Conservation Contribution Disallowed

P, an investor, purchased 30 acres of unimproved land (G) in a historical overlay district, subject to county regulations that were more stringent for property within such a district. Zoning permitted 30 lots—county approval was required for denser zoning usage. However, the 30 acres were sold without an application for a change in zoning. At that time, there was only the possibility that the number of buildings or dwellings could have been increased from 30 to a larger number. P, claiming he was entitled to develop up to 62 residences on smaller lots, executed a deed to the county purporting to limit development to 30 residences. He then claimed a contribution deduction for a qualified conservation contribution under Sec. 170(h)(1).

Qualified Conservation Contribution

Sec. 170(f)(3) does not permit a deduction for a charitable gift of property consisting of less than the donor’s entire interest. An exception applies in the case of a “qualified conservation contribution” under Sec. 170(f)(3)(B)(iii). A contribution of real property is a qualified conservation contribution if the:

• Real property is a “qualified real property interest”;

• Donee is a “qualified organization”; and

• Contribution is “exclusively for conservation purposes”; see Sec. 170(h)(1).

The parties dispute whether there was a qualified real property interest and whether the contribution is exclusively for conservation purposes. Here, P was not entitled to the deduction, because he failed to show that the conservation was exclusively for conservation purposes.

Definition

A contribution is made “exclusively for conservation purposes” if it meets a two-part test. First, a contribution is for a conservation purpose if it:

1. Preserves land for the general public’s outdoor recreation or education;

2. Protects a relatively natural habitat of fish, wildlife or plants, or similar ecosystem (the natural habitat requirement);

3. Preserves open space either for the scenic enjoyment of the general public or pursuant to a Federal, state or local governmental conservation policy and yields a significant public benefit (the open-space requirement); or

4. Preserves a historically important land area or a certified historic structure (the historic preservation requirement); see Sec. 170(h)(4)(A) and Regs. Sec. 1.170A-14(d)(1).

In addition, the “exclusively for conservation purposes” requirement may be met only if the conservation purpose is protected in perpetuity; see Sec. 170(h)(5)(A).

Open space: P alleges he satisfies the open-space requirement, which requires both the preservation of open space and the inurement of a significant public benefit; see Glass, 124 TC 258 (2005). Generally, examples provided in the legislative history concern the preservation of the natural state of land. P argues that limiting the G property development to 30 lots rather than 62 enables the land to have “a distinctly open quality.” However, the IRS counters that even if the deed effectively limited development to 30 lots, there were no restrictions placed on open space within the buildable area. Further, there could be no building on the remaining acreage, because it was a designated floodplain. The Tax Court agreed with the Service.

The deed did not limit the size of the homes (either in square footage to protect the amount of buildable land that each can cover, or in height to protect the view from any nearby historical area), or any other development that could have taken place on or adjacent to the property. Moreover, nothing in the deed limits the landowner’s ability to seek rezoning to denser development classifications. Accordingly, neither P nor the builder was prohibited from building homes twice the size of those planned for development. The deed contained no specific provisions to protect the views from the properties. The natural state was not protected by the development of 30 rather than 62 units. Accordingly, P has not satisfied the Sec. 170(h) open-space requirement.

Historic preservation: This may be met by showing the preservation of a “historically important land area” or “certified historic structure.” The legislative history describes a “historically important land area” as one that is important in its own right or in relation to “historic structures.”

According to the Tax Court, the attempted easement did not satisfy Sec. 170(h)’s historic preservation requirement, because it did not preserve a historic structure or historically important land area. First, there was no historical structure on the G property to preserve, and the limits on the development of land near other property with a historic grist mill and plantation do not preserve the historical structures on those properties.

Also, P could not claim that the G property is independently significant, (like a Civil War battlefield, for example), as there is no evidence that anything on the property was historically unique. The property is thus a historically important land area only because of its proximity to a historical grist mill and plantation. Its physical feature, “which [contributed] to the historic or cultural importance” of the surrounding historical properties, was its natural state, because that natural state provided the separation of the modern world from the 18th century.

Conclusion

The Tax Court held that P was not entitled to a deduction for a qualified conservation contribution under Sec. 170(h), because the attempted grant did not satisfy the Sec. 170(h)(4)(A) conservation-purpose requirement.

James D. Turner, 126 TC No. 16 (5/16/06)