B. V. BELK, JR.; HARRIET C. BELK, Petitioners - Appellants,
COMMISSIONER OF INTERNAL REVENUE, Respondent - Appellee. THE LAND TRUST OF NAPA COUNTY; ANN TAYLOR SCHWING; ROGER COLINVAUX; JOHN ECHEVERRIA; JOHN LESHY; NANCY MCLAUGHLIN; JANET MILNE, Amici Supporting Respondent
Argued October 29, 2014.
Appeal from the United States Tax Court. (Tax Ct. No. 005437-10).
David Mace Wooldridge, SIROTE & PERMUTT, P.C., Birmingham, Alabama, for Appellants.
Patrick J. Urda, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Ronald A. Levitt, Gregory P. Rhodes, Michelle A. Levin, SIROTE & PERMUTT, P.C., Birmingham, Alabama, for Appellants.
Tamara W. Ashford, Acting Assistant Attorney General, Gilbert S. Rothenberg, Jonathan S. Cohen, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Ann Taylor Schwing, BEST BEST & KRIEGER, L.L.P., Sacramento, California, for Amici Land Trust of Napa County and Ann Taylor Schwing.
Douglas A. Ruley, Environmental and Natural Resources Law Clinic, VERMONT LAW SCHOOL, South Royalton, Vermont, for Amici Roger Colinvaux, John Echeverria, John Leshy, Nancy McLaughlin, and Janet Milne.
Before MOTZ, KING, and KEENAN, Circuit Judges. Judge Motz wrote the opinion, in which Judge King and Judge Keenan joined.
DIANA GRIBBON MOTZ, Circuit Judge:
After taxpayers donated a conservation easement to a land trust, they claimed a $10,524,000 charitable deduction for the asserted value of the easement. The Tax Court held that the easement did not qualify as a charitable contribution and so the taxpayers were not entitled to the deduction. For the reasons that follow, we affirm.
The parties stipulated to the following facts before the Tax Court.
Between 1994 and 1996, B.V. and Harriet Belk accumulated roughly 410 acres of land straddling Union and Mecklenburg Counties outside of Charlotte, North Carolina. In February 1996, the Belks formed a limited liability company, Olde Sycamore, LLC, and transferred to it their newly acquired parcel of land. Olde Sycamore developed the land, building a golf course and surrounding it with 402 residential lots, which were later sold to builders. Single-family homes now occupy those lots, and Olde Sycamore continues to own the golf course. Old Sycamore remains wholly owned by the Belks -- ninety-nine percent by B.V., and one percent by his wife, Harriet.
In 2004, Olde Sycamore executed a conservation easement (" the Easement" ) covering roughly 184 acres of the land on which the golf course now sits. The Easement was then transferred to Smoky Mountain National Land Trust, Inc. (" the Trust" ) and recorded in both Union and Mecklenburg Counties. The Easement imposes on the 184-acre parcel a number of enforceable use restrictions, including a prohibition on further development and a requirement that the parcel be used " for outdoor recreation." Olde Sycamore granted the Easement in perpetuity, subject to certain " Reserved Rights."
One such reserved right, central to this appeal, permits Olde Sycamore to " substitute an area of land owned by [it] which is contiguous to the Conservation Area for an equal or lesser area of land comprising a portion of the Conservation Area." Olde Sycamore's substitution right is conditioned upon the Trust's agreement that " the substitute property is of the same or better ecological stability," that " the substitution shall have no adverse effect on the conservation purposes," and that the fair market value of the substituted property is at least equal to that of the property originally subject to the Easement. The substitution provision thus permits Olde Sycamore, if the Trust agrees (and it cannot unreasonably withhold agreement), to swap land in and out of the Easement.
In doing so, Olde Sycamore can shift the use restriction from one parcel to another, provided the Easement continues to cover at least 184 acres and to advance its stated conservation purpose. Such a substitution becomes final when reflected in a formal amendment to the Easement recorded in the relevant county or counties.
The Easement contains a savings clause, also of relevance here, which circumscribes the Trust's ability to agree to such amendments. This clause provides that the Trust " shall have no right or power to agree to any amendments . . . that would result in this Conservation Easement failing to qualify . . . as a qualified conservation contribution under Section 170(h) of the Internal Revenue Code and applicable regulations." Section 170(h) details the circumstances under which the grant ...