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IRS Wins on $155.5 Million Tax Fight Over Conservation Donation (1)

Oct. 28, 2019, 9:13 PMUpdated: Oct. 29, 2019, 12:18 AM

A coal partnership can’t take a $155.5 million charitable deduction for donating certain property ownership rights, the U.S. Tax Court said in an Oct. 28 ruling.

Coal Property Holdings LLC donated a conservation easement over its 3,713 acres to a Tennessee land trust in September 2013.

A conservation easement allows taxpayers to claim a charitable deduction for donations of property that will be protected from future development.

But the court said the deed didn’t meet tax code Section 170(h)(5)(A)‘s requirement to protect the conservation’s purpose “in perpetuity” because the land trust receiving the donation wasn’t “absolutely entitled to a proportionate share of the proceeds” if a judge extinguished the easement and the property was sold.

For example, the easement deed said the land trust would only be entitled to the “stipulated fair market value” of the easement in the event of such a sale after “prior claims” were satisfied.

A clause in the deed that attempted to prevent this outcome was invalidated by the court, which concluded that the clause was simply trying to override the plain meaning of other provisions if they were deemed insufficient to create a deductible easement.

“We conclude that the text to which petitioner refers constitutes a ‘condition subsequent’ saving clause, which we and other courts have consistently declined to enforce,” Judge Albert Lauber said.

The easement arose when Coal Property made a conservation easement—preventing any surface mining on the property so the land could recover from past mining—to Foothills Land Conservancy, a 501(c)(3) nonprofit.

Coal Property’s tax return for 2013 return, on which it claimed the deduction, included an appraisal that said the property was worth $155.5 million less as a result of the easement.

These are difficult cases given the state of the case law, one of Coal Property’s attorney’s told Bloomberg Tax.

“They are interpretations of the language in the deed of easement itself and the language in there is fairly common in many of the deeds that are in place around the country, particularly in the Southeast,” said John P. Barrie, a partner at Bryan Cave Leighton Paisner LLP who represented Coal Property in the case. “It’s a common issue for a lot of conservation easements out there.”

The IRS declined to comment.

The case is Coal Property Holdings, LLC v. Commissioner, T.C., No. 27778-16, 10/28/19.

(Adds comment from Barrie starting in paragraph 10.)

To contact the reporter on this story: Aysha Bagchi in Washington at

To contact the editor responsible for this story: Patrick Ambrosio at; Jo-el J. Meyer at