In 2003, RP Golf, LLC, a private golf course located near Kansas City, Missouri, contributed a conservation easement to a local Section 501(c)(3) organization. The idea behind the donation was to preserve some of the open space located on the golf course as encouraged by Missouri state law.
Prior to the end of 2003, RP Golf and the donee organization executed an agreement entitled “Grant of Permanent Conservation Easement,” which contained the following passages:
NOW, THEREFORE, for and in consideration of the covenants and representations contained herein and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Grantor on behalf of itself and its heirs, successors and assigns, in consideration of the premises contained herein and other valuable consideration paid to its full satisfaction, does freely give, grant, sell, transfer, convey and confirm forever unto [PLT] * * * a perpetual conservation easement in that certain tract of land containing approximately three hundred (300) acres, more or less…
This instrument sets forth the entire agreement of the parties with respect to the Easement and supersedes all prior discussions, negotiations, understandings, or agreements relating to the Easement, all of which are merged herein.
On its 2003 Form 1065, RF Golf claimed a charitable contribution for the value of the conservation easement of $16,400,000. RP Golf also attached the required Form 8283, Noncash Charitable Contributions, which reported the easement’s value and basis and included an appraiser’s declaration supporting the stated value. The form was signed, as required, by both RP Golf and the donee organization.
Five years later, the donee organization wrote RP Golf a letter, thanking them for the contribution and including a statement that it did not provide any goods or services in exchange for the easement.
The IRS disallowed the entire contribution deduction, arguing that RP Golf had failed to obtain the required substantiation, because RP Golf had failed to obtain a contemporaneous statement indicating that no goods or services were exchanged for the easement.
As a reminder, Section 170(f)(8) provides that no deduction shall be allowed for charitable contributions of $250 or more unless the contribution is substantiated with a contemporaneous written acknowledgment from the donee organization. The contemporaneous written acknowledgment “‘need not take any particular form’, but it must meet the requirements of section 170(f)(8)(B).
Section 170(f)(8)(B) provides that a contemporaneous written acknowledgment must include the following information:
(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 services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii).
A written acknowledgment is contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date the return was filed or the due date (including extensions) of the return.
In its defense, the taxpayer argued that the conservation agreement executed in 2003 complied with the substantiation requirements of Section 170(f)(8). You may remember — and if you do, your lonlieness saddens me — that back in July we covered a case with facts nearly identical to RP Golf, in which the Tax Court held that a conservation deed contained the information necessary to satisfy the substantiation requirements of Section 170(f)(8).
Relying heavily on its previous decision in Averyt v. Commissioner, T.C. Memo 2012-198, the Tax Court again held that RP Golf’s conservation agreement could be read to contain the necessary language that no goods or services had been received in exchange for the donation.
The agreement in this case states that the easement contribution is made “in consideration of the covenants and representations contained herein and for other good and valuable consideration”. The agreement then describes the property’s conservation value as its aesthetic, open space, scenic, recreational, and natural resource values but does not include consideration of any value other than the preservation of the property. Finally, the agreement states that it constitutes the entire agreement between the parties regarding the contribution of the conservation easement. The Court therefore holds that the agreement, taken as a whole, states that no goods or services were received in exchange for the contribution. Accordingly, the agreement satisfies the substantiation requirements of section 170(f)(8), and respondent’s motion for summary judgment on this issue will be denied.
It wasn’t all good news for RP Golf, however, as the court sided with the IRS that the grant of the conservation easement did not qualify for its claimed purpose under the Missouri statute. As a result, the taxpayer must prove that it satisfied one of the other permitted purposes fo the granting of a conservation easement pursuant to Section 170.