14 2 T.C. No . 7
UNITED STAT ES TAX COURT

PATRICK J . WACHTER AND LO UISE M. WA CHTER, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt MIC HAEL E . WACHTER AND KE LLY A. WACHTER, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No s. 9 21 3- 11 , 92 19 -1 1. Fi le d M arch 11 , 20 14
.
Fo r 20 04 th ro ug h 2 00 6 P s re po rte d c harit ab le co nt rib ut io ns th atflo wedto th em

fro m a pa rtn ers hi p a ndanLLC, bo th of wh ic h were treat edas p artne rs hi ps fortax pu rp os es . For e ach y ear t he LLC rep orte d c ha rit ab le co nt rib ut io ns of c as h andth e p artne rs hi p re po rte d ba rg ai n s al es of c on se rv at io n e as em en ts as c ha rit ab le co nt rib ut io ns of pr op erty . R is su edno ti ces of d efi ci en cy to Ps d is al lo win g a ll of the ch ari tabl e co nt rib ut io n d educ ti on s an d d et erm in in g a ccu racy-rela te d pe na lt ie s. R fi le d am ot io n fo r pa rti al su m m ary jud gm en t as se rti ng th atPs d idno t s at is fy

th e “ co nt em

po ran eo us writte n ackno wled gm en t” requi rem en t fo r th e cas h c on tri bu ti on s. Fo r th e pr op erty co nt rib ut io ns , res po nd en t as se rte d tha t the eas em en ts were no t g ran te d i n p erp etui ty as a res ul t o f a No rth Dako taSta te law tha t li mit s the du rat io n o f a rea l p ro pe rty ease m en t.- 2 - Held : No rth Dako taSta te law l im it s the du rat io n o f an eas em en t t o n otm or e th an99 y ears , th us pre cl ud in g aNort h Dak ot a co ns erv at io n e as em en t fr om qu al ifyin g a s g ran te d “ in pe rp etui ty” un de r I.R.C. s ec. 1 70 (h )(2 )(C) an d (5 )(A). Held , furth er, m at eri al fact s re m ai n i n d is pu te reg ard in g whe th er Ps sat is fie d the “ co nt em po ran eo us writ te n a ckno wled gm en t” requi rem en t o f I.R.C. s ec. 1 70 (f)(8 ) an d s ec. 1 .17 0A- 13 (f)(1 5) , In co m e Tax Reg s., an d thu s s umm ary jud gm en t i s n otap pr op ria te on th is is su e.

Jo n J . Jen se n, fo r pe ti ti on ers . Dav idL. Zoss an d C hr is ti naL. Coo k, fo r res po nd en t.
BUCH, Ju dg e: Thes e cas es are b efo re the Co urt o n re sp on de nt ’s m ot io n fo r pa rti al su m

m ary jud gm en t. The is su es forde ci si on are: (1 ) whe th er a St at e la w th atli m it s the du rat io n o f aneas em en t t o n otm or e th an99 y ears pre cl ud es pe ti ti on ers ’ co ns erv at io n e as em en ts fro m qu al ifyin g a s gr an te d “ in pe rp etui ty” un de r se ct io n 1 70 (h )(2 )(C) or ( 5) (A). W e h ol d tha t i t 1 do es ; an d

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al 1 Rev enue Co de (Co de ) in effe ctforth e y ears inis su e, an d a ll Ru le refe ren ces are t o th e Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 3 -

(2 ) whe th er the do cu m en ts pe ti ti on ers pro vi de d t o the IRS s at is fy th e

“ co nt em po ran eo us writ te n a ckno wled gm en t” requi rem en t o f se ct io n 1 70 (f)(8 ) an d
se ct io n 1 .17 0A- 13 (f)(1 5) , Inc om e Tax Reg s. We ho ldth atm at eri al fact s re m ai n i n di sp ut e an d thu s s umm ary jud gm en t i s n otap pr op ria te forth is is su e. FINDINGS OF FACT The tra ns act io ns at i ss ue in vo lv e m em be rs of t he W ach te r fam il y an d
en ti ti es th atth ey

co nt ro ll ed . Mic ha el an d Kel ly W ach te r fi le d jo in t i nc om e ta x returns forall th e y ears inis su e: 20 04 th ro ug h 2 00 6. Th e sa m e is tru e fo r Patric k
an d Lo ui se W ach te r. Duri ng th e y ears inis su e, Mi ch ael , Patric k, an d Lo ui se each he ldva ry in g i nt eres ts intwo en ti ti es : WW Ran ch , a pa rtn ers hi p, an d Win d R iv er Pro pe rti es LLC (W in d R iv er), a l im it edli ab il ity co m pa ny tha t i s treat edas a pa rtn ers hi p fo r ta x p ur

po se s. WindRiv er atti m es op erat edun de r th e n am e W in ds orSto rag e. Fo r co nv en ie nc e, we wil l re fer t o the pe ti ti on ers in di vi du al ly by th ei r gi ve n n am es or t o M ic ha el , Patric k, an d Lo ui se (as own ers of WW Ran chan d W in d R iv er) c ol le ct iv el y

as t he W ach te rs . Farm an d R an chLand s Pr ot ect io n P ro gr am Sect io n 2 50 3 o f th e Farm Secu rit y an d R ur al Inv es tm en t Actof 2 00 2, Pub. L. No. 10 7- 17 1, 1 16 Sta t. at26 7, au th or iz edth e Sec ret ary of Agri cu ltur e to pu rch as e co ns erv at io n e as em en ts inord er t o p ro te ctto ps oi l b y li m it in g- 4 -

no na gr ic ul tu ral us es of c ert ai n l an ds an d aut ho riz edfun di ng forsu chpu rch as es . The Uni te d S ta te s, ac ti ng th ro ug h the Co m m od ity Cred itCo rp or at io n (C CC),
en te redin to co op erat iv e ag reem en ts inord er t o i m pl em en t the Farm

an d R an ch Lan ds Pro te ct io n P ro gr am an d u se d the Natu ral Res ou rces Co ns erv at io n S erv ic e (NRCS ) of

th e Dep art m en t o f Agr ic ul tu re t o a dm in is te r th e p ro gr am . The p art ie s pr ov id edto th e Co urt a c op y of a20 03 co op erat iv e ag reem en t b etweenth e CCC
an d the Am eri canFo un da ti on forW il dl ife (AFW) with anatt ach m en t re fere nc in g landown edby WW

Ran ch . The co op erat iv e ag reem en t l is te d the requi rem en ts for
su chaneas em en t, i nc lu di ng th atth e eas em en t “ [r]unwith the lan d i n p erp etui ty or
a m in im um of t hi rty y ears , wher e St at e la w pro hi bi ts a pe rm an en t ea se m en t.” As a pa rt o f th e co op erat iv e ag reem en t, the NRCS l is te d i ts pre requi si te s fo r eas em en t pu rch as es be fo re the Fed eral Gov ern m en t wo ul d re le as e th e Fed eral fun ds to rei m bu rs e AFW fo r up to 50 % of the eas em en t p ur ch as e p ric e. The c oo pe rat iv e ag reem en t i nc lu de d apro vi si on wher eb y a la nd own er co ul d d on at e up t o 2 5% o f th e ap pr ai se d fa ir m ark etva lu e o f th e eas em en t an d tha t s uc h ado na ti on m ay be
co ns id eredas p artof AFW’ s co nt rib ut io n t o the pu rch as e p ric e. Howev er, i n or de r fo r th e la nd own er’s d on at io n t o b e co ns id eredpa rt o f AFW’ s co ntrib ut io n, AFWwas re qu ire d t o g eta curren t ap pr ai sa l o f th e co nt rib ut io n. Inth e ev en t the land own er m ad e su cha do na ti on , NRCS requi reda co py of th e la nd own er’s IRS- 5 -

Fo rm 82 83 , Non cas h C ha rit ab le Co nt rib ut io ns , bef or e th e NRCS wou ldrel eas e th e fed eral fun ds
. Cas h C on tri bu ti on s On i ts returns for

th e y ears inis su e, W in d R iv er re po rte d the fol lo win g c as h ch ari tabl e co nt rib ut io ns , whi chitall oc at edam on gs t i ts m em be rs : 20 04 $1 70 ,00 0 20 05 17 1,1 50 20 06 14 4,5 00 On b eh al f of

W in d R iv er, Mi ch ael an d P atric k s ig ne d a n a gr eem en t d at ed Feb ru ary 26 , 20 04 , with No rth Dako taNatu ral Res ou rce Tru st(NRT) ag reei ng to do na te $1 70 ,00 0 b y

Marc h 1 , 20 04 . Mic ha el si gn eda ch eckda te d F eb ru ary 26 , 20 04 , fro m

W in ds orSto rag e p ay ab le to NRT for$1 70 ,00 0. NRT p ro vi de d alet te r da te d M arch 23 , 20 04 , to Mi ch ael an d P atric k “ db a WW Ran ch ” ackno wled gi ng th e cas h g iftan d s ta ti ng th atNRT pro vi de d n o g oo ds or s erv ic es inex ch an ge for th e d on at io n. Mi ch ael si gn eda ch eckda te d M arch 23 , 20 05 , fro m W in ds orSto rag e pa y ab le to NRT for$1 71 ,15 0. Th e Wacht ers pro vi de d the IRS wi th a le tt er fro m NRT da te d M arch 21 , 20 05 , to W in ds orSto rag e ackno wled gi ng th e cas h g iftan d st at in g tha t NRT p ro vi de d n o g oo ds or s erv ic es inex ch an ge for th e d on at io n. Th e on ly cop y of t hi s l et te r in th e rec or d i s u ns ig ne d.- 6 -

So m eo ne pre pa reda ch eckda te d M ay 9, 2 00 6, fr om

W in ds orSto rag e pa y ab le to NRT for$1 44 ,50 0. Th e o nl y co py of th is ch eckinth e rec or d i s un si gn ed , bu t the pa rti es do no t ap pe ar t o d is pu te th atth e p aym en t was m ad e. NRT pro vi de d alet te r da te d M ay 10 , 20 06 , to W in ds orSto rag e ackno wled gi ng th e cas h g iftan d s tati ng th atNRT pro vi de d n o g oo ds or s erv ic es inex ch an ge forth e do na ti on . Barg ai n S al e Ch ari tabl e Co nt rib ut io ns On i ts partn ers hi p re tu rn s fo r th e y ears inis su e, WW Ran chrep orte d ba rg ai n s al es of c on se rv at io n e as em en ts as c ha rit ab le co nt rib ut io ns as f ol lo ws: 20 04 $3 49 ,00 0 20 05 24 7,5 50 20 06 16 2,5 00 Fo r eac h year, th e p art ie s t o the tra ns act io n o bt ai ne d two ap pr ai sa ls of t he pr op erty th atwas t o b e co ntrib ut ed . Each app rai sa l v al ue d the pro pe rty acco rd in g to a di ffer en t l an d u se , andth e Wacht ers us edth e d iff eren ce i n app rai se d v al ue s t o de te rm in e th e v al ue of t he co ns erv at io n e as em en t an d thu s the am ou nt s o f th ei r ch ari tabl e co nt rib ut io ns .- 7 -

NRT ob ta in edanap pr ai sa l o f WW Ran ch ’s sec ti on s 5 an d 6 pa rcel as o f 2 Apr il 30 , 20 03 , det erm in in g ava lu e o f $3 1,0 00 for us e as ag ric ul tural pro pe rty. A
se co ndap pr ai sa l d at edMay 14, 2 00 3, was pre paredforth e se ct io ns 5 an d 6 pa rcel , de te rm in in g ava lu e o f $1 ,40 0,0 00 for us e as “ rural res id en ti al si te s” . On March 8, 20 04 , WW

Ran chso lda co ns erv at io n e as em en t o n i ts sec ti on s 5 an d 6 pa rcel to AFWfor$1 ,02 0,0 00 (of

whi ch$1 70 ,00 0 was supp li edby N RT). The Wach te rs subt ract edth e sa le pri ce o f $1 ,02 0,0 00 fro m th e d iff eren ce i n v al ue of t he two ap pr ai sa ls of $ 1,3 69 ,00 0 t o a rri ve at t he ir c ha rit ab le co nt rib ut io n d educ ti on of $3 49 ,00 0. NRT ob ta in edtwo ap pr ai sa ls of WW Ran ch ’s sec ti on8 p arce l as of Feb ru ary 21 , 20 05 , on e fo r us e as ag ric ul tu ral pro pe rty det erm in in g ava lu e o f $1 0,0 00 an d o ne for“ fu ll de ve lo pm en ta l v al ue ” d et erm in in g ava lu e o f $9 15 ,00 0. On M arch 24 , 20 05 , WW Ran chso lda co ns erv at io n e as em en t o n the sec ti on 8 pa rcel to AFW

for$6 57 ,45 0 (o f whi ch$1 71 ,15 0 was supp li edby N RT). The W ach te rs subt ract edth e sa le pri ce o f $6 57 ,45 0 fr om th e d iff eren ce i n v al ue of t he

Eachpa rcel at i ss ue is lo cat edinon e o r m or e se ct io ns of To wns hi p 1 40 2 North , Ran ge 81 W es t o f Mo rto n C ou nt y , North Dak ot a. The p art ie s re fer t o the pr op ert ie s atis su e as th e “ se ct io ns 5 an d 6 pa rcel ”, th e “ se ct io n 8 pa rcel ”, an d the “ se ct io ns 16 an d 1 8 p arce ls ”, an d we a do ptth ei r te rm in ol og y .- 8 -

two ap pr ai sa ls of $ 90 5,0 00 to arri ve at t he ir c ha rit ab le co nt rib ut io n d educ ti on of $2 47 ,55 0. NRT ob ta in edtwo ap pr ai sa ls of WW Ran ch ’s sec ti on s 1 6 a nd18 pa rcel s as of Aug us t 2 5, 2 00 5, o ne subjec t t o apro po se d c on se rv at io n e as em en t d et erm in in g a v al ue of $ 46 ,00 0 a ndon e fo r ru ral res id en ti al de ve lo pm en t d et erm in in g ava lu e of $6 96 ,00 0. OnMay 11, 2 00 6, WW Ran chso lda co ns erv at io n e as em en t o n i ts
se ct io n 1 6 a nd18 pa rcel s t o AFW for $ 48 7,5 00 (of whi ch$1 44 ,50 0 was supp li ed by NRT). T he W ach te rs subt ract edth e sa le pri ce o f $4 87 ,50 0 fr om th e d iff eren ce in va lu e o f th e two ap pr ai sa ls of $ 65 0,0 00 to arri ve at t he ir c ha rit ab le co nt rib ut io n de du ct io n o f $1 62 ,50 0. In di vi du al Rep orti ng Patric k a ndLou is e rep orte d c ha rit ab le co nt rib ut io ns on th ei r joi ntFed eral in co m e ta x re tu rn s as fol lo ws:

20 04 Cas h- -WindRiv er $8 5,0 00

Non cas h- -WW

Ran ch 17 4,5 00 20 05 Cas h 85 ,57 5

Non cas h 12 3,7 75 20 06 Cas h 72 ,25 0

Non cas h 81 ,25 0 Mi ch ael an d Kel ly repo rte d c ha rit ab le co nt rib ut io ns on th ei r joi ntFed eral in co m e ta x re tu rn s as fol lo ws:- 9 - 20 04 Cas h- -WindRiv er $8 5,0 00

Non cas h- -WW

Ran ch 17 4,5 00 20 05 Cas h 85 ,57 5

Non cas h 12 3,7 75 20 06 Cas h 72 ,25 0

Non cas h 81 ,25 0 On Ap ril 8, 2 01 1, re sp on de ntis su edno ti ces of d efi ci en cy to bo th co up le s di sa ll owi ng th e ch ari tabl e co nt rib ut io n d educ ti on s re la te d t o WW Ran chan d Win d Ri ve r an d d et erm in in g a ccu racy-rela te d p en al ti es un de r se ct io n 6 66 2. Each co up le ti m el y fil eda pe ti ti on di sp ut in g the ir n ot ic e o f de fic ie nc y , andth e Co urt
co ns ol id at edth e cas es for tri al , bri efi ng , andop in io n. Re sp on de ntfil eda m ot io n fo r pa rti al su m

m ary jud gm en t an d am em or an du m of f act s an d l aw insupp ort o f hi s m ot io n fo r pa rti al su m m ary jud gm en t, the W ach te rs fil eda res po ns e, an d
res po nd en t fi le d arep ly. OPINION Eithe r pa rty m ay

m ov e fo r su m

m ary jud gm en t re ga rd in g a ll or a ny partof th e le ga l i ss ue s i n c on tro ve rs y . See Ru le 12 1( a). W e m ay gra ntsu m

m ary jud gm en t o nl y

if the re ar e n o g enui ne di sp ut es of f act . See Ru le 12 1( b) ; Naf te l v
. Co m m is si on er, 8 5 T.C. 5 27 , 52 9 (1 98 5) . Res po nd en t, as th e m ov in g p arty , bea rs th e b ur de n o f pr ov in g tha t n o g enui ne di sp ut e ex is ts as t o a ny m at eri al factan d th atres po nd en t i s en ti tl edto jud gm en t as a m at te r of law. See Sund stran d C or p. v .- 10 -

Co m m is si on er, 9 8 T.C. 5 18 , 52 0 (1 99 2) , aff’d, 1 7 F .3d96 5 (7 thCir . 19 94 ). In de ci di ng whet he r to gra ntsu m m ary jud gm en t, the factua l m at eri al s an d the in fere nc es dra wn fr om

th em m us t b e co ns id eredinth e li gh t m os t fa vo rab le to th e no nm ov in g p arty . See FPL Grp ., Inc . v. Co m mis si on er, 1 15 T.C. 55 4, 5 59 (20 00 ); Bo ndv. Co m

m is si on er, 1 00 T.C. 32 , 36 (19 93 ); Na fte l v . Comm is si on er, 8 5 T.C. at52 9. Whena m ot io n fo r su m m ary jud gm en t i s m ad e an d p ro pe rly supp orte d, th e n on m ov in g p arty

m ay no t re ston m ere a ll eg at io ns or d en ia ls bu t m us t s etforth sp eci fic fact s s ho win g tha t the re i s a g enui ne di sp ut e fo r tr ia l. See Cel ot ex Co rp . v. Ca tre tt , 47 7 U.S. 3 17 , 32 4 (1 98 6) ; Su nd st ran d C or p. v . Comm is si on er, 9 8 T.C. at52 0; see als o R

ul e 1 21 (d ). Res po nd en t fi le d the m ot io n fo r pa rti al su m m ary jud gm en t; th eref

or e we co ns tru e al l fa ctua l d is pu te s an d draw al l i nf eren ces in fav orof t he W ach te rs . A deduc ti on is all owe d fo r an y ch ari tabl e co nt rib ut io n fo r whi chpa ym en t i s
m ad e wit hi n the tax ab le y ear i f th e co nt rib ut io n i s v eri fie d u nd er re gu la ti on s pr es cri be d b y

th e Sec ret ary. Sec. 1 70 (a)( 1) . The Wacht ers cla im edch ari tabl e co nt rib ut io n d educ ti on s fo r bo th cas h a ndno nc as h c on tri bu ti on s fo r eac h year. W e d is cu ss each inturn .- 11 -

Non cas h C on tri bu ti on s Gen eral ly, a ch ari tabl e co nt rib ut io n d educ ti on is no t al lo wedfora ch ari tabl e gi ft o f pr op erty

co ns is ti ng of l es s tha n the do no r’s en ti re i nt eres t i n tha t p ro pe rty. Sec. 1 70 (f)(3 )(A). Howe ve r, th ere i s an ex cep ti on for a “ qu al ifi edco ns erv at io n co nt rib ut io n.” Sec. 1 70 (f)(3 )(B) (ii i). A co nt rib ut io n o f rea l p ro pe rty is aqu al ifi ed
co ns erv at io n c on tri bu ti onif (1 ) th e rea l p ro pe rty is a“ qu al ifi edreal pro pe rty in te res t” , (2) th e co nt rib ut ee i s a “ qu al ifi edorg an iz at io n” , and(3) th e co nt rib ut io n is “ ex cl us iv el y

forco ns erv at io n p ur

po se s.” Se c. 17 0( h) (1 ); s ee al so sec . 1.1 70 A14 (a), In co m e Tax Reg s. Fo r th e p ur po se s o f th e m ot io n fo r pa rti al su m m ary jud gm en t, re sp on de ntarg ue s tha t the Sta te law re st ric ti ng eas em en ts to 99 y ears pr ev en ts th e co ns erv at io n e as em en ts fro m be in g qua li fie d re al pro pe rty int eres ts
an d p rev en ts th e co ns erv at io n e as em en ts fro m be in g e xc lu si ve ly for co ns erv at io n pu rp os es . North Dako taLaw W e lo okto Sta te law t o d et erm in e th e n atur e o f pr op erty rig ht s, wh erea s Fed eral law d et erm in es th e ap pr op ria te tax tre atm en t o f th os e ri gh ts . Uni te d S ta te s v. Nat ’l Ban k o f Co m

m erce , 47 2 U.S. 7 13 , 72 2 (1 98 5) ; s ee al so 61 York Acqui si ti on , LLC v. Co m m is si on er, T.C. Mem o. 2 01 3- 26 6, at*8
.- 12 -

Beg in ni ng in19 15 , th e Uni te d S ta te s s ig ne d s ev eral tre at ie s ag reei ng to pr ot ectm ig rat ory

bi rd s an d the ir h ab it at s. See North Dak ot a v . Uni te d S ta te s, 4 60 U.S. 30 0, 3 09 -3 10 n.1 2 (1 98 3) , aff’g 6 50 F.2d91 1 (8 th Cir . 19 81 ). Between19 31
an d 1 97 7 the Uni te d S tate s ac qu ire d e as em en ts co ve rin g n earl y 1 m il li on acre s o f landinNort h Dak ot a fo r us e as m ig rat ory bi rdrefu ge s. Id . at 3 04 -3 05 . Howev er, co op erat io n b etweenth e Fed eral Gov ern m en t an d the Sta te of No rth Dako tabro ke do wn s uc h tha t i n 1 97 7 the Sta te en act eda la w, whi chitam en de d i n 1 97 9 a nd 19 81 , (1) requi rin g app ro va l fo r al l wet landacqui si ti on s fi rs t b y th e b oa rdof
co un ty com

m is si on ers an d o nl y

th enby the go ve rn or , (2) all owi ng th e la nd own er to ne go ti at e th e te rm s o f th e eas em en t an d “ dr ai n a ny afterexpand edwetl an d o r wate r are a in ex ces s o f th e le ga l d es cri pt io n” , and(3) res tri ct in g a ll eas em en ts to a
m ax im um of 9 9 years. Id . at 3 06 -3 08 (qu ot in g N.D. Cen t. Co de sec . 20 .1-0 2- 18 .2 (1 98 1) ). The Uni te d S ta te s b ro ug hta de cl arat ory jud gm en t ac ti on inth e U.S. Dis tri ct Co urt fo r th e Dis tri ctof No rth Dako ta , see ki ng jud gm en t tha t, i nt er al ia , th e St at e law was h os ti le to Fed eral law i n c ert ai n re sp ect s an d c ou ldno t b e ap pl ie d. Id . at 30 9. Th e Dis tri ctCo urt g ran te d the Uni te d S ta te s s umm ary jud gm en t, an d the Uni te d S tate s C ou rt o f App eal s fo r th e Eig ht h C irc ui t af firm ed . Id. at30 9. Th e Supr em e Co urt d et erm in edth atbe cau se of t he m ig rat ory bi rdtre at ie s an d the- 13 -

“ ‘certa in ty andfin al ity ’ th atwe ha ve reg ard edas ‘cri ti cal when * * * fe de ral of fic ia ls carry in g o utth e m an da te of C on gr es s i rrev oc ab ly comm itsca rce f un ds ’”, th e North Dako tast atut e was ho st il e to Fed eral in te res ts an d m ay no t b e ap pl ie d t o th e eas em en ts forwhi chth e Fed eral Gov ern m en t h adalr eady rece iv edco ns en t. Id . at 3 20 (qu ot in g Un it edSta te s v . Litt le Lake Mi se re, 4 12 U.S. 58 0, 5 96 (19 73 )). The Supr em e Co urt i n No rth Dako tav. Un it edSta te s i nv al id at edth e 9 9- y ear r es tri ct io n o nl y

in so far a s i t re la te d t o e as em en ts on wetl an ds forwhi chth e Fed eral Gov ern m en t h adalr eady rece iv edco ns en t. The Supr em e Co urt d idno t in va li da te th e 9 9- y ear r es tri ct io n i n a ll si tu at io ns inwhi chth e Fed eral Gov ern m en t is a party, dir ect ly or in di rect ly, to aneas em en t p ur ch as e. Fo r th e y ears inis su e, N. D. Cent . Cod e se c. 47 -0 5- 02 .1 (1 99 9 & Supp . 20 13 ) pr ov id edinpe rti ne ntpa rt: Rea l p ro pe rty ease m en ts * * * wh ic h b eco m e b in di ng aft er J ul y 1, 19 77 , sh al l b e subjec t t o the requi rem en ts of t hi s s ect io n. Th es e requi rem en ts are d eem eda pa rt o f an y ag reem en t fo r su chin te res ts in real pro pe rty whethe r orno t p rin te d i n ado cu m en t o f ag reem en t. * * * * * * * 2. Th e dur at io n o f th e eas em en t * * * onth e u se of r eal pro pe rty m us t be sp eci fic al ly set o ut , andinno cas e m ay th e dur at io n o f an y

in te res t in real pro pe rty regu la te d b y th is sec ti on ex ceedni ne ty-ni ne y ears . * * *- 14 -

Bo th pa rti es all eg e th atth e St at e la w at i ss ue he re i s u ni qu e b ecau se th is is th e o nl y Sta te th atha s a l aw th atpro vi de s fo r a m ax im um du rat io n tha t m ay

no t b e ov erco m e b y

ag reem en t. The pa rti es ag ree t ha t, b y op erat io n o f St at e la w, th e eas em en ts at i ss ue wil l ex pi re 9 9 years a fte r th ey were co nv ey ed . The p art ie s d o no t draw a d is ti nc ti on wher e th e d on ee o f th e eas em en t i s the Fed eral Gov ern m en t
oranen ti ty acti ng on be ha lf o f th e Fed eral Gov ern m en t. No r do we se e a di st in ct io n. Res po nd en t as se rts th atth e St at e la w res tri ct io n p rev en ts th e eas em en ts fro m be in g g ran te d i n p erp etui ty, whi chintu rnpre ve nt s the m fro m be in g b ot h qu al ifi edreal pro pe rty int eres ts un de r se ct io n 1 70 (h )(2 ) an d c on tri bu ti on s ex cl us iv el y

forco ns erv at io n p ur

po se s u nd er s ect io n 1 70 (h )(5 ). Pet it io ne rs , ho wev er, as se rt t ha t the 99 -y ear l im it at io n s ho ul d b e co ns id eredth e equi va le ntof
a rem ot e fu tu re ev en t o r th e ret en ti on of ane gl ig ib le in te res t b ecau se at p res en t the
rem ai nd er i s “ es se nt ia ll y

va lu el es s.” Th ere a re two s ep arat e an d d is ti nc t pe rp etui ty requ ire m en ts , andth e fai lu re t o s at is fy eit he r of th em wil l p rev en t the
eas em en ts fro m

be in g qua li fie d c on se rv at io n c on tri bu ti on s. See Bel k v
. Co m m is si on er, 1 40 T.C. 1, 1 2 (2 01 3)
.- 15 -

Qua li fie d R eal Pro pe rty Int eres t Und er s ect io n 1 70 (h )(2 )(C) , a qu al ifi edreal pro pe rty int eres t m ean s “ a res tri ct io n (g ran te d i n p erp etui ty) onth e u se whi chm ay be m ad e o f th e rea l pr op erty .” The Wach te rs ass ertth atth e p os si bi li ty tha t the lan d wo ul d re ve rt b ack to th em , WW

Ran ch , or the ir s uc ces so rs inin te res t i s the equi va le ntof arem ot e fu tu re ev en t tha t wi ll no t p rev en t the eas em en ts fro m be in g p erp etua l. Sec ti on 1.1 70 A-1 4( g) (3 ), In co m e Tax Reg s., p ro vi de s:

(3 ) Rem ot e fu tu re ev en t.-- A deduc ti on sh al l n otbe di sa ll owe d un de r se ct io n 1 70 (f)(3 )(B) (ii i) a ndth is sec ti onm erel y be cau se th e in te res t wh ic h p as se s t o, o r is ve st edin , th e d on ee o rg an iz at io n m ay be de feat edby the pe rfo rm an ce o f so m e actor t he happ en in g o f so m e ev en t, i f on th e d at e o f th e g iftitap pe ars th atth e p os si bi li ty tha t s uc h actor e ve ntwil l o ccu r is so rem ot e as to be ne gl ig ib le . * * * Thi s C ou rt h as co ns tru ed“ so rem ot e as to be ne gl ig ib le ” as “ ‘a chan ce whi chpe rs on s g en eral ly w ou lddi sr eg ardas s o h ig hl y im pr ob ab le th atitm ig htbe ig no redwith re as on ab le saf ety inun de rta ki ng a se rio us bu si ne ss tra ns act io n’”, 88 5 In v. Co . v. Co m

mis si on er, 9 5 T.C. 1 56 , 16 1 (1 99 0) (qu ot in g Un it edSta te s v . Dean , 22 4 F .2d26 , 29 (1s t Ci r. 19 55 )), o r “ ‘a chan ce wh ic h e ve ry di ct at e o f rea so n wou ldjus ti fy

anin te ll ig en t p ers on indi sr eg ard in g a s s o h ig hl y im pr ob ab le an d
rem ot e as to be lac ki ng inreas on an d s ub st an ce’”, Graev v. Co m m is si on er, 1 40 T.C. __ , __(sl ip op . at 2 7- 28 ) (Jun e 2 4, 2 01 3) (qu ot in g B rig gs v. Co m m is si on er,- 16 -

72 T.C. 64 6, 6 57 (19 79 ), aff’d wi th ou t p ub li sh edop in io n, 6 65 F.2d10 51 (9t h C ir. 19 81 )). “ [A] con se rv at io n e as em en t fa il s t o b e ‘in p erp etui ty’ * * * i f, on th e d at e of th e d on at io n, the po ss ib il ity th atth e ch ari ty may

be di ve st edof i ts in te res t i n the
eas em en t i s n otso rem ot e as to be ne gl ig ib le .” Id . at _ _ (s li p o p. at27 ).

“ Rem ot e” h as va rio us co m m on ly accep te d m ean in gs . For e xa m pl e, rem ot e canm ean“ far d is tantinsp ace” , “ se cl ud ed ”, “ di st an t i n t im e”, “ di st an t i n rel at io ns hi p” , or “ sl ig htor f ai nt ; u nl ik el y ”. W eb st er’s New Uni ve rs al Unab rid ge d Dict io na ry

16 30 (2ded . 20 03 ). As i s re le vanthe re, “ rem ot e” co ul d re fer t o a te m po ral sen se (di st an t, re m ot e in ti m e) o r in a pr ob ab le sen se (un li ke ly, a rem ot e po ss ib il ity ). Id.; see als o Th e Am eri canHeri ta ge Dict io nary of the Eng li sh Lan gu ag e 1 47 6 (4 th ed . 20 00 ). Bo th th e reg ul at io n a ndou r cas el aw fo cu s o n the te rm “ rem ot e” i n t erm s o f li ke li ho od
. As u se d i n the reg ul at io n a ndas i nt erp ret edby our cas el aw, th e ev en t i s n ot
rem ot e. On the date s o f th e d on at io ns itwas n oton ly pos si bl e, itwas i ne vi tabl e th atAFW wou ldbe di ve st edof i ts in te res ts inth e eas em en ts by ope rat io n o f North Dak ot a la w. There fo re, the eas em en ts were n otres tri ct io ns gra nt edinpe rp etui ty
an d wer e th us no t qua li fie d c on se rv at io n c on tri bu ti on s. As a res ul t, we wi ll gra nt 3 W e n ot e th at , inis ol at edsi tu at io ns , a lo ng -te rm lea se m ay

be tre at edas t he 3 equi va le ntof afee s im

pl e in te res t. See , e.g., s ecs . 1.1 03 1( a)-1 (c), 1 .10 33 (g )- (co nt in ue d...)- 17 -

res po nd en t’s m ot io n fo r pa rti al su m m ary jud gm en t i ns of

ar as th e St at e la w pr ev en ts a ch ari tabl e co nt rib ut io n d educ ti onfora co ns erv at io n e as em en t co nv ey ed
un de r th e St at e la w. 4 Cas h C on tri bu ti on s Fo r an y cas h c ha rit ab le co nt rib ut io n o f $2 50 or m or e, th e ta xp ay er m us t ob ta in a co nt em

po ran eo us writ te n a ckno wled gm en t fr om th e d on ee. Sec
. 17 0( f)(8 )(A). Sec ti on17 0( f)(8 )(B) pro vi de s tha t the co nt em po ran eo us writ te n ackno wled gm en t m

us t i nc lu de th e fo ll owi ng : (B) C on te ntof a ckno wled gm en t.-- An ac kn owl ed gm en t m eet s th e requi rem en ts of t hi s s ub pa rag rap h i f itin cl ud es th e fo ll owi ng in fo rm at io n: (i) The a m ou ntof c as h a nda de sc rip ti on (bu t n otva lu e) of an y pro pe rty oth er tha n c as h c on tri bu te d. (ii ) Whe th er the do ne e o rg an iz at io n p ro vi de d a ny go od s o r se rv ic es inco ns id erat io n, i n wh ol e o r in pa rt, fo r an y pro pe rty des cri be d i n c laus e (i ).

(...co nt inue d) 3 1( b) (4 ), In co m e Tax Reg s. Bu t unl ik e se ct io n 1 70 (h )(2 )(C) , th os e is ol at ed si tu at io ns ad dr es s ex ch an ge s fo r “ li ke ” o r “ si m il ar” p ro pe rty anddo no t i nv ol ve an ex pr es s s ta tu to ry

requi rem en t tha t an in te res t b e “ in pe rp etui ty”. W e ex pr es s n o o pi ni on on pe ti ti on ers ’ arg um en t tha t atpre se ntth e 4 rem ai nd er i s es se nt ia ll y

va lu el es s; to do so wou ldrequi re tha t we re so lv e a qu es ti on of f

actreg ard in g v al ue .- 18 - (ii i) A d es cri pt io n a ndgo odfai th est im at e o f th e va lu e o f an y

go od s o r se rv ic es refe rredto inclaus e (i i) or , if s uc h g oo ds or s erv ic es co ns is t s ol el y of i nt an gi bl e rel ig io us be ne fit s, a s ta te m en t t o tha t ef fect
. Sect io n 1 70 (f)(8 )(C) pro vi de s tha t a wri tt enackno wled gm en t i s co nt em po ran eo us whenth e ta xp ay er o bt ai ns itonor b efo re the earl ie r of : (1 ) th e da te th e ta xp ay er fi le s a r eturn fo r th e ta xabl e y ear o f co nt rib ut io n o r (2 ) th e due da te , in cl ud in g e xt en si on s, fo r fi li ng th atreturn. Res po nd en t as se rts th atno ne of t he let te rs th e Wacht ers pro vi de d t o the IRS
co ns ti tu te s a v al idco nt em po ran eo us writ te n a ckno wled gm en t. Res po nd en t as se rts (1 ) th atno ne of the let te rs was a dd res se d t o Win d R iv er, the en ti ty that m ad e th e cas h c on tri bu ti on s, (2 ) NRT pr ov id edgo od s o r se rv ic es to th e Wacht ers eachy ear th atwere n otm en ti on edinth e le tt ers , an d (3 ) th e v al ue s o f th e g oo ds or s erv ic es 5
were n otm en ti on edinth e le tt ers . Furt he r, res po nd en t as se rts th e 2 00 5 l et te r fai ls to qu al ify as a co nt em

po ran eo us writ te n a ckno wled gm en t b ecau se th e le tt er i s un si gn edan d i t p red at es th e ch eckby two d ay s. 6

At m in im um , res po nd en t as se rts th atth e g oo ds or s erv ic es pro vi de d wer e 5 th e ap pr ai sa ls NRT ob ta in edan d the pa rti al fun di ng itsupp li edforth e b arg ai n sa le s. Res po nd en t al so co nt es ts th e au th en ti ci ty of th is do cu m en t.

6- 19 -

W ith re sp ectto th e as se rti on th atth e Wacht ers rece iv edso m e b en efi t tha t
was no t d is cl os edor v al ue d i n the let te rs , res po nd en t h as no t p ro ve n o n thi s re co rd th atth e Wacht ers expe ct edor r ecei ve d abe ne fitinex ch an ge forth ei r cas h do na ti on s. If atax pa y er re cei ve s o r ex pe ct s t o re cei ve a be ne fitth atis no t di sc lo se d i n the co nt em

po ran eo us writ te n a ckno wled gm en t, the en ti re ca sh
co nt rib ut io n d educ ti on is di sa ll owe d. Se e Add is v. Co m m is si on er, 1 18 T.C. 52 8 (2 00 2) , aff’d, 3 74 F.3d88 1 (9 th Cir . 20 04 ); s ee al so Vira la m v. Co m m is si on er, 13 6 T.C. 1 51 , 17 0- 17 1 (2 01 1) ; Av eryt v. Co m m is si on er, T.C. Mem o. 2 01 2- 19 8. Bec au se th e rec ei ptof a n e xp ect edor a ctua l b en efi t i s a m at eri al factth atrem ai ns in di sp ut e, su m

m ary jud gm en t i s n otpro pe r on th is is su e. The W ach te rs ass ertth atth e ch eck s an d l et te rs foreach y ear a s wel l as th e 20 04 ag reem en t ca n b e take n t og ethe r to m eetth e requi rem en ts of a
co nt em po ran eo us writte n a ckno wled gm en t. InIrb y v. Co m m is si on er, 1 39 T.C. 37 1, 3 89 (20 12 ), th e Co urt h el d tha t a s eri es of d oc um en ts m ay co ns ti tu te a co nt em po ran eo us writte n a ckno wled gm en t, an d the W ach te rs m ay y etbe ab le to
au th en ti cat e d is pu te d d oc um en ts an d p ro vi de ad di ti on al do cu m en ts to supp le m en t th os e th ey

ha ve in cl ud edwith the st ip ul at io n o f fac ts . Becau se we m us t co ns tru e al l fa ctua l i nf

eren ces infav orof t he no nm ov in g p arty , we m us t d en y su m m ary jud gm en t re ga rd in g the cas h c harit ab le co ntrib ut io n d educ ti on s.- 20 -

Co nc lu si on W e co nc lu de th atres po nd en t i s en ti tl edto parti al su m m ary jud gm en t di sa ll owi ng th e ch ari tabl e co nt rib ut io n d educ ti on s fo r th e b arg ai n s al es of t he
co ns erv at io n e as em en ts be cau se Nort h Dak ot a la w pro hi bi ts real pro pe rty
eas em en ts fro m

be in g g ran te d i n p erp etui ty. Thu s a c on se rv at io n e as em en t
co nv ey edsubjec t t o the st atut e can no t re su ltina ch ari tabl e co nt rib ut io n d educ ti on un de r se ct io n 1 70 (f)(3 )(B) (ii i). Ho wev er, b ecau se m at eri al fact s re m ai n i n d is pu te
as to whet he r th e Wacht ers ex pe ct edto rece iv e o r actua ll y rece iv edgo od s o r se rv ic es inex ch an ge forth ei r cas h c on tri bu ti on s an d the W ach te rs m ay y etbe ab le to supp le m en t the reco rdto m eetall of t he requi rem en ts of aco nt em po ran eo us writ te n a ckno wled gm en t, we wi ll de ny the m ot io n fo r pa rti al su m m ary jud gm en t
on th e is su e o f th e cas h c on tri bu ti on s. To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wi ll be is su ed
.