deed in this case are substan-

tially similar to those that we considered in Coal Prop. Holdings, 153 T.C. at 130-

131. Following our reasoning in that case, we conclude that Village’s deed fails to

satisfy the “protected in perpetuity” requirement for two reasons.

      First, the regulatory fraction used in the deed to determine the grantee’s

proportionate share of post-extinguishment proceeds is applied, not to the full sale

proceeds--an amount presumably equivalent to the FMV of the Property at the

time of sale--but to the proceeds “minus any increase in value after the date of this

Conservation Easement attributable to improvements.” Thus, the grantee’s share

is improperly reduced on account of (1) appreciation in the value of improvements

existing when the easement was granted plus (2) the FMV of any improvements

that the donor or its successors subsequently make to the Property. By reducing

the grantee’s share in this way, the deed violates the regulatory requirement that

the donee receive, in the event the Property is sold following extinguishment of

the easement, a share of proceeds that is “at least equal to the proportionate value

that the perpetual conservation restriction at the time of the gift, bears to the value
                                        - 10 -

[*10] of the property as a whole at that time.” See sec. 1.170A-14(g)(6)(ii),

Income Tax Regs.4

      As we have noted previously, the requirements of this regulation “are strict-

ly construed.” Carroll v. Commissioner, 146 T.C. 196, 212 (2016). Because the

grantee in this case “is not absolutely entitled to a proportionate share of * * *

[the] proceeds” upon a post-extinguishment sale of the Property, the conservation

purpose underlying the contribution is not “protected in perpetuity.” Coal Prop.

Holdings, 153 T.C. at 127, 139 (quoting Carroll, 146 T.C. at 212); accord, Plateau

Holdings, LLC v. Commissioner, T.C. Memo. 2020-93; Oakbrook Land Holdings,

LLC v. Commissioner, T.C. Memo. 2020-54. The U.S. Court of Appeals for the

Fifth Circuit has likewise sustained the disallowance of a charitable contribution

deduction where the judicial extinguishment provision of an easement deed in-

cluded a carve-out for donor improvements similar to that here. See PBBM-Rose

Hill, 900 F.3d at 208.

      4
        The pre-contribution improvements to the conserved area in this case
appear to be less substantial than in Coal Prop. Holdings, LLC v. Commissioner,
153 T.C. 126, 131 (2019). But the deed reserved to Village the right to make post-
contribution improvements to the conserved area, including the rights (for exam-
ple) to construct barns, sheds, roads, driveways, and utilities (including water, sep-
tic, and power lines) to serve the conservation area and/or the adjacent residential
parcels. These factual differences have little impact on our analysis because the
regulation does not permit any reduction of the donee’s share on account of such
donor improvements.
                                        - 11 -

[*11] The easement deed here has a second problem, which was also present in

Coal Prop. Holdings. The grantee’s tentative share of the proceeds, as determined

under paragraph 19 of the deed, is adjusted further by paragraph 17. It provides

that the grantee’s share will be determined under the Proceeds paragraph, but only

“after the satisfaction of any and all prior claims.” Prior claims against the sale

proceeds might be held by various creditors of Village or its successors.

      It is not necessarily unreasonable for a deed to provide that prior claims may

be paid from sale proceeds. What is unreasonable is the requirement that all prior

claims be paid out of the grantee’s share of the proceeds, even if those claims

represent liabilities of Village or its successors. See Coal Prop. Holdings, 153

T.C. at 145 n.5. Because the grantee’s share of the proceeds is improperly reduced

by carve-outs both for donor improvements and for claims against the donor, the

deed’s judicial extinguishment provisions do not satisfy the regulatory require-

ments.

      If the regulation is interpreted, as we have interpreted it, to make Village

ineligible for a charitable contribution deduction, Village contends that the regu-

lation is invalid. It urges that section 1.170A-14(g)(6), Income Tax Regs., is an

“arbitrary and capricious” rule promulgated in violation of the Administrative

Procedure Act. And it contends that the regulation is substantively invalid under
                                        - 12 -

[*12] the test set forth in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467

U.S. 837 (1984). We comprehensively addressed and rejected both of these

arguments in a recent Court-reviewed Opinion. See Oakbrook Land Holdings,

154 T.C. at __ (slip op. at 15-33). We need not repeat that analysis here.

      In sum, we hold that the conservation purpose underlying the easement was

not “protected in perpetuity” as required by section 170(h)(5)(A). For that reason

the charitable contribution deduction claimed by Village must be denied in its en-

tirety. See Coal Prop. Holdings, 153 T.C. at 139. We will therefore grant respon-

dent’s motion for partial summary judgment on his first theory.5




      5
        Petitioner draws our attention to Priv. Ltr. Rul. 200836014 (Sept. 5, 2008)
(PLR), in which the IRS found unobjectionable an easement deed with a judicial
extinguishment clause resembling that here. Petitioner contends that respondent’s
interpretation of the regulation as set forth in that PLR is binding on respondent
under Auer v. Robbins, 519 U.S. 452, 461 (1997). Petitioner’s argument ignores
the fact that determinations embodied in a PLR “may not be used or cited as prece-
dent.” Sec. 6110(k)(3). The taxpayer in PBBM-Rose Hill brought the same PLR
to the Court of Appeals’ attention, but that court paid no heed to it, finding the
regulation unambiguous on its face. See PBBM-Rose Hill, Ltd. v. Commissioner,
900 F.3d 195, 207-208 (5th Cir. 2018). We have done the same. See Coal Prop.
Holdings, 153 T.C. at 144. In Oakbrook Land Holdings, LLC v. Commissioner,
T.C. Memo. 2020-54, we dismissed reliance on Auer deference because “the ‘tra-
ditional tools of construction’ le[d] us to hold that the Commissioner’s construc-
tion of the regulation is correct even if we look at the question de novo.” Id.
at *25 (quoting Kisor v. Wilkie, 588 U.S. __, __, 139 S. Ct. 2400, 2415 (2019)).
                                         - 13 -

[*13] C.     Appraisal Summary

      Where a contribution of property (other than publicly traded securities) is

valued in excess of $5,000, the taxpayer must “obtain[] a qualified appraisal of

such property and attach[] to the return * * * such information regarding such

property and such appraisal as the Secretary may require.” Sec. 170(f)(11)(C).

The required information includes “an appraisal summary” that must be attached

“to the return on which such deduction is first claimed for such contribution.”

Deficit Reduction Act of 1984 (DEFRA), Pub. L. No. 98-369, sec. 155(a)(1)(B),

98 Stat. at 691; see sec. 1.170A-13(c)(2), Income Tax Regs. The IRS has pre-

scribed Form 8283 to be used as the “appraisal summary.” Jorgenson v. Commis-

sioner, T.C. Memo. 2000-38, 79 T.C.M. (CCH) 1444, 1450. Failure to comply

with this requirement generally precludes a deduction. See sec. 170(f)(11)(A)

(providing that “no deduction shall be allowed” unless a taxpayer meets the

appraisal summary requirements of section 170(f)(11)(C)).

      In his response to petitioner’s cross-motion, respondent contends that Vil-

lage’s deduction should be disallowed because it failed to attach to its return a

properly completed appraisal summary. Petitioner contends that Village strictly

(or at least substantially) complied with the applicable regulation. In the alterna-

tive it contends that the regulation is invalid.
                                       - 14 -

[*14] The regulation requires the donor to “[a]ttach a fully completed appraisal

summary” to the tax return on which the charitable contribution deduction is first

claimed. Sec. 1.170A-13(c)(2)(i)(B), Income Tax Regs. A fully completed ap-

praisal summary must include “[t]he manner of acquisition * * * and the date of

acquisition of the [donated] property by the donor” as well as “[t]he cost or other

basis of the property.” Id. subpara. (4)(ii)(D) and (E). “If a taxpayer has reason-

able cause for being unable to provide the information required * * * (relating to

the manner of acquisition and basis of the contributed property), an appropriate

explanation should be attached to the appraisal summary.” Id. subdiv. (iv)(C)(1).

      In the relevant boxes on its Form 8283 Village wrote “see attachment” and

appended a three-page attachment. The attachment said that the Property had been

acquired by the donor on December 17, 2008, by “purchase/exchange.” It appears

that Village actually acquired the 175 acres by contribution from HRH. The

attachment said that Village would not provide cost basis information “because of

the fact that the basis of the property is not taken into consideration when comput-

ing the amount of the deduction.” The taxpayers in Oakhill Woods, at *7-*8, and

Belair Woods, 116 T.C.M. (CCH) at 326-327, had attached the same text, verba-

tim, to the Forms 8283 enclosed with their returns.
                                        - 15 -

[*15] We hold that Village did not report its cost basis information as the regula-

tion requires and as Form 8283 directs. The explanation it attached, far from

showing that it was unable to provide this information, simply asserted that the

information was not necessary. In effect, Village asserted that taxpayers are free

to ignore the requirement that they report cost basis. “Asserting that one may ig-

nore a requirement does not constitute strict compliance with it.” Oakhill Woods,

at *13; Belair Woods, 116 T.C.M. (CCH) at 327-328.

      In Bond v. Commissioner, 100 T.C. 32, 41-42 (1993), we held that some of

the reporting requirements in section 1.170A-13, Income Tax Regs., can be satis-

fied by substantial, rather than by literal, compliance. “The doctrine of substantial

compliance is designed to avoid hardship in cases where a taxpayer does all that is

reasonably possible, but nonetheless fails to comply.” Durden v. Commissioner,

T.C. Memo. 2012-140, 103 T.C.M. (CCH) 1762, 1763. Substantial compliance

may be shown where the taxpayer “provided most of the information required” or

made omissions “solely through inadvertence.” Hewitt v. Commissioner, 109 T.C.

258, 265 & n.10 (1997), aff’d without published opinion, 166 F.3d 332 (4th Cir.

1998). But in order to substantially comply, the taxpayer must satisfy all reporting

requirements that relate “to the substance or essence of the statute.” Bond, 100

T.C. at 41 (quoting Taylor v. Commissioner, 67 T.C. 1071, 1077 (1977)).
                                       - 16 -

[*16] We hold that Village did not substantially comply because its failure to sup-

ply cost basis violated the essence of the statute. In enacting DEFRA’s heightened

reporting requirements, Congress aimed to give the IRS tools that would enable it

to identify inflated charitable contribution deductions. See RERI Holdings I, LLC

v. Commissioner, 149 T.C. 1, 16-17 (2017), aff’d sub nom. Blau v. Commissioner,

924 F.3d 1261 (D.C. Cir. 2019). The requirement to disclose cost basis when that

information is reasonably obtainable is necessary to facilitate the Commissioner’s

efficient identification of overvalued property. Unless the taxpayer complies with

the requirement that he disclose his cost basis and the date and manner of acquir-

ing the property, the Commissioner will be deprived of an essential tool that Con-

gress intended him to have. See Oakhill Woods, at *15-*22; Belair Woods, 116

T.C.M. (CCH) at 328-330.6


      6
        Petitioner contends that Village supplied, elsewhere on its tax return,
information from which its cost basis could be derived, e.g., on Schedule L,
Balance Sheets per Books. We have rejected that argument previously and reject
it again here. See Oakhill Woods, at *19-*20; Belair Woods, 116 T.C.M. (CCH)
at 329. The regulation requires that “[a]n appraisal summary shall include”
information about basis. Sec. 1.170A-13(c)(4)(ii)(E), Income Tax Regs. The
explicit disclosure of basis on Form 8283 is essential in alerting the Commissioner
as to whether (and to what extent) further investigation may be needed. Where the
taxpayer states on Form 8283 (as Village did) that basis information will not be
provided, revenue agents cannot be required to sift through hundreds of pages of
complex returns looking for possible clues about what the taxpayer’s cost basis
might be.
                                       - 17 -

[*17] Nor is this a case where the taxpayer did “all that is reasonably possible,”

Durden, 103 T.C.M. (CCH) at 1763, or omitted information “solely through inad-

vertence,” Hewitt, 109 T.C. at 265 n.10. Village explicitly declined to report its

cost basis information, asserting that this information was unnecessary because

“basis * * * is not taken into consideration when computing the amount of the

deduction.” This was not an instance of inadvertent omission but of a conscious

election not to supply information damaging to its position.7

      Finally, petitioner in its cross-motion contends that the regulation requiring

disclosure of “cost or other basis” on the appraisal summary is invalid. According

to petitioner, this regulation does not “give effect to the unambiguously expressed

intent of Congress” and is thus invalid under Chevron, U.S.A., Inc., 467 U.S.

at 842-843. The taxpayer in Oakhill Woods, at *22-*27, made precisely the same

argument and we rejected it. We do so again here.

      For these reasons we hold that Village did not comply, strictly or substan-

tially, with the regulatory reporting requirements. Accord, Oakhill Woods, at *21-

*22; Loube v. Commissioner, T.C. Memo. 2020-3, at *15-*23; Belair Woods, 116

      7
       Given our disposition, we need not decide whether Village provided
inaccurate information concerning “[t]he manner of acquisition * * * and the date
of acquisition of the property by the donor,” sec. 1.170A-13(c)(4)(ii)(D), Income
Tax Regs., or (if it did) whether that failure would have supplied sufficient
grounds, standing alone, for disallowance of the charitable contribution deduction.
                                        - 18 -

[*18] T.C.M. (CCH) at 329-330. This failure supplied an independent ground for

denial of its charitable contribution deduction.8

      To reflect the foregoing,


                                                 An order will be issued granting

                                       respondent’s motion for partial summary

                                       judgment and denying petitioner’s cross-

                                       motion.




      8
       Section 170(f)(11)(A)(ii)(II) provides that a charitable contribution deduc-
tion may be allowed, notwithstanding the taxpayer’s failure to comply with the
appraisal summary requirements, “if it is shown that the failure to meet such
requirements is due to reasonable cause and not to willful neglect.” Petitioner has
not advanced a “reasonable cause” defense under this provision and has adduced
no facts that would be relevant in determining its availability.
