By Steven Miller, former IRS Acting Commissioner and alliantgroup National Director of Tax
On June 1, 2016, in MOUNTANOS v. COMMISSIONER, No. 14-71580, 2016 WL 3079688, at *1 (9th Cir. June 1, 2016), the Ninth Circuit, in an unpublished, three page opinion, affirmed the Tax Court’s decision to disallow a charitable contribution deduction for the donation of a conservation easement and apply gross valuation misstatement penalties. The taxpayer donated the conservation easement in 2005, claimed a $1.3 million deduction in the 2005 tax year, and claimed a total of $3.39 million in carryover deductions for the 2006 through 2008 tax years. It appears that the statute of limitations had run on the 2005 tax year when the audit began because 2005 was not at issue in litigation; only 2006 through 2008 were being contested.
The Tax Court had originally disallowed the deduction as the taxpayer had not proven that the donation had any value. While the land was undeveloped and the conservation easement prohibited development, the ranch was already subject to the California Land Conservation Act of 1965, which limited the use and development of the land. The Court of Appeals stated that even if the donation had any value, it was not greater than $210,000, which was much less than the $1.3 million deduction already taken for 2005. Based on the $210,000 actual value and the $4.69 million reported value, there was a valuation misstatement of greater than 400 percent; making the gross valuation misstatement penalty applicable.
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.