Opinion
13925-17
06-01-2022
LAKEPOINT LAND II, LLC, LAKEPOINT LAND GROUP, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Thomas B. Wells, Judge
Background
This case involves a charitable contribution deduction claimed by LakePoint Land II, LLC (LakePoint) for a donation of a conservation easement. The Internal Revenue Service (IRS or respondent) issued a Notice of Final Partnership Administrative Adjustment (FPAA) for the 2013 and 2014 tax years to petitioner LakePoint Land Group, LLC, the tax matters partner of LakePoint, wherein respondent disallowed the aforementioned claimed deduction and asserted penalties.
On November 19, 2018, respondent filed a Motion for Partial Summary Judgment. The motion asks the Court to sustain the disallowance on the ground that the deed of conservation easement (the deed) on which the deduction is based fails to protect the conservation purposes in perpetuity as required by sections 170(h)(2)(C) and 170(h)(5)(A). Respondent contends that the deed fails to satisfy the requirements of section 1.170A-14(g)(6)(ii) of the Treasury Regulations because (1) in the event of judicial extinguishment of the easement, the deed fails to make the donee absolutely entitled to a proportionate share of the extinguishment proceeds; or alternatively, (2) the deed allows the parties to eliminate the easement through merger of estates. Respondent states that upon granting of the motion several issues will remain for trial.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulatory references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
On December 27, 2018, petitioner filed an Objection to respondent's motion and thereafter on August 21, 2020 filed its own Motion for Partial Summary Judgment together with a Memorandum of Law in Support of Motion for Partial Summary Judgment. With respect to the summary judgment standard, petitioner acknowledges that its motion "relates solely to the [d]eed's compliance with the Extinguishment Regulation" and states that petitioner does not concede any other issue raised by respondent. Respondent filed an Objection and Response to petitioner's motion on September 24, 2020.
I. Analysis
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 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. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
A. Proportionate Share
Lakepoint's deed provides that the donee's share of proceeds stemming from a judicial extinguishment or termination of the easement would not include any value generated by Lakepoint's improvements to the property (the donor improvements provision). Respondent contends that excluding the value of improvements results in the charitable donee not receiving a proportionate share of the proceeds, and, therefore, the deed's donor improvements provision violates Treas. Reg. § 1.170A-14(g)(6)(ii). At the time petitioner filed its petition, Lakepoint's principal place of business was in Atlanta, Georgia. Accordingly, this case is appealable to the Eleventh Circuit in the absence of a written stipulation to the contrary. See I.R.C. § 7482(b)(1)(E).
On December 29, 2021, the U.S. Court of Appeals for the Eleventh Circuit held that "the Commissioner's interpretation of Treas. Reg. § 1.170A-14(g)(6)(ii), to disallow subtraction of the value of post-donation improvements … is arbitrary and capricious and therefore invalid under the APA's procedural requirements." Hewitt v. Commissioner, No. 20-13700, 2021 U.S. App. Lexis 38555, at *40-41 (11th Cir. Dec. 29, 2021), rev'g and remanding T.C. Memo. 2020-89. Although this Court has upheld the validity of the Commissioner's interpretation, see Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180, 189-200 (2020), affirmed in Oakbrook Land Holdings, LLC v. Commissioner, No. 20-2117 (6th Cir. Oct. 16, 2020), and PBBM-Rose Hill, Limited v. Commissioner, 900 F.3d 193, 208 (5th Cir. 2018) (affirming this Court's bench opinion), we shall not render a decision inconsistent with the Eleventh Circuit's holding, for it would be futile and wasteful to do so where we would surely be reversed. See Tigers Eye Trading v. Commissioner, 138 T.C. 67, 144 (J. Halpern, concurring, discussing Lawrence v. Commissioner, 27 T.C. 713, 716-717); Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971); Lardas v. Commissioner, 99 T.C. 490, 494-495 (1992).
Accordingly, we conclude that summary judgment based on respondent's interpretation of the "sharing of proceeds" requirements in Treas. Reg. § 1.170A-14(g)(6)(ii) would be inappropriate.
B. Merger of Estates
In the event the Eleventh Circuit invalidated Treas. Reg. § 1.170A-14(g)(6)(ii) only insofar as it relates to donor improvements provisions, we now turn to respondent's contention that Lakepoint's deed fails to satisfy the requirements of Treas. Reg. § 1.170A-14(g)(6)(ii) because it allows the parties to eliminate the easement through a merger of estates.
Respondent's argument fails if the possibility of eliminating the easement through a merger of estates is so remote as to be negligible. See Treas. Reg. § 1.170A-14(g)(3). Petitioner points to several statements in the deed requiring that the donee protect the easement and conservation purposes in perpetuity, and evincing an intent to restrict a merger of estates. Given the requirements and intent of the donee, evidence presented at trial could illuminate how remote the possibility of extinguishment is. Petitioner contends that the parties did not intend to allow for such a merger, and that trial is needed to determine whether the intent exists. Among several examples cited by petitioner, the deed explicitly disallows a merger of estates to occur unless the parties expressly state that they intend one. We conclude that whether the parties to the deed intended to reserve the right to apply the doctrine of merger to extinguish the conservation easement is an open, unresolved, material issue of fact.
Accordingly, we conclude that summary judgment based on respondent's "merger of estates" argument would be inappropriate, as there remains at least one genuine issue of material fact.
II. Conclusion
Even if there were not an outstanding issue of material fact, respondent's motion acknowledges that granting the motion will not resolve the case. After considering matters of judicial economy, we conclude that if we were to grant the motion of either party, significant issues for trial would remain. Therefore, it is unclear that the purposes of summary judgment would be accomplished. See e.g., FPL Grp., Inc. & Subs., 116 T.C. at 74.
We will accordingly deny each party's motion for partial summary judgment.
In consideration of the foregoing, it is
ORDERED that respondent's motion for partial summary judgment, filed November 19, 2018, is denied. It is further
ORDERED that petitioner's motion for partial summary judgment, filed August 21, 2020, is denied. It is further
ORDERED that petitioner's motion to compel responses to interrogatories, filed February 12, 2020, is denied without prejudice. It is further
ORDERED that jurisdiction of this case is no longer retained by the undersigned and this case is restored to the general docket for trial or other disposition in due course.