Court Opinion

ID: 4339380
Source: CourtListenerOpinion
Date Created: 2018-11-14 04:23:39.149383+00
Date Added: 2024-06-11T10:10:07.573290
License: Public Domain

CHARLES R. IRBY AND IRENE IRBY, ET AL., 1 PETITIONERS v.
                                             COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
                                               Docket Nos. 7559–10, 7561–10,                          Filed October 25, 2012.
                                                           7562–10.

                                                  Ps are members of an LLC which conveyed conservation
                                               easements encumbering two parcels of land (one conveyance
                                               in 2003 and the other in 2004) to COL, a qualified organiza-
                                               tion as defined in I.R.C sec. 170(h)(3), in bargain sale trans-
                                               actions. The purchase portion of the transactions was funded
                                               with grants from Federal, State, and county agencies which
                                               were established to assist in the conservation of open land.
                                               The LLC reported gain with respect to the sale portion and
                                               a charitable contribution with respect to the remaining por-
                                               tion (the bargain portion) of the transactions. Ps reported
                                               their respective shares of the gain and deducted their respec-
                                               tive shares of the charitable contributions on their respective
                                               individual tax returns for years 2003 and 2004. In disallowing
                                               the charitable contribution deductions Ps claimed for the bar-
                                               gain portion of the transactions, R determined that: (1) the
                                               conservation purpose for the easements was not protected in
                                               perpetuity because COL was required to reimburse the
                                               funding government agencies in the event it received proceeds
                                               should the land to which the easements relate be condemned
                                               and the easements extinguished; (2) Ps’ appraisal report was

                                       1 Cases of the following petitioners are consolidated herewith: Stanley W. Irby and Bonnie S.

                                     Irby, docket No. 7561–10; and Dale Irby and Wendy M. Irby, docket No. 7562–10.

                                                                                                                                   371

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                                     372                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                               not a ‘‘qualified appraisal’’ because the report did not include
                                               statements that the appraisal was prepared for income tax
                                               purposes; and (3) Ps did not obtain contemporaneous written
                                               acknowledgments from COL indicating the amount of goods or
                                               services that Ps received for the contribution. Held: The con-
                                               servation purpose of the easements was protected in per-
                                               petuity. Held, further, Ps’ appraisal report met the require-
                                               ments of a qualified appraisal as required by sec. 1.170A–
                                               13(c)(3)(ii)(G), Income Tax Regs. Held, further, Ps obtained
                                               the contemporaneous written acknowledgment of the trans-
                                               actions required by I.R.C. sec. 170(f)(8).

                                       Larry D. Harvey, for petitioners.
                                       Luke D. Ortner, Robert A. Varra, and Sara Jo Barkley, for
                                     respondent.

                                                                                  OPINION

                                        JACOBS, Judge: Charles Irby, Irene Irby, Dale Irby, and
                                     Stanley Irby (sometimes referred to as the Irbys or peti-
                                     tioners) are members of Irby Ranches, LLC, a Colorado lim-
                                     ited liability company that elected to be taxed as a partner-
                                     ship for 2003 and 2004. As discussed in greater detail infra,
                                     Irby Ranches, LLC, conveyed to Colorado Open Lands, a
                                     ‘‘qualified organization’’ as defined in section 170(h)(3), two
                                     conservation easements: one in 2003 which encumbered
                                     approximately 197 acres of land and a second in 2004 which
                                     encumbered approximately 456 acres of land. The easements
                                     placed on the use of the property a variety of limitations that
                                     served to protect the relatively natural habitat for fish, wild-
                                     life, and plants and to preserve open space and agricultural
                                     resources (conservation purposes). The easements were
                                     granted to Colorado Open Lands as part of a bargain sale
                                     transaction. 2 Irby Ranches, LLC, reported gains with respect
                                     to the sale portion of the transaction and charitable contribu-
                                     tions with respect to the remaining portion of the transaction
                                     on Forms 1065, U.S. Return of Partnership Income, which it
                                     timely filed for tax years ended December 31, 2003 and 2004.
                                     On their respective Federal income tax returns for 2003 and
                                     2004 the Irbys each reported their respective shares of the
                                     gain and deducted their respective portions of the charitable
                                       2 A bargain sale is a transfer of property which is in part a sale or exchange of the property

                                     and in part a charitable contribution as defined in sec. 170(c). Sec. 1.170A–4(c)(2)(ii), Income
                                     Tax Regs.

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                                     (371)                            IRBY v. COMMISSIONER                                        373

                                     contributions. 3 Respondent disallowed the claimed charitable
                                     contribution deductions, determining the purported contribu-
                                     tions failed to meet all the requirements of section 170. 4
                                        Pursuant to an agreement between counsel for petitioners
                                     and counsel for respondent submitted to the Court on
                                     November 3, 2011, a trial was held on November 30, 2011,
                                     in Denver, Colorado, to resolve the following issues: (1)
                                     whether the specific terms and conditions of the deeds of con-
                                     servation easement (deeds) comply with section 170(h)(5) and
                                     section 1.170A–14(g)(6), Income Tax Regs., which determine
                                     whether the conservation purpose of a conservation easement
                                     is protected in perpetuity; (2) whether petitioners obtained a
                                     qualified appraisal as required by section 1.170A–13(c)(3),
                                     Income Tax Regs.; and (3) whether petitioners complied with
                                     the substantiation requirements of section 170(f)(8).
                                        In addition to disallowing the claimed charitable contribu-
                                     tion deductions for failure to meet the requirements of sec-
                                     tion 170, the notices of deficiency included a number of other
                                     issues that were reserved for subsequent proceedings.

                                                                               Background
                                       Some of the facts are stipulated and are so found. We
                                     incorporate by reference the stipulation of facts and the
                                     attached exhibits. Petitioners resided in Colorado at the time
                                     they filed their respective petitions.
                                     I. The Donation of Irby Ranch
                                       Irby Ranches, LLC, operates the Irby Ranch, which is
                                     approximately 24 miles east of Gunnison, Colorado. The
                                     property has been owned and operated as a cow-calf ranch
                                     since 1942, and the Irby family has owned and operated
                                     ranches in the area for four generations. As of December 31,
                                     2003, the Irby Ranch lands consisted of cattle pasture and
                                     hay meadows. All of the land was used for agricultural pur-
                                     poses at the time of trial.
                                        3 At all relevant times Charles Irby was married to Irene Irby, Dale Irby was married to

                                     Wendy Irby, and Stanley Irby was married to Bonnie Irby. Charles Irby and Irene Irby filed
                                     joint Federal income tax returns for 2003 and 2004; Dale Irby and Wendy Irby filed joint Fed-
                                     eral income tax returns for 2003 and 2004; and Stanley Irby and Bonnie Irby filed joint Federal
                                     income tax returns for 2003 and 2004. Dale Irby and Stanley Irby are the children of Charles
                                     Irby and Irene Irby.
                                        4 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect

                                     at all relevant times.

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                                     374                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                        In 1999 the residents of the Gunnison Valley became
                                     interested in maintaining the rural nature of the area. The
                                     community as a whole began looking into conservation ease-
                                     ments as an avenue to protect the area’s farms and ranch-
                                     lands. Residents, including the Irbys, began conversations
                                     with conservationists, and together they determined they
                                     could use conservation easements to provide some protection
                                     of the ranchlands in the area as well as provide a source of
                                     funding for ranchers who desired payment for agreeing to an
                                     easement.
                                        Petitioners approached Colorado Open Lands to discuss
                                     Irby Ranches, LLC’s conveying a conservation easement on its
                                     property. Their discussions led to Irby Ranches, LLC’s
                                     granting options to Colorado Open Lands on September 26,
                                     2003, to purchase conservation easements on two parcels of
                                     land pursuant to bargain sale transactions. A minimal
                                     amount (i.e., $10) was the stated consideration for each
                                     option. Colorado Open Lands exercised both options. There-
                                     after, Irby Ranches, LLC, conveyed to Colorado Open Lands
                                     a conservation easement under an instrument recorded on
                                     December 10, 2003, with the Clerk and Recorder of Gunnison
                                     County, Reception No. 537437, which encumbered the
                                     western portion of the Irby Ranch (west Irby parcel). On
                                     June 10, 2004, Irby Ranches, LLC, conveyed a second con-
                                     servation easement to Colorado Open Lands under an
                                     instrument executed on June 10, 2004, and recorded on June
                                     16, 2004, with the Clerk and Recorder of Gunnison County,
                                     Reception No. 543071, which encumbered the eastern portion
                                     of the Irby Ranch (east Irby parcel).
                                        Funding for each easement was through grants from three
                                     governmental agencies: (1) the Farm and Ranch Lands
                                     Protection Program (FRPP) of the Natural Resources Con-
                                     servation Service (NRCS), an agency of the U.S. Department
                                     of Agriculture (USDA); (2) Great Outdoors Colorado (GOCO), a
                                     voter-created trust fund organization of the State of Colo-
                                     rado; and (3) the Gunnison County Land Preservation Board.
                                     The amount paid for the west Irby parcel easement in 2003
                                     was $268,224.75, and $537,468.75 was paid for the east Irby
                                     parcel easement in 2004.
                                        FRPP contributed $176,381 for the 2003 west Irby parcel
                                     easement and $358,312 for the 2004 east Irby parcel ease-
                                     ment. GOCO contributed $89,191 for the 2003 west Irby

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                                     (371)                            IRBY v. COMMISSIONER                                         375

                                     parcel easement and $119,583 for the 2004 east Irby parcel
                                     easement. The Gunnison Land Preservation Board contrib-
                                     uted $33,006 for the 2003 west Irby parcel easement and
                                     $119,583 for the 2004 east Irby parcel easement. 5 The excess
                                     of the amounts contributed by the three governmental agen-
                                     cies over the amounts paid for the easements was used for
                                     settlement and legal charges as well as a grant to Colorado
                                     Open Lands.
                                        Both deeds contained substantially the same restrictions.
                                     The easements were exclusively for conservation purposes
                                     and protected the properties in perpetuity. The deeds allowed
                                     for the continuation of agricultural operations in a manner
                                     consistent with a conservation plan prepared in consultation
                                     with the NRCS (which gave the NRCS the right to enter the
                                     property to monitor compliance with the plan). If agricultural
                                     operations on the properties were to cease, the land could not
                                     be converted to nonagricultural uses. The deeds prohibited
                                     commercial timber harvesting; mining; exploitation of gas,
                                     oil, and geothermal resources; and commercial and non-
                                     commercial recreation, except for certain low-impact uses
                                     such as hunting, outfitting, and bird watching, and imposed
                                     restrictions on the exploitation of the land’s water rights and
                                     on the use of motor vehicles. The deeds also banned subdivi-
                                     sions, industrial activity, or the establishment of feedlots. 6
                                     Colorado Open Lands was authorized to enter both the east
                                     and west Irby parcels in order to monitor compliance with
                                     the terms of the easements and, if necessary, to enforce the
                                     restrictions.
                                        The deeds provided that Colorado Open Lands could
                                     transfer the easements to any public agency or private non-
                                     profit organization that, at the time of transfer, was a quali-
                                     fied organization as defined by section 170(h), but only if the
                                     recipient expressly agreed to assume the responsibility
                                     imposed on Colorado Open Lands by the deeds.
                                        An appraisal petitioners and Colorado Open Lands
                                     commissioned (discussed more fully infra) determined that
                                     the value of the easement on the west Irby parcel was 63%
                                        5 Additionally, the Gunnison Ranchland Conservation Legacy, a Colorado nonprofit corpora-

                                     tion, facilitated the transactions by assisting petitioners with the application process for the
                                     funding of the easements.
                                        6 A feedlot is a permanently constructed confined area or facility which is used exclusively for

                                     the feeding of livestock.

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                                     376                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     of the full fair market value of the property as unencumbered
                                     by the easement on the date the easement was first recorded.
                                     The same appraisal determined that the value of the ease-
                                     ment on the east Irby parcel was 60% of the full fair market
                                     value of the property as unencumbered by the easement on
                                     the date the easement was first recorded. The amounts paid
                                     to Irby Ranches, LLC, for the easements were below market
                                     value as set forth in the appraisal.
                                        If the land were ever to be condemned, paragraph 12 of
                                     each of the deeds provided that the amount paid to the
                                     grantee (i.e., Colorado Open Lands) would be equal to the
                                     easement value percentage multiplied by the amount of the
                                     proceeds resulting from the disposition of the land. Specifi-
                                     cally, following condemnation of the land, Colorado Open
                                     Lands would receive 63% of the price paid for the west Irby
                                     parcel easement and 60% of the price paid for the east Irby
                                     parcel easement. However, paragraph 13 of the deed to the
                                     west Irby parcel provides:
                                     The Board [of GOCO] shall be entitled to receive twenty-one percent (21%)
                                     of Grantee’s compensation, which figure is equal to that portion of the
                                     Board’s grant attributable to the fair market value of the Easement (the
                                     ‘‘Board’s Proceeds’’). The United States shall be entitled to receive fifty per-
                                     cent (50%) of Grantee’s compensation, which figure is equal to that portion
                                     of the United States’ funds attributable to the fair market value of the
                                     Easement (the ‘‘United States’ Proceeds’’). The Gunnison Valley Land
                                     Preservation Board shall be entitled to receive four percent (4%) of the net
                                     proceeds of condemnation or sale of the Property, which is equal to that
                                     portion of its grant attributable to the purchase price for the Property.
                                     Grantee shall remit promptly to the above parties their respective shares
                                     of the proceeds.

                                     Accordingly, although Colorado Open Lands would receive
                                     the value of the easement should the land be condemned or
                                     the easement otherwise extinguished, after making the
                                     required reimbursements to the three governmental agencies
                                     that funded the bargain purchase, Colorado Open Lands
                                     would retain 25% of the proceeds resulting from the disposi-
                                     tion of the easement on the west Irby parcel.
                                        Paragraph 13 of the east Irby parcel deed is similar.
                                     Specifically, it provides that the Board of GOCO would receive
                                     13% of Colorado Open Lands’ compensation, the United
                                     States would receive 50%, and the Gunnison Valley Land
                                     Preservation Board would receive 12%. Accordingly, Colorado

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                                     (371)                            IRBY v. COMMISSIONER                                        377

                                     Open Lands would retain 25% of the proceeds resulting from
                                     the disposition of the easement on the east Irby parcel.
                                     II. The Appraisal of Irby Ranch
                                       Arnold Butler was engaged to appraise both the east Irby
                                     parcel and west Irby parcel easements. At the time Mr.
                                     Butler had been an independent real estate appraiser for
                                     over 35 years and had appraised between 75 and 100 con-
                                     servation easements in Gunnison County. The valuation date
                                     of his report was August 29, 2003. At the time of his engage-
                                     ment Mr. Butler understood that the east and west Irby
                                     parcel easements were being appraised in connection with a
                                     bargain sale to Colorado Open Lands, which was a below-
                                     market sale, see supra note 2, and that there would be Fed-
                                     eral income tax effects. Consequently, the appraisal includes
                                     the following:
                                     The purpose of the easement as quoted from the proposed Deed of Con-
                                     servation Easement is:
                                     The purpose (the ‘‘Purpose’’) of this Easement is to preserve and protect
                                     in perpetuity the Conservation Values of the Property. This Purpose is in
                                     accordance with s170(h) of the Internal Revenue Code. In order to achieve
                                     this purpose, Grantor intends to convey this Deed to Grantee to ensure
                                     that the Conservation Values of the Property will be preserved and pro-
                                     tected forever.

                                     Mr. Butler’s report provided a historic and geographic over-
                                     view of Gunnison County, Colorado, descriptions of both the
                                     east and west Irby parcels, descriptions of the easements,
                                     and a discussion regarding how the easements created a
                                     severe encumbrance to the highest and best use of the land,
                                     which was subdivision for residential properties. The report
                                     stated that the properties would be appraised using fair
                                     market value as defined by the Uniform Standard of
                                     Appraisal Practice. 7 The appraisal report then discussed sev-
                                     eral valuation methods and explained why the sales compari-
                                     son valuation method was being used. Using the sales
                                     comparison valuation method, the report determined both
                                     the value of the unencumbered property, on the basis of the
                                       7 This method relies on a hypothetical situation whereby (1) the buyer and seller are both typi-

                                     cally motivated; (2) both parties are informed and act in their own best interests; (3) a reason-
                                     able time is allowed for exposure in the open market; (4) payment is made in terms of cash
                                     in U.S. dollars or in terms of comparable financial arrangements; and (5) the price represents
                                     normal consideration of the property sold unaffected by special or creative circumstances.

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                                     378                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     sales of 11 similar, local unencumbered properties, and the
                                     value of the property as encumbered by the easements, on
                                     the basis of the sales of 13 similar, local properties encum-
                                     bered by conservation easements. 8
                                        Mr. Butler prepared two addenda reports (addenda), one
                                     for the east Irby parcel easement and the other for the west
                                     Irby parcel easement, using valuation dates of December 4,
                                     2003, and May 3, 2004, respectively. Inasmuch as the
                                     characteristics of the two parcels generally remained
                                     unchanged, Mr. Butler incorporated in the addenda the prop-
                                     erty descriptions, basis data descriptions, and valuation anal-
                                     yses set forth in his original appraisal report. Nonetheless
                                     Mr. Butler conducted a new investigation and analysis of
                                     current market conditions and by doing so concluded that the
                                     values set forth in the original reports remained valid. He
                                     briefly detailed his valuation analyses in the addenda. Mr.
                                     Butler drafted the addenda to comply with section 1.170A–
                                     13(c)(3)(i)(A), Income Tax Regs., which requires that a quali-
                                     fied appraisal be completed within 60 days of the date the
                                     property is contributed. The addenda stated that the east
                                     and west Irby parcels had not changed in value during the
                                     intervening time. 9
                                        Petitioners timely filed their respective 2003 and 2004 Fed-
                                     eral income tax returns. Attached to petitioners’ respective
                                     2003 and 2004 returns was a Form 8283, Noncash Chari-
                                     table Contributions, drafted by Mr. Butler. On the 2003
                                     Form 8283 Mr. Butler wrote that the donated property con-
                                     sisted of a conservation easement, that petitioners received
                                     $268,224.75 in a bargain sale transaction, and that they
                                     claimed $89,408.25 as a charitable contribution deduction.
                                     On the 2004 Form 8283 Mr. Butler wrote that petitioners
                                     received $537,468.75 in a bargain sale transaction for the
                                     conservation easement but did not claim any amount as a
                                     charitable contribution deduction. In fact, petitioners
                                       8 The report discusses the similarities and differences among the comparable unencumbered

                                     and encumbered properties as well as similarities and differences between them and the west
                                     and east Irby parcels, and adjustments to the sale prices of the comparable properties were
                                     made to reflect these differences.
                                       9 We note that the original appraisal report was labeled as being completed for both Irby

                                     Ranches, LLC, and Lucy High, executive director of the Gunnison Ranchland Conservation Leg-
                                     acy, whereas the addenda were completed solely for Lucy High. At trial Mr. Butler explained
                                     that the name ‘‘Irby Ranches, LLC’’ was inadvertently left off of the addenda.

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                                     (371)                            IRBY v. COMMISSIONER                                        379

                                     claimed, in the aggregate, $165,576.21 as deductions on their
                                     2004 income tax returns.

                                                                                Discussion
                                     I. Introduction
                                        Section 170(a)(1) provides that generally a taxpayer may
                                     deduct any charitable contribution only if the contribution is
                                     verified under regulations prescribed by the Secretary.
                                     Although section 170(f)(3) does not generally permit a deduc-
                                     tion for a charitable gift of property consisting of less than
                                     the donor’s entire interest in that property, section
                                     170(f)(3)(B)(iii) provides an exception for a ‘‘qualified con-
                                     servation contribution’’. A qualified conservation contribution
                                     is a contribution of (1) a ‘‘qualified real property interest,’’ (2)
                                     to a ‘‘qualified organization’’, (3) which is made ‘‘exclusively
                                     for conservation purposes’’. Sec. 170(h)(1); see also sec.
                                     1.170A–14(a), Income Tax Regs. All three requirements must
                                     be met for a donation to qualify as a qualified conservation
                                     contribution.
                                        Respondent challenges petitioners’ deductions on the fol-
                                     lowing grounds: (1) the contributions were not made exclu-
                                     sively for conservation purposes because that conservation
                                     purpose of the contributions was not protected in perpetuity;
                                     and (2) petitioners failed to meet certain recordkeeping
                                     requirements, specifically that they failed to obtain (a) a
                                     qualified appraisal, and (b) a contemporaneous written
                                     acknowledgment.
                                     II. Protection of the Conservation Purpose of the Easements
                                         in Perpetuity
                                        A contribution is made exclusively for conservation pur-
                                     poses only if it meets the requirements of section 170(h)(5).
                                     Glass v. Commissioner, 124 T.C. 258, 277 (2005), aff ’d, 471
                                     F.3d 698 (6th Cir. 2006). Section 170(h)(5)(A) provides that
                                     ‘‘A contribution shall not be treated as exclusively for con-
                                     servation purposes unless the conservation purpose is pro-
                                     tected in perpetuity.’’ Section 1.170A–14(g)(1), Income Tax
                                     Regs., provides that, in general, for the conservation purpose
                                     of the donation to be enforceable in perpetuity, the ‘‘interest
                                     in the property retained by the donor * * * must be subject
                                     to legally enforceable restrictions * * * that will prevent

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                                     380                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     uses of the retained interest inconsistent with the conserva-
                                     tion purposes of the donation.’’
                                        Even with the strictest protections, the possibility exists
                                     that an unexpected change in the conditions surrounding the
                                     property may make it impossible or impractical to continue
                                     the use of the property for conservation purposes. Thus, sec-
                                     tion 1.170A–14(g)(6)(i), Income Tax Regs., provides that the
                                     conservation purposes will continue to be treated as pro-
                                     tected in perpetuity if the restrictions limiting the use of the
                                     property for conservation purposes ‘‘are extinguished by
                                     judicial proceeding and all of the donee’s proceeds * * * from
                                     a subsequent sale or exchange of the property are used by
                                     the donee organization in a manner consistent with the con-
                                     servation purposes of the original contribution.’’
                                        Section 1.170A–14(g)(6)(ii), Income Tax Regs., provides in
                                     relevant part:
                                     for a deduction to be allowed under this section, at the time of the gift the
                                     donor must agree that the donation of the perpetual conservation restric-
                                     tion gives rise to a property right, immediately vested in the donee
                                     organization, with a fair market value that is at least equal to the propor-
                                     tionate value that the perpetual conservation restriction at the time of the
                                     gift bears to the value of the property as a whole at that time. * * *
                                     Accordingly, when a change in conditions gives rise to the extinguishment
                                     of a perpetual conservation restriction under paragraph (g)(6)(i) of this sec-
                                     tion, the donee organization, on a subsequent sale, exchange, or involun-
                                     tary conversion of the subject property, must be entitled to a portion of the
                                     proceeds at least equal to that proportionate value of the perpetual con-
                                     servation restriction * * *.

                                       Respondent posits that these requirements are violated by
                                     paragraph 13 of each respective deed because Colorado Open
                                     Lands was obligated to ‘‘remit promptly’’ the bulk of the pro-
                                     ceeds received from the extinguishment of the easements to
                                     the NRCS, GOCO, and the Gunnison Valley Land Preservation
                                     Board. Continuing, respondent asserts that Colorado Open
                                     Lands’ obligation to repay the grant money used to fund the
                                     sale portion of the bargain sale upon extinguishment of the
                                     easements means that Colorado Open Lands’ entitlement to
                                     the proceeds is merely ‘‘superficial’’ and consequently Colo-
                                     rado Open Lands was not entitled to its required share of the
                                     extinguishment proceeds as set forth in the regulations. We
                                     disagree.

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                                     (371)                            IRBY v. COMMISSIONER                                        381

                                        The matter before us presents issues not previously
                                     decided by this Court. The grantee conservation organization,
                                     Colorado Open Lands, acquired the east and west Irby parcel
                                     easements by way of a bargain purchase with funds provided
                                     by Federal, State, and local entities. In receiving funds to
                                     purchase the easements, Colorado Open Lands became obli-
                                     gated to repay the funding government entities in the event
                                     the easements were extinguished. We must therefore deter-
                                     mine whether Colorado Open Lands’ obligation to repay the
                                     governmental entities, i.e., the NRCS, GOCO, and the Gunni-
                                     son Valley Land Preservation Board, results in a failure by
                                     Colorado Open Lands to receive its proportionate share of
                                     any extinguishment proceeds.
                                        We are satisfied that were the easements to be extin-
                                     guished, Colorado Open Lands would receive its propor-
                                     tionate share of the extinguishment proceeds. Pursuant to
                                     the respective deeds, the donor (i.e., Irby Ranches, LLC, and
                                     its members) unconditionally agreed that in the event of a
                                     change in conditions giving rise to the extinguishment of
                                     either or both of the conservation easements, Colorado Open
                                     Lands would be entitled to an amount at least equal to its
                                     proportionate share of the proceeds arising from the
                                     extinguishment of the conservation easement. See Wall v.
                                     Commissioner, T.C. Memo. 2012–169, 2012 WL 2286373, at
                                     *2.
                                        In cases involving a conservation easement where we
                                     determined that the regulation’s requirements were not met
                                     and thus denied the claimed charitable contribution deduc-
                                     tion, the grantee organization had been prevented by the
                                     deeds themselves from receiving the full proportionate value
                                     of the extinguishment proceeds. See id., 2012 WL 2286373,
                                     at *3–*4. The funds diverted by the deeds were used to fur-
                                     ther the donor taxpayer’s interests. For example, in Wall, the
                                     deed of conservation easement provided that if the property
                                     was condemned, the grantee conservation organization would
                                     be entitled to the easement’s proportionate value, but only
                                     after any claim of a mortgagee was satisfied. Hence, the first
                                     use of the extinguishment proceeds was to further the donor
                                     taxpayer’s interest in repaying the mortgage on the property,
                                     with the grantee conservation organization’s receiving only a
                                     residual amount of money. Id.; see also Mitchell v. Commis-

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                                     382                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     sioner, 138 T.C. 324 (2012); 1982 East, LLC v. Commissioner,
                                     T.C. Memo. 2011–84.
                                       Our conclusions in those cases (i.e., denying the deduction)
                                     reflect the purpose of the regulation. The Court of Appeals
                                     for the First Circuit noted:
                                     paragraph (g)(6) appears designed in case of extinguishment both (1) to
                                     prevent taxpayers from reaping a windfall if the property is destroyed or
                                     condemned and they get the proceeds from insurance or condemnation and
                                     (2) to assure that the donee organization can use its proportionate share
                                     of the proceeds to advance the cause of historic preservation elsewhere.
                                     [Fn. ref. omitted.]

                                     Kaufman v. Shulman, 687 F.3d 21, 26 (1st Cir. 2012), aff ’g
                                     in part, vacating in part and remanding in part Kaufman v.
                                     Commissioner, 136 T.C. 294 (2011), and 134 T.C. 182 (2010).
                                        No such diversion of extinguishment proceeds from Colo-
                                     rado Open Lands would occur—Colorado Open Lands holds
                                     an absolute right to the condemnation proceeds vis-a-vis Irby
                                     Ranches, LLC, and petitioners. There is no risk that Irby
                                     Ranches, LLC, or petitioners could ever reap a windfall
                                     should the east Irby and/or west Irby parcels be condemned.
                                     Significantly, any extinguishment proceeds which Colorado
                                     Open Lands is obligated to pay to others will go to govern-
                                     mental entities, each of which is an organization described in
                                     section 170(c)(1). The proceeds so paid by Colorado Open
                                     Lands would be used by those entities in a manner con-
                                     sistent with the original conservation purposes of the con-
                                     tribution by Irby Ranches, LLC. See infra pp. 383–385. We
                                     therefore find that the deeds of conservation easement meet
                                     the requirements of section 1.170A–14(g)(6)(ii), Income Tax
                                     Regs.
                                        Respondent’s concerns more properly seem to address the
                                     question of whether petitioners have satisfied section
                                     1.170A–14(g)(6)(i), Income Tax Regs., i.e., whether all of the
                                     extinguishment proceeds would be used by Colorado Open
                                     Lands in a manner consistent with the conservation purposes
                                     of the original contribution.
                                        We are mindful that while some conservation easements
                                     are gratuitously donated, others, such as the east and west
                                     Irby parcel easements, are acquired through bargain sale
                                     transactions. Because the Irbys required some cash consider-
                                     ation for the easements, Colorado Open Lands would not

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                                     (371)                                 IRBY v. COMMISSIONER                                        383

                                     have been able to further the desired conservation purpose
                                     derived by its obtaining and holding the east and west Irby
                                     parcel easements were it unable to receive government
                                     funding.
                                        Daniel Pike, the president of Colorado Open Lands, testi-
                                     fied that the reimbursement provisions included in the
                                     governmental grants were not negotiable. Indeed the USDA’s
                                     regulations require that such reimbursement provisions be
                                     included in all deeds recording conservation easements
                                     funded by the FRPP. See 7 C.F.R. sec. 1491.30(f) (2003). 10
                                     Both GOCO and the Gunnison County Land Preservation
                                     Board impose similar requirements on easements funded by
                                     their grants. Colorado Open Lands, and through it peti-
                                     tioners, was essentially in a ‘‘take it or leave it’’ situation. If
                                     Colorado Open Lands had not agreed to the reimbursement
                                     requirements, it would not have been able to purchase the
                                     east and west Irby parcel easements.
                                        The receipt of reimbursed funds by the NRCS, GOCO, and
                                     the Gunnison County Land Preservation Board furthers the
                                     conservation purpose of the original contribution. All three of
                                     these governmental agencies were established to assist in the
                                     conservation of open land, and all three agencies are legally
                                     obligated to fulfill their conservation purpose. The operation
                                     of the FRPP by the NRCS is governed by Federal regulations,
                                     specifically 7 C.F.R. secs. 1491.1 through 1491.32 (2012).
                                     Title 7 C.F.R. sec. 1491.2 provides that the NRCS will estab-
                                     lish policies to meet the goals of the FRPP; fund conservation
                                     easements; coordinate with the USDA office of general counsel
                                     to ensure the legal efficiency of cooperative agreements with
                                     local conservationists and ensure the legal validity of the
                                     deeds of easement; monitor compliance; and provide leader-
                                     ship for establishing, implementing, and overseeing adminis-
                                     trative processes for easements, easement payments, and
                                     administrative and financial performance reporting. More-
                                     over, we are mindful that the deeds provide that the NRCS
                                     would consult with petitioners and Colorado Open Lands to
                                     develop conservation plans for the east and west Irby parcel
                                     easements and that the NRCS held the right to enter the
                                     properties to monitor compliance with these plans.
                                           10 Tit.   7 C.F.R. sec. 1491.30(e) (2012) provides the current reimbursement requirement.

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                                     384                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                        GOCO was established by article XXVII of the Colorado con-
                                     stitution. Colo. Const. art. XXVII, sec. 1, provides that the net
                                     proceeds of every State-supervised lottery game are to be
                                     guaranteed and permanently dedicated to the preservation,
                                     protection, enhancement, and management of the State’s
                                     wildlife, park, river, trail, and open space heritage. GOCO was
                                     established to implement these goals. GOCO’s funding is gov-
                                     erned by Colo. Const. art. XXVII sec. 4, which provides that
                                     all moneys deposited in the GOCO trust fund are to remain
                                     in trust for the purposes set forth in article XXVII and that
                                     no part thereof is to be used or appropriated for any other
                                     purpose, nor made subject to any other tax, charge, fee, or
                                     restriction. The remaining sections of article XXVII govern the
                                     operation of GOCO.
                                        The Gunnison Valley Land Preservation Board was formed
                                     in 1997 and is primarily a funding source for the land trusts
                                     and conservation organizations active in Gunnison County. It
                                     was created by a ballot measure that established a multi-
                                     jurisdictional sales tax pool that raises over $230,000 per
                                     year that is used as leverage for other funding sources such
                                     as GOCO funds. In 2002 the voters of the county approved a
                                     ballot measure that allows the Land Preservation Board to
                                     borrow up to $1 million against the sales tax revenue con-
                                     tribution. See Board of County Commissioners of Gunnison
                                     County      Resolution      No.    97–53     (Sept.   2,   1997);
                                     www. gunnisoncounty . org/gislmapslcomprehensivelplans
                                     lcbgclagriculture.html (last visited Oct. 22, 2012).
                                        We do not share respondent’s fear that the ‘‘policies and
                                     intentions do not require either the parties or their succes-
                                     sors in interest to use the proceeds for the conservation pur-
                                     poses of the West and East Parcel Easements.’’ We are con-
                                     vinced that these institutions and their respective employees
                                     will fulfill their obligations under Federal, State, and local
                                     laws. Indeed, it appears to us that reimbursement under the
                                     terms of the deeds of conservation easement would enhance
                                     the ability of the NRCS, GOCO, and the Gunnison County
                                     Land Preservation Board to conserve and protect more land,
                                     since the reimbursed funds would be used to do just that.
                                        We therefore find that including the reimbursement provi-
                                     sion in the respective deeds of conservation easement is con-
                                     sistent with the conservation purpose of the original con-
                                     tribution and satisfies the requirements of section 1.170A–

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                                     (371)                            IRBY v. COMMISSIONER                                        385

                                     14(g)(6)(i) and (ii), Income Tax Regs. In sum, the contribution
                                     by Irby Ranches, LLC, which flowed through to petitioners
                                     was made exclusively for conservation purposes and meets
                                     the requirements of section 170(h)(5).
                                     III. Qualified Appraisal
                                        The Deficit Reduction Act of 1984 (DEFRA), Pub. L. No. 98–
                                     369, sec. 155(a), 98 Stat. at 691, provides that taxpayers
                                     claiming a deduction under section 170 must obtain a ‘‘quali-
                                     fied appraisal’’ for any property contributed and attach an
                                     ‘‘appraisal summary’’ to the return on which the deduction is
                                     first claimed. DEFRA sec. 155(a)(4), 98 Stat. at 692, provides
                                     that a qualified appraisal must include: (A) a description of
                                     the property appraised; (B) the fair market value of such
                                     property on the date of contribution and the specific basis for
                                     the valuation; (C) a statement that such appraisal was pre-
                                     pared for income tax purposes; (D) the qualifications of the
                                     qualified appraiser; (E) the signature and TIN of such
                                     appraiser; and (F) such additional information as the Sec-
                                     retary prescribes in regulations. In 2004 Congress codified
                                     these off-Code requirements and added additional provisions
                                     by enacting the American Jobs Creation Act of 2004, Pub. L.
                                     No. 108–357, sec. 883(a), 118 Stat. at 631. This public law
                                     added to the Code section 170(f)(11), which governs qualified
                                     appraisal and other documentation for certain contributions,
                                     effective for contributions made after June 3, 2004. The
                                     provisions added by section 170(f)(11) do not affect our deter-
                                     mination in this matter.
                                        Pursuant to the authority of DEFRA sec. 155(a)(1), the Sec-
                                     retary promulgated section 1.170A–13(c), Income Tax Regs.,
                                     which disallows a deduction for a noncash contribution of
                                     $5,000 or more unless the claiming taxpayer meets specific
                                     substantiation requirements. One such requirement is that
                                     the taxpayer obtain a qualified appraisal and attach a fully
                                     completed appraisal summary to the tax return on which he/
                                     she first claims a deduction for the contribution. Sec. 1.170A–
                                     13(c)(2)(i), Income Tax Regs. Section 1.170A–13(c)(3)(ii),
                                     Income Tax Regs., provides that a qualified appraisal must
                                     include 11 categories of information to be a valid qualified
                                     appraisal. Respondent challenges only one such category;
                                     respondent asserts that the appraisal petitioners rely upon

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                                     386                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     does not meet the requirement of section 1.170A–
                                     13(c)(3)(ii)(G), Income Tax Regs., that the appraisal contain
                                     ‘‘A statement that the appraisal was prepared for income tax
                                     purposes’’. 11 Respondent argues that the appraisal and
                                     addenda to appraisal Mr. Butler drafted do not include such
                                     a statement and consequently they are unreliable because
                                     there is no assurance that Mr. Butler applied the proper
                                     standards of care to ensure that the reports conformed to
                                     Internal Revenue Service (IRS) standards. We disagree.
                                        On other occasions we have considered whether the
                                     appraisal the taxpayer relied upon was a ‘‘qualified
                                     appraisal’’ as defined in section 1.170A–13(c)(3), Income Tax
                                     Regs. In Simmons v. Commissioner, T.C. Memo. 2009–208,
                                     aff ’d, 646 F.3d 6 (D.C. Cir. 2011), the Commissioner asserted
                                     that the taxpayer’s appraisal was not qualified because it (1)
                                     failed to adequately describe the properties contributed;
                                     (2) failed to accurately describe the method of valuation used;
                                     (3) did not provide the dates of contribution; and (4) did not
                                     include a statement that the appraisal was prepared for
                                     income tax purposes. We therein found that the appraisal
                                     report met all of the regulation’s requirements and was
                                     therefore a qualified appraisal. With respect to the income
                                     tax purpose statement, we stated:
                                     Although the appraisals did not contain an explicit statement that they
                                     were prepared for income tax purposes, the appraisals did contain state-
                                     ments that the owner of the parcels (petitioner) was contemplating
                                     donating conservation easements to L’Enfant [the grantee]. The appraisals
                                     also include discussions of IRS practice and cases of this Court concerning
                                     facade easements. The dates of contribution were likewise included on peti-
                                     tioner’s tax returns. The Forms 8283 that petitioner included with her
                                     returns required an acknowledgment by the donee, L’Enfant.

                                        Like the appraisal report in Simmons, the appraisal report
                                     in this case included all of the required information either in
                                     the appraisal or in the appraisal summaries attached to peti-
                                     tioners’ respective returns—it included a discussion of the
                                     purpose of the transaction (i.e., that the purpose of the
                                     appraisal was to value the donation of a conservation ease-
                                     ment pursuant to the terms of section 170(h)), see supra p.
                                     377; it stated that fair market valuation was to be used in
                                       11 Respondent raised other issues regarding Mr. Butler’s appraisal in his pretrial memo-

                                     randum. These arguments were not pursued in his brief. We therefore deem these issues to be
                                     conceded.

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                                     (371)                            IRBY v. COMMISSIONER                                        387

                                     determining the value of the property; and Form 8283 was
                                     properly filed with petitioners’ respective returns. 12 The IRS
                                     has not provided to the public a specific form for the tax pur-
                                     pose statement, and respondent has not proffered any
                                     instance where a suboptimal tax purpose statement, by itself,
                                     invalidated an otherwise qualified appraisal. In sum, we find
                                     the appraisal’s income tax purpose statement petitioners rely
                                     upon to be adequate.
                                     IV. Contemporaneous Written Acknowledgment
                                       Section 170(f)(8)(A) provides that a taxpayer must obtain a
                                     contemporaneous written acknowledgment from the donee
                                     organization for a contribution of $250 or more. Section
                                     170(f)(8)(B) provides that the acknowledgment so required
                                     must include (i) the amount of cash and a description (but
                                     not value) of any property other than cash contributed; (ii)
                                     whether the donee organization provided any goods or serv-
                                     ices for the donated property, and (iii) a description and
                                     good-faith estimate of the value of any goods or services pro-
                                     vided by the donee organization. Section 1.170A–13(f)(5),
                                     Income Tax Regs., provides that goods or services includes
                                     cash, property, services, benefits, and privileges. The contem-
                                     poraneous written acknowledgment requirement was enacted
                                     to require charitable organizations to inform their donors
                                     that if there is a contribution that is partly a donation and
                                     partly for goods or services provided to the donor by the
                                     donee organization, the donor’s deduction under section 170
                                     is limited to the amount by which the donation exceeds the
                                     value of the goods or services provided by the charity. Addis
                                     v. Commissioner, 118 T.C. 528, 536 (2002), aff ’d, 374 F.3d
                                     881 (9th Cir. 2004). Section 170(f)(8)(C) provides that the
                                     acknowledgment must be obtained by the earlier of the date
                                     the return is filed or its due date. The contemporaneous writ-
                                     ten acknowledgment ‘‘need not take any particular form.
                                     Thus, for example, acknowledgments may be made by letter,
                                     postcard, or computer-generated forms.’’ H.R. Conf. Rept. No.
                                     103–213, at 565 n.32 (1993), 1993–3 C.B. 393, 443. If the
                                       12 Form 8283 includes a jurat to be signed by the appraiser which states: ‘‘Furthermore, I un-

                                     derstand that a false or fraudulent overstatement of the property value as described in the
                                     qualified appraisal or in this appraisal summary may subject me to penalty under IRC sec.
                                     6701(a).’’ Sec. 6701(a) provides for a penalty when a person aids or assists with the presentation
                                     of any portion of a tax return, affidavit, claim, or other document that is prepared for income
                                     tax purposes.

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                                     388                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     donee organization provides no goods or services to the tax-
                                     payer in consideration of the taxpayer’s contribution, the
                                     written substantiation must include a statement to that
                                     effect. Id. n.30.
                                        Petitioners assert that the following documents, taken in
                                     their totality, constitute contemporaneous written acknowl-
                                     edgment:
                                        1. the Option Agreements for the Purchase of Conservation
                                     Easement, dated September 26, 2003, in which Irby Ranches,
                                     LLC, received cash consideration totaling $20 for its granting
                                     Colorado Open Lands the options to purchase the conserva-
                                     tion easements;
                                        2. the Forms 8283 attached to petitioners’ respective 2003
                                     and 2004 income tax returns which disclosed the cash peti-
                                     tioners received in the bargain sale transaction, the basis of
                                     the property, and the amount claimed as a deduction arising
                                     from the donation of the property. And the attached form
                                     was signed by the president of Colorado Open Lands;
                                        3. letters from Colorado Open Lands to Stanley Irby, dated
                                     January 21 and December 7, 2004, respectively, in which
                                     Colorado Open Lands states that (a) it is a qualified
                                     organization within the definition of section 170(h), and (b)
                                     it will receive and hold the deeds of conservation easement
                                     with respect to the east and west Irby parcels;
                                        4. the settlement statements prepared by First Gunnison
                                     Title and Escrow, Inc., the title company in the transaction,
                                     which list the amounts paid as part of the bargain sale. Two
                                     settlement statements were drafted, one for the east Irby
                                     parcel easement and one for the west Irby parcel easement.
                                     The west Irby parcel easement statement was signed by
                                     Stanley Irby on behalf of Irby Ranches, LLC, as seller and by
                                     Daniel Pike, president of Colorado Open Lands, and Gary
                                     Finland of the NRCS on behalf of the Government of the
                                     United States. The east Irby parcel easement statement was
                                     signed by Stanley Irby on behalf of Irby Ranches, LLC, as
                                     seller and by Gary Finland on behalf of the Government of
                                     the United States; and
                                        5. the deeds for the east Irby parcel easement and the west
                                     Irby parcel easement, respectively, which (a) state the prop-
                                     erties were acquired in part though cash grants from the
                                     U.S. Government through the NRCS, GOCO, and the Gunnison
                                     Valley Land Preservation board, (b) describe the property

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                                     (371)                            IRBY v. COMMISSIONER                                        389

                                     donated, and (c) list the responsibilities and rights that the
                                     donors and donees possess regarding the enforcement of the
                                     easement.
                                        Petitioners assert that collectively the aforementioned
                                     documents disclose (1) the description of the east and west
                                     Irby parcels, (2) that the donee organization, Colorado Open
                                     Lands, provided $268,224.75 in cash in consideration for the
                                     west Irby parcel easement and $537,468.75 in cash in consid-
                                     eration for the east Irby parcel easement, and (3) Colorado
                                     Open Lands would provide a specific list of services to sup-
                                     port and maintain the conservation easements. Moreover, the
                                     documents were created before petitioners filed their respec-
                                     tive income tax returns.
                                        Replying, respondent argues that none of the documents
                                     individually contains sufficient information to constitute a
                                     contemporaneous        written    acknowledgment.     However,
                                     respondent does not assert, and we have found no authority
                                     to indicate, that the contemporaneous written acknowledg-
                                     ment may not be made up of a series of documents. We thus
                                     find that, collectively, the documents petitioners provided
                                     constitute a contemporaneous written acknowledgment. The
                                     deeds of conservation easement with respect to the east and
                                     west Irby parcel easements provide precise descriptions of
                                     the property being contributed; 13 the Option Agreement and
                                     the settlement statements set forth the amounts of cash that
                                     was paid to petitioners in consideration of the donated prop-
                                     erty; 14 the letters from Colorado Open Lands state that it is
                                     a qualified organization; and the Form 8283 provides that
                                     petitioners may deduct only the part of the value of the ease-
                                     ment that is not covered by the bargain sale.
                                        Respondent asserts that none of petitioners’ documents
                                     contains a statement that no services were provided by the
                                     donee organization. While respondent’s assertion is correct,
                                     such a statement in the written acknowledgment is required
                                     only ‘‘[i]f the donee organization provided no goods or services
                                       13 We note that we have held in cases where the property is simply donated to the grantee

                                     that the deeds themselves may constitute contemporaneous written acknowledgments. See
                                     Averyt v. Commissioner, T.C. Memo. 2012–198; Simmons v. Commissioner, T.C. Memo. 2009–
                                     208, aff ’d, 646 F.3d 6 (D.C. Cir. 2011).
                                       14 Respondent argues that because the east Irby parcel easement settlement statement is only

                                     signed by Gary Finland on behalf of the Government of the United States, it is not truly an
                                     acknowledgment by the donee. We reject respondent’s position. We are convinced that the Gov-
                                     ernment of the United States represents the donee’s interest with respect to the acknowledg-
                                     ment.

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                                     390                 139 UNITED STATES TAX COURT REPORTS                                    (371)

                                     to the taxpayer in consideration of the taxpayer’s contribu-
                                     tion’’. H.R. Conf. Rept. No. 103–213, supra at 565 n.30, 1993–
                                     3 C.B. at 443 (emphasis added). Since this was a bargain
                                     sale transaction, goods were provided (in the form of cash)
                                     and that fact was disclosed on the option agreement and the
                                     settlement statements. See sec. 1.170A–13(f)(5), Income Tax
                                     Regs. (‘‘[g]oods or services means cash, property,’’). Accord-
                                     ingly, we hold that petitioners have satisfied the require-
                                     ments of section 170(f)(8) with respect to donation of the con-
                                     servation easement.
                                     V. Conclusion
                                       On the basis of the foregoing, we conclude that (1) the
                                     terms and conditions of the conservation easement deeds
                                     comply with the requirements of section 170(h)(5) and section
                                     1.170A–14(g)(6), Income Tax Regs., and that the conservation
                                     purpose for the contribution of the conservation easements
                                     on the east and west Irby parcels is protected in perpetuity;
                                     (2) petitioners obtained a qualified appraisal as required by
                                     section 1.170A–13(c)(3), Income Tax Regs.; and (3) petitioners
                                     complied with the substantiation requirements of section
                                     170(f)(8). In furtherance of the November 3, 2011, agreement
                                     between respective counsel for the parties, a trial will be held
                                     with respect to all remaining issues.
                                                                An appropriate order will be issued.

                                                                               f

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