Renown Florida philanthropists Hugh and Eliza Culverhouse donated more than 80 acres of valuable land in the heart of Sarasota’s Palmer Ranch community to Sarasota County for a park. The land was one of the last tracts of undeveloped land in this rapidly developing community and was worth more than $28 million.
Congress encourages the donation of land such as this for conservation easements and public recreation. The property the Culverhouse’s donated is now used for conservation, public recreation and a community garden. But contrary to Congress’s policy and contrary to tax law, the IRS refused to recognize the value of the Culverhouse’s donation. As a result, Hugh Culverhouse challenged the IRS’s refusal to recognize the donation in a lawsuit filed in Tax Court. And Culverhouse won. The IRS lost. The Tax Court made a small adjustment to the value of the donated property, which Mr. Culverhouse asked the Eleventh Circuit to correct. But on every essential point, legal and factual, the Tax Court ruled in Mr. Culverhouse’s favor. The IRS cross-appealed and tried to reargue its discredited theory the donated property was essentially worthless.
Arent Fox partner Thor Hearne argued the case before the Eleventh Circuit. “This is another example of ‘no good deed goes unpunished.’ The IRS is seeking to do exactly what Congress said the IRS should not do,” Mr. Hearne said. “The Tax Court rejected the IRS’s ridiculous theory and I anticipate the Eleventh Circuit will do the same. Hugh and Eliza Culverhouse engaged in exactly the kind of philanthropy Congress intended to encourage and the IRS now wants to punish them for doing what Congress encouraged by making them run this gauntlet of litigation. The IRS is wrong. And I am confident the IRS will lose – again."
This case is the latest in a series of cases where the United States Courts of Appeal has been especially critical of the IRS's policy of aggressively challenging donations of land for conservation easements. Congress, not the IRS, writes the tax law. And Congress says donations of conservation easements should be encouraged by granting the donor a tax deduction for the full fair market value of the donated property. But the IRS, as an agency, has set upon a course of trying to frustrate Congressional policy. The IRS has been aggressively challenging taxpayers who donate land in an apparent effort to discourage the donation of land for conservation easements. The Fifth Circuit was harshly critical of the IRS’s conduct and wrote, “This exemplifies a practice of the IRS that we see with disturbingly increasing frequency, e.g., a grossly exaggerated amount asserted in a notice of deficiency.”
The Eleventh Circuit was similarly unsympathetic to the IRS’s argument. An audio of the Eleventh Circuit argument is available here and a written transcript of the argument is available here. The opening brief and reply brief are available at the included links. The Eleventh Circuit’s decision is expected this spring. The decision will be nationally significant for all donations of conservation easements.