Court Opinion

ID: 4354826
Source: CourtListenerOpinion
Date Created: 2018-12-28 06:01:38.260855+00
Date Added: 2024-06-11T09:36:50.353355
License: Public Domain

151 T.C. No. 14

                    UNITED STATES TAX COURT

PINE MOUNTAIN PRESERVE, LLLP f.k.a. CHELSEA PRESERVE, LLLP,
    EDDLEMAN PROPERTIES, LLC, TAX MATTERS PARTNER,
                       Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent

  Docket No. 8956-13.                          Filed December 27, 2018.

         P acquired a tract of land near Birmingham, Alabama, and
  conveyed to a qualified land trust, in 2005, 2006, and 2007, ease-
  ments covering relatively small portions of that property. Each
  easement defined a conservation area that was to be restricted in
  perpetuity from commercial and residential development, with a
  carve-out in the 2005 and 2006 easements for 16 reserved “building
  areas,” within each of which P could construct a single-family
  residence. The 2006 easement did not specify the location of the
  building areas, and the 2005 easement permitted P (with the trust’s
  consent) to move the building areas from their initially designated
  locations to any other location within the conservation area. The
  2005 easement also reserved to P the rights to construct, within the
  conservation area, other facilities appurtenant to residential develop-
  ment, such as barns, riding stables, scenic overlooks, and boat storage
  buildings, some of which could include additional living quarters.
                                        -2-

             P claimed charitable contribution deductions for the easements
      on its 2005, 2006, and 2007 tax returns. R contends that the ease-
      ments were not “qualified real property interest[s]” under I.R.C. sec.
      170(h)(1)(A); that the easements were not made “exclusively for
      conservation purposes” under I.R.C. sec. 170(h)(1)(C); and that P
      overstated the fair market values of the easements.

             1. Held: The 2005 and 2006 easements did not restrict a
      specific, identifiable piece of real property because they allowed
      supposedly conserved land to be taken back and used for residential
      development. Because neither easement constituted “a restriction
      (granted in perpetuity) on the use which may be made of the real pro-
      perty,” I.R.C. sec. 170(h)(2)(C), neither easement constituted a
      “qualified real property interest” that could give rise to a charitable
      contribution deduction under I.R.C. sec. 170(h)(1)(A). Belk v. Com-
      missioner, 774 F.3d 221 (4th Cir. 2014), aff’g 140 T.C. 1 (2013),
      followed.

             2. Held, further, the 2007 easement covered a specific,
      identifiable piece of real property and was “granted in perpetuity”
      under I.R.C. sec. 170(h)(2)(C).

            3. Held, further, the 2007 easement was made “exclusively for
      conservation purposes” under I.R.C. sec. 170(h)(1)(C).

            4. Held, further, the inclusion in the 2007 easement of a
      provision allowing amendments, provided that they were “not
      inconsistent with the conservation purposes of the donation,” did not
      prevent that easement from satisfying the granted-in-perpetuity
      requirement of I.R.C. sec. 170(h)(2)(C).

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

Levin, for petitioner.

      Edwin B. Cleverdon and Horace Crump, for respondent.
                                          -3-

      LAUBER, Judge: For the calendar taxable years 2005, 2006, and 2007, the

Internal Revenue Service (IRS or respondent) issued notices of final partnership

administrative adjustment (FPAAs) to Pine Mountain Preserve, LLLP. These no-

tices disallowed charitable contribution deductions claimed by the partnership in

the following amounts for donations of conservation easements:

                           Year                  Deduction

                           2005                 $16,550,000
                           2006                  12,726,000
                           2007                   4,100,000

Eddleman Properties, LLC (Eddleman Properties), the partnership’s tax matters

partner, filed a timely petition for readjustment of partnership items. See sec.

6226(a).1 We have jurisdiction under section 6226(f).

                               FINDINGS OF FACT

      The Court adopts the stipulations of fact executed by the parties. When the

petition was filed, the partnership had its principal place of business in Alabama.

      1
        All statutory references are to the Internal Revenue Code of 1986 (Code),
as in effect for the tax years at issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure. We round all monetary amounts to the nearest
dollar.
                                        -4-

A.    Assembly of the Pine Mountain Property

      Beginning in 2004 Douglas Eddleman and his father (together Eddlemans)

began acquiring tracts of land in Shelby County, Alabama, about 20 miles south-

east of Birmingham. As we describe in greater detail below, the Eddlemans or

entities they controlled eventually purchased 10 contiguous parcels covering 6,224

acres. We will refer to these parcels collectively as the Pine Mountain property.

The map infra p. 5 shows the Pine Mountain property, the boundaries of the 10

parcels included within it, and the boundaries of the three easements eventually

placed on the property.2

      The Pine Mountain property is situated north of the Highway 280 corridor,

which stretches from Birmingham to Harpersville in Shelby County. The High-

way 280 corridor is the most affluent part of the Birmingham metropolitan area.

Douglas Eddleman believed that development of the Pine Mountain property

would require points of access to Highway 280 and to Old Highway 280, which

runs roughly parallel to Highway 280 to the north.

      2
        A table on this map incorrectly sums the “total purchased areas” as 6,214
rather than 6,224 acres. The “purchase legend” incorrectly shows the dates of
purchase for a number of parcels. The findings of fact rely on the parties’ joint
stipulation of facts and not the dates in the legend.
-5-
                                         -6-

      When the Eddlemans began assembling the Pine Mountain property, it con-

sisted of unincorporated land between the city of Chelsea to the west and the town

of Westover to the east. As of 2001 this area was completely unimproved. In May

2004 Eddleman Properties formed Chelsea Preserve, LLLP, a Delaware limited

partnership, to hold the Pine Mountain property. This partnership also did busi-

ness as Pine Mountain Preserve, LLLP, and we will refer to it as Pine Mountain.

      On February 19, 2004, Eddleman Properties signed a contract to purchase

18.76 acres of land (Parcel 1). Parcel 1 borders on Old Highway 280. On May 14,

2004, Eddleman Properties closed on this contract and purchased Parcel l for

$225,120. It conveyed Parcel 1 to Pine Mountain in December 2004.

      On March 23, 2004, Eddleman Properties acquired for $50,000 options to

purchase approximately 4,180 acres of forest land known as the Cahaba Forests

property. This property consisted of four contiguous parcels (Parcels 2, 5, 6, and

7). These parcels lacked access to Highway 280 and Old Highway 280. But if

Eddleman Properties were to exercise its options, Parcel 1 (which bordered Parcel

5) would provide a link between Old Highway 280 and the Cahaba Forests prop-

erty. Eddleman Properties subsequently transferred each of the options to Pine

Mountain; the record is silent on the nature or timing of these transfers.
                                        -7-

      On June 2, 2004, Pine Mountain acquired Parcel 2, consisting of 1,189.90

acres of the Cahaba Forests property, for $5,354,550. It did so by exercising one

of the options referenced above.

      On July 23, 2004, Pine Mountain purchased Parcel 3, consisting of 7.53

acres, for $250,000. On October 28, 2004, Pine Mountain purchased Parcel 4,

consisting of 26.55 acres, for $1,460,250. Together, Parcels 3 and 4 provided a

point of access from the Cahaba Forests property to Highway 280 and a second

point of access to Old Highway 280.

      During 2004 and continuing into 2005, Pine Mountain negotiated with the

mayors of Westover and Chelsea to determine which of the two municipalities

might annex the Pine Mountain property and on what terms. Pine Mountain con-

cluded that Westover offered better tax incentives. By early 2005 Pine Mountain

and representatives of Westover had sketched out the basic terms under which

Westover might annex the Pine Mountain property.

      On January 14, 2005, Pine Mountain acquired Parcel 5, consisting of 365.01

acres of the Cahaba Forests property, for $1,642,545. It did so by exercising one

of the options Eddleman Properties had acquired via the March 2004 contract re-

ferenced above. Parcel 5 bordered Parcels 1 and 2.
                                          -8-

      On August 8, 2005, Pine Mountain made an offering permitting investors to

buy interests in the partnership, which then owned about 1,600 acres of land (Par-

cels 1, 2, 3, 4, and 5) and had options to buy another 2,600 acres (Parcels 6 and 7).

Investors ultimately acquired 300 limited partnership units, which entitled them to

50% of the partnership’s profits, losses, and cashflows. The limited partners paid

$29,970,000 for their interests. Eddleman Properties retained a general partner-

ship interest entitling it to 50% of the partnership’s profits, losses, and cashflows.

      On November 10, 2005, Pine Mountain acquired Parcel 6, consisting of

1,273.21 acres of the Cahaba Forests property, for $6,366,050. It did so by exer-

cising one of the options Eddleman Properties had acquired via the March 2004

contract referenced above. Parcel 6 bordered Parcels 2 and 5.

      On December 27, 2005, Pine Mountain conveyed to the North American

Land Trust (NALT), a “qualified organization” for purposes of section 170(h)(3),

the first of the conservation easements at issue (2005 easement). At that time Pine

Mountain owned Parcels 1, 2, 3, 4, 5, and 6, covering 2,881 acres. The 2005

easement affected only Parcel 2. It covered mostly contiguous land in the northern

half of Parcel 2, consisting of 559.48 acres in total. This acreage includes

ridgeline areas and lower-lying land surrounding a large man-made lake. The

terms of the 2005 easement are described more fully below. See infra pp. 12-18.
                                         -9-

      On September 20, 2006, Pine Mountain signed an agreement with the town

of Westover under which the town would eventually annex the entirety of the Pine

Mountain property. The annexation process began on November 6, 2006, and pro-

ceeded in stages through the next four months. At no point did Pine Mountain dis-

cuss with Westover the placement of conservation easements over any part of the

Pine Mountain property.

      On October 11, 2006, Pine Mountain acquired Parcel 7, consisting of

1,352.72 acres of the Cahaba Forests property, for $7,439,960. It did so by exer-

cising one of the options Eddleman Properties had acquired via the March 2004

contract referenced above. Parcel 7 bordered Parcel 6 on the west and Parcel 5 on

the south.

      On the same day Pine Mountain acquired Parcel 8, consisting of 794.64

acres east of Parcel 7, for $5,721,408. It did so by exercising one of the options

Eddleman Properties had acquired, in June 2006, to purchase Parcels 8, 9, and 10.

      On December 1, 2006, Pine Mountain made an offering to its limited part-

ners whereby each owner of a limited-partnership unit had the opportunity to buy

an additional half unit for $49,950. Pursuant to this offering, investors ultimately

paid $14,985,000 for 300 half units. Following completion of this offering, the

limited partners continued to share 50% of the profits, losses, and cashflows of
                                         -10-

Pine Mountain, and Eddleman Properties continued to own a general partnership

interest entitling it to 50% of the profits, losses, and cashflows.

      On December 12, 2006, Pine Mountain submitted to the town of Westover

an application to rezone the Pine Mountain property from “agricultural preserve”

to “planned unit development” (PUD). At that point, Westover had not yet an-

nexed the Pine Mountain property; under the Westover zoning ordinances, proper-

ty annexed into the town is initially zoned as “agricultural preserve.” On Decem-

ber 22, 2006, the Shelby County Department of Development Services responded

to Pine Mountain’s rezoning application, stating that more detailed information

would be needed to support rezoning.

      On December 20, 2006, Pine Mountain conveyed to NALT, and recorded

the next day, the second of the conservation easements at issue (2006 easement).

At that time Pine Mountain owned Parcels 1, 2, 3, 4, 5, 6, 7, and 8, covering 5,028

acres. The 2006 easement covers ridgeline areas of Parcel 6 and noncontiguous

lower lying areas of Parcels 2 and 5, consisting of 499.23 acres in the aggregate.

The terms of the 2006 easement are described more fully below. See infra pp. 18-

21.

      On January 31, 2007, Pine Mountain acquired Parcel 9, consisting of 676

acres located between Parcels 7 and 8, for $4,867,200. Pine Mountain completed
                                       -11-

its assembly of the Pine Mountain property on October 1, 2007, when it acquired

Parcel 10, consisting of 519.91 acres located between Parcels 7 and 9, for

$3,743,352. It purchased both properties by exercising options Eddleman Proper-

ties had acquired in June 2006.

      In early 2007 Pine Mountain supplemented its rezoning application. On

March 19, 2007, the town of Westover completed its annexation of the Pine

Mountain property. One week later the Shelby County Department of Develop-

ment Services issued a report to Westover concerning the rezoning application. It

advised that the Pine Mountain property upon annexation would automatically be

zoned as “agricultural preserve” and that Westover should then consider the prop-

er zoning classification. On April 23, 2007, Westover enacted an ordinance that

rezoned the Pine Mountain property from agricultural preserve to PUD.

      On December 19, 2007, Pine Mountain conveyed to NALT, and recorded

two days later, the third of the conservation easements at issue (2007 easement).

Pine Mountain then owned all ten parcels, consisting of 6,224 acres. The 2007

easement covers ridgeline areas of Parcels 6 and 7 and noncontiguous lower lying

areas of Parcels 5 and 7, consisting of 240.24 acres in the aggregate. The terms of

the 2007 easement are described more fully below. See infra pp. 21-23.
                                           -12-

      The table below summarizes Pine Mountain’s acquisition of the Pine Moun-

tain property:

                                                   Acquisition Cost
                     Parcel      Acreage          (excluding options)
                       1          18.76                $225,120
                       2        1,189.90              5,354,550
                       3           7.53                 250,000
                       4          26.55               1,460,250
                       5         365.01               1,642,545
                       6        1,273.21              6,366,050
                       7        1,352.72              7,439,960
                       8         794.64               5,721,408
                       9         676.00               4,867,200
                      10         519.91               3,743,352
                      Total     6,224.23             37,070,435

B.    Terms of the Easements

      1.     The 2005 Easement

      The terms of the 2005 easement are set forth in a Conservation Easement

and Declaration of Restrictions and Covenants executed by Pine Mountain and

NALT on December 27, 2005. The easement covers 559.48 acres of Parcel 2

(2005 Conservation Area), constituting 47% of that parcel’s total acreage. Most

of the 2005 Conservation Area consists of ridgelines and higher elevation land in

the northwest portion of Parcel 2. The balance consists of lower lying land around
                                        -13-

a man-made lake near the center of Parcel 2. All land not covered by the easement

remained available for residential or commercial development by Pine Mountain.

      The easement states as its “conservation purposes” the preservation of the

2005 Conservation Area “as a relatively natural habitat of fish, wildlife, or plants”

and “as open space which provides scenic enjoyment to the general public and

yields a significant public benefit.” In particular, the conservation values sought

to be protected include the integrity of three natural communities of trees; riparian

areas that drain into the Coosa River watershed; habitats for named species of

plants and birds; and “a scenic woodland view from US Highway 280.” To that

end, article 2 of the easement prohibits residential, commercial, and industrial de-

velopment of the 2005 Conservation Area while permitting recreational and agri-

cultural activity (including breeding livestock and growing crops).

      As an exception to the restrictions set forth above, article 3 of the easement,

captioned “Reserved Rights,” reserves to Pine Mountain and its successors (inclu-

ding individual homeowners) numerous rights. Article 3.1 provides that Pine

Mountain or an individual homeowner may construct one single-family dwelling

within each of ten “Building Areas” inside the 2005 Conservation Area, as shown

in exhibit C appended to the easement. Each Building Area may include, besides

a dwelling, “a shed, garage, gazebo, vehicle parking area, and pool.”
                                         -14-

      Although the easement itself does not limit the size or location of these ten

Building Areas, exhibit C shows each Building Area as a one-acre lot situated

around a man-made lake. Article 3.16, however, provides that the “boundaries of

the Building Areas may be modified by mutual agreement” of Pine Mountain and

NALT. Such modification is subject to the proviso that “the areas of a Building

Area shall not be increased” and that the boundary modifications shall not, in

NALT’s “reasonable judgment,” adversely affect conservation purposes. Article

3.16 would thus permit the Building Areas to be relocated (with NALT’s consent)

to higher elevation zones or other locations within the 2005 Conservation Area.

      Article 3.24 provides that Pine Mountain “may subdivide the Conservation

Area into one or more lots, tracts or parcels under separate ownership,” subject to

NALT’s approval, “which approval shall not be unreasonably withheld.” Article 3

reserves to NALT and future owners of residences within the 2005 Conservation

Area numerous additional rights, which constitute further exceptions to the restric-

tions set forth in article 2. These rights permit the following activities within the

2005 Conservation Area:

      • Pine Mountain or homeowners may construct within the 2005 Conserva-

tion Area, within 1,000 feet of each Building Area, a barn that may occupy up to

“5,000 square feet of ground coverage.” Each barn is intended for livestock and
                                         -15-

agricultural use but may also contain “an apartment for occupancy by a caretaker

and such caretaker’s family.” NALT must approve in advance the location of each

barn.

        • Pine Mountain or homeowners may construct within the 2005 Conserva-

tion Area “one barn, riding stable and indoor riding ring.” Up to ten acres of “land

disturbed and trees cleared” may be consumed in the aggregate “for the barn, rid-

ing stable, and indoor riding ring.” NALT must approve in advance the location

of these buildings.3

        • Pine Mountain or homeowners may construct within the 2005 Conserva-

tion Area two “scenic overlooks.” One scenic overlook “may include a guest bed-

room,” and the other “shall be similar to a picnic pavilion or gazebo.” Up to three

acres may be cleared for each scenic overlook, and additional trees may be demol-

ished to create “a viewing corridor for each scenic overlook structure.” NALT

must approve in advance plans for each scenic overlook structure.

        • Pine Mountain or homeowners may construct and use roads and drive-

ways “over and across the Conservation Area for access to the Building Areas, or

        3
        It is not entirely clear whether article 3.2 permits only one riding stable and
indoor riding ring within the 2005 Conservation Area or whether it permits one
riding stable and indoor riding ring for each Building Area (for a total of ten). It is
also unclear whether the barn mentioned in conjunction with the riding stable is in
addition to the ten 5,000-square-foot barns permitted elsewhere in article 3.2.
                                        -16-

other permitted structures.” Pine Mountain or homeowners may construct “service

vehicle trails” to facilitate access to parts of the 2005 Conservation Area “other-

wise inaccessible by vehicle.” Pine Mountain or homeowners may construct trails

and paths across the 2005 Conservation Area for “outdoor recreation purposes.”

And they may construct “raised walkways for access to any or all of the land

within the Conservation Area” for the convenience of homeowners and their

guests. NALT must approve such construction in advance.

        • Pine Mountain or homeowners may construct within the 2005 Conserva-

tion Area up to five ponds, each of which may occupy up to five acres. NALT

must approve the location of these ponds. But its approval “shall not be unreason-

ably withheld.”

        • Pine Mountain or homeowners may construct within the 2005 Conserva-

tion Area up to 14 piers and boat launches. These structures may include “one

pier for each of the ten Building Areas,” plus four “common boat launch facilities

with associated boat storage building[s].” The easement does not specify the loca-

tion of these structures, e.g., whether they may be built on the man-made lake, the

five ponds, and/or other bodies of water within the 2005 Conservation Area. No

approval or prior review by NALT is required before construction of these facili-

ties.
                                        -17-

       • Pine Mountain and homeowners may engage within the 2005 Conserva-

tion Area in “the breeding and release of deer, quail, duck, turkey, or other game

animals.” The easement guarantees the rights of homeowners and their guests “to

hunt, trap, and otherwise harvest fish and wildlife” within the 2005 Conservation

Area. On the other hand, article 6.4 provides that “[n]othing in this Conservation

Easement shall be construed to create any right of access to the Conservation Area

by the public.”

       • To facilitate hunting and shooting by homeowners and their guests, Pine

Mountain or homeowners “may construct a reasonable number of wildlife hunting

or observation stands and ‘blinds.’” Apart from requiring that the number be “rea-

sonable,” the easement places no limit on the number of such hunting blinds, their

location within the 2005 Conservation Area, or the total acreage they may occupy.

No approval or prior review by NALT is required before construction of these

facilities.

       • Pine Mountain or homeowners may “drill and maintain a well or wells

with necessary appurtenances outside of a Building Area, and withdraw water

from the Conservation Area,” for service to any buildings permitted under the

easement (including residences, boat storage buildings, scenic overlooks, riding

stables, and barns). Pine Mountain or homeowners may likewise “use the Conser-
                                        -18-

vation Area for the underground disposal of waste water for service to a residential

or other permitted use.” No approval or prior review by NALT is required before

construction of these facilities.

      Article 6.7 of the easement provides that Pine Mountain, its successors in

interest, and NALT “shall mutually have the right, in their sole discretion, to agree

to amendments to this Conservation Easement which are not inconsistent with the

Conservation Purposes.” This provision reflects the recognition by Pine Mountain

and NALT “that circumstances could arise which could justify the modification of

certain of the restrictions contained in this Conservation Easement.” However,

NALT “shall have no right or power to agree to any amendments * * * that would

result in this Conservation Easement failing to qualify * * * as a qualified conser-

vation contribution under section 170(h) of the Internal Revenue Code and applic-

able regulations.”

      2.     The 2006 Easement

      The terms of the 2006 easement are set forth in a Conservation Easement

and Declaration of Restrictions and Covenants executed by Pine Mountain and

NALT on December 20, 2006. The easement covers 499.23 acres, consisting of

seven noncontiguous plots within Parcels 2, 5, and 6 (2006 Conservation Area).

The conserved land, representing 17.6% of the total acreage of the three parcels,
                                         -19-

comprises higher elevation territory in the northern half of Parcel 6 and lower-

lying land in the southern portions of Parcels 2 and 5.

      The 2006 easement recites the same conservation purposes and conservation

values as the 2005 easement, plus one additional purpose: preservation of the

2006 Conservation Area “as open space that will advance a clearly delineated

Federal, State, or local government conservation policy.” Article 2 of the 2006

easement prohibits residential, commercial, and industrial development of the

2006 Conservation Area while permitting recreational and agricultural activity.

And article 3 of the 2006 easement reserves to Pine Mountain and its successors

(including individual homeowners), as exceptions to the restrictions set forth in

article 2, numerous “Reserved Rights.”

      The “Reserved Rights” in the 2006 easement resemble those in the 2005

easement, with a few notable differences:

      • Article 3.1 provides that Pine Mountain may establish within the 2006

Conservation Area six Building Areas, each as large as one acre. Each Building

Area may include a single-family dwelling plus “a shed, garage, gazebo, and

pool,” and the owner of each Building Area may construct a 5,000-square-foot

barn within 1,000 feet of its perimeter. However, the 2006 easement does not spe-

cify the location of the six Building Areas. And it places no limitations on where
                                       -20-

within the 2006 Conservation Area such Building Areas may be located, except to

state that these locations must be “approved in advance” by NALT. NALT may

withhold approval if it believes that the Building Area sites proposed by Pine

Mountain would “result in any material adverse effect on any of the Conservation

Values or Conservation Purposes.”

      • Article 3.2 provides that Pine Mountain may construct a water tower with-

in the 2006 Conservation Area “for the use of the provider of water to surrounding

property * * * and underground pipelines from such Water Tower to the areas

served by the Water Tower within the Property.” The “Property” is defined as the

2,828 acres constituting Parcels 2, 5, and 6. The 2006 easement thus permits Pine

Mountain to construct pipelines across the 2006 Conservation Area to serve the

six Building Areas and appurtenant structures permitted by the 2006 easement, the

ten Building Areas and appurtenant structures permitted by the 2005 easement,

and any residential or commercial development constructed by Pine Mountain on

other portions of Parcels 2, 5, and 6. NALT had to approve in advance the design

and location of the water tower and pipelines.

      The 2006 easement includes an amendment provision identical to that in the

2005 easement. Unlike the 2005 easement, however, the 2006 easement does not

include among Pine Mountain’s “reserved rights” the rights to construct within the
                                        -21-

2006 Conservation Area any scenic overlooks, riding stables, ponds, boat storage

buildings, or piers.

      3.     The 2007 Easement

      The terms of the 2007 easement are set forth in a Conservation Easement

and Declaration of Restrictions and Covenants executed by Pine Mountain and

NALT on December 19, 2007. The easement covers 224.55 acres, consisting of

seven noncontiguous plots within Parcels 5, 6, and 7 (2007 Conservation Area).

The conserved land, representing 7.5% of the total acreage of these parcels, com-

prises higher elevation territory in Parcel 7 and several lower lying areas in Parcels

5 and 6 that are traversed by streams. All land not covered by the easement

remained available for residential or commercial development by Pine Mountain.

      The 2007 easement recites the same conservation purposes as the 2005

easement and similar conservation values. Article 2 of each easement prohibits

residential, commercial, and industrial development of the respective conservation

area, while permitting recreational and agricultural activity. And article 3 of each

easement reserves to Pine Mountain and its successors, as exceptions to the re-

strictions set forth in article 2, enumerated “Reserved Rights.”

      The “Reserved Rights” in the 2007 easement resemble in some ways and

differ in other ways from those in the 2005 and 2006 easements:
                                           -22-

      • The 2007 easement designates no “Building Areas” and permits no resi-

dential construction anywhere within the 2007 Conservation Area. It likewise re-

serves to Pine Mountain no rights to construct scenic overlooks, riding stables,

ponds, boat storage buildings, or piers.

      • Like the 2006 easement, the 2007 easement provides that Pine Mountain

may construct a water tower within the 2007 Conservation Area “for the use of the

provider of water to surrounding property * * * and underground pipelines from

such Water Tower to the areas served by the Water Tower within the Property.”

The “Property” is defined as the 2,990 acres covered by Parcels 5, 6, and 7. The

2007 easement thus permits Pine Mountain to construct pipelines across the 2007

Conservation Area to serve the six Building Areas and appurtenant structures per-

mitted by the 2006 easement, as well as any residential or commercial develop-

ment constructed by Pine Mountain on other portions of Parcels 5, 6, and 7.

NALT had to approve in advance the design and location of the water tower and

pipelines.

      • Like the 2005 and 2006 easements, the 2007 easement permits within the

2007 Conservation Area “the breeding and release of deer, quail, duck, turkey or

other game animals,” and it guarantees “the right of Owner and Owner’s guests

and invitees to hunt, trap, and otherwise harvest fish and other wildlife” from the
                                        -23-

2007 Conservation Area. To that end, the 2007 easement permits Pine Mountain

to “construct a reasonable number of wildlife hunting or observation stands and

‘blinds,’” without limiting the number or location of these structures or requiring

NALT’s approval therefor.

      • In provisions substantially identical to those in the other two easements,

the 2007 easement permits Pine Mountain to construct across the 2007 Conserva-

tion Area fences, service vehicle trails, raised walkways, and outdoor recreation

paths, while making clear that “[n]othing in this Conservation Easement shall be

construed to create any right of access to the Conservation Area by the public.”

Like the other two easements, the 2007 easement permits Pine Mountain to con-

struct within the 2007 Conservation Area various “utility installations,” including

sewer lines. And the 2007 easement has an amendment provision identical to

those for the 2005 and 2006 easements.

C.    Pine Mountain’s Tax Returns

      Pine Mountain timely filed Forms 1065, U.S. Return of Partnership Income,

for tax years 2005, 2006, and 2007. On these returns it claimed charitable contri-

bution deductions of $16,550,000, $12,726,000, and $4,100,000, respectively, for

its donation of the 2005, 2006, and 2007 easements. Pine Mountain included with

each return an appraisal prepared by Clark, Sands & Associates, P.C. While
                                         -24-

disagreeing with the values thus determined, respondent agrees that each appraisal

was a “qualified appraisal” within the meaning of section 170(f)(11)(E)(i). Pine

Mountain likewise included with each return a Form 8283, Noncash Charitable

Contributions, properly executed by the appraiser and by the president of NALT.

      The IRS selected Pine Mountain’s 2005, 2006, and 2007 returns for exami-

nation. On January 22, 2013, the IRS issued Eddleman Properties, as Pine Moun-

tain’s tax matters partner, a separate FPAA for each year. The FPAAs disallowed

the three claimed charitable contribution deductions in their entirety, determining

that “the requirements of * * * section 170 have not been met.” In the alternative,

the FPAAs determined that “it has not been established that the value of the con-

tributed property is as claimed.”

D.    Expert Testimony

      1.     Petitioner’s Experts

      At trial petitioner offered, and the Court recognized, Raymond Veal as an

expert in real estate appraisal, specializing in appraisals of hotels, golf courses,

marinas, and commercial buildings. In performing his appraisals of the conserva-

tion easements, Mr. Veal relied on a market feasibility analysis for development of

the Pine Mountain property performed by Belinda Sward, also recognized by the

Court as an expert. In his appraisal of the 2005 easement Mr. Veal stated that,
                                       -25-

“[s]hortly after the easement was granted, Westover officially annexed the subject

property into its municipality.” Westover did not actually annex the Pine Moun-

tain property until March 2007, 15 months after the 2005 easement was granted.

In all three appraisals Mr. Veal treated the Pine Mountain property as PUD zoned.

Its zoning was not actually changed from agricultural preserve to PUD until April

23, 2007.

      Mr. Veal concluded that the aggregate value of the three conservation ease-

ments was $97.37 million, almost three times higher than the aggregate value of

$33,376,000 reflected on Pine Mountain’s tax returns.

            a.     2005 Easement

      Mr. Veal opined that the value of the 2005 easement when granted was

$54.69 million. On the basis of Ms. Sward’s feasibility study, he concluded that

the highest and best use of the 559.48 conserved acres, before imposition of the

easement, would be an 844-unit residential development. Relying principally on a

comparable sales method, Mr. Veal determined a “before” value of $55.95 million.

      In determining the “after” value, Mr. Veal valued the ten Building Areas at

$700,000 ($70,000 apiece) and the remaining conserved acreage at $560,000 (ap-

proximately $1,000 per acre). He made no adjustment for any enhancements that

the easement conferred on the rest of the Pine Mountain property. Subtracting the
                                       -26-

$1,260,000 “after” value from the $55.95 million “before” value, Mr. Veal deter-

mined a $54.69 million value for the 2005 easement.

            b.     2006 Easement

      On the basis of Ms. Sward’s feasibility study, Mr. Veal concluded that the

highest and best use of the 499.23 conserved acres, before imposition of the ease-

ment, would be a 345-unit residential development. Relying principally on a com-

parable sales method, Mr. Veal determined a “before” value of $33.85 million.

      In determining the “after” value, Mr. Veal valued the six Building Areas at

$300,000 ($50,000 apiece) and the remaining conserved acreage at $490,000 (ap-

proximately $1,000 per acre). He made no adjustments for the other rights re-

served to Pine Mountain and the homeowners, and he made no adjustment for the

enhancement that the easement conferred on the rest of the Pine Mountain pro-

perty. Subtracting the “after” value from the “before” value and making several

technical adjustments, Mr. Veal determined a $33.57 million value for the 2006

easement.

            c.     2007 Easement

      On the basis of Ms. Sward’s feasibility study, Mr. Veal concluded that the

highest and best use of the 224.55 conserved acres, before imposition of the ease-

ment, would be a 130-unit residential development. Relying principally on a com-
                                       -27-

parable sales method, Mr. Veal determined a “before” value of $9.33 million and

an “after” value of $220,000 (approximately $1,000 per conserved acre). He made

no adjustments for any enhancement that the easement conferred on the rest of the

Pine Mountain property. Subtracting the “after” value from the “before” value,

Mr. Veal determined a $9.11 million value for the 2007 easement.

      2.    Respondent’s Expert

      Respondent offered, and the Court recognized, Gary McGurrin as an expert

in conservation easement appraisal. Mr. McGurrin concluded that the best method

for valuing the three conservation easements was to consider direct sales of ease-

ments covering comparable property. He found 15 sales of easements in Alabama

and Georgia between 2003 and 2009, the majority of which were sold to the U.S.

Department of Agriculture. He selected for analysis the six easement sales effect-

ed closest to the valuation dates; these easements covered acreage comparable in

size to the Conservation Areas. The per-acre prices of these easements ranged

from $537 to $2,747; after making various adjustments, Mr. McGurrin determined

that $2,000 per acre was an appropriate price for the easements at issue. He ac-

cordingly determined values of $1,119,000, $998,000 and $449,000, for the 2005,

2006, and 2007 easements, respectively.
                                                  -28-

      The parties’ positions concerning valuation of the three conservation ease-

ments may be summarized as follows:

                                                     2005              2006             2007
      Parcels partially covered by easement              Parcel 2   Parcels 2,5,6    Parcels 5,6,7
      Original acquisition cost for Parcel(s)       $5,354,550      $13,363,145      $15,448,555
      % of acreage covered by easement                      47.0              17.6             7.5
      Easement value per respondent                 $1,119,000         $998,000         $449,000
      Easement value per tax return                $16,550,000      $12,726,000       $4,100,000
      Easement value per petitioner                $54,690,000      $33,570,000       $9,110,000

                                                OPINION

I.    Burden of Proof

      The IRS’ determinations in an FPAA are generally presumed correct,

though the taxpayer can rebut this presumption. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933); Republic Plaza Props. P’ship v. Commissioner, 107

T.C. 94, 104 (1996). Deductions are a matter of legislative grace and are “strictly

construed.” INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Co-

lonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Taxpayers generally bear

the burden of proving their entitlement to all deductions claimed. INDOPCO,

Inc., 503 U.S. at 84. Although the burden of proof on factual questions may some-

times shift to the Commissioner, sec. 7491(a), petitioner does not contend that this

provision applies here.
                                           -29-

II.   Charitable Contribution Deductions for Conservation Easements

      A.     Governing Statutory 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 proper-

ty other than money, the amount of the contribution is generally equal to the fair

market value 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 tax-

payer’s entire interest in such property.” Sec. 170(f)(3)(A). But there is an excep-

tion 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 “quali-

fied real property interest,” (2) the donee is a “qualified organization,” and (3) the

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

of these requirements--that the donation consist of a “qualified real property

interest”--is the initial focus of our attention here.4

      4
        The parties agree that NALT is a “qualified organization” under section
170(h)(3). Respondent contends that the easements were not made “exclusively
for conservation purposes” under section 170(h)(1)(C). We address that conten-
tion in connection with the 2007 easement below. See infra pp. 52-53.
                                         -30-

      Section 170(h)(2) defines a “qualified real property interest” to include “a

restriction (granted in perpetuity) on the use which may be made of the real prop-

erty.” Sec. 170(h)(2)(C). The regulations provide that a “perpetual conservation

restriction” is a restriction--including an easement, restrictive covenant, or equi-

table servitude--“granted in perpetuity on the use which may be made of real prop-

erty.” Sec. 1.170A-14(b)(2), Income Tax Regs. “Any rights reserved by the donor

in the donation of a perpetual conservation restriction must conform to the re-

quirements” of section 170(h) and the regulations thereunder. Sec. 1.170A-

14(b)(2), Income Tax Regs.

      B.     Caselaw Development

      Respondent contends that the easements do not constitute “qualified real

property interest[s]” because the restrictions on the use that could be made of the

conserved land were not “granted in perpetuity.” Sec. 170(h)(2)(C). That is so, in

respondent’s view, because the “Reserved Rights” enumerated in article 3 of the

easements enable the developer to take back supposedly conserved land and

dedicate it to residential development. That development could consist of up to 16

single-family residences, as well as boathouses, riding stables, scenic overlook

outbuildings, and other structures intended for the homeowners’ recreation and

enjoyment.
                                        -31-

      In evaluating this argument, we do not write on a clean slate. We first con-

fronted a fact pattern of this sort in Belk v. Commissioner (Belk I), 140 T.C. 1

(2013), supplemented by Belk v. Commissioner (Belk II), T.C. Memo. 2013-154,

105 T.C.M. (CCH) 1878, aff’d, Belk v. Commissioner (Belk III), 774 F.3d 221

(4th Cir. 2014). The developer there had donated to a land trust a conservation

easement over a golf course, which was surrounded by a single-family residential

development. Although the easement by its terms was perpetual, the deed

permitted the parties by mutual agreement “to change what property is subject to

the * * * easement.” Id. at 3. Specifically, the deed permitted land to be removed

from the conservation area, so long as the developer substituted, and subjected to

the easement, a contiguous plot of land of equal or greater size, value, and

ecological quality. Id. at 3-5.

      We held that the easement was not a “qualified real property interest” be-

cause it was not “granted in perpetuity.” Id. at 10-11 (citing section 170(h)(2)(C)).

As we explained, the taxpayers

      did not agree never to develop the golf course. Under the terms of
      the conservation easement, petitioners are able to remove portions
      of the golf course and replace them with property currently not
      subject to the conservation easement. Thus, petitioners have not
      donated an interest in real property which is subject to a use restric-
      tion granted in perpetuity. To conclude otherwise would permit
      petitioners a deduction for agreeing not to develop the golf course
                                         -32-

      when the golf course can be developed by substituting * * * [other]
      property * * *. [Ibid.]

      The taxpayers noted that the Belk I easement permitted substitution of land

only if the donee trust explicitly approved the substitution, which it could do after

confirming that this action would have no adverse effect on the easement’s conser-

vation purposes. Id. at 3-4. The taxpayers accordingly urged that the conservation

purpose was protected in perpetuity under section 170(h)(5)(A), which defines the

terms under which an easement will be treated as made “exclusively for conserva-

tion purposes.” Because the conservation purpose was allegedly protected in per-

petuity, the taxpayers contended that the “perpetuity” requirement was satisfied.

      We rejected this argument. As we explained: “[T]he section 170(h)(5) re-

quirement that the conservation purpose be protected in perpetuity is separate and

distinct from the section 170(h)(2)(C) requirement that there be real property sub-

ject to a use restriction in perpetuity.” Belk I, 140 T.C. at 12. Reviewing the

statute and its legislative history, we found “nothing to suggest that section

170(h)(2)(C) should be read to mean that the restriction granted on the use which

may be made of the real property does not need to be in perpetuity if the

conservation purpose is protected.” Ibid.5

      5
          For similar reasons, we rejected the taxpayers’ reliance on the deed’s re-
                                                                          (continued...)
                                         -33-

      The taxpayers moved for reconsideration in Belk I, and we issued a supple-

mental opinion to explain our denial of that motion. Belk II, 105 T.C.M (CCH)

1878. The taxpayers urged that our original Opinion had “focused too much on

‘the real property’” and ignored the fact that they had “donated a use restriction

granted in perpetuity.” Id. at 1879. In the taxpayers’ view, “as long as they agree

not to develop 184.627 acres of land, the Court * * * should not be concerned with

what land actually comprises those 184.627 acres.” Ibid.

      We rejected this argument. Our original Opinion “had focused * * * on the

real property” because the statute requires a perpetual restriction “on the use which

may be made of the real property.” Sec. 170(h)(2)(C). We accordingly adhered to

our view that “section 170(h)(2)(C) requires that taxpayers donate an interest in an

identifiable, specific piece of real property.” Belk II, 105 T.C.M. (CCH) at 1879.

      We also rejected the taxpayers’ reliance on the easement’s amendment

provision. That provision, substantially identical to article 6.7 of the easements

involved here, contained what is commonly called a “condition subsequent” sav-

ing clause. It stated that the trust “shall have no right or power to agree to any

      5
       (...continued)
quirement that the trust approve any substitution, concluding that the granted-in-
perpetuity requirement must be met even “if taxpayers and qualified organizations
wish to agree otherwise.” Belk I, 140 T.C. at 13.
                                            -34-

amendments * * * that would result in this Conservation Easement failing to quali-

fy * * * as a qualified conservation contribution under Section 170(h) of the Inter-

nal Revenue Code.” Id. at 1879 n.2. We noted that the parties had included in the

easement deed “a specific, detailed provision * * * permitting substitutions,” and

we found that this provision clearly expressed their intention that substitutions be

allowed. Id. at 1880. As a matter of contract interpretation, we concluded that

this specific provision prevailed over the saving clause, which did little more than

express the “taxpayer’s expectations and hopes as to the tax treatment of his

conduct.” Ibid.

      On appeal the U.S. Court of Appeals for the Fourth Circuit affirmed in a

unanimous opinion. The taxpayers contended that section 170(h)(2)(C) “requires

only a restriction in perpetuity on some real property, rather than the real property

governed by the original easement.” Belk III, 774 F.3d at 225. According to the

taxpayers, the easement satisfied this requirement “because any property removed

from the Easement must be replaced with property of equal value that is then sub-

ject to the same use restrictions.” Ibid.

      The Fourth Circuit found this argument at odds with “[t]he plain language

of the Code.” Ibid. Section 170(h)(2)(C) requires that there be a restriction,

granted in perpetuity, “on the use which may be made of the real property.” Belk
                                         -35-

III, 774 F.3d at 225. “The placement of the article ‘the’ before ‘real property,’”

the court explained, “makes clear that a perpetual use restriction must attach to a

defined parcel of real property rather than simply some or any (or interchangeable

parcels of) real property.” Ibid.; see id. at 227 (stating that the taxpayer must grant

an easement over “a single, immutable parcel at the outset”).

      The Fourth Circuit concluded that the Belk easement did not constitute a

“qualified real property interest,” reasoning as follows:

              The Easement at issue fails to meet this requirement because
       the real property contributed to the Trust is not subject to a use
       restriction in perpetuity. The Easement purports to restrict develop-
       ment rights in perpetuity for a defined parcel of land, but upon satis-
       fying the conditions in the substitution provision, the taxpayers may
       remove land from that defined parcel and substitute other land.
       Thus, while the restriction may be perpetual, the restriction on “the
       real property” is not. * * * [Id. at 226.]

      The Fourth Circuit also rejected the taxpayers’ reliance on the saving clause.

According to the taxpayers, the saving clause barred implementation of a land

substitution if that amendment would prevent the allowance of a charitable

contribution deduction under section 170(h). As the Fourth Circuit noted, a “con-

dition subsequent” saving clause, which purports to recharacterize a transaction in

the event of some adverse future occurrence, generally will not be enforced by the

courts. See Belk III, 774 F.3d at 229 (citing authorities). The Fourth Circuit in
                                         -36-

Belk III applied this general rule, stating: “[W]ere we to apply the savings clause

as the Belks suggest, we would be * * * sanctioning the very same ‘trifling with

the judicial process’” that the Fourth Circuit had previously condemned. Id. at

230 (quoting Commissioner v. Procter, 142 F.2d 824, 827 (4th Cir. 1944), rev’g

and remanding a Memorandum Opinion of this Court).

      Shortly after the Fourth Circuit issued its opinion in Belk III, we decided

Balsam Mountain Invs., LLC v. Commissioner, T.C. Memo. 2015-43, 109 T.C.M.

(CCH) 1214. The terms of the easement there were similar to those in Belk, but

the developer’s ability to substitute land was more circumscribed. The deed

permitted “minor alterations to the boundary of the Conservation Area” if the trust

approved such substitutions after determining that the conservation purposes

would not be impaired. Id. at 1215. But a substitution could be effected only

within five years of the easement date, and it could result in removal of no more

than 5% of the original conservation area. Ibid. The Belk easement, by contrast,

imposed no time limit and no limit on how much acreage could be substituted.

      We held that these distinctions made no legal difference. “The easement

granted * * * in 2003 was not an interest in an identifiable, specific piece of real

property” because, for five years after 2003, the taxpayer retained the right to de-

velop up to 5% of that property. Ibid. As of 2003, therefore, “the easement did
                                         -37-

not constitute a ‘qualified real property interest’ of the type described in section

170(h)(2)(C).” Ibid. (citing elsewhere Belk I and Belk III).

      Four months later we decided Bosque Canyon Ranch, L.P. v. Commis-

sioner, T.C. Memo. 2015-130, 110 T.C.M. (CCH) 48, vacated and remanded sub

nom. BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017). That

case, like this one, involved conservation easements donated to NALT, and the

terms of the easements were very similar to those at issue here. The property as a

whole consisted of 3,744 acres, more than 90% of which were covered by two

conservation easements. A total of 235 acres, consisting of 47 five-acre homesite

parcels, was dedicated to residential development. Id. at 50.

      Although the easements barred residential or commercial development with-

in the conserved area, the developer retained numerous rights resembling those

reserved by Pine Mountain. Specifically, the developer reserved the rights, within

the conservation area, “to raise livestock; hunt; fish; trap; cut down trees; and

construct buildings, recreational facilities, skeet shooting stations, deer hunting

stands, wildlife viewing towers, fences, ponds, roads, trails, and wells.” Id. at 49.

As is also true here, the developer in Bosque Canyon reserved the right, by mutual

agreement with NALT, to change the location of the homesite parcels within the

conservation area. This right was subject to the proviso that any modification
                                         -38-

could not, in NALT’s reasonable judgment, “directly or indirectly result in any

material adverse effect on any of the Conservation Purposes,” and to the further

proviso that “[t]he area of each homesite parcel * * * [could] not be increased.”

Ibid.

        The taxpayers urged that their easement differed from the Belk and Balsam

Mountain easements in a critical respect. Whereas the latter easements permitted

the exterior boundaries of the conservation area to be modified, the Bosque Can-

yon easement did not. Rather, it permitted the developer to change the boundaries

only of the homesite parcels--i.e., to modify their location within the conservation

area, while leaving the perimeter of the conservation area unchanged. Bosque

Canyon Ranch, L.P., 110 T.C.M. (CCH) at 51. The taxpayers contended that the

easement thus imposed a perpetual use restriction on “a defined parcel of real

property,” as the Fourth Circuit and this Court in Belk had demanded. Belk III,

774 F.3d at 225; see Belk II, 105 T.C.M. (CCH) at 1879 (requiring that the

easement restrict “an identifiable, specific piece of real property”).

        We were again unpersuaded by this distinction between the easement terms.

If the developer exercised his right to change the location of homesites within the

conservation area, “property protected by the * * * easements, at the time they

were granted, could subsequently lose this protection.” Bosque Canyon Ranch,
                                         -39-

L.P., 110 T.C.M. (CCH) at 51. We accordingly concluded that “the restrictions on

the use of the property were not granted in perpetuity” and hence that the

easements did not constitute “qualified real property interest[s]” as defined by

section 170(h)(2). Ibid. (citing Belk I, 140 T.C. at 10-11).

      The U.S. Court of Appeals for the Fifth Circuit, in a divided opinion, vacat-

ed and remanded our decision in Bosque Canyon. BC Ranch II, L.P., 867 F.3d

547 (5th Cir. 2017). The majority “view[ed] Belk as distinguishable” and

regarded our reliance on Belk as misplaced. Id. at 552. Whereas the land-

substitution provision in Belk could lead to modification of the easement’s

exterior boundaries, the Bosque Canyon easement “d[id] not allow any change in

the exterior boundaries of the easements or in their acreages.” Ibid. The majority

found it dispositive that “neither the exterior boundaries nor the total acreage of

the instant easements will ever change: Only the lot lines on one or more [of] the

five-acre homesite parcels are potentially subject to change and then only (1)

within the easements and (2) with NALT’s consent.” Ibid. Citing the “need for

flexibility to address changing or unforeseen conditions,” the majority concluded

that “any potential future tweaking of the boundaries of * * * homesite locations

cannot conceivably detract from the conservation purposes for which these ease-

ments were granted.” Id. at 553-554. The court accordingly held that “the home-
                                        -40-

site adjustment provision does not prevent the grants of the conservation ease-

ments * * * from satisfying the perpetuity requirement of §170(h)(2)(C).” Id. at

554.

       Judge Dennis dissented from the majority’s disposition of this issue, finding

“the attempted distinction [of Belk] unpersuasive.” Id. at 562 (Dennis, J., dissent-

ing). Although relocating homesites would not affect the easement’s exterior

boundaries, it would enable the developer to “lift the easement and swap the pre-

viously unprotected * * * homesites for initially protected land, thereby converting

conservation habitat into residential development.” Ibid. Judge Dennis empha-

sized that the homesite adjustment provision would allow the developer “to move

the homesites anywhere within the outer boundaries of the ranch tract,” with no

limitation on how many homesites could be moved, how often this could be done,

or how far into the future such relocations could occur. Id. at 563.

       “By permitting the * * * [developer] to change the placement of the

homesite parcels,” Judge Dennis explained, “the modification provision expressly

permits the substitution of nonprotected land * * * for land that was originally

protected by the easement,” thus “chang[ing] what real property is subject to the

easement.” Id. at 562. In Judge Dennis’ view, the fact that “the substitution

occurs within the outer boundaries of the * * * ranch tract makes no meaningful
                                         -41-

difference,” because the easements in any event “do not attach in perpetuity to the

initially defined parcel of real property.” Id. at 562-563. In short, “[b]ecause the

easement does not govern a ‘defined and static’ parcel of land,” Judge Dennis con-

cluded that it “does not constitute a ‘qualified conservation contribution’ under §

170(h).” Id. at 562 (citing Belk III, 774 F.3d at 226-227).

      C.     Analysis

      Because Pine Mountain had its principal place of business in Alabama, ap-

peal of this case (absent stipulation to the contrary) would lie to the U.S. Court of

Appeals for the Eleventh Circuit. That court has not addressed the question pre-

sented here. Nor have we discovered, in other opinions of that court, any indica-

tions as to how it might rule on this issue.

      We are not bound to follow the Fifth Circuit’s BC Ranch II, L.P. opinion in

cases appealable in other circuits. See Golsen v. Commissioner, 54 T.C. 742,

756-757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Upon careful reconsidera-

tion of our precedents and the relevant appellate opinions, we are not persuaded to

abandon our earlier view. We think the Fourth Circuit’s analysis of this issue in

Belk was correct, and we think that Judge Dennis was correct in believing that the

scenario presented by Bosque Canyon (and this case) cannot meaningfully be

distinguished from the scenario presented by Belk.
                                        -42-

      Our thinking about this issue is well captured by the “Swiss cheese” meta-

phor that Judge Dennis employed. See BC Ranch II, L.P., 867 F.3d at 562

(Dennis, J., dissenting). For this purpose one must imagine the entire easement-

related area as a large slice of Emmenthaler cheese. The cheese represents the real

property initially restricted by the conservation easement. The holes represent the

zones reserved for commercial or residential development. Section 170(h)(2)(C)

requires that the land restricted by the conservation easement be protected from

development in perpetuity. The statute thus bars the developer from putting any

new holes in the cheese.

      As relevant here, the developer could consider two techniques for putting

new holes in the cheese. First, he could put new holes in the cheese and make up

for it by adding an equal amount of previously unprotected land to the conserva-

tion area. That was the pattern in Belk. Alternatively, he could put new holes in

the cheese and make up for it by plugging the same number of holes elsewhere in

the conservation area. That was the pattern in Bosque Canyon and in the instant

case. In each instance the acreage subject to the easement remains exactly the

same. But in both instances the developer has achieved the impermissible objec-

tive of putting new holes in the cheese, i.e., subjecting to commercial or residential
                                        -43-

development land that was supposed to be protected in perpetuity from such devel-

opment.6

      Like Judge Dennis, we are unable to discern any meaningful legal distinc-

tion between these two paths to the same bottom line. In both scenarios, the de-

veloper has retained the right to develop a portion of the conservation area by sub-

stituting other property. The only difference among Belk, Bosque Canyon, and

this case is whether the other property lies inside or adjacent to the conservation

area. We do not see why it matters where the other property lies. What matters is

whether there is a perpetual use restriction on “the real property” covered by the

easement at the time the easement is granted. Sec. 170(h)(2)(C).

      6
        In Bosque Canyon and in this case, the easement was held by NALT, the
deed of easement was based on a model NALT form, and the terms of the ease-
ment were substantially identical. The dissenting opinion nevertheless urges that
Bosque Canyon is distinguishable because the homesite parcels in that case “were
completely free of the easements.” See dissenting op. p. 78. We do not find the
distinction meaningful, and in any event it is a distinction without a difference. In
Bosque Canyon, the conservation area was defined as a tract of land, excluding 25
homesite parcels described in an attachment. See 100 T.C.M. (CCH) at 49-51.
Here, the 2005 and 2006 conservation areas are defined as tracts of land, with the
developer reserving the right to construct therein 16 homesite parcels described in
an attachment. In both cases, the homesite parcels are exempt from the conser-
vation easement because they permit residential development that is otherwise for-
bidden. See infra pp. 49-51. In any event, the key point under section
170(h)(2)(C) is that both easements have the same defect. By permitting the
homesite parcels to be relocated to other sections of the conservation area, the
deed allows the developer to subject to residential development land that was
supposed to be protected in perpetuity from any form of development.
                                         -44-

      We will accordingly adhere in this case to the approach we embraced in

Belk and Bosque Canyon. Adopting that approach, our analysis of the three ease-

ments at issue is as follows.

             1.     2006 Easement

      We begin with the 2006 easement because it presents a somewhat novel pat-

tern. The 2006 easement permits Pine Mountain to establish within the 2006 Con-

servation Area six Building Areas, each as large as one acre. Each Building Area

may include a single-family dwelling plus “a shed, garage, gazebo, and pool,” and

the owner of each Building Area may construct a 5,000-square-foot barn within

1,000 feet of its perimeter. However, the 2006 easement does not specify, either

in the deed itself or in an attached plat, the locations of the six Building Areas.

And it places no limitations on where within the 2006 Conservation Area such

Building Areas may be located, except to say that these locations must be “ap-

proved in advance” by NALT.

      It seems clear to us that the 2006 easement does not embody “a restriction

(granted in perpetuity) on the use which may be made of the real property.” See

sec. 170(h)(2)(C). Although the restriction placed by the easement is perpetual,

“the restriction on ‘the real property’ is not.” Belk III, 774 F.3d at 226 (quoting

section 170(h)(2)(C)). Pine Mountain remained free to build a six-acre residential
                                         -45-

development within the 2006 Conservation Area, thus converting to commercial

use land that was supposed to be protected in perpetuity from development.

Indeed, it was impossible to define, when the 2006 easement was granted, what

“real property” would actually be restricted from development, because the

residential lots could literally be placed anywhere within the 2006 Conservation

Area. As a result, the perpetual use restriction did not attach at the outset “to a

defined parcel of real property” or to “a single, immutable parcel” of land. Id. at

225, 227.

      NALT had to approve the precise location of the six residences within the

2006 Conservation Area. By so doing, NALT might minimize the derogation of

conservation values that the subdivision caused and perhaps ensure that “the con-

servation purpose [wa]s protected in perpetuity.” Sec. 170(h)(5)(A). But this does

not change the fact that the easement, when granted, did not create a perpetual use

restriction on a defined parcel of land, as required by section 170(h)(2)(C). Be-

cause the 2006 easement does not constitute a “qualified real property interest,”

Pine Mountain could not claim for the donation of this interest a charitable contri-

bution deduction under section 170(f)(3)(B)(iii) and (h)(1).
                                         -46-

             2.     2005 Easement

      Most of the 2005 Conservation Area consists of ridgelines and higher eleva-

tion land in the northwest portion of Parcel 2. The balance consists of lower lying

land around a man-made lake near the center of Parcel 2. Overall the easement

covers about 47% of the acreage of Parcel 2.

      Apart from the acreages involved, the 2005 easement is substantially similar

to the easements involved in Bosque Canyon. It reserves to Pine Mountain or in-

dividual homeowners the rights to construct one single-family dwelling and appur-

tenant structures within each of ten “Building Areas” inside the 2005 Conserva-

tion Area. Although the deed itself does not limit the size or location of these ten

Building Areas, an attached plat shows each Building Area as a one-acre lot situ-

ated around the man-made lake.

      Article 3.16, however, provides that the “boundaries of the Building Areas

may be modified by mutual agreement” of Pine Mountain and NALT. Such modi-

fication is subject to the proviso that “the areas of a Building Area shall not be in-

creased” and that the boundary modifications shall not, in NALT’s “reasonable

judgment,” adversely affect conservation purposes. Article 3.16 thus permits the

Building Areas to be relocated (with NALT’s consent) to higher elevation zones or

to other locations within the 2005 Conservation Area.
                                          -47-

      Besides permitting the relocation of homesites, the easement permits Pine

Mountain to build within the 2005 Conservation Area other structures and facili-

ties appurtenant to the residential development. These include:

      • at least ten barns, each of which may include “an apartment for occupancy

by a caretaker and such caretaker’s family”;

      • two scenic overlooks, one of which “may include a guest bedroom,” occu-

pying up to six acres in the aggregate;

      • at least one riding stable and indoor riding ring, occupying up to ten acres

in the aggregate;

      • up to 14 piers and boat launches, which may include four “common boat

launch facilit[ies] with associated boat storage building[s]”;

      • up to five ponds, occupying up to 25 acres in the aggregate, which may

apparently be encumbered by piers and boat launch facilities; and

      • a reasonable (but otherwise unlimited) number of wildlife hunting stands

or blinds to facilitate hunting and shooting by homeowners and their guests.

      The easement does not specify the location of any of these facilities, and

their location could change if the location of the Building Areas changed. Al-

though NALT’s approval is generally required, its approval for certain facilities

(such as the man-made ponds) “shall not be unreasonably withheld.” For other
                                         -48-

facilities, such as the piers, boat launches, boat storage buildings, and hunting

blinds, no approval or prior review by NALT is needed.

      We conclude that the rights reserved to Pine Mountain, considered in their

entirety, prevent the 2005 easement from constituting a “qualified real property in-

terest.” See sec. 170(h)(2). As in Bosque Canyon, the easement deed allows all

ten residences to be moved from the man-made lake to other, possibly more

desirable, locations within the 2005 Conservation Area. And as in Bosque

Canyon, the easement places no limits on how many homesites can be moved, how

often this can be done, or how far into the future such relocations can occur.

      The 2005 easement also permits Pine Mountain to construct, anywhere

within the 2005 Conservation Area, a variety of other buildings. At least 11 of

these buildings may include additional living quarters. All of these facilities are

intended for the recreational use of the homeowners and their guests. Collectively,

they have the effect of expanding the residential development well beyond the ten

acres consumed by the Building Areas alone. Returning to Judge Dennis’ “Swiss

cheese” metaphor, Pine Mountain has reserved the right, not only to put new holes

in the cheese for the ten residences, but to put 20 acres of extra holes in the cheese

for structures appurtenant to these residences.
                                        -49-

      The dissenting opinion urges that the 2005 and 2006 easements satisfy the

granted-in-perpetuity requirement of section 170(h)(2)(C), notwithstanding the

developer’s right to take back conserved land by relocating homesites, because the

16 Building Areas “are still within the * * * easements.” See dissenting op. p. 81.

But while the homesites are concededly within the outer perimeter of the con-

servation area, they are not “subject to the easements” in any meaningful sense.

The stated purpose of the easements is to protect natural habitats of fish and wild-

life and to preserve open space that provides scenic enjoyment to the general pub-

lic. The easement deeds accordingly forbid all residential development and speci-

fically prohibit the erection of any “structure,” defined to include any “building,

platform, shed, bin, shelter” or any other “assembly of material forming a con-

struction for occupancy.”

      In each of the 16 Building Areas the developer can construct a single-family

residence and “other structures customarily accessory to residential use, including

but not limited to a shed, garage, gazebo, and pool,” as well as a 5,000-square-foot

barn that may include “an apartment for occupancy by a caretaker and such care-

taker’s family.” As sites for a standard upscale residential development, the 16

Building Areas are exempt from the conservation easement because they permit

uses antithetical to its conservation purposes.
                                         -50-

      The dissent speculates that the homeowners might still be subject to other

restrictions listed in article 2 of the easement deed. See dissenting op. pp. 74, 91-

92. But the dissent does not cite a single operative restriction that would actually

be imposed by the easement. As fee simple owners of real property, the

homeowners would be exempt from the easement’s restrictions on erecting

structures, building roads, building driveways, cutting trees, removing rock and

topsoil, drilling wells, placing signs, and engaging in recreational activities.

Homeowners would presumably be barred from converting their single-family

homes to commercial or industrial use. See id. p. 92. But that restriction is

ultimately imposed not by the easement but by the zoning ordinance, which

permits only agricultural use and “planned unit development.” The only other

restriction mentioned by the dissent is “the prohibition on dumping trash on the

land.” See ibid. But the dissent offers no record evidence to support the

proposition that a fee simple owner of a one-acre residential tract would be

prevented from doing this in his back yard.

      Our dissenting colleague insists that the distinction he draws between the

easement terms in Bosque Canyon and in this case “is a substantive distinction,

not merely a difference in names.” See id. p. 81. We disagree. The dissent would

make the outcome turn on a purely formal choice exercised by the draftsman when
                                         -51-

defining the metes and bounds of the conservation easement. It makes no differ-

ence to anyone--the land trust, the developer, or the homeowners--whether the 16

Building Areas are within or without those metes and bounds. Either way, the

developer has the right to construct a 16-unit residential development that is ex-

empt, for all practical purposes, from the restrictions imposed by the easement.

      For these reasons, we conclude that the perpetual use restriction set forth in

the 2005 easement did not attach, as required by section 170(h)(2)(C), “to a de-

fined parcel of real property” or to “a single, immutable parcel” of land. See Belk

III, 774 F.3d at 225, 227. Because the 2005 easement therefore does not constitute

a “qualified real property interest,” Pine Mountain could not claim for the

donation of this interest a charitable contribution deduction under section

170(f)(3)(B)(iii) and (h)(1).

             3.     2007 Easement

      Unlike the other two easements, the 2007 easement designates no “Building

Areas” and permits no residential construction anywhere within the 2007 Conser-

vation Area. It likewise reserves to Pine Mountain no rights to construct scenic

overlooks, barns, riding stables, boat storage buildings, piers, or other structures

appurtenant to residential development.
                                          -52-

      Apart from hunting blinds, the only structure permitted within the 2007

Conservation Area is a water tower to which may be attached underground pipes

to provide water service to other parts of the Pine Mountain property. Although

the water tower, if poorly placed, could conceivably affect whether “the conserva-

tion purpose is protected in perpetuity” under section 170(h)(5)(A), we conclude

that it has no effect on whether the use restriction attaches in perpetuity “to a de-

fined parcel of real property” as required by section 170(h)(2)(C). See Belk III,

774 F.3d at 225. Because the 2007 easement does not permit Pine Mountain,

under any circumstances, to place any new holes in the cheese, we hold that it con-

stitutes a “qualified real property interest.”

             4.     Respondent’s Other Arguments

      Holding as we do that the 2007 easement satisfies the “granted in perpetu-

ity” requirement of section 170(h)(2)(C), we must address the other contentions

respondent advances against Pine Mountain’s claim to a charitable contribution

deduction. Respondent advances two such arguments. One is based on section

170(h)(1)(C), which requires that the use restriction be “exclusively for conser-

vation purposes.” The other argument is based on the general provision of the

easement deed that permits amendments.
                                         -53-

        Respondent agrees that the easement protects at least one of the “conserva-

tion purposes” enumerated in section 170(h)(4). But he contends the 2007 ease-

ment was not made “exclusively for conservation purposes” under section

170(h)(1)(C) because “the conservation purpose [wa]s not protected in perpetu-

ity.” See sec. 170(h)(5)(A). Petitioner presented testimony from an NALT biolo-

gist who concluded that none of the rights reserved to Pine Mountain would im-

pair the easement’s conservation purposes or prevent those purposes from being

“protected in perpetuity.” Respondent adduced no contrary evidence, in the form

of expert testimony or otherwise.

        In prior cases we have treated the question whether a conservation interest

is “protected in perpetuity” as a question of fact. See Glass v. Commissioner, 124

T.C. 258, 282-283 (2005), aff’d, 471 F.3d 698 (6th Cir. 2006); Gorra v. Com-

missioner, T.C. Memo. 2013-254, 106 T.C.M. (CCH) 523, 531-532; Butler v.

Commissioner, T.C. Memo. 2012-72, 103 T.C.M. (CCH) 1359, 1366-1367, 1384.

There was no conflicting testimony as to whether the conservation purposes un-

derlying the 2007 easement were protected in perpetuity. We find as a fact that

these purposes were so protected and for that reason reject respondent’s first argu-

ment.
                                        -54-

      Respondent’s second argument is based on article 6.7, the general amend-

ment provision of the easement deed. The parties there recite that “circumstances

could arise which could justify the modification of certain of the restrictions con-

tained in this Conservation Easement.” Article 6.7 accordingly provides that Pine

Mountain and NALT “shall mutually have the right, in their sole discretion, to ag-

ree to amendments to this Conservation Easement which are not inconsistent with

the Conservation Purposes.” It appears that many conservation deeds of easement

include amendment provisions of this sort.7

      Respondent contends that article 6.7 could enable the parties to amend the

2007 easement in ways that would clearly violate the statutory “perpetuity” re-

quirements, e.g., by reducing the size of the 2007 Conservation Area or by permit-

ting residential construction within it. But it is hard to imagine how NALT could

conscientiously find such amendments to be “consistent with the conservation pur-

poses” set forth in the easement. Respondent thus appears to contend that the

easement’s restrictions should be deemed “nonperpetual” at the outset because of

      7
       According to the Land Trust Alliance, Inc., land trusts in the United States
held more than 40,000 conservation easements in 2015, and amendment provi-
sions substantially similar to article 6.7 are “widely used” in these documents. See
Amicus Curiae Brief on Behalf of Land Trust Alliance, Inc., at 1,10-11, Sells v.
Commissioner, T.C. Dkt. No. 6267-12 (filed March 22, 2017).
                                         -55-

the risk that the qualified organization might be unfaithful to the charitable pur-

poses on which its exemption rests.

      Both we and the Courts of Appeals have rejected similar arguments previ-

ously. For example, in Simmons v. Commissioner, 646 F.3d 6 (D.C. Cir. 2011),

aff’g T.C. Memo. 2009-208, 98 T.C.M. (CCH) 211, the historic preservation deed

of easement reserved to the trust the right to consent to changes in the conserved

facade and to abandon certain rights under the easement. We held that this power

did not disqualify the easement under section 170(h). Simmons v. Commissioner,

98 T.C.M. (CCH) at 214. The D.C. Circuit affirmed, holding that “[t]he clauses

permitting consent and abandonment, upon which the Commissioner so heavily

relies, have no discrete effect upon the perpetuity of the easements.” Simmons,

646 F.3d at 10. As the D.C. Circuit noted, “[a]ny donee might fail to enforce a

conservation easement, with or without a clause stating that it may consent or

abandon its rights, and a tax-exempt organization would do so at its peril.” Id.;

accord, e.g., Kaufman v. Shulman, 687 F.3d 21, 27-28 (1st Cir. 2012), vacating in

part 134 T.C. 182 (2010) and 136 T.C. 294 (2011); Friedberg v. Commissioner,
                                         -56-

T.C. Memo. 2011-238, 102 T.C.M. (CCH) 356, 372-373, supplemented by T.C.

Memo. 2013-224.8

      The 2007 easement involves a conveyance, which is a form of contract.

Generally speaking, the parties to a contract are free to amend it, whether or not

they explicitly reserve the right to do so. See 2 Restatement, Contracts 2d, sec.

311 cmt. a (1981). Viewed from this perspective, this portion of article 6.7 is

reasonably regarded as a limiting provision, confining the permissible subset of

amendments to those that would not be “inconsistent with the Conservation Pur-

poses.” This text tracks the Secretary’s regulation governing the “enforceable in

perpetuity” requirement, which provides that any retained interest “must be subject

to legally enforceable restrictions * * * that will prevent uses of the retained

interest inconsistent with the conservation purposes of the donation.” Sec.

1.170A-14(g)(1), Income Tax Regs.

      Respondent’s argument would apparently prevent the donor of any ease-

ment from qualifying for a charitable contribution deduction under section 170(h)

if the easement permitted amendments. We find no support for that argument in

      8
        Cf. Butler,103 T.C.M. (CCH) at 1381, 1384 (holding that a 2003 conserva-
tion easement qualified for deduction under section 170(h) even though it had ac-
tually been amended). The Belk easement included an amendment provision
virtually identical to that involved here. See Belk I, 140 T.C. at 4 n.8. We did not
find that provision (as opposed to the land substitution provision) problematic.
                                         -57-

the statute, the regulations, the decided cases, or the legislative policy underlying

the statute. We accordingly reject both of respondent’s additional arguments

against Pine Mountain’s claim to a charitable contribution deduction for the 2007

easement.

      D.     Valuation of the 2007 Easement

      Petitioner argues for an overall charitable contribution deduction of $97.37

million, of which $9.11 million is attributable to the 2007 easement. Petitioner

paid $37 million for the entire Pine Mountain property, comprising 6,224 acres.

The three easements collectively cover only 1,283 acres, or 20.6% of the property,

leaving 79.4% available for commercial or residential development. Because the

easements were placed on the various parcels within two years of their acquisition,

petitioner’s valuations presuppose a large increase in value over a very short time.

The limited partners paid about $45 million for their 50% interest in the partner-

ship, and petitioner’s valuations would afford them a charitable contribution de-

duction of $48.69 million, $3.69 million more than their entire capital investment.

And they would still own a 50% interest in the remaining 4,941 acres, all of which

is available for commercial or residential development.

      Given our disposition, we need determine the fair market value only of the

2007 easement. That value is determined in a separate Memorandum Opinion,
                                     -58-

T.C. Memo. 2018-214, filed concurrently with this Opinion. To implement the

foregoing,

                                            An appropriate decision will be

                                    entered.

      Reviewed by the Court.

    FOLEY, GALE, THORNTON, MARVEL, GUSTAFSON, KERRIGAN,
BUCH, NEGA, PUGH, and ASHFORD, JJ., agree with this opinion of the Court.
                                        -59-

      MORRISON, J., dissenting: The opinion of the Court holds that neither the

2005 nor the 2006 easement is an interest in real property that is a perpetual

restriction on the use of real property within the meaning of section 170(h)(2)(C)--

primarily because the 2005 easement deed allows the owner of the underlying land

to build a house on each of 10 building areas and because the 2006 easement deed

allows the owner of the underlying land to build a house on each of 6 building

areas. I disagree. Despite these building rights, the land in the 16 building areas

is still subject to the easements. See infra part I. Therefore, section 170(h)(2)(C)

does not preclude deductions for the contributions of the 2005 and 2006

easements. I would, however, disallow a deduction for the contribution of the

2006 easement on another ground: The easement does not protect conservation

purposes in perpetuity under section 170(h)(5)(A). See infra part II. As for the

contribution of the 2005 easement, I would allow a deduction of $27,904,500.

This is the value of the 2005 easement, in my view. See infra part III.

      I explain these views in the opinion below, which has three parts:

I.    Each of the 2005, 2006, and 2007 easements is an interest in real property

      that is a perpetual restriction on the use of real property within the meaning

      of section 170(h)(2)(C) and is therefore a “qualified real property interest”

      within the meaning of section 170(h)(1)(A).
                                          -60-

II.    The 2005 and 2007 easements protect conservation purposes in perpetuity

       within the meaning of section 170(h)(5)(A). However, the 2006 easement

       does not. Therefore it was not contributed exclusively for conservation

       purposes. See sec. 170(h)(1)(C).

III.   The fair market value of the 2005 easement is $27,904,500.

       Some necessary background follows.

       A deduction is allowed for a charitable contribution. Sec. 170(a)(1); sec.

1.170A-1(c)(1), Income Tax Regs. However, a general rule in section

170(f)(3)(A)–subject to exceptions--prohibits a deduction for a charitable

contribution of an interest in property which consists of less than the taxpayer’s

entire interest in the property. See Graev v. Commissioner, 140 T.C. 377, 391

(2013); sec. 1.170A-14(a), Income Tax Regs. It is undisputed that each of the

three easements granted by Pine Mountain Preserve, LLLP (Pine Mountain), is an

interest in property consisting of less than Pine Mountain’s entire interest in the

property. Therefore, section 170(f)(3)(A) bars Pine Mountain from deducting

charitable contributions for the 2005, 2006 and 2007 easements--unless one of the

section 170(f)(3)(A) exceptions applies. One such exception is for a contribution

that constitutes a “qualified conservation contribution”. Sec. 170(f)(3)(B)(iii).

This is the exception that Pine Mountain’s tax matters partner, Eddleman
                                          -61-

Properties (petitioner), relies on to attempt to avoid the partial-interest rule of

section 170(f)(3)(A).

      A “qualified conservation contribution” is defined by section 170(h)(1) as

      a contribution--

                    (A) of a qualified real property interest,

                    (B) to a qualified organization,

                    (C) exclusively for conservation purposes.

      As can be seen from the text of section 170(h)(1) quoted above, one of the

three requirements for a contribution to be a “qualified conservation contribution”

is that the contribution be “of a qualified real property interest”. Sec.

170(h)(1)(A). A “qualified real property interest” is defined by section 170(h)(2)

as

      any of the following interests in real property:

                   (A) the entire interest of the donor other than a qualified
             mineral interest,[1]

      1
        The term “qualified mineral interest” is defined by sec. 170(h)(6) as (1)
subsurface oil, gas, or other minerals and (2) the right to access such minerals. It
has been explained that the phrase “the entire interest of the donor other than a
qualified mineral interest” in sec. 170(h)(2)(A) refers to a “gift with retained
mineral rights”. Janet L. Madden, “Tax Incentives for Land Conservation: The
Charitable Contribution Deduction for Gifts of Conservation Easements”, 11 B.C.
Envtl. Aff. L. Rev. 105, 133 (1983) (citing sec. 170(h)(6)); see also Kelly A. Cole,
                                                                         (continued...)
                                          -62-

                    (B) a remainder interest, and

                  (C) a restriction (granted in perpetuity) on the use which may
             be made of the real property.

Eddleman Properties asserts that the easements contributed by Pine Mountain

Preserve are in the section 170(h)(2)(C) category, i.e., that the easements are

interests in real property that are perpetual restrictions on the use of the real

property. Such an interest is also referred to as a “perpetual conservation

restriction” by the regulation governing qualified conservation contributions,

section 1.170A-14, Income Tax Regs. See id. para. (b)(2).

      The second requirement for a contribution to be a “qualified conservation

contribution” is that the contribution be made “to a qualified organization”. Sec.

170(h)(3). The parties agree that NALT is a “qualified organization”. Therefore,

there is no dispute about the second requirement.

      1
       (...continued)
“A Market-Based Approach to the Protection of Instream Flow: Allowing a
Charitable Contribution Deduction for the Donation of a Conservation Easement
in Water Rights”, 14 Hastings W.-Nw J. Envtl. L. & Pol’y 1153, 1160 (2008)
(“Section 170(h)(6) * * * means that a landowner may sever the surface estate
from the subsurface estate. Thus, the donor landowner may qualify for a
charitable deduction for donating the development rights to his or her entire
surface estate while retaining his or her rights to the subsurface estate. Because of
the explicit exclusion, the donor’s deduction is not barred by the ‘entire interest’
requirement.”).
                                         -63-

      The third requirement for a contribution to be a “qualified conservation

contribution” is that the contribution be “exclusively for conservation purposes.”

Sec. 170(h)(1)(C). Section 170(h)(5)(A) elaborates on this requirement. It

provides: “A contribution shall not be treated as exclusively for conservation

purposes unless the conservation purpose is protected in perpetuity.”

      The IRS’s arguments against the deductions for the easements can be

summarized in general terms as follows: (1) none of the three easements meets the

definition of a qualified real property interest, see sec. 170(h)(2); (2) even if each

easement meets the definition of a qualified real property interest, the easements

do not protect conservation purposes in perpetuity, and therefore, under section

170(h)(5)(A), the contributions of the easements are not exclusively for

conservation purposes; and (3) even if each of the easements is a qualified real

property interest and protects the conservation purposes in perpetuity, the values

of the easements are lower than the values urged by Eddleman Properties and

therefore the correct amounts of the deductions are less than the amounts sought

by Eddleman Properties. As to the third IRS argument--regarding the values of

the easements--the following table shows the amounts in dispute:
                                         -64-

                   Values of the 2005, 2006, and 2007 easements

           Year                          IRS                 Eddleman Properties
           2005                       $1,119,000                $54,690,000
           2006                          998,000                  33,570,000
           2007                          449,000                   9,110,000

The three IRS arguments are discussed in greater detail infra parts I, II, and III,

respectively.

      I now address the burden of proof. The petitioner is Eddleman Properties.

Pursuant to the usual rule of Tax Court litigation, the burden of proof is on the

petitioner. This burden includes both the burden of production and the burden of

persuasion. Cozzi v. Commissioner, 88 T.C. 435, 443-444 (1987). The burden of

production will be satisfied if the petitioner comes forward with enough evidence

to support a factual finding. Estate of Gilford v. Commissioner, 88 T.C. 38, 51

(1987). The burden of persuasion will be satisfied if the petitioner shows that, on

the basis of the evidence, the fact is more probable than not. Merkel v.

Commissioner, 109 T.C. 463, 476 (1997) (citing 2 McCormick on Evidence, sec.

339, at 439 (4th ed. 1992)), aff’d, 192 F.3d 844 (9th Cir. 1999). Although

Eddleman Properties bears the burden of proof,2 my view of the facts would be the

      2
        Eddleman Properties filed discovery motions seeking to ascertain the
theories the IRS would assert against the charitable-contribution deductions for
the three easements. In resolving the discovery motions, the Court held a pretrial
                                                                      (continued...)
                                          -65-

same even if the IRS were to bear the burden of proof. I agree with the findings of

fact in the section of the opinion of the Court titled “Findings of Fact”.

I.    Each of the easements is a “qualified real property interest”.

      As explained above, a “qualified real property interest” includes an interest

in real property that is a restriction (granted in perpetuity) on the use of the real

property. Sec. 170(h)(2)(C). In Belk v. Commissioner (Belk I), 140 T.C. 1, 10-11

(2013), supplemented by Belk v. Commissioner (Belk II), T.C. Memo. 2013-54,

aff’d, Belk v. Commissioner (Belk III), 774 F.3d 221 (4th Cir. 2014), we held that

a conservation easement was not such an interest if the donor of the easement

could change what lands were subject to the easement. Analogizing the Pine

Mountain easements to the easement in Belk, the IRS argues that none of the Pine

Mountain easements is a “qualified real property interest”.

      Before evaluating the IRS’s argument, it is first helpful to describe the

relevant provisions of the 2005 easement deed. The 2005 easement deed is a

      2
        (...continued)
hearing on March 18, 2015, in which it required the IRS to identify all of its
theories at the hearing or bear the burden of proof on any theories not so
identified. Eddleman Properties suggests that, at the hearing, the IRS failed to
identify its argument that the easements did not protect conservation purposes in
perpetuity within the meaning of sec. 170(h)(5)(A). This suggestion is made on
page 33, n. 13 of Eddleman Properties’ answering brief. I disagree with the
suggestion. The IRS described this argument at the hearing. Its description is
found on pages 25-28 of the hearing transcript.
                                         -66-

recorded agreement between Pine Mountain and NALT. Article 1 of the easement

deed grants to NALT a “perpetual” easement over the “conservation area”.

Directly preceding article 1 is the preamble to the easement deed, which defines

the conservation area as a 559.48-acre area of land identified in exhibits A and B

attached to the easement deed. These documents--consisting of three maps and a

description of “metes and bounds”--set forth the exact boundaries of the 559.48

acres of land. Article 2 of the easement deed provides that Pine Mountain and any

future owners of the conservation area are bound by the restrictions in article 2 on

their use of the conservation area, “subject to and excepting only” the rights

reserved to them in article 3. Article 2 contains many restrictions, one of which is

article 2.1, which prohibits the use of the conservation area for residential,

commercial, institutional, or industrial purposes. Article 3, which reserves various

rights to the landowner, permits the landowner to construct a house on each of 10

“building areas” within the conservation area. The size and location of each

building area is specified in the easement deed. The specified building areas are

clustered around a small pre-existing man-made lake. (The lake is entirely within

the 559-acre conservation area.) The total size of the building areas is 10 acres.

In addition to the houses, article 3 permits the construction of a 5,000-square-foot

barn within 1,000 feet of each of the 10 building areas, provided that the barn
                                          -67-

location is approved in advance by NALT. Article 3 permits the construction of

10 piers on the lake.

      As explained above, the boundaries of the 10 building areas are exactly

specified by the easement deed’s preamble and the documents attached to the

easement deed. However, article 3.16 allows the boundaries of the 10 building

areas to be modified by mutual agreement of (1) the owner of the portion of the

conservation area that is subject to the boundary modification and (2) NALT. A

boundary modification is permitted only if three conditions are met. First, the

modification of the boundary must not, in NALT’s reasonable judgment, directly

or indirectly result in any material adverse effect on any of the “conservation

purposes” of the easement. The “conservation purposes” of the easement are

defined in the preamble to the easement deed as the following: (1) preservation of

the conservation area as a relatively natural habitat of fish, wildlife, or plants or

similar ecosystem and (2) preservation of the conservation area as open space

which provides scenic enjoyment to the general public and yields a significant

public benefit. Second, the acreage of the building areas cannot be increased.

Third, the modification must be set forth in a recorded, written, amendment to the

easement deed signed by (1) the owner of the land in the portion of conservation

area that is subject to the boundary modification and (2) NALT.
                                          -68-

      Article 6.7 of the easement deed states that Pine Mountain and NALT

“recognize that circumstances could arise which would justify the modification of

certain of the restrictions contained in this Conservation Easement.” Article 6.7

provides that “[t]o this end”, NALT and the owner of the land in the conservation

area have the right “in their sole discretion” to agree to amendments to the

conservation easement deed which are not inconsistent with the conservation

purposes. Article 6.8 provides that the easement runs with the land and is binding

on Pine Mountain and any future owners of the land unless otherwise provided in

the easement deed.

      The IRS first contends that article 6.7 permits the external boundary of the

conservation area (that is, the boundary of the 559-acre area that is restricted by

the easement, as opposed to the boundaries of each of the building areas) to

change such that eased land could be substituted with non-eased land. Therefore,

the IRS contends that the 2005 easement is similar to the easement in Belk I, 140

T.C. at 3-4, which restricted the use of land in a defined “Conservation Area” but

permitted the replacement of land in the original conservation area with land

outside the original conservation area.

      The analogy is inapt. In my view, article 6.7 of the 2005 easement deed

does not permit the modification of the boundaries of the conservation area.
                                         -69-

Although article 6.7 permits amendments to the “[e]asement”, it does so expressly

to address those “circumstances” under which a “modification” to the

“restrictions” in the easement deed is justified. The word “restrictions” in article

6.7 is, in context of the other provisions in the easement deed, best interpreted as a

reference to the restrictions imposed on the use of the conservation area, not a

reference to the boundary of the conservation area. The “restrictions” of the

easement are set forth in article 2. Article 2 is not where the boundary of the

conservation area is identified. The boundary is identified in the preamble to the

easement deed through reference to documents attached to the easement deed.

Therefore, article 6.7 does not permit an amendment that would change the

boundary of the conservation area.

      The 2006 and 2007 easement deeds each contain an article 6.7 with the

same wording as article 6.7 in the 2005 easement deed. The IRS contends that the

ubiquitous article 6.7 similarly disqualifies each of the 2006 and 2007 easements

from being a “qualified real property interest”. For the reasons given above with

respect to the 2005 easement, however, I would hold that article 6.7 does not

prevent either of the 2006 and 2007 easements from being a “qualified real

property interest.” The existence of article 6.7 is the only reason the IRS contends

that the 2007 easement is not a “qualified real property interest”.
                                        -70-

      The opinion of the Court gives its own reasons for rejecting the IRS’s article

6.7 argument. I disagree with those reasons. The Court asserts that article 6.7 of

the easement deeds, which allows the easement deeds to be amended, does not

violate the granted-in-perpetuity requirement of section 170(h)(2)(C) because “it is

hard to imagine how NALT could conscientiously find such amendments to be

‘consistent with the conservation purposes’ set forth in the easement.” See op. Ct.

p. 54. While it is true that article 6.7 provides that no amendment can be agreed to

by Pine Mountain and NALT unless the amendment is not inconsistent with the

conservation purposes, this does not require NALT to review proposed

amendments to see whether the amendments comply with section 170(h)(2)(C).

Remember, section 170(h)(2)(C) requires the easement to be an “interest[] in real

property” that is “a restriction (granted in perpetuity) on the use which may be

made of the real property.” Section 170(h)(2)(C) does not refer to conservation

purposes. That concept is found in the other perpetuity test, section 170(h)(5)(A),

which bars a deduction “unless the conservation purpose is protected in

perpetuity.” The opinion of the Court mixes up the two tests and makes the

unsupported assumption that NALT will refuse to consent to amendments that

would bar a deduction for the donation of the easement under section

170(h)(2)(C). This unrealistically supposes that NALT will essentially act as a tax
                                          -71-

compliance officer. (The theory of the opinion of the Court is not advanced by

Eddleman Properties. The Court would have been on more solid ground had it

adopted my interpretation of article 6.7, that, as a matter of contractual

interpretation, article 6.7 does not allow changes to the boundaries of the

easement. This issue of interpretation was actually raised by the parties.) In

addition to making unfounded assumptions about NALT’s future behavior, the

opinion of the Court makes radical claims about the consequences of the IRS’s

interpretation of article 6.7. The Court asserts that article 6.7 is similar to the

amendment provisions in many other conservation easement deeds. See op. Ct.

p. 54. The Court supports this assertion by citing an amicus brief filed by the

Land Trust Alliance in another case, Sells v. Commissioner, T.C. Dkt. No. 6267-

12 (filed March 22, 2017). See op. Ct. note 7. This Sells brief, according to the

opinion of the Court, says that “amendment provisions substantially similar to

article 6.7 of the Pine Mountain easement deeds are ‘widely used’”. But the brief

actually states that the amendment provision in the easement deed in Sells is

widely used. The brief refers to the “widely used amendment provision in the

instant case [i.e., Sells]”. Amicus brief at 10, Sells v. Commissioner, T.C. Dkt.

No. 6267-12. This is a significant problem for the Court. The amendment clause

in the Sells easement deed is different from the amendment clause in the Pine
                                          -72-

Mountain easement deeds because the Sells easement deed does not refer to

“restrictions”, a word that is critical to my interpretation of article 6.7 of the Pine

Mountain easement deeds.3 Thus, the claim in the amicus brief in Sells is

irrelevant to Pine Mountain’s case. Furthermore, the Land Trust Alliance amicus

brief in Sells does not recite any specific words from the amendment clauses of

any easements. Thus, the Sells brief’s claim is unsupported. The Court

recognized a similar problem when the Land Trust Alliance moved to file an

amicus brief in Pine Mountain’s case that made the unsubstantiated claim that the

general amendment clause in the Pine Mountain deeds is widely used. The

proffered brief referred to the “widely used amendment provision in the instant

case [i.e., Pine Mountain’s case]”. The Court denied the motion by the Land Trust

Alliance to file an amicus brief in Pine Mountain’s case, explaining that the

      3
          Reprinted below is the amendment clause in the easement deed in Sells:

      24. Amendment. If circumstances arise under which an amendment
      to or modification of this Deed would be appropriate, Grantor and
      Grantee are free to jointly amend this Deed; provided that no
      amendment shall be allowed that will affect the qualification of this
      Conservation Easement or the status of Grantee under any applicable
      laws, including Code of Alabama § 35-18-1, et seq. or Section 170(h)
      of the Internal Revenue Code of 1954, as amended, and any
      amendment shall be consistent with the purpose of this Deed, and
      shall not affect its perpetual duration. Any such amendment shall be
      recorded in the official records of Calhoun County, Alabama.
                                         -73-

amicus brief does “not reliably inform the Court of the exact wording of the other

conservation easements.” Neither the amicus brief in Sells (which is relied on by

the opinion of the Court) nor the proposed amicus brief in Pine Mountain’s case is

reliable. Neither brief should affect our analysis of article 6.7. Finally, in

wrapping up its discussion of article 6.7, the opinion of the Court misleadingly

summarizes the IRS’s argument. It says that the IRS’s article 6.7 argument

“would apparently prevent the donor of any easement from qualifying for a

charitable contribution deduction under section 170(h) if the easement permitted

amendments.” See op. Ct. p. 56. Actually, the IRS argued only that the particular

amendment clause in the Pine Mountain easement deeds, found in article 6.7 of

each easement deed, prevented the donor of the easements from qualifying for a

deduction. See Opening Brief for Respondent, at 55-56. The IRS’s argument

regarding article 6.7 of the three Pine Mountain easement deeds is not an attack on

all amendment clauses in all easement deeds. In summary I dissent from the

various ways in which the opinion of the Court mishandles the article 6.7 issue:

      !      its claim that article 6.7 is widely used and its circumvention of the
             amicus order in this case to make this claim;

      !      its prediction that NALT will use its power under article 6.7 to act as
             a tax compliance officer for Pine Mountain, a speculation that is not
             urged by either party;
                                         -74-

      !      its failure to adopt my approach to this issue--which is to interpret the
             text of these particular easement deeds, no matter what others say, in
             holding that change in the easement boundaries is not what is
             permitted by article 6.7, thus resolving the issue raised by the parties
             in this case; and

      !      its mischaracterization of the IRS’s argument.

      Next the IRS argues that neither the 2005 easement nor the 2006 easement

is a “qualified real property interest” because of the following features of the two

easements: (1) the 2005 easement deed permits the owner of the land in the

conservation area to build 10 houses, (2) the 2006 easement deed permits the

owner of the land in the conservation area to build 6 houses, and (3) both

easement deeds permit the owner of the land in the conservation area to build

ancillary buildings (such as barns, stables, piers, boat launches, boat-storage

facilities, sheds, garages, gazebos, pools, and a lodge or clubhouse for guests),

driveways, and parking areas. In Belk I, 140 T.C. at 10, on which the IRS (and the

opinion of the Court) relies, the easement was held not to be a “qualified real

property interest” because the owner of the underlying land could “change what

property is subject to the conservation easement.” Although the 2005 and 2006

Pine Mountain easement deeds permit landowners to construct houses and

structures, they do not relieve the landowners of all of the restrictions of the

easements with respect to the areas on which the houses and structures are
                                          -75-

constructed. The 10-house provision in article 3 of the 2005 easement deed

permits the landowner to “construct, use and maintain within each of the ten (10)

areas designated as a ‘Building Area’ * * * one (1) single family dwelling and

other Structures customarily accessory to residential use”. This permission to

“construct, use and maintain” a dwelling constitutes an exception to some of the

restrictions set forth in article 2 of the easement deed. For example, it is an

exception to article 2.1, which in part prohibits the land in the conservation area

from being “used as a residence”, and is an exception to article 2.2, which

prohibits the building of any structure on the conservation area. However, there

are other restrictions in article 2, many of which remain in effect on the 10

building areas for the houses. Giving the owner the limited right to construct

buildings on a portion of the conservation area is thus not the same thing as

making that portion of the conservation area not subject to the easement. In my

view, this right to construct buildings does not cause the 2005 and 2006 easements

to fall outside the definition of a “qualified real property interest.”

      My view is consistent with our supplemental opinion in Belk II, at *9. This

supplemental opinion explained the reasons we denied the Belk taxpayer’s motion

for reconsideration of the original Opinion in Belk I. In Belk I, the Court had held

that an easement was not an interest in real property that was a perpetual
                                        -76-

restriction on the use of the real property because different land could be

substituted for the land subject to the easement. Id., 140 T.C. at 10. In the motion

for reconsideration, the taxpayer in Belk claimed that this holding was inconsistent

with Priv. Ltr. Rul. 200403044 (Jan. 16, 2004) and Priv. Ltr. Rul. 9603018 (Jan.

19, 1996). Belk II, at *8-*9.

      In Priv. Ltr. Rul. 200403044, the landowners had the right to construct

buildings on various building sites. The locations of the building sites were not

specified in the easement deed but had to be approved by the donee.4 Thus, the

right to build on the building sites in Priv. Ltr. Rul. 200403044 is analogous to the

      4
        In describing the provisions in the easement deed regarding the building
sites, Priv. Ltr. Rul. 200403044 (Jan. 16, 2004) stated:

      Only a limited number of building sites are reserved, and the location
      of those sites is subject to the approval of the Donee. Thus, the
      present case is similar to example (4) above; even though Taxpayer
      and Donee have not agreed to the location of the building sites in
      advance, the Donee must approve any proposed location of a building
      site and, consistent with its power and obligation to enforce the terms
      of the Easement, must ensure that the location of any proposed
      building site is consistent with the wildlife habitat purposes of the
      Easement.

The reference in the private letter ruling to “example (4)” is to sec. 1.170A-14(f),
Example (4), Income Tax Regs. In that example, an easement deed allowed the
construction of four houses on each of five nine-acre clusters, for a total of 20
houses, “subject to site and building plan approval by the donee organization”.
The regulation stated that a deduction for the contribution of the easement would
be allowable.
                                        -77-

right to build on the 6 building areas in the 2006 Pine Mountain easement: The

locations of the 6 building areas are not specified by the easement deed, but they

must be approved by the donee.5

      In the second private letter ruling cited by the taxpayer in Belk II, the

landowner had the right to construct houses on certain “building envelopes”. Priv.

Ltr. Rul. 9603018. The locations of the building envelopes were specified in the

easement deed but could be moved within the easement area with permission of

the donee. Id. Thus, the right to build on the building envelopes in Priv. Ltr. Rul.

      5
       Priv. Ltr. Rul. 9603018 (Jan. 19, 1996) described the right to construct the
houses as follows:

             Taxpayers reserve the right to construct one additional
      residence and associated improvements within Area C (which is
      identified on a map attached to the deed of easement as located near
      the edge of the Property but which taxpayers have represented is not
      visible from the road that borders the edge of the Property), additional
      associated improvements within Area A (which already contains a
      residence), and no more than five new residences and associated
      improvements within Limited Building Sites associated with
      specifically designated Building Envelopes. The residential
      construction permitted on these parcels does not require Donee
      approval, but may not interfere with the essential scenic quality of he
      Property or with the governmental conservation policies being
      furthered by the Easement.
             The deed also reserves to taxpayers the right to relocate the
      Building Envelopes and to construct structures outside the specified
      areas, both of which actions require Donee approval. * * * [Fn. ref.
      omitted.]
                                        -78-

9603018 is analogous to the right to build on the 10 building areas in the 2005

Pine Mountain easement: The locations of the building envelopes are specified in

the easement deed but may be changed with permission of the donee.

      Here is what Belk II said about the house construction rights reserved in the

two private letter rulings:

      Belk I is not in conflict with these private letter rulings. Belk I does
      not speak to the ability of parties to modify the real property subject
      to the conservation easement; it simply requires that there be a
      specific piece of real property subject to the use restriction granted in
      perpetuity.

Belk II, at *9. Exactly so. The entire easement in Belk, and every one of its

restrictions, could be lifted from one piece of land and float onto another. This is

different from an easement that waives some of its restrictions on building sites

within the easement and thus allows the “parties to modify the real property

subject to the easement”. Id. Thus, the easement in Belk is different from the

2005 and 2006 Pine Mountain easements in this respect.

      The IRS observes that we applied Belk in Bosque Canyon Ranch, L.P. v.

Commissioner, T.C. Memo. 2015-130, at *12, vacated and remanded sub. nom.

BC Ranch II, L.P. v. Commissioner, 867 F.3d 547 (5th Cir. 2017). In Bosque

Canyon Ranch L.P. v. Commissioner, at *12, we held that two conservation

easements were not qualified real property interests under section 170(h)(2)(C)
                                        -79-

because there could be modifications of the boundaries between the land governed

by each easement and various “Homesite parcels”. That case is distinguishable

because those “Homesite parcels” were completely free of the easements. As our

opinion in Bosque Canyon Ranch, L.P. v. Commissioner, at *11, stated, the “2005

and 2007 deeds permit modifications to the boundaries between the Homesite

parcels and property subject to the easements”, which accurately implies that the

Homesite parcels are not “property subject to the easements.” The U.S. Court of

Appeals for the Fifth Circuit reversed our holding that each conservation easement

was not a qualified real property interest. BC Ranch II, L.P. v. Commissioner, 867

F.3d at 554. Among the reasons given by the Court of Appeals were that (1) under

each easement the “Homesite parcels” could be moved only within the boundaries

of a larger defined land area and (2) under each easement any modifications to the

boundaries of the “Homesite” parcels had to be approved by the donee, NALT. Id.

at 553-554. The reasons are challenged by the opinion of the Court, but it is

unnecessary to decide whether the reasoning of the Court of Appeals in Bosque

Canyon Ranch is correct because, as stated above, that case is distinguishable.

There is no point to explaining, as the opinion of the Court does, that (1) we are

not bound to follow the Court of Appeals’ opinion, (2) our opinion in Bosque
                                       -80-

Canyon Ranch was rightly decided, and (3) we agree with the Court of Appeals’

dissenting opinion rather than the majority opinion.

      The opinion of the Court argues that I erroneously distinguish the easements

in Bosque Canyon Ranch from the 2005 and 2006 Pine Mountain easements. See

op. Ct. note 6. To support this argument, the footnote expressly conflates the areas

referred to as “Homesite parcels” in the Bosque Canyon Ranch easements with the

“building areas” in the 2005 and 2006 Pine Mountain easements. The Bosque

Canyon Ranch easement deeds exempted from their restrictions the areas defined

in the Bosque Canyon Ranch opinion as “Homesite parcels”. This is apparent

from the plain language of the easement deeds. There were two easements in

Bosque Canyon Ranch. The first easement was donated by Bosque Canyon

Ranch, L.P. The preamble to the first easement deed defined the “Property” as

1,878 acres described by metes and bounds in exhibit A to the easement deed.

Another portion of the preamble defined the “Conservation Area” and “Homestead

Parcels” as separate areas of land:

      WHEREAS, the Property includes, within its boundaries, land
      consisting of 1,750.01 acres, more or less (hereinafter the
      “Conservation Area”), being all of the Property less and except the 25
      parcels of land described by metes and bounds on Exhibit “B”
      (hereinafter called individually a “Homestead Parcel” or collectively
      the “Homestead Parcels”) attached hereto and incorporated herein
      * * *.
                                        -81-

Thus, by definition the land in the Conservation Area was different from the land

in the Homestead parcels. Next, article 1 of the first Bosque Canyon Ranch

easement deed provided that the landowner granted a “perpetual easement” over

the “Conservation Area”. Article 2 provided that the “Conservation Area” was

subject to various restrictions. Article 3 reserved various rights to the landowner

as exceptions to Article 2. Article 3.21 allowed the boundaries of the “Homestead

Parcels” to be modified:

      3.21. The boundaries of the Homestead Parcels may be modified by
      mutual agreement of the Trust [NALT] and the legal owner or owners
      of that portion of the Property which is the subject of the boundary
      line modification at the time of modification, subject to the following
      conditions:

      3.21.1. The boundary line modification does not, in the Trust’s
      reasonable judgment, directly or indirectly result in any material
      adverse effect on any of the Conservation Purposes.

      3.21.2. The area of each Homestead Parcel shall not be increased.

      3.21.3. The modification shall be set forth in a written amendment to
      this Conservation Easement signed by duly authorized officers of the
      Trust and by the legal owner or owners of the portion of the Property
      which is the subject of the Homestead Parcel modification at the time
      of modification. The amendment shall be recorded in the same place
      of public record in which this Conservation Easement was recorded,
      and shall not be effective until so recording.

The deed for the second easement in Bosque Canyon Ranch (an easement granted

by BC Ranch II, L.P.) has similar provisions. A stipulation in Bosque Canyon
                                         -82-

Ranch refers to the Homestead Parcels in both easements as “Homesite parcels”.

The opinion in Bosque Canyon Ranch follows this convention.

      But the 2005 and 2006 Pine Mountain easement deeds do not use the term

“Homestead Parcels” (or Homesite parcels). Instead, they refer to “building

areas”; and the easements have the effect of lifting some of the restrictions on

these “building areas”. Despite the partial lifting of restrictions, the “building

areas” are still within the 2005 and 2006 easements. The “building areas” are

therefore unlike the “Homesite parcels” in Bosque Canyon Ranch, which are

outside the easement areas.

      The difference between the “Homesite parcels” in Bosque Canyon Ranch

and the “building areas” in the 2005 and 2006 Pine Mountain easements is a

substantive distinction, not merely a difference in names. To obscure this

distinction, note 6 of the opinion of the Court uses the term “Homesite parcels”

(the defined term in Bosque Canyon Ranch) even to refer to the building areas in

the 2005 and 2006 Pine Mountain easements. This misleading terminology

distorts the facts of both this case and Bosque Canyon Ranch. “Homesite parcel”

is a defined term used in the Bosque Canyon Ranch opinion to refer to particular

pieces of land not governed by the easements. Bosque Canyon Ranch, L.P. v.

Commissioner, at *11 (“The 2005 and 2007 deeds permit modifications to the
                                        -83-

boundaries between the Homesite parcels and property subject to the easements.”).

As paragraph 107 of the stipulation of facts in Bosque Canyon Ranch stated:

      During 2005, each limited partner in BCR I [Bosque Canyon Ranch,
      L.P.] made a capital contribution in the amount of $350,000.00 and
      received a partnership unit in BCR I. As set forth in the Agreement
      of Limited Partnership for BCR I, each partnership unit entitled a
      limited partner to receive (i) a 5-acre homesite parcel (“Homesite
      Parcel”) within the portion of Bosque Canyon Ranch owned by BCR
      I that was excluded from the property subject to the Deed of
      Easement * * *. [Emphasis added.]

See also Bosque Canyon Ranch stipulation of facts, para. 209.

      The right to construct houses in the building areas conferred by the 2005

and 2006 Pine Mountain easement deeds is therefore not analogous to the

Homesite parcels in Bosque Canyon Ranch. A better analogy is to the right found

in article 3.1.3 of the Bosque Canyon Ranch easement deeds. See Bosque Canyon

Ranch, Ex. 135-J, at 6; Ex. 207-J, at 7. Article 3.1.3 gave the landowner the right

to construct “one or more recreational or meeting buildings, a swimming pool and

a sports court provided that any such building, pool and court shall be located

within an area of the Conservation Area approved by Trust [NALT] and do not

exceed, in the aggregate, more than 20,000 square feet of ground coverage area”.

Thus, article 3.1.3 reserved the right to build various structures anywhere in the
                                          -84-

conservation area subject to the location’s being approved by NALT.6 Did we

hold in Bosque Canyon Ranch that article 3.1.3 violated section 170(h)(2)(C)?

No. We held that it was the provisions related to Homesite parcels that violated

section 170(h)(2)(C). Bosque Canyon Ranch, L.P. v. Commissioner, at *12. But

today the opinion of the Court interprets Bosque Canyon Ranch to mean that the

building-area provisions in the 2005 and 2006 Pine Mountain easement deeds

violate section 170(h)(2)(C) even though the Bosque Canyon Ranch opinion did

not say anything about article 3.1.3 of the Bosque Canyon Ranch easement deeds,

which is analogous to the building-area provisions in the 2005 and 2006 Pine

Mountain easement deeds. Today’s interpretation of Bosque Canyon Ranch is an

exercise in alternative history. It is as if the Court thinks it can rewrite the holding

in Bosque Canyon Ranch to address rights like those reserved in article 3.1.3 of

the Bosque Canyon Ranch easement deeds. The actual opinion in Bosque Canyon

Ranch is unchanged. By its plain language it was concerned with the Homesite

parcels--areas of land unrestricted by the easements that could be swapped for

restricted land. The Bosque Canyon Ranch opinion was not about the right in

      6
       Also, according to the Bosque Canyon Ranch easement deeds, none of the
reserved rights could be exercised in a way that would have an “adverse effect on
Conservation Purposes.” There is a similar provision in the Pine Mountain
easement deeds.
                                          -85-

article 3.1.3 of the Bosque Canyon Ranch easement deeds. The Bosque Canyon

Ranch case is not analogous to this case. The alternative history in the opinion of

the Court does not make it so.

      For the 2006 Pine Mountain easement, the opinion of the Court focuses

exclusively on the building-area rights and concludes that these rights alone cause

the easement to fail to qualify as an interest in real property that is a perpetual

restriction on the use of the real property. But for the 2005 easement, the opinion

of the Court mentions not just the building areas. It also mentions the right to

build 10 barns, 2 scenic overlooks, a riding stable, an indoor riding ring, piers and

boat launches, 5 ponds, and wildlife hunting stands. Thus, the opinion of the

Court could be interpreted as holding that the land that would be affected by these

rights is not restricted by the 2005 easement. If this is the holding of the opinion

of the Court, the easements in Bosque Canyon Ranch remind us why the holding is

wrong. The Bosque Canyon Ranch easement deeds reserve similar rights, but the

Bosque Canyon Ranch Tax Court opinion does not hold that those rights violate

the perpetual-use-restriction statutory test. For example, the easement deeds in

Bosque Canyon Ranch, like the 2006 Pine Mountain easement deed, allowed the

construction of barns: “Owner may construct and maintain the following: * * *

one or more barns and run-in stalls or similar structures for equestrian use
                                         -86-

provided that the same are located within an area of the Conservation Area

approved by Trust and do not exceed, in the aggregate, more than 20,000 square

feet of ground coverage area”. The barns could be built anywhere on the land

covered by the easements (if NALT approved the location). Did our opinion in

Bosque Canyon Ranch say it was this right to build barns (which is found in

article 3.1.2 of the Bosque Canyon Ranch easement deeds) that caused the

easements to fail the perpetual-use-restriction test? No, we said the disqualifying

reason was that the easements “permit modifications to the boundaries between the

Homesite parcels and property subject to the easements.” Bosque Canyon Ranch,

L.P. v. Commissioner, at *11. And, like the 2006 Pine Mountain easement, the

Bosque Canyon Ranch easement deeds allowed the construction of hunting

stations: “Owner may construct and maintain the following: * * * shooting

stations for skeet, trap, five stand, sporting clays of similar shooting sports and

related buildings (not exceeding an aggregate of 3,000 square feet of ground

coverage area for all such stations and related buildings); and underground utilities

to serve the aforesaid facilities.” The hunting stations could be built anywhere on

the land governed by the easements. Did our opinion in Bosque Canyon Ranch

hold that it was this right to construct hunting stations that caused the easements to

fail to be perpetual restrictions on the use of the land? No. And, although the
                                         -87-

easement deeds in Bosque Canyon Ranch did not reserve the right to construct

scenic overlooks as the 2005 Pine Mountain easement deed did, they did allow the

owner to construct and maintain “covered shelters or pavilions (not exceeding an

aggregate of 5,000 square feet of ground coverage area for all shelters or

pavilions)”. Our opinion in Bosque Canyon Ranch did not hold that the right to

build shelters (which is found in article 3.1.4 of the Bosque Canyon Ranch

easement deeds) caused the easements to fail to be perpetual restrictions on the use

of the land.

      And then there is the right to create ponds. Article 3.7 of the Bosque

Canyon Ranch easement deeds provided: “Owner may construct one or more new

ponds for recreational use, not to exceed an aggregate surface area of 30 acres for

all ponds and subject to reasonable location and design review and approval by

Trust to determine that the ponds will have no material adverse affect on the

Conservation Purposes.” Our opinion in Bosque Canyon Ranch does not state that

the right to create ponds is what caused the easements to fail the perpetual-use-

restriction test. By contrast, the opinion of the Court points to the pond rights as

an example of why the 2005 Pine Mountain easement fails the test. See op. Ct. p.

47.
                                         -88-

      It is as if the authors of the opinion of the Court think that the right to create

a pond means that the land that would be covered by and displaced by the pond is

unprotected by the conservation easement. Such a view is inconsistent with the

text of the 2005 Pine Mountain easement deed, which gives NALT the power to

determine the location and design of the ponds. Thus, the right to create ponds is

itself restricted by the easement deed. The implicit view that pond land is

unprotected by the easement is also inconsistent with the record in this case. A

biologist employed by NALT credibly testified that NALT would allow a pond to

be created only if the design of the pond protected natural habitats--for example, if

there was an adequate “littoral shelf” (a submerged shelf of land near the edge of

the pond with aquatic vegetation). In my view, therefore, even the land on which

ponds can be created is subject to a perpetual-use restriction of the 2005 easement.

      Desperate to pull this case into the domain of our Bosque Canyon Ranch

opinion, the opinion of the Court says that our Bosque Canyon Ranch opinion held

that the reserved rights in Bosque Canyon Ranch--not the provisions regarding the

Homesite parcels--caused the Bosque Canyon Ranch easements to fail the

perpetual-use-restriction test. It points to the following statement: “In addition,

BCR I retained various rights relating to the property, including rights to raise

livestock; hunt; fish; trap; cut down trees; and construct buildings, recreational
                                        -89-

facilities, skeet shooting stations, deer hunting stands, wildlife viewing towers,

fence, ponds, roads, trails, and wells.” Bosque Canyon Ranch, L.P. v.

Commissioner, at *5. The opinion of the Court claims that the recitation of these

rights in the findings of fact of our opinion in Bosque Canyon Ranch means that

our holding in Bosque Canyon Ranch hinged on those rights. Quoting that

statement, the opinion of the Court opines: “Although the easements barred [in

Bosque Canyon Ranch] residential or commercial development within the

conserved area, the developer retained numerous rights resembling those reserved

by Pine Mountain.” See op. Ct. p. 37. But the holding in Bosque Canyon Ranch

hinged on the right to change the boundaries of the Homesite parcels. Bosque

Canyon Ranch, L.P. v. Commissioner, at *12. The Court of Appeals in Bosque

Canyon Ranch also understood the Tax Court’s holding in that case to hinge on

the movability of the Homesite parcel boundaries. The Court of Appeals majority

opinion contains this sentence: “The court [the Tax Court] held that because the

homesite parcel boundaries could be changed to include property within the

original easement, the easement was not granted in perpetuity.” BC Ranch II, L.P.

v. Commissioner, 867 F.3d at 552. The Court of Appeal’s dissenting opinion is

also consistent with the proposition that our holding in Bosque Canyon Ranch

related to the changeability of the boundaries between the Homesite parcels and
                                          -90-

the land encumbered by the easement. The Court of Appeals dissent explained

that because the easements in Bosque Canyon Ranch allowed modifications of the

Homesite parcel boundaries, the “Tax Court was correct”. Id. at 561-562 (Dennis,

J., dissenting).

       The attempt by the Court to reinterpret our holding in Bosque Canyon

Ranch is unconvincing. Our opinion in Bosque Canyon Ranch plainly stated that

the right to change the boundaries of the Homesite parcels caused the easements to

fail the perpetual-use-restriction test. Bosque Canyon Ranch is therefore not

relevant to the 2005 and 2006 Pine Mountain easements because the building

areas defined in the easement deeds are governed by the restrictions in the deeds.

       At times it almost seems as if the opinion of the Court recognizes the

incorrectness of its theory that the building areas are outside the 2005 and 2006

Pine Mountain easements. This may explain why it pushes the view that even if

the building areas are affected by the restrictions of the easement, these

restrictions are not sufficiently effective to be considered restrictions at all. See

op. Ct. pp. 50-51. In particular, the opinion of the Court asserts that each of the

2005 and 2006 easements “permit[s] uses antithetical to its conservation purposes”

through the building-area provisions. See op. Ct. p. 49. Similarly, it says that the

prohibition on industrial uses, even though binding on the land in the building
                                         -91-

areas, does not matter because industrial uses are prohibited by a municipal zoning

ordinance anyway. See id. p. 50. But the relative weakness of the easement

deeds’ restrictions on the building areas is relevant only to whether the easements

protect conservation purposes in perpetuity under section 170(h)(5)(A). Indeed, as

I explain below, I would hold that the 2006 easement does not protect the stated

conservation purposes in perpetuity under section 170(h)(5)(A), primarily because

of the partial lifting of restrictions on the 6 building areas in the 2006 easement

deed. But the opinion of the Court does not reach this section 170(h)(5)(A) issue.

Instead it holds that the existence of the building-area provisions in the 2005 and

2006 easement deeds disqualify those easements under section 170(h)(2)(C), the

perpetual-use-restriction test. This is a different test from section 170(h)(5)(A).

Belk I, 140 T.C. at 12 (“[T]he section 170(h)(5) requirement that the conservation

purpose be protected in perpetuity is separate and distinct from the section

170(h)(2)(C) requirement that there be real property subject to a use restriction in

perpetuity.”). Under section 170(h)(2)(C), the easement must be an “interest[] in

real property” that is “a restriction (granted in perpetuity) on the use which may be

made of the real property.” We held in Belk that section 170(h)(2)(C) requires

that the restriction burden a particular piece of property. See Belk II, at *6-*8

(explaining Belk I); see also Belk III, 774 F.3d at 225 (“The placement of the
                                         -92-

article ‘the’ before ‘real property’ makes clear that a perpetual use restriction must

attach to a defined parcel of real property rather than simply some or any (or

interchangeable parcels of) real property.”). Here the 2005 and 2006 easements

burden particular pieces of land, i.e., they burden the whole “conservation area[s]”

covered by the easements. It does not matter for section 170(h)(2)(C) purposes

that some of the restrictions do not reach the building areas within these

conservation areas. The building areas are still governed by other restrictions, and

the building areas are still part of the conservation areas. And it does not matter,

contrary to the opinion of the Court, that some of the remaining restrictions are

redundant with zoning restrictions. Even the redundant restrictions in the

easements are perpetual restrictions on the use of the building areas. The zoning

restrictions may change.

      Another instance in which the opinion of the Court seems to recognize the

falseness of its theory that the building areas are outside the easements is its

handling of the fact that the Pine Mountain easements impose multiple restrictions

on the conservation areas. The 2005 easement and the 2006 easement each

impose 18 restrictions. As explained above, only some of the restrictions are lifted

for the land in the building areas. The opinion of the Court avoids this reality by

pretending that the 2005 and 2006 easements contain only the one restriction--the
                                          -93-

restriction on residential, commercial, and industrial development found in article

2.1 of each easement deed. “To that end [preservation of the conservation area],

article 2 of the easement prohibits residential, commercial, and industrial

development of the 2005 Conservation Area while permitting recreational and

agricultural activity (including breeding livestock and growing crops).” See op.

Ct. p. 13. The article 2.1 restriction is indeed partially lifted as to the land in the

building areas should the landowner exercise its reserved right to build houses in

the building areas. But the article 2.1 restriction is only partially lifted in the

building areas. If the landowner builds houses in the building areas, the

landowner is prevented by article 2.1 from replacing the houses with commercial

or industrial buildings. And there are restrictions other than article 2.1 that

continue to apply to the building areas, such as the prohibition on dumping trash

on the land. By pretending there is only one restriction in the 2005 and 2006

easements, the opinion of the Court never comes to grips with the fact that there

are multiple restrictions in the easements and that the building areas are subject to

some of those restrictions.

      The IRS and the opinion of the Court also observe that we applied Belk I in

Balsam Mountain Invs., LLC v. Commissioner, T.C. Memo. 2015-43, at *7-*8.

Like Belk, Balsam Mountain is distinguishable. Areas of land could be
                                         -94-

completely removed from all of the restrictions of the Balsam Mountain

easement.7

      In conclusion, each of the 2005 and 2006 easements is a “qualified real

property interest” despite what the opinion of the Court says. In summary, there

are nine errors in its conclusion that the right to construct houses and other rights

in the 2005 and 2006 easement deeds cause the easements to fail the granted-in-

perpetuity requirement of section 170(h)(2)(C).

      First, the opinion of the Court is inconsistent with our Opinion in Belk I,

140 T.C. at 3, 10, where we held that the easement was not described by section

170(h)(2)(C) because the easement deed permitted the landowner to “substitute”

contiguous land for “land comprising a portion of the Conservation Area.” By

      7
        The opinion of the Court misapprehends our reasoning in Balsam Mountain
Invs., LLC v. Commissioner, T.C. Memo. 2015-43. The easement in Balsam
Mountain allowed the landowner to substitute unencumbered land for up to 5% of
the encumbered land by changing the boundary of the encumbered land. Id. at *3-
*4. The encumbered land was referred to in the easement deed as the
“Conservation Area.” Id. at *3. We held in Balsam Mountain that the easement
failed sec. 170(h)(2)(C) because it allowed the landowner to “change the
boundaries of the ‘Conservation Area’ burdened by the easement.” Id. at *8-*9.
We did not say in Balsam Mountain, as the opinion of the Court says we said, that
the easement failed because the “taxpayer retained the right to develop up to 5% of
that property.” See op. Ct. p. 36. The landowner could develop 5% of the
property in the “Conservation Area” only because the landowner could shift the
entire easement, with all its restrictions, away from 5% portion of the
“Conservation Area”. It was the landowner’s ability to shift the easement
boundary that disqualified the easement.
                                         -95-

contrast, there is no such land-substitution clause in the 2005 and 2006 Pine

Mountain easement deeds.

      Second, the opinion of the Court contradicts our supplemental, unpublished,

opinion in Belk II, at *8-*9, where we held that Belk I did not deal with the right

to construct buildings. Such a right, we held, was “the ability of the parties to

modify the real property subject to the easement” as opposed to a shift in the

boundary of the easement. See Belk II, at *9.

      Third, the opinion of the Court contradicts the text of the easement deeds in

Bosque Canyon Ranch stating that the “Homesite” parcels are outside the scope of

the easements. Contrary to this text, the opinion of the Court equates the building

areas in the 2005 and 2006 easements with the “Homesite” parcels in Bosque

Canyon Ranch.

      Fourth, the opinion of the Court contradicts our unpublished opinion in

Bosque Canyon Ranch where we distinguished between the “Homesite parcels”

and the “property subject to the easements”. Bosque Canyon Ranch, L.P. v.

Commissioner, at *11. The opinion of the Court states that the “Homesite parcels”

are like the Pine Mountain building areas, which are inside the 2005 and 2006

easements. This places the opinion of the Court in flat contradiction to the Bosque

Canyon Ranch opinion’s description of the “Homesite parcels”.
                                        -96-

      Fifth, the opinion of the Court contradicts the stipulations in Bosque

Canyon Ranch stating that the “Homesite parcels” are “excluded from the property

subject to the Deed of Easement”. The opinion of the Court states that the

“Homesite parcels” are like the Pine Mountain building areas, which are property

subject to the 2005 and 2006 easements, thus contradicting the stipulations of the

parties in Bosque Canyon Ranch.

      Sixth, the Court’s reliance on Bosque Canyon Ranch for the proposition that

the building rights cause the 2005 and 2006 Pine Mountain easements to fail the

granted-in-perpetuity requirement cannot be squared with the treatment of

analogous building rights in our Bosque Canyon Ranch opinion. In that opinion

we recited that article 3.1.3 of the easement deeds in Bosque Canyon Ranch

contained the right to construct “recreational or meeting buildings”, but we did not

state that these rights were the reason the easements failed the granted-in-

perpetuity test. (Similarly, other provisions in the Bosque Canyon Ranch

easement deeds allow barns and hunting blinds to be constructed within the areas

protected by those easements, in unfixed locations, thus making those rights

analogous to the building areas in the 2005 and 2006 Pine Mountain easements,

but the Bosque Canyon Ranch opinion does not explain that those rights

disqualified the deductions under the granted-in-perpetuity requirement.)
                                        -97-

      Seventh, the opinion of the Court explains why the Court of Appeals

opinion in Bosque Canyon Ranch is wrong even though such an explanation is

gratuitous. See op. Ct. pp. 41-43. The Court of Appeals’ holding concerned the

“Homesite parcels”. The “Homesite parcels” in Bosque Canyon Ranch are unlike

the building areas in the 2005 and 2006 Pine Mountain easements. The “Homesite

parcels” are like holes in the easements. The building areas in the 2005 and 2006

Pine Mountain easements are not like holes in the easements; they are within the

easements. Therefore, the Court’s rebuttal of the Court of Appeals is unnecessary.

      Eighth, the Court’s treatment of the pond-creation rights in the 2005

easement deed is incorrect because restrictions in the easement continue to protect

the areas even after the ponds are built and because the opinion of the Court’s

view incorporates the incorrect assumption that creating man-made ponds is

destructive of conservation values.

      Ninth, the opinion of the Court is inconsistent with section 1.170A-14(f),

Example (4), Income Tax Regs. Example 4 describes an easement that reserves

the right to build 24 houses on certain “sites”. The example suggests that the

“sites” are not entirely fixed by the terms of the easement. First, the example says

that the donee has “site * * * approval”. A site that must be approved is not fixed.

Second, the example describes the “sites” as having been “identified” by the
                                         -98-

“donor and the donee”. This sounds different from the sites’ being fixed in the

easement. The building areas in the 2005 and 2006 Pine Mountain easements are

also not entirely fixed by the easement deeds. The regulation supports the

conclusion that the floating nature of the building rights does not cause the

easements to fail the “granted in perpetuity” test of section 170(h)(2)(C).

II.   The 2005 and 2007 easements protect conservation purposes in perpetuity;
      the 2006 easement does not.

      As explained above, the third requirement for a contribution to be a

qualified conservation contribution is that the contribution be exclusively for

conservation purposes. Sec. 170(h)(1)(C). Section 170(h)(4)(A) defines a

“conservation purpose” as any the following objectives:

      !      the preservation of land areas for
             "      outdoor recreation by the general public or
             "      the education of the general public,

      !      the protection of
             "     a relatively natural habitat of fish, wildlife, or plants or
             "     similar ecosystem,

      !      the preservation of open space, including farmland and forest land,
             where such preservation
             "      will yield a significant public benefit
             "      and is
                    •      for the scenic enjoyment of the general public or
                    •      pursuant to a clearly delineated federal, state or local
                           governmental conservation policy, or
                                           -99-

      !      the preservation of
             "      an historically important land area or
             "      a certified historic structure.

The Code provisions that give the definitions of the four conservation purposes

described above are clauses (i), (ii), (iii), and (iv), respectively.

      In a further supplement to the third requirement for a contribution to be a

qualified conservation contribution--that the contribution be exclusively for

conservation purposes--section 170(h)(5)(A) provides: “A contribution shall not

be treated as exclusively for conservation purposes unless the conservation

purpose is protected in perpetuity.” A regulation interpreting section 170(h)(5)(A)

provides that the contributed property interest must permit the underlying real

property to be used only in a way consistent with the conservation purposes of the

contribution:

      In the case of any donation under this section [i.e., section 1.170A-14,
      Income Tax Regs., which governs qualified conservation
      contributions], any interest in the property retained by the donor (and
      the donor’s successors in interest) must be subject to legally
      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. * * *

Sec. 1.170A-14(g)(1), Income Tax Regs. (emphasis added); see Mitchell v.

Commissioner, 138 T.C. 324, 329 (2012) (section 1.170A-14(g)(1), Income Tax
                                       -100-

Regs., relates to section 170(h)(5)(A)), supplemented by T.C. Memo. 2013-204,

aff’d, 775 F.3d 1243 (10th Cir. 2015); see also Glass v. Commissioner, 124 T.C.

258, 276-277 (2005) (suggesting that section 1.170A-14(g)(1), Income Tax Regs.,

may also be used to interpret section 170(h)(2)(C)), aff’d, 471 F.3d 698 (6th Cir.

2006).

      Section 1.170A-14(f), Income Tax Regs., gives several examples to

illustrate the rule that the uses of land permitted by the easement must be

consistent with the conservation purposes of an easement. In Example 3, an

easement allows the construction of 10 single-family houses that would destroy

the scenic value of the land:

             Example (3). H owns Greenacre, a 900-acre parcel of
      woodland, rolling pasture, and orchards on the crest of a mountain.
      All of Greenacre is clearly visible from a nearby national park.
      Because of the strict enforcement of an applicable zoning plan, the
      highest and best use of Greenacre is as a subdivision of 40-acre tracts.
      H wishes to donate a scenic easement on Greenacre to a qualifying
      conservation organization, but H would like to reserve the right to
      subdivide Greenacre into 90-acre parcels with no more than one
      single-family home allowable on each parcel. Random building on
      the property, even as little as one home for each 90 acres, would
      destroy the scenic character of the view. Accordingly, no deduction
      would be allowable under this section.
                                        -101-

Sec. 1.170A-14(f), Example (3), Income Tax Regs. In Example 4, an easement

would allow construction of 20 single-family houses on a secluded portion of the

land that would not impair the scenic view of the rest of the land:

             Example (4). Assume the same facts as in example (3), except
      that not all of Greenacre is visible from the park and the deed of
      easement allows for limited cluster development of no more than five
      nine-acre clusters (with four houses on each cluster) located in areas
      generally not visible from the national park and subject to site and
      building plan approval by the donee organization in order to preserve
      the scenic view from the park. The donor and the donee have already
      identified sites where limited cluster development would not be
      visible from the park or would not impair the view. Owners of homes
      in the clusters will not have any rights with respect to the surrounding
      Greenacre property that are not also available to the general public.
      Accordingly, the donation qualifies for a deduction under this section.

Id. Example (4).

      The IRS argues that the Pine Mountain easements do not protect

conservation purposes in perpetuity because the easement deeds permit the

property to be used in ways inconsistent with the conservation purposes of the

easements. The three easement deeds (2005, 2006, and 2007) define their

conservation purposes as (1) preservation of the conservation area as a relatively

natural habitat of fish, wildlife, plants, or similar ecosystem and (2) preservation

of the conservation area as open space which provides scenic enjoyment to the

general public and yields a significant public benefit. In addition, the 2006
                                         -102-

easement deed defines a third conservation purpose not found in the 2005 and

2007 easement deeds, i.e., preservation of the conservation area as open space

which, if preserved, will advance a clearly delineated federal, state, or local

governmental conservation policy and will yield a significant public benefit. The

conservation purposes defined in the easement deeds match the statutory

definitions of conservation purposes found in section 170(h)(4)(A)(i), (ii) and (iii),

and the IRS does not dispute that the conservation purposes defined by the

easement deeds meet the statutory definition of conservation purposes. The

question the IRS raises is whether the rights reserved to the landowner permit

“uses” that are “inconsistent with the conservation purposes of the donation.”

This argument refers to section 1.170A-14(g)(1), Income Tax Regs., which

requires the easement to prevent uses of the land inconsistent with the

conservation purposes of the donation.

      There is a procedural issue to first consider. Eddleman Properties contends

that the stipulation of facts bars the IRS from making the inconsistent-use

argument. Paragraph 71 of the stipulation of facts, upon which Eddleman

Properties relies in this regard, contains a sentence to the effect that the lands

restricted by each respective easement contain a relatively natural habitat of fish,

wildlife, plants, or similar ecosystems. By its terms, this sentence bars the IRS
                                        -103-

from contending that there is no relatively natural habitat on the restricted land.

Cf. Atkinson v. Commissioner, T.C. Memo. 2015-236, at *51 (where the IRS

successfully argued that the land restricted by the easement was not a relatively

natural habitat, the Court did not reach the question of whether the uses of the land

permitted by the easement were inconsistent with preserving a relatively natural

habitat). However, the next sentence in paragraph 71 states that the IRS takes the

position that the reserved rights in the easements permit the destruction of the

habitat. (“Respondent contends that the reserved rights contained in the respective

conservation easement deeds permit the destruction of such habitats.”) Paragraph

72, on which Eddleman Properties also relies, contains a sentence to the effect that

the lands restricted by each respective easement provide open space for the scenic

enjoyment of the general public and pursuant to a clearly delineated federal, state

or local governmental policy. However, the next sentence in paragraph 72 states

that the IRS takes the position that the reserved rights in the easement permit the

impairment of the open space. (“Respondent contends that the reserved rights

contained in the respective conservation easement deeds permit the impairment of

such open space.”) The IRS did not waive its argument, which is based on section

170(h)(1)(C) and (5)(A) and section 1.170A-14(g)(1), Income Tax Regs., that the
                                        -104-

uses reserved to the owners in the easements are inconsistent with their

conservation purposes. The merits of the argument should therefore be addressed.

      Each easement deed, ostensibly to protect the conservation purposes defined

in each easement deed, contains restrictions on the owner’s use of the underlying

property (restrictions which are found in article 2). Each easement deed has

exceptions to these restrictions, which reserve certain rights to the owner to use

the property (exceptions found in article 3). The IRS barely specifies in its briefs

which of these reserved rights it thinks are inconsistent with the conservation

purposes. It says vaguely: “The easements in this case contain several instances

of inconsistent uses”. It gives only one example of an inconsistent reserved right:

the right of the landowner to construct certain signs (a right specified by each of

the three easements). In its proposed findings of fact, however, the IRS gives a

fuller description of the various uses of the land permitted by the reserved-right

provisions in the easement deeds. Eddleman Properties did not object to this

description in its answering brief. Set forth below are the various reserved-right

provisions as described by the IRS in its proposed findings of fact:
                                            -105-

       2005 easement                    2006 easement                 2007 easement
Residential dwellings,           Residential use may occur
accessory structures, barns,     within 6 “building areas”.
piers, and boat launches may
be constructed on, or near, 10
“building areas”.
A barn may be constructed        A barn may be constructed
within 1,000 feet of each        within 1,000 feet of each
building area.                   building area.
Two scenic overlooks may be
established, one of which
shall be similar to a picnic
pavilion or gazebo, and the
other of which “may include
a guest bedroom”.
Ten piers, three boat
launches, and three boat
storage buildings may be
established near the building
areas.
PMP [i.e., Pine Mountain]        PMP may build roads and
may build roads and              driveways for access to the
driveways for access to the      building areas and other
building areas and other         permitted structures.
permitted structures.
PMP may install service          PMP may install service       PMP may install service
vehicle trails.                  vehicle trails.               vehicle trails.
Five ponds may be
constructed.
Fences and gates may be          Fences and gates may be       Fences and gates may be
constructed.                     constructed.                  constructed.
PMP may construct wildlife       PMP may construct wildlife    PMP may construct wildlife
stands, nests, and blinds.       stands, nests, and blinds.    stands, nests, and blinds.
PMP may breed and release        PMP may breed and release     PMP may breed and release
game animals.                    game animals.                 game animals.
                                             -106-

        2005 easement                    2006 easement                    2007 easement
PMP may restore streams and      PMP may restore streams and      PMP may restore streams and
wetlands.                        wetlands.                        wetlands.
PMP may construct trails and     PMP may construct trails and     PMP may construct trails and
paths.                           paths.                           paths.
PMP may construct raised         PMP may construct raised         PMP may construct raised
walkways.                        walkways.                        walkways.
PMP may construct drainage       PMP may construct drainage       PMP may construct drainage
control structures.              control structures.              control structures.
PMP may install utility          PMP may install utility          PMP may install utility
facilities.                      facilities.                      facilities.
PMP may drill wells for          PMP may drill wells for
residential service or another   permitted uses.
permitted use.
PMP may use the                  PMP may use the
conservation area for waste      conservation area for waste
water disposal.                  water disposal.
Hunting is permitted.            Hunting is permitted.            Hunting is permitted.
Forest management is             Forest management is             Forest management is
permitted.                       permitted.                       permitted.
Tree cutting and removal is      Tree cutting and removal is      Tree cutting and removal is
permitted.                       permitted.                       permitted.
Some signs are permitted.        Some signs are permitted.        Some signs are permitted.
PMP may maintain                 PMP may maintain                 PMP may maintain
structures, roads, trails, and   structures, roads, trails, and   structures, roads, trails, and
walkways.                        walkways.                        walkways.
Subdivision is permissible.
PMP shall notify NALT of         PMP shall notify NALT of         PMP shall notify NALT of
intent to exercise reserved      intent to exercise reserved      intent to exercise reserved
rights.                          rights.                          rights.
                                 A water tower may be built.      A water tower may be built.
                                       -107-

Most of the reserved-right provisions are subject to conditions not apparent from

the summary in the table. Many of the rights can be exercised only with the

approval of NALT. Additionally, many of the rights can be exercised only if to do

so would not undermine the avowed conservation purpose. After considering the

text of all three easements, including the provisions described in the table above

and after considering the other evidence in the record, I conclude:

      !      The 2005 easement does not permit uses inconsistent with its

             conservation purposes.

      !      The 2006 easement does permit uses inconsistent with its

             conservation purposes.

      !      The 2007 easement does not permit uses inconsistent with its

             conservation purposes.

The reasons for the above conclusions follow.

      I initially observe that one should not expect an easement protecting a

natural habitat or scenic beauty to completely prohibit the use of land by humans.

Easements can reserve the right of landowners to construct buildings and to use

the land for various other purposes and still be considered contributions

exclusively for conservation purposes. See Glass v. Commissioner, 124 T.C. at

269, 271, 283 (conservation easement permitted construction of overlook decks,
                                        -108-

patios, boat houses); Butler v. Commissioner, T.C. Memo. 2012-72, 103 T.C.M.

(CCH) 1359, 1362, 1365 (conservation easement on 393.33 acres of land reserved

the right to partition property into 11 smaller tracts averaging 36 acres, each of

which would include a 2-acre building site on which a home and a garage could be

constructed); sec. 1.170A-14(f), Example (4), Income Tax Regs. (donation of an

easement on 900 acres was deductible where easement permitted landowner to

build four houses on each of five 9-acre clusters, the sites must be approved by the

entity to which the easement was donated, and the donor and the donee have

already identified sites where development would not impair scenic view).

Certain reserved rights, however, can subvert the conservation purposes. See

Turner v. Commissioner, 126 T.C. 299, 313-314 (2006) (right to construct 62

houses on 15 acres with no limitations on the building areas). In my view, the

most significant right reserved in the 2005 easement is the ability of the landowner

to build 10 houses (referred to as “single family dwellings” in the easement deed).

Each house can be built only on a designated building area, the size and location

of which are, at least initially, set forth by the easement deed. (As explained supra

part I, article 3.16 allows the boundaries of the building areas to be changed by
                                       -109-

mutual agreement, subject to three conditions.8) The building areas are clustered

together along the shore of a small man-made lake. At trial, Eddleman Properties

elicited the testimony of a biologist employed by NALT. The biologist explained

that NALT had made a complete inventory of plant and animal life on the

property. He convincingly explained that the lake and the 10 building areas

around the lake were of limited value as a natural habitat. The lake was man-

made. The land around the lake had been disturbed by human use and was

populated by new-growth trees. Therefore the biologist opined that the

construction of 10 houses would not affect the conservation value of the easement.

The IRS did not directly rebut this testimony. I would find that the right to

construct the 10 houses does not permit a use that is inconsistent with protecting a

relatively natural habitat. Furthermore, I would find that the relatively dense

clustering of the 10 houses on the 10 acres of the building areas would not

appreciably affect the scenic value of the 559 acres of land governed by the

easement. I therefore conclude that the reserved right to build the 10 houses is not

inconsistent with either of the conservation purposes of the 2005 easement, i.e.,

preserving a relatively natural habitat and preserving scenic open space. Moving

      8
       One condition is that the building areas can be changed only if in NALT’s
reasonable judgment it would not undermine the easement’s conservation purpose.
                                        -110-

from the specific to the general, I would find that none of the rights reserved to the

owner by the 2005 easement permit uses that are inconsistent with either of the

conservation purposes of the 2005 easement, i.e., preserving a relatively natural

habitat and preserving scenic open space. As the NALT biologist convincingly

testified, none of the rights impairs relatively natural habitats. Furthermore, based

on the record as a whole, I would find that none of the reserved rights appreciably

affects the scenic value of the land governed by the 2005 easement. Therefore,

Pine Mountain should get a deduction for the donation of the 2005 easement. See

sec. 1.170A-14(f), Example (4), Income Tax Regs.

      In considering the 2006 easement, it is useful to clarify what conservation

purposes it ostensibly serves. The easement purportedly serves three conservation

purposes: (1) preservation of a relatively natural habitat or ecosystem, (2)

preservation of open space that provides scenic enjoyment to the general public

and yields a significant public benefit, and (3) preservation of open space,

pursuant to a clearly delineated federal, state, or local governmental policy, that

yields a significant public benefit. Both the second and third purposes concern the

preservation of open space. A determination of whether the easement protects the

second conservation purpose is relatively straightforward. Eddleman Properties

alleges that the easement protects ridgelines that provide scenic vistas. Thus, the
                                         -111-

question to be answered is whether the reserved rights are consistent with

protecting these scenic vistas. A determination of whether the easement protects

the third purpose, preserving open space pursuant to a clearly delineated federal,

state, or local governmental policy, is less straightforward. Eddleman Properties

on brief does not identify which governmental policy is advanced by the

easement’s preservation of open space. Although the parties have agreed, in

paragraph 72 of the stipulation, that the property “over which” the 2006 easement

“was granted” provides “open space” by “preserving open space * * * pursuant to

a clearly delineated federal, state or local governmental policy”, the paragraph

does not identify the policy to which it refers. The same paragraph refers to, and

therefore preserves, the IRS’s argument that the 2006 easement permits “the

impairment of such open space”. To defeat this argument, Eddleman Properties

needed to, but did not, identify the governmental policy advanced by the easement.

Without the specific policy’s being identified, it is difficult for the Court to

evaluate whether the uses permitted by the easement deed are consistent with that

policy. I consider Eddleman Properties to have waived any argument that the

2006 easement protects the preservation of open space pursuant to a governmental

policy. See Atkinson v. Commissioner, at *52 (holding that the taxpayer

abandoned a similar argument by failing to specify the particular governmental
                                        -112-

policy). It is necessary to consider only whether the 2006 easement protects the

first and second conservation purposes identified in the easement deed (preserving

a relatively natural habitat and preserving open space for the scenic enjoyment of

the general public that yields a significant public benefit). The most significant

right reserved by the 2006 easement deed to the owner of the land is the right to

build a house in each of 6 building areas. I would find that this use is inconsistent

with the two conservation purposes. The 2006 easement deed does not identify

the locations of the 6 building areas on the 499 acres of land governed by the 2006

easement. The size of each building area is unspecified in the easement deed,

although it cannot exceed one acre. The location of each building area must be

approved by NALT and can be approved only if in NALT’s judgment the building

area does not directly or indirectly result in any material adverse effect on any of

the conservation purposes of the easement or the features of the conservation area

having ecological or scenic significance. Thus, NALT has veto power over the

location of the 6 building areas. Using this veto power, Eddleman Properties

argues, NALT would prevent the construction of houses in locations that would

adversely affect conservation purposes. I would find, however, that the right to

build 6 houses is inconsistent with the conservation purposes of preserving a

relatively natural habitat and protecting open space for the scenic enjoyment of the
                                        -113-

general public. I do not know where the building areas for the 6 houses will be.

For the 2005 easement, there was testimony by an NALT biologist that the initial

locations, at least, of the building areas would not undermine the conservation

purposes of the easement. This testimony was corroborated by other evidence in

the record, such as maps and photographs. That the locations of the building areas

were identified in the 2005 easement deed allowed the IRS the opportunity to

present evidence that the specific building areas were inconsistent with the

conservation purposes. There was no such opportunity regarding the 2006

easement. There is only a vague hope that NALT will exercise its veto over

boundary areas that would undermine the conservation purposes. This hope is not

enough to convince me that the right to build in these yet-to-be-specified building

areas is consistent with the conservation purposes. I conclude that the reserved

right is inconsistent with the conservation purposes.

      As explained above, my view that the building rights reserved in the 2005

easement deed are consistent with conservation purposes, but that the building

rights reserved in the 2006 easement deed are not, is in part attributable to the

differences in various terms of the two easement deeds with respect to building

rights. These terms are summarized below:
                                        -114-

                                        2005                         2006
 Total conservation area              559 Acres                    499 Acres
 Number of building                       10                           6
  areas
 Location of building         •Specified in easement       •To be specified later
  areas                       •Can change by               •Must be approved by
                              amendment approved           NALT
                              by NALT
 Size of building areas       Size of each building        •Unspecified
                              area is specified. The       •Up to 1 acre each
                              sum of the acreages of
                              all 10 building areas is
                              10 acres.
Total conservation area            559 = 56 acres                499 = 83 acres
Number of building areas            10                             6

As the table illustrates, the sizes and locations of the building areas were specified

in the 2005 easement deed. The building areas in the 2006 easement deed were

not specified. One can argue that the ability to place the boundary areas in the

2005 easement is similar to the ability to place the boundary areas in the 2006

easement. The 2006 easement deed allows building areas to be initially placed

only with the approval of NALT. The 2005 easement allows the initial location of

the building areas to change, subject to NALT’s approval. Thus, with both

easements, NALT’s approval controls the location of the building areas. Despite

this similarity between the two easements, the 2005 easement deed’s specification
                                       -115-

of the exact location and size of the building areas, together with elements of the

record, convinces me that the right to build on these building areas does not

undermine conservation purposes. The lack of specification in the 2006 easement

deed as to the location of the building areas, along with other evidence in the

record, leads me to conclude that the use of these building areas would undermine

conservation purposes.

       Now consider the 2007 easement. Unlike the 2005 and 2006 easement

deeds, the 2007 easement deed does not contain a reserved-right provision

allowing the landowner to construct houses. This is the most significant right

found in the 2005 and 2006 easement deeds, a right that caused me to conclude

that the 2006 easement deed allowed uses of the land that were inconsistent with

its conservation purposes. Although the 2007 easement deed allows the

landowner to use the land in various other ways, I would find that, on the basis of

the record, these uses are consistent with the conservation purposes of the

easement. Therefore, Pine Mountain should get a deduction for the donation of

the 2007 easement.

III.   The fair market value of the 2005 easement is $27,904,500.

       The opinion of the Court holds that no deduction is available for the 2005

easement because, in its view, the easement fails the granted-in-perpetuity
                                      -116-

requirement. In my view, a deduction is permitted. I would hold that its value is

$27,904,500. The explanation for this value is given in T.C. Memo. 2018-214,

issued today.