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Court Denies Conservation Easement Deduction for Defective Contemporary Written Acknowledgement

By Steven Miller, former IRS Acting Commissioner and alliantgroup National Director of Tax

On March 23, 2016, the Tax Court issued a decision upholding the IRS’s disallowance of a charitable deduction for a contribution of a conservation easement based on the taxpayer’s failure to satisfy the strict substantiation requirements of section 170(f)(8). In French v. Comm’r of Internal Revenue, T.C.M. (RIA) 2016-053 (T.C. 2016), the taxpayer owned a portion of a parcel of property in Montana and donated a conservation easement on this property to the Montana Land Reliance in 2005, claiming a deduction of $350,971 for the charitable donation of his proportional interest in the conservation easement. He deducted $56,796 for the 2005 tax year and carried the remainder forward to claim deductions for 2006 through 2008. Only the 2006 through 2008 tax years were included in the litigation.

The Facts

The court was presented with three different issues, but made its determination based on only one of them. The issues were (1) whether the petitioners complied with the contemporaneous written acknowledgement requirement of section 170(f)(8); (2) whether the petitioners had an ownership interest in the property; and (3) whether the petitioner properly valued the conservation easement.  Because the court decided that the taxpayer did not satisfy the contemporaneous written acknowledgement requirement, and therefore was not eligible for the deduction, the other two issues were not addressed.

Section 170(f)(8)(B)(ii) states that the contemporaneous written acknowledgement must include, among other things, whether the donee organization provided any goods or services in consideration for the donated property. This information is important to help the IRS determine whether there is a quid pro quo transaction that reduces the value (or potentially eliminates) the charitable deduction. The Tax Court has previously held that the acknowledgement need not take any particular form, and may be included in the deed itself. In this case, the taxpayer included the conservation deed when the return was filed. The conservation deed stated that the consideration for the conservation easement was the “mutual covenants in the deed.” What the conservation deed did not state was whether Montana Land Reliance provided any goods or services in exchange for the easement, or that the deed was the entire agreement between the parties.

Court Ruling

In trying to make their argument, the taxpayer referred to two cases decided by the Tax Court where the deed was found to be sufficient to satisfy the contemporaneous written acknowledgement requirements (Averyt v. Commissioner, T.C. Memo 2012-198 and RP Golf, LLC v Commissioner, T.C. Memo 2012-282). Unfortunately for the taxpayer, both of these cases were distinguished from the present one based on the content of the deeds. In each of those cases, the conservation deed had a clause that stated that the deed was “the entire agreement of the parties.” No other consideration was identified in the deed so, therefore, the IRS and the court could conclude that no other consideration was provided. Because the deed in French did not say that the deed was the entire agreement of the parties, the IRS and the court could not conclude that there was no other consideration provided in the transaction. Further, although the taxpayer had obtained a separate letter from the donee organization (dated after the 2005 tax return was filed) stating that no goods or services had been provided to the taxpayer, the court determined this was not “contemporaneous” and was to be disregarded because it was not obtained prior to filing the 2005 tax return on which the deduction was first claimed.

Key Takeaways

Failure to properly file the return and document the donation of the conservation easement has been one of the IRS’s biggest weapons in getting the courts to disallow deductions. Specifically, in the case of contemporaneous written acknowledgements, the Tax Court has held that the doctrine of substantial compliance does not apply to excuse compliance with the acknowledgement requirement. To avoid having these issues come up, the taxpayer and the donee organization should consult an expert in the area of conservation easements before making or accepting conservation easement donations.

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Steven Miller is alliantgroup’s National Director of Tax and the co-leader of alliantNational, alliantgroup’s national practice. alliantNational provides subject matter expertise on complex and emerging federal, state and international tax issues as well as legislative and regulatory affairs to help taxpayers receive timely and precise guidance on all their tax matters. Contact us today for more information on this and other topics.


Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.


Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

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