Champions Retreat Golf Founders, LLC v. Comm'r of IRS

• Decision Date: 13 May 2020
• Docket Number: No. 18-14817,18-14817
• Citation: 959 F.3d 1033
• Parties: CHAMPIONS RETREAT GOLF FOUNDERS, LLC, Riverwood Land, LLC, Tax Matters Partner, Petitioners - Appellants, v. COMMISSIONER OF IRS, Respondent -Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

959 F.3d 1033

CHAMPIONS RETREAT GOLF FOUNDERS, LLC, Riverwood Land, LLC, Tax Matters Partner, Petitioners - Appellants,

v.COMMISSIONER OF IRS, Respondent -Appellee.

No. 18-14817

United States Court of Appeals, Eleventh Circuit.

May 13, 2020

Vivian D. Hoard, R. Brian Gardner, III, Fox Rothschild, LLP, Donald P. Boyle, Jr., Taylor English Duma, LLP, Atlanta, GA, for Petitioners-Appellants.

Norah Bringer, Gilbert Steven Rothenberg, Francesca Ugolini, U.S. Department of Justice, Chief Appellate Section Tax Division, William M. Paul, Internal Revenue Service, Acting Chief Counsel, Washington, DC, John P. Healy, Teri L. Jackson, IRS Office of Chief Counsel, St. Paul, MN, for Respondent-Appellee.

George Asimos, Jr., Attorney, Saul Ewing Arnstein & Lehr LLP, Harrisburg, PA, Hilda Piloto, Saul Ewing Arnstein & Lehr, LLP, Miami, FL, Harry D. Shapiro, Saul Ewing Arnstein & Lehr, Baltimore, MD, for Amicus Curiae.

Petition for Review of a Decision of the U.S. Tax Court, Agency No. 4868-15

Before WILSON and GRANT, Circuit Judges, and HINKLE,^* District Judge.

HINKLE, District Judge:

The appellant taxpayer claimed a charitable deduction for donating a conservation easement over property that included a private golf course and undeveloped land. The Commissioner of Internal Revenue disallowed the deduction, and the Tax Court upheld the decision. The deduction was proper if the donation was made for "the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem," or was made for "the preservation of open space ... for the scenic enjoyment of the general public." I.R.C. § 170(h)(4)(A)(ii) & (iii)(I).

Without the golf course, this easement would easily meet these criteria. Because the Code does not disqualify an easement just because it includes a golf course, we reverse the Tax Court’s decision and remand for determination of the proper amount of the deduction.

I. Facts and Proceedings

Pollard Land Company bought over 2,000 undeveloped acres along the Savannah River roughly 13 miles north of Augusta, Georgia. In 2002, Pollard conveyed part of the land, 463 acres, to the taxpayer in this action, Champions Retreat Golf Founders, LLC ("Champions"). Champions built a golf course with three nines—one each designed by Gary Player, Jack Nicklaus, and Arnold Palmer. The course opened for play in 2005. It was and still is private—open only to club members and their guests, not the general public.

The golf course occupies roughly two-thirds of the 463 acres. Champions sold 66 homesites on 95 acres on the west side of the course—the side away from the Savannah River. The golf course and homesites are accessible only through a gate that is staffed 24 hours per day.

Roughly 57 acres, consisting primarily of bottomland forests and wetlands, remain undeveloped. This includes riparian land on the Little River, an offshoot of the larger Savannah. Between the Little and Savannah Rivers lies Germain Island. The island consists of both undeveloped land and six holes of the golf course.

The easement property is home to abundant species of birds, some rare, to the regionally declining southern fox squirrel, and to a rare plant species, the denseflower knotweed. Although not itself accessible to the public, the property is readily observable to members of the public who kayak or canoe on the Savannah and Little Rivers.

By 2009, the Champions golf course, like many in the ongoing recession, was struggling financially. Aware of the Tax Court’s recent decision allowing a charitable deduction for a conservation easement over golf course property, see Kiva Dunes Conservation, LLC v. Commissioner , T.C. Memo. 2009-145 (2009), Champions contributed the conservation easement now at issue to the North American Land Trust ("the Trust") in 2010. The Trust is an entity that holds and enforces conservation easements nationwide with the goal of preserving natural habitats and environmentally sensitive areas. The Trust accepted the easement.

The easement covers 348 acres consisting of the undeveloped land and the golf course, including the driving range, but not including the golf course buildings and parking lot. The easement does not include the homesites.

Champions claimed a charitable deduction for the contribution. As a limited liability company, Champions was able to steer the corresponding tax benefit to persons who, in anticipation of that benefit, made capital contributions, thus shoring up Champions’ financial position. But the Commissioner of Internal Revenue disallowed the deduction. Champions and a related entity filed this action in the Tax Court against the Commissioner. After a trial, the Tax Court upheld the Commissioner’s decision. This appeal followed.

II. Standard of Review

We review the Tax Court’s legal conclusions de novo and its factual findings for clear error. See Gustashaw v. Comm’r , 696 F.3d 1124, 1134 (11th Cir. 2012). "A finding of fact is clearly erroneous if the record lacks substantial evidence to support it, such that our review of the entire evidence leaves us with the definite and firm conviction that a mistake has been committed." Blohm v. Comm’r , 994 F.2d 1542, 1548 (11th Cir. 1993) (internal citations and quotation marks omitted).

III. Governing Code Provisions

The Internal Revenue Code allows a deduction for a "qualified conservation contribution." See I.R.C. § 170(f)(3)(B)(iii). A "qualified conservation contribution" is a contribution "(A) of a qualified real property interest, (B) to a qualified organization, (C) exclusively for conservation purposes." Id. § 170(h)(1).

A "qualified real property interest" includes "a restriction (granted in perpetuity) on the use which may be made of the real property." Id . § 170(h)(2). The easement Champions conveyed to the Trust meets this requirement; it restricts use of the property in substantial respects and continues in perpetuity. The Commissioner does not contest this.

The Trust is "a qualified organization." See id . § 170(h)(3) (defining this term). The Commissioner does not contest this.

This leaves only one issue: whether this contribution was made "exclusively for conservation purposes." The Code defines "conservation purpose" to mean:

(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,

(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem ,

(iii) the preservation of open space (including farmland and forest land) where such preservation is--

(I) for the scenic enjoyment of the general public , or (II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy,

and will yield a significant public benefit , or

(iv) the preservation of an historically important land area or a certified historic structure.

Id. § 170(h)(4)(A) (emphasis added).

This case turns on the italicized provisions. The other provisions do not apply. The land is not available for recreation by or use of the general public. There is no qualifying federal, state, or local government conservation policy that applies to this land; that the county designated the land as greenspace is not enough. This is not historically important land, and there is no certified historic structure on it.

The issues, then, are whether Champions contributed this easement for "the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem," or for "the preservation of open space ... for the scenic enjoyment of the general public [that] will yield a significant public benefit."

IV. Habitat or Ecosystem

A. The Regulation

The Internal Revenue Code explicitly requires deductions for charitable contributions—including those for conservation easements—to meet regulations adopted by the Secretary of the Treasury. See I.R.C. § 170(a)(1). The regulation governing conservation easements is 26 C.F.R. § 1.170A-14. The regulation makes more explicit what one might reasonably construe the Code to mean anyway.

The regulation says a contribution "to protect a significant relatively natural habitat in which a fish, wildlife, or plant community, or similar ecosystem normally lives" will meet the Code’s conservation-purpose requirement. Id . § 1.170A-14(d)(3)(i). For the first time on appeal, Champions takes issue with the word "significant," asserting this impermissibly departs from the requirement set out in the Code itself. But even without the regulation, the Code would not be construed to apply to a completely trivial habitat—a few commonly occurring ants plainly would not do, nor would many other species not in need of conservation. Requiring some level of significance thus is unobjectionable. So long as the regulation’s use of this term is not construed to mean more than the Code will support, there is no reason to doubt the regulation’s validity. Perhaps this is why the regulation has been applied for many years without any challenge to its validity, and why even Champions did not raise this issue in the Tax Court.

The regulation says qualifying significant habitats and ecosystems "include, but are not limited to," those of three kinds. Two are relevant here.

First are "habitats for rare, endangered, or threatened species of animal, fish, or plants." Id . § 1.170A-14(d)(3)(ii). Neither the Tax Court nor the parties assert that "rare," "endangered," and "threatened" have, for this purpose, a precise, technical meaning; instead, the terms distinguish species that reasonably warrant protection, on the one hand, from commonly occurring species for which the loss of habitat is not of significant concern. That the regulation explicitly says qualifying habitats are "not limited to" the listed categories supports this flexible reading.

Second are "natural areas which are included in, or which contribute to, the ecological viability of a local, state, or national park, nature preserve, wildlife refuge, wilderness area, or other similar conservation area." Id . The Champions...