                               T.C. Memo. 2012-198



                         UNITED STATES TAX COURT



 GAYLE O. AVERYT AND MARGARET F. AVERYT, ET AL.,1 Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 18034-10, 18035-10,             Filed July 16, 2012.
                  18036-10, 18037-10.



      Paul George Topolka and William Marion Wilcox IV, for petitioners.

      Randall L. Eager, Jr. and David M. McCallum, for respondent.




      1
         Cases of the following petitioners are consolidated herewith for purposes of
trial, briefing, and opinion: William T. Cassels, Jr., and Charlotte R. Cassels,
docket No. 18035-10; J. Paul Gaughf and Holly S. Gaughf, docket No. 18036-10;
and John H. Lumpkin, Jr., and Emily S. Lumpkin, docket No. 18037-10. We will
hereinafter refer to these consolidated cases as the instant case.
                                           -2-

                             MEMORANDUM OPINION


      WELLS, Judge: The instant case is before the Court on respondent’s motion

for summary judgment and petitioners’ cross-motion for partial summary judgment

pursuant to Rule 121.2 Respondent determined deficiencies with respect to

petitioners as follows:

Petitioners        2002             2004               2005               2006

 Averyt            ---            $92,774           $132,404            $70,143
 Cassels        ($96,836)            ---             384,720               ---
 Gaughf            ---             42,707             12,488             71,643
 Lumpkin           ---            148,132             71,847             16,755

The issue we must decide is whether petitioners have satisfied the substantiation

requirements of section 170(f)(8) with respect to the contribution of a conservation

easement through their limited liability company, Cook’s Mountain Timber, LLC

(CMT).

                                      Background

      The facts set forth below are based upon examination of the pleadings,

moving papers, responses, and attachments. Petitioners were all residents of South

Carolina at the time they filed their petitions.

      2
       Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended, and Rule references are to the Tax Court Rules of
Practice and Procedure.
                                         -3-

      During all relevant periods, Gayle O. Averyt, William T. Cassels, Jr., J. Paul

Gaughf, and John H. Lumpkin, Jr. (petitioner members), were members of CMT.3

CMT had two other members who are not parties to the instant case. On December

29, 2004, CMT conveyed a conservation easement to Wetlands America Trust, Inc.

(WAT), on 1,092.069 acres of land it owned in Richland County, South Carolina.

WAT is a tax-exempt organization that was founded in 1985 to expand the mission

of Ducks Unlimited, Inc. (DU), to protect wetlands. DU is the sole member of

WAT, and WAT operates as a fiduciary for DU and manages its endowments.

      The deed by which CMT conveyed the conservation easement to WAT

(conservation deed) includes, inter alia, the following statements about the transfer

of the conservation easement:

            WHEREAS, Grantor and Grantee recognize the natural, scenic,
      aesthetic, and special character and opportunity for enhancement of the
      Protected Property, and have the common purpose of the conservation and
      protection in perpetuity of the Protected Property as “a relatively natural




      3
       The unified audit and litigation procedures of the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, sec. 401, 96 Stat. at 648,
do not apply to CMT because it qualifies as a small partnership under sec.
6231(a)(1)(B)(i) and did not elect pursuant to sec. 6231(a)(1)(B)(ii) to have TEFRA
apply. See Wadsworth v. Commissioner, T.C. Memo. 2007-46.
                                            -4-

      habitat of fish, wildlife or plants or similar ecosystem” as that phrase is used
      in 26 USC 170(h)(4)(A)(ii) and Section 170(h)(4)(A)(ii) of the Internal
      Revenue Code of 1986, as amended (“the Code”), and in regulations
      promulgated thereunder by placing voluntary restrictions upon the use of the
      Protected Property and by providing for the transfer from the Grantor to the
      Grantee of affirmative rights for the protection of the Protected Property; and
      so as to qualify as a contribution of a “qualified conservation contribution” as
      that term is defined under Section 170(h)(2)(C) of the Code * * *

                   *        *        *       *        *        *       *

             NOW, THEREFORE, the Grantor, in consideration of the foregoing
      recitations and of the mutual covenants, terms, conditions and restrictions
      hereinunder set forth and as an absolute and unconditional gift, subject to all
      matters of record, does hereby freely give, grant, bargain, donate and convey
      unto the Grantee, and its successors and assigns, the Easement over the
      Protected Property subject to the covenants, conditions and restrictions
      hereinafter set forth which will run with the land and burden the Protected
      Property in perpetuity.

                   *        *        *       *        *        *       *

             Entire Agreement. This instrument sets forth the entire agreement of
      the parties with respect to the Easement and supercedes all prior discussions,
      negotiations, understandings, or agreements relating to the Easement, all of
      which are merged herein. * * *

The conservation deed includes a detailed description of the conservation

easement’s restrictions, WAT’s rights pursuant to the easement, and the rights

reserved to CMT. Additionally, the conservation deed includes a description of the

property on which CMT placed the conservation easement. The conservation deed

was executed on various dates during December 2004 by all of the members of
                                         -5-

CMT, including petitioner members. The conservation deed was also executed by

James West, WAT’s assistant secretary. The conservation deed was recorded on

December 30, 2004.

      During 2004, in addition to the conservation easement contributed to WAT

through CMT, petitioner members separately each donated $6,250 in cash to DU.4

The conservation deed makes no reference to those separate donations.

      On February 10, 2005, DU mailed to each petitioner member a letter

acknowledging its receipt of the conservation easement and his individual cash

contribution of $6,250. Those letters are substantially identical and state, with

respect to the contributions:

      On behalf of Ducks Unlimited, I would like to personally thank you for your
      recent donation of a conservation easement on Cooks [sic] Mountain. We are
      grateful for the opportunity to protect a vital piece of South Carolina’s
      Lowcountry wildlife habitat through this easement. I would also like to
      acknowledge your gift of $6,250 to the Ducks Unlimited Lowcountry
      Initiative Endowment. Per your request, this gift will be recognized as a Life
      Sponsorship under Mark R. Hoover. I will be sending your son a Life
      Sponsor pen and pendant from this office. Your gift will enable us to uphold
      the legal obligation to protect and maintain your conservation easements [sic]
      in perpetuity.



      4
        It is unclear whether respondent allowed deductions for the $6,250 cash
contributions. In any case, because petitioners did not raise the treatment of those
deductions as an error in their petitions, we assume the parties are in agreement on
the treatment of the cash contributions, and we will not address that issue herein.
                                         -6-

On February 28, 2005, DU mailed petitioner members another letter correcting the

letter of February 10, 2005. Those letters stated:

      I want to offer an apology for a recent administrative error. Brett Baker
      dictated two letters to me on February 10th, both pertaining to recent
      endowment gifts. The other easement donor had requested that his
      endowment gift be credited as a Life Sponsorship under his son’s name. I
      mistakenly put that sentence in the wrong letter and my error did not get
      noticed until we were actually filing the letters.

      Please accept my apology for this mistake. The endowment gift associated
      with Cooks [sic] Mountain will not be recognized as a Life Sponsorship to
      Mark R. Hoover as your letter had stated.

Aside from the quoted material, none of the letters discussed whether petitioner

members received any goods or services in exchange for their contributions.

      On or about April 1, 2005, CMT timely filed its 2004 Form 1065, U.S.

Return of Partnership Income. On its return, CMT reported charitable contributions

of $5,496,000, which was the appraised value of the conservation easement donated

to WAT. The value of the conservation easement donation passed through to each

of CMT’s members, and petitioner members claimed pro rata shares of the

deduction on their individual returns, which they filed jointly with their respective

spouses, who are also petitioners in the instant case.
                                           -7-

       Respondent selected petitioners’ tax returns for examination and, on May 18

and 19, 2010, issued notices of deficiency to petitioners. On August 11, 2010,

petitioners timely filed their petitions in this Court.

                                        Discussion

       Rule 121(a) provides that either party may move for summary judgment upon

all or any part of the legal issues in controversy. Full or partial summary judgment

may be granted only if no genuine issue exists as to any material fact and the issues

presented by the motion may be decided as a matter of law. See Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965

(7th Cir. 1994).

       As a general rule, a charitable contribution of $250 or more must be

substantiated with a contemporaneous written acknowledgment from the donee

organization. Sec. 170(f)(8)(A). The contemporaneous written acknowledgment

“‘need not take any particular form. Thus, for example, acknowledgments may be

made by letter, postcard, or computer-generated forms.’” Schrimsher v.

Commissioner, T.C. Memo. 2011-71 (quoting H.R. Conf. Rept. No. 103-213, at

565 n.32 (1993), 1993-3 C.B. 393, 443). Section 170(f)(8)(B) provides that the

contemporaneous written acknowledgment must include the following information:
                                             -8-

            (i) The amount of cash and a description (but not value) of any
      property other than cash contributed.

            (ii) Whether the donee organization provided any goods or services in
      consideration, in whole or in part, for any property described in clause (i).

             (iii) A description and good faith estimate of the value of any goods or
      services referred to in clause (ii) * * *

Section 170(f)(8)(C) defines a “contemporaneous” acknowledgment as one received

on or before the earlier of: (i) the date on which the taxpayer files a return for the

year when the contribution was made; or (ii) the due date for that return, including

any extensions.

       Section 170(f)(8)(D) provides that the requirement of a contemporaneous

written acknowledgment does not apply if the donee organization files a return, on a

form and in the manner regulations may prescribe, which includes the information

described in subparagraph (B). Additionally, section 170(f)(8)(E) authorizes the

Commissioner to prescribe appropriate regulatory exceptions to “some or all” of the

requirements of section 170(f)(8). Pursuant to that authority, the Commissioner has

issued regulations providing that goods and services “are disregarded” for purposes

of section 170(f)(8) if they have “insubstantial value” under guidelines provided in

Rev. Proc. 90-12, 1990-1 C.B. 471, Rev. Proc. 92-49, 1992-1 C.B. 987, and any

successor documents. Sec. 1.170A-13(f)(8)(i)(A), Income Tax Regs. Those
                                          -9-

guidelines provide that benefits received in exchange for a payment to a charity will

be considered to have insubstantial value if both of the following requirements are

satisfied: (1) the payment occurs within the context of a fundraising campaign in

which the charity informs patrons how much of their payment is a deductible

contribution; and (2) either (a) the fair market value of all of the benefits received is

the lesser of 2% of the donor’s payment or (for tax years beginning in 2004) $82, or

(b) the payment is (for tax years beginning in 2004) $41 or more and the only

benefits received are “token items”. Rev. Proc. 90-12, sec. 3.01, 1990-1 C.B. at

472; Rev. Proc. 2003-85, sec. 3.22(2), 2003-2 C.B. at 1189.

      Section 170(f)(8) provides that no deduction shall be allowed unless the

contribution is substantiated in accordance with the terms of that section. Congress

enacted the substantiation requirements of section 170(f)(8) because many

organizations were failing to inform donors that portions of the amounts donors paid

to those organizations were not deductible because they were part of quid pro quo

exchanges. See Addis v. Commissioner, 118 T.C. 528, 536 (2002), aff’d, 374 F.3d

881 (9th Cir. 2004); H.R. Rept. No. 103-111, at 783, 785 (1993), 1993-3 C.B. 167,

359, 361. “The deterrence value of section 170(f)(8)’s total denial of a deduction

comports with the effective administration of a self-assessment and self-reporting
                                          - 10 -

system.” Addis v. Commissioner, 374 F.3d at 887. The doctrine of substantial

compliance does not apply to excuse compliance with the substantiation

requirements of section 170(f)(8)(B).5 Durden v. Commissioner, T.C. Memo. 2012-

140.

       Petitioners contend, inter alia, that the February 10, 2005, letters satisfy the

requirements of section 170(f)(8)(B)(ii) and (iii) because they state that DU

provided petitioner members’ sons with pens and pendants in recognition of

petitioner members’ gifts. Petitioners further contend that, because the February 10,

2005, letters state that petitioner members’ sons received pens and pendants, it

would have been untrue for those letters to state that petitioner members received no

goods or services in consideration for their contributions. Because the pens and

pendants had only nominal value, petitioners contend that pursuant to section

1.170A-13(f)(8)(i)(A), Income Tax Regs., Rev. Proc. 90-12, supra, and Rev. Proc.

92-49, supra, they should be disregarded for purposes of determining whether

petitioner members’ contributions satisfied section 170(f)(8). Petitioners’

contentions regarding the February 10, 2005, letters lack merit.


       5
       As we noted in Durden v. Commissioner, T.C. Memo. 2012-140, the
doctrine of substantial compliance has been applied most often in cases involving
procedural regulatory requirements. See, e.g., Bond v. Commissioner, 100 T.C. 32,
41-42 (1993); Consol. Investors Grp. v. Commissioner, T.C. Memo. 2010-158.
                                         - 11 -

      Firstly, the parties are in agreement that petitioner members’ sons never

received pens and pendants and that, as clarified in the February 28, 2005, letters,

the portion of the February 10, 2005, letters referring to those items was

inaccurate.

      Secondly, even if petitioner members’ sons had received pens and pendants

as stated in the February 10, 2005, letter, the letters do not comply with the

requirements of Rev. Proc. 90-12, sec. 2.05, 1990-1 C.B. at 472, which states:

      The Service has determined that a benefit may be so inconsequential or
      insubstantial that the full amount of a contribution is deductible under section
      170 of the Code. Under the following guidelines, charities offering certain
      small items or other benefits of token value may treat the benefits as having
      insubstantial value so that they may advise contributors that contributions are
      fully deductible under section 170.

As explained above, the guidelines in Rev. Proc. 90-12, sec. 3.01(1), require that

the payment occur “in the context of a fund-raising campaign in which the charity

informs patrons how much of their payment is a deductible contribution”.

(Emphasis added.) Because the February 10, 2005, letters from DU failed to inform

petitioner members how much of each payment was a deductible contribution, even

had the payment occurred in the context of a fundraising campaign the letters would

fail to satisfy the requirements of Rev. Proc. 90-12, supra. Accordingly, we

conclude that the February 10, 2005, letters fail to satisfy the requirements for a
                                        - 12 -

contemporaneous written acknowledgment pursuant to section 170(f)(8) and Rev.

Proc. 90-12, supra.

      Alternatively, petitioners contend that the conservation deed constitutes a

contemporaneous written acknowledgment that complies with the requirements of

section 170(f)(8). In Simmons v. Commissioner, T.C. Memo. 2009-208, aff’d, 646

F.3d 6 (D.C. Cir. 2011), we considered a similar argument and held that the deeds

in that case satisfied the substantiation requirements of section 170(f)(8).6 The

Court noted that the deeds were signed by a representative of the donee

organization, were contemporaneous with the donation, and described the easement

donated. Id. Similarly, in the instant case, the conservation deed was signed by a

representative from WAT, provided a detailed description of the property and the

conservation easement, and was contemporaneous with the contribution.

Additionally, the conservation deed in the instant case states that the conservation

easement is an unconditional gift, recites no consideration received in exchange for

it, and stipulates that the conservation deed constitutes the entire agreement between

the parties with respect to the contribution of the conservation easement.

      6
        Although the Court in Simmons v. Commissioner, T.C. Memo. 2009-208,
aff’d, 646 F.3d 6 (D.C. Cir. 2011), held that the deed satisfied the sec. 170(f)(8)
substantiation requirements, it did not specifically address the requirement that the
written acknowledgment state whether the donee organizations provided any goods
or services.
                                         - 13 -

Accordingly, the conservation deed, taken as a whole, provides that no goods or

services were received in exchange for the contribution. Consequently, we

conclude that, as in Simmons, the conservation deed in the instant case satisfies the

substantiation requirements of section 170(f)(8).

      Respondent contends that the instant case is more analogous to Schrimsher v.

Commissioner, T.C. Memo. 2011-71, in which the Court held that the taxpayers’

contribution of a conservation easement was not deductible because the taxpayers

did not receive a contemporaneous written acknowledgment from the donee

organization. In Schrimsher, the deed recited as consideration “the sum of TEN

DOLLARS, plus other good and valuable consideration”. Because that deed

included no description and good faith estimate of the value of the “other good and

valuable consideration”, the Court concluded that it failed to satisfy section

170(f)(8)(B)(ii) and (iii). However, we conclude that the instant case is

distinguishable from Schrimsher because the conservation deed in the instant case

states that the contribution of the conservation easement is made “in consideration

of the foregoing recitations and of the mutual covenants, terms, conditions, and

restrictions hereinunder set forth”, which include recitations of the property’s

conservation value but include no consideration of any value besides the

preservation of the property, states that the easement is an “absolute and
                                        - 14 -

unconditional gift”, and provides that the conservation deed constitutes the entire

agreement between the parties regarding the contribution of the conservation

easement. Accordingly, we reject respondent’s argument.

      Respondent also contends that the Court’s holdings in two recent cases,

Friedman v. Commissioner, T.C. Memo. 2010-45, and Hollingsworth v.

Commissioner, T.C. Memo. 2010-262, are incompatible with petitioners’ contention

that the conservation deed may serve as a contemporaneous written

acknowledgment. We disagree. Neither of those cases considered the question of

whether a deed could serve as a contemporaneous written acknowledgment.

Respondent emphasizes that both Friedman and Hollingsworth reiterate the

necessity that the contemporaneous written acknowledgment state whether any

consideration was received by the donors in exchange for the contribution.

However, as we explained above, the conservation deed in the instant case states

that the contribution was made as a gift and not for any consideration. Additionally,

we note that Durden v. Commissioner, T.C. Memo. 2012-140, does not support

respondent’s contention. Although we held in that case that the statute requires an

“affirmative statement” regarding whether the donee organization provided any

goods or services, we did not hold, and the statute does not require, that the

statement take any particular form or contain any particular wording. We conclude
                                         - 15 -

that none of the cases7 cited by respondent is incompatible with our holding in

Simmons or with our holding in the instant case that a deed may serve as a

contemporaneous written acknowledgment in accordance with section 170(f)(8) so

long as it satisfies the requirements of the statute. Accordingly, we hold that

petitioners have satisfied the requirements of section 170(f)(8) with respect to their

donation of the conservation easement.

      On the basis of the foregoing, we conclude that petitioners are entitled to

partial summary judgment on the issue of whether they properly substantiated their

contribution of a conservation easement to WAT with a contemporaneous written

acknowledgment in accordance with section 170(f)(8). With respect to all other

issues, we conclude that there are disputed issues of material fact that cannot be

decided on motions for summary judgment.

      In reaching these holdings, we have considered all the parties’ arguments,

and, to the extent not addressed herein, we conclude that they are moot, irrelevant,

or without merit.




      7
       Respondent also cites Kendrix v. Commissioner, T.C. Memo. 2006-9,
Castleton v. Commissioner, T.C. Memo. 2005-58, aff’d, 188 Fed. Appx. 561 (9th
Cir. 2006), Hill v. Commissioner, T.C. Memo. 2004-156, and Stussy v.
Commissioner, T.C. Memo. 2003-232. However, none of those cases supports
respondent’s position.
                            - 16 -

To reflect the foregoing,


                                          An appropriate order will be

                                     issued.
