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Tax Court Reversed; Golf Course Doesn't Destroy Validity of Easement Contribution

(Parker Tax Publishing May 2020)

The Eleventh Circuit reversed a Tax Court decision which denied a charitable contribution deduction to a taxpayer who donated a conservation easement that included a private golf course and undeveloped land. The court noted that, without the golf course, the easement would easily meet the criteria for a charitable deduction and, since the Code does not disqualify an easement just because it includes a golf course, the deduction was valid. Champions Retreat Gold Founders, LLC v. Comm'r, 2020 PTC 148 (11th Cir. 2020).


Pollard Land Company bought over 2,000 undeveloped acres along the Savannah River roughly 13 miles north of Augusta, Georgia. In 2002, Pollard conveyed part of the land, 463 acres, to Champions Retreat Golf Founders, LLC (Champions). Champions built a golf course with three ninesone each designed by Gary Player, Jack Nicklaus, and Arnold Palmer. The course opened for play in 2005. It was and still is private - open only to club members and their guests, not the general public.

The golf course occupies roughly two-thirds of the 463 acres. Champions sold 66 homesites on 95 acres on the west side of the coursethe side away from the Savannah River. The golf course and homesites are accessible only through a gate that is staffed 24 hours per day. Roughly 57 acres, consisting primarily of bottomland forests and wetlands, remain undeveloped. This includes riparian land on the Little River, an offshoot of the larger Savannah. Between the Little and Savannah Rivers lies Germain Island. The island consists of both undeveloped land and six holes of the golf course. The easement property is home to abundant species of birds, some rare, to the regionally declining southern fox squirrel, and to a rare plant species, the denseflower knotweed. Although not itself accessible to the public, the property is readily observable to members of the public who kayak or canoe on the Savannah and Little Rivers.

By 2009, the Champions golf course, like many in the ongoing recession, was struggling financially. Champions' accountant proposed the donation of a conservation easement on the property including the golf club. A conservation biologist with the North American Land Trust (the Trust) performed a survey of the property and determined that the property met the requirements for a conservation easement. Champions contributed the conservation easement to the Trust in 2010. The Trust is an entity that holds and enforces conservation easements nationwide with the goal of preserving natural habitats and environmentally sensitive areas. The Trust accepted the easement. The easement covers 348 acres consisting of the undeveloped land and the golf course, including the driving range, but not including the golf course buildings and parking lot. The easement does not include the homesites.

Champions claimed a charitable deduction for the contribution. As a limited liability company, Champions was able to steer the corresponding tax benefit to persons who, in anticipation of that benefit, made capital contributions, thus shoring up Champions' financial position. The IRS disallowed the deduction. Champions and a related entity took their case to the Tax Court.

Under Code Sec. 170(f)(3)(B)(iii), a deduction is allowed for a qualified conservation contribution. A qualified conservation contribution is defined in Code Sec. 170(h)(1) as a contribution (1) of a qualified real property interest, (2) to a qualified organization, (3) exclusively for conservation purposes. Under Code Sec. 170(h)(2), a qualified real property interest includes a restriction (granted in perpetuity) on the use which may be made of the real property. Code Sec. 170(h)(4)(A) defines a "conservation purpose" to mean (1) the preservation of land areas for outdoor recreation by, or the education of, the general public; (2) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem; (3) the preservation of open space (including farmland and forest land) where such preservation is (i) for the scenic enjoyment of the general public, or (ii) pursuant to a clearly delineated federal, state, or local governmental conservation policy, and will yield a significant public benefit; or (4) the preservation of an historically important land area or a certified historic structure.

The Tax Court sided with the IRS and held that Champions was not entitled to a deduction for the easement because it failed to satisfy the conservation purpose requirement of Code Sec. 170(h). The court noted that Champions presented evidence of only one rare, endangered, or threatened species with a habitat on the easement area - the denseflower knotweed - and it inhabited just a small fraction of the easement area. According to the court, Champions had not met the conservation purpose requirement by providing a "habitat for rare, endangered, or threatened species of animals, fish, or plants" as defined in Reg. Sec. 1.170A-14(d)(3)(ii). The Tax Court also said that it could not conclude that the easement area was a natural area that contributed to the ecological viability of the area. Thus, because it found that the easement area neither provided a habitat for rare, threatened, or endangered species nor was a natural area that contributed to the ecological viability of area, Champion's contribution was not made for the conservation purpose of protecting a relatively natural habitat.

Champions appealed to the Eleventh Circuit. The appeal revolved around the question of whether Champion's contribution was made "exclusively for conservation purposes." An IRS expert took no issue with Champions' proposition that many birds used the property, including some that were worthy of protection. However, the expert said, the habitat itself was not relatively natural as the golf fairways and greens consisted of non-native bermuda and bent grass. The IRS noted that the denseflower knotweed existed on only a limited proportion of the easement - perhaps 7 percent, with the capacity to occupy up to 17 percent. The IRS also argued that, because part of the golf course drains toward the bottomland where the knotweed is located, the knotweed could thus suffer harm from the chemicals used on the golf course.

Eleventh Circuit's Analysis

The Eleventh Circuit reversed the Tax Court and held that Champions was entitled to a charitable deduction for its easement contribution. In the court's opinion, the case turned on whether Champion's contribution (1) protected a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem; (2) preserved open space; (3) provided scenic enjoyment of the general public; and (4) would yield a significant public benefit.

A deduction is allowed, the court stated, for an easement contributed for "the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem." Under this provision and the implementing regulation, the court said, a taxpayer is entitled to a deduction if its easement includes habitat for "rare, endangered, or threatened species of animal, fish, or plants," or if the easement contributes to the "ecological viability" of the adjacent national forest. These are the standards that apply despite the presence of a golf course on part of the property, the court observed, and the court found that the property was a significant habitat for rare, endangered, or threatened species.

With respect to the IRS expert's observation that the golf fairways and greens consist of non-native Bermuda and bent grass, the court noted that Code Sec. 170(h)(4)(A)(ii) requires only a "relatively natural habitat . . . or similar ecosystem," not that the land itself be relatively natural. According to the court, what matters is not so much whether all the land is natural, but whether the habitat is natural. The court observed that, while the golf course itself is comprised primarily of non-native grasses, the remainder of the easement property is natural and includes the rare denseflower knotweed plant. With respect to the argument that the chemicals used on the golf course may cause the knotweed to suffer harm, the court noted that the easement requires Champions to follow the best environmental practices prevailing in the golf industry. Moreover, the court said, the relevant question is not so much whether chemicals from the course may harm the knotweed, but whether the easement improves the chance that the knotweed will be preserved. According to the court, the answer was yes for two reasons: first, because the obligation to use best environmental practices would not exist without the easement; and second, because unrestrained development of the land where the knotweed is located would pose a greater risk than the golf course. Indeed, the court observed, Reg. Sec. 1.170A-14(d)(3)(i) provides that it is not disqualifying that the land has been altered, so long as the fish, wildlife, or plants continue to exist there in a relatively natural state.

For a discussion of the deductibility of conservation easement contributions, see Parker Tax ¶84,155.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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