                         T.C. Memo. 2012-1



                      UNITED STATES TAX COURT



           KAYLN M. CARPENTER, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15589-10, 15590-10,   Filed January 3, 2012.
                 15591-10.



     Larry D. Harvey, for petitioners.

     Sara Jo Barkley and Luke D. Ortner, for respondent.



                        MEMORANDUM OPINION


     HAINES, Judge:   These cases are before the Court on

respondent’s motion for partial summary judgment.   The cases are

consolidated for purposes of trial, briefing, and opinion.



     1
      Cases of the following petitioners are consolidated
herewith: Scott A. Van Wyhe, docket No. 15590-10; and John C.
and Sharon L. McSween, docket No. 15591-10.
                                     - 2 -

Kayln M. Carpenter, Scott A. Van Wyhe, and John C. and Sharon L.

McSween (the McSweens)2 separately petitioned the Court for

redetermination of the following deficiencies in Federal income

tax and additions to tax and penalties:3

                  Kayln M. Carpenter, docket No. 15589-10
                                             Addition to Tax and Penalty
         Year           Deficiency      Sec. 6651(a)(1)     Sec. 6662(a)
         2004            $21,125                $496           $4,225

                  Scott A. Van Wyhe, docket No. 15590-10
                                             Addition to Tax and Penalty
         Year           Deficiency      Sec. 6651(a)(1)     Sec. 6662(a)
         2004              $839                  $42            $168
         2006                15                   15               3

          John C. and Sharon L. McSween, docket No. 15591-10
                                                            Penalty
           Year                   Deficiency             Sec. 6662(a)
           2003                    $57,090                  $11,418
           2004                      64,498                  12,900
           2005                      14,574                   2,915

     The issue for determination after concessions is whether

petitioners are entitled to charitable contribution deductions



     2
      The McSweens are considered a single petitioner having
filed joint returns, having received a single notice of
deficiency, and having filed a single petition with this Court.
     3
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended and in effect for the years
at issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. Amounts are rounded to the nearest
dollar.
                               - 3 -

with respect to conservation easements petitioners granted to the

Greenlands Reserve (Greenlands).4

                             Background

     The following facts are based upon the parties’ pleadings,

affidavits, and exhibits in support of and in opposition to the

motion for partial summary judgment.      They are stated solely for

the purpose of deciding the motion and not as findings of fact in

this case.   See Fed. R. Civ. P. 52(a).    At the time petitioners

filed their petitions, they resided in Colorado.

     The facts of all petitioners’ cases, though not identical,

are substantially similar.   On or about December 23, 2003, each

petitioner acquired a parcel or parcels of land in Teller County,

Colorado, from Sixty Seven, LLC (Sixty Seven).     Petitioners held

their parcels in fee simple.   On or about December 24, 2003, each

petitioner conveyed a conservation easement to Greenlands, a

charitable nonprofit Colorado corporation which qualifies as a

tax-exempt nonprofit organization under sections 501(c)(3) and

170(b)(1)(A)(iv).5


     4
      Respondent did not address whether petitioners are liable
for the accuracy-related penalties under sec. 6662(a) and whether
petitioner Carpenter and the McSweens are liable for the addition
to tax under sec. 6651(a) in his motion for partial summary
judgment; therefore we do not address these issues in this
opinion.
     5
      The McSweens owned two parcels of land in Teller County.
They conveyed a conservation easement over the first parcel of
land on or about Dec. 24, 2003, and conveyed a conservation
easement over the second parcel on or about Jan. 29, 2004.
                               - 4 -

     Petitioner Carpenter claimed a $385,600 charitable

contribution deduction on her 2004 Federal income tax return.

Petitioner Van Wyhe claimed a $272,998 charitable contribution

deduction on his 2004 Federal income tax return, a $265,247

charitable contribution deduction carryover on his 2005 Federal

income tax return, and a $262,876 charitable contribution

deduction carryover on his 2006 Federal income tax return.    The

McSweens claimed a $336,500 charitable contribution deduction on

their 2003 joint Federal income tax return, a $336,500 charitable

contribution deduction on their 2004 joint Federal income tax

return, a $311,776 charitable contribution deduction carryover on

their 2004 joint Federal income tax return, and a $612,844

charitable contribution deduction carryover on their 2005 joint

Federal income tax return.   All of the Federal income tax returns

were timely filed.

     All of the conservation easement deeds were virtually

identical and contained the following provision for

extinguishment of the easement:

     Extinguishment – If circumstances arise in the future
     such that render the purpose of this Conservation
     Easement impossible to accomplish, this Conservation
     Easement can be terminated or extinguished, whether in
     whole or in part, by judicial proceedings, or by mutual
     written agreement of both parties, provided no other
     parties will be impacted and no laws or regulations are
     violated by such termination. * * * [Emphasis added.]

A notice of deficiency was mailed to each petitioner disallowing

petitioners’ charitable contribution deductions.   Respondent
                               - 5 -

cited the emphasized language above in determining that

petitioners had not met the section 1.170A-14(g)(6)(i), Income

Tax Regs., requirement that their conservation easements be

granted in perpetuity.   Each petitioner timely filed a petition

with this Court.

                            Discussion

I.   Introduction

     We may grant summary judgment “if the pleadings, answers to

interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.”   Rule 121(b).   In

pertinent part, Rule 121(d) provides:    “When a motion for summary

judgment is made and supported * * *, an adverse party may not

rest upon the mere allegations or denials of such party’s

pleading, but such party’s response * * * must set forth specific

facts showing that there is a genuine issue for trial.”

Respondent has moved for partial summary judgment and bears the

burden of proving there is no genuine issue of material fact as

to whether petitioners’ contributions of the conservation

easements were exclusively for conservation purposes, and so we

infer facts in the manner most favorable to petitioners.    See,

e.g., Anonymous v. Commissioner, 134 T.C. 13, 15 (2010) (citing

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985)).
                                - 6 -

II.   Qualified Conservation Contribution

      A taxpayer is generally allowed a deduction for any

charitable contribution made during the taxable year.   Sec.

170(a)(1).    A charitable contribution is a gift of property to a

charitable organization, made with charitable intent and without

the receipt or expectation of receipt of adequate consideration.

See Hernandez v. Commissioner, 490 U.S. 680, 690 (1989); United

States v. Am. Bar Endowment, 477 U.S. 105, 116-118 (1986); see

also sec. 1.170A-1(h)(1) and (2), Income Tax Regs.   While a

taxpayer is generally not allowed a charitable contribution

deduction for a gift of property consisting of less than an

entire interest in that property, an exception is made for a

“qualified conservation contribution.”   See sec. 170(f)(3)(A),

(B)(iii).

      A “qualified conservation contribution” is a contribution

(1) of a “qualified real property interest”, (2) to a “qualified

organization”, (3) which is made “exclusively for conservation

purposes”.   Sec. 170(h)(1); see also sec. 1.170A-14(a), Income

Tax Regs.    Respondent concedes that there was a contribution of a

qualified real property interest and that at the time of the

contributions Greenlands was a qualified organization under

section 170(h)(3).   Therefore, we focus on the third requirement;

i.e., whether petitioners’ contributions of the donated property

were exclusively for conservation purposes.
                               - 7 -

     A contribution is made exclusively for conservation purposes

only if it meets the requirements of section 170(h)(5).      Glass v.

Commissioner, 124 T.C. 258, 277 (2005), affd. 471 F.3d 698 (6th

Cir. 2006).   Section 170(h)(5)(A) provides that “A contribution

shall not be treated as exclusively for conservation purposes

unless the conservation purpose is protected in perpetuity.”     In

order for a conservation easement to be enforceable in

perpetuity, the “interest in the property retained by the donor *

* * must be subject to legally enforceable restrictions * * *

that will prevent uses of the retained interest inconsistent with

the conservation purposes of the donation.”   Sec. 1.170A-

14(g)(1), Income Tax Regs.   Section 1.170A-14(g)(6)(i), Income

Tax Regs. (extinguishment regulation), states in pertinent part:

     If a subsequent unexpected change in the conditions
     surrounding the property that is the subject of a
     donation under this paragraph can make impossible or
     impractical the continued use of the property for
     conservation purposes, the conservation purpose can
     nonetheless be treated as protected in perpetuity if
     the restrictions are extinguished by judicial
     proceeding and all of the donee’s proceeds * * * from a
     subsequent sale or exchange of the property are used by
     the donee organization in a manner consistent with the
     conservation purposes of the original contribution.

     Respondent has filed a motion for partial summary judgment,

arguing that petitioners’ conservation easements are not

protected in perpetuity because the conservation easement deeds

allow the parties to extinguish the conservation easements by

mutual agreement.   Petitioners in response make two arguments.
                                 - 8 -

First, petitioners argue that summary judgment on this issue is

inappropriate because there is a genuine issue of material fact.

Second, petitioners argue that the donations created charitable

trusts or restricted gifts which implicate the doctrine of cy

pres.     Under cy pres termination of the conservation easements

would require a judicial proceeding which would prevent the

parties from extinguishing the easements by mutual agreement.         We

take each of petitioners’ arguments in turn.

     A.      Whether Summary Judgment Is Inappropriate Because There
             Is a Genuine Issue of Material Fact

     Section 1.170A-14(g)(6), Income Tax Regs., allows for

extinguishment of a conservation easement if subsequent

unexpected changes in the conditions surrounding the property can

make “impossible or impracticable” (emphasis added) the continued

use of the property for conservation purposes.       On the other hand

the conservation easement deeds allow for extinguishment of the

conservation easement only if circumstances arise in the future

that render the purpose of the conservation easements “impossible

to accomplish”.     (Emphasis added.)    Petitioners argue that the

conservation easement deeds have more stringent provisions on

extinguishment than those in the regulations and that we must

determine whether conditions existed at the time of grant of the

conservation easements that would make it impossible to

accomplish the purposes of the easements.       Petitioners are asking
                               - 9 -

us to read the extinguishment regulation in tandem with section

1.170A-14(g)(3), Income Tax Regs.

     Section 1.170A-14(g)(3), Income Tax Regs. (so-remote-as-to-

be-negligible standard), provides that

     A deduction shall not be disallowed under section
     170(f)(3)(B)(iii) * * * merely because the interest
     which passes to, or is vested in, the donee
     organization may be defeated by the performance of some
     act or the happening of some event, if on the date of
     the gift it appears that the possibility that such act
     or event will occur is so remote as to be negligible.

Petitioners argue that the conditions necessary for

extinguishment of the conservation easements are not possible or

the possibility is so remote as to be negligible and that in

either event the likelihood of such conditions’ occurring and

thus the likelihood of extinguishment is a material question of

fact precluding summary judgment.   Respondent argues that the so-

remote-as-to-be-negligible standard is irrelevant to our inquiry.

We agree with respondent.

     This Court has previously found that the so-remote-as-to-be-

negligible standard does not modify the extinguishment

regulation.   In other words, the Commissioner is not required to

make a showing with respect to the likelihood or possibility of

extinguishment in determining whether an easement complies with

the requirements of the extinguishment regulation.    See Kaufman

v. Commissioner, 136 T.C. 294, 311-313 (2011).   The risk

addressed by the extinguishment regulation, an “unexpected”
                               - 10 -

change in conditions surrounding the property, likely describes a

class of events the range of whose probabilities includes, if it

is not coincident with, the range of probabilities of events that

are so remote as to be negligible.      See id. at 313.   However, the

issue before us is not whether there is a possibility that events

could occur which would trigger the conservation easements’

extinguishment provision, but whether upon the happening of such

events the ability to extinguish the conservation easements

through mutual agreement of the parties violates the requirements

of the extinguishment regulation.

     Section 1.170-14(g)(6), Income Tax Regs., suggests that any

extinguishment of a conservation easement be done through

judicial proceedings.   It is petitioners’ inclusion of the right

of the parties to extinguish or terminate the conservation

easements “by mutual written agreement of both parties” that

causes the issues before us.   It is not a question as to the

degree of probability of the changed conditions that would

justify extinguishment of the restrictions.

     Although there is a genuine issue of material fact as to

whether circumstances could arise which would make it impossible

to accomplish the purposes of the conservation easement, that

issue is irrelevant to our inquiry.     Disputes over facts that are

not outcome determinative do not preclude the entry of summary
                               - 11 -

judgment.   Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).

     B.     Whether the Donation Created a Charitable Trust or a
            Restricted Gift Which Implicates the Cy Pres Doctrine,
            Requiring a Judicial Proceeding To Extinguish the
            Easement

     Petitioners alternatively argue that the donations of the

property created a charitable trust or a restricted gift which

implicates the cy pres doctrine, requiring a judicial proceeding

to extinguish the easement.   To determine whether the

conservation easement deeds comply with requirements for the

conservation easement deduction under Federal tax law, we must

look to State law to determine the effect of the deeds.    State

law determines the nature of the property rights, and Federal law

determines the appropriate tax treatment of those rights.    Estate

of Lay v. Commissioner, T.C. Memo. 2011-208.    Specifically, we

must look to State law to determine how conservation easements

may be extinguished.   Pursuant to Col. Rev. Stat. sec. 38-30.5-

107 (2010), “Conservation easements in gross may, in whole or in

part, be released, terminated, extinguished, or abandoned by

merger with the underlying fee interest in the servient land or

water rights or in any other manner in which easements may be

lawfully terminated, released, extinguished or abandoned.”

Petitioners recognize that conservation easements may be

extinguished through many means under Colorado State law,

including by mutual consent of the parties; however, they argue
                              - 12 -

that their contributions to Greenlands each constitute a

restricted gift or a charitable trust.   As a result, the cy pres

doctrine applies to those contributions and thus these

conservation easement contributions made to Greenlands may be

extinguished only by a judicial proceeding and may not be

extinguished by mutual consent of the parties.

     Petitioners argue that the gifts to Greenlands each

constitute a charitable trust.   We agree with respondent and find

that the transfers of property to Greenlands did not create

charitable trusts.   No court in the State of Colorado has decided

whether a donation of a conservation easement to a charitable

organization constitutes a charitable trust.   If the highest

court of the State has not spoken on the issue, then this Court

must apply what it finds to be the State law after giving proper

regard to relevant rulings of other courts of the State.

Commissioner v. Estate of Bosch, 387 U.S. 456 (1967).    In

determining whether a donation to a hospital constituted a

charitable trust under Colorado law, the Court in George W.

Vallery Meml. Fund, Inc. v. Saint Luke’s Cmty. Found., Inc. (In

re Estate of Vallery), 883 P.2d 24, 27 (Colo. App. 1993) opined:

     Colorado recognizes that the intent to create a trust
     can be inferred from the nature of property
     transactions, the circumstances surrounding the holding
     and transfer of property, the particular documents or
     language used, and the conduct of the parties. See
     Matter of Estate of Daniels, 665 P.2d 594 (Colo. 1983).
     However, while no particular language must be used to
     create a trust or to manifest the necessary intention
                              - 13 -

     to create a trust, this inference should not come
     easily. Bishop & Diocese of Colorado v. Mote, 716 P.2d
     85 (Colo.), cert. denied, 479 U.S. 826, 107 S.Ct. 102,
     93 L.Ed.2d 52 (1986). Clear, explicit, definite,
     unequivocal, and unambiguous language or conduct
     establishing the intent to create a trust is required.
     Bishop & Diocese of Colorado v. Mote, supra; Goemmer v.
     Hartman, 791 P.2d 1238 (Colo. App. 1990).

     Thus, even though formal or technical words are not
     necessary, see Marshall v. Grauberger, 796 P.2d 34
     (Colo. App. 1990), the fact that the document makes no
     mention of a “trust” is significant in determining
     whether a trust was intended. See Denver Chapter No.
     145, Order of Ahepa v. Mile Hi City Chapter No. 360,
     171 Colo. 541, 469 P.2d 740 (1970).

Moreover, 1 Restatement, Trusts 3d, sec. 2 (2003), defines a

charitable trust in pertinent part as a “fiduciary relationship

with respect to property, arising from a manifestation of

intention to create that relationship”.   We do not find any

clear, explicit, definite, unequivocal, and unambiguous language

in the conservation easement deeds to create a trust.   We also do

not find any intention to create a trust.   As a result, we do not

find that petitioners created charitable trusts under Colorado

law with their conservation easement deeds.

     Next, petitioners ask us to determine whether each of their

donations to Greenlands constitutes a restricted gift under

Colorado law.   This is another novel issue of Colorado law, as no

court in the State of Colorado has decided whether a donation of

a conservation easement to a charitable organization constitutes

a restricted gift.   Consequently, we apply what we find to be the

State law after giving proper regard to relevant rulings of other
                               - 14 -

courts of the State of Colorado.   See Commissioner v. Estate of

Bosch, supra at 465.    We find that petitioners’ transfers to

Greenlands did constitute restricted gifts.   Restricted gifts are

“contributions conditioned on the use of a gift in accordance

with the donor’s precise directions and limitations.”    Schmidt,

“Modern Tomb Raiders:   Nonprofit Organizations’ Impermissible Use

of Restricted Funds”, 31 Colo. Law. 57, 58 (2002).

     Petitioners made outright gifts to Greenlands with a

restriction on the use of the gifts.    The conservation easement

deeds restricted Greenlands’ use of the gift to “preserve and

protect in perpetuity the Conservation Values of the Property for

the benefit of this generation and generations to come.”

Moreover, at least one commentator has argued that conservation

easements eligible for Federal charitable contribution income tax

deductions are also, by definition, charitable gifts for a

specific purpose, i.e., a restricted gift.    See McLaughlin,

“Internal Revenue Code Section 170(h):   National Perpetuity

Standards For Federally Subsidized Conservation Easements Part 2:

Comparison to State Law”, 46 Real Prop. Tr. & Est. L.J. 1, 23

(2011).   Thus we find that each petitioners’ donation of a

conservation easement to Greenlands is a restricted gift under

Colorado law.

     Having found that petitioners each made a restricted gift,

we turn to the issue of whether the doctrine of cy pres is
                              - 15 -

applicable to these restricted gifts.   Although the doctrine of

cy pres ordinarily applies to charitable trusts, at least one

Colorado court has found no sound reason to require the existence

of a formal trust to apply the doctrine.   See George W. Vallery

Meml. Fund, Inc. v. Saint Luke’s Found., Inc. (In re Estate of

Vallery), supra.   The court in Estate of Vallery held that “even

in the absence of a formal trust, the doctrine of cy pres is

available when there is an absolute bequest to a charitable

organization.”   Id. at 28.

     Under the cy pres doctrine, equity allows deviation from the

terms of a charitable bequest when the particular purpose of the

gift becomes impossible or impracticable to accomplish and the

donor manifested a more general intention to devote the property

to charitable purposes.   Id.; see also Dunbar v. Board of Trs. of

George W. Clayton College, 461 P.2d 28 (Colo. 1969).6

     Petitioners argue that the doctrine of cy pres applies to

their restricted gifts.   Petitioners further argue that cy pres

     6

     “If property is given in trust to be applied to a
     particular charitable purpose, and it is or becomes
     impossible or impracticable or illegal to carry out the
     particular purpose, and if the settlor manifested a
     more general intention to devote the property to
     charitable purposes, the trust will not fail but the
     Court will direct the application of the property to
     some charitable purpose which falls within the general
     charitable intention of the settlor.”

Dunbar v. Board of Trs. of George W. Clayton College, 461 P.2d
28, 30 (Colo. 1969) (quoting 11 Restatement, Trusts 2d, sec. 399
(1959)).
                              - 16 -

prevents the parties from agreeing to extinguish the conservation

easements in the event it becomes impossible to carry out the

purposes of the conservation easements.   Rather, it is

petitioners’ contention that the cy pres doctrine will require a

judicial proceeding in the event the purposes of the conservation

easements become impossible to carry out.   Respondent argues that

cy pres is inapplicable to the restricted gifts because

petitioners did not manifest a more general intention to devote

the property to charitable purposes.    We agree with respondent.

     We are called upon to determine petitioners’ intention in

granting the conservation easements.    Specifically, we are called

upon to determine whether petitioners manifested a more general

intent to devote the property to a general charitable purpose

beyond the restrictions placed in the conservation easement

deeds.   Neither party has asserted that any provision in the

conservation easement deeds besides the extinguishment clauses is

ambiguous and, absent ambiguity, interpretation of the deeds is a

question of law.   See Penning v. Ferguson (In re Ferguson

Trusts), 929 P.2d 33, 35 (Colo. App. 1996).   Our objective in

construing the deeds, as with any other contract, is to determine

the intent of the drafters.   See id.

     The purpose of the conservation easements as stated in the

conservation easement deeds is to:

     assure that the Property will be returned to and
     retained forever predominantly in a natural, scenic,
                               - 17 -

     and open space condition, to preserve and protect in
     perpetuity the wildlife, aesthetic, ecological and
     environmental values, and water quality characteristics
     of the Property, and to prevent any use of the Property
     that will impair or interfere with the Conservation
     Values of the Property and to extinguish any and all
     development rights and allocations and density rights
     and allocations, whether presently existing or arising
     in the future. * * *

The conservation easement deeds also reserve certain rights to

petitioners:

     Grantor reserves to itself, and to its successors and
     assigns, all rights accruing from their ownership of
     the Property, including the right to engage in and
     permit or invite others to engage in all uses of the
     Property that are not expressly prohibited herein and
     are not inconsistent with the purpose of the
     Conservation Easement. * * *

We do not find that petitioners intended to donate their property

to Greenlands with a general charitable purpose.    The deeds make

clear that petitioners wanted to retain all rights over the

donated property not specifically granted to Greenlands in the

conservation easement deeds.   Should the purpose of the deeds

become impossible to fulfill, petitioners demonstrated no

intention to have the donated property put to some other general

charitable use.   As a result, we hold that the cy pres doctrine

is inapplicable to petitioners’ restricted gifts.

     Having found that the cy pres doctrine is inapplicable to

petitioners’ restricted gifts, we find that petitioners’

conservation easements may be terminated by a mutual agreement of

the parties.   We must now determine whether the ability to
                                - 18 -

extinguish the easements by mutual agreement of the parties

violates the requirements of the extinguishment regulation.

     C.   Whether the Parties’ Ability To Extinguish the
          Conservation Easements Through Mutual Consent Violates
          the Requirements of the Extinguishment Regulation

     We have previously discussed the restrictions required by

the extinguishment regulation.    In Kaufman v. Commissioner, 136

T.C. 294 (2011), we declined to rule that a conservation deed

must require a judicial proceeding to extinguish an easement for

the easement to be perpetual.    Id. at 307 n. 7.    We once again

decline to create an absolute rule.      Rather, we find that the

extinguishment regulation provides taxpayers with a guide, a safe

harbor, by which to create the necessary restrictions to

guarantee protection of the conservation purpose in perpetuity.

     Petitioners’ conservation easement deeds allow for

extinguishment of the conservation easements through mutual

consent of the parties.   Extinguishment by mutual consent of the

parties does not guarantee that the conservation purpose of the

donated property will continue to be protected in perpetuity.        As

at least one commentator has noted, the “restrictions [in a deed]

are supposed to be perpetual in the first place, and the decision

to terminate them should not be solely by interested parties.

With the decision-making process pushed into a court of law, the

legal tension created by such judicial review will generally tend
                              - 19 -

to create a fair result.”   Small, Federal Tax Law of Conservation

Easements 16-4 (1986).

     Because petitioners’ easements may be extinguished by mutual

consent of the parties, the easements fail as a matter of law to

comply with the enforceability in perpetuity requirements under

section 1.170A-14(g), Income Tax Regs.   For that reason, we find

that the easements were not protected in perpetuity and thus were

not qualified conservation contributions under section 170(h)(1).

We shall grant the motion with respect to the easements and deny

petitioners’ charitable contribution deductions.

     In reaching our holdings herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                         An appropriate order will

                                    be issued.
