[PUBLISH]

In the

United States Court of Appeals

For the Eleventh Circuit

____________________

No. 20-13700

____________________

DAVID F. HEWITT, 

TAMMY K. HEWITT, 

Petitioners-Appellants,

versus

COMMISSIONER OF IRS, 

Respondent-Appellee.

____________________

Petition for Review of a Decision of the

U.S. Tax Court

Agency No. 23809-17

____________________

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2 Opinion of the Court 20-13700

Before WILSON, LAGOA, Circuit Judges, and MARTINEZ, District 

Judge.

LAGOA, Circuit Judge:

David and Tammy Hewitt seek review of the Tax Court’s 

order determining that they were not entitled to carryover a charitable contribution deduction for the donation of a conservation 

easement (the “Easement”). The Tax Court concluded that the 

Easement did not satisfy the “protected-in-perpetuity” requirement, see I.R.C. § 170(h)(5), because the Easement deed violated 

the judicial extinguishment proceeds formula set forth in Treas. 

Reg. § 1.170A-14(g)(6)(ii). Specifically, in the event of judicial extinguishment, the Easement deed subtracts the value of post-donation improvements to the property from the extinguishment proceeds before determining the donee’s share of the proceeds, which 

the Commissioner asserts violated § 1.170A-14(g)(6)(ii) and, thus, 

§ 170(h)(5)’s protected-in-perpetuity requirement.

On appeal, the Hewitts make several arguments as to why 

the Tax Court erred. They contend that the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii) is incorrect, as subtraction of the 

value of post-donation improvements from the proceeds allocated 

to the donee is the “better reading” of the regulation. As to this 

interpretation argument, we recently determined, in TOT Property Holdings, LLC v. Commissioner, that § 1.170A-14(g)(6)(ii) 

“does not indicate that any amount, including that attributable to 

improvements, may be subtracted out.” 1 F.4th 1354, 1363 (11th 

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20-13700 Opinion of the Court 3

Cir. 2021) (quoting PBBM-Rose Hill, Ltd. v. Comm’r, 900 F.3d 193, 

208 (5th Cir. 2018)). 

But, based on the taxpayers’ concession in TOT, id. at 1362 

& n.13, we did not address whether § 1.170A-14(g)(6)(ii) was procedurally valid under the Administrative Procedures Act (“APA”) 

or substantively valid under the framework in Chevron, U.S.A., 

Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). Unlike the 

taxpayers in TOT, the Hewitts challenge the regulation’s validity 

on appeal. Specifically, the Hewitts argue that the Commissioner’s 

interpretation of § 1.170A-14(g)(6)(ii)—prohibiting the subtraction 

of the value of post-donation improvements to the property on 

which a conservation easement exists from the proceeds in the 

event of judicial extinguishment—is arbitrary and capricious for violating the procedural requirements of the APA, see 5 U.S.C. § 706,

because the U.S. Treasury Department failed to respond to significant comments as to the improvements issue in promulgating the 

regulation. The Hewitts further argue that the regulation is substantively invalid under Chevron as an unreasonable interpretation 

of the statute.

After careful review, and for the reasons explained below, 

we conclude that the Commissioner’s interpretation of § 1.170A14(g)(6)(ii) is arbitrary and capricious and violates the APA’s procedural requirements.1 And because we find the Commissioner’s 

1 Because we conclude that § 1.170A-14(g)(6)(ii) is procedurally invalid under 

the APA, we do not reach the Hewitts’ Chevron-related arguments.

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interpretation of § 1.170A-14(g)(6)(ii) to be invalid under the APA, 

the Easement deed’s subtraction of the value of post-donation improvements from the extinguishment proceeds allocated to the donee does not violate § 170(h)(5)’s protected-in-perpetuity requirement. Accordingly, we reverse the Tax Court’s order disallowing 

the Hewitts’ carryover deduction for the conservation easement 

and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND 

David and Tammy Hewitt2 reside in Randolph County, Alabama, near Alabama’s border with Georgia. David’s father 

moved to Alabama in the early 1950s, acquiring land there to raise 

cattle, farm, and harvest timber. In the early 1990s, his father transferred a portion of this land to David’s sister. 

 David subsequently acquired 257.2 acres of land in Randolph County (the “Property”) in four transactions. His sister 

transferred approximately 232 acres to David through a series of 

three warranty deeds dated January 27, 1997, January 23, 1998, and 

July 1, 1998. In 2001, David purchased 25 more acres of adjected 

land and bought out the interest of two unrelated persons who coowned a 400-acre parcel with his father. By 2012, David and his 

sister owned approximately 1,325 acres in Randolph and Cleburne 

Counties, Alabama. The cumulative property owned between the 

two siblings had no zoning ordinances at the time of the 

2 We refer to the Hewitts individually by their first names where relevant.

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Easement’s grant and consisted of pastureland along a county road 

and wooded areas with steep topography, rough terrain, and limited road access. David has used, and continues to use, portions of 

the Property as a cattle ranch. 

On December 28, 2012, David donated the Easement on the 

Property to and for the benefit of Pelican Coast Conservancy, Inc., 

a wholly owned subsidiary of the Atlantic Coast Conservancy, Inc. 

(collectively, “the Conservancy”), through a document entitled 

Deed of Conservation Easement, which was recorded with the 

Probate Judge for Randolph County the same day. The Easement 

deed provides that the Easement’s purpose is “to assure that the 

Property will be retained forever predominately in its natural condition and to prevent any use of the Property that will impair or 

interfere with the Conservation Values as set forth in this Easement.” The Easement deed sets forth a list of “prohibited uses” 

and permits the Conservancy the right to enter upon the Property 

at reasonable times to preserve and protect the conservation features. The deed also contains a “permitted uses” section, which 

reserved to the Hewitts the right to build certain types of improvements on certain areas of the Property.

Additionally, section 15 of the deed governs judicial extinguishment of the Easement. Subsection 15.1 provides:

Extinguishment. If circumstances arise in the future 

such as render the purpose of this Easement impossible to accomplish, this Easement can only be terminated or extinguished, whether in whole or in part, 

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by judicial proceedings in a court of competent jurisdiction, and the amount of the proceeds to which 

Conservancy shall be entitled, after the satisfaction or 

prior claims, from any sale, exchange, or involuntary 

conversion of all or any portion of the Property subsequent to such termination or extinguishment 

(herein collectively “Extinguishment”) shall be determined to be at least equal to the perpetual conservation restriction’s proportionate value unless otherwise provided by Alabama law at the time, in accordance with Subsection 15.2 . . . .

In turn, subsection 15.2 provides: 

Proceeds. This Easement constitutes a real property 

interest immediately vested in Conservancy. For the 

purposes of this Subsection, the parties stipulate that 

this Easement shall have at the time of Extinguishment a fair market value determined by multiplying 

the then fair market value of the Property unencumbered by the Easement (minus any increase in value 

after the date of this grant attributable to improvements) by the ratio of the value of the Easement at 

the time of this grant to the value of the Property, 

without deduction for the value of the Easement, at 

the time of this grant. . . . For the purposes of this paragraph, the ratio of the value of the Easement to the 

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value of the Property unencumbered by the Easement shall remain constant.

(emphasis added).

As stipulated by the parties, the Conservancy provided David with a contemporaneous written acknowledgement within the 

meaning of I.R.C. § 170(f)(8), and the Conservancy was a “qualified 

organization” within the meaning of I.R.C. § 170(h)(3) at the time 

of the Easement donation. The Commissioner also does not contest that the Property complied with the requirements of I.R.C. 

§ 170(h)(4)(A)(ii)–(iii). 

 While David is the sole owner of the Property, the Hewitts 

jointly filed their tax returns for the relevant tax years at issue—

2012, 2013, and 2014. For the 2012 tax year, the Hewitts reported 

a noncash, charitable contribution for the donation of the Easement in the amount of $2,788,000. An appraisal of the Easement 

was attached to their 2012 return, which the Commissioner—only 

for the purposes of this appeal—does not contest was a qualified 

appraisal prepared by a qualified appraiser as required by I.R.C. § 

170(f)(11)(E). However, the Hewitts and the Commissioner do not 

stipulate to the appraisal’s contents. Due to limitations on charitable contribution deductions, the deduction for the Easement contribution was $57,738. 

The Hewitts timely filed their federal income tax returns for 

the 2013 and 2014 tax years. The 2013 return claimed a noncash, 

charitable contribution carryforward deduction from the 2012 

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charitable contribution deduction for the Easement in the amount 

of $1,868,782, and the 2014 return carried the same deduction in 

the amount of $861,480. 

On August 16, 2017, the Commissioner timely mailed a statutory notice of deficiency (“NOD”) for the 2013 and 2014 taxable 

years to the Hewitts. The NOD provided that the Hewitts owed: 

(1) a $336,894 tax deficiency and an I.R.C. § 6662 penalty of 

$134,757.60 for the 2013 year; and (2) a $347,878 tax deficiency and 

$136,458.40 penalty for the 2014 year. The NOD disallowed 

$2,730,262 of the charitable contribution carryover deduction from 

2012 for 2013 and 2014.

On November 14, 2017, the Hewitts timely filed a petition 

for redetermination with the Tax Court, challenging the disallowances for the carryover deductions related to the Easement in the 

NOD. In a pretrial memorandum, the Commissioner argued that 

the Easement deed failed to comply with Treas. Reg. § 1.170A14(g)(6) due to an “improvements clause” included therein. The 

case proceeded to trial. In their post-trial brief, the Hewitts contended, among other things, that § 1.170A-14(g)(6)(ii), as interpreted by the Commissioner, was not a valid exercise of Treasury’s 

rulemaking authority.

On June 17, 2020, the Tax Court issued a memorandum 

opinion determining that the Hewitts were not entitled to carryover the charitable contribution deduction for the donation of the 

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Easement.3 The Tax Court explained that section 15 of the deed 

“subtracts the value of posteasement improvements before determining the Conservancy’s share of the extinguishment proceeds 

and fails to allocate the extinguishment proceeds in accordance 

with” § 1.170A-14(g)(6), as that regulation “does not permit the 

value of posteasement improvements to be subtracted from the 

proceeds before determining the donee’s share.” The Tax Court 

rejected the Hewitts’ argument that an easement donee’s right to 

any extinguishment proceeds is limited to those from the property 

as it existed at the time of the grant as contrary to the regulation’s 

text. Therefore, the Tax Court explained that “[f]or purposes of 

the extinguishment provisions, the subject property may change, 

but the donee’s property right to the extinguishment proceeds may 

not.” The Tax Court also rejected the Hewitts’ challenge to § 

1.170A-14(g)(6)(ii)’s procedural and substantive validity based on 

its decision in Oakbrook Land Holdings, LLC v. Comm’r, 154 T.C. 

180 (2020). 

 This appeal ensued.

II. STANDARD OF REVIEW 

We review the Tax Court’s legal conclusions de novo and 

its factual findings for clear error. Kardash v. Comm’r, 866 F.3d 

1249, 1252 (11th Cir. 2017).

3 The Tax Court found the Hewitts were not liable for the penalties assessed 

against them in the NOD, and the Commissioner does not challenge this ruling on appeal.

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III. ANALYSIS 

Under the APA, a “reviewing court shall . . . hold unlawful 

and set aside agency action, findings, and conclusions found to 

be . . . arbitrary, capricious, an abuse of discretion, or otherwise not 

in accordance with law.” 5 U.S.C. § 706(2)(A). Our review standard is “narrow,” and we “will not substitute [our] judgment for that 

of the agency.” Lloyd Noland Hosp. & Clinic v. Heckler, 762 F.2d 

1561, 1565 (11th Cir. 1985). However, “[i]n employing this deferential standard of review,” we do “not rubber stamp the action of 

the agency.” Port of Jacksonville Mar. Ad Hoc Comm., Inc. v. U.S. 

Coast Guard, 788 F.2d 705, 708 (11th Cir. 1986). Rather, “[w]e must 

determine whether the decision was based on a consideration of 

the relevant factors and whether there was a clear judgment error.” 

Lloyd Noland, 762 F.2d at 1565 (citing Motor Vehicles Mfrs. Ass’n 

v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). Furthermore, “[w]e may not supply a reasoned basis for the agency’s action that the agency itself has not given,” although we will “uphold 

a decision of less than ideal clarity if the agency’s path may reasonably be discerned.” State Farm, 463 U.S. at 43 (first quoting SEC v. 

Chenery Corp., 332 U.S. 194, 196 (1974), then quoting Bowman 

Transp. Inc. v. Ark.-Best Freight Sys., 419 U.S. 281, 286 (1974)); accord Judulang v. Holder, 565 U.S. 42, 52–55 (2011). And “courts 

may not accept . . . counsel’s post hoc rationalizations for agency 

actions,” as “an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.” State Farm, 565 U.S. at 50.

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 The APA “prescribes a three-step procedure for so-called 

‘notice-and-comment rulemaking.’” Perez v. Mortg. Bankers 

Ass’n, 575 U.S. 92, 96 (2015); accord 5 U.S.C. § 553. First, an agency 

“must issue a ‘[g]eneral notice of proposed rulemaking,’ ordinarily 

by publication in the Federal Register.” Perez, 575 U.S. at 96 (alteration in original) (quoting § 553(b)). Second, “if ‘notice [is] required,’ the agency must ‘give interested persons an opportunity 

to participate in the rule making through submission of written

data, views, or arguments,’” and the agency “must consider and 

respond to significant comments received during the period for 

public comment.” Id. (alteration in original) (quoting § 553(c)). 

Third, in promulgating the final rule, the agency “must include in 

the rule’s text ‘a concise general statement of [its] basis and purpose.’” Id. (alteration in original) (quoting § 553(c)). As the Supreme Court has explained, “Rules issued through the notice-andcomment process are often referred to as ‘legislative rules’ because 

they have the ‘force and effect of law.’” Id. (quoting Chrysler Corp. 

v. Brown, 441 U.S. 281, 302–03 (1979)).

 Thus, “[t]he APA requires the agency to incorporate into a 

new rule a concise general statement of its basis and purpose.” 

Lloyd Noland, 762 F.2d at 1566. As we have explained, “statement[s] may vary, but should fully explain the factual and legal basis for the rule.” Id. Indeed, “[b]asis and purpose statements must 

enable the reviewing court to see the objections and why the 

agency reacted to them as it did,” id., as “[o]ne of the basic procedural requirements of administrative rulemaking is that an agency 

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must give adequate reasons for its decisions,” Encino Motorcars, 

LLC v. Navarro, 579 U.S. 211, 221 (2016). And, in the statement, 

the agency must rebut “vital relevant” or significant comments. 

See Lloyd Noland, 762 F.2d at 1567; Hussion v. Madigan, 950 F.2d 

1546, 1554 (11th Cir. 1992) (“Under the ‘arbitrary and capricious' 

standard of review, an agency is . . . required to respond to significant comments that cast doubt on the reasonableness of the rule 

the agency adopts.” (quoting Balt. Gas & Elec. Co. v. United States, 

817 F.2d 108, 116 (D.C. Cir. 1987))). The purpose of notice-andcomment rulemaking is to “give[] affected parties fair warning of 

potential changes in the law and an opportunity to be heard on 

those changes” while “afford[ing] the agency a chance to avoid errors and make a more informed decision.” Azar v. Allina Health 

Servs., 139 S. Ct. 1804, 1816 (2019).

 Turning to the statutory and regulatory tax provisions at 

hand, I.R.C. § 170(a) generally allows taxpayers to deduct certain 

charitable contributions. While a taxpayer normally is not entitled 

to deduct the donation of “an interest in property which consists of 

less than the taxpayer’s entire interest in such property,” id.

§ 170(f)(3)(A), an exception is made for a “qualified conservation 

contribution,” id. § 170(f)(3)(B)(iii), (h); accord TOT, 1 F.4th at 

1361. Congress created this exception, codified at I.R.C. 

§ 170(f)(3)(B)(iii), (h), in 1980. Tax Treatment Extension Act of 

1980, Pub. L. No. 96-541, § 6, 94 Stat. 3204, 3206; Oakbrook, 154 

T.C. at 185. Under § 170(h), for a contribution to be a “qualified 

conservation contribution,” the contribution must be “(A) of a 

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qualified real property interest, (B) to a qualified organization, (C) 

exclusively for conservation purposes.” § 170(h)(1). A “qualified 

real property interest” includes “a restriction (granted in perpetuity) on the use which may be made of the real property.” 

170(h)(2)(C). Additionally, § 170(h)(5)(A) provides that, for purposes of subsection (h), “[a] contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity.” The statute, however, does not 

define the “protected in perpetuity” requirement. TOT, 1 F.4th at 

1362.

 On May 23, 1983, Treasury issued a notice of proposed rulemaking with “proposed regulations relating to contributions of 

partial interests in property for conservation purposes.” Qualified 

Conservation Contribution; Proposed Rulemaking, 48 Fed. Reg. 

22,940, 22,940 (May 23, 1983). Then, on January 14, 1986, Treasury 

issued final regulations, including the regulation at issue in this 

case—Treas. Reg. § 1.170A-14(g)(6)—governing the allocation of 

proceeds between the donor and donee in the event of judicial extinguishment of a donated conservation easement. Income Taxes; 

Qualified Conservation Contributions, 51 Fed. Reg. 1496 (Jan. 14, 

1986). Section 1.170A-14(g)(6), titled “Extinguishment,” provides:

(i) In general. If a subsequent unexpected change in 

the conditions surrounding the property that is the 

subject of a donation under this paragraph can make 

impossible or impractical the continued use of the 

property for conservation purposes, the conservation 

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purpose can nonetheless be treated as protected in 

perpetuity if the restrictions are extinguished by judicial proceeding and all of the donee’s proceeds (determined under paragraph (g)(6)(ii) of this section) from 

a subsequent sale or exchange of the property are 

used by the donee organization in a manner consistent with the conservation purposes of the original 

contribution.

(ii) Proceeds. . . . [F]or a deduction to be allowed under this section, at the time of the gift the donor must 

agree that the donation of the perpetual conservation 

restriction gives rise to a property right, immediately 

vested in the donee organization, with a fair market 

value that is at least equal to the proportionate value 

that the perpetual conservation restriction at the time 

of the gift, bears to the value of the property as a 

whole at that time. . . . For purposes of this paragraph (g)(6)(ii), that proportionate value of the donee’s property rights shall remain constant. Accordingly, when a change in conditions give rise to the extinguishment of a perpetual conservation restriction 

under paragraph (g)(6)(i) of this section, the donee organization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be 

entitled to a portion of the proceeds at least equal to 

that proportionate value of the perpetual 

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conservation restriction, unless state law provides 

that the donor is entitled to the full proceeds from the 

conversion without regard to the terms of the prior 

perpetual conservation restriction.

 To summarize, “the regulations require that the donee of an 

easement be granted a vested right to the value of judicial sale proceeds (e.g. in condemnation) multiplied by ‘a fraction equal to the 

value of the conservation easement at the time of the gift, divided 

by the value of the property as a whole at that time.’” TOT, 1 F.4th 

at 1362 (quoting PBBM-Rose Hill, 900 F.3d at 207). And, in TOT, 

we found that § 1.170A-14(g)(6)(ii)’s proceeds formula “does not allow for ‘any increase in value after the date of th[e] grant attributable to improvements’ to be subtracted from the extinguishment . . . proceeds before the fraction is applied to the proceeds.” 

Id. at 1363 (alteration in original). But while we agreed with the 

Commissioner’s interpretation of the proceeds regulation in TOT, 

we expressly did not consider the validity of the regulation under 

the APA, as the taxpayers there did not make such a challenge. Id.

at 1362 n.13; see also PBBM-Rose Hill, 900 F.3d at 209 n.8 (declining 

to address a challenge to § 1.170A-14(g)(6)(ii)’s validity as the taxpayer failed to make the argument below).

 Unlike TOT, the Hewitts assert that Treasury failed to comply with the procedural requirements of the APA in promulgating 

Treas. Reg. § 1.170A-14(g)(6)(ii). Specifically, the Hewitts contend 

that the administrative record demonstrates that comments raising 

concerns with § 1.170A-14(g)(6)(ii) were filed during the 

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rulemaking process, that those comments were “significant” such 

that they required a response from Treasury, and that Treasury 

failed to adequately respond to those significant comments in the 

final regulation’s “basis and purpose” statement, in violation of the 

APA’s procedural requirements. As such, the Hewitts contend that 

§ 1.170A-14(g)(6)(ii), as interpreted by the Commissioner to prohibit the subtraction of the value of post-donation improvements 

to the easement property in the proceeds allocated to the donee in 

the event of judicial extinguishment, is arbitrary and capricious under the APA.

 As previously noted, Treasury issued a notice of proposed 

rulemaking following Congress’s enaction of § 170(h) for “proposed regulations relating to contributions of partial interests in 

property for conservation purposes” and to clarify “the statutory 

rules in effect under [the Tax Treatment Extension Act of 1980].” 

48 Fed. Reg. at 22,940. One of the subparagraphs in the proposed 

regulations ultimately became § 1.170A-14(g)(6). Id. at 22,946–47. 

Of relevance here, the preamble to the proposed rulemaking explained that section 6 of that act “made extensive changes in the 

existing statute, eliminated the expiration date, and incorporated 

the relevant language into a new section 170(h).” Id. at 22,940. It 

further provided that “[t]he regulations reflect[ed] the major policy 

decisions made by the Congress and expressed in . . . committee 

reports.” Id. And Treasury stated that it would consider any written comments submitted before adopting the proposed regulations. Id. at 22,941.

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Following Treasury’s request for public comments, it received more than 700 pages of commentary from ninety organizations and individuals. Of the ninety commenters, thirteen offered 

comments as to the proposed extinguishment proceeds regulation. 

Oakbrook, 154 T.C. at 186. The Hewitts contend that seven of 

those thirteen commenters “expressed concern that allocation of 

post-extinguishment proceeds under the proposed Proceeds Regulation was unworkable, did not reflect the reality of the donee’s interest, or could result in an unfair loss to the property owner and a 

corresponding windfall for the donee.”

 Turning to the most detailed comment, the New York Landmarks Conservancy (“NYLC”) urged Treasury to delete the proposed proceeds regulation because it contained pervasive “problems of policy and practical application.” NYLC stated that while 

Congress enacted the statute “to encourage the protection of [the] 

. . . environment through the donation of conservation restrictions,” the proposed regulation “would thwart the purpose of 

the statute by deterring prospective donors,” as those donors 

would “likely . . . be discouraged from making a donation which 

may tie themselves or future owners to share proceeds of a sale or 

exchange with the charitable organization [donee] under circumstances which cannot possibly be foreseen.” NYLC explained that 

prospective donors frequently were concerned about “perpetuity” 

issues, which were “mollified upon the donor’s recognition that 

common law permits the extinguishment of restrictions when they 

no longer serve the original intended purposes.” But NYLC 

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believed “[t]he prospect of extinguishment would no longer mollify these fears if a split of proceeds under unknown circumstances 

would be required.” As such, and because “the possibility of extinguishment is relatively remote,” NYLC stated it was “unnecessary” 

for Treasury “to provide for allocation of proceeds after extinguishment.” 

 NYLC also specifically commented on the issue of whether 

the value of post-donation improvements to the easement property should be included or excluded from the extinguishment proceeds formula contained in the regulation. NYLC stated that the 

regulation’s structure “contemplates that a ratio of value of the 

conservation restriction to value of the fee will be fixed at the time 

of the donation and will remain in effect forever thereafter.” But 

NYLC asserted that the formula “fail[ed] to take into account that 

improvements may be made thereafter by the owner which should 

properly alter the ratio.” In support of its concern, NYLC presented a mathematical example, which was based on a fact pattern 

in the proposed regulations, see 48 Fed. Reg. at 22,945, to show 

that requiring the prospective donor to turn over extinguishment 

proceeds attributable to post-donation improvements to the donee 

“would obviously be undesirable to the prospective donor and 

would constitute a windfall to the donee organization.” See Oakbrook, 154 T.C. at 224 (Toro, J., concurring in result). Thus, “in 

light of the potential inequities,” NYLC recommended “that the 

proposed proceeds formula be revised to prevent such inequities 

should the . . . Treasury decide to retain the provision” but 

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“strongly recommend[ed] deletion of the entire extinguishment 

provision.” (emphasis added).

 While NYLC offered the most extensive comments on the 

proposed proceeds regulation—including being the only commenter that addressed the allocation of the value of proceeds attributable to future improvements by the donor—other commenters expressed criticism or urged caution as to the proposed extinguishment regulations. The Landmarks Preservation Council of 

Illinois, for example, “urge[d] caution in the treatment of the concept of ‘extinguishment’ in the regulations,” as “[t]he discussion in 

the regulations of the conditions under which that binding agreement may be abrogated lends an undesirable air of legitimacy to 

the concept of ‘extinguishment.’” It also warned that the regulations could “create a potential disincentive to the donation of easements,” noting that “[t]he obligation imposed on the donor or subsequent owner to pay to the donee organization an amount at least 

equal to the original proportionate value of the easement” could 

place “the donor at risk for an amount of money”—e.g., payments 

to a third party lender—“for which he may not be compensated by 

the disposition of the proceeds of sale.” The Land Trust Exchange 

stated that the proposed proceeds regulation “may result in donors 

or donees having to pay real estate transfer taxes” and that it was 

“unnecessary.” The Trust for Public Land stated that it had “serious doubts whether the provision . . . could be enforced against 

anyone other than the original donor of the easement” and that 

“the tax benefit rule is a satisfactory means of meeting any concern 

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the IRS may have that a donor might receive the double benefit of 

an easement deduction followed by later recovery of the value donated.” The Brandywine Conservancy cautioned that the regulation “may unnecessarily restrict the amount, payable to the holder 

of an easement, if changes in surrounding territory have made the 

easement proportionately more valuable than the retained interest” and that “[t]he donee should be entitled to proceeds equal to 

the greater of its original proportionate value or its proportionate 

value at the time of the extinguishment.” And the Nature Conservancy and the Maine Coast Heritage Trust both mentioned that the 

regulation should be “clear” that the original proportionate value 

is the minimum that a donee will receive in extinguishment proceeds.4

After a public hearing, Treasury adopted the proposed regulations with revisions. 51 Fed. Reg. at 1496. In the preamble to 

the final rulemaking, Treasury stated that “[t]hese regulations 

4 As to the comments from the Brandywine Conservancy, the Nature Conservancy, and the Maine Coast Heritage Trust, the Tax Court in Oakbrook

presumed that Treasury responded to those organizations’ comments by 

changing the language of the regulation from the donee of the easement being 

vested with a property right having a fair market value “that is a minimum 

ascertainable proportion of the fair market value to the entire property” to a 

fair market value “that is at least equal to the proportionate value that the 

perpetual conservation restriction at the time of the gift, bears to the value of 

the property as a whole at that time.” 154 T.C. at 188 (first quoting 48 Fed. 

Reg. at 22,946, then quoting § 1.170A-14(g)(6)(ii)). But Treasury did not specifically explain in the final regulation that its change in the language was in 

response to those organizations’ comments.

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provide necessary guidance to the public for compliance with the 

law and affect donors and donees of qualified conservation contributions” and that it had “consider[ed] . . . all comments regarding 

the proposed amendments.” Id. In the subsequent “Summary of 

Comments” section, however, Treasury did not discuss or respond 

to the comments made by NYLC or the other six commenters concerning the extinguishment proceeds regulation. See id. at 1497–

98; Oakbrook, 154 T.C. at 188 (“The ‘judicial extinguishment’ provision is not among the amendments specifically addressed in the 

‘Summary of Comments.’”). And Treasury stated that “[a]lthough 

a notice of proposed rulemaking which solicited public comments 

was issued, the Internal Revenue Service concluded when the notice was issued that the regulations are interpretative and that the 

notice and public comment procedure requirement of 5 U.S.C. 

[§] 553 [of the APA] did not apply.” 51 Fed. Reg. at 1498.

The Hewitts assert that these seven comments—in particular, NYLC’s comment—were significant such that they warranted

a response from Treasury in promulgating the final extinguishment proceeds regulation. In response, the Commissioner asserts 

that none of the thirteen comments were significant to require a 

response from Treasury because they did not raise any point casting doubt on the regulation’s reasonableness.

Thus, the issue before us is whether Treasury’s failure to respond to NYLC’s and the other commenters’ concerns about the 

extinguishment proceeds regulation was in violation of the procedural requirements of the APA. Phrased differently, we must 

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22 Opinion of the Court 20-13700

determine whether § 1.170A-14(g)(6)(ii), as interpreted by the 

Commissioner to prohibit the subtraction of any amount of proceeds attributable to post-donation improvements to the easement 

property in the event of judicial extinguishment, is procedurally 

valid under the APA where: (1) one commenter—NYLC—made 

specific comments raising the improvements issue as it relates to 

extinguishment proceeds and recommended deletion of the provision; (2) six other organizations submitted comments criticizing or 

urging caution as to the regulation; and (3) Treasury failed to specifically respond to any of those comments, instead simply stating 

that it had considered “all comments.”

Below, the Tax Court found that the regulation was procedurally valid under the APA, relying on its decision in Oakbrook. 

In Oakbrook, the Tax Court considered the comments Treasury 

received as to “the fact that the ‘proportionate share’ formula [in 

§ 1.170A-14(g)(6)(ii)] does not account for the possibility of donor 

improvements.” 154 T.C. at 192. The Tax Court concluded that 

the proceeds regulation as to the post-donation improvements was 

procedurally valid under the APA. Id. at 195. The court first noted 

that it had found the statement “[a]fter consideration of all comments,” coupled with an administrative record, to be “sufficient to 

find that Treasury had considered the relevant matter presented to 

it.” Id. at 191–92 (alteration in original) (citing Wing v. Comm’r, 

81 T.C. 17, 31–32 (1983)). The Tax Court stated that “[t]he APA 

‘has never been interpreted to require the agency to respond to 

every comment, or to analy[z]e every issue or alternative raised by 

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20-13700 Opinion of the Court 23

the comments, no matter how insubstantial.’” Id. at 192 (quoting 

Thompson v. Clark, 741 F.2d 401, 408 (D.C. Cir. 1984)). The Tax 

Court further noted that “[o]nly one of the 90 commenters”—

NYLC—“mentioned donor improvements, and it devoted exactly 

one paragraph to this subject.” Id. The Tax Court stated that 

NYLC’s point that donors “are likely to be discouraged from making a donation” was “a supposition that Treasury may reasonably 

have discounted.” Id. And it stated that, as to the improvements 

issue, “[t]he administrative record reflects that no substantive alternatives to the final rules were presented for Treasury’s consideration.” Id. at 193 (alteration in original) (quoting SIH Partners LLLP 

v. Comm’r, 150 T.C. 28, 44 (2018)). The Tax Court found that 

“NYLC offered no suggestion about how the subject of donor improvements might be handled; it simply recommended ‘deletion of 

the entire extinguishment provision.’” Id.

As to the final regulations’ preamble, the Tax Court rejected 

the argument that Treasury did not comply with the APA because 

the preamble “did not discuss the ‘basis and purpose’ of the judicial 

extinguishment provision specifically.” Id. at 193–94. The court 

explained that “[e]ven where a regulation contains no statement of 

basis and purpose whatsoever, it may be upheld ‘where the basis 

and purpose . . . [are] considered obvious.’” Id. at 194 (quoting CalAlmond, Inc. v. U.S. Dep’t of Agric., 14 F.3d 429, 443 (9th Cir. 

1993)). The court noted the final regulations’ preamble “explains 

that they were being promulgated to ‘provide necessary guidance 

to the public for compliance with the law,’ as recently amended by 

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24 Opinion of the Court 20-13700

Congress, ‘relating to contributions . . . of partial interests in property for conservation purposes,’” with the proposed regulations’ 

preamble stating, “the requirement that conservation easements 

‘be perpetual in order to qualify for a deduction.’” Id. (first quoting 

51 Fed. Reg. at 1496, then quoting 48 Fed. Reg. at 22,940). And it 

found that “[t]he purpose of the ‘judicial extinguishment’ rule is 

plain on its face—to provide a mechanism to ensure that the conservation purpose can be deemed ‘protected in perpetuity’ notwithstanding the possibility that the easement might later be extinguished.” Id. (quoting § 1.170A-14(g)(6)(i)). Finally, the Tax Court 

minimized the importance of the extinguishment proceeds provision in the context of the final regulations—“one subparagraph of 

a regulation project consisting of 10 paragraphs, 23 subparagraphs, 

30 subdivisions, and 21 examples”—as the APA did not “mandate 

that an agency explain the basis and purpose of each individual 

component of a regulation separately.” Id. Thus, the court concluded that “[t]he broad statements of purpose contained in the 

preambles to the final and proposed regulations, coupled with obvious inferences drawn from the regulations themselves, [were]

more than adequate.” Id.

The Oakbrook decision was not unanimous. Judge Toro, in 

a concurring in result opinion, found that, if the proceeds regulation was read in the way proposed by the Commissioner, i.e., to 

bar subtraction of the value of post-donation improvements from 

the extinguishment proceeds, it failed to comply with the APA’s 

procedural requirements. See id. at 216 (Toro, J., concurring). 

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Judge Toro explained that the “Treasury received more than 700 

pages of comments” during the comment period and that, in the 

final regulations, Treasury responded to those comments and 

other administrative matters in just two of the twelve pages—“six 

columns in the Federal Register”—consisting of the final regulations. Id. at 221. In his view, it was likely that Treasury “was 

simply following its historical position that the APA’s procedural 

requirements did not apply to these types of regulations,” noting 

that the final regulations referenced Treasury’s belief that they did 

not require notice and comment and that this belief was mistaken. 

Id. at 222. 

Judge Toro then found that the “Treasury failed to ‘respond 

to “significant points” and consider “all relevant factors” raised by 

the public comments.’” Id. at 223 (quoting Carlson v. Postal Regul. 

Comm’n, 938 F.3d 337, 334 (D.C. Cir. 2019)). Pointing specifically 

to NYLC’s comment, Judge Toro explained that NYLC “made 

clear that, in its view, it would be inappropriate to condition the 

availability of the deduction for a conservation easement on the 

donor’s agreement to turn over to the donee proceeds attributable 

to improvements on the real property interest that the Code permitted the donor to retain.” Id. at 224. He further noted that 

NYLC: (1) “expressly tied its comments” to a specific rule and a 

specific fact pattern in the proposed regulations; (2) explained that 

the proposed proceeds regulation would “thwart the purpose of 

the statute,” which NYLC stated was to “encourage the protection 

of our significant natural and built environment through the 

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26 Opinion of the Court 20-13700

donation of conservation restrictions”; and (3) recommended the 

deletion of the provision “or, at the very least, ‘be revised to prevent . . . [the] inequities’ it had identified.” Id. (alterations in original). As such, Judge Toro explained that the administrative record 

left “no doubt” that NYLC’s comment “‘can be thought to challenge a fundamental premise’ underlying the proposed agency decision.” Id. (quoting Carlson, 938 F.3d at 344). The proposed regulations’ preamble explained that they reflected Congress’s “major 

policy decisions,” and NYLC “in effect countered that the proposed 

rule on future donor improvements was contrary to those policy 

decisions, would lead to inequitable results that were inconsistent 

with the statute, and would deter future contributions.” Id. at 225 

(quoting 48 Fed. Reg. at 22,940). In other words, Judge Toro found 

that NYLC “offered comments that, ‘if adopted, would require a 

change in an agency’s proposed rule,’” and that “were both ‘relevant and significant,’ [as to] require[e] a response.” Id. (first quoting Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 n.58 (D.C. Cir. 

1977), then quoting Grand Canyon Air Tour Coal. v. FAA, 154 F.3d 

455, 468 (D.C. Cir. 1998)).

Because Treasury did not provide a response to NYLC’s 

comments, Judge Toro concluded that its actions failed to provide 

“an explanation [that] is clear enough that its ‘path may reasonably 

be discerned’” or “provide any insight on ‘what major issues of policy were ventilated . . . and why the agency reacted to them as it 

did’ on this point.” Id. at 225–26 (alterations in original) (first quoting Encino Motorcars, 579 U.S. at 221, then quoting Carlson, 938 

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20-13700 Opinion of the Court 27

F.3d at 344). And it was “not the role of the courts to speculate on 

reasons that might have supported” Treasury’s decision. Id. at 226 

(quoting Encino Motorcars, 579 U.S. at 224). Judge Toro also explained that the Oakbrook majority’s reasoning as to the issue was 

flawed for several reasons. He explained that courts were “not required to ‘take the agency’s word that it considered all relevant 

matters,’” as the majority asserted. Id. at 226–27 (quoting PPG Indus., Inc. v. Costle, 630 F.2d 462, 466 (6th Cir. 1980)). He further 

noted that “[a] ‘relevant and significant comment’ requires a response, regardless of whether the point is made by many, a few, or 

even a single commenter,” and “a comment does not lose its significance because it is presented succinctly.” Id. at 227 (quoting

Carlson, 938 F.3d at 347). And, if the scope of the project “was too 

large to permit an appropriate response to all ‘relevant and significant comments,’ then Treasury could have broken the project 

down into smaller parts.” Id.

In his dissenting opinion, Judge Holmes reached a similar 

conclusion to Judge Toro on the regulation’s procedural invalidity 

under the APA. He concluded that comments from NYLC and 

other organizations “were significant and [were] entitled to an 

agency response.” See id. at 245 (Holmes, J., dissenting). Judge 

Holmes explained that Treasury’s statement that it considered “all 

comments” was not sufficient under the APA, noting that the Federal Circuit, in Dominion Resources, Inc. v. United States, 681 F.3d 

1313, 1319 (Fed. Cir. 2012), found a Treasury regulation procedurally invalid even though Treasury explicitly stated that “it rejected 

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28 Opinion of the Court 20-13700

the commentators’ recommendation and brief explanation in general terms of how one of the provisions worked.”5 Oakbrook, 154 

T.C. at 245–46 (Holmes, J., dissenting). He further explained that

the final regulations at issue provided even less explanation than 

those in Dominion Resources, as Treasury failed to “even 

acknowledge the relevant comments or expressly state its disagreement with them” such that there was not even “a minimal level of 

analysis.” Id. at 248 (quoting Encino Motorcars, 579 U.S. at 2120).

After careful consideration of the agency record before us, 

the several opinions in Oakbrook and precedent from the Supreme 

Court, and this Court’s interpretation of procedural validity under 

the APA, we conclude that § 1.170A-14(g)(6)(ii)—as read by the 

Commissioner to prohibit subtracting the value of post-donation 

improvements to the easement property from the proceeds allocated to the donor and donee in the event of judicial extinguishment—is arbitrary and capricious under the APA for failing to comply with the APA’s procedural requirements and is thus invalid. 

See §§ 553(c), 706(2)(A).

5 Specifically, the preamble to the regulation at issue in Dominion Resources

provided that “[c]ommentators suggested that the regulations provide that 

property is taken out of service only if the property is taken out of service for 

depreciation purposes” and that “[t]he final regulations do not adopt the suggestion concerning when property should be considered taken out of service.” 

See Dominion Res., Inc. v. United States, 97 Fed. Cl. 239, 256 (2011) (quoting 

59 Fed. Reg. 67,187, 67,192–93 (Dec. 29, 1994)), rev’d, 681 F.3d 1313 (Fed. Cir. 

2012).

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20-13700 Opinion of the Court 29

Our decision in Lloyd Noland is instructive. In that case, the 

plaintiffs challenged a malpractice insurance rule related to Medicare reimbursements that was promulgated by the Secretary of 

Health and Human Services. 762 F.2d at 1563. In addressing the 

plaintiffs’ challenge, we concluded that the malpractice insurance 

rule was procedurally inadequate under the APA; specifically, it violated § 553(c), which we explained requires an agency “to incorporate into a new rule a concise general statement of its basis and 

purpose.” Id. at 1566. The Secretary had failed to respond to comments that a study the agency relied on, which contained limited 

data that the authors cautioned against generalizing, was unreliable. Id. While the Secretary asserted that the objections were irrelevant, we concluded otherwise, such that those comments 

formed the basis of our holding that the malpractice insurance rule 

was arbitrary. Id. at 1566, 1568. We also rejected the Secretary’s 

argument that she addressed certain hospitals’ comments based on 

the rule’s preamble, stating that “[w]e are aware that insurance 

companies generally do not determine insurance rates for malpractice insurance based upon the financial status of the patients,” and 

that “premiums are ‘incurred primarily for the benefit of the total 

overall patient population and for the protection of facility assets.’” 

Id. at 1566. While the Secretary suggested “that drawing a conclusion contrary to the comments does not mean they were not considered,” we explained that “[b]asis and purpose statements must 

enable the reviewing court to see the objections and why the 

agency reacted to them as it did” and that agencies should rebut

relevant comments. Id. at 1566–67. Because the Secretary’s 

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30 Opinion of the Court 20-13700

response to the rule’s comments were inadequate, we affirmed the 

district courts’ invalidation of the rule. Id. at 1567, 1569; cf. Encino 

Motorcars, 579 U.S. at 2126–27 (“The [agency] said that, in reaching its decision, it had ‘carefully considered all of the comments, 

analyses, and arguments made for and against the proposed 

changes.’ . . . But when it came to explaining the ‘good reasons for 

the new policy,’ the [agency] said almost nothing. . . . [T]he

[agency’s] conclusory statements do not suffice to explain its decision.” (first quoting 76 Fed. Reg. 18,832, 18,832 (Apr. 5, 2011), then 

quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 

(2009))).

The Commissioner argues that Lloyd Noland should be distinguished because, in that case, we reviewed “a factual, evidencebased rule,” while the extinguishment proceeds regulation is based 

on Treasury’s interpretation of § 170(h)(5)’s statutory protected-inperpetuity requirement. But, in Lloyd Noland, we did not hold 

that the requirement that “[b]asis and purpose statements must enable the reviewing court to see the objections and why the agency 

reacted to them as it did”—including responding to significant 

comments—only applies when there is “erroneous data or fact 

finding” underlying the proposed regulation, as the Commissioner 

suggests, and we decline to do so here.

As in Lloyd Noland, in promulgating the final extinguishment proceeds regulation, Treasury failed to respond to the relevant and significant comment from NYLC as to the post-donation 

improvements issue. In the proposed regulations’ preamble, 

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20-13700 Opinion of the Court 31

Treasury stated that the “regulations reflect the major policy decisions made by the Congress and expressed in the[] committee reports” to the Tax Treatment Extension Act of 1980. 48 Fed. Reg. 

at 22,940. One of the policy decisions reflected in those “committee reports,” expressly referenced by Treasury, provided that “the 

preservation of our country’s natural resources and cultural heritage is important,” that “conservation easements now play an important role in preservation efforts,” and that “provisions allowing 

deductions for conservation easements should be directed at the 

preservation of unique or otherwise significant land areas or structures.” S. Rep. No. 96-1007, at 9 (1980). NYLC’s comment recognized as much, stating that “[t]he statute was enacted by Congress 

to encourage the protection of our significant natural and built environment through the donation of conservation restrictions.”

As to the proposed regulation overall, NYLC stated that the 

proposed regulation “would thwart the purpose of the statute by 

deterring prospective donors” concerned about tying themselves 

to share proceeds of a sale with the donee “under circumstances 

which cannot possibly be foreseen.” Additionally, NYLC specifically commented that the regulation’s proceeds formula: (1) “contemplates that a ratio of value of the conservation restriction to 

value of the fee will be fixed at the time of the donation and will 

remain in effect forever thereafter”; and (2) “fail[ed] to take into 

account that improvements may be made thereafter by the owner 

which should properly alter the ratio.” And NYLC warned that this 

outcome “would obviously be undesirable to the prospective 

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32 Opinion of the Court 20-13700

donor and would constitute a windfall to the donee organization” 

and “strongly recommend[ed] deletion of the entire extinguishment provision,” or at least revised “to prevent such inequities.” In 

other words, NYLC challenged a fundamental premise underlying 

Treasury’s proposed regulations by “in effect counter[ing] that the 

proposed rule on future donor improvements was contrary to 

those policy decisions [mentioned in the proposed regulations], 

would lead to inequitable results that were inconsistent with the 

statute, and would deter future contributions.” See Oakbrook, 154 

T.C. at 225 (Toro, J., concurring). 

Simply put, NYLC’s comment was significant and required 

a response by Treasury to satisfy the APA’s procedural requirements. And the fact that Treasury stated that it had considered “all 

comments,” without more discussion, does not change our analysis, as it does not “enable [us] to see [NYLC’s] objections and why 

[Treasury] reacted to them as it did.” Lloyd Noland, 762 F.2d at 

1566.

But the Commissioner contends that the APA only required 

Treasury “to respond to significant comments that cast doubt on 

the reasonableness of the rule” it adopted. See Hussion, 950 F.2d 

at 1554 (quoting Balt. Gas, 817 F.2d at 116); see also Vt. Yankee 

Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 

553 (1978) (“[C]omments must be significant enough to step over 

a threshold requirement of materiality before any lack of agency 

response or consideration becomes of concern. The comment cannot merely state that a particular mistake was made . . . ; it must 

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20-13700 Opinion of the Court 33

show why the mistake was of possible significance.” (alteration in 

original) (quoting Portland Cement Ass’n v. Ruckelhaus, 486 F.2d 

375, 394 (D.C. Cir. 1973))). And the Commissioner claims that 

Treasury’s “primary (if not exclusive) consideration in crafting the 

proceeds regulation was the meaning of the statutory perpetuity 

requirement” and that, as such, NYLC was required “to explain 

why the rule would not further the goal of ensuring that the conservation purpose embodied in the perpetual use restriction would 

be protected in perpetuity as required by the statute.” The Commissioner argues that NYLC’s comment as to post-donation improvements did not address this consideration, and therefore was 

not a significant comment, because the comment was limited to (1) 

the “observation that the regulation would require the donee to 

receive a proportionate amount of the full proceeds,” including any 

proceeds attributable to the donor’s improvements, and (2) 

NYLC’s belief that this situation would be “‘undesirable’ to the donor” and would result in a “windfall” for the donee.

While we agree with the Commissioner that Treasury was 

only required to respond to significant comments to comply with 

the APA’s procedural requirements, we disagree with the Commissioner’s argument that NYLC’s comment was not significant. The 

Commissioner’s claim that the “primary (if not exclusive)” purpose 

in crafting the proceeds regulation was only to interpret 

§ 170(h)(5)’s “protected-in-perpetuity” requirement is inconsistent 

with the committee reports Treasury purportedly relied on. As 

identified by NYLC, one of the purported purposes set forth in the 

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34 Opinion of the Court 20-13700

committee reports, was to allow deductions for the donation of 

conservation easements to encourage donation for such easements. See S. Rep. No. 96-1007, at 9. And NYLC raised the postdonation improvements issue, as to extinguishment proceeds, and 

warned that its exclusion in the regulatory scheme would discourage prospective donors from donating conservation easements. In 

other words, NYLC’s comment was specific to, and casted doubt 

on, the reasonableness of the proceeds regulation in light of one of 

Congress’s committee reports which, according to Treasury, was 

“reflected” in the final regulations. 48 Fed. Reg. at 22,940 (“The 

regulations reflect the major policy decisions made by the Congress and expressed in the[] committee reports.”). Furthermore, 

the final regulations did not limit the purpose of the proceeds regulation in the way the Commissioner suggests. We thus decline to 

classify NYLC’s comment as insignificant based on the Commissioner’s interpretation of Treasury’s primary purpose in crafting 

the proceeds regulation.6 See State Farm, 463 U.S. at 43, 50 (“‘[W]e 

6 The Commissioner also points to Treasury’s statements, in discussing donations of mortgaged property in the final regulations, that § 170(h)(5) “provides 

that the conservation purposes of the donation must be protected in perpetuity” and that “[i]n response to comments received, . . . the mortgagee must 

subordinate its rights under the mortgage to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.” 51 Fed. 

Reg. at 1498. The Commissioner argues that these statements show that 

Treasury viewed “the protected-in-perpetuity requirement as requiring express protection of the full value of the donee’s interest in order to adequately 

protect the easement’s conservation purposes,” which is “the approach taken 

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20-13700 Opinion of the Court 35

may not supply a reasoned basis for the agency’s action that the 

agency itself has not given.’ . . . [C]ourts may not accept appellate 

counsel’s post hoc rationalizations for agency action.” (quoting 

Chenery, 332 U.S. at 196)).

The Commissioner additionally asserts that Treasury’s revisions to the proposed proceeds regulation in the final regulation 

support Treasury’s representation that it considered “all comments” in the final regulations’ preamble. But, as the Commissioner concedes, the revisions were simply “clarifications” in response to other comments “expressing uncertainty” about the regulation’s meaning “rather than substantive changes.” Indeed, the 

proceeds regulation was revised from vesting the donee with a 

property right having a fair market value “that is a minimum ascertainable proportion of the fair market value to the entire property” 

to a fair market value “that is at least equal to the proportionate 

value that the perpetual conservation restriction at the time of the 

gift, bears to the value of the property as a whole at that time.” See 

Oakbrook, 154 T.C. at 188 (comparing the proposed and final proceeds regulations). But this revision does not provide any indication that Treasury was responding to NYLC’s significant comment 

in the proceeds regulation.” But Treasury’s discussion of donations of mortgaged property in the final regulations does not reference the proceeds regulation nor give any indication that Treasury considered the post-donation improvements issue raised by NYLC. We thus find this argument, which speculates as to the reason of Treasury’s actions, without merit. See State Farm, 

463 U.S. at 43.

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36 Opinion of the Court 20-13700

about the post-donation improvements issue. See Lloyd Noland, 

762 F.2d at 1567; Hussion, 950 F.2d at 1554. We therefore reject 

this argument.

IV. CONCLUSION 

Because Treasury, in promulgating the extinguishment proceeds regulation, failed to respond to NYLC’s significant comment 

concerning the post-donation improvements issue as to proceeds, 

it violated the APA’s procedural requirements. See Lloyd Noland, 

762 F.2d at 1566; see also Oakbrook, 154 T.C. at 225–27 (Toro, J., 

concurring). We thus conclude that the Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the subtraction of the 

value of post-donation improvements to the easement property in 

the extinguishment proceeds allocated to the donee, is arbitrary 

and capricious and therefore invalid under the APA’s procedural 

requirements. Accordingly, we reverse the Tax Court’s order disallowing the Hewitts’ carryover charitable deductions as to the donation of the conservation easement and remand for further proceedings.

 REVERSED AND REMANDED. 

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