Opinion ID: 796263
Heading Depth: 3
Heading Rank: 2

Heading: Findings As To Significant Relatively Natural Habitat

Text: 74 We now consider whether the Tax Court clearly erred when it found that the encumbered property constituted a habitat for threatened species of animals and plants; e.g., bald eagles, Lake Huron tansy, and pitcher's thistle. We begin with the Tax Court's findings and then discuss the Commissioner's arguments. 75 The Tax Court found that LTC's executive director, Thomas Bailey, and Taxpayer Susan Glass, testified credibly that the encumbered property (1) is a `famous' roosting spot for bald eagles; (2) that the conservation easements establish a proper place for the growth and existence of Lake Huron tansy and pitcher's thistle; (3) that Bailey had toured the property on various occasions and had concluded that the habitat on the encumbered shoreline is a proper and normal environment for Lake Huron tansy, pitcher's thistle, and bald eagles; (4) that the staff of LTC had seen Lake Huron tansy growing on the property; and (5) that Susan Glass had observed Lake Huron tansy growing on the property and that she has regularly seen bald eagles there as well. Id. at 281. The Tax Court also found, based on evidence in the record, that both Lake Huron tansy and pitcher's thistle are considered threatened species which are worthy of special attention towards the goal of preservation and that LTC . . . has agreed through the conservation easements to attempt to preserve those species by giving them that special attention. Id. Contrary to the Commissioner's arguments on appeal, these findings are supported by the record. 76 The Tax Court next found that the encumbered shoreline property fell within the plain meaning of the words habitat and community. Id. at 282. In its natural undeveloped state, it is a `relatively natural habitat' for a community of Lake Huron tansy, of pitcher's thistle, and of bald eagles, among other species of plants and wildlife. Id. This finding is supported by Mr. Bailey's testimony. 77 Based on these findings, the Tax Court concluded that the 1992 and 1993 Conservation Easements protect and preserve significant natural habitats by limiting the development or use of the encumbered shoreline. Id. It held that Taxpayers had proved that their contributions of the conservation easements were for a conservation purpose under section 170(h)(4), specifically, section 170(h)(4)(A)(ii). Id. 78 The Commissioner first argues that, absent testimony that Lake Huron tansy, pitcher's thistle, or bald eagles were actually sighted living on the encumbered property at the time of the donation, the Tax Court erred when it found I.R.C. § 170(h)(4)(A)(ii) satisfied. This argument fails for two reasons. First, it ignores Ms. Glass's testimony that she had observed bald eagles and Lake Huron tansy on the encumbered property. Second, neither the plain language of the regulations nor the plain meaning of the words habitat or community support the Commissioner's argument. Although under I.R.C. § 6110(k)(3), a Private Letter Ruling cannot be used as precedent, a recent ruling provides persuasive authority for refuting the Commissioner's argument. See I.R.S. P.L.R. 200403044 at 9, 2004 WL 69088 (Oct. 9, 2003) (observing that, similar to the Conservation Easements at issue here, the conservation easement there is the actual habitat for numerous plants and animal species, . . . and is potentially the habitat for several endangered, threatened or rare plant and animal species and thus qualified as a donation for the protection of an environmental system under § 170(h)(4)(A)(ii)). 79 The Commissioner next argues that, even if Lake Huron tansy, pitcher's thistle, or bald eagles did inhabit the encumbered property, the terms of the 1992 and 1993 Conservation Easements undermine their stated conservation purpose because the encumbered property is too small, Taxpayers' reserved rights are too great, and there is no limit on building on neighboring properties. Thus, the Commissioner argues, the Tax Court erred in finding that the Easements satisfied the conservation purpose test of I.R.C. § 170(h)(4)(A)(ii). We begin our analysis of this argument by examining the relevant terms of the Easements and then address the Commissioner's arguments that the terms of the Easements undermine their stated conservation purpose. 80
81 The Easements first recognize that development in the area is having a negative impact on rare and protected flora and fauna like the Huron tansy as well as wildlife habitat. They then state that their purpose is to conserve plant and wildlife habitat on the Property and provide a non-exhaustive list of prohibited and restricted list of permitted uses that do not conflict with that stated purpose. Finally, they grant to LTC rights necessary to enforce compliance consistent with their stated conservation purpose so as to protect it in perpetuity. Each Easement also provides that it shall be liberally construed in favor of the purpose of this Conservation Easement, the [LTC], and the Conservation and Historic Preservation Easement Act, MCL 399.251, et seq.  JA at 125, 135 (1992 and 1993 Conservation Easements). 82
83 The stated purpose of both Easements is identical: to ensure that the scenic and natural resource values of the Property will be retained forever . . . . to prevent the use or development of the Property for any purpose or in any manner which conflicts with the perpetual maintenance of these scenic and natural resource values . . . . JA at 121, 131 (1992 and 1993 Conservation Easements). Their provisions as to restricted uses are identical and provide that [a]ny activity on or use of the Property that is inconsistent with the purpose of this Conservation Easement is prohibited . . . . Id. Their provisions as to permitted uses are substantially similar and both provide that Taxpayers retain all rights . . . which are not prohibited by or inconsistent with the Purpose and other provisions of the Conservation Easements. Id. at 122, 132. The provisions as to reserved rights include further limitations. For example, there is a limited right to prune or cut trees or shrubs to preserve the view or for safety. Id. The right to construct, maintain, repair and replace a day shelter, storage shed, scenic overlook deck, patio or similar structures and a wooden boathouse are required to be in a manner and location which minimizes interference with the scenic and natural resource values of the Property. Id. 84
85 The Easements grant to LTC certain rights to accomplish the purpose of and to assure compliance with the Easements' stated purpose. These include the right to enter the Property to monitor compliance . . ., to enforce the terms of this Conservation Easement . . . , to undertake corrective action on the Property in the event of a violation . . . . to prevent any activity on or use of the Property that is or may be inconsistent with the provisions . . . and to require restoration of all areas or features of the Property damaged by such activity or use. . . . Id. at 123, 133. The easements also grant LTC extensive enforcement rights, including legal action against Taxpayers or any subsequent landowner who violates their terms and the right to be reimbursed for all reasonable costs incurred as a result of noncompliance, including attorneys fees and restoration costs. Id. 86
87 Contrary to the Commissioner's arguments here, the 1992 and 1993 Conservation Easements are carefully drawn to prohibit any activity or use of the encumbered property that would undermine their stated conservation purpose. First, there is no evidence that LTC is unwilling or unable to monitor and enforce compliance so as to maintain the stated conservation purpose in perpetuity. 88 Second, each reserved right is carefully limited so as to ensure that the identified plant and wildlife habitats on the encumbered property remain protected. For example, the right to selectively prune, trim or cut trees, shrubs or vegetation is for the limited purposes of preserving the scenic view or for safety. Clear-cutting is expressly prohibited. The plant species identified as requiring habitat protection, Lake Huron tansy and pitcher's thistle, are both only a few feet high. Thus, view and safety are unlikely to require pruning or cutting that would undermine preservation of their habitat. Furthermore, the limited right to construct or maintain a shed, boathouse, or deck is required to be done in a manner and location that minimizes interference with the identified plant and wildlife habitat, and this right is subject to LTC's right to preclude any such construction if it is found to be inconsistent with the Easements' conservation purpose. Finally, the right to maintain and establish foot paths enhance rather than diminish the ability of these plant and wildlife habitats to flourish. Just as foot paths are used in State and National Parks to conserve natural habitats, they are useful on the encumbered property to stop people from trampling the very plants sought to be protected and from jeopardizing the structural integrity of the delicate Lake Michigan bluff. 89 Credible testimony confirmed that Taxpayers' reserved rights were consistent with the Easements' stated purpose of protecting threatened plant and wildlife habitats, and the Commissioner failed to present evidence to the contrary. As the Treasury Regulations clarify, the prohibition on inconsistent use is not intended to prohibit uses of the property, . . . if, under the circumstances, those uses do not impair significant conservation interests. Treas. Reg. § 1.170A-14(e)(2). The Tax Court properly found that the reserved rights in the 1992 and 1993 Conservation Easements do not impair the significant conservation interests they were designed to protect. 90 The Commissioner's argument, that the relatively small size of the encumbered property changes this conclusion, is not supported by the facts or the law. The Commissioner failed to present any testimony or other evidence supporting the conclusion that, given Taxpayers' retained rights, the identified plant and wildlife habitat cannot exist in an area the size of the encumbered property or that the conservation interests the Easements were designed to protect would be impermissibly impaired. Moreover, as the Commissioner concedes, there is no provision in I.R.C. § 170(h) or the implementing regulations that requires a minimum size for a qualifying conservation contribution. In fact, a Private Letter Ruling from the Internal Revenue Service allowing the deduction under I.R.C. § 170(h) for a conservation easement on a 3/4 acre parcel with a stated conservation purpose of preserving scenic enjoyment of the general public provides persuasive authority to the contrary. See I.R.S. P.L.R. 8546112 at 4-5, 1985 WL 297172 (Aug. 21, 1985). It is not the size of the Conservation Easement that matters; rather, it is whether any retained use undermines its stated conservation purpose. 91 The Commissioner also argues that the Tax Court erred by not considering the building rights of neighboring property owners. This argument similarly fails. There is no statutory or regulatory provision requiring consideration of neighboring property owners' building rights when determining whether a conservation easement is a qualified conservation contribution. Congress likely recognized the common sense truth that Taxpayers/Donors cannot realistically limit building on property outside of their control. Adoption of the Commissioner's position would unnecessarily preclude conservation donations permitted under the Tax Code. It would also preclude larger conservation benefits achieved by aggregate donations of relatively small conservation easements, each serving their own stated conservation purpose. As discussed above, the terms of the 1992 and 1993 Conservation Easements are consistent with the conservation purpose for which they were created — the protection and preservation of threatened plant and wildlife habitats from the increased development that led to the conservation donation in the first instance. 92 Finally, the Commissioner's reliance on Turner v. Commissioner, 126 T.C. 299, 2006 WL 1330084 (2006), is misplaced. Although a portion of Taxpayers encumbered property is already protected by Emmet County's 60-foot setback requirement, the Easements in essence double that protection to 120 feet. Unlike the facts in Turner, here there is no evidence in the record that this set-back requirement or building on adjacent properties precludes Taxpayers from satisfying the natural habitat requirements of I.R.C. § 170(h). In Turner, the Tax Court expressly distinguished the decision in Glass because in Turner the issue was whether the taxpayers had satisfied the open space requirement of section 170(h). Satisfaction of this requirement requires both the preservation of open space and the incurement of a significant public benefit. Id. at 313 (citing I.R.C. § 170(h)(4)(A)(iii)). As the Turner Court observed, these requirements are different than those that had to be satisfied in Glass. Id. 93 The Tax Court did not err when it found that the 1992 and 1993 Conservation Easements protect and preserve significant natural habitats by limiting the development or use of the encumbered shoreline and held that Taxpayers had proved that their contributions of the conservation easements were for a conservation purpose under section 170(h)(4), specifically, section 170(h)(4)(A)(ii). Glass, 124 T.C. at 282. 94