T.C. M em o . 2 0 2 0 -1 0 7

UNITED STATES TAX COURT

SM ITH LAKE, LLC, DAVID HEWITT, TAX M ATTERS PARTNER, Pet i t i o n er v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t

Do ck etNo . 4 9 8 0-1 7. Fi l edJ u l y 1 3, 2 0 20
.

Ro n al d A
. Lev i t t , Greg o ry P. Rh o d es , M i ch el l e A. Lev i n , an d Dav i dM ace W o o l dri d g e, fo r p et i t i o n er. Sh an n o n E. Craft , Reb eccah L. Bo wer, an dJ o h n T. Arthu r, fo r res p on d en t .

M EM ORANDUM OPINION KERRIGAN, J u dg e: Th i s cas e i s b efo re t h e Co urto n th e p art i es ’ cro s s m o ti o n s fo r p art i al s u m

m ary ju d g m en t . OnJ an u ary 4 , 2 0 17 , res po n d en ti s su ed a
n o t i ce o f fi n al p art n ers h i p ad m i n i s t rat i v e ad ju s t m en t (FPAA) fo r t ax y ear 2 0 1 3 t o Dav idHewi t tas th e t ax m at t ers p art ner fo r Sm i t h Lak e, LLC (Sm it h Lak e). In th e- 2
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[* 2 ] FPAA res p o nd en td i s al l o weda $ 6 ,5 2 4 ,0 00 d edu ct i o n fo r a n on cas h ch ari t ab le
co n tri b u t i o n an das sert ed a g ro s s v al u at i o n m is s t at em en tp en al ty p u rs u an t t o
s ect i on 6 6 6 2 (h ), o r i n th e al t ern at iv e, a p en al ty p u rs u an t t o s ect io n 6 66 2 (a). 1 Res p o n d en tco n t en d s th atth e m erg er an dex t i n g u i s h m en tcl au s es i n Sm i t h Lak e’ s d eedo f co n s erv at i o n eas em en tv i o l at e s ect i o n 1 7 0 (h )(2 )(C) an d (5 )(A),
res p ect i vel y . Pet i t i on er, b y co nt ras t, co n t en d s th atth e d eedm eet s th e req u i rem en t s o f s ect i o n 1 7 0 (h )(2 )(C) an d(5 )(A) b ecau s e t h e d eedp ro v i d es th at th e res tri ct i o n i s g ran t edi n p erp etu i t y an d t h atth e co n s erv at i o n p u rp o s es are p ro t ect edi n p erp etui t y . Pet i ti o n er fu rt h er co n t en d s t h atres p o n den t ’ s i n t erp ret at io n o f s ect i o n 1 .1 7 0 A -1 4 (g )(6 )(i i ), In co m e Tax Reg s ., i s i nco rrect o r, al t ern at i v el y , i f res p o n d en t ’ s i nt erp ret at i o n i s fo u n d t o b e co rrect , th atth e reg u l at i o n i s i n v al i d. Back gro u n d Th ere i s n o d i s p u t e as t o th e fo l l o wi n g fact s drawn fro m th e p art i es ’ m o t i o n p ap ers an dat t ach edd ecl arat i o n an dex h ib i t s . Wh en th e p et i t i o n was fi l ed , Sm i t h

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de (Co d e) i n effect fo r t h e y ear at i ss u e, an dal l Ru l e referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re. Al l m on et ary am ou n t s are ro u n dedt o th e n eares td o ll ar.- 3
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[* 3 ] Lak e was a Geo rg i a l i m i t edl i ab i l i t y co m pan y , an di t s p ri n ci pal p l ace o f b u s i n es s was i n Al ab am a. OnJ u ly 2 9 , 2 0 08 , Ro ck efel l er Ho l d i n g s, LLC (Ro ck efel l er), o wn ed i n p art b y M r. Hewi t t , p u rch as ed2 1 .8 9 acres o f p ro p ert y o n Lewi s Sm i t h Lak e i n W i n s t o n Co u n ty , Al ab am a (p ro p ert y ), fo r $ 2 0 0 ,0 0 0 . Ro ck efel ler t ran s ferred th e p ro p ert y t o Sm it h Lak e. M r. an dM rs . Hewi t teach o wn ed a 5 0 % i n teres ti n Sm i t h Lak e atth e t i m e o f t h e t ran s fer. OnDecem

b er 2 0, 2 01 3 , M r. an dM rs . Hewi t t each s o l dan das s i g n ed 4 9 .7 5 % o f t h ei r i n t eres t s i n Sm i t h Lak e t o Sm i t h Lak e In v es t m en tPart n ers , LLC (Sm i th Lak e In v es tm en t s ). OnDecem b er 2 3 , 2 01 3 , Sm i t h Lak e co n v ey eda d eed
o f eas em en tfo r t he 2 1 .8 9 acres , t o th e Pel i can Co as tCo n s erv an cy , LLC, b y an d th ro u g h i t s s o l e m em

b er, At l an t i c Co as tCo n s erv an cy , In c. (ACC), a Geo rg i a
n o np ro fi tco rp o rat i o n. ACC was a “ qual i fi edo rg an i zat i o n ” fo r p u rp o ses o f
s ect i on 1 7 0 (h )(3 ). Th e d eed was reco rd edwi t h th e Sup eri o r Co u rto f W i n s t o n Co u n ty o n Decem

b er 2 7 , 2 01 3 . Atth e t im e o f t h e co n s erv at i o n eas em en td o n at i o n Sm it h Lak e was o wn edb y Sm i t h Lak e In ves t m en t s , wh i ch o wn eda 9 9 .5 % i n t eres t , an dth e Hewi t t s , wh o each o wn eda 0 .2 5 % i nt eres t . Sm i t h Lak e cl ai m eda $ 6 ,5 2 4 ,0 0 0 n o n cas h ch ari t ab l e co n tri b ut i o n d edu ct i o n fo r i t s co n t ri b u t i o n o f t h e co n s erv at i o n eas em en t t o ACC o n i t s 2 0 13 Fo rm 1 0 6 5,- 4
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[* 4 ] U.S. Retu rno f Part ners h i p In co m e. Itat t ach edt o i t s p art n ers h i p retu rn Fo rm 8 2 8 3 , No n cas h Ch ari t ab l e Co nt ri b u t i o n s , wh i ch rep o rt ed t he d o no r’ s ad ju s t ed b as i s fo r t h e co ns erv at i o n eas em en tas $ 2 0 0,0 0 0 an d t h e ap prai s edfai r m ark et
v al u e as $ 6 ,5 2 4,0 0 0. Th e d eedi n cl u d es p ro v i si o n s fo r t he d i s t ri b u ti o n o f p ro ceed s i n th e ev en to f
ex t i n g u i s h m en to r co n demn at i on . Th e d eedp ro vi d es th atth e eas em en t

“ co n s t i tu t es a real p ro pert y i n t eres t v es tedi n ” ACC. Sect i o n 1 5
. 2 o f t h e d eed
ex p lai n s th e s t i p u l at i on th e p art i es ag reed t o reg ard in g p ro ceed s. Th is s ect i o n p ro v id es : [T] h e p art i es s t i p ul at e t h atth i s Eas em en ts h al l h av e atth e t i m e o f Ex t i ng u i s h m en t a fai r m ark etv al ue d et erm i n edb y m u l t i pl y in g t h e th en fai r m ark etv al u e o f t h e Pro p ert y u n en cu m b eredb y th e Eas em en t (m i n u s an y

i ncreas e i n v al u e aft er t h e d at e o f t h i s g ran tat t ri b u t ab l e t o i m p ro v em en t s ) b y

the rat i o o f t h e v al u e o f t h e Eas em en tatthe t i m e o f th i s g ran tt o th e v al u e o f t h e Pro p ert y , wi t h o utd edu ct i o n fo r th e v al u e o f t h e Eas em en t , atthe t i m e o f t h i s g ran t . Th e v al u es o f t hi s Eas em en tatth e t i m e o f th i s g ran ts h al l b e t h e d on at i o n v al u e u sedt o cal cu l at e t h e d educt i o n fo r fed eral i n co m e t ax p u rp o s es al l o wab l e b y reas o n o f t h i s g ran t , p u rs u an tt o Sect i on 1 7 0 (h ) o f th e Co d e. * * * [T] h e rat i o o f t h e v al u e o f t h e d o n at edEas em en tt o th e v al u e o f t h e Pro p ert y u n en cu m b eredb y th e Eas em en ts h al l rem ai n co ns t an t. A p ro v i s i o n o f s ect i o n 2 3 .1 3 o f t h e d eeds t at es : “ Un l es s th e [p ] art i es
ex p res s l y s t at e t h at t h ey

i n t en da m erg er o f es t at es o r i n t eres ts t o o ccu r, n o m erg er
s h al l b e d eem edt o h av e o ccu rredh ereu n d er o r u n d er an y d o cu m en tex ecu t edi n- 5
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[* 5 ] th e fu tu re affect i n g t h i s g ran t .” Th e d eedp ro vi d es th atth e i n terp ret at i o n an d p erfo rm an ce o f t h e eas em en ts h al l b e g o v ern ed b y th e l aws o f t h e St at e o f Al ab am a. Di s cu ss i o n Su m m ary ju d g m en tm ay

b e g ran t edwh ere t h e p l ead i n g s an d o t h er m at eri al s
s h o w th ere i s n o g en u i ne d is p u t e as t o an y m at eri al factan da d eci s io n m ay b e
ren d eredas a m at t er o f l aw. Ru l e 1 2 1 (b ); Su n d s t ran dCo rp . v . Co m m i ss i o n er, 9 8 T.C. 5 1 8 , 5 2 0 (1 9 9 2 ), aff’ d , 1 7 F.3 d 9 6 5 (7 t h Ci r. 1 9 9 4 ). Th e b u rd en i s o n th e
m o vi n g p art y

t o d em o n s t rat e t h atthere i s n o g enu i n e d i s p u t e as t o an y m at eri al fact an dth atth e p art y

i s en ti t l edt o ju d g m en t as a m at t er o f l aw. FPL Grp ., In c. & Sub s . v . Co m

m i s s i on er, 1 16 T.C. 7 3 , 7 4 -7 5 (2 0 0 1 ). Bo t h p art i es h av e m o v edfo r p art i al s u m

m ary ju d gm en t , an dth ey

ag ree t h atth ere ex i s tn o g enu i n e d i s p u t es o f
m at eri al factreg ard i n g th e qu es t i o n s th ey h av e as k edu s t o d eci d e. Aft er
rev i ewi n g th e p l ead i n g s an d t h e m o t i o n s wi t h acco m p an y i n g ex hi b i t s an d d ecl arat io n s , we co ncl u d e th ata d eci s i o n m ay b e ren d eredas a m at t er o f l aw. I. Qu al i fi ed Co n serv at i on Co n t ri b u t i o n Sect io n 1 7 0 (a)(1 ) al lo w s a d educt i o n fo r an y ch ari tab l e co n t ri b u t i on m ad e wi th i n th e t ax ab le y ear. If t h e t ax p ay er m ak es a ch ari tab l e co n t ri b u t i on o f p ro p erty o t h er th an m o n ey , th e am o u n to f t h e co n t ri b u t i o n i s g en eral l y equ al t o th e- 6
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[* 6 ] FM V o f t h e p ro pert y atth e t i m e t h e g i fti s m ad e. See s ec. 1 .1 7 0 A-1 (c)(1 ), In co m e Tax Reg s . Th e Co d e g en eral l y

res tri ct s a t ax pay er’ s ch ari t ab le co nt ri b u ti o n d edu ct i o n fo r t h e d o n at io n o f “ an i n t eres ti n p ro p ert y wh i ch co n s i s t s o f l es s th an th e t ax p ay er’ s en t i re i n t eres ti n s u ch p ro p ert y ”. Sec. 1 7 0 (f)(3 )(A). Ho wev er, t h ere i s
an ex cep ti o n t o th is ru le fo r a “ qu al i fi edco n s erv at i o n co n tri b u t i o n .” Sec. 1 7 0 (f)(3 )(B)(i ii ). Th i s ex cep t i o n ap p l i es t o a “ qu al i fi edco n s erv at i o n
co n tri b u t i o n ”, wh i ch i s a co n t ri b u t io n o f a qu al i fi edreal p ro p ert y i nt eres tt o a qu al i fi edo rg an i zat i o n ex cl u s i v el y fo r co n serv at i on p u rp o ses . Sec. 1 7 0(h )(1 ). Sect io n 1 7 0 (h )(5 )(A) p ro v i d es t h ata co n t ri b u ti on wi l l n o tb e t reat edas b ei n g m ad e ex cl u s i v el y fo r co n s erv at i o n p u rp o s es “ u n l es s th e co ns erv at i o n p u rp os e i s p ro t ect edi n p erp etu i t y .” Th e acco m pan y i n g reg u l at i o n reco g n i zes th at

“ a s ub s equ en tu n ex p ect edch an g e i n th e co n d i ti o n s s u rro un d i n g th e [d o n at ed ] p ro p erty * * * can m ak e i m

p os s i b l e o r i m

p ract i cal t h e co nt i n uedu s e o f t h e p ro p erty fo r co n s erv at i o n p u rp o s es ”. Sec. 1 .1 7 0A-1 4 (g )(6 )(i ), In co m e Tax Reg s. In th es e ci rcu m s t an ces th e co n s erv at i o n p u rp o s es can b e t reat edas p ro t ect edi n p erp etu i ty

i f t h e res t ri ct i o n s are ex t i ng u i sh edb y ju d i ci al p ro ceed i n g an dth e
eas em en td eeden su res th atth e ch ari t ab l e d o n ee, fo ll o wi n g the s al e o f p ro p ert y , wi l l recei v e a p ro p ort i o n at e s h are o f t h e p ro ceed s an du s e t ho s e p ro ceed s- 7
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[* 7 ] co n si s t en tl y

wi t h th e co n s erv at i o n p u rp o s es u n d erl y in g th e o ri g i n al g i ft . Id
. Th i s res u l t s i n t h e “ p erp etu i t y ” req u i rem en t ’ s b ei n g s at i s fi edb ecau se t he s al e p ro ceed s rep l ace t h e eas em en t as an as s etd ep l oy edb y t h e d o n ee “ ex cl u s i v el y fo r
co n serv at i on p urp o s es ”. Sec. 1 7 0 (h )(5 )(A); s ee al so Oak b ro o kLan dHo l d in g s , LLC v . Co m

m i s s i o n er, 1 54 T.C. _

_ _ , _

_ _ (s l i p o p . at8 ) (M ay

1 2 , 2 0 2 0 ). Sect io n 1 .1 7 0 A-1 4 (g )(6 )(i i ), In co m e Tax Reg s., s p eci fi es t h e d o n ee’ s s h are
o f p ro ceed s i n th e cas e o f ex t i n g u is h m en t as fo ll o w s : [F] o r a d edu ct io n t o b e al l o wedu n d er t h i s s ect i o n , at t he t i m e o f t h e g i ftth e d o n o r m

u s tag ree t h atth e d o n at i o n o f t h e p erp etu al co n s erv at io n res t ri ct i o n g i v es ri s e t o a p ro p ert y ri g h t , i m m ed i at el y v es t ed i n th e d on ee o rg an i zat i o n , wi t h a fai r m ark et v al ue t h ati s at l eas tequ al t o the p ro p ort i o n at e v al u e t h atth e p erp etu al co n s erv at i o n res t ri ct i o n atth e t i m e o f t h e g i ft , b ears t o th e v al u e o f t h e p ro p ert y as a wh o l e atth att i m e. * * * Fo r p u rp o s es o f t h i s p arag rap h * * * th at p ro p o rt i o nat e v al u e o f t h e d o n ee’ s p ro p ert y ri g h t s s h al l rem ai n co n s t an t . Acco rd i n g ly , wh en a ch an g e i n co n d i t io n s g i v e ri s e t o the ex t i n g u i s h m en to f a p erp etu al co n s erv at io n res t ri ct i o n u n d er p arag rap h (g )(6 )(i ) o f t h i s s ect i on , th e d o n ee o rg an i zat i o n , o n a s ub s equ en ts al e, ex ch an g e, o r i nv o l un t ary co nv ers i o n o f t h e s ub

ject p ro p ert y , m

u stb e en t i t l edt o a p o rt i o n o f t he p ro ceed s atl eas tequ al t o th atp ro p o rt i o n at e v al u e o f t h e p erp etu al co n s erv at i on res t ri ct io n , u n l es s s t at e l aw p ro v id es th at t h e d o n o r i s en t i t l edt o th e fu l l p ro ceed s * * *
. To m eetth e req u i rem en t s o f s ect i o n 1 .1 7 0 A-1 4 (g )(6 )(i i ), In co m e Tax Reg s . (p ro ceed s reg u l at i o n ), th e d eedm u s t g u aran t ee t h atth e d o n ee wi l l recei v e “ a p ro p ort i o n at e s h are o f ex t i n g u i s h m en t p ro ceed s ”. Carro l l v . Co m m i s s i o n er, 1 4 6- 8
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[* 8 ] T.C. 1 9 6 , 2 1 9 (2 0 1 6 ); s ee PBBM -Ro s e Hi l l , Lt d. v . Co m m i s s io n er, 9 0 0 F.3 d 1 9 3 , 2 0 7 (5 t h Ci r. 2 0 1 8 ) (“ [T] he ‘ p ro p o rt i o n at e v al u e’ i s a fract i o n equal t o th e
v al u e o f t h e co n s erv at i o n eas em en tatth e t i m e o f t h e g i ft , d i v i d edb y th e v al u e o f th e p ro p ert y

as a wh o l e at t h at t i m e.”). Res p o n d en tco n t en d s th atth e d eedv i ol at es t he p ro ceed s reg u l at io n b ecau se i t pro v i d es th atth e p o rt i o n o f p ro ceed s req ui redt o b e al l o cat edt o t h e d o n ee i n t h e
ev en t o f an ex t i n g u i s h m en t s hal l b e redu cedb y t h e v al u e o f i m p ro v em en t s t o th e l an dm ad e b y

Sm i t h Lak e aft er th e g ran to f t h e eas em en t , an d t h atth e m erg er p ro v is i o n al l o w s th e eas em en t t o b e el i m i n at ed t hro u g h m erg er o f es tat es . Pet i t io n er co n ten d s th atth e d eeds at i s fi es th e reg u l at i o n b ecau s e p ro ceed s at tri b u t ab l e t o th e v al u e o f i m p ro v em en t s m ad e b y

th e l an d o wn er aft er th e d o n at i o n o f t h e co n s erv at i o n eas em en tare n oti m m ed i at el y v es t edan d are n o tp art
o f t h e eas em en tg ran t edt o th e d o n ee. Th e p ro ceed s reg u l at i o n s p eci fi cal l y s t at es th atth e d o n ee “ m

u st b e en t i t l ed t o a p o rt i o n o f t he p ro ceed s atl eas tequ al t o t hatp ro p ort i o n at e v al u e”. Sec. 1 .1 70 A-1 4 (g )(6 )(i i ), In co m e Tax Reg s . Th e wo rd“ m us t ” cl earl y

req ui res th atth e d o n ee recei v e atl eas tth e p ro p ort i o n at e v al u e. PBBM -Ro s e Hi l l , Lt d. v
. Co m m i s s i o n er, 9 0 0 F.3 dat2 0 8. Th e reg u l at i o n d o es n o tp erm i tth at“ an y am o u n t , i n cl u d i n g th at at t ri b u t ab le t o i m p ro v em en t s , m ay b e s ub t ract edo u t ” o f t he- 9
-

[* 9 ] p ro ceed s . Id
. ; s ee al s o Co al Pro p . Ho l d i ng s , LLC v . Co m m i s s i o n er, 1 5 3 T.C. 1 2 6 , 1 3 8 (2 0 1 9). Pet i t i o ner co n ten d s th e eas em en t d eedi s g o v ern edb y t h e l aws o f t h e St at e
o f Al ab am a an dthatu n d er Al ab am a l aw, the h o l der o f a co n s erv at io n eas em en t d eed is n o ten t it l edt o p ro ceed s i f t h e u n d erl y i n g p ro p erty i s co n vert edt o p ub l i c
u s e t h ro u g h a co n demn at io n, m ak i n g th e p ro ceed s reg u l at i o n i n ap p li cab l e i n th i s
cas e. 2 See Bu rm a Hi l l s Dev . Co . v . M arr, 2 2 9 So
. 2 d 7 7 6 (Al a. 1 9 6 9 ). W e reject p et i t i o n er’ s arg um en t s . Th e ACC h as a p ro p ert y ri g h tg ran t edb y a d eedo f
eas em en t . W e co n cl u d ed i n Hewi t tv . Co m m i s si o n er, T.C. M em o . 2 0 2 0 -8 9 , at
* 2 2 -* 2 4 , thatthe d on o r o f a co n s erv at io n eas em en two ul dn o tb e en t i t l edt o th e fu l l am o u n to f t h e p ro ceed s fro m a ju d ici al ex t i n g u is h m en t u n d er Al ab am a l aw. Th erefo re, t h e St at e l aw ex cep t i o n i n cl u d edi n s ect i o n 1 .1 7 0A-1 4 (g )(6 )(i i ), In co m e Tax Reg s ., d o es n o t ap p ly
. Res p o n d en tal s o arg u es th atthe eas em en ti s n o t a qu al ifi edreal p ro p ert y i n t eres tb ecau s e t h e d eedal l o ws fo r t h e p o t en t i al rem o v al o f t h e eas em en tth ro u g h
a m erg er o f es t at es u nd er s ect io n 2 3 .1 3 o f t h e d eed . W e h av e es t ab li s hed ab o v e th atth e co nt ri b u t i o n d oes n o tqu al i fy u nd er s ect i o n 1 7 0 as a “ qual i fi ed

2 Al t h o ug h s ect i o n 1 5
. 1 o f t h e d eedread s “ u n l es s o th erwi se p ro v i d edb y Geo rg i a l aw” (em

p has is ad d ed ), p et i t i o n er’ s m o ti o n arg u es th at t h e d eedi s g o v ern edb y

Al ab am a l aw.- 1 0 -

[* 1 0 ] co ns erv at i o n co n t ri b u t i o n” b ecau s e t h e d eed ’ s ex ti n g ui s h m en tcl au s e fai l s t o
m eetth e req ui rem en t s o f th e p ro ceed s reg ul at io n . Acco rd i n gl y , we d o n o t n eedt o ad dres s th i s i ss u e. II. Val i di t y

o f t h e Pro ceed s Reg ul at i o n Pet i t i o ner co n ten d s th atres p o n d en t ’ s i n terp ret at io n o f t h e p ro ceed s reg u l at i o n i s i n co rrect . W e h av e d eci d edthatres p o n d en t ’ s i n t erp ret at i o n i s co rrect
an d th atth e d eedd o es n otco m p l y wi t h th e reg u lat i o n . Pet i ti o n er fu rth er co n t en d s th ati f res p on d en t ’ s i n t erp ret at io n i s co rrect th en th e p ro ceed s reg u l at i o n i s arb i trary an dcap ri ci o u s an di s th erefo re i n v al i d
. Wh en co n s i d eri n g wh et h er a reg u l at i o n i s arb i t raryan dcap ri ci ou s , we g en eral l y em p l o y t h e t wo -p art i n qu i ry es t ab l i s h edb y Ch ev ro n, U.S.A., In c. v . Nat
. Res
. Def. Co u n ci l, In c., 4 67 U.S. 8 3 7 (1 98 4 ). Th e fi rs t p arti s t o i n qu i re “ wh et h er Co n g res s h as d i rect l y

s p o k en t o th e p reci s e qu es t i on ati s s u e.” Id . at8 42 . If th e i n t en to f Co n g res s i s cl ear, t h ere i s n o fu rt h er i n qu iry . Id
. Pu rs u an tt o s ect i o n 1 7 0 (h )(5 )(A) t h e co n s erv at i o n p u rp o s e m u s tb e “p ro t ect edi n p erp etu i ty .” Ho wev er, Co n gres s d i d n o t ad dres s s peci fi cal l y th e al l o cat io n o f ex t i n g u is hm en t p ro ceed s. See Oakb ro o k Lan dHo l d i n g s , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at_

_ _ (s l i p o p. at2 6 ).- 1 1 -

[* 1 1 ] W e n o wco n s i d er wh et h er t h e p ro ceed s reg u l at i o n “ i s b as edo n a p erm i s s i b l e co n s t ru ct i o n o f t h e s t atu t e.” See Ch ev ro n , 4 6 7 U.S. at8 4 3. Si n ce t he
s t atu te i s s i l en t , we m

u s tg i v e d eferen ce t o t h e i n t erp ret at i o n em b o di edi n t h e ag en cy ’ s reg u l at i o n u n l es s i ti s “ arb i t rary , cap ri ci o us , o r m an i fes t l y co n t raryt o th e
s t atu te.” See Un i tedSt at es v . M eadCo rp . , 5 3 3 U.S. 2 1 8 , 2 2 7 (2 0 0 1); Ch ev ro n , 4 6 7 U.S. at8 44 . W e wi l l up h o l dth e p ro ceed s reg u l at i o n i f i trep res en t s a

“ reas o nab l e i nt erp ret at i o n ” o f t h e l aw Co n g res s en act ed . See Ch ev ro n , 4 6 7 U.S. at 8 4 4 ; SIH Part n ers LLLP v . Co m m i s s i o n er, 1 5 0 T.C. 2 8 , 5 0 (2 0 1 8 ), aff’ d, 9 2 3 F.3 d 2 9 6 (3 d Ci r. 2 01 9 ). Pet i t i o ner d o es n o tch al l en g e t h e v al i d i t y o f t h e p ro ceed s reg u l at i o n i n i t s
en t i ret y . Rat her, p et i t i o n er co n t es t s th e reg u lat i o n o n t w o g ro u nd s : (1 ) t h e req u i rem en tth atan eas em en td eedal l o cat e t h e eco n o m i c b en efi t o f s ub s equ en t i m p ro v em en t s m ad e (an dp ai dfo r) b y th e l an do wn er t o t h e d o n ee up o n t erm i n at i o n o f t h e eas em en tl ack s a rat i on al b as i s an d(2 ) t h e “ p ro p o rt i o nat e v al ue” p ro v is i o n o f t h e p ro ceed s reg u l at i o n i s am b i g uo u s . Pet i t i o ner co n ten d s th atth ere i s n o rat i o n al b as i s fo r req ui ri n g an eas em en t d eed to s h are wi t h th e d on ee t h e eco n o m i c b en efi t o f s ub s equ en ti m p ro v em en t s
m ad e an dfu nd ed b y a l an d o wn er, b ecau s e t h e d o n ee d o es n otco n t ri b u t e t o ward th e co s to f t h e i m

pro vem en t s an dth e l an d o wn er d o es n o trecei v e a d edu ct i o n fo r- 1 2 -

[* 1 2 ] an y s u ch i m p ro v em en t s . Pet i t i o n er arg u es fu rt h er t h ati t i s ev en m o re i rrat i on al t o req ui re a s ub seq uen tl an d o wn er t o fo rfei t t o t h e l an dtru s ta s ub s t an t i al p o rt i on o f t h e p ro ceed s at t ri b u t ab l e t o th e i m p ro vem en t s m ad e an d o wn edb y th e
s ub s equ en to wn er d es pi t e t he fact th at t h e s ub s equ en to wn er d i dn o td o n at e t h e
eas em en tt o th e l an dtru sto r recei v e a ch ari t ab l e co n t ri b u t i o n d edu ct i o n . Pet i t io n er as s ert s th ats u ch a res u l ti s i l l o g i cal an di n co ns i s ten twi t h th e p u rp o s e o f th e p ro ceed s reg u l at i o n. Th e reg u l at i o n d o es n o t ad dres s d o n o r i m p ro v em en t s . Th e ab s en ce o f a p ro v is i o n ad dres s in g d o no r i m p ro v em en t s d o es n o t ren d er t h e reg u l at io n

“ arb i trary , cap ri ci o u s , o r m an i fes t l y co n t rary t o th e s t atut e.” Ch ev ro n , 4 6 7 U.S. at8 4 4 ; s ee al s o Oak

b ro o kLan dHo l d i n g s , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at_

_ _ (s l i p o p. at2 9 ). In Oak b ro o kLan dHo ld i n g s , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at_

_ _ (s l i p
o p . at2 9 ), we reas o n edth atTreas u ry ’ s g o al i n p res cri b i n g th e p ro ceed s reg u l at i o n
was t o en s u re s at i s fact i o n o f t h e s tatu t e’ s “ p ro t ect ed i n p erp etu i t y ” req u i rem en t . Th i s req u i rem en ti s d eem eds at i s fi edu n d er Treas u ry ’ s i nt erp ret at i o n o f t he p ro ceed s reg u l at i on b ecau s e t h e s al e p ro ceed s rep l ace t h e eas em en tas an as s et
em pl o y edb y th e d o n ee “ ex cl u s i v el y

fo r co n s erv at i o n p u rp o s es ”. Sec. 1 7 0(h )(5 )(A); s ee al s o Oak b ro o kLan dHo l d i n g s , LLC v . Co m m i s s i o n er, 1 5 4- 1 3 -

[* 1 3 ] T.C. at_

_ _ (s l i p o p . at8 ). Th ere m ay b e s cen ari os , s u ch as a d ecl i n e i n l an d
v al u es , i n wh i ch redu ci ng t h e d o n ee’ s p ro ceed s b y the v al u e o f l an d o wn er i m p ro v em en t s wo u l dfru s t rat e t h e g o al o f t h e s al es p ro ceed s’ rep l aci n g th e v al u e
o f t h e eas em en t . Oak

b ro o kLan dHo l d i n gs , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at

_ _ _ (s li p o p . at2 9 -3 0 ). W e s t at ed i n Oak

b ro o kth at“ Treas u ry ’ s o v erarch i n g g o al was t o g u aran t ee th atth e d o n ee, up o n ju d ici al ex t i n g u i s h m en to f t he eas em en t , wo u ldrecei v e t h e fu l l s h are o f p ro ceed s t o wh i ch i twas en t i t l ed .” Id
. at_ _ _ (s l i p o p . at3 1 ). W e
co n cl u d ed t h at Treas u ry

ex erci s edreas o n ed ju d g m en ti n i t s effo rt s t o reach th e g o al o f s ect i o n 1 7 0(h )(5 )(A). Id
. Pet i t i o ner al s o co n t en d s th atthe “ p ro p o rt i o n at e v al u e” p ro v i s i o n o f t h e p ro ceed s reg u l at i on i s am bi g u o u s . Pu rs u an tt o s ect i o n 1 .1 7 0 A-1 4 (g )(6 )(i i ), In co m e Tax Reg s ., th e d o nee’ s s h are i s d et erm i n edb y m ul t i p l y i n g t h e s al e p ro ceed s b y

a fract i o n , th e nu m erat o r o f wh i ch i s t he FM V o f t h e eas em en tatth e t i m e i twas g ran ted , an dth e d en o m in at o r o f wh i ch i s th e FM V o f t h e en t i re p ro p erty atth att i m e. InOak

b ro o kLan dHo l d i ng s , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at_ _ _ (s l i p o p . at2 8 ), we co n cl u d edth atth e p ro ceed s reg ul at i o n ’ s

“p ro p o rt i o n at e v al u e” ap p ro ach i s n o t“ arb i trary , cap ri ci o us , o r m an i fes t ly co n t rary t o the s t atu t e” as ex am i n edu nd er t h e t wo -p arti n qu i ry .- 1 4 -

[* 1 4 ] III. J u d i ci al Es t o p pel Pet i t i o ner arg u es th atres p o n den ts h ou l db e ju d i ci al l y es t o p pedfro m
as s ert i n g th atth e s ect i o n 1 5 .2 o f t h e d eedi s i n co n s is t en twi t h th e p ro ceed s reg u l at i o n . Pet it i on er ci t es a Di s t ri ctCo u rtcas e i n wh ich th e Un i t edSt at es
s t ip u l at edth atthe p ro ceed s reg u l at i o n ’ s p erp etu i t y req u i rem en twas s at i sfi edi n a cl au s e co n t ai n i n g t h e s am e t ex tas s ect i o n 1 5
. 2 o f t h e d eedi n the i n s t an tcas e. See J o i n tSt i p u l at i on o f Fact s fo r Pu rp o s es o f Su m m ary J u d g m en t , at4 , DM B Real co , LLC v . Un it edSt at es , Ci vi l No . 1 6 -1 5 8 5 -NVW (D. Ari z. Feb . 2 4 , 2 0 1 7). Res po n d en targ u es th atju d i ci al es t o p p el i s i n ap pl i cab l e b ecau s e th e Un i t edSt at es
co n ced edth e i s s u e i n DM B Real co , LLC an d b ecau s e t he p art i es s et t l edth e cas e.

“ Th e d o ct ri n e o f ju di ci al es t o p p el fo cu ses o n th e rel at io n s h i p b etw een a p art y an dth e co u rt s , an di t s eek s t o p ro tect t h e i n t eg ri t y o f t h e ju d i ci al p ro ces s b y p rev en ti n g a p art y

fro m s ucces s fu l l y

as sert i n g o n e p o s it i o n b efo re a co u rtan d th ereaft er as sert i n g a co m pl et el y co nt rad i ct ory

p o s i t i o n b efo re t h e s am e o r an o t h er
co u rtm erel y

b ecau se i ti s n o w i n th atp arty ’ s i n t eres tt o d o s o .” Hu d dl es t o n v . Co m m i s s i o n er, 1 0 0 T.C. 1 7 , 2 6 (1 9 9 3 ). Al t h o u g h ju d i ci al es t op p el req u i res a
co u rt ’ s accep t an ce o f a p art y ’ s p ri o r p o s i t i o n , accep t an ce “ d o es n o t m ean t h atth e p art y b ei ng es t o p pedp rev ai l edi n th e p ri o r p ro ceed i n g * * * b u trat h er o n l y th ata p art i cu l ar p o s i t i o n o r arg u m en t as s ert ed b y th e p art y * * * was accep t edb y

th e- 1 5 -

[* 1 5 ] co urt .” Id .; s ee Fazi v . Co m m i s s i o n er, 1 05 T.C. 4 3 6 , 4 4 6 (1 9 9 5 ). Th e Co u rt i n Hu dd l es t o n v . Co m

m i s s i on er, 1 0 0 T.C. at2 6 , fu rt h er s t at edthat , i n cas es th at
s et t l e, “ an arg u m en tcan b e m ad e t h atth e co u rtd i dn o taffi rm at i v el y accep tan y

o f th e u n derl y i n g p o s i ti o n s refl ect edi n th e s et t l em en tan dth atju d i ci al es t op p el
s h o u ldn o tap p l y .” In DM B Real co , LLC th e Un i t edSt at es co n ced ed t h e i ss u e wi t h res p ectt o th e p ro ceed s cl au s e an dd idn o t p ers u ad e t h e co u rt t o accep t i t s p os i t i o n. Th atcas e
was res o lv edth ro u g h a s et t l em en tb y the p art i es . W e fi n dth atju d i ci al es t o p p el i s i n ap p l i cab l e t o th i s cas e. IV. Co n cl u si o n Th e d eedg ran ti n g th e co n s erv at i o n eas em en tredu ces th e d o n ee’ s s h are o f th e p ro ceed s i n th e ev en to f ex t i n g u is h m en t b y th e v al u e o f i m

pro v em en t s (i f an y )
m ad e b y th e d o n o r. Acco rd i ng l y , p et i t i o n er h as n ots at i s fi edth e p erp etu i t y req u i rem en t s o f s ect i o n 1 7 0 (h )(5 )(A). Fu rtherm ore, we reject p et i ti o ner’ s ch al l en g e t o th e v al i d i t y o f t h e p ro ceed s reg u l at i o n an dfi n d t h atth e co n s t ru ct i o n
o f s ect i o n 1 7 0(h )(5 ) s etfo rt h i n s ect i o n 1 .1 7 0A-1 4 (g )(6 ), In co m e Tax Reg s., i s
v al i du n d er Ch ev ro n. See Oakb ro okLan dHo l d in g s , LLC v . Co m m i s s i o n er, 1 5 4 T.C. at_ _ _ (s l i p o p . at2 5 , 2 8 -3 3 ).- 1 6 -

[* 1 6 ] Acco rd i ng l y , we wi l l g ran tres p o n d en t ’ s m o t i o n fo r p art i al s u m m ary ju d g m en tan dd en y

p et i t i o n er’ s cro s s -m o t i o n fo r p art i al s u m m ary ju dg m en t . W e h av e co n s i d eredal l o f t h e arg u m en t s m ad e b y th e p art i es , an dt o t h e ex ten tn o t
m en t i o n edab o v e, we co n cl ud e t h atth ey are m o ot , i rrel ev an t , o r wi t h o utm eri t . To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er wi ll b e i s s u ed
.