Pine Mountain Pres., LLLP v. Comm'r
| Decision Date | 27 December 2018 |
| Docket Number | Docket No. 8956-13.,151 T.C. No. 14 |
| Parties | PINE MOUNTAIN PRESERVE, LLLP f.k.a. CHELSEA PRESERVE, LLLP, EDDLEMAN PROPERTIES, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
P acquired a tract of land near Birmingham, Alabama, and conveyed to a qualified land trust, in 2005, 2006, and 2007, easements covering relatively small portions of that property. Each easement defined a conservation area that was to be restricted in perpetuity from commercial and residential development, with a carve-out in the 2005 and 2006 easements for 16 reserved "building areas," within each of which P could construct a single-family residence. The 2006 easement did not specify the location of the building areas, and the 2005 easement permitted P (with the trust's consent) to move the building areas from their initially designated locations to any other location within the conservation area. The 2005 easement also reserved to P the rights to construct, within the conservation area, other facilities appurtenant to residential development, such as barns, riding stables, scenic overlooks, and boat storage buildings, some of which could include additional living quarters.
P claimed charitable contribution deductions for the easements on its 2005, 2006, and 2007 tax returns. R contends that the easements were not "qualified real property interest[s]" under I.R.C. sec. 170(h)(1)(A); that the easements were not made "exclusively for conservation purposes" under I.R.C. sec. 170(h)(1)(C); and that P overstated the fair market values of the easements.
1. Held: The 2005 and 2006 easements did not restrict a specific, identifiable piece of real property because they allowed supposedly conserved land to be taken back and used for residential development. Because neither easement constituted "a restriction (granted in perpetuity) on the use which may be made of the real property," I.R.C. sec. 170(h)(2)(C), neither easement constituted a "qualified real property interest" that could give rise to a charitable contribution deduction under I.R.C. sec. 170(h)(1)(A). Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014), aff'g 140 T.C. 1 (2013), followed.
2. Held, further, the 2007 easement covered a specific, identifiable piece of real property and was "granted in perpetuity" under I.R.C. sec. 170(h)(2)(C).
3. Held, further, the 2007 easement was made "exclusively for conservation purposes" under I.R.C. sec. 170(h)(1)(C).
4. Held, further, the inclusion in the 2007 easement of a provision allowing amendments, provided that they were "not inconsistent with the conservation purposes of the donation," did not prevent that easement from satisfying the granted-in-perpetuity requirement of I.R.C. sec. 170(h)(2)(C).
David M. Wooldridge, Ronald Levitt, Gregory P. Rhodes, and Michelle A. Levin, for petitioner.
Edwin B. Cleverdon and Horace Crump, for respondent.
LAUBER, Judge: For the calendar taxable years 2005, 2006, and 2007, the Internal Revenue Service (IRS or respondent) issued notices of final partnership administrative adjustment (FPAAs) to Pine Mountain Preserve, LLLP. These notices disallowed charitable contribution deductions claimed by the partnership in the following amounts for donations of conservation easements:
Year Deduction 2005
$16,550,000 2006
12,726,000 2007
4,100,000
Eddleman Properties, LLC (Eddleman Properties), the partnership's tax matters partner, filed a timely petition for readjustment of partnership items. See sec. 6226(a).1 We have jurisdiction under section 6226(f).
The Court adopts the stipulations of fact executed by the parties. When the petition was filed, the partnership had its principal place of business in Alabama.
Beginning in 2004 Douglas Eddleman and his father (together Eddlemans) began acquiring tracts of land in Shelby County, Alabama, about 20 miles southeast of Birmingham. As we describe in greater detail below, the Eddlemans or entities they controlled eventually purchased 10 contiguous parcels covering 6,224 acres. We will refer to these parcels collectively as the Pine Mountain property. The map infra p. 5 shows the Pine Mountain property, the boundaries of the 10 parcels included within it, and the boundaries of the three easements eventually placed on the property.2
The Pine Mountain property is situated north of the Highway 280 corridor, which stretches from Birmingham to Harpersville in Shelby County. The Highway 280 corridor is the most affluent part of the Birmingham metropolitan area. Douglas Eddleman believed that development of the Pine Mountain property would require points of access to Highway 280 and to Old Highway 280, which runs roughly parallel to Highway 280 to the north.
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When the Eddlemans began assembling the Pine Mountain property, it consisted of unincorporated land between the city of Chelsea to the west and the town of Westover to the east. As of 2001 this area was completely unimproved. In May 2004 Eddleman Properties formed Chelsea Preserve, LLLP, a Delaware limited partnership, to hold the Pine Mountain property. This partnership also did business as Pine Mountain Preserve, LLLP, and we will refer to it as Pine Mountain.
On February 19, 2004, Eddleman Properties signed a contract to purchase 18.76 acres of land (Parcel 1). Parcel 1 borders on Old Highway 280. On May 14, 2004, Eddleman Properties closed on this contract and purchased Parcel l for $225,120. It conveyed Parcel 1 to Pine Mountain in December 2004.
On March 23, 2004, Eddleman Properties acquired for $50,000 options to purchase approximately 4,180 acres of forest land known as the Cahaba Forests property. This property consisted of four contiguous parcels (Parcels 2, 5, 6, and 7). These parcels lacked access to Highway 280 and Old Highway 280. But if Eddleman Properties were to exercise its options, Parcel 1 (which bordered Parcel 5) would provide a link between Old Highway 280 and the Cahaba Forests property. Eddleman Properties subsequently transferred each of the options to Pine Mountain; the record is silent on the nature or timing of these transfers.
On June 2, 2004, Pine Mountain acquired Parcel 2, consisting of 1,189.90 acres of the Cahaba Forests property, for $5,354,550. It did so by exercising one of the options referenced above.
On July 23, 2004, Pine Mountain purchased Parcel 3, consisting of 7.53 acres, for $250,000. On October 28, 2004, Pine Mountain purchased Parcel 4, consisting of 26.55 acres, for $1,460,250. Together, Parcels 3 and 4 provided a point of access from the Cahaba Forests property to Highway 280 and a second point of access to Old Highway 280.
During 2004 and continuing into 2005, Pine Mountain negotiated with the mayors of Westover and Chelsea to determine which of the two municipalities might annex the Pine Mountain property and on what terms. Pine Mountain concluded that Westover offered better tax incentives. By early 2005 Pine Mountain and representatives of Westover had sketched out the basic terms under which Westover might annex the Pine Mountain property.
On January 14, 2005, Pine Mountain acquired Parcel 5, consisting of 365.01 acres of the Cahaba Forests property, for $1,642,545. It did so by exercising one of the options Eddleman Properties had acquired via the March 2004 contract referenced above. Parcel 5 bordered Parcels 1 and 2.
On August 8, 2005, Pine Mountain made an offering permitting investors to buy interests in the partnership, which then owned about 1,600 acres of land (Parcels 1, 2, 3, 4, and 5) and had options to buy another 2,600 acres (Parcels 6 and 7). Investors ultimately acquired 300 limited partnership units, which entitled them to 50% of the partnership's profits, losses, and cashflows. The limited partners paid $29,970,000 for their interests. Eddleman Properties retained a general partnership interest entitling it to 50% of the partnership's profits, losses, and cashflows.
On November 10, 2005, Pine Mountain acquired Parcel 6, consisting of 1,273.21 acres of the Cahaba Forests property, for $6,366,050. It did so by exercising one of the options Eddleman Properties had acquired via the March 2004 contract referenced above. Parcel 6 bordered Parcels 2 and 5.
On December 27, 2005, Pine Mountain conveyed to the North American Land Trust (NALT), a "qualified organization" for purposes of section 170(h)(3), the first of the conservation easements at issue (2005 easement). At that time Pine Mountain owned Parcels 1, 2, 3, 4, 5, and 6, covering 2,881 acres. The 2005 easement affected only Parcel 2. It covered mostly contiguous land in the northern half of Parcel 2, consisting of 559.48 acres in total. This acreage includes ridgeline areas and lower-lying land surrounding a large man-made lake. The terms of the 2005 easement are described more fully below. See infra pp. 12-18.
On September 20, 2006, Pine Mountain signed an agreement with the town of Westover under which the town would eventually annex the entirety of the Pine Mountain property. The annexation process began on November 6, 2006, and proceeded in stages through the next four months. At no point did Pine Mountain discuss with Westover the placement of conservation easements over any part of the Pine Mountain property.
On October 11, 2006, Pine Mountain acquired Parcel 7, consisting of 1,352.72 acres of the Cahaba Forests property, for $7,439,960. It did so by exercising one of the options Eddleman Properties had acquired via the March 2004 contract referenced above. Parcel 7 bordered Parcel 6 on the west and Parcel 5 on the south.
On the same day Pine Mountain acquired Parcel 8, consisting of 794.64 acres east of Parcel 7, for $5,721,408. It did so by exercising one of the options Eddleman Properties had acquired, in June 2006, to purchase Parcels 8, 9, and 10.
On December 1, 2006, Pine Mountain made an offering to its limited...
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