Putting a conservation easement on a project site did not lead to a tax deduction.
A partnership bought 1,280 acres of land 15 miles east of Raleigh, North Carolina with the aim of zoning the area for a planned community of mixed residential and commercial property and a school, subdividing into lots, and then selling the lots to developers.
It negotiated a sale of 125 acres that were part of the tract to the county for use as a park.
A condition for the sale was the partnership had to place a conservation easement on the land so that it could not be used for any purpose other than as a park. The partnership did so by granting a conservation easement in favor of the Smokey Mountain National Land Trust and then transferring ownership of the land to the county.
The partnership took a charitable contribution deduction of $1,798,000 that it said was the value of the conservation easement.
The IRS disallowed the deduction, and the US Tax Court agreed. The court said a charitable contribution deduction cannot be claimed where the taxpayer expects a substantial benefit from the contribution. In this case, the partnership benefited because turning part of the land into a park helped enhance the value of the rest of the property as a planned community.
The court also said even if a deduction were allowed, the fair market value of the conservation easement was zero. It said the value is the difference between the land saddled with the easement and the value without any restriction on use. Since the highest and best use of the 125 acres was as a park in the midst of a planned community, the court said, there was no difference in value between the land with or without the restrictive easement.
The court released its decision in early April. The case is Wendell Falls Development, LLC v. Commissioner.