I wanted to share with you an important recent opinion written by Tax Court Judge Mark Holmes which explains how a major campaign in the IRS’ abusive war on conservation easements stands on flimsy regulatory footing. Judge Holmes rightly notes the IRS’ abuse of taxpayers is not in line with the intent of Congress and has been executed by the agency without taking “a hard look at all relevant issues and considered reasonable alternatives.”
You read that right, the IRS continues to hit taxpayers with audits and litigation without taking a hard look at all relevant issues — undermining overall conservation efforts in the process.
In his dissent to the Tax Court’s majority opinion on a recent case, Judge Holmes writes:
Our holding today will likely deny any charitable deduction to hundreds or thousands of taxpayers who donated the conservation easements that protect perhaps millions of acres. See Oakbrook Land Holdings, LLC v. Commissioner, T.C. Memo. 2020-54, at *7 n.2. This is the second time we’ve taken an ax to entire forests of these deductions. In Pine Mountain Pres., LLLP v. Commissioner, 151 T.C. 247 (2018), appeal filed (11th Cir. May 7, 2019), we went ahead and held that reserving a limited right to build on conserved property — unless the site is described with exceptional precision — destroys any deduction for the donation, knowing that we were setting up a conflict with the only circuit court to rule on the issue.
In today’s case, we hold that the Treasury Department gets to ignore basic principles of administrative law that require an agency “to give reasoned responses to all significant comments in a rulemaking proceeding.” PPG Indus., Inc. v. Costle, 630 F.2d 462, 466 (6th Cir. 1980). A court is supposed to ensure that an agency has taken “a ‘hard look’ at all relevant issues and considered reasonable alternatives.” Simms v. Nat’l Highway Traffic Safety Admin., 45 F.3d 999, 1004 (6th Cir. 1995) (quoting Neighborhood TV Co., Inc. v. FCC, 742 F.2d 629, 639 (D.C. Cir. 1984)). But if the majority is right, the Treasury Department can get by with the administrative-state equivalent of a quiet shrug, a knowing wink, and a silent fleeting glance from across a crowded room.
This is not the way rulemaking is supposed to be.
The IRS continues to escalate this offensive, underscoring the necessity for Congress to propose solutions to strengthen the integrity of conservation easements, provide taxpayers with greater clarity and guidance and establish clear lines the IRS must follow in enforcing the law. As Judge Holmes highlights, further delay of essential guidance for taxpayers and regulators will lead to more court decisions that take “an ax to entire forests” of conservation easements, which are critical to protecting habitats and lands in the path of development.
Partnership for Conservation (P4C) will continue to advocate for these solutions to strengthen the integrity of all conservation easements and provide taxpayers and regulators greater clarity — as well as continue to highlight the overreach of the IRS in its war on conservation easements.