In Railroad Holdings, LLC v. Commissioner, T.C. Memo 2020-22 (Feb. 5, 2020) the Tax Court held that an LLC was not entitled to a charitable contribution deduction for a conservation easement.
The taxpayer executed a deed declaring a conservation easement in favor of a tax-exempt charitable organization. The deed provided that, if the easement was ever extinguished and the proceeds were to be allocated between the taxpayer and the charitable organization, then the charitable organization would be entitled to a portion of the proceeds at least equal to the fair market value of the conservation easement, rather than being entitled to a proportionate share of the proceeds. Accordingly, the taxpayer claimed a charitable contribution deduction pursuant to Code Sec. 170(h) on its Form 1065, U.S. Return of Partnership Income, for the tax year a issue, which was subsequently disallowed by the IRS. At trial, the court concluded that as a result of the extinguishment provision, the conservation purpose of the easement was not “protected in perpetuity” within the meaning of Code Sec. 170(h)(5)(A).
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.