RP Golf, LLC v. Comm'r

• Decision Date: 28 April 2016
• Docket Number: T.C. Memo. 2016-80,Docket No. 27873-08.
• Parties: RP GOLF, LLC, SB GOLF, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

RP GOLF, LLC, SB GOLF, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2016-80

Docket No. 27873-08.

UNITED STATES TAX COURT

April 28, 2016

Lisa J. Hansen and Michael J. Abrams, for petitioner.

Shaina E. Boatright and David L. Zoss, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PARIS, Judge: This case involves a noncash charitable contribution deduction. In a notice of final partnership administrative adjustment (FPAA) for 2003 respondent disallowed a $16,400,000 charitable contribution deduction on the partnership return of RP Golf, LLC (RP Golf). The deduction was claimed for the donation of a conservation easement on real property currently operating as a golf course and conveyed by the National Golf Club of Kansas City LLC (National Golf), a single-member limited liability company (LLC) whose sole member was RP Golf.¹

The issues for decision are as follows: (1) whether the requirements of section 170(h) for a qualified conservation easement are met;² (2) whether RP Golf is entitled to a charitable contribution deduction with respect to a donation of a conservation easement to a charitable organization by its single-member LLC; and (3) if the Court determines that RP Golf is entitled to a charitable contribution deduction, then what is the value of the conservation easement.

FINDINGS OF FACT

Some of the facts are stipulated and are so found. The stipulation of facts, the amended first supplemental stipulation of facts, and the exhibits attached thereto are incorporated herein by this reference. At the time the petition was filed, RP Golf's principal place of business was in Missouri. RP Golf is aMissouri LLC and was formerly referred to as River Park Golf, LLC.³ SB Golf, LLC, is RP Golf's tax matters partner and petitioner in this case. See sec. 6226.

I. Property Ownership History

In June 1997 RP Golf acquired a substantial portion of the land that makes up the current golf course development on which the conservation easement at issue is located. The golf course property formerly known as Windbrook Properties (Windbrook Properties) was conveyed to RP Golf by a trustee's deed that included disclosures from a bankruptcy estate. The trustee's deed conveyed multiple tracts of land in Platte County, Missouri, to RP Golf.

In October 1998 RP Golf conveyed certain property, including a portion, but not all, of the Windbrook Properties, without disclosures by special warranty deed to its wholly owned subsidiary, National Golf. The special warranty deed was recorded in the Platte County Recorder's Office on October 30, 1998.

RP Golf developed two private golf courses on the Windbrook Properties, known as the National and the Deuce at the National (Deuce), respectively.⁴ TheNational was completed and placed into service in 2000. The first nine holes of the Deuce were completed and placed into service in 2002. The remaining nine holes of the Deuce were completed and placed into service in 2003.

Each golf course organized private clubs, and during 2003 National Golf operated both of the for-profit private golf clubs. One club was associated with the National course, and the other club was associated with the Deuce course.

II. Development Financing Agreements

Hillcrest Bank financed RP Golf's original 1997 purchase of the Windbrook Properties. Then in January 2001 Hillcrest Bank made a development loan of $12,500,000 to RP Golf (Hillcrest loan). RP Golf, National Golf, and another related entity granted a security interest in all of the Windbrook Properties, among others, and as security to the indebtedness executed a deed of trust dated January 24, 2001, which was recorded in the Platte County Recorder's Office on February 5, 2001 (2001 deed of trust). The 2001 deed of trust contains standard provisions prohibiting any transfer of any interest in the property without the consent of the Hillcrest Bank and states that a violation of the transfer prohibition would result in an event of default.

The Hillcrest loan amount was subsequently modified, and the principal was reduced to $9,900,000. The 2001 deed of trust was amended accordingly. In an agreement dated April 8, 2003, the Hillcrest loan was further modified to extend the maturity date to February 7, 2004, and the 2001 deed of trust was further amended by a modification agreement dated April 8, 2003, and recorded on February 11, 2004. The Hillcrest loan was modified again to increase the principal to $10,900,000 and to extend the maturity date to February 7, 2005. The 2001 deed of trust was further amended to reflect the changes by a modification agreement dated February 7, 2004, and recorded on March 16, 2004 (2004 Hillcrest modification). Each of the above-described modifications contained the following disclosure:

Statutory Notice. Oral agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt, including promises to extend or renew such debt, are not enforceable. To protect you (borrower(s)) and us (creditor) from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it. * * *

Both RP Golf and National Golf, the grantor of the easement, executed the original 2001 Hillcrest loan and the 2004 Hillcrest modification.⁵

Earlier development financing was also obtained from Great Southern Bank, which made four loans to National Golf and/or RP Golf. Great Southern Bank held the following deeds of trust on the Windbrook Properties: (1) RP Golf in the principal amount of $4,200,000 secured by a deed of trust dated May 27, 1998; (2) National Golf in the principal amount of $8 million secured by a deed of trust dated October 27, 1998; (3) RP Golf in the principal amount of $3,800,000 secured by a deed of trust dated January 25, 2000; and (4) National Golf in the principal amount of $10 million secured by a deed of trust dated September 25, 2002. The promissory notes securing the deeds of trust contained a limitation on oral agreements that was substantially similar to the limitation contained in the Hillcrest documents.

Both Hillcrest Bank and Great Southern Bank had extensive financing agreements and senior deeds of trust recorded in the Platte County Recorder's Office before National Golf's grant of easement described infra.

III. The Conservation Easement

On December 29, 2003, National Golf, as grantor, executed an agreement entitled "Grant of Permanent Conservation Easement" purporting to grant a conservation easement to the Platte County Land Trust (PLT), a Missouri not-for-profit corporation (PLT agreement).⁶ National Golf expressly reserved the right for itself, and its successors or assigns, to use the property as a golf course, and it continues to operate two private golf clubs on the property.

The PLT agreement includes, inter alia, the following statement about the transfer of the conservation easement:

WHEREAS, the Grantor is the owner in fee of certain real property located in Platte County, Missouri, which has aesthetic, open space, scenic, recreational, and natural resource values in its present state; * * *

The property underlying the PLT agreement is in the City of Parkville, Platte County, Missouri. The legal description attached to the PLT agreement conveyed portions of multiple sections of land, including a part of the northwest quarter of section 26. National Golf has never been the owner in fee of the northwestquarter of section 26.⁷ The PLT agreement also included the following declarations:

WHEREAS, the Grantor desires to protect and preserve the natural values of the property by making permanent arrangements for the conservation of the open space, scenic natural resources, natural habitat and aesthetic qualities of the Property and to limit the future use thereof to such purposes;⁸ * * *

* * * * * * *

NOW, THEREFORE, for and in consideration of the covenants and representations contained herein and for other good and valuableconsideration, the receipt and legal sufficiency of which are hereby acknowledged, Grantor [National Golf] on behalf of itself and its heirs, successors and assigns, in consideration of the premises contained herein and other valuable consideration paid to its full satisfaction, does freely give, grant, sell, transfer, convey and confirm forever unto [PLT] * * * a perpetual conservation easement (as more particularly set forth below) in that certain tract of land containing approximately three hundred (300) acres, more or less,⁹ being more particularly described in Schedule A * * * attached hereto and incorporated herein * * *

* * * * * * *

This instrument sets forth the entire agreement of the parties with respect to the Easement and supersedes all prior discussions, negotiations, understandings, or agreements relating to the Easement, all of which are merged herein.

The easement's purpose, according to the PLT agreement, is primarily to "further the policies of the State of Missouri designed to foster the preservation of open space or open areas, conservation of the state's forest, soil, water, plant and wildlife habitats, and other natural and scenic resources" and "to implement the objectives set forth in 67.870 to 67.910 R.S.M.O." The objectives outlined in the Missouri statutes aim to preserve and maintain open areas and spaces in the lightof encroaching urban and metropolitan development. Mo. Ann. Stat. sec. 67.870 (West 2007).

Missouri law governs the interpretation and performance of the easement, which, per the PLT agreement, "shall be liberally construed to implement Missouri's open areas policy." To ensure National Golf's compliance with the statutory objectives and the PLT agreement terms, PLT agreed to inspect and, if necessary, enforce the easement for an annual fee of approximately $15,000. Additionally, the grantor, National Golf, agreed to...