Opinion
6441-20
03-07-2023
DORCHESTER FARMS PROPERTY, LLC, DORCHESTER FARMS MANAGER, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge
This case involves a charitable contribution deduction claimed by Dorchester Farms Property, LLC, for the donation of a conservation easement in 2016. The property subject to this easement, located in Liberty County, Georgia (Property), allegedly comprises about 625 acres. The partnership claimed for this donation a deduction of $18,663,918. The Internal Revenue Service (IRS or respondent) issued a notice of final partnership administrative adjustment (FPAA) disallowing the deduction and determining penalties under sections 6662 and 6662A. Petitioner timely petitioned this Court for readjustment of the partnership items.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
On April 7, 2022, respondent filed a Motion for Partial Summary Judgment contending that the deduction was properly disallowed (among other reasons) because the partnership did not own the Property or because the deed of easement was invalid. On August 1, 2022, this case was assigned to the undersigned, and petitioner at the Court's direction timely responded to the Motion. Finding that there exist genuine disputes of material fact, we will deny the Motion.
Background
The following facts are derived from the pleadings, the parties' Motion papers, and the Exhibits and Declarations attached thereto. They are stated solely for purposes of deciding respondent's Motion and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Dorchester Farms Property is a Georgia limited liability company (LLC) organized in 2016. It is treated as a TEFRA partnership for Federal income tax purposes, and petitioner Dorchester Farms Manager, LLC (Manager), is its tax matters part-ner. Dorchester Farms Property had its principal place of business in Georgia when the Petition was timely filed.
Before its repeal, TEFRA (the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, §§ 401-407, 96 Stat 324, 648-71) governed the tax treatment and audit procedures for many partnerships, including Dorchester Farms.
On October 15, 2016, Dorchester Farms Property executed an Operating Agreement with Laura Devendorf and Manager that specified (among other things) their initial capital contributions to the partnership. The Agreement stated that Manager would receive a 1% membership interest in exchange for a contribution of $1,000 in cash, and that Devendorf would receive a 99% membership interest in exchange for a contribution of land.
The Operating Agreement recited that "[c]oncurrently with the execution of this Agreement, Devendorf has contributed or will contribute to Company [i.e., Dorchester Farms Property] the Property." The Agreement defines the "Property" to mean "that certain property consisting of approximately 474 [sic] acres located in Liberty County, Georgia, and as more particularly described in Exhibit B attached hereto." Exhibit B, captioned "Legal Description of Dorchester Tract," contains a metes-and-bounds description of a tract "known as Melon Bluff lying in the 1359th G.M.D., Liberty County, Georgia." This legal description does not specify the acreage of the Property.
On December 21, 2016, Ms. Devendorf as grantor executed a Limited Warranty Deed in favor of "Dorchester Property, LLC, a Georgia limited liability company" as grantee. Ms. Devendorf thereby conveyed a tract "in Liberty County, Georgia, as more particularly described on Exhibit A attached hereto." Exhibit A, captioned "Legal Description of Dorchester Tract," contains the same metes-and-bounds description that was appended to the Operating Agreement, again referring to a tract "known as Melon Bluff," but again neglecting to specify the acreage of the Property.
On December 27, 2016, a deed of conservation easement (Easement Deed) was executed between "Dorchester Property, LLC, a Georgia limited liability company," as grantor, and Southern Conservation Trust, as grantee. The Easement Deed conveyed an easement over "real property in Liberty County, Georgia more particularly described in Exhibit A attached hereto . . . containing approximately 625 acres."
Exhibit A contains a legal description of the Property that differs substantially from the legal description attached to the Operating Agreement and the Limited Warranty Deed. The legal description attached to the Easement Deed refers to a tract "in the 1359th G.M. District of Liberty County, Georgia, . . . known as Melon Bluff Plan-tation," but it identifies this tract as "containing in the aggregate twenty-five hundred and ninety-three (2,593) acres," as opposed to 625 acres as stated in the Easement Deed's granting clause. And it includes an entirely different metes-and-bounds description of the Property.
Charles A. Kiene, a "Member/Manager" of Dorchester Farms Property, initialed every page of the Easement Deed and signed the last page on behalf of Grantor as "Member/Manager." But the entity name appearing above his signature, as on the first page of the Easement Deed, is shown as "Dorchester Property" rather than Dorchester Farms Property. The signature page bears the seal of a notary public attesting that Mr. Keine signed the Easement Deed on December 27, 2016.
Dorchester Farms Property timely filed Form 1065, U.S. Return of Partnership Income, for its 2016 tax year. On that return it claimed a charitable contribution deduction of $18,663,918 for its donation of the easement. In support of this supposed value it relied on an appraisal report prepared by Martin Van Sant and Thomas Wingard. That report identified the subject property as comprising "630.00 unimproved acres" and identified the area encumbered by the easement as comprising "625.00 acres."
In December 2017 the contracting parties became aware that the documents discussed above contain discrepancies regarding the identity of the partnership and the acreage covered by the easement. On December 11, 2017, Daniel R. Crook, an attorney who purported to have "valid knowledge" of the Limited Warranty Deed and the Easement Deed, signed a "Scrivener's Affidavit." His affidavit recites that each deed contains a scrivener's error and that the correct name of the grantee in the Limited Warranty Deed and of the grantor in the Easement Deed is Dorchester Farms Property, LLC, not "Dorchester Property, LLC." The Scrivener's Affidavit was filed with the Clerk of Superior Court of Liberty County on December 14, 2017.
On December 13, 2017, Mr. Kiene signed a "Corrective Deed of Conservation Easement" (Amended Easement Deed) in his capacity as "President" of Dorchester Farms Property. Exhibit A to the Amended Easement Deed contains a legal description of the Property, which states at the end thereof, "the land thus described contains 625 acres." The metes-and-bounds description of the Property in Exhibit A to the Amended Easement Deed resembles (but is not the exactly the same as) the legal description attached to the Operating Agreement and the Limited Warranty Deed. The Amended Easement Deed was recorded on December 14, 2017, but stated that it was "to be effective as of" December 27, 2016.
The IRS selected the partnership's return for examination. On March 12, 2020, the IRS issued petitioner a timely FPAA disallowing the charitable contribution deduction on the ground that the partnership failed to establish that it "made a contribution or gift of a conservation easement during the [2016] tax year." Alternatively, the IRS determined that Dorchester Farms Property had "failed to establish that [it] satisfied all the requirements of I.R.C. Section 170." The FPAA included a Form 66-A, Explanation of Items, reciting that Dorchester Farms Property had "granted a conservation easement on 625 acres in Liberty County, Georgia on December 27, 2016."
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment regarding an issue as to which there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(b); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant partial summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party (here petitioner). Sundstrand Corp., 98 T.C. at 520.
II. Analysis
Respondent contends that the charitable contribution deduction was properly disallowed because the Easement Deed "was not effective to grant a conservation easement." That is so, respondent says, because the Limited Warranty Deed granted a fee simple interest in the Property to "Dorchester Property" rather than to Dorchester Farms Property. Because Dorchester Farms Property supposedly did not own the land, respondent urges that it could not convey an easement over the land. Respondent alternatively contends that, even if Dorchester Farms Property did own the land, the original Easement Deed "cannot be considered to be sufficiently certain with regard to the location and quantity of the land." This is supposedly so because Exhibit A to the original Easement Deed misidentifies the tract as containing 2,593 acres, as opposed to 625 acres as stated in the granting clause, and because the metes-and-bounds description of the Property is incorrect. Petitioner replies that "scrivener's errors do not invalidate a deed" under Georgia law, and that the documents as a whole leave no doubt about what was being donated or who was making the donation.
"State law determines the nature of property rights contributed, whereas Federal law determines the appropriate tax treatment of those rights." Harbor Lofts Assocs. v. Commissioner, 151 T.C. 17, 24 (2018). Under Georgia law a deed may be recorded only if it is "in writing," "signed by the maker," and "attested by an officer . . ., [and] one other witness." Ga. Code Ann. § 44-5-30. "One essential of a deed is that the description of the premises sought to be thereby conveyed must be sufficiently full and definite to afford meaning of identification." Hedden v. Hilton, 225 S.E.2d 39, 40 (Ga. 1976) (quoting Crawford v. Verner, 50 S.E. 958, 959 (Ga. 1905). While a deed need not perfectly describe the land, "it must furnish the key to the identification of the land intended to be conveyed by the grantor." Ibid.
We recently found summary judgment inappropriate in a case with facts resembling those here. See Lodebar Prop., LLC v. Commissioner, Docket No. 1178-20 (Order served May 11, 2022). The easement deed there listed the incorrect grantor on the signature page and included in an exhibit an incorrect description of the prop-erty's total acreage. In denying the IRS's motion for partial summary judgment, we held that "[t]he question whether the deed was 'signed by the maker' presents factual questions that are ill-suited to summary adjudication." We noted that "[p]etitioner may be able to demonstrate at trial, on the basis of the contracting parties' intent," that the misstated acreage appearing in the legal description of the deed "reflected an immaterial scrivener's error." We rule similarly here.
"In contract law, a scrivener's error, like mutual mistake, occurs when the intention of the parties is identical at the time of the transaction but the written agreement does not express that intention because of that error . . . ." Blackshear v. Reliance Std. Life Ins., Co., 509 F.3d 634, 642 (4th Cir. 2007) (quoting 27 Richard A. Lord, Williston on Contracts § 70:93 (4th ed.)); see also Thomas v. B&I Lending, LLC, 581 S.E.2d 631, 634 (Ga.Ct.App. 2003) ("The cardinal rule of contract construction is to ascertain the intent of the parties at the time they entered into the agreement."). In ascertaining that intention, the whole instrument is to be construed, together with its circumstances, to give effect (if possible) to the entire deed. See Smith v. Smith, 156 S.E.2d 901, 902 (Ga. 1967); Shoaf v. Bland 69 S.E.2d 258, 260 (Ga. 1952); Vineville Cap. Group, LLC v. McCook, 766 S.E.2d 156, 160 (Ga.Ct.App. 2014). Such inquiry may require parol evidence to demonstrate the intent of the parties and show that a written term in a contract was a mistake. Smith, 156 S.E.2d at 902.
Although the entity name shown on the Limited Warranty Deed is "Dorchester Property," that name obviously resembles "Dorchester Farms Property," the actual name of the partnership. The Deed was executed by Ms. Devendorf, who owned a 99% interest in the partnership, pursuant to her obligation as stated in the Operating Agreement. The Limited Warranty Deed attached a legal description of the Property that is identical to the legal description attached to the Operating Agreement. These facts tend to show that Dorchester Farms Property was the intended grantee. Petitioner has supplied several internal documents suggesting that the contracting parties intended to convey the Property to the partnership and that partnership owned the Property upon which the easement was placed.
Although the grantor in the original Easement Deed was also shown as "Dorchester Property," that document was signed by Mr. Kiene, who was actually a "Member/Manager" of Dorchester Farms Property. Respondent does not contend that Mr. Kiene lacked authority to sign the deed on behalf of the partnership. Indeed, in December 2017 Mr. Kiene signed the Amended Easement Deed on behalf of Dorchester Farms Property. In any event, petitioner plausibly urges that the similarity between the entity names-Dorchester Property and Dorchester Farms Property-makes the intent of the two documents ambiguous, an ambiguity that would need to be resolved under principles of Georgia law, which might include parol evidence. See Moore v. Pa. Castle Energy Corp., 89 F.3d 791, 795-96 (11th Cir. 1996); Stewart v. KHD Deutz of Am., Corp., 980 F.2d 698, 702 (11th Cir. 1993) (holding that the district court erred in not considering extrinsic evidence when a document was ambiguous); Smith 156 S.E.2d at 902; Morgan Run Partners, LLC v. Commissioner, T.C. Memo. 2022-61, 123 T.C.M. (CCH) 1324, 1326.
Respondent alternatively contends that, even if Dorchester Farms Property owned the land and could convey an easement, the charitable contribution was ineffective because Exhibit A to the original Easement Deed stated that the Property comprised 2,953 acres, whereas the granting clause of that same document grants an easement over only 625 acres. We find that summary judgment is inappropriate on this point as well.
Section 44-5-34 of the Georgia Annotated Code provides that, where "two clauses in a deed are utterly inconsistent, the former shall prevail; but the intention of the parties should, if possible, be ascertained from the whole instrument and carried into effect." The easement deed's title page specifies that the easement covers "approximately 625 acres." Exhibit A includes a "Conservation Map" that labels the property as a 625-acre tract, and Exhibit B (the Baseline Documentation Report) refers to the easement as covering "+/- 625 acres."
Those 625 acres were carved from the 630-acre tract that the partnership acquired from Ms. Devendorf earlier in 2016. Since the partnership owned only 630 acres, it could not possibly have granted an easement over 2,953 acres. Petitioner may be able to demonstrate at trial, on the basis of extrinsic evidence, that Exhibit A reflects an immaterial scrivener's error that was inconsistent with the parties' actual intent. See Luttrell v. Whitehead, 49 S.E. 691, 692 (Ga. 1905) ("[A]n ambiguous descriptive clause may be aided by aliunde [i.e., extrinsic] evidence."); Crawford, 50 S.E. at 959 ("If the premises are so referred to as to indicate [the grantor's] intention to convey a particular tract of land, extrinsic evidence is admissible to show the precise location and boundaries of such tract.").
Upon due consideration, it is
ORDERED that respondent's Motion for Partial Summary Judgment, filed April 7, 2022, is denied. It is further
ORDERED that the parties shall file, on or before April 3, 2023, a status report (jointly if possible, otherwise separately) expressing their views as to the conduct of further proceedings in this case.