Existence of a Golf Course Does Not Prevent Tax Deduction for Conservation Easement

In Champions Retreat Golf Founders, LLC v. Commissioner, 2020 WL 2462534 (11th Cir. May 13, 2020), the Eleventh Circuit was asked to review whether the grant of a conservation easement over a golf course was made “exclusively for conservation purposes”—a requirement to receive a charitable contribution deduction. In an opinion by visiting Judge Robert L. Hinkle of the Northern District of Florida, the court found in favor of the taxpayer, reasoning that “[w]ere it not for the presence of a golf course on part of this property,” the arguments made by the Internal Revenue Service “would be a nonstarter.” The court’s position that certain businesses can coexist with a conservation easement should provide comfort to taxpayers in light of the Service’s recent increased enforcement efforts around conservation easement deductions.

The taxpayer owns and operates a private golf course and owns surrounding undeveloped land in Augusta, Georgia. In 2010, the taxpayer conveyed a perpetual conservation easement to a national land trust. The taxpayer, an LLC taxed as a partnership, allocated nearly all of the $10.4 million charitable contribution deduction to new members who had recently made capital contributions of $2.7 million.

Under section 170(f) and 170(h) of the Internal Revenue Code, taxpayers may deduct the value of a “qualified conservation contribution.” The specific issue of the case was whether the taxpayer’s contribution of a conservation easement over the golf course and undeveloped lands was “exclusively for conservation purposes.” Conservation purposes include the protection of a “relatively natural habitat” of significant wildlife or plants and the preservation of open space for the scenic enjoyment of the public yielding a significant public benefit. The court found that both of those conservation purposes were present.

The court rejected the Service’s argument that the golf course and undeveloped land were not a “natural” habitat for the wildlife and plants. The proper test is whether the wildlife and plants exist in the habitat in a natural state, whether or not the land itself has been altered. The court reasoned that, even with the golf course, the land subject to the easement creates a habitat that, according to experts, is suitable to the wildlife.

The court also rejected the Service’s argument that the existence of a golf course, and its use of various chemicals, prevents a finding that the easement is for the “protection” of plants. Under the easement, the golf course agreed to use best environmental practices and agreed to refrain from further development. The court reasoned that even if a golf course is a natural threat to surrounding plants, the easement nonetheless improves the chances that the surrounding plants will be preserved.

The test for the preservation of an open space for the public’s scenic enjoyment is a facts and circumstances test. Here, the land subject to easement runs along the banks of the Savannah River, a popular kayaking and canoeing destination. The court noted that a golf course and surrounding lands are a “stark difference” from condominium buildings downriver. Although a golf course is not undisturbed nature, it is still an open space whose most prominent feature is trees—a “relatively natural” view when viewed from the river.

Judge Grant concurred in the majority’s holding that the easement qualified under the “scenic enjoyment” prong of the test but would not have reached the question of whether it also satisfied the “relatively natural habitat” standard.

The Eleventh Circuit’s holding that the taxpayer made a “qualified conservation contribution” reverses the holding of the Tax Court. The case will now return to the Tax Court to review the proper valuation of the conservation easement—another issue often raised by the Service on audit.

Posted by Phil Ogea.

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