Opinion ID: 4533768
Heading Depth: 2
Heading Rank: 4

Heading: Habitat or Ecosystem

Text: The Internal Revenue Code explicitly requires deductions for charitable contributions—including those for conservation easements—to meet regulations 6 Case: 18-14817 Date Filed: 05/13/2020 Page: 7 of 22 adopted by the Secretary of the Treasury. See I.R.C. § 170(a)(1). The regulation governing conservation easements is 26 C.F.R. § 1.170A-14. The regulation makes more explicit what one might reasonably construe the Code to mean anyway. The regulation says a contribution “to protect a significant relatively natural habitat in which a fish, wildlife, or plant community, or similar ecosystem normally lives” will meet the Code’s conservation-purpose requirement. Id. § 1.170A-14(d)(3)(i). For the first time on appeal, Champions takes issue with the word “significant,” asserting this impermissibly departs from the requirement set out in the Code itself. But even without the regulation, the Code would not be construed to apply to a completely trivial habitat—a few commonly occurring ants plainly would not do, nor would many other species not in need of conservation. Requiring some level of significance thus is unobjectionable. So long as the regulation’s use of this term is not construed to mean more than the Code will support, there is no reason to doubt the regulation’s validity. Perhaps this is why the regulation has been applied for many years without any challenge to its validity, and why even Champions did not raise this issue in the Tax Court. The regulation says qualifying significant habitats and ecosystems “include, but are not limited to,” those of three kinds. Two are relevant here. First are “habitats for rare, endangered, or threatened species of animal, fish, or plants.” Id. § 1.170A-14(d)(3)(ii). Neither the Tax Court nor the parties assert 7 Case: 18-14817 Date Filed: 05/13/2020 Page: 8 of 22 that “rare,” “endangered,” and “threatened” have, for this purpose, a precise, technical meaning; instead, the terms distinguish species that reasonably warrant protection, on the one hand, from commonly occurring species for which the loss of habitat is not of significant concern. That the regulation explicitly says qualifying habitats are “not limited to” the listed categories supports this flexible reading. Second are “natural areas which are included in, or which contribute to, the ecological viability of a local, state, or national park, nature preserve, wildlife refuge, wilderness area, or other similar conservation area.” Id. The Champions easement runs to the bank of the Savannah River, and on the other side, 700 feet away, is a large national forest. The third category listed in the regulation covers “natural areas that represent high quality examples of a terrestrial community or aquatic community, such as islands that are undeveloped or not intensely developed where the coastal ecosystem is relatively intact.” Id. As Champions acknowledges, this provision does not apply here. The upshot is this. The Code allows a deduction for an easement contributed for “the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem.” Under this provision and the implementing regulation, Champions is entitled to a deduction if its easement includes habitat for “rare, 8 Case: 18-14817 Date Filed: 05/13/2020 Page: 9 of 22 endangered, or threatened species of animal, fish, or plants,” or if the easement contributes to the “ecological viability” of the adjacent national forest. These are the standards that apply despite the presence of a golf course on part of the property. The Code requires only a “relatively natural habitat . . . or similar ecosystem,” not that the land itself be relatively natural. I.R.C. § 170(h)(4)(A)(ii). The regulation, in turn, says a deduction is available even if the land “has been altered to some extent by human activity,” so long as “the fish, wildlife, or plants continue to exist there in a relatively natural state.” 26 C.F.R. § 1.170A-14(d)(3)(i). The regulation gives as an example the construction of a dam or dike and resulting lake or pond, but neither the Code nor the regulation excludes otherwise-qualifying property with alterations, including, as relevant here, a golf course. Kiva Dunes is of limited precedential value—the Commissioner did not oppose the deduction there—but it is consistent, at least, with the view that conservation easements across golf courses qualify for a deduction if they meet the otherwise-applicable standards. See also PBBM-Rose Hill, Ltd. v. Comm’r, 900 F.3d 193, 204–05, 209 (5th Cir. 2018) (holding that an easement over a golf course served a conservation purpose but was not deductible because it was not made in perpetuity).
9 Case: 18-14817 Date Filed: 05/13/2020 Page: 10 of 22 The record establishes without genuine dispute that this property is home to abundant species of birds, some rare, to the regionally declining southern fox squirrel, and to a rare plant species, the denseflower knotweed. This is established by the testimony of three experts—two called by Champions and one by the Commissioner—who generally agreed on the underlying facts. The Tax Court explicitly credited the testimony of all three. One expert observed 61 species of birds on the property, including 26 that are listed as a priority by one or more conservation organizations. These included the eastern whip-poor-will, brown-headed nuthatch, red-headed woodpecker, and prothonotary warbler. The expert saw a wood duck with fledglings, suggesting onsite breeding. The Commissioner’s expert saw a wood stork—a federally listed endangered species—though he opined it was just passing through. The parties have analyzed in detail the placement of the various bird species on conservation priority lists compiled by organizations with expertise in this field. Of critical importance here, though, is not precisely which bird ranks precisely where on one or more of these lists, but the more general question whether the presence of these many species, including some of substantial conservation concern, shows that the property is a significant habitat for “rare, endangered, or threatened species.” It plainly does. 10 Case: 18-14817 Date Filed: 05/13/2020 Page: 11 of 22 For what it’s worth, the priority lists were compiled by Partners In Flight (“PIF”), the Atlantic Coast Joint Venture (“ACJV”), the United States North American Conservation Initiative Committee (whose list is denominated and referred to here as the “Watch List”), and the United States Fish and Wildlife Service (whose list is denominated and referred to here as “Birds of Conservation Concern”). The priority designations of the property’s various birds include the following: eastern whip-poor-will (ACJV highest priority level, PIF needing management attention, Watch List yellow, Fish and Wildlife Service Birds of Conservation Concern), brown-headed nuthatch (ACJV high priority, PIF planning and responsibility, Fish and Wildlife Service Birds of Conservation Concern), redheaded woodpecker (ACJV moderate, PIF planning and responsibility, Watch List yellow), prothonotary warbler (ACJV moderate, PIF planning and responsibility, Watch List yellow), eastern wood pe-wee (ACJV moderate, PIF management attention), Carolina chickadee (ACJV moderate, PIF planning and responsibility), eastern kingbird (ACJV moderate, PIF management attention), yellow-billed cuckoo (ACJV moderate, PIF management attention), Acadian flycatcher (ACJV moderate, PIF planning and responsibility), blue grosbeak (ACJV moderate, PIF planning and responsibility), brown thrasher (ACJV moderate, PIF planning and responsibility), indigo bunting (ACJV moderate, PIF planning and responsibility), barn swallow (PIF management attention), belting kingfisher (PIF management 11 Case: 18-14817 Date Filed: 05/13/2020 Page: 12 of 22 attention), northern flicker (PIF management attention), blue-gray gnatcatcher (PIF planning and responsibility), Carolina wren (PIF planning and responsibility), downy woodpecker (PIF planning and responsibility), eastern bluebird (PIF planning and responsibility), pine warbler (PIF planning and responsibility), redbellied woodpecker (PIF planning and responsibility), ruby-throated hummingbird (PIF planning and responsibility), tufted titmouse (PIF planning and responsibility), yellow-throated vireo (PIF planning and responsibility), and eastern Phoebe (PIF planning and responsibility). The Commissioner’s expert takes no issue with the proposition that many birds use the property including some that are worthy of protection. He says, though, that the habitat itself is not relatively natural. For this he focuses on the fairways and greens—they consist of non-native bermuda and bent grass—not the undeveloped portion of the easement, which is, at least for the most part, quite natural. What matters under the Code and regulation is not so much whether all the land is natural, but whether the habitat is natural. Indeed, the regulation says it is not disqualifying that the land has been altered, so long as “the fish, wildlife, or plants continue to exist there in a relatively natural state.” 26 C.F.R. § 1.170A14(d)(3)(i). The Commissioner’s expert noted nothing unnatural about these birds’ existence; they apparently find the habitat quite suitable. 12 Case: 18-14817 Date Filed: 05/13/2020 Page: 13 of 22 Champions also cites the property’s population of southern fox squirrels—a species for which the habitat, including the golf course, is hospitable. The species is not threatened but has suffered declines caused by diminishing habitat, due in part to forest-management practices. The Commissioner discounts the importance of the species, noting that Georgia has a six-month season in which hunters may take up to 12 squirrels per day. But that is not dispositive of the question whether providing the squirrels a habitat is a conservation purpose. That Georgia chooses not to protect the species hardly seems a reason to deny whatever protection is available under federal law. Protecting fox squirrels would not alone be sufficient to establish a conservation purpose, but they add to the weight on Champions’ side of the scale. Finally, while the golf course itself is comprised primarily of non-native grasses, the remainder of the easement property is natural and includes a rare species of plant, the denseflower knotweed. The Commissioner has offered no theory under which protecting the denseflower knotweed is not an appropriate conservation purpose. It is true, as the Commissioner notes, that the knotweed exists on only a limited proportion of the easement—perhaps 7%, with the capacity to occupy up to 17%. But the knotweed that exists, whatever its proportion, is worthy of protection. Full coverage of a species is not required and might even cut the other way; one 13 Case: 18-14817 Date Filed: 05/13/2020 Page: 14 of 22 might reasonably doubt that land consisting entirely of knotweed would provide a relatively natural habitat or would support the many bird species present on this land. The Commissioner also says part of the golf course drains toward the bottomland where the knotweed is located and that the knotweed thus may suffer harm from the chemicals used on the course. Perhaps so. But the easement explicitly requires Champions to follow the best environmental practices prevailing in the golf industry—an obligation the Trust is entitled to enforce. Moreover, the relevant question is not so much whether chemicals from the course may harm the knotweed, but whether the easement improves the chance that the knotweed will be preserved. The answer is yes for two reasons: first, because the obligation to use best environmental practices would not exist without the easement; and second, because unrestrained development of the land where the knotweed is located would pose a greater risk than the golf course. Despite the abundant bird species, including many of conservation concern, the declining southern fox squirrels, and the rare denseflower knotweed, the Tax Court said Champions had not established the required conservation purpose. To reach this result, the court considered, or at least discussed in its opinion, only birds seen by both Champions experts—ignoring any bird seen by only one Champions expert, even if the bird was also seen by the Commissioner’s expert. 14 Case: 18-14817 Date Filed: 05/13/2020 Page: 15 of 22 The court did this despite explicitly crediting the testimony of both Champions experts. The court offered no explanation for this approach, and we can conceive of none. The court also ignored a bird that was heard but not seen. The court did not explain how a bird could be heard if not present on or at least near the property. The Tax Court’s implicit finding that the only birds on the property were those seen by both Champions experts is clearly erroneous. More importantly, the Tax Court’s conclusion that Champions did not contribute this easement “for the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem”—a conclusion based in part on the clearly erroneous finding of fact— is wrong as a matter of law. Were it not for the presence of a golf course on part of this property, the assertion that contributing an easement over property with this array of species does not qualify as a conservation purpose would be a nonstarter.
The easement lies across the Savannah River from a large national forest. The river is 700 feet wide. Birds sometimes fly farther than that. Champions asserts the easement “contributes to . . . the ecological viability” of the forest—an assertion that, if true, would show a conservation purpose. But the Commissioner’s 15 Case: 18-14817 Date Filed: 05/13/2020 Page: 16 of 22 expert testified, and the Tax Court found, that the easement does not support the forest’s ecological viability. The finding is not clearly erroneous. The presence of the national forest across the river is relevant—it supports the species that live on the easement, as the Commissioner’s expert acknowledges, and it contributes to the scenic enjoyment from, and public interest in, preventing development of the easement property. But contributing to the ecological viability of the forest, standing alone, does not establish a conservation purpose.