Wednesday, February 6, 2013
In Pollard v. Comm’r, T.C. Memo. 2013-38, the Tax Court sustained the IRS’s disallowance of a charitable income tax deduction claimed with respect to a conservation easement conveyed to Boulder County, Colorado in 2003. The court found that the grant of the easement had been part of a quid pro quo exchange and, thus, was not a charitable gift eligible for a deduction.
The taxpayer had purchased the 67.51-acre parcel in 1998 and, because it consisted of less than 70 acres, had to obtain approval from the county to increase the property’s building density. After public hearings, the Board of County Commissioners agreed to grant the taxpayer’s subdivision exemption request, which allowed the property to be split into two lots, in exchange for the taxpayer’s grant of a conservation easement with regard to the property to the county.
The Tax Court explained that, in ascertaining whether a conveyance was made with the expectation of any quid pro quo, courts examine the external features of the transaction, thus avoiding the need to conduct an imprecise inquiry into the motivations of individual taxpayers. If it is understood that the taxpayer would not have made the conveyance unless the taxpayer received a specific benefit in return, and if the taxpayer could not have received such benefit unless he made the conveyance, the transaction does not qualify for the § 170 charitable contribution deduction.
The taxpayer maintained that no quid pro quo arrangement existed, arguing, inter alia, that approval of his subdivision exemption request had been “virtually guaranteed,” that the Land Use Code sections governing his exemption request did not require the grant of a conservation easement, and that all documents relating to the grant of the easement referred to it as a “gift.” One of the county commissioners even wrote a letter to the taxpayer in 2008 (presumably because of the IRS audit) stating that, to the best of his recollection, he did not require the taxpayer to grant the easement in exchange for the subdivision exemption.
The Tax Court was unpersuaded. Based on its examination of the external features of the transaction the court found that the subdivision exemption request was far from being “virtually guaranteed” and, in fact, had little chance of being granted without the taxpayer’s promise to grant the easement. The evidence indicated, inter alia, that:
- the Board of County Commissioners had insisted at public hearings that the taxpayer grant a conservation easement to the county before they would grant the subdivision exemption;
- two of the commissioners acknowledged at one public hearing that the taxpayer would not be granting the easement gratuitously since he would be receiving an increase in building density beyond that allowed by the Land Use Code;
- the commissioners adopted a resolution approving the taxpayer’s subdivision exemption request, subject to certain conditions, one of which was the grant of the easement to the county;
- the Land Use Department wrote a letter to the taxpayer reminding him that he was required to grant the easement to the county; and
- no representative from the county signed the donee portion of the IRS Form 8283 (appraisal summary) that the taxpayer filed with his income tax return, nor did the taxpayer attached an explanation to that form explaining why it was impossible to obtain a signature from the donee.
The Tax Court also sustained the IRS’s imposition of a § 6662(a) accuracy-related penalty, finding that the taxpayer did not act with reasonable cause and in good faith in claiming a charitable deduction with regard to the easement conveyance. The evidence produced at trial, said the court, demonstrated that all of the parties involved understood that the easement was contributed for the express purpose of encouraging the county to grant the taxpayer a subdivision exemption, and it would be unreasonable for the court to believe that anyone involved in the transaction (i.e., the taxpayer, his advisers, or the county commissioners) believed that there was an unrequited contribution.