11th Circuit Discusses Conservation Easements And The Granted-In-Perpetuity Requirement

Written by on November 3, 2020

In a latest case, the 11th Circuit mentioned conservation easements and their statutory necessities. The complete case addressed three points: (1) the granted-in-perpetuity requirement, (2) the impact of an modification clause (and the protected-in-perpetuity requirement), and (3) valuation strategies.

This publish focuses on solely the primary difficulty—the operation of § 170(h)(2)(C)’s granted-in-perpetuity requirement.

For some fast (and simplified) background, § 170 permits the charitable contribution deduction. Typically, charitable contribution deductions are usually not allowed for contributions of partial pursuits in property (that’s, in the event you personal the property and also you give away one thing aside from that full possession). An exception exists, nonetheless, for certified conservation contributions, which permits a charitable deduction for a contribution of a professional actual property curiosity to a professional group solely for conservation functions.

At dispute on this case (on the primary difficulty) had been the definitions and necessities of a “certified actual property curiosity” and “solely for conservation functions”. As related right here, the definition of a professional actual property curiosity requires that there be “a restriction (granted in perpetuity) on the use which can be manufactured from the true property.” § 170(h)(2)(C). The 11th Circuit referred to this because the “granted-in-perpetuity requirement.”

Though the court docket targeted on the opposite statutory components, too—particularly the “protected-in-perpetuity” requirement to be solely for conservation functions—this publish focuses primarily on the granted-in-perpetuity requirement. 

For its half, the Tax Courtroom held that some easements at difficulty on this case violated the granted-in-perpetuity requirement of § 170(h)(2)(C) as a result of the easements reserved within the donor the precise to construct a restricted variety of residential properties and constructions. In its choice, the Tax Courtroom used a “Swiss Cheese” metaphor, during which the easement-related space is a slice of cheese, and the § 170(h)(2)(C) requirement implies that the developer should be barred “from placing new holes within the cheese.” 151 T.C. 247, 273 (2018). 

The 11th Circuit, nonetheless, disagreed with the Tax Courtroom.

The 11th Circuit famous that, “[o]n its face, § 170(b)(2)(C) doesn’t require a lot—solely {that a} grant embody ‘a restriction (granted in perpetuity) on the makes use of which can be manufactured from the true property.’” Furthermore, in response to the court docket, a conservation easement—like the sort within the case—does that as a result of it “constitutes ‘a restriction’ on ‘the use . . . of the true property’ as a result of it burdens what would in any other case be the landowner’s fee-simple enjoyment of—and absolute discretion over—using its property.” Moreover, the 11th Circuit famous that, “[a]nd it does so ‘in perpetuity’ as a result of nothing within the grant envisions a reversion of the easement curiosity to the landowner, its heirs, or assigns.”

In different phrases, in response to the 11th Circuit, “[a] broad limitation on using the property that applies to the parcel as a complete satisfies the statutory take a look at, even when inside that parcel there exist sure slender exceptions to that limitation.”

The Commissioner, alternatively, disagreed; he argued that each inch of the land a lot be topic to the restriction in perpetuity. Thus, in response to this view, a restricted reservation of growth rights violates the granted-in-perpetuity rule. In brief, the aim of the requirement, in response to the Commissioner, was to make sure that the restriction can’t be later “eliminated, weakened, or diminished.”

The 11th Circuit disagreed based mostly on the plain language of the statute and the common-law that means of perpetuity. First, with respect to the language, the court docket emphasised that the article “a” precedes the phrase “restriction”.  Thus, the court docket famous that the easements did, actually, impose “a restriction” on the makes use of of the underlying land as a result of they “broadly prohibit [ ] preexisting growth rights.” 

Second, with respect to the in-perpetuity requirement, the court docket famous that the restriction was in perpetuity, as understood within the widespread legislation, as a result of the donor and “its heirs, or assigns stay indefinitely topic to the restriction and since nothing within the grants will trigger the easements, both routinely or upon the taking place of some occasion, to revert again to the [donor] or its successors.” 

In brief, on this difficulty, the court docket held that, “[a]n easement granted in perpetuity over an outlined conservation space clears § 170(h)(2)(C)’s comparatively low threshold, even when it reserves focused growth rights for homesite development.” 

The 11th Circuit continued to debate, in additional element, the delineation of the protected-in-perpetuity requirement and § 170(h)(5)(A)—and the way it differs from the separate granted-in-perpetuity requirement of § 170(h)(2)(C), however that’s not the topic of this publish. This publish is barely a quick abstract of 1 facet of the case (and never a whole evaluation of the case or the problems introduced). 

The case is Pine Mountain Protect LLLP v. Commissioner, No. 19-11795 (Oct. 22, 2020); you could find it right here. 

That is solely a abstract of the case and a few parts—together with info, points, or evaluation—have been omitted or edited; these points are extremely technical and detailed — in the event you want recommendation on this space, please evaluate the case in its entirety and seek the advice of a tax lawyer.

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