Monday, January 21, 2013
2013 promises to be another big year for cases involving challenges to charitable deductions claimed with regard to conservation easement donations. In the first of the year, Pesky v. United States, 2013 WL 97752 (D. Idaho, Jan. 7, 2013), the United States District Court for the District of Idaho held that the United States adequately pled a counterclaim for a civil fraud penalty under Internal Revenue Code § 6663 based on the Peskys’ allegedly fraudulently claimed charitable deduction for the conveyance of a conservation easement. The court did not determine that the Peskys were liable for the fraud penalty; it decided only that the case can proceed on the merits.
The U.S. alleges that Mr. Pesky, through his attorney, negotiated and eventually engaged in a quid pro quo transaction with The Nature Conservancy (TNC) whereby TNC gave the Peskys (i) an option to buy property located in Ketchum, Idaho (the Ketchum Property) and (ii) a perfected access easement for a driveway over the adjacent Hemingway Property (which was owned by TNC), in exchange for the Peskys giving to TNC (i) $400,000 and (ii) a conservation easement limiting development of the Ketchum Property. The U.S. also alleges that Pesky attempted to structure the transaction to hide its quid pro quo nature so that he could claim a $ 3 million charitable deduction based on the value of the conservation easement. Pesky allegedly exercised his option to purchase the Ketchum Property for $1.6 million and then eventually donated the conservation easement and sold the property (after the driveway easement was perfected) for around $7 million.
In an earlier case, United States v. Richey, 632 F.3d 559 (9th Cir. 2011), the Ninth Circuit overturned the district court's holding that the work file of Mark Richey, the appraiser of the conservation easement at issue in Pesky, was protected by the attorney-client privilege and by the work-product doctrine. The court remanded the case back to the district court for an in camera examination of the materials summoned by the IRS to determine which documents, if any, were protected from disclosure.