154 T.C. No. 10

UNITED STATES TAX COURT

OAKBROOK LAND HOLDINGS, LLC, WILLIAM DUANE HORTON, TAX

MATTERS PARTNER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5444-13. Filed May 12, 2020.

In 2008 P donated a conservation easement to a qualified organization and claimed a charitable contribution deduction under

I.R.C. sec. 170(a). The easement deed provided that, if the conservation restriction were extinguished at some future date, the donee

would receive a share of the proceeds equal to the fair market value

of the easement on the date the contribution was made. The deed

further provided that the donee’s share as thus determined would be

reduced by the value of any improvements made by the donor after

granting the easement. R disallowed the deduction, contending

(among other things) that the extinguishment clause violated the

requirements of sec. 1.170A-14(g)(6), Income Tax Regs.

In Oakbrook Land Holdings, LLC v. Commissioner, T.C.

Memo. 2020-54, issued concurrently with this Opinion, the Court

holds that the easement deed violates the “protected in perpetuity”

requirement of I.R.C. sec. 170(h)(5), as interpreted in sec.

1.170A-14(g)(6), Income Tax Regs., because the donee’s share of the
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extinguishment proceeds (1) is based on a fixed historical value rather

than a proportionate share, and (2) is reduced by the value of any

improvements made by the donor. This Opinion addresses petitioner’s challenge to the validity of the regulation.

Held: Sec. 1.170A-14(g)(6), Income Tax Regs., was properly

promulgated and is valid under the Administrative Procedure Act, 5

U.S.C. sec. 553 (2018).

Held, further, the construction of I.R.C. sec. 170(h)(5) as set

forth in sec. 1.170A-14(g)(6), Income Tax Regs., is valid under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). 

David M. Wooldridge, Michelle A. Levin, Ronald A. Levitt, and Gregory P.

Rhodes, for petitioner.

W. Benjamin McClendon, Bruce K. Meneely, Robert W. Dillard, and

William W. Kiessling, for respondent.

LAUBER, Judge: Oakbrook Land Holdings, LLC (Oakbrook), purchased

143 acres of land near Chattanooga, Tennessee, in December 2007 for $1,700,000. 

In December 2008, slightly more than one year later, Oakbrook donated a conservation easement over a portion of the tract to the Southeast Regional Land Conservancy (SRLC). On its Federal income tax return for 2008, Oakbrook claimed for

this donation a charitable contribution deduction of $9,545,000. Oakbrook thus
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took the position that the land covered by the easement had appreciated in value

by about 700% in a single year during the worst real estate crisis to hit the United

States since the Great Depression.

The case was tried before Judge Holmes in 2016, and the facts are stated

more fully in a separate Memorandum Opinion authored by him and filed concurrently herewith. Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo.

2020-54. That opinion holds that the easement Oakbrook granted did not satisfy

the “protected in perpetuity” requirement of section 170(h)(5)(A) and section

1.170A-14(g)(6), Income Tax Regs.

1

 That is because the donee’s share of the

proceeds, in the event the property were sold following a judicial extinguishment

of the easement, would be (1) determined according to a fixed historical value

rather than a proportionate share of the proceeds and (2) reduced by the value of

any improvements made by the donor. See Oakbrook Land Holdings, LLC, T.C.

Memo. 2020-54, at *36-*37. In this Opinion we address and reject petitioner’s

challenge to the validity of this regulation.

1Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code) in effect for the year at issue. We round most monetary

amounts to the nearest dollar.
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FINDINGS OF FACT 

In December 2008 Oakbrook executed a Conservation Easement and Declaration of Restrictions and Covenants (Deed) with SRLC, a “qualified organization” under section 170(h)(3). This easement covered 106 acres (or 75%) of the

tract Oakbrook had purchased the previous December. The parties understood that

changed circumstances might make it impossible, at some point in the future, to

continue protecting the conservation area. Should that happen, article VI, section

B(2), of the Deed governed how Oakbrook and SRLC would divide the proceeds

of sale following a judicial extinguishment of the easement. It provided:

This Conservation Easement gives rise to a real property right

and interest immediately vested in SRLC. For purposes of this Conservation Easement, the fair market value of SRLC’s right and interest shall be equal to the difference between (a) the fair market value

of the Conservation Area as if not burdened by this Conservation

Easement and (b) the fair market value of the Conservation Area

burdened by this Conservation Easement, as such values are determined as of the date of this Conservation Easement, (c) less amounts

for improvements made by * * * [Oakbrook] in the Conservation

Area subsequent to the date of this Conservation Easement, the

amount of which will be determined by the value specified for these

improvements in a condemnation award in the event all or part of the

Conservation Area is taken in exercise of eminent domain * * * . If a

change in conditions makes impossible or impractical any continued

protection of the Conservation Area for conservation purposes, the

restrictions contained herein may only be extinguished by judicial

proceeding. Upon such proceeding, SRLC, upon a subsequent sale,

exchange or involuntary conversion of the Conservation Area, shall
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be entitled to a portion of the proceeds equal to the fair market value

of the Conservation Easement as provided above.

In the event all or part of the conservation area were taken by eminent domain “so

as to abrogate the restrictions imposed by this Conservation Easement, * * * [the]

proceeds shall be divided in accordance with the proportionate value of SRLC’s

and * * * [Oakbrook’s] interests as specified above.” Deed art. VI, sec. B(3).

Oakbrook timely filed a Form 1065, U.S. Return of Partnership Income, for

its 2008 taxable year. On that return it claimed a charitable contribution deduction

of $9,545,000 for its donation of the easement. The Internal Revenue Service

(IRS) selected Oakbrook’s return for examination. On December 6, 2012, the IRS

issued Oakbrook’s tax matters partner (TMP or petitioner) a notice of final partnership administrative adjustment that disallowed the charitable contribution

deduction in full. The TMP timely petitioned for readjustment of the partnership

items. 

Trial was held before Judge Holmes in Birmingham, Alabama, in 2016. At

trial the Court heard testimony from the SRLC representative who had drafted the

Deed. In post-trial briefs petitioner contended that (1) the extinguishment provision of the Deed complies with the requirements of section 1.170A-14(g)(6), Income Tax Regs., and (2) in the alternative, the regulation is invalid.
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Judge Holmes interpreted the Deed to mean that, in the event of a sale following judicial extinguishment of the easement, SRLC’s share of the proceeds

would be limited to the “initial fixed value” of the easement, i.e., its fair market

value (FMV) on the date it was granted. Oakbrook Land Holdings, LLC, T.C.

Memo. 2020-54, at *35. The donee’s proceeds as thus determined would then be

reduced by the value (as specified in any future condemnation award) of any improvements that Oakbrook had made to the conservation area after donating the

easement. Ibid. Thus, if property values rose after that date, SRLC’s share would

not “be protected from inflation either in local land prices or the economy more

generally.” Id. at *35-*36. Conversely, if property values fell, SRLC might not

receive even the initial fixed value of the easement because of the reduction for

improvements. Id. at *36.

The Court concluded that the Deed, as thus construed, failed to satisfy the

requirements of section 1.170A-14(g)(6), Income Tax Regs., for two reasons. 

First, the regulation requires that the donee be entitled to a proportionate share of

the proceeds, not to a fixed dollar amount keyed to the easement’s initial value. 

Oakbrook Land Holdings, LLC, T.C. Memo. 2020-54, at *37. Second, the

regulation does not permit a reduction of the donee’s proceeds on account of

improvements made by the donor. Id. at *37-*38 (citing PBBM-Rose Hill, Ltd. v.
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Commissioner, 900 F.3d 193, 208 (5th Cir. 2018)). In this Opinion we address

petitioner’s challenge to the validity of this regulation. 

OPINION

A. Statutory and Regulatory Framework

Section 170(a)(1) allows a deduction for any charitable contribution made

within the taxable year. If the taxpayer makes a charitable contribution of property other than money, the amount of the contribution is generally equal to the FMV

of the property at the time the gift is made. See sec. 1.170A-1(c)(1), Income Tax

Regs.

The Code generally restricts a taxpayer’s charitable contribution deduction

for the donation of “an interest in property which consists of less than the taxpayer’s entire interest in such property.” Sec. 170(f)(3)(A). But there is an exception

to this rule for a “qualified conservation contribution.” Sec. 170(f)(3)(B)(iii). 

This exception applies where: (1) the taxpayer makes a contribution of a “qualified real property interest,” (2) the donee is a “qualified organization,” and (3) the

contribution is “exclusively for conservation purposes.” Sec. 170(h)(1).

Section 170(h)(5)(A) provides that a contribution will not be treated as being made exclusively for conservation purposes “unless the conservation purpose

is protected in perpetuity.” The regulation interpreting this provision recognizes
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that “a subsequent unexpected change in the conditions surrounding the [donated]

property * * * can make impossible or impractical the continued use of the property for conservation purposes.” Sec. 1.170A-14(g)(6)(i), Income Tax Regs. Despite that possibility “the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding” and

the easement deed ensures that the charitable donee, following sale of the property, will receive a proportionate share of the proceeds and use those proceeds consistently with the conservation purposes underlying the original gift. Ibid. In effect, the “perpetuity” requirement is deemed satisfied because the sale proceeds

replace the easement as an asset deployed by the donee “exclusively for conservation purposes.” Sec. 170(h)(5)(A).

Section 1.170A-14(g)(6)(i), Income Tax Regs., provides that the donee must

be entitled to proceeds “determined under paragraph (g)(6)(ii).” That paragraph,

captioned “Proceeds,” provides in part as follows:

[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 * * * , that proportionate value of the donee’s property rights shall remain constant. Accordingly, when a change in conditions give[s] rise to the extinguish-
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ment 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 conservation restriction, unless state law

provides that the donor is entitled to the full proceeds * * * .

This regulation requires that the easement deed guarantee the donee “a proportionate share of extinguishment proceeds.” Carroll v. Commissioner, 146 T.C.

196, 219 (2016); see PBBM-Rose Hill, 900 F.3d at 207 (“[T]he ‘proportionate

value’ is 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.”). Further,

the regulation does not permit that “any amount, including that attributable to improvements, may be subtracted out” of the proceeds against which the proportionate value is applied. PBBM-Rose Hill, 900 F.3d at 208; accord, Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126, 136-137 (2019).

B. Regulatory Background

The Tax Reform Act of 1969, Pub. L. No. 91-172, sec. 201, 83 Stat. at 556,

generally disallowed charitable contribution deductions for gifts of partial interests

in property. In 1980 Congress revised the Code to allow deductions for such gifts

when they constitute “qualified conservation contributions.” See Tax Treatment

Extension Act of 1980 (1980 Act), Pub. L. No. 96-541, sec. 6, 94 Stat. at 3206
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(adding section 170(h)). Congress specified numerous requirements for a “qualified conservation contribution,” including the requirements that the contribution

be made “exclusively for conservation purposes” and that the “conservation purpose [be] protected in perpetuity.” Ibid. (codified at section 170(h)(1)(C), (5)(A)). 

On May 23, 1983, the Department of the Treasury (Treasury) issued a notice

of proposed rulemaking with “proposed regulations relating to contributions of

partial interests in property for conservation purposes.” 48 Fed. Reg. 22940 (May

23, 1983). The preamble explained the history of congressional enactments in this

area, highlighting the requirement that a donated easement “be perpetual in order

to qualify for a deduction.” Ibid. Treasury noted that the House and Senate committee reports accompanying the 1980 Act had “provided, for the first time, an indepth statement of congressional intent concerning the donation of partial interests

for conservation purposes.” Ibid. The preamble stated that the proposed regulations “reflect the major policy decisions made by the Congress and expressed in

these committee reports.” Ibid.

The proposed regulations spanned nine pages of the Federal Register and

included provisions--many quite technical--addressing concepts such as “qualified

real property interest,” “perpetual conservation restriction,” “historically important

land area,” “certified historic structure,” “conservation purpose,” and “significant
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public benefit.” Id. at 22941-22949. Overall, the proposed regulations covering

“qualified conservation contributions” consisted of 10 paragraphs, 23 subparagraphs, 30 subdivisions, and 21 examples. One of these 23 subparagraphs became

what is now section 1.170A-14(g)(6), Income Tax Regs., covering judicial extinguishment of easements and allocation of the resulting proceeds. 48 Fed. Reg.

at 22946. 

In response to its request for public comments, Treasury received more than

700 pages of commentary. Ninety organizations or individuals submitted comments addressing various aspects of the proposed rules. Of the 90 commenters

only 13 mentioned the judicial extinguishment provision. Of those 13 most

devoted only a few sentences to this subject, generally at the end of a submission

that emphasized other matters.

Most of the commenters who mentioned the judicial extinguishment provision supported it. The Maine Coast Heritage Trust “strongly endorse[d] the proposed provisions for extinguishing easements.” Other commenters echoed this

point, emphasizing that the proportionate value assigned to the easement should be

“the minimum that a grantee organization should receive.” Several commenters

recommended that the proceeds formula be revised to make it more favorable to
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the donee, such that the donee’s share would be “equal to the greater of its original

proportionate value or its proportionate value at the time of the extinguishment.” 

Some commenters who supported the judicial extinguishment rule suggested minor tweaks to it. The National Trust for Historic Preservation recommended

“including ‘refinancing’ in the list of events that would trigger the property owner’s obligation to pay the easement holder for the value of its extinguished easement rights.” The Washington Trust for Historic Preservation recommended that

the list of triggering events, rather than being expanded, should be restricted to

“‘acts of God’ which substantially destroy the property.” The Natural Lands Trust

recommended that the fraction determining the donee’s share be computed on the

basis of values existing “at the time of the extinguishment.” 

Several commenters suggested that the judicial extinguishment rule might

be unnecessary or difficult to enforce against future owners. Two commenters

noted concern that donors or donees mfight be subject to State transfer taxes upon

distribution of extinguishment proceeds. Three commenters questioned the “proportionate value” approach as applied to facade easements on certified historic

structures, while agreeing that this approach was appropriate “as applied to open

space easements” on land.
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Two commenters were definitely opposed to the judicial extinguishment

rule, fearing that it would “create a potential disincentive to the donation of easements.” According to the Landmarks Preservation Council of Illinois, the “proportionate value” approach to distribution of proceeds was problematic as applied

to facade easements on “endangered historic properties * * * in downtown commercial areas.” The New York Landmarks Conservancy (NYLC), which was

“dedicated to the preservation of architecturally, historically and culturally significant buildings,” devoted two pages of comments to the judicial extinguishment

rule, focusing its concern on the supposed “deterrent effect” of this provision. 

Noting that judicial extinguishment was a “relatively remote” possibility, it

questioned whether the regulations needed to address this point.

NYLC was the only commenter to mention donor improvements to the conservation area. It urged that the proportionate value formula “fails to take into account that improvements may be made * * * by the owner which should properly

alter the ratio.” It contended that failure to offset improvements against the

donee’s share of the proceeds “would obviously be undesirable to the prospective

donor and would constitute a windfall to the donee organization.” But NYLC

suggested no alternative text to address this concern, other than to “recommend
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deletion of the entire extinguishment provision.” Nor did any other commenter

suggest alternative text to address the concerns (if any) that it expressed.

A public hearing on the proposed amendments to the regulations was held

on September 15, 1983. On January 14, 1986, Treasury adopted the proposed

amendments with numerous revisions. See T.D. 8069, 1986-1 C.B. 89. The

preamble to the final regulations provides a summary of the law and states that,

“[a]fter consideration of all comments regarding the proposed amendments * * * ,

those amendments are adopted as revised by this Treasury decision.” Id. at 90.

In a section captioned “Summary of Comments,” the preamble explained

that Treasury had made substantial revisions in response to the comments it received. The preamble discussed seven aspects of the proposed regulations in

detail; in each case Treasury revised or clarified text, filled in gaps, or provided

additional explanatory examples. Id. at 90-91. Several of these provisions had

generated “many comments.” Ibid. 

The “judicial extinguishment” provision is not among the amendments specifically addressed in the “Summary of Comments.” However, Treasury did make

changes to that provision in response to the comments it received. As originally

proposed, the “judicial extinguishment” rule vested the donee with a property right

having an FMV “that is a minimum ascertainable proportion of the fair market
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value to the entire property.” 48 Fed. Reg. at 22946. The final regulation revised

subparagraph (6)(ii) to refer to a property right with an FMV “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.” Sec. 1.170A14(g)(6)(ii), Income Tax Regs.; see T.D. 8069, 1986-1 C.B. at 99. Treasury concurrently made three other technical and conforming changes to the text of this

provision.

These changes to the “judicial extinguishment” rule responded to comments

that Treasury had received from the Nature Conservancy, the Maine Coast Heritage Trust, the Brandywine Conservancy, and the Land Trust Exchange. (The

Land Trust Exchange had synthesized comments from land trusts across the

country.) These commenters urged that “the proportionate value, not the absolute

value, * * * is the important figure,” and that “the proportionate value assigned to

an easement at the time of gift is the minimum that a grantee organization should

receive in the event of an extinguishment and sale.”

C. Procedural Validity of the Regulation

Petitioner first contends that the judicial extinguishment regulation is procedurally defective on the theory that it was not properly promulgated as required

by the Administrative Procedure Act (APA), 5 U.S.C. sec. 553 (2018).
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1. Legislative vs. Interpretive Rules

Administrative law distinguishes between interpretive and legislative agency rules. “An interpretive rule merely clarifies or explains preexisting substantive

law or regulations.” SIH Partners LLLP v. Commissioner, 150 T.C. 28, 40 (2018)

(citing Elizabeth Blackwell Health Ctr. for Women v. Knoll, 61 F.3d 170, 181 (3d

Cir. 1995)), aff’d, 923 F.3d 296 (3d Cir. 2019); see Tenn. Hosp. Ass’n v. Azar,

908 F.3d 1029, 1042 (6th Cir. 2018). A legislative rule, on the other hand, “creates rights, assigns duties, or imposes obligations, the basic tenor of which is not

already outlined in the law itself.” SIH Partners, 150 T.C. at 40 (quoting Dia

Navigation Co. v. Pomeroy, 34 F.3d 1255, 1264 (3d Cir. 1994)); see Tenn. Hosp.

Ass’n, 908 F.3d at 1042. Legislative rules have “the force and effect of law.” 

Chrysler Corp. v. Brown, 441 U.S. 281, 303 (1979) (quoting Batterton v. Francis,

432 U.S. 419, 425 n.9 (1977)).

Section 170(h)(5)(A) requires that the conservation purpose underlying the

easement be “protected in perpetuity.” But the statute does not indicate how (or

whether) this requirement could be deemed satisfied given the possibility that the

easement might later be extinguished. The regulation specifies the circumstances

in which “the conservation purpose can nonetheless be treated as protected in perpetuity.” Sec. 1.170A-14(g)(6)(i), Income Tax Regs.
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To secure this treatment the regulation requires that the donor agree, at the

time of the gift, to a specified division of proceeds in the event the property is sold

following judicial extinguishment of the easement. Ibid. The required division of

proceeds is set forth in subparagraph (6)(ii). Because the regulation imposes a

requirement not explicitly set forth in the statute, it is appropriately treated as a

legislative rule. Cf. SIH Partners, 150 T.C. at 40-41.

2. Procedural Requirements for Legislative Rules

Legislative rules are subject to APA notice-and-comment rulemaking procedures. See 5 U.S.C. sec. 553(b); Tenn. Hosp. Ass’n, 908 F.3d at 1042. To issue

a legislative regulation consistently with the APA an agency must: (1) publish a

notice of proposed rulemaking in the Federal Register; (2) provide “interested persons an opportunity to participate * * * through submission of written data, views,

or arguments”; and (3) “[a]fter consideration of the relevant matter presented,

* * * incorporate in the rules adopted a concise general statement of their basis

and purpose.” See 5 U.S.C. sec. 553(b) and (c). 

The administrative record for T.D. 8069 shows (and petitioner does not

dispute) that Treasury satisfied the first two requirements. Petitioner contends that

Treasury failed to consider a “relevant matter presented” to it and failed to include

in the final regulations a “concise general statement of their basis and purpose.”
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The APA provides that a reviewing court shall set aside agency action that

is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance

with law.” 5 U.S.C. sec. 706(2)(a). The scope of our review “is a narrow one”

because “[t]he court is not empowered to substitute its judgment for that of the

agency.” Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285

(1974) (quoting Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 416

(1971)). We consider only whether the agency “articulate[d] a satisfactory explanation for its action.” Motor Vehicle Mfrs. Ass’n, Inc. v. State Farm Mut. Auto.

Ins. Co. (State Farm), 463 U.S. 29, 43 (1983). 

While we cannot provide a reasoned basis for agency action that the agency

itself did not supply, we will “uphold a decision of less than ideal clarity if the

agency’s path may reasonably be discerned.” Bowman Transp., Inc., 419 U.S.

at 285-286. “So long as an agency’s rationale can reasonably be discerned and

that rationale coincides with the agency’s authority and obligations under the

relevant statute, a reviewing court may not ‘broadly require an agency to consider

all policy alternatives in reaching decision.’” SIH Partners, 150 T.C. at 47 (quoting State Farm, 463 U.S. at 51). Indeed, “regulations with no statement of basis

and purpose have been upheld where the basis and purpose w[ere] considered

obvious.” Cal-Almond, Inc. v. U.S. Dep’t of Agric., 14 F.3d 429, 443 (9th Cir.
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1993) (citing Citizens to Save Spencer Cty. v. EPA, 600 F.2d 844, 884 (D.C. Cir.

1979)).2

The preamble to the final regulations explains that they were being promulgated to “provide necessary guidance to the public for compliance with the law,”

as recently amended by Congress, “relating to contributions * * * of partial interests in property for conservation purposes.” T.D. 8069, 1986-1 C.B. at 89. The

preamble to the proposed regulations supplied extensive background about the

legislative history, explaining that “[t]he regulations reflect the major policy

decisions made by the Congress and expressed in the[] committee reports.” 48

Fed. Reg. at 22940. Treasury noted that “[t]he most difficult problem posed in this

regulation was how to provide a workable framework for donors, donees, and the

* * * [IRS] to judge the deductibility of open space easements,” inviting public

comments on this and other points. Ibid.

2

In State Farm the Supreme Court found agency action arbitrary and capricious because it “failed to present an adequate basis and explanation” of its decision to reverse a longstanding rule. State Farm, 463 U.S. at 34. On the basis of

the record in that case, the agency’s explanation was “not sufficient to enable * * *

[the Court] to conclude that the recission was a product of reasoned decisionmaking.” Id. at 52. Here, Treasury was promulgating new rules in response to Congress’ amendments to section 170. Treasury was not reversing an earlier policy

supported by a body of fact that would require substantial evidence to justify a

reversal of course. See SIH Partners, 150 T.C. at 43-44 (distinguishing State Farm

on the same ground).
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In response to this request Treasury received comments from 90 organizations and individuals who supplied voluminous commentary on many aspects of

the proposed regulations. Treasury considered these comments and made numerous changes throughout, highlighting the most important revisions in a two-page

“Summary of Comments.” T.D. 8069, 1986-1 C.B. at 90-91. The preamble to the

final regulations states that, “[a]fter consideration of all comments regarding the

proposed amendments * * * , those amendments are adopted as revised by this

Treasury decision.” Id. at 90. This Court has found a similar statement, coupled

with the administrative record, sufficient to find that Treasury had considered the

relevant matter presented to it. See Wing v. Commissioner, 81 T.C. 17, 31-32

(1983) (upholding a regulation whose preamble stated that, “[a]fter consideration

of all comments regarding the proposed amendments, this Treasury Decision is

adopted” (quoting T.D. 7523, 42 Fed. Reg. 63640 (Dec. 19, 1977))).

The preamble to the final regulations discusses seven major groups of comments and the changes Treasury made in response to them. But an agency cannot

reasonably be expected to address every comment it received. The APA “has

never been interpreted to require the agency to respond to every comment, or to

analyse every issue or alternative raised by the comments, no matter how insubstantial.” Thompson v. Clark, 741 F.2d 401, 408 (D.C. Cir. 1984). “We do not
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expect the agency to discuss every item of fact or opinion included in the submissions made to it.” Simms v. Nat’l Highway Traffic Safety Admin., 45 F.3d 999,

1005 (6th Cir. 1995) (quoting Auto. Parts & Accessories Ass’n, Inc. v. Boyd, 407

F.2d 330, 338 (D.C. Cir. 1968)); see Action on Smoking & Health v. Civil Aeronautics Bd., 699 F.2d 1209, 1216 (D.C. Cir. 1983) (“An agency need not respond

to every comment.”).

The two aspects of the “judicial extinguishment” rule to which petitioner

objects are the requirement that the donee receive a proportional share of the proceeds and the fact that the “proportionate share” formula does not account for the

possibility of donor improvements. Treasury clearly considered the comments it

received on the first point because it substantially revised the text of section

1.170A-14(g)(6)(ii), Income Tax Regs., in response to those comments. See supra

pp. 14-15. 

Only one of the 90 commenters mentioned donor improvements, and it devoted exactly one paragraph to this subject. That commenter, NYLC, was concerned about facade easements on historic structures, as opposed to “perpetual

open space easements,” with which Treasury was chiefly concerned. See 48 Fed.

Reg. at 22940. And NYLC mentioned this point to support its belief that donors
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of facade easements “are likely to be discouraged from making a donation,” a supposition that Treasury may reasonably have discounted. 

In any event, “[t]he administrative record reflects that no substantive alternatives to the final rules were presented for Treasury’s consideration.” SIH Partners, 150 T.C. at 44; see dissenting op. p. 102 (“A comment is * * * more likely to

be significant if the commenter suggests a remedy for the purported problem it

identifies.”). NYLC offered no suggestion about how the subject of donor improvements might be handled; it simply recommended “deletion of the entire extinguishment provision.” Only one other commenter of the 13 mentioning judicial

extinguishment voiced that recommendation.3

3Our dissenting colleague errs in relying on United States v. Nova Scotia

Food Prods. Corp., 568 F.2d 240 (2d Cir. 1977), to support his position. See

dissenting op. pp. 110-113. That case involved a Food and Drug Administration

(FDA) regulation establishing minimum “time, temperature, and salinity” requirements for processing fish. The Second Circuit invalidated the regulation as

applied to one category of fish product, “non-vacuum-packed hot-smoked whitefish.” Nova Scotia Food Prods. Corp., 568 F.2d at 253. The court first held that

the FDA had “failed to disclose to interested parties the scientific data and the

methodology upon which it relied.” Id. at 250. “When the basis for a proposed

rule is a scientific decision, the scientific material which is believed to support the

rule should be exposed to the view of interested parties for their comment.” Id. at

252. The court also held that the agency had failed to consider: (1) evidence that

heating “certain types of fish to high temperatures will completely destroy the

product,” (2) the suggestion that using “nitrite and salt as additives could safely

lower the high temperature otherwise required,” and (3) the suggestion that

different processing requirements should be established for different species of

(continued...)
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The APA requires “consideration of the relevant matter presented” during

the rulemaking process. 5 U.S.C. sec. 553(c). Our review of the administrative

record leaves us with no doubt that Treasury considered the relevant matter presented to it. See Wing, 81 T.C. at 33. And we find equally little merit in petitioner’s assertion that Treasury failed to “incorporate in the rules adopted a concise

general statement of their basis and purpose.” See 5 U.S.C. sec. 553(c). 

The preamble to the final regulations explains that they were being promulgated to “provide necessary guidance to the public for compliance with the law,”

as recently amended by Congress, “relating to contributions * * * of partial interests in property for conservation purposes.” T.D. 8069, 1986-1 C.B. at 89. The

preamble to the proposed regulations emphasized the requirement that conservation easements “be perpetual in order to qualify for a deduction.” 48 Fed. Reg.

22940. The purpose of the “judicial extinguishment” rule is plain on its face--to

provide a mechanism to ensure that the conservation purpose can be deemed

3

(...continued)

fish. Id. at 245. Here, the basis for the proposed regulation was not “a scientific

decision”; Treasury relied on no undisclosed data when proposing its regulation;

the two commenters who opposed the judicial extinguishment rule offered no

concrete alternative suggestions; and the concerns they expressed lacked the

significance of concerns about destroying the commercial viability of a product,

which the Second Circuit aptly described as “vital questions” in Nova Scotia Food

Prods. Corp., 568 F.2d at 252. 
-24-

“protected in perpetuity” notwithstanding the possibility that the easement might

later be extinguished. Sec. 1.170A-14(g)(6)(i), Income Tax Regs. Even where a

regulation contains no statement of basis and purpose whatsoever, it may be upheld “where the basis and purpose * * * [are] considered obvious.” Cal-Almond,

Inc., 14 F.3d at 443.

Petitioner insists that Treasury failed to comply with the APA because the

preamble to the final regulations did not discuss the “basis and purpose” of the

judicial extinguishment provision specifically. But this provision represented one

subparagraph of a regulation project consisting of 10 paragraphs, 23 subparagraphs, 30 subdivisions, and 21 examples. No court has ever construed the APA

to mandate that an agency explain the basis and purpose of each individual component of a regulation separately. “[T]he detail required in a statement of basis

and purpose depends on the subject of the regulation and the nature of the comments received.” Reytblatt v. U.S. Nuclear Regulatory Comm’n, 105 F.3d 715,

722 (D.C. Cir. 1997) (quoting Action on Smoking & Health, 699 F.2d at 1216). 

This statement need only “contain sufficient information to allow a court to exercise judicial review.” United States v. Garner, 767 F.2d 104, 117 (5th Cir. 1985);

see Simms, 45 F.3d at 1005 (quoting Auto. Parts & Accessories Ass’n, Inc., 407

F.2d at 338).
-25-

The broad statements of purpose contained in the preambles to the final and

proposed regulations, coupled with obvious inferences drawn from the regulations

themselves, are more than adequate to enable us to perform judicial review. We

find that Treasury’s rationale for the judicial extinguishment rule “can reasonably

be discerned and * * * coincides with the agency’s authority and obligations under

the relevant statute.” SIH Partners, 150 T.C. at 47. We accordingly hold that

Treasury satisfied all applicable APA requirements when promulgating this rule.4

4Petitioner cites only one case in which a Federal court has invalidated a

Treasury regulation on the theory that the regulation was not properly promulgated

under the APA. See Dominion Res., Inc. v. United States, 681 F.3d 1313 (Fed.

Cir. 2012). That case involved a regulation governing capitalization of interest

under section 263A. The Federal Circuit first held the regulation substantively

invalid under Chevron step two, concluding that it “directly contradict[ed] the

avoided-cost rule that Congress intended the statute to implement.” Dominion

Res., Inc., 681 F.3d at 1317. The court also held that Treasury did not “provide a

reasoned explanation for adopting * * * [the] regulation,” thus violating “the State

Farm requirement that the regulation must articulate a satisfactory or cogent

explanation.” Id. at 1319. Since the court found the regulation inconsistent with

the statute, it unsurprisingly found that Treasury was obligated to explain why it

nevertheless adopted the rule. No such problem exists here: The judicial extinguishment rule is clearly consistent with, and was designed to ensure satisfaction

of, the statutory requirement that the conservation purpose be “protected in perpetuity.” Sec. 170(h)(5)(C). Petitioner does not allege any inconsistency between

the statute and the regulation; rather, it faults Treasury for failing to refine the

proceeds formula to make it slightly more favorable to donors in the unlikely event

of judicial extinguishment. As explained in the text, only 1 of 90 commenters

(NYLC) even mentioned this issue, and its proposed solution was to eliminate the

judicial extinguishment rule in its entirety. Treasury did not abuse its discretion in

rejecting that option. 
-26-

D. Substantive Validity of the Regulation

1. The “Judicial Extinguishment” Provision Generally

Having concluded that the regulation was properly promulgated, we turn to

petitioner’s contention that the regulation is substantively invalid. When considering a challenge to the substantive validity of a regulation, we generally employ the

two-part test established by Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc.,

467 U.S. 837 (1984). The first prong of that test asks “whether Congress has

directly spoken to the precise question at issue.” Id. at 842. “If the intent of

Congress is clear, that is the end of the matter.” Ibid. 

Section 170(h)(5)(A) sets forth a general requirement that the conservation

purpose be “protected in perpetuity.” Congress does not appear to have considered the possibility that an easement might be judicially extinguished, and the

statute does not address how that possibility would affect a taxpayer’s ability to

satisfy the “perpetuity” requirement. Congress therefore did not speak directly to

the question at issue.

We accordingly proceed to Chevron step two, which requires us to consider

whether the regulation “is based on a permissible construction of the statute.” 

Chevron, 467 U.S. at 843. If the statute is silent, we must give deference to the

interpretation embodied in the agency’s regulation unless it is “arbitrary, caprici-
-27-

ous, or manifestly contrary to the statute.” Id. at 844; see United States v. Mead

Corp., 533 U.S. 218, 227 (2001). In other words we must sustain the regulation so

long as it represents a “reasonable interpretation” of the law Congress enacted. 

Chevron, 467 U.S. at 844; see SIH Partners, 150 T.C. at 50. 

Petitioner does not challenge the validity of the “judicial extinguishment”

regulation as a whole, and it would be difficult to do so. Treasury faced a conundrum: How could the IRS determine that a conservation purpose was protected in

perpetuity, thus enabling the donor to qualify for a deduction in the year he made

the gift, when the easement might be extinguished at some future date? The regulation solves this problem by requiring the donor to agree, up front, to divide with

the donee any proceeds from a post-extinguishment sale. The “perpetuity” requirement is deemed satisfied because “the donee organization can use its proportionate share of the proceeds to advance the cause of historic preservation elsewhere.” Carroll, 146 T.C. at 214 (quoting Kaufman v. Shulman, 687 F.3d 21, 26

(1st Cir. 2012)). 

2. Proportionate Value

While not disputing the validity of Treasury’s overall objective, petitioner

urges that the regulation is unreasonable in two respects. First, petitioner challenges the “proportionate value” approach to division of sale proceeds. Under
-28-

section 1.170A-14(g)(6)(ii), Income Tax Regs., the donee’s share is determined by

multiplying the sale proceeds by a fraction, the numerator of which is the FMV of

the easement at the time it was granted, and the denominator of which is the FMV

of the entire property at that time. Petitioner contends that Treasury should have

capped the donee’s share at the FMV of the easement at the time it was granted.

We cannot say that the regulation’s “proportionate value” approach is “arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 U.S. at 844. 

Under the regulation the donee acquires “a property right, immediately vested in

the donee organization,” in a share of any future proceeds. Sec. 1.170A14(g)(6)(ii), Income Tax Regs. Needless to say, the easement might be extinguished many years after it was granted, and considerable inflation in property

values might occur in the interim. If the donee’s share were limited to the easement’s historical FMV, its property right could be eviscerated in real dollar terms. 

This would allow the donor or its successors to “reap[] a windfall if the property is

destroyed or condemned.” Carroll, 146 T.C. at 214 (quoting Kaufman, 687 F.3d

at 26). That outcome would be at odds with the regulation’s central purpose: to

ensure satisfaction of the statute’s “protected in perpetuity” requirement by

supplying the donee with an asset that replaces, in real terms, the easement that

has been lost.
-29-

3. Donor Improvements

Second, petitioner contends that the regulation is invalid because it does not

permit the donee’s share of the proceeds to be reduced by the value of improvements (if any) made by the donor. The regulation as proposed did not address

donor improvements, and only one of 90 commenters mentioned the point. See

supra pp. 21-22. Once again, we cannot say that the absence of a provision addressing donor improvements renders the regulation “arbitrary, capricious, or

manifestly contrary to the statute.” Chevron, 467 U.S. at 844.

Treasury’s goal in prescribing this regulation was to ensure satisfaction of

the statute’s “protected in perpetuity” requirement. In effect this requirement is

deemed satisfied because the sale proceeds replace the easement as an asset deployed by the donee “exclusively for conservation purposes.” Sec. 170(h)(5)(A). 

In certain factual scenarios, reducing the donee’s proceeds on account of donor

improvements could frustrate this goal, especially if local land values should decline.

For example, assume that a taxpayer donates an easement valued at $1 million on property valued at $2 million without the easement. The taxpayer thereafter spends $1 million improving the property. Many years later, there is an economic downturn, the easement is extinguished, and the property is sold for $2 mil-
-30-

lion. Under the regulation the donee would be entitled to $1 million (half of the

proceeds) and the conservation purpose would be deemed “protected in perpetuity.” Sec. 170(h)(5)(A). But if improvements were carved out, the donee’s share

would be reduced to $500,000 or zero, depending on whether the carve-out was

applied to the entire proceeds or to the donee’s 50% share. 

NYLC, the only commenter to mention donor improvements, notably did

not suggest any text to address this problem. And addressing it would have raised

a host of questions: Would the donee’s proceeds be reduced by improvements the

donor had made before granting the easement, after granting it, or both? Would

the donor get credit for improvements to the land itself (such as grading) or only

for erecting structures? Would the donee’s proceeds be reduced by the donor’s

cost for the improvements or by their FMV at the time the easement was extinguished? And how would the problem mentioned in the previous paragraph be

solved, to prevent the donee’s share from being severely reduced or even eliminated? It is conceivable that Treasury could have drafted a regulation that addressed the possibility of donor improvements, dealing with these ancillary questions in some rational way. But that was a policy decision for Treasury, not this

Court, to make. 
-31-

Treasury’s overarching goal was to guarantee that the donee, upon judicial

extinguishment of the easement, would receive the full share of proceeds to which

it was entitled. The few commenters who addressed this point offered differing

views on precisely how the donee’s “proportionate share” should be determined. 

NYLC regarded the formula as too favorable to the donee because it did not account for possible donor improvements. Other commenters urged that the formula

should be made more favorable to the donee, with the donee’s share being “equal

to the greater of its original proportionate value or its proportionate value at the

time of the extinguishment.” 

We find that Treasury exercised reasoned judgment by adhering to a simple

rule that splits sale proceeds in a direct proportional manner on the basis of a

fraction determined as of the date the gift was made. Because the regulation as

drafted ensures satisfaction of the statutory mandate that the conservation purpose

be “protected in perpetuity,” sec. 170(h)(5)(A), we cannot find the regulation to be

“arbitrary, capricious, or manifestly contrary to the statute,” Chevron, 467 U.S.

at 844.

Finally, the age of this regulation gives weight to the presumption of reasonableness. “Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reënacted statutes, are
-32-

deemed to have received congressional approval and have the effect of law.” Cottage Sav. Ass’n v. Commissioner, 499 U.S. 554, 561 (1991) (quoting United

States v. Correll, 389 U.S. 299, 305-306 (1967)). “[A]gency interpretations that

are of long standing come before us with a certain credential of reasonableness,

since it is rare that error would long persist.” Smiley v. Citibank (S.D.), N.A., 517

U.S. 735, 740 (1996); see Carlebach v. Commissioner, 139 T.C. 1, 12 (2012) (sustaining under Chevron step two a regulation that had “gain[ed] legitimacy” because it had persisted substantially unchanged since 1944).

The regulation petitioner challenges was promulgated in January 1986. It

has never been amended. In the past 34 years Congress has amended section 170

more than 30 times,

5

but these amendments have never suggested any

5See Pub. L. No. 99-514, secs. 142(d), 231(f), 301(b)(2), 1831, 100 Stat.

at 2120, 2180, 2217, 2851 (1986); Pub. L. No. 100-203, sec. 10711(a)(1), 101

Stat. at 1330-464 (1987); Pub. L. No. 100-647, sec. 6001(a), 102 Stat. at 3683

(1988); Pub. L. No. 101-508, secs. 11801(a)(11), (c)(5), 11813(b)(10), 104 Stat.

at 1388-520, 1388-523, 1388-554 (1990); Pub. L. No. 103-66, secs. 13172(a),

13222(b), 107 Stat. at 455, 479 (1993); Pub. L. No. 104-188, secs. 1206(a),

1316(b), 110 Stat. at 1776, 1786 (1996); Pub. L. No. 105-34, secs. 224(a), 508(d),

602(a), 973(a), 111 Stat. at 818, 860, 862, 898 (1997); Pub. L. No. 105-206, sec.

6004(e), 112 Stat. at 795 (1998); Pub. L. No. 105-277, sec. 1004(a)(1), 112 Stat.

at 2681-888 (1998); Pub. L. No. 106-170, secs. 532(c)(1)(A) and (B), 537(a), 113

Stat. at 1930, 1936 (1999); Pub. L. No. 106-554, secs. 1(a)(7), 165(a)-(e), 114

Stat. at 2763, 2763A-626 (2000); Pub. L. No. 107-16, sec. 542(e)(2)(B), 115 Stat.

at 84 (2001); Pub. L. No. 107-147, sec. 417(7), (22), 116 Stat. at 56, 57 (2002);

Pub. L. No. 108-81, sec. 503, 117 Stat. at 1003 (2003); Pub. L. No. 108-311, secs.

(continued...)
-33-

disagreement with the construction of the statute that Treasury adopted in section

1.170A-14(g)(6), Income Tax Regs. This “strongly suggests that * * * [Congress]

did not view Treasury’s construction * * * as unreasonable or contrary to the law’s

purpose.” SIH Partners, 150 T.C. at 53-54 (sustaining under Chevron step two a

regulation that had persisted substantially unchanged for nearly 50 years).

5

(...continued)

207(15), (16), 306(a), 118 Stat. at 1177, 1179 (2004); Pub. L. No. 108-357, secs.

335(a), 413(c)(30), 882(a), (b), (d), 883(a), 884(a), 118 Stat. at 1478, 1509, 1627,

1631, 1632 (2004); Pub. L. No. 109-73, secs. 305(a), 306(a), 119 Stat. at 2025

(2005); Pub. L. No. 109-135, sec. 403(a)(16), (gg), 119 Stat. at 2619, 2631 (2005);

Pub. L. No. 109-222, sec. 204(b), 120 Stat. at 350 (2006); Pub. L. No. 109-280,

secs. 1202(a), 1204(a), 1206(a), (b)(1), 1213(a)(1), (b)-(d), 1214(a) and (b),

1215(a), 1216(a), 1217(a), 1218(a), 1219(c)(1), 1234(a), 120 Stat. at 1066, 1068,

1075, 1077, 1079, 1080, 1085, 1100 (2006); Pub. L. No. 109-432, sec. 116(a)(1),

(b)(1) and (2), 120 Stat. at 2941 (2006); Pub. L. No. 110-172, secs. 3(c),

11(a)(14)(A) and (B), (15) and (16), 121 Stat. at 2474, 2485 (2007); Pub. L. No.

110-234, sec. 15302(a), 122 Stat. at 1501 (2008); Pub. L. No. 110-246, secs. 4(a),

15302(a), 122 Stat. at 1664, 2263 (2008); Pub. L. No. 110-343, secs. 321(b),

323(a)(1), (b)(1), 324(a), (b), 122 Stat. at 3873, 3874, 3875 (2008); Pub. L. No.

111-312, secs. 301(a), 723(a) and (b), 740(a), 741(a), 742(a), 124 Stat. at 3300,

3316, 3319 (2010); Pub. L. No. 112-240, secs. 206(a) and (b), 314(a), 126 Stat.

at 2324, 2330 (2013); Pub. L. No. 113-295, secs. 106(a) and (b), 126(a),

221(a)(28), 128 Stat. at 4013, 4017, 4041 (2014); Pub. L. No. 114-41, sec.

2006(a)(2)(A), 129 Stat. at 457 (2015); Pub. L. No. 114-113, secs. 111(a)-(b)(2),

113(a) and (b), 331(a), 129 Stat. at 3046, 3047, 3104 (2015); Pub. L. No. 115-97,

secs. 11011(d)(5), 11023(a), 13305(b)(2), 13704(a), 13705(a), 131 Stat. at 2071,

2074, 2126, 2169 (2017); Pub. L. No. 115-141, sec. 401(a)(52), (b)(14), 132 Stat.

at 1186, 1202 (2018); Pub. L. No. 115-232, sec. 809(h)(1), 132 Stat. at 1842

(2018).
-34-

To implement the foregoing,

An appropriate decision will be

entered.

Reviewed by the Court.

FOLEY, GALE, THORNTON, PARIS, MORRISON, KERRIGAN, BUCH,

NEGA, PUGH, ASHFORD, and COPELAND, JJ., agree with this opinion of the

Court.

GUSTAFSON, J., agrees with parts A, B, C, D.1, and D.2 of this opinion. 

HOLMES, J., dissents.
-35-

TORO, J., concurring in the result: The question before the Court is

whether an easement granted by Oakbrook Land Holdings, LLC (“Oakbrook”) to

the Southeast Regional Land Conservancy (“SRLC”) in December 2008

constitutes a “qualified conservation contribution” under section 170(h)(1),

entitling Oakbrook to the charitable contribution deduction claimed for that year. 

Applying the text of the statute to the terms of the easement before us leads me to

conclude that the easement is not a “qualified conservation contribution” because

it fails to grant to the charity all of the rights inherent in the interest in real

property contemplated by the statute. Thus, in my view, the Commissioner was

right to disallow Oakbrook’s charitable contribution deduction, and the deficiency

that the Commissioner determined must be upheld. See infra Part I. Because the

opinion of the Court announces the same disposition, I concur in that result.

Since applying the text of the statute to the terms of the easement before us

suffices to resolve the dispute before the Court, there is no need to address the

much more difficult question of the validity of section 1.170A-14(g)(6), Income

Tax Regs. Accord Stromme v. Commissioner, 138 T.C. 213, 218 n.8 (2012) (“For

now, the better course is ‘to observe the wise limitations on our function and to

confine ourselves to deciding only what is necessary to the disposition of the

immediate case.’” (quoting Whitehouse v. Ill. Cent. R.R., 349 U.S. 366, 372-373
-36-

(1955))); see McLaine v. Commissioner, 138 T.C. 228, 242 (2012) (expressing the

same view); see also, e.g., PDK Labs. Inc. v. DEA, 362 F.3d 786, 799 (D.C. Cir.

2004) (Roberts, J., concurring in part and concurring in the judgment) (explaining

that where “a sufficient ground [exists] for deciding * * * [a] case, * * * the

cardinal principle of judicial restraint--if it is not necessary to decide more, it is

necessary not to decide more--counsels us to go no further”). Unlike the opinion

of the Court, I would leave that question for another day when its answer would

make a difference to the resolution of a case before us.

Because the opinion of the Court decides to do otherwise, however, I

explain below why a portion of the regulation upheld by the opinion of the Court,

if interpreted as the Commissioner urges, reflects an unreasonable interpretation of

the statute under step two of the framework established by Chevron, U.S.A., Inc.

v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), see infra Part II, and also

fails to meet the procedural requirements of the Administrative Procedure Act

(“APA”), 5 U.S.C. sec. 553 (2018), see infra Part III.

I. The Easement Fails To Meet the Statutory Requirements.

I begin by considering first things first: whether the Conservation Easement

and Declaration of Restrictions and Covenants (the “Deed”) through which

Oakbrook granted an easement covering about three-quarters of its tract to SRLC
-37-

passes muster under section 170(h). As the opinion of the Court observes, the

parties understood that changes in circumstances might make it impossible to

continue protecting the conservation area in the future. See op. Ct. p. 4.

The dispute before us focuses on the provisions of the Deed addressing the

possibility of unanticipated changes in circumstances. If that possibility were to

materialize, the Deed provides that the donee will be entitled to an amount

equal to the difference between (a) the fair market value of the

Conservation Area as if not burdened by this Conservation Easement

and (b) the fair market value of the Conservation Area burdened by

this Conservation Easement, as such values are determined as of the

date of this Conservation Easement, (c) less amounts for

improvements made by [Oakbrook] in the Conservation Area

subsequent to the date of this Conservation Easement * * *

Deed art. VI, sec. B(2). As explained further below, this provision fails to convey

to the donee the requisite rights under section 170(h)(2)(C) and (5)(A).

A. Statutory Framework

Section 170 generally allows a deduction for contributions to certain

charitable organizations. See sec. 170(a), (c). See generally Glass v.

Commissioner, 471 F.3d 698, 706-708 (6th Cir. 2006) (providing a summary of

the rules governing deductions for qualified conservation easements), aff’g 124

T.C. 258 (2005). But section 170 also imposes restrictions on the types of

contributions for which a deduction is allowed. As relevant here, subparagraph A
-38-

of section 170(f)(3) generally disallows a deduction for contributions of partial

interests in property. Yet what subparagraph A takes away, subparagraph B gives

back in certain circumstances. In the words of that provision, “[s]ubparagraph (A)

shall not apply to * * * [among others] a qualified conservation contribution.” 

Sec. 170(f)(3)(B)(iii).

Section 170(h)(1) tells us what a “qualified conservation contribution” is:

For purposes of subsection (f)(3)(B)(iii), the term “qualified

conservation contribution” means a contribution--

(A) of a qualified real property interest,

(B) to a qualified organization,

(C) exclusively for conservation purposes.

That definition includes its own defined terms. Thus, section 170(h)(2)

explains:

For purposes of * * * [section 170(h)], the term “qualified real

property interest” means any of the following interests in real

property:

(A) the entire interest of the donor other than a qualified

mineral interest,

(B) a remainder interest, and

(C) a restriction (granted in perpetuity) on the use which

may be made of the real property. [Emphasis added.]
-39-

Section 170(h)(3) goes on to explain what a “qualified organization” is for these

purposes,

1

 and section 170(h)(4) defines what constitutes a “conservation

purpose.” The statute also provides that “[a] contribution shall not be treated as

exclusively for conservation purposes unless the conservation purpose is protected

in perpetuity.” Sec. 170(h)(5)(A) (emphasis added).2

The upshot of these provisions is that a donor who contributes to an

appropriate organization a partial “interest[] in real property” may be entitled to a

charitable contribution deduction if (1) that interest is a restriction on how the real

property may be used, (2) the restriction is granted in perpetuity, (3) the restriction

advances (that is, is “for”) a conservation purpose, and (4) the conservation

purpose is protected in perpetuity.

B. Application of Statutory Framework to the Easement

Oakbrook cannot prevail because the easement at issue here fails to meet the

requirements of the statute. Specifically, Deed article VI, section B(2), which sets

forth the formula to determine the amount to which SRLC would be entitled where

1The parties agree that the easement at issue was granted to a “qualified

organization,” making it unnecessary to linger over this requirement.

2The parties also agree that the easement was for a “conservation purpose.” 

As explained in more detail below, the dispute is whether it was “exclusively” so.
-40-

an unexpected change in conditions makes impossible or impractical the continued

use of the easement for conservation purposes, runs counter to the Code.

The Code does not address explicitly what should happen if unexpected

changes that occur after the granting of the easement make it impossible or

impractical to continue using the property for the conservation purposes set out in

the Deed. But that does not mean that it is silent on this score, and the parties

appear to agree that, if the donor and the donee’s real property interests are

converted into money as a result of such unexpected changes, the statutory

requirement of section 170(h)(5)(A) can be satisfied so long as the donee receives

an appropriate amount of money and uses that money in a manner consistent with

the purposes of the original contribution. The only question is what the

appropriate amount of money should be.

Oakbrook maintains that the requirement of section 170(h)(5)(A) is met so

long as the donee, upon a sale or other disposition after extinguishment by judicial

proceeding, would obtain an amount equal to the fair market value of the easement

at the time the easement was established, subject to reduction for subsequent

improvements funded exclusively by the donor.3 But Oakbrook’s position ignores

3By contrast, the Commissioner maintains that, under the terms of the

easement, the donee must both get the benefit of any appreciation in the value of

(continued...)
-41-

the fact that, to be eligible for a deduction under section 170(h) in the first place, a

donor must grant to a donee an “interest[] in real property.” Sec. 170(h)(2). One

of the rights inherent in a real property interest (and presumably required to be

transferred to the donee in order to satisfy section 170(h)(2)(C)) is the property

holder’s right to be compensated at fair market value upon a subsequent transfer or

taking. See Tenn. Code Ann. sec. 29-17-910 (2020) (“In all instances the amount

to which an owner is entitled shall be determined by ascertaining the fair cash

market value of the property or property rights taken[.]”); McKinney v. Smith

Cty., No. M1998-00074-COAR3CV, 1999 WL 1000887, at *6-*7 (Tenn. Ct. App.

Nov. 5, 1999) (addressing the compensation due to the owner of an “easement of

access [that] has been taken or impaired by the State” and collecting authorities).4

3

(...continued)

the easement from the time the easement was granted up to the time it is converted

into money and share in any appreciation attributable to improvements to the

property funded exclusively by the donor.

4For additional analysis on this point, consider also Olson v. United States,

292 U.S. 246, 254-255 (1934) (noting, in a case involving an easement permitting

private land to be flooded from time to time, that “‘no private property shall be

appropriated to public uses unless a full and exact equivalent for it be returned to

the owner’” and observing that “[t]hat equivalent is the market value of the

property at the time of the taking contemporaneously paid in money” (quoting

Monongahela Navigation Co. v. United States, 148 U.S. 312, 326 (1893))), and

United States v. Miller, 317 U.S. 369, 373-374 (1943) (observing that “the courts

early adopted, and have retained, the concept of market value” for determining the

(continued...)
-42-

The fair market value of a real property interest would be expected to change--i.e.,

increase or decrease--based on changes in circumstances.

5

 But, under the

4

(...continued)

value of property taken by Government action). See also United States ex rel.

Tenn. Valley Auth. v. Easement and Right of Way Over a Tract of Land in

Madison Cty., 405 F.2d 305, 307 (6th Cir. 1968) (calculating “just compensation”

after State condemnation of easement); Turner v. United States, 23 Cl. Ct. 447

(1991) (applying Miller in awarding damages with respect to a flooding

easement); United States v. An Easement and Right-of-Way Over 3.74 Acres of

Land, More or Less, in Montgomery Cty., 415 F. Supp. 3d 812, 818-819 (M.D.

Tenn. 2019) (calculating “just compensation” after State condemnation of

easement); 2 Thompson on Real Property, Thomas Editions, sec. 14.04(c)(1)

(2019) (“Ownership has been likened to a bundle of sticks. Each stick represents

one of the total number of possible interests in sum of rights, powers, privileges,

immunities and liabilities. * * * If one conceives of property as likened thus to a

bundle of rights, privileges, immunities and liabilities adaptable to any physical

thing, the fee simple absolute is the largest segment thereof that the political

philosophy of the time and place permits any private individual to obtain.”); 9

Thompson on Real Property, supra, sec. 80.08(b)(2)(ii) (“Where the taking is not

total, the ‘before and after’ rule is commonly used. Just compensation for a partial

taking is calculated either at (a) the value of the remainder before taking minus the

value of the remainder after taking, or (b) the value of the entire tract before the

taking minus the value of the remainder after the taking.” (Fn. ref. omitted.)).

5

“For those who consider legislative history relevant,” Warger v. Shauers,

574 U.S. 40, 48 (2014), I note for context that, in their reports on the bills

proposing what became section 170(h), both the House Ways and Means

Committee and the Senate Finance Committee took as a given the right of an

easement holder to be compensated at fair market value for transferring that right,

see H.R. Rept. No. 96-1278, at 19 (1980); S. Rept. No. 96-1007, at 14 (1980),

1980-2 C.B. 599, 606. As the House committee report observed:

In general, a deduction is allowed for a charitable contribution in the

amount of the fair market value of the contributed property, defined

(continued...)
-43-

approach Oakbrook proposes (and the Deed reflects), the only amount guaranteed

to the owner of the easement (i.e., the donee) in the event the real property rights

are converted into cash is a fixed dollar amount equal to the fair market value of

the easement as of the grant date. That fixed dollar amount fails to account for any

market-based appreciation that may have occurred after the grant of the easement. 

The formula set out in the Deed exposes the fundamental problem for Oakbrook--

under the terms of the Deed, the donee never received the type of “interest[] in real

property” contemplated by section 170(h)(2)(C) and further protected by section

170(h)(5)(A). Put another way, by failing to convey to the donee the unrestricted

right to be compensated at fair market value upon a future transfer or taking, the

5

(...continued)

as the price at which the property would change hands between a

willing buyer and a willing seller. Thus, the amount of the deduction

for the contribution of a conservation easement or other restriction is

the fair market value of the interest conveyed to the recipient. 

However, because markets generally are not well established for

easements or similar restrictions, the willing buyer/willing seller test

may be difficult to apply (although it may become increasingly

possible to determine the value of conservation easements by

reference to amounts paid for such interests in easement acquisition

programs as such programs increase). * * *

H.R. Rept. No. 96-1278, at 19 (emphasis added); S. Rept. No. 96-1007, at 14,

1980-2 C.B. at 606.
-44-

Deed so restricted the donee’s interest as to cause it to fall outside the purview of

section 170(h)(2)(C).

The shortcoming inherent in the Deed also affects Oakbrook’s compliance

with section 170(h)(5)(A). The payment of a predetermined fixed amount would

be insufficient as compensation for a right “protected in perpetuity” if the fair

market value of the property had appreciated since the date the easement was

granted. When a transfer of money to the donee is intended to satisfy the

“perpetuity of purpose” requirement of section 170(h)(5)(A), no reasonable

reading of the statute would bless the donee receiving an amount that is less than

the fair market value of its “interest[] in real property” as of the time of the

conversion of its interest into cash.

6

6As the Supreme Court has observed, “[b]ecause the Constitution protects

rather than creates property interests, the existence of a property interest is

determined by reference to ‘existing rules or understandings that stem from an

independent source such as state law.’” Phillips v. Wash. Legal Found., 524 U.S.

156, 164 (1998) (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577

(1972)). Tennessee accordingly could mandate that the donor receive all amounts

from any judicial extinguishment. As Oakbrook has not made that point (which

would clinch the case on its behalf), I assume that, under Tennessee law,

Oakbrook is not entitled to such proceeds and that such proceeds would be

allocated to the donor and the donee on the basis of the relevant values of the real

property interests at issue at the time of extinguishment. Cf. Tenn. Code Ann.

sec. 29-16-203(c)(1) (2020) (providing rules for the allocation of proceeds

between a landlord and a tenant in an eminent domain proceeding).
-45-

In short, because the Deed fails to satisfy the provisions of the statute,

Oakbrook would not be entitled to a charitable contribution deduction. The

Commissioner’s disallowance of that deduction must therefore be sustained.

II. The Commissioner’s Reading of the Donor Improvements Portion of the 

Regulation Does Not Survive Substantive Review Under Step Two of 

Chevron.

As explained above, the statute provides a sufficient basis for denying the

deduction at issue here. In light of that conclusion, I need not address the validity

of the regulation. Indeed, we should not. As Justice Frankfurter once cautioned,

when faced with “perplexing questions,” “[t]heir difficulty admonishes us to

observe the wise limitations on our function and to confine ourselves to deciding

only what is necessary to the disposition of the immediate case.” Whitehouse, 349

U.S. at 372-373. This Court has heeded that admonition in the past. Stromme v.

Commissioner, 138 T.C. at 218 n.8 (citing Whitehouse, 349 U.S. at 372-373,

Ashwander v. Tenn. Valley Auth., 297 U.S. 288, 345-346 (1936) (Brandeis, J.,

concurring), and Liverpool, N.Y. & Phila. S.S. Co. v. Comm’rs of Emigration, 113

U.S. 33, 39 (1885)); accord McLaine v. Commissioner, 138 T.C. at 242. It should

do so here as well.

The opinion of the Court nonetheless has chosen to consider and uphold the

validity of the regulation. In so doing, it endorses the gloss that the Commissioner
-46-

has applied to the regulation with respect to donor improvements--a topic wholly

absent from the text of the regulation. Because the opinion of the Court upholds

the regulation in its entirety, it becomes necessary to set out my reasons for

disagreeing with the Court’s conclusion on this score. As explained in further

detail below, I believe that, if interpreted as the Commissioner requests, the

portion of the regulation addressing donor improvements does not survive

substantive review under step two of the Chevron framework.

Before turning to this point, however, I consider first whether the regulation

at issue needs to be interpreted as the Commissioner urges.

A. Section 1.170A-14(g)(6) Is Susceptible to Two Potential Readings.

As discussed above section 170(h)(1)(C) allows a deduction only when the

contribution of a qualified real property interest is “exclusively for conservation

purposes,” and section 170(h)(5)(A) provides that “[a] contribution shall not be

treated as exclusively for conservation purposes unless the conservation purpose is

protected in perpetuity.” (Emphasis added.) Moreover, when it comes to

easements, the grant must be “in perpetuity.” Sec. 170(h)(2)(C). Implementing

these provisions, section 1.170A-14(g)(6)(ii), Income Tax Regs., provides that

for 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
-47-

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. * * *

The regulation provides, in my view, a fuller description of what the statute

requires--that is, the conveyance of an “interest[] in real property” “granted in

perpetuity” that does not limit in any way the charity’s inherent right to monetize

the fair market value of the conveyed interest at some point in the future. See

supra Part I.A. and B. So far, the regulation is consistent with the statute and is

unobjectionable.

The regulation goes on to explain that “[f]or purposes of this

paragraph (g)(6)(ii), that proportionate value of the donee’s property rights shall

remain constant.” Sec. 1.170A-14(g)(6)(ii), Income Tax Regs. This sentence is

susceptible to two different readings.

1. Alternative 1

On the one hand, the sentence could be read to provide that, all else being

equal, the proportionate values of the partial interests owned by the donor and the

donee, respectively, do not change even as the fair market value of the property as

a whole may vary with market conditions. To illustrate, if the value of the

easement at the time the gift is made is $500,000, and the value of the property as
-48-

a whole at the same time is $1,000,000, the proportionate value of the donee’s

property right would be 50% and the proportionate value of the donor’s property

right would also be 50%. Thus, if the property remains unchanged by the donor

and is sold after a judicial extinguishment proceeding, as provided in

section 1.170A-14(g)(6)(i), Income Tax Regs., the donee and the donor would

each be entitled to 50% of the proceeds. This would be true whether the property

as a whole had increased in value to, say, $1,500,000 or had decreased in value to,

say, $500,000. In the first instance, the donee would be entitled to $750,000 of the

proceeds (i.e., 50% of $1,500,000), and, in the second, the donee would be entitled

to $250,000 (i.e., 50% of $500,000). In either situation, the donee would receive a

portion of the proceeds attributable to its own interest, taking into account market

developments. Consistent with this reading, the last sentence of section

1.170A-14(g)(6)(ii), Income Tax Regs., provides:

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 conservation restriction * * *

[Emphasis added.]

This reading of the regulation leaves open the possibility that improvements

by the donor to its own partial real property interest may need to be taken into
-49-

account if they occur. When such improvements are made, the parties would be

expected to determine the fair market value of their respective interests as of the

time of the improvements and provide for future allocations of proceeds in light of

the improvements. Continuing with the example set out above, assume that three

years after the easement is granted, when the value of the property as a whole has

increased to $2,000,000, the donor decides to build a house worth $2,000,000 on

the property as permitted by the express terms of the easement. Cf.

sec. 1.170A-14(f), Examples (3) and (4), Income Tax Regs.; Letter from Michael

S. Gruen, Easements Comm. Chairman, New York Landmarks Conservancy, to

Commissioner of Internal Revenue (Aug. 31, 1983), Respondent’s Response to

Order Dated 02/27/2019, at 372 (filed Mar. 27, 2019) (the “NYLC Comment

Letter”) (setting out a similar example in comments provided to Treasury in

response to the proposed regulations on conservation easements). Before the

house is built, the value of the easement would be $1,000,000 ($2,000,000 times

the preimprovement share of 50%). After the house is built, one would expect the

value of the easement not to have changed, since the house improved the donor’s

retained real property interest. With respect to the donor, the interest in the

unimproved land would be expected to be worth $1,000,000 ($2,000,000 times the

preimprovement share of 50%), and the interest in the improvements would be
-50-

expected to be worth $2,000,000. If, shortly after completion of the house, the

property were required to be sold to a governmental entity for $4,000,000 to

permit the construction of a highway, the proceeds could be allocated as follows:

Recipient and interest Amount Share of total proceeds

Proceeds attributable to

 donee’s interest

 $1,000,000 25%

Proceeds attributable to

 donor’s interest in

 unimproved land

 1,000,000 25%

Proceeds attributable to

 donor’s improvements

 2,000,000 50%

 Total 4,000,000 100%

As the example illustrates, the “proportionate value of the donee’s property

rights” remains constant when compared to the donor’s property rights as they

existed at the time of the grant. Although each of those rights is now worth only

25% of the total value of the property as a whole (and they were worth 50% of the

total value of the property as a whole before the house was constructed), they still

have a one-to-one relationship to each other.7 Thus, under this reading of the

7The analysis set out in this Part II.A.1. is consistent with the analysis of the

U.S. Court of Appeals for the Fifth Circuit in PBBM-Rose Hill, Ltd. v.

Commissioner, 900 F.3d 193, 207-208 (5th Cir. 2018). There the Fifth Circuit

made clear that all of the proceeds from a future sale must be taken into account

before the ratio is applied and that those proceeds may not be reduced first to

(continued...)
-51-

regulation, permitting the donor to be compensated with respect to future

expenditures incurred in improving the donor’s own property interest would not be

inconsistent with the text of the regulation.

8

7

(...continued)

account for donor improvements. Id. at 208 (explaining that, because the deed at

issue “permits the deduction of the value of improvements from the proceeds,

prior to the donee taking its share, the provision fails to meet the requirement set

forth in § 1.170A-14(g)(6)(ii)”); see also Carroll v. Commissioner, 146 T.C. 196,

203 (2016) (addressing a deed that had a similar provision). The Fifth Circuit did

not consider the central analytical issue in this case--how to determine the proper

ratio between the interests of donee and donor when the donor has made

subsequent improvements to its retained interest, thereby increasing the fair

market value of the property as a whole. The analysis set out in the text starts at

the same point as the Fifth Circuit did--“the total amount brought in from the

sale,” PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d at 208--and then focuses

on how the donee’s and donor’s shares are computed before those shares are

applied to the undiminished proceeds from the sale, see also infra note 8.

8Note that, under this reading of the regulation, donor improvements would

not receive priority of compensation as compared to the donee’s interest. For

example, if, after the house was built, real property values in the area declined

significantly and the overall fair market value of the property was reduced to

$1,000,000, proceeds from a sale at that time would be distributed as follows:

(continued...)
-52-

2. Alternative 2

The Commissioner maintains that the regulation does considerably more

work than suggested by the reading under Alternative 1. In his view, the Deed

must provide that the proportionate value of the donee’s property rights will

remain constant no matter what the donor does with respect to its own partial real

property interest after the easement is granted. Under this categorical reading, if

the donor makes significant improvements to its own partial interest, the donor

8

(...continued)

Recipient and interest Amount Share of total proceeds

Proceeds attributable to

 donee’s interest

 $250,000 25%

Proceeds attributable to

 donor’s interest in

 unimproved land

 250,000 25%

Proceeds attributable to

 donor’s improvements

 500,000 50%

 Total 1,000,000 100%

As before, the “proportionate value of the donee’s property rights” remains

constant when compared to the donor’s property rights as they existed at the time

of the grant. They still have a one-to-one relationship to each other. And,

although the donee would receive only $250,000 of the overall proceeds, the

reduction from the initial value of $500,000 is attributable to market forces. As

the initial example in the text shows, see supra pp. 47-48, the donee would have

received a similar (reduced) compensation if no improvements had been made and

the overall value of the property at some point had declined to $500,000 from the

initial overall value of $1,000,000.
-53-

may not be entitled to be compensated for the value of those improvements if the

value of the property is converted into cash in the future.

To illustrate using the example from above, if, shortly after the house is

completed, the property were required to be sold to a governmental entity for

$4,000,000 to permit the construction of a highway, according to the

Commissioner, the proceeds should be allocated as follows:

Recipient and interest Amount Share of total proceeds

Proceeds allocated to

 donee

 $2,000,000 50%

Proceeds allocated to

 donor (for unimproved

 land and the house)

 2,000,000 50%

 Total 4,000,000 100%

It is not clear to me how a rule that is focused on the “proportionate value of

the perpetual conservation restriction,” sec. 1.170A-14(g)(6)(ii), Income Tax

Regs. (emphasis added), may be read to force the donor to promise in the deed that

the donor will turn over to the donee proceeds properly attributable to the donor’s

own retained real property interest. But that is how the Commissioner reads the
-54-

regulation and what the opinion of the Court accepts today. To my eye, however,

that reading cannot survive step two of the Chevron analysis.

9

B. The Commissioner’s Reading of the Donor Improvements Portion of 

the Regulation Does Not Survive Substantive Review Under Step

Two of Chevron.

Two preliminary comments before getting to the substantive issue. First,

although in reviewing the validity of a regulation a court generally begins by

considering whether the regulation complies with the APA’s procedural

requirements, in this case, it is useful to turn first to the substantive validity of the

regulation, as an understanding of the substantive merits of the issue also sheds

light on the validity of the procedures employed by Treasury in promulgating the

regulation.

Second, for purposes of this analysis, I assume without deciding that the

statute is ambiguous regarding the allocation of proceeds in the event of a judicial

extinguishment of an easement. See Good Fortune Shipping SA v. Commissioner,

897 F.3d 256, 261 (D.C. Cir. 2018) (“[W]e may * * * assume arguendo that the

9Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984),

provides the framework for analysis here unless and until that case is overruled. 

See Baldwin v. United States, 589 U.S. ___, 140 S. Ct. 690 (2020) (Thomas, J.,

dissenting from denial of certiorari).
-55-

statute is ambiguous and proceed to Chevron’s second step.”), rev’g 148 T.C. 262

(2017).

Now to the merits. The question under Chevron step two is whether the

interpretation of the regulation offered by the Commissioner reflects a permissible

reading of the statute. As the Supreme Court has said:

Chevron directs courts to accept an agency’s reasonable resolution of

an ambiguity in a statute that the agency administers. * * *

[Chevron], at 842-843. Even under this deferential standard,

however, “agencies must operate within the bounds of reasonable

interpretation.” Utility Air Regulatory Group v. EPA, 573 U.S. ___,

___ (2014) (slip op., at 16) (internal quotation marks omitted). * * *

Michigan v. EPA, 576 U.S. ___, ___, 135 S. Ct. 2699, 2707 (2015); see also Tenn.

Hosp. Assoc. v. Azar, 908 F.3d 1029, 1037-1038 (6th Cir. 2018) (summarizing

standard of review); Atrium Med. Ctr. v. U.S. Dep’t of Health & Human Servs.,

766 F.3d 560, 566-568 (6th Cir. 2014) (same). Here, the Commissioner “strayed

far beyond those bounds” when he read section 170(h)(5)(A) to require a donor to

turn over to the donee a portion of the proceeds attributable to its own permissible

retained real property interest. Michigan, 576 U.S. at ___, 135 S. Ct. at 2707.

It is well settled that

[w]hether an agency’s construction is reasonable depends, in

part, “on the construction’s ‘fit’ with the statutory language, as well

as its conformity to statutory purposes.” Goldstein v. SEC, 451 F.3d

873, 881 (D.C. Cir. 2006) (quoting Abbott Labs. v. Young, 920 F.2d
-56-

984, 988 (D.C. Cir. 1990)). Indeed, “[t]he starting place for any

Chevron Step Two inquiry is the text of the statute.” Van Hollen v.

FEC, 811 F.3d 486, 492 (D.C. Cir. 2016).

Good Fortune Shipping SA v. Commissioner, 897 F.3d at 262.

I begin at the same starting place--the statutory text. The statute provides a

deduction for a contribution to a qualified organization of a “qualified real

property interest” made “exclusively for conservation purposes.” Although the

statute makes clear that there can be no deduction unless the conservation

purposes are “protected in perpetuity,” one cannot lose track of the fact that the

deduction is predicated on a “qualified real property interest” being contributed to

a qualified organization. Thus, the most that a qualified organization can be

entitled to receive if its “qualified real property interest” is extinguished in the

future is the full value of that interest. Whatever the purpose of a contribution,

that purpose may not be invoked to require the donor to give the donee, as a

precondition to receiving a deduction for his contribution, a right to receive

compensation properly attributed to the real property interest that the Code permits

the donor to retain. A regulation interpreted to require otherwise cannot be a

permissible interpretation of the statutory text before us. Under that text, the

interest the donee organization must obtain in connection with a contribution is

the “qualified real property interest” transferred to it. Requiring the donor to
-57-

promise to turn over to the donee proceeds in excess of the fair market value of

that interest is inconsistent with the statutory framework, and nothing in the

“statutory purposes” compels a different conclusion. Goldstein, 451 F.3d at 881

(quoting Abbott Labs., 920 F.2d at 988).

The opinion of the Court admits that “[i]t is conceivable that Treasury could

have drafted a regulation that addressed the possibility of donor improvements,

dealing with [the types of questions noted above] in some rational way.” See op.

Ct. p. 30. But the opinion of the Court overlooks the lack of a “rational” solution

to those problems, by noting that “that was a policy decision for Treasury, not this

Court, to make.” See id. In the Court’s view, “Treasury’s overarching goal [in

prescribing the regulation] was to guarantee that the donee, upon judicial

extinguishment of the easement, would receive the full share of proceeds to which

it was entitled. * * * Treasury exercised reasoned judgment by adhering to a

simple rule that splits sale proceeds in a direct proportional manner.” See id.

p. 31.

I agree with the opinion of the Court that the donee should “receive the full

share of proceeds to which it was entitled.” See id. (emphasis added). But a rule

interpreted to require the deed to allocate to the donee not only the proceeds

attributable to its own real property interest but also a share of the proceeds
-58-

attributable to the interest the Code permits the donor to retain does not

“‘“fit”’ with the statutory language” and is unreasonable. Good Fortune Shipping

SA v. Commissioner, 897 F.3d at 262 (quoting Goldstein, 451 F.3d at 881). 

Calling it a “policy decision” does not change the fact that the rule, as interpreted

by the Commissioner, yields in certain circumstances a result that is entirely

unreasonable and without any basis in the statute. Under Chevron, Treasury is

entitled to draw lines on the page provided by Congress; Chevron does not give

Treasury legislative authority to substitute a different page for the one Congress

enacted into law. See id. (citing Goldstein, 451 F.3d at 881). In short, in my

judgment, if section 1.170A-14(g)(6)(ii), Income Tax Regs., is interpreted as the

Commissioner maintains with respect to all future donor improvements, it is an

unreasonable interpretation of the statute and therefore invalid.

10

10

I note that my conclusion here does not help Oakbrook. The Deed

provides that proceeds from a future sale must first be paid to Oakbrook in respect

of “improvements made by * * * [Oakbrook] in the Conservation Area subsequent

to the date of this Conservation Easement.” Deed art. VI, sec. B(2). As explained

above, see supra notes 7 and 8, I do not think that an “improvements are

compensated first” approach is consistent with the real property interests

contemplated by the Code. Accordingly, this aspect of Oakbrook’s Deed provides

an additional, and independent, ground for denying the deduction at issue. This

aspect of the Deed also provides one more reason to reserve for another day a

decision on whether the regulation, as interpreted by the Commissioner, is valid

insofar as it addresses improvements made by a donor after the granting of the

easement.
-59-

III. If Read as the Commissioner Proposes, the Donor Improvements Portion of 

the Regulation Does Not Comply With the Procedural Requirements of the 

APA.

Treasury might not have found itself in this predicament under Chevron if it

had followed more carefully the APA’s procedural requirements, which are

designed to help agencies consider exactly this type of issue before a rule becomes

final. It is to those requirements that I now turn.

In evaluating whether the categorical reading of the donor improvements

rule advanced by the Commissioner meets the procedural requirements of the

APA, I consider first the framework that governs judicial review in this area. I

then apply that framework to Treasury’s rulemaking process in the case before us.

A. Applicable Framework for Judicial Review

The APA sets out procedural requirements for the promulgation of

legislative rules. As relevant here, an agency wishing to adopt such a rule must

provide notice in the Federal Register. 5 U.S.C. sec. 553(b). In addition,

[a]fter notice required by this section, the agency shall give interested

persons an opportunity to participate in the rule making through

submission of written data, views, or arguments with or without

opportunity for oral presentation. After consideration of the relevant

matter presented, the agency shall incorporate in the rules adopted a

concise general statement of their basis and purpose. * * *
-60-

5 U.S.C. sec. 553(c). Section 706 of the APA, which sets the boundaries for

judicial review of agency actions, provides that 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. sec. 706(2)(A) (2018).

The framework for reviewing whether an agency has complied with the

procedural requirements of the APA is well established. As the Supreme Court

has explained with respect to legislative rules such as the ones before us:

One of the basic procedural requirements of administrative

rulemaking is that an agency must give adequate reasons for its

decisions. The agency “must examine the relevant data and articulate

a satisfactory explanation for its action including a rational

connection between the facts found and the choice made.” Motor

Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut.

Automobile Ins. Co., 463 U.S. 29, 43 (1983) (internal quotation

marks omitted). That requirement is satisfied when the agency’s

explanation is clear enough that its “path may reasonably be

discerned.” Bowman Transp., Inc. v. Arkansas-Best Freight System,

Inc., 419 U.S. 281, 286 (1974). But where the agency has failed to

provide even that minimal level of analysis, its action is arbitrary and

capricious and so cannot carry the force of law. See 5 U.S.C.

§ 706(2)(A); State Farm, supra, at 42-43.

Encino Motorcars, LLC v. Navarro, 579 U.S. ___, ___, 136 S. Ct. 2117, 2125

(2016).
-61-

When the record does not contain “that minimal level of analysis,” “[i]t is

not the role of the courts to speculate on reasons that might have supported an

agency’s decision. ‘[W]e may not supply a reasoned basis for the agency’s action

that the agency itself has not given.’” Id. at ___, ___, 136 S. Ct. at 2125, 2127

(quoting State Farm, 463 U.S. at 43); see also Atrium Med. Ctr., 766 F.3d at 568

(“[A]n agency cannot bolster its case with rationales offered post hoc.” (citing

Columbus & S. Ohio Elec. Co. v. Costle, 638 F.2d 910, 912 (6th Cir. 1980))).

As the Supreme Court further explained in Judulang v. Holder, 565 U.S. 42,

52-53 (2011),

[t]he scope of * * * [judicial] review under * * * [section 706(2)(A)

of the APA] is “narrow”; as we have often recognized, “a court is not

to substitute its judgment for that of the agency.” Motor Vehicle

Mfrs Ass’n of United States, Inc. v. State Farm Mut. Automobile Ins.

Co., 436 U.S. 29, 43 (1983); see Citizens to Preserve Overton Park,

Inc. v. Volpe, 401 U.S. 402, 416 (1971). Agencies * * * have

expertise and experience in administering their statutes that no court

can properly ignore. But courts retain a role, and an important one, in

ensuring that agencies have engaged in reasoned decisionmaking. 

When reviewing an agency action, we must assess, among other

matters, “ ‘whether the decision was based on a consideration of the

relevant factors and whether there has been a clear error of

judgment.’ ” State Farm, 463 U.S. at 43 (quoting Bowman Transp.

Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285). That

task involves examining the reasons for agency decisions--or, as the

case may be, the absence of such reasons. See FCC v. Fox Television

Stations, Inc., 556 U.S. 502, 515 (2009) (noting “the requirement that

an agency provide reasoned explanation for its action”).
-62-

Accord Atrium Med. Ctr., 766 F.3d at 567 (“At base, arbitrary and capricious

review functions to ‘ensur[e] that agencies have engaged in reasoned

decisionmaking.’” (quoting Judulang, 565 U.S. at 53)).

A recent decision by the U.S. Court of Appeals for the District of Columbia

Circuit aptly summarizes the APA’s procedural requirements, particularly as they

address the need for an agency to consider comments:

“The APA’s arbitrary-and-capricious standard requires that agency

rules be reasonable and reasonably explained.” Nat’l Tel. Coop.

Ass’n v. FCC, 563 F.3d 536, 540 (D.C. Cir. 2009). An agency

violates this standard if it “entirely fail[s] to consider an important

aspect of the problem.” State Farm, 463 U.S. at 43. An agency also

violates this standard if it fails to respond to “significant points” and

consider “all relevant factors” raised by the public comments. Home

Box Office, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. Cir. 1977).

Accordingly, an agency must respond to comments “that can be

thought to challenge a fundamental premise” underlying the proposed

agency decision. MCI WorldCom, Inc. v. FCC, 209 F.3d 760, 765

(D.C. Cir. 2000). An agency need not “discuss every item of fact or

opinion included in the submissions made to it.” Del. Dep’t of Nat.

Res. & Envtl. Control v. EPA, 785 F.3d 1, 17 (D.C. Cir. 2015)

(citation omitted). An agency’s response to public comments,

however, must be sufficient to enable the courts “to see what major

issues of policy were ventilated . . . and why the agency reacted to

them as it did.” Id. (citation omitted). Even when an agency “has

significant discretion in deciding how much weight to accord each

statutory factor,” that does not mean it is “free to ignore any

individual factor entirely.” Tex. Oil & Gas Ass’n v. EPA, 161 F.3d

923, 934 (5th Cir. 1998) (citing Weyerhaeuser Co. v. Costle, 590 F.2d

1011, 1045 (D.C. Cir. 1978)) (evaluating agency’s consideration of

statutory factors under arbitrary-and-capricious review).
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Carlson v. Postal Regulatory Comm’n, 938 F.3d 337, 343-344 (D.C. Cir. 2019). 

Put another way, “[a]n agency is required to provide a meaningful opportunity for

comments, which means that the agency’s mind must be open to considering

them.” Grand Canyon Air Tour Coal. v. FAA, 154 F.3d 455, 468 (D.C. Cir. 1998)

(citing McLouth Steel Prods. Corp. v. Thomas, 838 F.2d 1317, 1323 (D.C. Cir.

1988)). “An agency must also demonstrate the rationality of its decision-making

process by responding to those comments that are relevant and significant.” Id. 

(citing Prof’l Pilots Fed’n v. FAA, 118 F.3d 758, 763 (D.C. Cir. 1997), and Home

Box Office, 567 F.2d at 35);11

 see also PPG Indus., Inc. v. Costle, 630 F.2d 462,

466 (6th Cir. 1980) (explaining that the APA requires agencies “to give reasoned

responses to all significant comments in a rulemaking proceeding”).

The reasons for the procedural requirements of the APA are not difficult to

understand.

11As the Court of Appeals in Home Box Office, Inc. v. FCC, 567 F.2d 9, 35

n.58 (D.C. Cir. 1977), noted:

In determining what points are significant, the “arbitrary and

capricious” standard of review must be kept in mind. Thus only

comments which, if true, raise points relevant to the agency’s

decision and which, if adopted, would require a change in an

agency’s proposed rule cast doubt on the reasonableness of a position

taken by the agency. * * *
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[They] are intended to assist judicial review as well as to provide fair

treatment for persons affected by a rule. To this end there must be an

exchange of views, information, and criticism between interested

persons and the agency. Consequently, the notice required by the

APA, or information subsequently supplied to the public, must

disclose in detail the thinking that has animated the form of a

proposed rule and the data upon which that rule is based. Moreover,

a dialogue is a two-way street: the opportunity to comment is

meaningless unless the agency responds to significant points raised

by the public. A response is also mandated by Overton Park, which

requires a reviewing court to assure itself that all relevant factors have

been considered by the agency.

Home Box Office, 567 F.2d at 35-36 (fn. ref. omitted) (citations omitted); see also

Dismas Charities, Inc. v. U.S. Dep’t of Justice, 401 F.3d 666, 678 (6th Cir. 2005)

(“[O]ne of the central purposes of the * * * [notice-and-comment requirement] is

to give those with interests affected by rules the chance to participate in the

promulgation of the rules * * * [and] ensure fair treatment for persons to be

affected by regulations.”).

Notwithstanding the very good reasons for requiring an agency to respond

to comments,

an agency’s failure to address a particular comment or category of

comments is not an APA violation per se. See, e.g., Thompson v.

Clark, 741 F.2d 401, 408 (D.C. Cir. 1984) (“[APA § 553] has never

been interpreted to require the agency to respond to every comment,

or to analyze every issue or alternative raised by the comments, no

matter how insubstantial.”). We review an agency’s response to

comments under the same arbitrary-and-capricious standard to which

we hold the rest of its actions. See Home Box Office, 567 F.2d at 35
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n.58. Put simply, “The failure to respond to comments is significant

only insofar as it demonstrates that the agency’s decision was not

based on a consideration of the relevant factors.” Covad Commc’ns

v. FCC, 450 F.3d 528, 550 (D.C. Cir. 2006) (quoting Thompson, 741

F.2d at 409).

Sherley v. Sebelius, 689 F.3d 776, 784 (D.C. Cir. 2012); see also PPG Indus., 630

F.2d at 466. 

B. Application of Framework for Judicial Review

Having outlined above the framework that governs our review of the

regulation at issue here, I turn next to applying that framework.

1. Treasury’s Rulemaking Process

I begin by summarizing what we know about Treasury’s rulemaking process

in this case. On May 23, 1983, Treasury and the Internal Revenue Service (the

“IRS”)12 issued a notice proposing “regulations relating to contributions of partial

interests in property for conservation purposes.” 48 Fed. Reg. 22940 (May 23,

1983). The stated purpose of the notice was “to clearify [sic] the statutory rules in

effect under * * * [the Tax Treatment Extension Act of 1980].” Id. The notice

also observed that “[t]he regulations reflect the major policy decisions made by the

Congress and expressed in * * * [the] committee reports” that accompanied the

12For simplicity, I refer to both Treasury and the IRS as “Treasury.”
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legislation. Id. The notice spanned roughly eight pages of the Federal Register,

including a one-page preamble. The notice also invited public comments and

explained that “[a] public hearing * * * [would] be held upon written request to

the Commissioner by any person who has submitted written comments.” Id.

at 22941. The initial deadline for submitting comments was July 22, 1983. Id.

at 22940. That deadline was subsequently extended to September 1, 1983. See 48

Fed. Reg. 33006 (July 20, 1983).

In response to the notice, Treasury received more than 700 pages of

comments during the extended comment period

13

 and at least another 130 pages

after the comment period had closed.

14

 A hearing on the proposed regulation was

requested and was held on September 15, 1983. Thirty-seven members of the

public were originally scheduled to speak at the hearing, and 30 actually spoke. 

The hearing lasted more than five hours, and the transcript exceeds 200 pages.

13Some public comments in the administrative record were transmitted after

the close of the extended comment period on September 1, 1983, but before the

public hearing took place on September 15, 1983. 

14Although some comments cover overlapping issues, they do not appear to

be mass generated by nonexistent commenters. Cf. James V. Grimaldi, “U.S.

News: FCC Chief Proposes Revamp of Online Comments,” Wall St. J., July 12,

2018, at A3; James V. Grimaldi and Paul Overberg, “Fiduciary Rule Draws A Lot

of Fake Critics,” Wall St. J., Dec. 28, 2017, at B1; James V. Grimaldi and Paul

Overberg, “Fake Comments Hit Rule Making--Phony Submissions Target Net

Neutrality,” Wall St. J., Dec. 13, 2017, at A1.
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A Treasury Decision adopting final regulations was published in the Federal

Register on January 14, 1986. See T.D. 8069, 1986-1 C.B. 89, 51 Fed. Reg. 1496

(Jan. 14, 1986). The Treasury Decision spanned roughly 12 pages, of which

approximately 10 contained the actual text of the regulations. That left just over

two pages for Treasury’s responses to comments and other administrative matters

(for example, the Paperwork Reduction Act notice and drafting information). Put

another way, Treasury used six columns of the Federal Register to address more

than 700 pages of timely comments and more than 200 pages of public testimony. 

Those six columns were intended to cover comments on a “regulation project

consisting of 10 paragraphs, 23 subparagraphs, 30 subdivisions, and 21

examples.” See op. Ct. p. 24.

One might wonder how an agency familiar with the D.C. Circuit’s decision

in Home Box Office, which by 1986 had been on the books for more than eight

years, could have thought that six columns in the Federal Register sufficed to

“respond[] to significant points raised by the public” in more than 700 pages, or

how that response constituted a “dialogue” between the agency and the public

contemplated by the APA as interpreted by Home Box Office and the authorities

on which it relied. Home Box Office, 567 F.2d at 35-36 (fn. ref. omitted); see also

PPG Indus., 630 F.2d at 466 (reiterating that the APA requires agencies “to give
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reasoned responses to all significant comments in a rulemaking proceeding”). 

Even for an agency determined to be exceedingly “concise,” six columns in the

Federal Register would be a tight amount of space to show “what major issues of

policy were ventilated . . . and why the agency reacted to them as it did.” Carlson,

938 F.3d at 344 (alteration in original) (quoting Del. Dep’t of Nat. Res. & Envtl.

Control v. EPA, 785 F.3d 1, 17 (D.C. Cir. 2015)).

But, in my view, Treasury did not think it confronted such a Herculean task. 

It is more likely that Treasury was simply following its historical position that the

APA’s procedural requirements did not apply to these types of regulations.

15

 As

the Treasury Decision explains, Treasury took the view that “[a]lthough a notice of

proposed rulemaking which solicited public comments was issued, the * * * [IRS]

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 did not

15See Kristin E. Hickman, “Coloring Outside the Lines: Examining

Treasury’s (Lack of) Compliance with Administrative Procedure Act Rulemaking

Requirements,” 82 Notre Dame L. Rev. 1727, 1729 (2007) (“Treasury

acknowledges that APA section 553 governs its various regulatory efforts. 

Treasury also contends, however, that most Treasury regulations are interpretive in

character and thus exempt from the public notice and comment requirements by

the APA’s own terms.” (Fn. ref. omitted.)).
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apply.”16 T.D. 8069, 1986-1 C.B. at 92. When an agency engaged in a particular

rulemaking exercise believes the APA does not require it to provide notice and

receive comments at all, it is not difficult to see why that agency might think that a

rather brief explanation, offered as it were out of its own generosity, should be

good enough.

17

The problem with this position, however, is that Treasury’s conclusion that

the regulation at issue here did not require notice and comment was mistaken, as

the opinion of the Court correctly makes clear. See op. Ct. pp. 17-18. In light of

that conclusion, at least with respect to the donor improvements interpretation that

the Commissioner advances before us, the six Federal Register columns that

16On this basis, the Treasury Decision concluded that “the final regulations

do not constitute regulations subject to the Regulatory Flexibility Act (5 U.S.C.

chapter 6).” T.D. 8069, 1986-1 C.B. 89, 92, 51 Fed. Reg. 1498. 

17There is no doubt that Treasury knows how to provide meaningful

responses to comments when it considers itself bound by the notice and comment

requirements of the APA. See, e.g., T.D. 9846, 2019-9 I.R.B. 583, 84 Fed. Reg.

1838 (Feb. 5, 2019) (Treasury Decision concerning regulations under section 965

spanned 78 pages of the Federal Register, including a preamble of more than 36

pages, of which more than 30 pages responded to comments); T.D. 9790, 2016-45

I.R.B. 540, 81 Fed. Reg. 72858 (Oct. 21, 2016) (Treasury Decision concerning

regulations under section 385 spanned 127 pages of the Federal Register,

including a preamble of more than 90 pages, of which more than 80 pages

responded to comments).
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Treasury offered fail to provide “that minimal level of analysis” required by the

APA. Encino Motorcars, 579 U.S. at ___, 136 S. Ct. at 2125.

As explained further below, Treasury failed to “respond to ‘significant

points’ and consider ‘all relevant factors’ raised by the public comments.” See

Carlson, 938 F.3d at 344 (quoting Home Box Office, 567 F.2d at 35-36); PPG

Indus., 630 F.2d at 466.

2. Application of Framework to Treasury’s Rulemaking Process

The question of how to treat donor improvements undertaken after the grant

of the easement in the event the property was subsequently sold was put squarely

before Treasury during the comment period. On August 31, 1983, the New York

Landmarks Conservancy (“NYLC”) submitted a comment letter of just over

four pages. See NYLC Comment Letter, supra. Two of those pages were

dedicated to the extinguishment provisions at issue here, and nearly half of that

discussion focused on the treatment of future improvements made by the donor. 

On future improvements, the NYLC Comment Letter explained as follows:

The structure of § 1.170A-13(g)(5)(ii) [the proposed rule for what is

now section 1.170A-14(g)(6)(ii), Income Tax Regs.,] 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. This formula fails to take into account that

improvements may be made thereafter by the owner which should

properly alter the ratio. For example, (using the facts of example 4 in
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§ 1.170A-13(f) [the proposed rule for what is now section 1.170A14(f), Income Tax Regs.,] at page 22945), suppose the donation of a

scenic easement upon Greenacre providing limited cluster

development in areas generally not visible from a nearby national

park. At the time of the donation, Greenacre was worth $100,000 and

the easement accounts for 10% of the value. Thereafter, the owner

spends $2 million on the construction of housing units to be rented. 

If the easement were subsequently extinguished, the donee

organization would be entitled under § 1.170A-13(g)(5)(ii) to 10% of

the sale price of the entire parcel including the improvements. This

would obviously be undesirable to the prospective donor and would

constitute a windfall to the donee organization.

* * * * * * *

In light of the potential inequities described above, the * * * [NYLC]

recommends that the proposed proceeds formula be revised to prevent

such inequities should the Department of the Treasury decide to retain

the provision. However, the * * * [NYLC] strongly recommends

deletion of the entire extinguishment provision.

Respondent’s Response to Order Dated 02/27/2019, at 374-375 (emphasis added).

The NYLC Comment Letter supported its recommendation as follows:

The provisions for apportionment of proceeds in the case of

extinguishment of a conservation restriction * * * contain problems

of policy and practical application so pervasive as to cause us to

recommend strongly the deletion of these provisions. The statute was

enacted by Congress to encourage the protection of our significant

natural and built environment through the donation of conservation

restrictions and yet, the proposed provisions would thwart the

purpose of the statute by deterring prospective donors.

Id. at 373.
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As shown above, the NYLC Comment Letter 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. The NYLC Comment Letter expressly tied its

comments both to a specific rule included in the proposed regulations--proposed

section 1.170A-13(g)(5)(ii) (which ultimately became current section 1.170A14(g)(6)(ii), Income Tax Regs.)--and to a specific fact pattern contemplated by the

proposed regulations--Example (4) in proposed section 1.170A-13(f) (which

ultimately became Example (4) in section 1.170A-14(f), Income Tax Regs.). The

NYLC Comment Letter also explained that the proposed rule would “thwart the

purpose of the statute,” which, according to NYLC, was to “encourage the

protection of our significant natural and built environment through the donation of

conservation restrictions.” Id. at 373. A proposed rule that required a donor to

turn over to the donee proceeds that were properly attributable to the retained

interest of the donor “would obviously be undesirable to the prospective donor and

would constitute a windfall to the donee organization.” Id. at 374. In light of

these concerns, NYLC recommended that this provision be deleted or, at the very

least, “be revised to prevent * * * [the] inequities” it had identified. Id.
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The record leaves no doubt that NYLC made comments “‘that can be

thought to challenge a fundamental premise’ underlying the proposed agency

decision.” Carlson, 938 F.3d at 344 (quoting MCI WorldCom, Inc., 209 F.3d

at 765). The preamble to the proposed regulations had explained that the proposed

rules “reflect the major policy decisions made by the Congress.” 48 Fed. Reg.

22940. The NYLC Comment Letter 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. In short, the NYLC Comment Letter offered comments that, “if

adopted, would require a change in an agency’s proposed rule.” Home Box

Office, 567 F.2d at 35 n.58. Those comments were both “relevant and

significant,” requiring a response. Grand Canyon, 154 F.3d at 468; accord

Carlson, 938 F.3d at 343-344.

Unfortunately, however, the Treasury Decision finalizing the regulations

contains no such response. The Treasury Decision changed the sentence on which

the Commissioner relies with respect to donor improvements as follows (with the

relevant change underscored):

(1) Proposed Regulation: “For purposes of this paragraph

(g)(5)(ii), that original minimum proportionate value of the donee’s

property rights shall remain constant.” 48 Fed. Reg. 22946.
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(2) Final Regulation: “For purposes of this paragraph (g)(6)(ii),

that proportionate value of the donee’s property rights shall remain

constant.” T.D. 8069, 1986-1 C.B. at 99.

But Treasury gave no explanation as to how the change addressed the concerns

expressed in the NYLC Comment Letter. In short, Treasury’s actions did not

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

discerned.’” Encino Motorcars, 579 U.S. at ___, 136 S. Ct. at 2125 (quoting

Bowman Transp., 419 U.S. at 286).18 Nor does Treasury’s action provide any

insight on “what major issues of policy were ventilated . . . and why the agency

reacted to them as it did” on this point. Carlson, 938 F.3d at 344 (quoting Del.

Dep’t of Nat. Res. & Envtl. Control, 785 F.3d at 17). Absent any explanation

from Treasury on why the considerations raised by NYLC should not have been

heeded, “[i]t is not the role of the courts to speculate on reasons that might have

18

In Bowman Transportation, the case that gave rise to the “path may

reasonably be discerned” formulation, the Supreme Court observed that the

Interstate Commerce Commission had in fact provided an explanation of how it

had viewed the relevant evidence and proceeded to discuss that explanation. 

Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 290 (1974)

(“The question before the Commission was whether service on the routes at issue

would be enhanced by permitting new entry, and as to this the performance by

prospective entrants on new routes was of limited relevance. The Commission

noted with respect to transit times that different highway conditions might make

experience there a poor indication of the times applicants could provide on the

routes they sought to enter.”). The record here fails to provide even “that minimal

level of analysis,” Encino Motorcars, LLC v. Navarro, 579 U.S. ___, ___, 136 S.

Ct. 2117, 2125 (2016), required by Bowman Transportation.
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supported an agency’s decision. ‘[W]e may not supply a reasoned basis for the

agency’s action that the agency itself has not given.’” Encino Motorcars, 579 U.S.

at ___, 136 S. Ct. at 2127 (quoting State Farm, 463 U.S. at 43).19

The opinion of the Court’s defense of the future donor improvements

portion of the regulation is unpersuasive. The Court observes that “[t]he preamble

to the final regulations states that, ‘[a]fter consideration of all comments regarding

the proposed amendments * * * , those amendments are adopted as revised by this

Treasury decision,’” see op. Ct. p. 20 (quoting T.D. 8069, 1986-1 C.B. at 90), and

also notes that “[t]his Court has found a similar statement, coupled with the

administrative record, sufficient to find that Treasury had considered the relevant

matter presented to it,” see id. (citing Wing v. Commissioner, 81 T.C. 17, 31-32

(1983)). But as the U.S. Court of Appeals for the Sixth Circuit has observed,

19The opinion of the Court notes that NYLC “offered no suggestion about

how the subject of donor improvements might be handled; it simply recommended

‘deletion of the entire extinguishment provision.’” See op. Ct. p. 22. If the Court

means to suggest that a comment may be disregarded unless it proposes specific

text for how the regulation should be changed, that is not required by the APA. 

Once a commenter brings a relevant and significant issue to the agency’s attention,

it is the agency’s responsibility to determine how that comment should be

implemented. The agency cannot rely on the public to do its homework. See

Home Box Office, 567 F.2d at 35-36 (“[T]he opportunity to comment is

meaningless unless the agency responds to significant points raised by the public.” 

(Emphasis added; fn. ref. omitted.)).
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“[w]e are not required to ‘take the agency’s word that it considered all relevant

matters.’” PPG Indus., 630 F.2d at 466 (quoting Asarco, Inc. v. EPA, 616 F.2d

1153, 1160 (9th Cir. 1980)). Moreover, the opinion of the Court’s reliance on

Wing is misplaced, as that case was decided before the Supreme Court and the

Courts of Appeals had articulated fully the framework for judicial review of

legislative rules under the procedural requirements of the APA. See supra

Part III.A.

The opinion of the Court also appears to suggest that because “[o]nly one of

the 90 commenters mentioned donor improvements, and it devoted exactly one

paragraph to this subject,” see op. Ct. p. 21, Treasury was not required to respond

to it. This is not so. A “relevant and significant comment” requires a response,

regardless of whether the point is made by many, a few, or even a single

commenter. See, e.g., Carlson, 938 F.3d at 342, 345-349 (invalidating an increase

in the price of stamps, in part, on the basis of comments from Douglas Carlson, “a

postal customer and watchdog”). Moreover, a comment does not lose its

significance because it is presented succinctly. After all, the Commissioner can

hardly complain about NYLC’s brevity in this case. The Commissioner’s own

position with respect to future donor improvements is based on a single sentence,

and NYLC’s comments on this issue were certainly longer than a sentence. In
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addition, the Commissioner’s actions belie any claim that the comment did not

raise a significant issue. As Oakbrook observes in its “Reply to Memorandum

Regarding the Validity of Treas. Reg. Section 1.170A-14(g)(6)(ii),” “[i]t is

disingenuous for Respondent to now argue that comments regarding the * * *

[regulation at issue] are not ‘significant,’ when Respondent has repeatedly denied

taxpayers’ deductions for failure to comply with” that regulation.

The opinion of the Court also seems to suggest that the scope of the

project--the fact that it included “10 paragraphs, 23 subparagraphs, 30

subdivisions, and 21 examples,” see op. Ct. p. 24--somehow excuses Treasury’s

failure to respond to comments on the provision at issue here. But Treasury chose

the scope of the project. If 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. What it could not do is avoid the

“dialogue” required by the APA and say nothing about “significant points raised

by the public.” Home Box Office, 567 F.2d at 35-36 (fn. ref. omitted). As the

opinion of the Court acknowledges, the “detail required in a statement of basis and

purpose depends on the subject of the regulation and the nature of the comments

received.” See op. Ct. p. 24 (quoting Reytblatt v. U.S. Nuclear Regulatory

Comm’n, 105 F.3d 715, 722 (D.C. Cir. 1997)). Although “[t]his statement need
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only ‘contain sufficient information to allow a court to exercise judicial review,’”

see id. (quoting United States v. Garner, 767 F.2d 104, 117 (5th Cir. 1985)), it

does require some information. And here Treasury offered no response at all.

Finally, I note that this would not be the first case in which a court

invalidated a Treasury regulation on procedural grounds, as the opinion of the

Court acknowledges. See id. note 4. Oakbrook’s “Reply to Memorandum

Regarding the Validity of Treas. Reg. Section 1.170A-14(g)(6)(ii)” cites, at 5

and 6, the U.S. Court of Appeals for the Federal Circuit’s decision in Dominion

Res., Inc. v. United States, 681 F.3d 1313, 1319 (Fed. Cir. 2012). That decision

held (in Part V) that “[t]he associated-property rule in Treasury Regulation

§ 1.263A-11(e)(1)(ii)(B) as applied to property temporarily withdrawn from

service also violates the State Farm requirement that Treasury provide a reasoned

explanation for adopting a regulation.”20 Id.; see also id. at 1320 (Clevenger, J.,

concurring in part and concurring in the result) (“There appears to be no dispute

among the panel that the government has not articulated any rational explanation

for many details of the regulation before us, from the regulation’s first proposal in

20

In addition to holding that the regulation at issue failed to satisfy Motor

Vehicle Mfrs Ass’n of United States, Inc. v. State Farm Mut. Automobile Ins. Co.,

436 U.S. 29 (1983), the majority in Dominion Res., Inc. v. United States, 681 F.3d

1313 (Fed. Cir. 2012), held that the regulation failed under step two of the

Chevron analysis, hence the “also” in the quotation above.
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the mid-‘90s up to the current date. Such a failure makes the regulation

procedurally unlawful. I would reverse on the grounds set forth in part V of the

majority opinion[.]”). The opinion of the Court attempts to distinguish Dominion

Resources from this case on the ground that the majority in Dominion Resources

also held that the regulation there failed under step two of Chevron. See op. Ct.

note 4. But that distinction does not carry the day. The procedural holding in the

case was an independent ground for the decision, as the concurring judge made

clear.21 See Woods v. Interstate Realty Co., 337 U.S. 535, 537 (1949) (“[W]here a

decision rests on two or more grounds, none can be relegated to the category of

obiter dictum.” (citing United States v. Title Ins. & Tr. Co., 265 U.S. 472, 486

(1924), and Massachusetts v. United States, 333 U.S. 611, 623 (1948))). 

21

Judge Clevenger disagreed with the majority’s decision to reach the

Chevron step two analysis, observing:

The outcome of this case can and should extend from State

Farm. The government’s failure to justify its regulation ab initio left

open the question of whether the avoided cost principle necessarily

undermines any rationale that could justify treating an adjusted basis

of property withdrawn from service for improvement as a production

expenditure, for purposes of calculating interest to be capitalized. 

Such reaffirms my conclusion that this appeal does not present an

appropriate vehicle for deciding the Chevron question. It is therefore

a more discreet approach to leave that question aside. * * *

Dominion Res., 681 F.3d at 1322 (Clevenger, J., concurring in part and concurring

in the result).
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Treasury’s procedural missteps here are similar to, and perhaps more significant

than, those in Dominion Resources.

22

Returning to the facts of this case, if Treasury had paid closer attention to

the NYLC Comment Letter, it might have course-corrected and adopted a formula

that properly accounted for future donor improvements and foreclosed the

categorical interpretation advanced by the Commissioner in this case. That is after

all why the APA requires agencies “to provide a meaningful opportunity for

comments, which means that the agency’s mind must be open to considering

them.” Grand Canyon, 154 F.3d at 468 (citing McLouth, 838 F.2d at 1323). By

failing to do so here, Treasury did itself a disservice.

For the reasons set out above, I believe the donor improvements rule, as

read by the Commissioner, is inconsistent with the procedural requirements of the

APA. “When an administrative agency sets policy, it must provide a reasoned

explanation for its action. That is not a high bar, but it is an unwavering one.

Here, * * * [Treasury] has failed to meet it.” Judulang, 565 U.S. at 45. With

respect, I cannot agree with the Court’s contrary conclusion.

22Treasury’s failure to comply with the procedural requirements of the APA

also resulted in the invalidation of a temporary regulation issued under

section 7874. See Chamber of Commerce v. IRS, No. 1:16-CV-944-LY, 2017 WL

4682050 (W.D. Tex. Oct. 6, 2017).
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* * *

I end where I began. The ultimate question before the opinion of the Court

is whether Oakbrook is entitled to the charitable contribution deduction it claimed

on the basis of the easement it granted to SRLC. As I have explained, applying

the text of the statute to the terms of that easement leads to the conclusion that the

easement is not a “qualified conservation contribution.” Accordingly, Oakbrook is

not entitled to a charitable contribution deduction. That conclusion fully resolves

the dispute before us. The remaining issues raised by the parties present

“perplexing questions,” on which the members of this Court do not agree. As

Justice Frankfurter once cautioned, “[t]heir difficulty admonishes us to observe the

wise limitations on our function and to confine ourselves to deciding only what is

necessary to the disposition of the immediate case.” Whitehouse, 349 U.S. at 372-

373. That is what I would have done. Because the Court does otherwise, I

respectfully concur only in the result.

GUSTAFSON, J., agrees with parts I, II.A, and II.B of this concurring

opinion, URDA, J., agrees with this concurring opinion, and JONES, J., agrees

with part I of this concurring opinion.
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HOLMES, J., dissenting: Our holding today will likely deny any charitable

deduction to hundreds or thousands of taxpayers who donated the conservation

easements that protect perhaps millions of acres. See Oakbrook Land Holdings,

LLC v. Commissioner, T.C. Memo. 2020-54, at *7 n.2. This is the second time

we’ve taken an ax to entire forests of these deductions. In Pine Mountain Pres.,

LLLP v. Commissioner, 151 T.C. 247 (2018), appeal filed (11th Cir. May 7,

2019), we went ahead and held that reserving a limited right to build on conserved

property--unless the site is described with exceptional precision--destroys any

deduction for the donation, knowing that we were setting up a conflict with the

only circuit court to rule on the issue. See id. at 272-73 (stating that we will not

follow BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017), vacating

and remanding Bosque Canyon Ranch, L.P. v. Commissioner, T.C. Memo. 2015-

130).

In today’s case, we hold that the Treasury Department gets to ignore basic

principles of administrative law that require an agency “to give reasoned responses

to all significant comments in a rulemaking proceeding.” PPG Indus., Inc. v.

Costle, 630 F.2d 462, 466 (6th Cir. 1980). A court is supposed to ensure that an

agency has taken “a ‘hard look’ at all relevant issues and considered reasonable

alternatives.” Simms v. Nat’l Highway Traffic Safety Admin., 45 F.3d 999, 1004
-83-

(6th Cir. 1995) (quoting Neighborhood TV Co., Inc. v. FCC, 742 F.2d 629, 639

(D.C. Cir. 1984)). But if the majority is right, the Treasury Department can get by

with the administrative-state equivalent of a quiet shrug, a knowing wink, and a

silent fleeting glance from across a crowded room.

This is not the way rulemaking is supposed to be. And it is not the way that

the Article III courts, including the court to which an appeal of this case lies,

review the validity of regulations. To explain what we should have done, I 

! briefly review some general principles of administrative law that are

relevant here,

! explain why this regulation is procedurally invalid,

! suggest that even if procedurally valid its thin administrative record

might make it substantively invalid, and

! summarize where this leaves conservation-easement-deduction law

after today.

I.

A.

We begin by blazing through this thicket to where the trails of

administrative and procedural law meet. The majority mentions the age of this

regulation as a reason to uphold it. See op. Ct. pp. 31-33. But when could it have
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been challenged?

1

 Title 28 U.S.C. section 2401(a) provides that, with limited

exceptions not relevant here, “every civil action commenced against the United

States shall be barred unless the complaint is filed within six years after the right

of action first accrues.”

Treasury issued the regulation at issue in 1986. See 51 Fed. Reg. 1496

(Jan. 14, 1986). Oakbrook was formed in August 2007 and filed its petition in

March 2013, within six years of the regulation’s first invading its interest.

2

 And

the Sixth Circuit has held that 28 U.S.C. “[s]ection 2401(a) does not limit a federal

court’s subject-matter jurisdiction.” Herr v. U.S. Forest Serv., 803 F.3d 809, 818

1

 The Ninth Circuit asked this question even when the parties didn’t raise it. 

See Order, Sept. 28, 2018, at 1, Altera Corp. v. Commissioner, 926 F.3d 1061 (9th

Cir. 2019) (Nos. 16-70496, 16-70497) (ordering the parties to be prepared to

discuss whether the six-year statute of limitations should be applicable to a tax

regulation, as well as offering the opportunity to file supplemental briefs on the

question).

2

 The Anti-Injunction Act (AIA) prohibits taxpayers from bringing suit “for

the purpose of restraining the assessment or collection of any tax.” Sec. 7421(a). 

Courts interpret this language to mean that the AIA “generally bars preenforcement challenges to certain tax statutes and regulations.” Fla. Bankers

Ass’n v. U.S. Dep’t of Treasury, 799 F.3d 1065, 1066 (D.C. Cir. 2015). This does

make tax law exceptional, but even on this topic there has been one powerful

dissental, see CIC Servs., LLC v. IRS, 925 F.3d 247, 259-61 (6th Cir. 2019)

(Nalbandian, J., dissenting), cert. granted, __ U.S. __, __ S. Ct. __, 2020 WL

2105208 (May 4, 2020), and academic analysis, see Kristin E. Hickman & Gerald

Kerska, “Restoring the Lost Anti-Injunction Act”, 103 Va. L. Rev. 1683 (2017),

that suggest a change may be coming. We, of course, look to the law as it

currently is.
-85-

(6th Cir. 2015). The age of this regulation is no obstacle to challenging its validity

here.

This is a shallow root that Oakbrook can just stroll over.

B.

With this pop quiz in civil procedure over, we can graduate to Ad Law 101. 

As a general matter, for a regulation--including tax regulations--to be valid its

promulgation must comply with the notice-and-comment procedures of the

Administrative Procedure Act (APA).3 See 5 U.S.C. sec. 553(a)-(c) (2006); Perez

v. Mortg. Bankers Ass’n, 575 U.S. 92, 96 (2015); Mayo Found. for Med. Educ. &

Research v. United States, 562 U.S. 44, 55 (2011) (“[W]e are not inclined to carve

out an approach to administrative review good for tax law only. To the contrary,

we have expressly ‘[r]ecogniz[ed] the importance of maintaining a uniform

approach to judicial review of administrative action.’” (quoting Dickinson v.

Zurko, 527 U.S. 150, 154 (1999))); Children’s Hosp. of the King’s Daughters, Inc.

v. Azar, 896 F.3d 615, 619-20 (4th Cir. 2018). If a regulation is promulgated

properly under notice-and-comment procedures, we must next look to review the

3

 Notice-and-comment procedures apply only to “legislative rules”--i.e.

rules with the force of law. See Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 96

(2015). I agree with the majority that this rule, even though the Treasury

Department called it “interpretive”, is actually “legislative” and, therefore, noticeand-comment procedures apply. See op. Ct. pp. 16-17.
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substance of the agency action--i.e., does the agency action run counter to the

statutory language, see Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467

U.S. 837, 842-43 (1984), or was the agency’s decision making arbitrary and

capricious, see APA sec. 706(2)(A); Motor Vehicle Mfrs. Ass’n v. State Farm

Mut. Auto. Ins. Co., 463 U.S. 29, 46 (1983). Only if we find that the agency’s

action complied with APA section 553 do we then apply the arbitrary-andcapricious standard of APA section 706(2)(A), see HLI Lordship Indus., Inc. v.

Comm. for Purchase from the Blind & Other Severely Handicapped, 791 F.2d

1136, 1140 (4th Cir. 1986) (“The ‘concise general statement’ mandated by [APA

section] 553(c), and other procedural requirements, are preconditions to the highly

deferential ‘arbitrary and capricious’ standard of review.”), or Chevron’s related

standard.

4

And, as a general point, the agency’s articulation for a regulation’s validity

must be contemporaneous with its issuance of the final rule and within the

administrative record, because a reviewing court “may not supply a reasoned basis

for the agency’s action that the agency itself has not given.” State Farm, 463 U.S.

at 43; see also Atrium Med. Ctr. v. HHS, 766 F.3d 560, 568 (6th Cir. 2014) (“[A]n

4

 But, as Justice Thomas has argued, the Chevron two-step may even be

contrary to the APA itself. See Baldwin v. United States, 589 U.S. __, __, 140 S.

Ct. 690, 692 (2020) (Thomas, J., dissenting from denial of certiorari).
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agency cannot bolster its case with rationales offered post hoc”). This is not to say

that an agency must perfectly articulate its reasons for choices made, as a court

will “uphold a decision of less than ideal clarity if the agency’s path may

reasonably be discerned.” Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc.,

419 U.S. 281, 286 (1974). “But where the agency has failed to provide even that

minimal level of analysis, its action is arbitrary and capricious.” Encino

Motorcars, LLC v. Navarro, 579 U.S. __, __, 136 S. Ct. 2117, 2125 (2016)

(emphasis added). 

Oakbrook’s main argument is directed towards Treasury’s alleged

procedural shortcomings in promulgating section 1.170A-14(g)(6)(ii), Income Tax

Regs. The foundation of this argument is that Treasury failed to provide a

reasoned basis in the administrative record for its action. Oakbrook argues that

this not only makes it “difficult to discern the meaning of the Regulation, [or] how

to apply it in practice,” but frustrates any meaningful analysis of “whether the

[Treasury]’s action in promulgating the Regulation is arbitrary and capricious.” 

This argument goes to the heart of Treasury’s rulemaking procedure under the

APA and may be of decisive importance because only regulations issued in a valid

manner are eligible for deference. See Encino Motorcars, 579 U.S. at __, 136

S. Ct. at 2125. There are no special procedural rules for tax regulations--we have
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to look to the APA, which itself “sets forth the full extent of judicial authority to

review executive agency action for procedural correctness.” FCC v. Fox

Television Stations, Inc., 556 U.S. 502, 513 (2009).

On this point, I do agree with the majority, which correctly points out, see

op. Ct. p. 17, that APA section 553 has three requirements for an agency that

wants to issue regulations through informal rulemaking. It must (1) publish a

notice of proposed rulemaking in the Federal Register; (2) provide the public with

an opportunity to participate in the rulemaking--commonly through the submission

of written comments; and (3) after consideration of relevant public submissions,

publish the final rule and a concise statement of its basis and purpose. APA sec.

553(b)-(c). But the majority, I fear, has missed the main root of Oakbrook’s

argument--that at the time of the regulation’s promulgation, commenters made

significant comments, and Treasury failed to address them in its statement of the

regulation’s basis and purpose. See, e.g., Reytblatt v. U.S. Nuclear Regulatory

Comm’n, 105 F.3d 715, 722 (D.C. Cir. 1997) (basis and purpose statement

inextricably intertwined with receipt of comments); United States v. Nova Scotia

Food Prods. Corp., 568 F.2d 240, 252 (2d Cir. 1977) (“concise general statement”

required by APA section 553(c) is inadequate when material comments are left

completely unanswered).
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II.

With these general principles in place, one can turn to the merits of

Oakbrook’s procedural challenge to the regulation--that Treasury failed to respond

to significant comments relating to section 1.170A-14(g)(6)(ii), Income Tax Regs.

A.

Let’s turn first to the comments sent to Treasury while it contemplated the

regulation before us.

5

 Treasury received approximately 90 comments regarding

the substance of the proposed section 170A regulations.6 Among those, the

following commenters specifically expressed concern with what is now section

1.170A-14(g)(6)(ii), Income Tax Regs.:

! New York Landmarks Conservancy;

! Philadelphia Historic Preservation Corporation;

! The Trust for Public Land;

! Landmarks Preservation Council of Illinois;

5

 We directed the Commissioner to provide the comments that the public

submitted during the rulemaking proceeding. He filed the entire administrative

record for T.D. 8069, 1986-1 C.B. 89, in which the Final Rule was published. 

That record amounted to over 2,500 pages, and included over 550 pages of

submissions from the public.

6

 This number excludes timely comments that asked only to participate in

the public hearing.
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! Maine Coast Heritage Trust;

! The Nature Conservancy;

! Western Pennsylvania Conservancy;

! Brandywine Conservancy, Inc.;

! Hofstra University;

! Natural Lands Trust, Inc.;

! National Trust for Historic Preservation;

! The Washington Trust for Historic Preservation; and

! Land Trust Exchange.

These commenters raised a variety of potentially significant issues with the

proposed rule, but I focus only on those relevant to Oakbrook’s challenge here:

Why did Treasury choose to require that a donee receive a proportionate share

rather than a fixed sum if the easement is extinguished or condemned? And why

did Treasury choose to require that a donee share in the value added to the

property by later improvements to it? (We’ll follow the majority’s shorthand and

call these the problems of proportionate share and donor improvements.) The

comments submitted by the New York Landmarks Conservancy (NYLC)

addressed these questions most extensively. According to the NYLC, “[t]he

provisions for apportionment of proceeds in the case of extinguishment of a
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conservation restriction * * * contain problems of policy and practical application

so pervasive as to cause us to recommend strongly the deletion of these

provisions.” Respondent’s Response to Order Dated 02/27/2019, Administrative

Record (Response to Order) at 373, Oakbrook Land Holdings, LLC v.

Commissioner, T.C. Memo. 2020-54.

The NYLC identified four specific “inequities” with the provisions. First, it

believed that the provisions would deter prospective donors from donating

conservation easements if they were required to share extinguishment proceeds at

some indeterminate time under unforeseen circumstances. Id. From its

experience, the common-law doctrine of changed conditions allayed such concerns

among easement donors but, as proposed, the extinguishment provisions “would

no longer mollify these fears if a split of proceeds under unknown circumstances

would be required.” Id. at 374; see also Oakbrook, T.C. Memo. 2020-54, at *14-

*16 (also discussing “changed conditions” as it applies to conservation easements

under common law). 

Second, it felt that provisions in the proposed regulations that recognized a

property right vested in the donee improperly assumed that a conservation

easement represented a positive economic value to donees because of the
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possibility that donees might one day receive proceeds from extinguishment.

7

 See

Response to Order at 374. It argued that any such assumption was “unrealistic”

since “[t]he value of a conservation restriction to the donee organization is not a

monetary value but a philanthropic value as a device for achieving the charitable

objectives of the organization.” Id. So while the NYLC acknowledged it would

welcome the receipt of extinguishment proceeds, it preferred the elimination of the

provision because it believed that its deterrent effect on potential donors would

harm conservancies more than “the prospect of future windfalls when restrictions

are extinguished” might benefit them. Id.

The NYLC identified as a third problem the potential conflict between the

proposed rule and state condemnation law. Id. at 375. To illustrate its concern, it

7

 The Western Pennsylvania Conservancy (WPC) and the Maine Coast

Heritage Trust (MCHT) also identified this assumption as a problem with the

proposed rule and suggested that it could have untoward accounting and tax

consequences. Both argued that conservation easements have a negative

economic value because donees have to pay the cost of monitoring and enforcing

compliance with their restrictions, while being unable to sell them except in the

narrowest of circumstances. To suggest otherwise, the MCHT claimed, is not only

“misleading” but could actually “jeopardize its status as a publicly-supported

charity” if it were required to report conservation easements as massive assets or

contributions on its Form 990, Return of Organization Exempt From Income Tax. 

Response to Order at 511. The WPC raised the somewhat related concern that the

implication of the regulation might “require donors or conservancies to pay

transfer taxes--yet another significant cumulative burden which * * * will weigh

heavily against the utility of this conservation tool.” Id. at 783.
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gave an example where an easement is extinguished upon condemnation. It

claimed that in such a situation “state law would operate to determine whether the

conservation organization’s restriction had a compensable value.” Id. The

problem, it argued, is that “[i]t is possible that some states would not provide

compensation for such a property interest, yet under the proposed regulation, the

owner of the condemned property would be required to share the condemnation

proceeds with the conservation organization.” Id.

The NYLC had one final concern--that “[t]he structure of [section

1.170A-14(g)(6)(ii), Income Tax Regs.,] contemplates that a ratio * * * will be

fixed at the time of the donation” but that the “formula fails to take into account

that improvements may be made thereafter by the owner which should properly

alter the ratio.” Id. at 374. The NYLC then provided an example where a donor

improves the donated property after the gift and the donee shares in the value of

those improvements upon extinguishment, which it argued “would obviously be

undesirable to the prospective donor and would constitute a windfall to the donee

organization.” Id. This is precisely the argument that Oakbrook makes regarding

the allocation of extinguishment proceeds attributable to improvements.

Not all commenters, however, agreed with the NYLC on this point--but

even they requested more clarity. Both the Nature Conservancy and the MCHT
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felt that the proposed rule needed to clarify that donees would be entitled upon

extinguishment to both the original proportionate value and any subsequent

increase in value attributable to market forces. See id. at 511, 579. The

Brandywine Conservancy, Inc., made a similar argument and stated that the

proposed rule would “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.” Id. at 593. That

conservancy argued that the rule should be changed so that a donee is “entitled to

proceeds equal to the greater of its original proportionate value or its

proportionate value at the time of the extinguishment.” Id.

The Trust for Public Land (TPL) questioned whether the provision for the

allocation of extinguishment proceeds could be enforced against anyone other than

the original donor, but also felt that the regulations imposed an undue burden on

donors in light of the tax-benefit rule and the remote-future-event rule.8

 TPL

thought those rules would adequately address Treasury’s concerns. Id. at 844. It

8

 “[T]he tax benefit rule ordinarily applies to require the inclusion of

income when events occur that are fundamentally inconsistent with an earlier

deduction.” Hillsboro Nat’l Bank v. Commissioner, 460 U.S. 370, 372 (1983). 

The remote-future-event rule permits a charitable-contribution deduction only if,

on the date of donation, the possibility that the donee’s vested interest “may be

defeated by the performance of some act or happening of some event * * * is so

remote as to be negligible.” Sec. 1.170A-14(g)(3), Income Tax Regs.
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suggested that the “tax benefit rule is a satisfactory means of meeting any concern

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

deduction followed by later recovery of the value donated.” Id. TPL also

suggested that the remote-future-event rule should sufficiently assuage any

concern that conservation easements might not be protected in perpetuity, because

it would bar a deduction if a donor knows at the date of donation that a change in

circumstances will occur in the foreseeable future that will extinguish the

easement. Id.

These are multiple serious comments that identified problems with the

regulation when it was proposed and explained why those problems mattered. 

Comments with this level of detail and dispute among the commenters would seem

enough to conclude that Treasury had before it “significant” comments. Such

comments deserve responses. 

We turn our attention to Treasury’s response.

B.

What we hear is the chirping of crickets. 

The Final Rule’s statement of basis and purpose shows absolutely no

mention of the extinguishment-proceeds clause at all, much less any mention of

the proportionate-share or improvements problems--and no reasoned response to
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any of the public’s comments on those provisions.

9

 The majority doesn’t deny

this, see op. Ct. pp. 23-25, and we aren’t even the first court to notice: In

Kaufman v. Shulman, 687 F.3d 21, 26 (1st Cir. 2012), the First Circuit was forced

to guess at the apparent purpose of the section 1.170A-14(g)(6)(ii), Income Tax

Regs., after noting that it “was unexplained when first promulgated.”

This makes the defining characteristic of section 1.170A-14(g)(6)(ii),

Income Tax Regs., its utter lack of any contemporaneous explanation of its key

choices--to require that donees get a fraction, rather than an absolute amount, of

extinguishment proceeds and to require that they get a share of any proceeds from

a donor’s improvements to the property. There is no prefiguring of these choices

in the legislative history or the notice of proposed rulemaking, and no explanation

of them in the Final Rule. Had Treasury responded in any meaningful way to the

comments that it received, such as those from the NYLC, neither donors and

donees, nor courts, see, e.g., Oakbrook, T.C. Memo. 2020-54, at *20-*28

(highlighting the confusing nature of section 1.170A-14(g)(6), Income Tax Regs.,

9

 At least one commenter had also noticed that the proposed regulation

might cause special problems for conservation easements aimed at preserving

building facades. The Philadelphia Historic Preservation Corporation argued that

“[t]he provisions relating to extinguishment of easements * * * are a bit perplexing

and * * * unreasonable as applied to facade easements.” Response to Order

at 770. Treasury didn’t respond to this comment either.
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and attempting to discern its meaning), nor the IRS, compare Priv. Ltr. Rul.

200836014 (Sept. 5, 2008) (stating that the regulation isn’t violated by a

conservation easement in which a donee receives only proceeds less any amount

attributable to an improvement), with Oakbrook, T.C. Memo. 2020-54, at *36

(addressing the IRS’s argument that a conservation easement in which a donee

receives only proceeds less any amount attributable to an improvement is a

violation of the regulation), would have to grapple with whether “proportionate

value” establishes a fraction or a fixed value, or whether a donee is entitled to any

extinguishment proceeds attributable to the value of improvements or rising land

values. Such widespread industry confusion is precisely what APA section 553 is

intended to avoid. So while we don’t demand a perfect explanation for Treasury’s

decisionmaking, see Bowman Transp., 419 U.S. at 286, we should demand some,

see Encino Motorcars, 579 U.S. at __, 136 S. Ct. at 2125. And here, there wasn’t

any.
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C.

But the majority would let the regulation stand despite this silence. It

argues in turn that:

! Treasury didn’t need to respond to these comments because the

statement of basis and purpose made obvious what it was doing,

see op. Ct. pp. 23-24;

! even if Treasury wasn’t obvious in what it was doing, it did say it

considered “all comments” and that’s good enough, see id. p. 20; and

! even if it didn’t say that it considered “all comments” it did make

some changes to the proposed regulation from which we can infer its

response to them, see id. p. 21. 

Let’s look at each point.

1.

The majority argues that Treasury didn’t need to respond to comments

regarding section 1.170A-14(g)(6)(ii). In fact, it had “no doubt” that Treasury

considered the relevant matter--the agency had responded to most of the comments

that it received on other parts of the rulemaking, and no agency has to address all

the comments it receives. See op. Ct. pp. 23-24. I address this argument

somewhat in reverse. There are cases that say that not every comment has to be

addressed--how could it be otherwise when there are some rules that receive more
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than one million comments?

10

 See Clean Water Rule: Definition of “Waters of

the United States,” 80 Fed. Reg. 37057 (June 29, 2015).11

 In the modern era,

agencies can receive comments over the internet and run deduplicating software to

make their jobs easier. See Permanent Subcommittee on Investigations,

Committee on Homeland Security and Governmental Affairs, “Abuses of the

Federal Notice-and-Comment Rulemaking Process” 13-16 (Oct. 4, 2019). They

can group comments that are similar or identical, and they can distill comments to

fairly paraphrase the key points that they make. I therefore agree with the majority

that no court has ever construed the APA to require a response to every comment

separately, and that courts have construed the APA to require an agency’s

response to be based on the nature of the comments it has received. See op. Ct. p.

10

 Compared to what the EPA and FCC receive, 700 pages of even

“voluminous” commentary from only 90 commenting organizations, see op. Ct.

p. 11, is rather small. Agencies frequently have to deal with more commenters and

more pages of comments. See, e.g., 84 Fed. Reg. 68834 (Dec. 17, 2019)

(receiving over 7,700 comments on a proposed Treasury regulation dealing with

section 162, 164, and 170A); 84 Fed. Reg. 2952, 2952-53 (receiving 335

comments related to 199A regulations).

11

 So many comments can crash an agency’s website. See Soraya Nadia

McDonald, “John Oliver’s Net Neutrality Rant May Have Caused FCC Site

Crash”, Washington Post, June 4, 2014 (describing how John Oliver encouraged

his viewers to comment on the FCC’s proposed net-neutrality rule and the system

subsequently stopped working because of more than 45,000 new comments that

came in).
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24; see also Reytblatt, 105 F.3d at 722 (quoting Action on Smoking and Health v.

CAB, 699 F.2d 1209, 1216 (D.C. Cir. 1983)).

But the analysis shouldn’t stop there--what is the nature of a comment that

triggers an agency’s obligation to respond? The caselaw tells us to look at a

comment’s significance. Agencies must “give reasoned responses to all

significant comments in a rulemaking proceeding.” PPG Indus., 630 F.2d at 466

(emphasis added); see also Perez, 575 U.S. at 96 (“An agency must consider and

respond to significant comments received during the period for public comment.”

(emphasis added)); Interstate Nat. Gas Ass’n of Am. v. FERC, 494 F.3d 1092,

1096 (D.C. Cir. 2007) (agencies must “give reasoned responses to all significant

comments” (emphasis added)). This is because “the opportunity to comment is

meaningless unless the agency responds to significant points raised by the public.” 

Home Box Office, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. Cir. 1977) (emphasis

added) (citing Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375, 393-94 (D.C.

Cir. 1973)); see also Nova Scotia, 568 F.2d at 252 (“It is not in keeping with the

rational process [of APA section 553(c)] to leave vital questions, raised by

comments which are of cogent materiality, completely unanswered”). So, though

an agency doesn’t have to respond to all comments, it must respond to all

significant comments.
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This makes it important to figure out which comments are “significant” and

which are not. The majority doesn’t even address whether the comments here are

significant.

12

 But it implies that the only comments that are significant are those

that “suggest alternative text.” See op. Ct. pp. 13-14, 22 n.3. It gives no cite for

this, nor could it do so, because there is not a precise definition in the

caselaw--rather there are themes.

One is that an agency should address why it rejected proffered alternatives. 

See Indep. U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847, 852 (D.C. Cir.

1987) (stating that the Secretary failed to address why alternative measures were

rejected); Nova Scotia, 568 F.2d at 253 (“Though this alternative was suggested

by an agency of the federal government, its suggestion, though acknowledged, was

never answered” (emphasis added)).

12

 The majority focuses instead on whether Treasury considered relevant

matter (which the majority has “no doubt” that it did) and whether the basis and

purpose is obvious. See op. Ct. pp. 23-24. To support this proposition the

majority cites Cal-Almond, Inc v. U.S. Dept. Of Agric., 14 F.3d 429, 443 (9th Cir.

1993). See op. Ct. p. 24. In Cal-Almond, however, the agency had altogether

ignored notice-and-comment procedures; the question was whether this failure

was harmless error. Cal-Almond, 14 F.3d at 441. There wasn’t even a proposed

rule to comment on--interested parties had the opportunity to submit input only

orally at an open board meeting. See 45 Fed. Reg. 56795 (Aug. 26, 1980). There

is nothing in that opinion about how to gauge whether a comment was significant

and whether the agency’s response when it issued its final rule was adequate.
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Another theme is that it is not rational to “leave vital questions, raised by

comments which are of cogent materiality, completely unanswered.” Nova Scotia,

568 F.2d at 252. I agree that “[w]e do not expect the agency to discuss every item

of fact or opinion included in the submissions made to it in informal rulemaking.” 

Id. (quoting Auto. Parts & Accessories Ass’n, Inc. v. Boyd, 407 F.2d 330, 338

(D.C. Cir. 1968)). But we should be able to “see what major issues of policy were

ventilated by the informal proceedings and why the agency reacted to them as it

did.” Id. (quoting Auto. Parts, 407 F.2d at 338). We should be able to see why

Treasury “[chose] to follow one course rather than another.” See Indus. Union

Dep’t, AFL-CIO v. Hodgson, 499 F.2d 467, 475 (D.C. Cir. 1974).

Significant comments are also those “which, if true, raise points relevant to

the agency’s decision and which, if adopted, would require a change in an

agency’s proposed rule.” Home Box Office, 567 F.2d at 35 n.58. Significant

comments are not just those that include drafts of alternative regulatory language,

but those that identify a specific and objective issue created by the language of the

proposed rule and give some explanation for why that language is troublesome. 

Think of this as the what and why test: (1) what is the problem; and (2) why is it a

problem? A comment is thus more likely to be significant if the commenter

suggests a remedy for the purported problem it identifies. Insignificant comments,
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on the other hand, are those which are “purely speculative and do not disclose the

factual or policy basis on which they rest.” Id. In the absence of significant

comments or an explicit congressional directive, there is no requirement that “an

agency engage in and document an exhaustive review of hypothetical ‘aspect[s] of

the problem.’” SIH Partners LLLP v. Commissioner, 150 T.C. 28, 47 (2018),

aff’d, 923 F.3d 296 (3d Cir. 2019); see also Thompson v. Clark, 741 F.2d 401, 408

(D.C. Cir. 1984) (“[APA section 553(c)] has never been interpreted to require the

agency to respond to every comment, or to analy[z]e every issue or alternative

raised by the comments, no matter how insubstantial”).

When it came to the proportionate-share and donor-improvements issues,

the Treasury received several comments. The NYLC believed that the regulation

“contain[ed] problems of policy and practical application so pervasive as to cause

us to recommend strongly the deletion of [the] provisions.” Response to Order at

373. The NYLC didn’t stop there, but rather identified four specific inequities

with the provision:

! it would deter prospective donors from donating conservation

easements, id.;

! the provision improperly assumed that a conservation easement

represented a positive economic value to donees based on the

possibility that the donees might one day receive proceeds from

extinguishment, id. at 374;
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! there was a potential conflict with the provision and state

condemnation law, id. at 375; and

! the ratio fails to take into account improvements made by the owner

after donation which should alter the ratio, id. at 374.

TPL agreed with the NYLC--believing that the provision was an undue burden on

donors in light of the tax-benefit rule and the remote-future-event rule. Id. at 844. 

But there were those that disagreed with NYLC’s points, including the Nature

Conservancy, the MCHT, and Brandywine Conservancy, Inc.--feeling that the

donees should be entitled to any subsequent increase in value attributable to

market forces.

13

 See id. at 511, 579, 593. But even these commenters thought the

provision needed to be clearer. Id.

As Oakbrook points out, there were a number of comments on the

extinguishment-proceeds regulation that were “significant” under these guidelines. 

Commenters didn’t just say, “Delete the regulation, we don’t like it.” They wrote

in to propose other alternatives to achieve the Code’s requirement that the

conservation purpose of a donated easement be preserved “in perpetuity.”

13

 The majority incorrectly asserts that only NYLC mentioned donor

improvements. See op. Ct. p. 13. But TPL, Nature Conservancy, MCHT, and

Brandywine Conservancy also mention them. See Response to Order at 511, 579,

593, 844.
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These alternatives included reliance on the common-law doctrines of

changed conditions to deal with the remote contingency of condemnation or

judicial extinguishment. Another comment proposed reliance on the tax-benefit

rule or the remote-future-event rule instead of the challenged regulation. Some

pointed out that the proportionate-value rule might overcompensate donees and

discourage donations, which might be thought of as contrary to the evident policy

of section 170A to encourage donations of genuine conservation easements. The

NYLC thought that requiring the cost of improvements to be ignored in splitting

up proceeds would lead to a windfall to donees.

The majority seems to conclude that these comments were not significant in

the specific sense in which the caselaw defines the concept: A comment “which,

if true, raise points relevant to the agency’s decision and which, if adopted, would

require a change in an agency’s proposed rule * * * .” Home Box Office, 567 F.2d

at 35 n.58. Looking at the comments offered here--which identified inequities

with the regulation, suggested alternatives, identified potential negative effects on

the willingness of donors to make donations, uncovered potential conflicts with

state law, and simply asked for more clarity--this is a bewildering conclusion.

Under the caselaw, the comments made were significant and are entitled to an

agency response.
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The majority though says no sweat--even if these comments are significant,

Treasury did respond to them by stating in the preamble that it considered “all

comments” and by making changes to the proposed regulation.

2.

Before determining whether the agency’s response here was adequate, one

must first look to caselaw to determine what an adequate response even looks like. 

Generally, the point of the APA’s procedural rules for notice-and-comment rulemaking is to ensure that “there [] be an exchange of views, information, and

criticism between interested persons and the agency.” Home Box Office, 567 F.2d

at 35. The notice-and-comment procedure promotes the quality of agency rules

and “ensure[s] fair treatment for persons to be affected by” them. Dismas

Charities, Inc. v. U.S. Dep’t of Justice, 401 F.3d 666, 678 (6th Cir. 2005); see also

United States v. Cain, 583 F.3d 408, 420 (6th Cir. 2009). It also provides courts

with a meaningful opportunity to “see what major issues of policy were ventilated

by the informal proceedings and why the agency reacted to them as it did.” 

Simms, 45 F.3d at 1005 (quoting Auto. Parts, 407 F.2d at 338).

This is why in Dominion Resources, Inc. v. United States, 681 F.3d 1313,

1319 (Fed. Cir. 2012), rev’g 97 Fed. Cl. 239 (2011), Treasury’s explicit statement

that it rejected the commentators’ recommendation and brief explanation in
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general terms of how one of the provisions worked wasn’t enough. Dominion

Resources reviewed the promulgation of Treasury regulation section 1.263A11(e)(1)(ii)(B).14

 This regulation governed how much interest expense a

corporation had to capitalize--instead of deduct--when it borrowed money to

improve real property. What made it controversial was that it required the

capitalization of interest incurred to pay not only the cost of an improvement to

real property, but of the interest incurred on the entire basis of the property being

improved while it was offline to add the improvement. See T.D. 8584, 1995-1

C.B. 20, 26. A utility company challenged its validity in Dominion Resources, 97

Fed. Cl. 239.

Like the regulation here, the challenged regulation in Dominion Resources

was part of a very large project to implement a new part of the 1986 Code. As

here, there had been comments on the entire regulation, as well as the specific part

of it that was under attack. See Dominion Res., 97 Fed. Cl. at 255-56. Unlike its

14

 Finding other procedural challenges to Treasury regulations may prove

difficult--it wasn’t until 2011 that the Supreme Court definitively pronounced that

“we are not inclined to carve out an approach to administrative review good for

tax law only. To the contrary, we have expressly ‘[r]ecogniz[ed] the importance of

maintaining a uniform approach to judicial review of administrative action.’” 

Mayo Found., 562 U.S. at 55 (quoting Dickinson, 527 U.S. at 154). The majority

though confines its discussion of the most relevant circuit-court case that analyzes

how a Treasury regulation can be procedurally defective to a footnote. See op. Ct.

p. 25 n.4.
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silence here, Treasury’s response to the comments that it’d received on the

associated-property rule at issue in Dominion Resources were less laconic.15

 It

summarized those comments in the preamble to the final regulation, and it even

explained how the challenged part of the regulation would work, although the

preamble did “not explain why the commentators’ suggestion was rejected.” Id.

at 256.

The company pointed this out--“Dominion contends that Treasury ‘failed to

provide any explanation of the reasoning that led it to adopt the associatedproperty rule.’” Id. at 258. The trial court nevertheless upheld the rule, because

Treasury seemed to have made some changes to its text in response to the

comments, id. at 259; and Treasury, after summarizing some of the comments, did

state “[t]he final regulations do not adopt the suggestion,” id. at 256. As that court

reasoned, “lack of exactitude and the ensuing confusion do not signify that

Treasury acted to establish the final rule in an arbitrary and capricious manner. 

15

 This rule had the shorthand name of the “associated-property rule”

because it governed interest capitalization on the property associated with an

improvement that needed to be taken out of service while the improvement was

made. See Dominion Res., 97 Fed. Cl. at 240 (stating the issue of the case

required analysis of “the Treasury Department’s associated-property rule for

capitalizing interest on a taxpayer’s installation or construction of improvements

or additions to property used to generate income. The associated-property rule

relates to property temporarily removed from service in connection with

installation or addition of an improvement * * * .”)
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The ‘path’ that Treasury was taking in the rulemaking proceedings can be

‘discerned,’ albeit somewhat murkily.” Id. at 259.

And then the case was appealed.

The Federal Circuit reversed. It was not enough for Treasury to mention or

paraphrase the comments that it received, see T.D. 8584, 1995-1 C.B. 20, 26

(summarizing potential issues and alternatives raised by the comments); and it was

not enough to provide general statements that a regulation was intended to

implement a particular Code section or use a particular method, see id. at 21

(stating regulation designed to reduce complexity without undermining the Code

provision). See Dominion Res., 681 F.3d at 1319. The problem with the

regulation was that a statement that Treasury had rejected a comment, or provided

an explanation of how the regulation would work, is not the same as giving

reasons for rejecting a comment or choosing why to make the regulation work one

way instead of another. It’s not “reasoned decision making” without reasons. See

id. (finding that the agency failed to explain the rational connection between the

facts and choices made despite statements that it had rejected comments, see T.D.

8584, 1995-1 C.B. at 27, and failed to explain how the regulation worked, see id.

at 26). “An agency must cogently explain why it has exercised its discretion in a

given manner.” Dominion Res., 681 F.3d at 1319 (quoting State Farm, 463 U.S.
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at 48). Judge Clevenger summarized the problem more pithily in his concurrence,

where he wrote that “the government has not articulated any rational explanation

for many details of the regulation before us, from the regulation’s first proposal in

the mid-‘90s up to the current date. Such a failure makes the regulation

procedurally unlawful.” Id. at 1320 (Clevenger, J., concurring).16

Oakbrook’s argument in this case is stronger--Treasury didn’t even

acknowledge the relevant comments or expressly state its disagreement with them. 

Instead it just ignored them. There is not even “a minimal level of analysis,” as

the Supreme Court, just a couple years ago, insisted an agency must show if it

hopes to avoid its regulation’s being held procedurally invalid. Encino Motorcars,

579 U.S. at __, 136 S. Ct. at 2120.

Nova Scotia also shows what should happen when an agency doesn’t

consider significant comments.

17

 There, the court found no concise general

16

 The majority misreads Dominion Resources to apply only to regulations

that are inconsistent with statutory text. See op. Ct. p. 25 n.4. Not so--a

regulation that is contrary to the text of a statute is invalid as “not in accordance

with law.” APA sec. 706(2)(A). Treasury’s failure to follow the APA’s

procedural requirements was an independent, alternative reason for invalidating

the regulation. See Dominion Res., 681 F.3d at 1319.

17

 In Nova Scotia, the agency was responding to several cases of botulism in

fish. The challenged regulations required the fish to be cooked at a certain

temperature, for a certain time, and in brine of a certain percentage of salinity.

(continued...)
-111-

statement of why it was necessary that the regulation apply to all species of fish

and why the regulation was necessary even though it was commercially infeasible

for some fisheries. Nova Scotia, 568 F.2d at 253. The court pointed out that the

Treasury failed to address suggested alternatives and was silent about the

comments that asserted the proposed regulations were economically infeasible. Id.

But what is more illuminating is what the agency in Nova Scotia did do. 

The agency did make minor changes from the proposed regulation to the final

regulation to address some comments received. Id. at 244. The agency did assure

the reader of the preamble that it had considered the comments that it received. 35

Fed. Reg. 17401 (Nov. 13, 1970). The agency did summarize those comments. It

even gave a general reason--that the regulation required for all fish the safest

known procedure to prevent botulism.

18

 Id.

17

(...continued)

Nova Scotia, 568 F.2d at 243-44.

18

 The preamble actually had a fair amount of detail:

Current good manufacturing practice (sanitation) in

manufacture, processing, packing, or holding of smoked and

smoke-flavored fish for human food.

In the FEDERAL REGISTER of October 23, 1969 (34 F.R.

17176), the Commissioner of Food and Drugs proposed regulations

(Subpart A, Part 128a) covering current good manufacturing practice

(sanitation) in the manufacture, processing, packing, or holding of

(continued...)
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But those changes and several short paragraphs of explanation were not

enough in Nova Scotia.19

 And in Oakbrook we don’t get several short paragraphs,

18

(...continued)

smoked fish. In response, comments were received from two trade

associations, eight manufacturers, and the Bureau of Commercial

Fisheries, Department of Interior. The comments include opposition

to certain requirements and suggestions for clarifying and technical

changes.

The principal objection is that the process requirements in the

proposed regulations cannot be applied to all species of fish presently

being smoked by the industry and that the regulations should

therefore specify time-temperature requirements, as developed by research and study, on a species-by-species basis.

The Commissioner finds: (1) That although adequate times,

temperatures, and salt concentrations have not been demonstrated for

each individual species of fish presently smoked, the processing

requirements of the proposed regulations are the safest now known to

prevent the outgrowth and toxin formation of C. botulinum Type E;

and (2) that since the public health hazard of C. botulinum Type E in

smoked fish is not restricted to a single species of fish, the conditions

of current good manufacturing practice for this industry should be

established without further delay. 

Therefore, having considered the comments received and other

relevant material, the Commissioner concludes that the proposed

regulations, with most of the suggested clarifying and technical

changes incorporated, should be adopted as set forth below.

Accordingly, pursuant to provisions of the Federal Food, Drug, and

Cosmetic Act * * * the following new Subpart A is added * * * .

35 Fed. Reg. 17401, 17401 (Nov. 13, 1970).

19

 The majority reads into Nova Scotia a phantom limitation of its holding to

what it calls “scientific decision” regulations. See op. Ct. p. 22 n.3. But the

Second Circuit invalidated the regulation at issue on two separate grounds. Only

(continued...)
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we don’t get even one short paragraph--we get bupkis. The IRS ignored

comments that questioned the practical application of the regulation, its clarity,

and special problems it would cause some donors. I agree that section 553(c)

doesn’t require an encyclopedia, but it has to require more than nothing; and

ignoring comments in the preamble is not responding to them. As Judge Gurfein

wrote in Nova Scotia, 586 F.2d at 252, “[t]he agencies certainly have a good deal

of discretion in expressing the basis of a rule, but the agencies do not have quite

the prerogative of obscurantism reserved to legislatures.”

19

(...continued)

the first was that “[w]hen the basis for a proposed rule is a scientific decision, the

scientific material which is believed to support the rule should be exposed to the

view of interested parties for their comment.” Nova Scotia, 568 F.2d at 252

(emphasis added). But there was a second reason for the court’s holding--the

agency had failed to respond to significant comments. Id. This part of the opinion

doesn’t even invoke the words “scientific decision.” Id. at 252-53. Nova Scotia

cannot so easily be cabined. See, e.g., Nutritional Health All. v. FDA, 318 F.3d

92, 94, 98 (2d Cir. 2003) (applying Nova Scotia to a regulation regarding

packaging rules); Nat’l Black Media Coal. v. Fed. Commc’ns Comm’n, 791 F.2d

1016, 1018, 1023 (2d Cir. 1986) (holding that an agency violated Nova Scotia

when it failed to disclose studies and maps it relied on when crafting a regulation

regarding frequency allocations for AM broadcast channels); United States v.

Garner, 767 F.2d 104, 117-18, 121 (5th Cir. 1985) (analyzing a regulation

requiring individuals to refinance their loans under Nova Scotia).
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3.

The majority nevertheless says there’s enough there to uphold the

regulation. It first points us to the preamble to the final regulations, see op. Ct.

pp. 19, 25, and insists that “all comments” were considered by Treasury here. But

if we look at the notice of the final regulation, we see no meaningful consideration

of comments at all.

 It is true that Treasury said there that it was adopting the rule “after

consideration of all comments.” 51 Fed. Reg. at 1496 (emphasis added). And

before Encino Motorcars, before Chevron, and even before State Farm we did

reason our way to upholding tax regulations by noting the ritual invocation of this

magic phrase. See Wing v. Commissioner, 81 T.C. 17, 31-32 (1983).

But what we never seem to have noticed is how common this statement is. 

It certainly pops up with startling frequency in the IRS Cumulative Bulletin. See,

e.g., T.D. 8584, 1995-1 C.B. at 21 (“After careful consideration of all the

comments”); T.D. 8540, 1994-2 C.B. 297, 297 (“After consideration of all of the

comments received”); T.D. 8476, 1993-2 C.B. 13, 14 (“After consideration of the

comments”); T.D. 8069, 1986-1 C.B. at 90 (“After consideration of all comments

regarding the proposed amendments”); T.D. 8067, 1986-1 C.B. 218, 219 (“After

consideration of all comments and testimony received on the proposed
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amendments”); T.D. 8075, 1986-1 C.B. 245, 246 (“After consideration of all

written comments received”); T.D. 8065, 1986-1 C.B. 254, 254 (“After

consideration of all comments regarding the proposed regulations”); T.D. 8081,

1986-1 C.B. 343, 344 (“After consideration of all comments received”).

It is as if this phrase is from a form in Treasury’s regulation-drafting guide--

which it is. See Internal Revenue Manual pt. 32.1.5.4.7.1(1) (Example 4)

(Aug. 21, 2018) (“After consideration of all the comments, the proposed

regulations are adopted as amended”). The APA, however, has no provision for

agencies to use ritual incantations to ward off judicial review. See Dominion Res.,

681 F.3d at 1319 (determining that the agency’s statement of “[a]fter careful

consideration of all the comments,” T.D. 8584, 1995-1 C.B. at 21, was not a

satisfactory explanation of its action). The same phrase was used by the

Department of Labor when it issued the regulation that the Supreme Court

invalidated in Encino Motorcars, 579 U.S. at __, 136 S. Ct. at 2126 (“The

Department 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 this makes sense--because if the APA did allow comments to be

disregarded with this simple magical phrase as part of a standard form, it would

make commenting meaningless. See Sherley v. Sebelius, 689 F.3d 776, 784 (D.C.
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Cir. 2012) (indicating that agency action which makes commenting meaningless

violates the APA) (citing Home Box Office, 567 F.2d at 35-36).

This was not enough in Encino Motorcars, 579 U.S. at __, 136 S. Ct. at

2127, where the Court observed that “when it came to explaining the ‘good

reasons for the new policy’ * * * the Department said almost nothing.” 

It should not be good enough for us today.

4.

The majority’s final argument on this topic is that Treasury actually did

respond to them--not with anything in a statement that accompanied the final rule,

but by changing the proposed rule before it went final. See op. Ct. p. 21

(“Treasury clearly considered the comments * * * because it substantially revised

the text [of the regulation] in response to [the] comments” (emphasis added)). 

This argument, however, was rejected by Federal Circuit in Dominion Resources,

681 F.3d at 1319, and the Second Circuit in Nova Scotia, 568 F.2d at 244, 252-53.

Even if the IRS had been making a pure policy decision with no factfinding

needed at all, it would still have had to identify the considerations it found

persuasive. Indus. Union Dep’t, 499 F.2d at 476. In Ishtyaq v. Nelson, 627 F.

Supp. 13 (E.D.N.Y. 1983), for example, the plaintiffs argued that a regulation

lacked an adequate “concise general statement.” The court disagreed because the
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agency had acknowledged the comments, stated its position on the principal

objection raised by commenters, and showed why it chose to follow one course of

action rather than another. Id. at 21-23.

So this idea that the agency here could respond to significant comments by

making only minor changes to the proposed regulation, absent any supplemental

explanation, is insufficient as a response to significant comments. But maybe the

majority is right and I and the appellate courts are wrong, and a court may infer an

agency’s reasoned response to a significant comment.

The problem is that even if Treasury could respond in this way to significant

comments, it didn’t in fact do that here. There were changes made to the proposed

regulation before it became final--but these changes were far from what the

majority describes as “substantially revised” language. A change from a donee’s

entitlement to extinguishment proceeds that have an FMV that is “a minimum

ascertainable proportion of the fair market value to the entire property,” 48 Fed.

Reg. 22946 (May 23, 1983), to “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,” 51 Fed. Reg. 1496, 1505 (Jan. 14, 1986), has no

obvious explanation other than to increase editorial clarity. And the second

change that the Commissioner and majority point to--going from “original
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proportionate value” to “that proportionate value”--seems entirely editorial. The

majority implies that these changes are substantial, yet one would be hard pressed

to think of any set of facts in which the changed language would change the

outcome in any particular case.

The Supreme Court in Encino Motorcars, 579 U.S. at __, 136 S. Ct. at 2126,

invalidated a regulation from an agency that offered “barely any explanation.” 

Here we have none. We should, therefore, hold that Treasury’s failure to respond

to significant comments in the Final Rule’s statement of basis and purpose

violated APA section 553(c). That is reason enough to hold section 1.170A14(g)(6)(ii), Income Tax Regs., invalid under APA section 706(2)(D). To do

otherwise would be to hold that “the opportunity to comment is meaningless.” 

Home Box Office, 567 F.2d at 35. 

III.

There’s another problem with our opinion. Even if this regulation were to

be procedurally valid, it might well be substantively invalid. Oakbrook argued in
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its original posttrial briefs that we should use the Chevron two-step.

20

 The

Commissioner agreed, and the majority tags along. See op. Ct. p. 26.

Under this familiar standard, courts defer to an agency’s reasonable

construction of an ambiguous statute that Congress has tasked the agency with

administering. Chevron, 467 U.S. at 843-44. At the first step, courts employ

“traditional tools of statutory construction” to determine whether “Congress has

directly spoken to the precise question at issue.” Id. at 842, 843 n.9. If it has, the

statute is unambiguous, and we apply it as written; for “that is the end of the

matter.” Id. at 842. But “if the statute is silent or ambiguous with respect to the

specific issue,” we move to the second step, which asks “whether the agency’s

answer is based on a permissible construction of the statute.” Id. at 843. Where

“Congress has explicitly left a gap for the agency to fill” by regulation, we defer to

the agency’s construction unless it is “arbitrary, capricious, or manifestly contrary

to the statute.” Id. at 843-44. As a trial court, it’s not up to us to challenge the

Chevron standard, but the majority should have at least acknowledged that there

20

 After the Fifth Circuit’s decision in PBBM-Rose Hill, 900 F.3d 193, and

the realization that this case was the first to challenge the regulation’s validity, we

ordered production of the administrative record of the regulation’s origin and gave

the parties the opportunity to file another round of briefs to make any arguments

on the regulation’s validity that they wanted to preserve.
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are contrary positions about whether Chevron supplies the only standard of

review.

This is especially true because Oakbrook now also relies on State Farm. In

that case, the Supreme Court was asked to determine whether an agency’s decision

to rescind a regulation was arbitrary and capricious. State Farm, 463 U.S. at 34. 

In holding that it was, the Court established four factors that courts might consider

in determining whether an agency action is deficient, and stated:

Normally, an agency rule would be arbitrary and capricious if the

agency has [(1)] relied on factors which Congress has not intended it

to consider, [(2)] entirely failed to consider an important aspect of the

problem, [(3)] offered an explanation for its decision that runs counter

to the evidence before the agency, or [(4)] is so implausible that it

could not be ascribed to a difference in view or the product of agency

expertise.

Id. at 43.

So how do we review the substantive agency action? Well, the relationship

between State Farm and Chevron is less than clear right now.21

 State Farm is still

21

 One thing we do know is that courts analyze the validity of regulations

under State Farm even where the regulation does not “reverse[] an earlier policy

supported by a body of fact.” Compare op. Ct. p. 19 n.2, with Fed. Energy

Regulatory Comm’n v. Elec. Power Supply Assoc., 577 U.S. __, __, 136 S. Ct.

760, 771-72, 782-84 (2016) (State Farm review of a regulation that didn’t reverse

policy); Bowen v. Am. Hosp. Ass’n, 476 U.S. 610, 613-17, 626-42 (1986) (same);

Atrium Med. Ctr. v. HHS, 766 F.3d 560, 567 (6th Cir. 2014) (same); and All. for

Comty. Media v. FCC, 529 F.3d 763, 769, 786-87 (6th Cir. 2008) (same).
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the go-to standard for challenges to a regulation’s validity on the ground that it is

arbitrary and capricious under the APA, while Chevron (particularly step two) is

principally used for challenges to a regulation’s validity on the ground that it is

unreasonable. In recent years the line between State Farm and Chevron step two

has blurred. See Judulang v. Holder, 565 U.S. 42, 52 n.7 (2011) (“[The] analysis

would be the same, because under Chevron step two, we ask whether an agency

interpretation is ‘arbitrary or capricious in substance’”). In a case appealed to the

Ninth Circuit, we ourselves held that “regardless of the ultimate standard of

review--the final rule must satisfy State Farm’s reasoned decisionmaking

standard.” Altera Corp. v. Commissioner, 145 T.C. 91, 117 (2015), rev’d, 926

F.3d 1061 (9th Cir. 2018), petition for hearing en banc denied, 941 F.3d 1200 (9th

Cir. 2019), petition for cert. filed No. 19-1009 (Feb. 13, 2020).

But not all courts agree. The Second Circuit, for example, held that the

district court’s application of the State Farm standard at Chevron step two was

reversible error: “While we have great respect for the district court’s careful and

searching analysis * * *, we conclude that it erred by incorporating the State Farm

standard into its Chevron Step Two analysis and thereby applying too strict a

standard of review.” Catskill Mountains Chapter of Trout Unltd., Inc. v. EPA, 846
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F.3d 492, 521 (2d Cir. 2017). A brief survey of the other circuits since Judulang

shows just how unsettled this question remains:

! Craker v. DEA, 714 F.3d 17, 26 (1st Cir. 2013) (even if agency’s

statutory interpretation satisfies Chevron, it may still be set aside as

arbitrary and capricious under State Farm);

! Almy v. Sebelius, 679 F.3d 297, 302 (4th Cir. 2012) (Chevron

operates “[i]n addition to” State Farm);

! Sw. Elec. Power Co. v. EPA, 920 F.3d 999, 1028 (5th Cir. 2019)

(Chevron step two and the APA share the arbitrary and capricious

standard and the analysis under the two standards proceeds similarly)

(citing Richard J. Pierce, Jr., Administrative Law Treatise, sec. 3.6

(5th ed. 2010) (suggesting that Chevron step two has “complete

overlap” with the APA and State Farm if rule challenged as

“unreasonable”));

! Abraham Lincoln Mem’l Hosp. v. Sebelius, 698 F.3d 536, 547 (7th

Cir. 2012) (suggesting a distinction between arbitrary-and-capricious

review under State Farm and Chevron step two);

! Altera, 926 F.3d at 1075-76 (adopting Second Circuit analysis of

Catskill Mountain); but see Turtle Island Restoration Network v.

United States Dep’t of Commerce, 878 F.3d 725, 732-33 (9th Cir.

2017) (Chevron step two equivalent to the State Farm arbitrary-andcapricious review);

! Nutraceutical Corp. v. Von Eschenbach, 459 F.3d 1033, 1037-38

(10th Cir. 2006) (suggesting overlap between State Farm’s arbitrary

and capricious standard and Chevron step two); see also

Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149-58 (10th Cir.

2016) (Gorsuch, J., concurring) (questioning the constitutionality of

Chevron);
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! Nat’l Mining Ass’n v. Sec’y, U.S. Dep’t of Labor, 812 F.3d 843, 865

n.23 (11th Cir. 2016) (Chevron step two functionally equivalent to

arbitrary and capricious review under the State Farm);

! Sorenson Commc’ns, LLC v. FCC, 897 F.3d 214, 230 (D.C. Cir.

2018) (identifying significant overlap between Chevron step two and

State Farm); and

! Balestra v. United States, 803 F.3d 1363, 1368 n.2 (Fed. Cir. 2015)

(State Farm often overlaps with analysis under Chevron step two, but

the two standards should be applied separately).22

Because this case is appealable, absent stipulation to the contrary, to the

Sixth Circuit, I would follow its approach. See Golsen v. Commissioner, 54 T.C.

742, 756 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). That approach is to analyze

challenges to a regulation under Chevron step two and State Farm independently. 

See Atrium Med. Ctr., 766 F.3d at 567 (“Even if an agency’s statutory

interpretation is permissible under Chevron * * *, the agency’s action may still be

‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with

law.’” (quoting APA sec. 706(2)(A))); see also Nat’l Truck Equip. Ass’n v. Nat’l

Highway Traffic Safety Admin., 711 F.3d 662, 668-69 (6th Cir. 2013).

The goal of review under either APA section 706(2)(A) or (D), and under

Chevron or State Farm is to ensure that an agency engages in reasoned

decisionmaking. According to the Sixth Circuit, “[a]t base, arbitrary and

22

 The Third and Eighth Circuits seem not to have considered this question.
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capricious review functions to ‘ensur[e] that agencies have engaged in reasoned

decisionmaking.’” Atrium Med. Ctr., 766 F.3d at 567 (emphasis added) (quoting

Judulang, 565 U.S. at 53). Reasoned decisionmaking means that the agency

“examine[s] the relevant data and articulate[s] a satisfactory explanation for its

action including a rational connection between the facts found and the choice

made.” State Farm, 463 U.S. at 43 (internal quotation marks omitted); see also

APA sec. 553(c).

Oakbrook argues that the regulation is arbitrary and capricious under the

APA and the State Farm standard, and the Commissioner just as plainly defends

the regulation as reasoned decisionmaking. The majority today doesn’t even

address this argument; it should have. And following the Sixth Circuit’s lead, we

should run this regulation not only through Chevron but through State Farm too.

As to how this regulation fares under Chevron, I agree with the majority that

“perpetuity” allows for a wide range of possible interpretations; it certainly

doesn’t by itself show Congress spoke on the issue of preserving the conservation

purposes of a donated easement that has been extinguished or condemned. That’s

enough to skip past step one.

The problem is with step two, and it affects both the “proportionate value”

and “donee improvements” parts of the challenged regulation. The majority finds
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the regulation reasonable in requiring a proportionate split of the proceeds from an

easement’s extinguishment because “considerable inflation in property values

might occur in the interim.” See op. Ct. p. 28. It similarly finds the regulation’s

ban on reducing the donee’s share of proceeds to account for improvements

reasonable because “[i]n certain factual scenarios, reducing the donee’s proceeds

on account of donor improvements could frustrate this goal, especially if local

land values should decline.” See id. p. 29.

These seem like perfectly plausible reasons. But they are not the ones that

Treasury itself offered at the time it issued the regulation. This raises another

problem for the Commissioner in his defense--the Chenery rule. The Chenery

rule prevents an agency from relying on post hoc rationalizations to defend its

decisionmaking. SEC v. Chenery Corp., 318 U.S. 80, 87 (1943) (“The grounds

upon which an administrative order must be judged are those upon which the

record discloses that its action was based.”); see also State Farm, 463 U.S. at 50

(courts may not accept post hoc rationalizations). And Chevron step 2 is limited

by Chenery. Bank of Am., N.A. v. FDIC, 244 F.3d 1309, 1319 (11th Cir. 2001)

(stating that Chenery must be considered at step 2 of Chevron); see also Council

for Urological Interests v. Burwell, 790 F.3d 212, 222 (D.C. Cir. 2015); America’s

Cmty. Bankers v. FDIC, 200 F.3d 822, 835 (D.C. Cir. 2000). We shouldn’t be
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coming up with our own post hoc justifications for the reasonableness of the rule

if the Commissioner’s lawyers wouldn’t be able to.

The same problem affects our analysis of the substantive validity of this

regulation under State Farm. The Sixth Circuit has warned agencies that its

arguments in favor of a regulation not being “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law” is likewise limited by the

Chenery rule. See Atrium, 766 F.3d at 567-68 (“[T]he ground upon which an

administrative order must be judged are those upon which the record discloses that

its action was based.” (quoting Chenery, 318 U.S. at 87)).

The majority today comes up with as good a set of arguments as possible to

justify the reasonableness of the regulatory choices that Treasury made when it

was drafting this regulation. But Treasury didn’t make them. Or at least it didn’t

make them in the administrative record of this regulation.

IV.

I will end with where I began in today’s Memorandum Opinion on the less

controversial parts of this case: Conservation-easement cases might have been

more reasonably resolved case-by-case in contests of valuation. The syndicated

conservation-easement deals with wildly inflated deductions on land bought at

much lower prices would seem perfectly fine fodder for feeding into a valuation
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grinder. Valuation law is reasonably well known, and valuation cases are

exceptionally capable of settlement. 

Congress, however, enacted these sections of the Code and presumably

wanted reasonably valued conservation easements to be allowed. Yet we’ve come

to a point where we are disallowing a great many conservation-easement

deductions altogether, not for exaggeration of their value or lack of conservation

purpose, but because of very contestable readings of what it means for an

easement to be perpetual. We did defuse the Commissioner’s thermonuclearbomb of an argument that the retained power of parties to any contract to modify

its terms meant that no easement anywhere at any time could ever preserve its

conservation purpose “in perpetuity.” Pine Mountain, 151 T.C. at 280-82. But

our agreement with the Commissioner in Pine Mountain last year that a reserved

right to build a home on property subject to an easement is defeated if its location

is not precisely defined will lead, at best, to a circuit conflict that the Supreme

Court will have to resolve.23

23

 One can even foresee a conflict between the acceptable power to amend

and the unacceptable “floating homesite” provision: Imagine the case where a

general provision in an easement deed allows for amendments so long as the

donee finds that the conservation purpose is preserved, but has no express

provision that allows the donor to add improvements except to build a single home

in a location fixed with extreme precision by the deed. Years pass, it comes time

(continued...)
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Today we uphold a regulation that will invalidate who knows how many

other conservation-easement deductions, and will almost certainly lead to appeals

in multiple circuits. If the Commissioner continues to seek gross-misvaluation

penalties, we will also have to figure out in a great many cases how to determine

which portion of an underpayment is attributable to a valuation misstatement and

which is due to a failure of the conservation easement altogether, when it might

justly be said to be attributable to both. See PBBM-Rose Hill, 900 F.3d at 214.

I fear that our efforts to clear cut and brush hog our way out of the volume

of conservation-easement cases we have to deal with has left us a field far

stumpier than when we began.

I respectfully dissent.

23

(...continued)

to build, but in building the donor discovers a sinkhole on the edge of the building

area, making it unbuildable. He determines he could avoid the sinkhole by

shifting the location of the building area one foot from its original location. With

the donee’s permission, he amends the deed, as is his right under the general

amendment provision, to shift the boundary of the building area. Why this

deduction would be allowable, while another in which a deed of easement

expressly permits a donor to shift the location of the building area with the same

required permission and preservation of conservation purpose, is not obvious.