Carter v. Commissioner, T.C. Memo 2020-21: Married Individuals Denied Charitable Contribution Deductions; Supervisory Approval Not Met

In Carter v. Commissioner, the Tax Court upheld the disallowance of charitable contribution deductions for the conveyance of an easement to a qualified organization. The opinion synopsis is as follows:

DH, a partnership of which Ps were partners, conveyed to NALT, a “qualified organization” within the meaning of I.R.C. sec. 170(h)(3), an easement that restricts the use of the covered property and generally prohibits the construction or occupancy of any dwellings. DH retained the right, however, to build single-family dwellings in specified “building areas”, the locations of which were to be determined, subject to NALT’s approval. DH reported a charitable contribution deduction equal to the easement’s purported value, and Ps claimed deductions on their individual returns equal to their shares of DH’s deduction. R disallowed Ps’ claimed deductions and determined that they were subject to gross valuation misstatement penalties under I.R.C. sec. 6662(a), (b)(3), (e), and (h). RA, who initially determined those penalties, sent to Ps examination reports that proposed their imposition before having received written approval of the penalties from his immediate supervisor. Because Ps had not agreed to extend the period of limitations on assessment, RA’s reports did not include “30-day letters” giving Ps the right to challenge at R’s Office of Appeals the adjustments and penalties proposed in RA’s reports. 

Held: Because the restrictions applicable within the building areas permit uses that are antithetical to the easement’s conservation purposes, those restrictions are disregarded in determining whether the easement is included in the definition of “qualified real property interest” by reason of I.R.C. sec. 170(h)(2)(C); consequently, the easement is not described in that section and Ps are not entitled to charitable contribution deductions for DH’s conveyance to NALT of a partial interest in the underlying property. I.R.C. sec. 170(f)(3). Pine Mountain Pres., LLLP v. Commissioner, 151 T.C. 247 (2018), followed. 

Held, further, RA’s reports communicated to Ps his initial determination of gross valuation misstatement penalties. 

Held, further, because the written approval of the gross valuation misstatement penalties by RA’s immediate supervisor came only after RA sent reports to Ps that advised them of his initial determination of the penalties, that approval was not timely for purposes of I.R.C. sec. 6751(b)(1), and the penalties are thus not sustained. 

To see full opinion, click Carter v. Commissioner, T.C. Memo 2020-21: Married Individuals Denied Charitable Contribution Deductions; Supervisory Approval Not Met.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..

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