Glass v. C.I.R.

Decision Date21 December 2006
Docket NumberNo. 06-1398.,06-1398.
Citation471 F.3d 698
PartiesCharles and Susan GLASS, Petitioners-Appellees, v. COMMISSIONER of INTERNAL REVENUE, Respondent-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED: Bethany B. Hauser, United States Department of Justice, Washington, D.C., for Appellant. Charles F. Glass, Harbor Springs, Michigan, pro se. Stephen J. Small, Boston, Massachusetts, for Amicus Curiae. ON BRIEF: Bethany B. Hauser, Kenneth L. Green, United States Department of Justice, Washington, D.C., for Appellant. Charles F. Glass, Susan Glass, Harbor Springs, Michigan, pro se. Stephen J. Small, Boston, Massachusetts, for Amicus Curiae.

Before DAUGHTREY and GIBBONS, Circuit Judges; EDMUNDS, District Judge.*

EDMUNDS, District Judge.

On 1992 and 1993 tax returns, Charles and Susan Glass ("Taxpayers") claimed charitable deductions for two conservation easements. The Commissioner of Internal Revenue (the "Commissioner") issued a notice of deficiency. Taxpayers filed a petition in the Tax Court challenging the Commissioner's decision. The Commissioner conceded that the 1992 and 1993 contributions met two of the three requirements for a "qualified conservation contribution" under the Internal Revenue Code ("I.R.C."), 26 U.S.C. § 170(h)(1); i.e., that the portions of the Glass property covered by each conservation easement is a "qualified real property interest" and that the donee, Little Traverse Conservancy ("LTC"), is a "qualified organization." The Commissioner's challenge focused on the third requirement, that the conservation easements be "exclusively for conservation purposes."

The Tax Court concluded that the conservation easements were qualified conservation contributions under I.R.C. § 170(h)(1) because (1) they protect a relatively natural habitat of plants or wildlife as required by I.R.C. § 170(h)(4)(A)(ii); and (2) LTC, or any subsequent holder of the conservation easements, holds or will hold the conservation easements exclusively for conservation purposes as required by I.R.C. § 170(h)(5). The Commissioner appeals the decision of the Tax Court. Because the Tax Court's factual findings were not clearly erroneous and there was no error in its application of the law, we AFFIRM the decision of the Tax Court.

I. Background
A. Taxpayers' Property and Its Surroundings

In 1988, Taxpayers purchased, for $283,000, a ten-acre parcel of land in Emmet County, Michigan, between Harbor Springs and Cross Village. Glass v. Comm'r, 124 T.C. 258, 260, 2005 WL 1231654 (2005). The property sits along the shoreline of Lake Michigan. Id. It was originally purchased and used as a vacation home. In 1994, Taxpayers began using the property as their primary residence. Id. at 261. From 1995 through 1999, Taxpayers lived part time at the Emmet property and part time in their secondary residence in Grosse Pointe Farms, Michigan. In 1999 or 2000, they began to live full time at the Emmet property. Id. The same three buildings that were on the property in 1988 remain. These include (1) Taxpayers' home, a 1,278 square foot, "single-story small handcrafted cabin that is made of hand-hewn logs and elm bark shaving"; (2) a 512 square foot, single-story guest cottage; and (3) a 525 square foot, single-story garage. Id.

The Tax Court gave a thorough description of the property:

The property's dimensions are generally 460 feet in width from north to south and 1,055 feet in depth from east to west. Its eastern edge is a straight line bordering Highway M-119 (M-119). Its western edge is a crooked line abutting Lake Michigan. Lake Michigan cannot be seen through the property from M-119 because many large trees and dense foliage grow throughout much of the property. Included among the trees on the property is a plantation of large (approximately 100-foot) old growth original white pine trees.

A portion of the property that generally includes the property's total width and extends approximately 900 feet from M-119 is relatively flat and is generally open, grassy, and well lawned around [Taxpayers'] home and wooded and bushy in other places, especially along M-119. The rest of the property (approximately 155 feet in depth and 460 feet in width) slopes down a steep bluff at an angle of about 100 degrees to the shoreline of Lake Michigan or, more specifically, to Lake Michigan's ordinary high water mark. The bluff is approximately 100 feet high, and a stairway goes down it to the shoreline. The shoreline is level and consists of rocks, sand, grass, and weeds. The side of the bluff contains many trees (e.g., white pine, cedar, spruce, oak, maple, balsam fir) and dense vegetation (e.g., juniper bushes and other shrubs).

[Taxpayers]' home on the property is sited on relatively flat land on the top of the bluff approximately 45 to 50 feet from the edge at the top of the bluff. . . .

Species of plants that grow on the Lake Michigan shoreline in northern Emmet County include Lake Huron tansy and pitcher's thistle. These plants are considered to be threatened and require undisturbed habitats to survive. Birds on that shoreline include bald eagles, piping plovers, and kingfishers. . . .

In the early 1990s, bald eagles were returning to the Lake Michigan shoreline on and near the property, and the presence of bald eagles along that shoreline is more common today than in earlier years, when it was unusual to see an eagle on that shoreline. . . . The property also has attracted kingfishers and has Lake Huron tansy growing on it, especially on the bluff. The property is not an ideal habitat for Lake Huron tansy or pitcher's thistle, another threatened species of plant, but the property, in its natural state, allows for the creation or promotion of the habitat of those species as well as the habitat of bald eagles and piping plovers.

Id. at 261-62 (footnotes omitted).

In 1992 and 1993, Taxpayers' property was located in two different land use zones: scenic resource 2 (SR-2) and recreation residential 2 (RR-2). The easternmost 400 feet along M-119 was classified SR-2, allowing for single-family homes with a minimum lot size of 30,000 square feet. The portion of Taxpayers' property zoned SR-2 "was large enough that it could probably be divided into four building lots of 30,000 square feet each." Id. at 264. The remainder of Taxpayers' property was classified RR-2, requiring a minimum lot size of 22,000 square feet and 100 feet of frontage, and "designed to accommodate cottage and seasonal home development." Id. at 265. "The portion of the property zoned RR-2 also included from the high water mark a 60-foot waterfront setback in which building or development was not allowed. The conservation easement included space that was within this 60-foot limitation." Id.

The Tax Court also described the area surrounding Taxpayers' property:

The Lake Michigan shoreline from north of Harbor Springs to Cross Village is generally developed only for residential and related purposes. Most of that shoreline is privately owned with single family vacation homes. Approximately one home is sited on that shoreline every 250 feet in the half mile north of the property and in the half mile south of the property; i.e., approximately 21 homes are in the immediate 1-mile vicinity of the property.

The typical use of the land in the immediate vicinity of the property is for single-family dwellings. [Taxpayers]' neighbors to the north, for example, built a large home on two parcels of land that cover approximately 400 feet of lakefront. A number of high density developments with either lakefront or back lots are also found on the land in the immediate vicinity of the property. . . . Such developments are not the norm in the area of the property; single family homes and cottages are.

The nearest public access to the shoreline on the property is approximately 1.5 miles to the south at Readmond Township Park in Readmond. Readmond is approximately 40 square miles, is approximately 10 miles north of Harbor Springs (the nearest incorporated city), and is in Emmet County.. . . .

The Readmond Township Park is a small park that is publicly owned by Readmond. It has in it a picnic table, a sandy beach with approximately 200 feet of frontage, and limited parking for approximately 15 cars. On both sides of the park are private homes which extend down to the water. No incorporated cities are found to the north of Readmond.

The nearest public access to the shoreline to the north of the property is approximately 4 miles away in Cross Village. Cross Village is in Emmet County and is also the nearest public access for boats to enter Lake Michigan. The public area in Cross Village includes 200 to 300 feet of lakefront property. * * * *

Some homes in Emmet County were built on the bluff along Lake Michigan. The construction of a home on a bluff on or near the property interferes with the bluff's natural scenic beauty. It also interferes with and destroys the natural habitat of wildlife or plants that live or grow naturally on or near the bluff. There also are risks of a landslide in building on or near a bluff.

* * * *

Few people walk the Lake Michigan shoreline in Emmet County at times other than in the summer. In the summer (primarily July and August), many people walk that shoreline, . . . up to the ordinary high water mark. . . . The people who walk the shoreline on or near the property are generally neighboring landowners (or the renters of homes on that land), family, or friends.

Id. at 263-64, 265, 266 (footnotes omitted).

B. Taxpayers' Grant of Conservation Easements to LTC

Little Traverse Conservancy is a Michigan nonprofit organization that is exempt from federal income tax under I.R.C. § 501(c)(3). Id. at 274. Its purpose "is to protect the natural integrity and scenic beauty of northern Michigan for the enjoyment of future generations." Id. It accomplishes this purpose by acquiring property by contribution or purchase and by educating the public. Id.

The LTC...

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