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

Heading: Conservation Purpose Is Protected In Perpetuity

Text: 95 We now address the Commissioner's argument that the Tax Court erred in finding that the Taxpayers' deductions were exclusively for conservation purposes as required under I.R.C. § 170(h)(5)(A) and Treas. Reg. § 1.170A14(e), (g). 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. I.R.C. § 170(h)(5)(A). The Treasury Regulations implementing § 170(h)(5)(A) reference subsections 1.170A-14(g)(1) through (g)(6)(ii) and provide that a donation must be exclusively for conservation purposes. Treas. Reg. § 1.170A-14(e)(1). They also address inconsistent uses and clarify that the requirement that a donation be exclusively for conservation purposes 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). Pre-existing uses of the property are likewise permitted if they do not conflict with the conservation purposes of the gift. Treas. Reg. § 1.170A-14(e)(3). 96 Subsections 1.170A-14(g)(1) through (g)(6)(ii), referenced in § 1.170A-14(e)(1), also address inconsistent uses and emphasize the donee's ability to prevent the donor or his successor's use of retained rights in a manner that is inconsistent with the donation's conservation purposes. For example, the donor's retained rights in the encumbered property must be subject to enforceable restrictions (for example, by recordation in the land records of the jurisdiction in which the property is located) that will prevent uses of the retained interest inconsistent with the conservation purposes of the donation. . . . Treas. Reg. § 1.170A-14(g)(1). If the donated property interest is subject to a mortgage, the mortgagee must subordinate its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity. . . . Treas. Reg. § 1.170A-14(g)(2). If the donor retains any rights in the encumbered property that may impair the conservation interests, the donor must provide the donee with documentation sufficient to establish the condition of the property at the time of the gift and designed to protect the conservation interests associated with the property, which although protected in perpetuity by the easement, could be adversely affected by the exercise of reserved rights. . . . Treas. Reg. § 1.170A-14(g)(5)(i). Moreover, [t]he terms of the donation must provide a right of the donee to enter the property at all reasonable times for the purpose of inspecting the property to determine if there is compliance and the terms of the donation must provide a right of the donee to enforce the conservation restrictions by appropriate legal proceedings, including but not limited to, the right to require the restoration of the property to its condition at the time of the donation. Treas. Reg. § 1.170A-14(g)(5)(ii). Finally, if unforeseen consequences make it impossible or impractical to continue using the encumbered property for conservation purposes, the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceedings and all of the donee's proceeds . . . from a subsequent sale or exchange of property are used by the donee organization in a manner consistent with the conservation purposes of the original contribution. Treas. Reg. § 1.170A-14(g)(6)(i). 97 Contrary to the Commissioner's arguments here, the Tax Court properly construed I.R.C. § 170(h)(5) as requiring a donee like LTC to hold the qualified real property interest in perpetuity exclusively for one or more of the conservation purposes listed in section 170(h)(4). Glass, 124 T.C. at 282. It thoroughly examined the terms of the 1992 and 1993 Conservation Easements, the trial testimony, and the statutory requirements and correctly concluded that Taxpayers' contributions met the exclusively for conservation purposes requirement of I.R.C. § 170(h)(5). Id. at 283-84.