Charles R. Irby and Irene Irby v. Commissioner , 139 T.C. 371 ( 2012 )

CHARLES R. IRBY AND IRENE IRBY, ET AL., 1 PETITIONERS v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Docket Nos. 7559–10, 7561–10, Filed October 25, 2012.
7562–10.
Ps are members of an LLC which conveyed conservation
easements encumbering two parcels of land (one conveyance
in 2003 and the other in 2004) to COL, a qualified organiza-
tion as defined in I.R.C sec. 170(h)(3), in bargain sale trans-
actions. The purchase portion of the transactions was funded
with grants from Federal, State, and county agencies which
were established to assist in the conservation of open land.
The LLC reported gain with respect to the sale portion and
a charitable contribution with respect to the remaining por-
tion (the bargain portion) of the transactions. Ps reported
their respective shares of the gain and deducted their respec-
tive shares of the charitable contributions on their respective
individual tax returns for years 2003 and 2004. In disallowing
the charitable contribution deductions Ps claimed for the bar-
gain portion of the transactions, R determined that: (1) the
conservation purpose for the easements was not protected in
perpetuity because COL was required to reimburse the
funding government agencies in the event it received proceeds
should the land to which the easements relate be condemned
and the easements extinguished; (2) Ps’ appraisal report was
1 Cases of the following petitioners are consolidated herewith: Stanley W. Irby and Bonnie S.
Irby, docket No. 7561–10; and Dale Irby and Wendy M. Irby, docket No. 7562–10.
371
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372 139 UNITED STATES TAX COURT REPORTS (371)
not a ‘‘qualified appraisal’’ because the report did not include
statements that the appraisal was prepared for income tax
purposes; and (3) Ps did not obtain contemporaneous written
acknowledgments from COL indicating the amount of goods or
services that Ps received for the contribution. Held: The con-
servation purpose of the easements was protected in per-
petuity. Held, further, Ps’ appraisal report met the require-
ments of a qualified appraisal as required by sec. 1.170A–
13(c)(3)(ii)(G), Income Tax Regs. Held, further, Ps obtained
the contemporaneous written acknowledgment of the trans-
actions required by I.R.C. sec. 170(f)(8).
Larry D. Harvey, for petitioners.
Luke D. Ortner, Robert A. Varra, and Sara Jo Barkley, for
respondent.
OPINION
JACOBS, Judge: Charles Irby, Irene Irby, Dale Irby, and
Stanley Irby (sometimes referred to as the Irbys or peti-
tioners) are members of Irby Ranches, LLC, a Colorado lim-
ited liability company that elected to be taxed as a partner-
ship for 2003 and 2004. As discussed in greater detail infra,
Irby Ranches, LLC, conveyed to Colorado Open Lands, a
‘‘qualified organization’’ as defined in section 170(h)(3), two
conservation easements: one in 2003 which encumbered
approximately 197 acres of land and a second in 2004 which
encumbered approximately 456 acres of land. The easements
placed on the use of the property a variety of limitations that
served to protect the relatively natural habitat for fish, wild-
life, and plants and to preserve open space and agricultural
resources (conservation purposes). The easements were
granted to Colorado Open Lands as part of a bargain sale
transaction. 2 Irby Ranches, LLC, reported gains with respect
to the sale portion of the transaction and charitable contribu-
tions with respect to the remaining portion of the transaction
on Forms 1065, U.S. Return of Partnership Income, which it
timely filed for tax years ended December 31, 2003 and 2004.
On their respective Federal income tax returns for 2003 and
2004 the Irbys each reported their respective shares of the
gain and deducted their respective portions of the charitable
2 A bargain sale is a transfer of property which is in part a sale or exchange of the property
and in part a charitable contribution as defined in sec. 170(c). Sec. 1.170A–4(c)(2)(ii), Income
Tax Regs.
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(371) IRBY v. COMMISSIONER 373
contributions. 3 Respondent disallowed the claimed charitable
contribution deductions, determining the purported contribu-
tions failed to meet all the requirements of section 170. 4
Pursuant to an agreement between counsel for petitioners
and counsel for respondent submitted to the Court on
November 3, 2011, a trial was held on November 30, 2011,
in Denver, Colorado, to resolve the following issues: (1)
whether the specific terms and conditions of the deeds of con-
servation easement (deeds) comply with section 170(h)(5) and
section 1.170A–14(g)(6), Income Tax Regs., which determine
whether the conservation purpose of a conservation easement
is protected in perpetuity; (2) whether petitioners obtained a
qualified appraisal as required by section 1.170A–13(c)(3),
Income Tax Regs.; and (3) whether petitioners complied with
the substantiation requirements of section 170(f)(8).
In addition to disallowing the claimed charitable contribu-
tion deductions for failure to meet the requirements of sec-
tion 170, the notices of deficiency included a number of other
issues that were reserved for subsequent proceedings.
Background
Some of the facts are stipulated and are so found. We
incorporate by reference the stipulation of facts and the
attached exhibits. Petitioners resided in Colorado at the time
they filed their respective petitions.
I. The Donation of Irby Ranch
Irby Ranches, LLC, operates the Irby Ranch, which is
approximately 24 miles east of Gunnison, Colorado. The
property has been owned and operated as a cow-calf ranch
since 1942, and the Irby family has owned and operated
ranches in the area for four generations. As of December 31,
2003, the Irby Ranch lands consisted of cattle pasture and
hay meadows. All of the land was used for agricultural pur-
poses at the time of trial.
3 At all relevant times Charles Irby was married to Irene Irby, Dale Irby was married to
Wendy Irby, and Stanley Irby was married to Bonnie Irby. Charles Irby and Irene Irby filed
joint Federal income tax returns for 2003 and 2004; Dale Irby and Wendy Irby filed joint Fed-
eral income tax returns for 2003 and 2004; and Stanley Irby and Bonnie Irby filed joint Federal
income tax returns for 2003 and 2004. Dale Irby and Stanley Irby are the children of Charles
Irby and Irene Irby.
4 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect
at all relevant times.
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374 139 UNITED STATES TAX COURT REPORTS (371)
In 1999 the residents of the Gunnison Valley became
interested in maintaining the rural nature of the area. The
community as a whole began looking into conservation ease-
ments as an avenue to protect the area’s farms and ranch-
lands. Residents, including the Irbys, began conversations
with conservationists, and together they determined they
could use conservation easements to provide some protection
of the ranchlands in the area as well as provide a source of
funding for ranchers who desired payment for agreeing to an
easement.
Petitioners approached Colorado Open Lands to discuss
Irby Ranches, LLC’s conveying a conservation easement on its
property. Their discussions led to Irby Ranches, LLC’s
granting options to Colorado Open Lands on September 26,
2003, to purchase conservation easements on two parcels of
land pursuant to bargain sale transactions. A minimal
amount (i.e., $10) was the stated consideration for each
option. Colorado Open Lands exercised both options. There-
after, Irby Ranches, LLC, conveyed to Colorado Open Lands
a conservation easement under an instrument recorded on
December 10, 2003, with the Clerk and Recorder of Gunnison
County, Reception No. 537437, which encumbered the
western portion of the Irby Ranch (west Irby parcel). On
June 10, 2004, Irby Ranches, LLC, conveyed a second con-
servation easement to Colorado Open Lands under an
instrument executed on June 10, 2004, and recorded on June
16, 2004, with the Clerk and Recorder of Gunnison County,
Reception No. 543071, which encumbered the eastern portion
of the Irby Ranch (east Irby parcel).
Funding for each easement was through grants from three
governmental agencies: (1) the Farm and Ranch Lands
Protection Program (FRPP) of the Natural Resources Con-
servation Service (NRCS), an agency of the U.S. Department
of Agriculture (USDA); (2) Great Outdoors Colorado (GOCO), a
voter-created trust fund organization of the State of Colo-
rado; and (3) the Gunnison County Land Preservation Board.
The amount paid for the west Irby parcel easement in 2003
was $268,224.75, and $537,468.75 was paid for the east Irby
parcel easement in 2004.
FRPP contributed $176,381 for the 2003 west Irby parcel
easement and $358,312 for the 2004 east Irby parcel ease-
ment. GOCO contributed $89,191 for the 2003 west Irby
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(371) IRBY v. COMMISSIONER 375
parcel easement and $119,583 for the 2004 east Irby parcel
easement. The Gunnison Land Preservation Board contrib-
uted $33,006 for the 2003 west Irby parcel easement and
$119,583 for the 2004 east Irby parcel easement. 5 The excess
of the amounts contributed by the three governmental agen-
cies over the amounts paid for the easements was used for
settlement and legal charges as well as a grant to Colorado
Open Lands.
Both deeds contained substantially the same restrictions.
The easements were exclusively for conservation purposes
and protected the properties in perpetuity. The deeds allowed
for the continuation of agricultural operations in a manner
consistent with a conservation plan prepared in consultation
with the NRCS (which gave the NRCS the right to enter the
property to monitor compliance with the plan). If agricultural
operations on the properties were to cease, the land could not
be converted to nonagricultural uses. The deeds prohibited
commercial timber harvesting; mining; exploitation of gas,
oil, and geothermal resources; and commercial and non-
commercial recreation, except for certain low-impact uses
such as hunting, outfitting, and bird watching, and imposed
restrictions on the exploitation of the land’s water rights and
on the use of motor vehicles. The deeds also banned subdivi-
sions, industrial activity, or the establishment of feedlots. 6
Colorado Open Lands was authorized to enter both the east
and west Irby parcels in order to monitor compliance with
the terms of the easements and, if necessary, to enforce the
restrictions.
The deeds provided that Colorado Open Lands could
transfer the easements to any public agency or private non-
profit organization that, at the time of transfer, was a quali-
fied organization as defined by section 170(h), but only if the
recipient expressly agreed to assume the responsibility
imposed on Colorado Open Lands by the deeds.
An appraisal petitioners and Colorado Open Lands
commissioned (discussed more fully infra) determined that
the value of the easement on the west Irby parcel was 63%
5 Additionally, the Gunnison Ranchland Conservation Legacy, a Colorado nonprofit corpora-
tion, facilitated the transactions by assisting petitioners with the application process for the
funding of the easements.
6 A feedlot is a permanently constructed confined area or facility which is used exclusively for
the feeding of livestock.
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376 139 UNITED STATES TAX COURT REPORTS (371)
of the full fair market value of the property as unencumbered
by the easement on the date the easement was first recorded.
The same appraisal determined that the value of the ease-
ment on the east Irby parcel was 60% of the full fair market
value of the property as unencumbered by the easement on
the date the easement was first recorded. The amounts paid
to Irby Ranches, LLC, for the easements were below market
value as set forth in the appraisal.
If the land were ever to be condemned, paragraph 12 of
each of the deeds provided that the amount paid to the
grantee (i.e., Colorado Open Lands) would be equal to the
easement value percentage multiplied by the amount of the
proceeds resulting from the disposition of the land. Specifi-
cally, following condemnation of the land, Colorado Open
Lands would receive 63% of the price paid for the west Irby
parcel easement and 60% of the price paid for the east Irby
parcel easement. However, paragraph 13 of the deed to the
west Irby parcel provides:
The Board [of GOCO] shall be entitled to receive twenty-one percent (21%)
of Grantee’s compensation, which figure is equal to that portion of the
Board’s grant attributable to the fair market value of the Easement (the
‘‘Board’s Proceeds’’). The United States shall be entitled to receive fifty per-
cent (50%) of Grantee’s compensation, which figure is equal to that portion
of the United States’ funds attributable to the fair market value of the
Easement (the ‘‘United States’ Proceeds’’). The Gunnison Valley Land
Preservation Board shall be entitled to receive four percent (4%) of the net
proceeds of condemnation or sale of the Property, which is equal to that
portion of its grant attributable to the purchase price for the Property.
Grantee shall remit promptly to the above parties their respective shares
of the proceeds.
Accordingly, although Colorado Open Lands would receive
the value of the easement should the land be condemned or
the easement otherwise extinguished, after making the
required reimbursements to the three governmental agencies
that funded the bargain purchase, Colorado Open Lands
would retain 25% of the proceeds resulting from the disposi-
tion of the easement on the west Irby parcel.
Paragraph 13 of the east Irby parcel deed is similar.
Specifically, it provides that the Board of GOCO would receive
13% of Colorado Open Lands’ compensation, the United
States would receive 50%, and the Gunnison Valley Land
Preservation Board would receive 12%. Accordingly, Colorado
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(371) IRBY v. COMMISSIONER 377
Open Lands would retain 25% of the proceeds resulting from
the disposition of the easement on the east Irby parcel.
II. The Appraisal of Irby Ranch
Arnold Butler was engaged to appraise both the east Irby
parcel and west Irby parcel easements. At the time Mr.
Butler had been an independent real estate appraiser for
over 35 years and had appraised between 75 and 100 con-
servation easements in Gunnison County. The valuation date
of his report was August 29, 2003. At the time of his engage-
ment Mr. Butler understood that the east and west Irby
parcel easements were being appraised in connection with a
bargain sale to Colorado Open Lands, which was a below-
market sale, see supra note 2, and that there would be Fed-
eral income tax effects. Consequently, the appraisal includes
the following:
The purpose of the easement as quoted from the proposed Deed of Con-
servation Easement is:
The purpose (the ‘‘Purpose’’) of this Easement is to preserve and protect
in perpetuity the Conservation Values of the Property. This Purpose is in
accordance with s170(h) of the Internal Revenue Code. In order to achieve
this purpose, Grantor intends to convey this Deed to Grantee to ensure
that the Conservation Values of the Property will be preserved and pro-
tected forever.
Mr. Butler’s report provided a historic and geographic over-
view of Gunnison County, Colorado, descriptions of both the
east and west Irby parcels, descriptions of the easements,
and a discussion regarding how the easements created a
severe encumbrance to the highest and best use of the land,
which was subdivision for residential properties. The report
stated that the properties would be appraised using fair
market value as defined by the Uniform Standard of
Appraisal Practice. 7 The appraisal report then discussed sev-
eral valuation methods and explained why the sales compari-
son valuation method was being used. Using the sales
comparison valuation method, the report determined both
the value of the unencumbered property, on the basis of the
7 This method relies on a hypothetical situation whereby (1) the buyer and seller are both typi-
cally motivated; (2) both parties are informed and act in their own best interests; (3) a reason-
able time is allowed for exposure in the open market; (4) payment is made in terms of cash
in U.S. dollars or in terms of comparable financial arrangements; and (5) the price represents
normal consideration of the property sold unaffected by special or creative circumstances.
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378 139 UNITED STATES TAX COURT REPORTS (371)
sales of 11 similar, local unencumbered properties, and the
value of the property as encumbered by the easements, on
the basis of the sales of 13 similar, local properties encum-
bered by conservation easements. 8
Mr. Butler prepared two addenda reports (addenda), one
for the east Irby parcel easement and the other for the west
Irby parcel easement, using valuation dates of December 4,
2003, and May 3, 2004, respectively. Inasmuch as the
characteristics of the two parcels generally remained
unchanged, Mr. Butler incorporated in the addenda the prop-
erty descriptions, basis data descriptions, and valuation anal-
yses set forth in his original appraisal report. Nonetheless
Mr. Butler conducted a new investigation and analysis of
current market conditions and by doing so concluded that the
values set forth in the original reports remained valid. He
briefly detailed his valuation analyses in the addenda. Mr.
Butler drafted the addenda to comply with section 1.170A–
13(c)(3)(i)(A), Income Tax Regs., which requires that a quali-
fied appraisal be completed within 60 days of the date the
property is contributed. The addenda stated that the east
and west Irby parcels had not changed in value during the
intervening time. 9
Petitioners timely filed their respective 2003 and 2004 Fed-
eral income tax returns. Attached to petitioners’ respective
2003 and 2004 returns was a Form 8283, Noncash Chari-
table Contributions, drafted by Mr. Butler. On the 2003
Form 8283 Mr. Butler wrote that the donated property con-
sisted of a conservation easement, that petitioners received
$268,224.75 in a bargain sale transaction, and that they
claimed $89,408.25 as a charitable contribution deduction.
On the 2004 Form 8283 Mr. Butler wrote that petitioners
received $537,468.75 in a bargain sale transaction for the
conservation easement but did not claim any amount as a
charitable contribution deduction. In fact, petitioners
8 The report discusses the similarities and differences among the comparable unencumbered
and encumbered properties as well as similarities and differences between them and the west
and east Irby parcels, and adjustments to the sale prices of the comparable properties were
made to reflect these differences.
9 We note that the original appraisal report was labeled as being completed for both Irby
Ranches, LLC, and Lucy High, executive director of the Gunnison Ranchland Conservation Leg-
acy, whereas the addenda were completed solely for Lucy High. At trial Mr. Butler explained
that the name ‘‘Irby Ranches, LLC’’ was inadvertently left off of the addenda.
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(371) IRBY v. COMMISSIONER 379
claimed, in the aggregate, $165,576.21 as deductions on their
2004 income tax returns.
Discussion
I. Introduction
Section 170(a)(1) provides that generally a taxpayer may
deduct any charitable contribution only if the contribution is
verified under regulations prescribed by the Secretary.
Although section 170(f)(3) does not generally permit a deduc-
tion for a charitable gift of property consisting of less than
the donor’s entire interest in that property, section
170(f)(3)(B)(iii) provides an exception for a ‘‘qualified con-
servation contribution’’. A qualified conservation contribution
is a contribution of (1) a ‘‘qualified real property interest,’’ (2)
to a ‘‘qualified organization’’, (3) which is made ‘‘exclusively
for conservation purposes’’. Sec. 170(h)(1); see also sec.
1.170A–14(a), Income Tax Regs. All three requirements must
be met for a donation to qualify as a qualified conservation
contribution.
Respondent challenges petitioners’ deductions on the fol-
lowing grounds: (1) the contributions were not made exclu-
sively for conservation purposes because that conservation
purpose of the contributions was not protected in perpetuity;
and (2) petitioners failed to meet certain recordkeeping
requirements, specifically that they failed to obtain (a) a
qualified appraisal, and (b) a contemporaneous written
acknowledgment.
II. Protection of the Conservation Purpose of the Easements
in Perpetuity
A contribution is made exclusively for conservation pur-
poses only if it meets the requirements of section 170(h)(5).
Glass v. Commissioner, 124 T.C. 258, 277 (2005), aff ’d, 471
F.3d 698 (6th Cir. 2006). Section 170(h)(5)(A) provides that
‘‘A contribution shall not be treated as exclusively for con-
servation purposes unless the conservation purpose is pro-
tected in perpetuity.’’ Section 1.170A–14(g)(1), Income Tax
Regs., provides that, in general, for the conservation purpose
of the donation to be enforceable in perpetuity, the ‘‘interest
in the property retained by the donor * * * must be subject
to legally enforceable restrictions * * * that will prevent
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380 139 UNITED STATES TAX COURT REPORTS (371)
uses of the retained interest inconsistent with the conserva-
tion purposes of the donation.’’
Even with the strictest protections, the possibility exists
that an unexpected change in the conditions surrounding the
property may make it impossible or impractical to continue
the use of the property for conservation purposes. Thus, sec-
tion 1.170A–14(g)(6)(i), Income Tax Regs., provides that the
conservation purposes will continue to be treated as pro-
tected in perpetuity if the restrictions limiting the use of the
property for conservation purposes ‘‘are extinguished by
judicial proceeding and all of the donee’s proceeds * * * from
a subsequent sale or exchange of the property are used by
the donee organization in a manner consistent with the con-
servation purposes of the original contribution.’’
Section 1.170A–14(g)(6)(ii), Income Tax Regs., provides in
relevant part:
for a deduction to be allowed under this section, at the time of the gift the
donor must agree that the donation of the perpetual conservation restric-
tion gives rise to a property right, immediately vested in the donee
organization, with a fair market value that is at least equal to the propor-
tionate value that the perpetual conservation restriction at the time of the
gift bears to the value of the property as a whole at that time. * * *
Accordingly, when a change in conditions gives rise to the extinguishment
of a perpetual conservation restriction under paragraph (g)(6)(i) of this sec-
tion, the donee organization, on a subsequent sale, exchange, or involun-
tary conversion of the subject property, must be entitled to a portion of the
proceeds at least equal to that proportionate value of the perpetual con-
servation restriction * * *.
Respondent posits that these requirements are violated by
paragraph 13 of each respective deed because Colorado Open
Lands was obligated to ‘‘remit promptly’’ the bulk of the pro-
ceeds received from the extinguishment of the easements to
the NRCS, GOCO, and the Gunnison Valley Land Preservation
Board. Continuing, respondent asserts that Colorado Open
Lands’ obligation to repay the grant money used to fund the
sale portion of the bargain sale upon extinguishment of the
easements means that Colorado Open Lands’ entitlement to
the proceeds is merely ‘‘superficial’’ and consequently Colo-
rado Open Lands was not entitled to its required share of the
extinguishment proceeds as set forth in the regulations. We
disagree.
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(371) IRBY v. COMMISSIONER 381
The matter before us presents issues not previously
decided by this Court. The grantee conservation organization,
Colorado Open Lands, acquired the east and west Irby parcel
easements by way of a bargain purchase with funds provided
by Federal, State, and local entities. In receiving funds to
purchase the easements, Colorado Open Lands became obli-
gated to repay the funding government entities in the event
the easements were extinguished. We must therefore deter-
mine whether Colorado Open Lands’ obligation to repay the
governmental entities, i.e., the NRCS, GOCO, and the Gunni-
son Valley Land Preservation Board, results in a failure by
Colorado Open Lands to receive its proportionate share of
any extinguishment proceeds.
We are satisfied that were the easements to be extin-
guished, Colorado Open Lands would receive its propor-
tionate share of the extinguishment proceeds. Pursuant to
the respective deeds, the donor (i.e., Irby Ranches, LLC, and
its members) unconditionally agreed that in the event of a
change in conditions giving rise to the extinguishment of
either or both of the conservation easements, Colorado Open
Lands would be entitled to an amount at least equal to its
proportionate share of the proceeds arising from the
extinguishment of the conservation easement. See Wall v.
Commissioner, T.C. Memo. 2012–169, 2012 WL 2286373, at
*2.
In cases involving a conservation easement where we
determined that the regulation’s requirements were not met
and thus denied the claimed charitable contribution deduc-
tion, the grantee organization had been prevented by the
deeds themselves from receiving the full proportionate value
of the extinguishment proceeds. See id., 2012 WL 2286373,
at *3–*4. The funds diverted by the deeds were used to fur-
ther the donor taxpayer’s interests. For example, in Wall, the
deed of conservation easement provided that if the property
was condemned, the grantee conservation organization would
be entitled to the easement’s proportionate value, but only
after any claim of a mortgagee was satisfied. Hence, the first
use of the extinguishment proceeds was to further the donor
taxpayer’s interest in repaying the mortgage on the property,
with the grantee conservation organization’s receiving only a
residual amount of money. Id.; see also Mitchell v. Commis-
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382 139 UNITED STATES TAX COURT REPORTS (371)
sioner, 138 T.C. 324 (2012); 1982 East, LLC v. Commissioner,
T.C. Memo. 2011–84.
Our conclusions in those cases (i.e., denying the deduction)
reflect the purpose of the regulation. The Court of Appeals
for the First Circuit noted:
paragraph (g)(6) appears designed in case of extinguishment both (1) to
prevent taxpayers from reaping a windfall if the property is destroyed or
condemned and they get the proceeds from insurance or condemnation and
(2) to assure that the donee organization can use its proportionate share
of the proceeds to advance the cause of historic preservation elsewhere.
[Fn. ref. omitted.]
Kaufman v. Shulman, 687 F.3d 21, 26 (1st Cir. 2012), aff ’g
in part, vacating in part and remanding in part Kaufman v.
Commissioner, 136 T.C. 294 (2011), and 134 T.C. 182 (2010).
No such diversion of extinguishment proceeds from Colo-
rado Open Lands would occur—Colorado Open Lands holds
an absolute right to the condemnation proceeds vis-a-vis Irby
Ranches, LLC, and petitioners. There is no risk that Irby
Ranches, LLC, or petitioners could ever reap a windfall
should the east Irby and/or west Irby parcels be condemned.
Significantly, any extinguishment proceeds which Colorado
Open Lands is obligated to pay to others will go to govern-
mental entities, each of which is an organization described in
section 170(c)(1). The proceeds so paid by Colorado Open
Lands would be used by those entities in a manner con-
sistent with the original conservation purposes of the con-
tribution by Irby Ranches, LLC. See infra pp. 383–385. We
therefore find that the deeds of conservation easement meet
the requirements of section 1.170A–14(g)(6)(ii), Income Tax
Regs.
Respondent’s concerns more properly seem to address the
question of whether petitioners have satisfied section
1.170A–14(g)(6)(i), Income Tax Regs., i.e., whether all of the
extinguishment proceeds would be used by Colorado Open
Lands in a manner consistent with the conservation purposes
of the original contribution.
We are mindful that while some conservation easements
are gratuitously donated, others, such as the east and west
Irby parcel easements, are acquired through bargain sale
transactions. Because the Irbys required some cash consider-
ation for the easements, Colorado Open Lands would not
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(371) IRBY v. COMMISSIONER 383
have been able to further the desired conservation purpose
derived by its obtaining and holding the east and west Irby
parcel easements were it unable to receive government
funding.
Daniel Pike, the president of Colorado Open Lands, testi-
fied that the reimbursement provisions included in the
governmental grants were not negotiable. Indeed the USDA’s
regulations require that such reimbursement provisions be
included in all deeds recording conservation easements
funded by the FRPP. See 7 C.F.R. sec. 1491.30(f) (2003). 10
Both GOCO and the Gunnison County Land Preservation
Board impose similar requirements on easements funded by
their grants. Colorado Open Lands, and through it peti-
tioners, was essentially in a ‘‘take it or leave it’’ situation. If
Colorado Open Lands had not agreed to the reimbursement
requirements, it would not have been able to purchase the
east and west Irby parcel easements.
The receipt of reimbursed funds by the NRCS, GOCO, and
the Gunnison County Land Preservation Board furthers the
conservation purpose of the original contribution. All three of
these governmental agencies were established to assist in the
conservation of open land, and all three agencies are legally
obligated to fulfill their conservation purpose. The operation
of the FRPP by the NRCS is governed by Federal regulations,
specifically 7 C.F.R. secs. 1491.1 through 1491.32 (2012).
Title 7 C.F.R. sec. 1491.2 provides that the NRCS will estab-
lish policies to meet the goals of the FRPP; fund conservation
easements; coordinate with the USDA office of general counsel
to ensure the legal efficiency of cooperative agreements with
local conservationists and ensure the legal validity of the
deeds of easement; monitor compliance; and provide leader-
ship for establishing, implementing, and overseeing adminis-
trative processes for easements, easement payments, and
administrative and financial performance reporting. More-
over, we are mindful that the deeds provide that the NRCS
would consult with petitioners and Colorado Open Lands to
develop conservation plans for the east and west Irby parcel
easements and that the NRCS held the right to enter the
properties to monitor compliance with these plans.
10 Tit. 7 C.F.R. sec. 1491.30(e) (2012) provides the current reimbursement requirement.
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384 139 UNITED STATES TAX COURT REPORTS (371)
GOCO was established by article XXVII of the Colorado con-
stitution. Colo. Const. art. XXVII, sec. 1, provides that the net
proceeds of every State-supervised lottery game are to be
guaranteed and permanently dedicated to the preservation,
protection, enhancement, and management of the State’s
wildlife, park, river, trail, and open space heritage. GOCO was
established to implement these goals. GOCO’s funding is gov-
erned by Colo. Const. art. XXVII sec. 4, which provides that
all moneys deposited in the GOCO trust fund are to remain
in trust for the purposes set forth in article XXVII and that
no part thereof is to be used or appropriated for any other
purpose, nor made subject to any other tax, charge, fee, or
restriction. The remaining sections of article XXVII govern the
operation of GOCO.
The Gunnison Valley Land Preservation Board was formed
in 1997 and is primarily a funding source for the land trusts
and conservation organizations active in Gunnison County. It
was created by a ballot measure that established a multi-
jurisdictional sales tax pool that raises over $230,000 per
year that is used as leverage for other funding sources such
as GOCO funds. In 2002 the voters of the county approved a
ballot measure that allows the Land Preservation Board to
borrow up to $1 million against the sales tax revenue con-
tribution. See Board of County Commissioners of Gunnison
County Resolution No. 97–53 (Sept. 2, 1997);
www. gunnisoncounty . org/gislmapslcomprehensivelplans
lcbgclagriculture.html (last visited Oct. 22, 2012).
We do not share respondent’s fear that the ‘‘policies and
intentions do not require either the parties or their succes-
sors in interest to use the proceeds for the conservation pur-
poses of the West and East Parcel Easements.’’ We are con-
vinced that these institutions and their respective employees
will fulfill their obligations under Federal, State, and local
laws. Indeed, it appears to us that reimbursement under the
terms of the deeds of conservation easement would enhance
the ability of the NRCS, GOCO, and the Gunnison County
Land Preservation Board to conserve and protect more land,
since the reimbursed funds would be used to do just that.
We therefore find that including the reimbursement provi-
sion in the respective deeds of conservation easement is con-
sistent with the conservation purpose of the original con-
tribution and satisfies the requirements of section 1.170A–
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(371) IRBY v. COMMISSIONER 385
14(g)(6)(i) and (ii), Income Tax Regs. In sum, the contribution
by Irby Ranches, LLC, which flowed through to petitioners
was made exclusively for conservation purposes and meets
the requirements of section 170(h)(5).
III. Qualified Appraisal
The Deficit Reduction Act of 1984 (DEFRA), Pub. L. No. 98–
369, sec. 155(a), 98 Stat. at 691, provides that taxpayers
claiming a deduction under section 170 must obtain a ‘‘quali-
fied appraisal’’ for any property contributed and attach an
‘‘appraisal summary’’ to the return on which the deduction is
first claimed. DEFRA sec. 155(a)(4), 98 Stat. at 692, provides
that a qualified appraisal must include: (A) a description of
the property appraised; (B) the fair market value of such
property on the date of contribution and the specific basis for
the valuation; (C) a statement that such appraisal was pre-
pared for income tax purposes; (D) the qualifications of the
qualified appraiser; (E) the signature and TIN of such
appraiser; and (F) such additional information as the Sec-
retary prescribes in regulations. In 2004 Congress codified
these off-Code requirements and added additional provisions
by enacting the American Jobs Creation Act of 2004, Pub. L.
No. 108–357, sec. 883(a), 118 Stat. at 631. This public law
added to the Code section 170(f)(11), which governs qualified
appraisal and other documentation for certain contributions,
effective for contributions made after June 3, 2004. The
provisions added by section 170(f)(11) do not affect our deter-
mination in this matter.
Pursuant to the authority of DEFRA sec. 155(a)(1), the Sec-
retary promulgated section 1.170A–13(c), Income Tax Regs.,
which disallows a deduction for a noncash contribution of
$5,000 or more unless the claiming taxpayer meets specific
substantiation requirements. One such requirement is that
the taxpayer obtain a qualified appraisal and attach a fully
completed appraisal summary to the tax return on which he/
she first claims a deduction for the contribution. Sec. 1.170A–
13(c)(2)(i), Income Tax Regs. Section 1.170A–13(c)(3)(ii),
Income Tax Regs., provides that a qualified appraisal must
include 11 categories of information to be a valid qualified
appraisal. Respondent challenges only one such category;
respondent asserts that the appraisal petitioners rely upon
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386 139 UNITED STATES TAX COURT REPORTS (371)
does not meet the requirement of section 1.170A–
13(c)(3)(ii)(G), Income Tax Regs., that the appraisal contain
‘‘A statement that the appraisal was prepared for income tax
purposes’’. 11 Respondent argues that the appraisal and
addenda to appraisal Mr. Butler drafted do not include such
a statement and consequently they are unreliable because
there is no assurance that Mr. Butler applied the proper
standards of care to ensure that the reports conformed to
Internal Revenue Service (IRS) standards. We disagree.
On other occasions we have considered whether the
appraisal the taxpayer relied upon was a ‘‘qualified
appraisal’’ as defined in section 1.170A–13(c)(3), Income Tax
Regs. In Simmons v. Commissioner, T.C. Memo. 2009–208,
aff ’d, 646 F.3d 6 (D.C. Cir. 2011), the Commissioner asserted
that the taxpayer’s appraisal was not qualified because it (1)
failed to adequately describe the properties contributed;
(2) failed to accurately describe the method of valuation used;
(3) did not provide the dates of contribution; and (4) did not
include a statement that the appraisal was prepared for
income tax purposes. We therein found that the appraisal
report met all of the regulation’s requirements and was
therefore a qualified appraisal. With respect to the income
tax purpose statement, we stated:
Although the appraisals did not contain an explicit statement that they
were prepared for income tax purposes, the appraisals did contain state-
ments that the owner of the parcels (petitioner) was contemplating
donating conservation easements to L’Enfant [the grantee]. The appraisals
also include discussions of IRS practice and cases of this Court concerning
facade easements. The dates of contribution were likewise included on peti-
tioner’s tax returns. The Forms 8283 that petitioner included with her
returns required an acknowledgment by the donee, L’Enfant.
Like the appraisal report in Simmons, the appraisal report
in this case included all of the required information either in
the appraisal or in the appraisal summaries attached to peti-
tioners’ respective returns—it included a discussion of the
purpose of the transaction (i.e., that the purpose of the
appraisal was to value the donation of a conservation ease-
ment pursuant to the terms of section 170(h)), see supra p.
377; it stated that fair market valuation was to be used in
11 Respondent raised other issues regarding Mr. Butler’s appraisal in his pretrial memo-
randum. These arguments were not pursued in his brief. We therefore deem these issues to be
conceded.
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(371) IRBY v. COMMISSIONER 387
determining the value of the property; and Form 8283 was
properly filed with petitioners’ respective returns. 12 The IRS
has not provided to the public a specific form for the tax pur-
pose statement, and respondent has not proffered any
instance where a suboptimal tax purpose statement, by itself,
invalidated an otherwise qualified appraisal. In sum, we find
the appraisal’s income tax purpose statement petitioners rely
upon to be adequate.
IV. Contemporaneous Written Acknowledgment
Section 170(f)(8)(A) provides that a taxpayer must obtain a
contemporaneous written acknowledgment from the donee
organization for a contribution of $250 or more. Section
170(f)(8)(B) provides that the acknowledgment so required
must include (i) the amount of cash and a description (but
not value) of any property other than cash contributed; (ii)
whether the donee organization provided any goods or serv-
ices for the donated property, and (iii) a description and
good-faith estimate of the value of any goods or services pro-
vided by the donee organization. Section 1.170A–13(f)(5),
Income Tax Regs., provides that goods or services includes
cash, property, services, benefits, and privileges. The contem-
poraneous written acknowledgment requirement was enacted
to require charitable organizations to inform their donors
that if there is a contribution that is partly a donation and
partly for goods or services provided to the donor by the
donee organization, the donor’s deduction under section 170
is limited to the amount by which the donation exceeds the
value of the goods or services provided by the charity. Addis
v. Commissioner, 118 T.C. 528, 536 (2002), aff ’d, 374 F.3d
881 (9th Cir. 2004). Section 170(f)(8)(C) provides that the
acknowledgment must be obtained by the earlier of the date
the return is filed or its due date. The contemporaneous writ-
ten acknowledgment ‘‘need not take any particular form.
Thus, for example, acknowledgments may be made by letter,
postcard, or computer-generated forms.’’ H.R. Conf. Rept. No.
103–213, at 565 n.32 (1993), 1993–3 C.B. 393, 443. If the
12 Form 8283 includes a jurat to be signed by the appraiser which states: ‘‘Furthermore, I un-
derstand that a false or fraudulent overstatement of the property value as described in the
qualified appraisal or in this appraisal summary may subject me to penalty under IRC sec.
6701(a).’’ Sec. 6701(a) provides for a penalty when a person aids or assists with the presentation
of any portion of a tax return, affidavit, claim, or other document that is prepared for income
tax purposes.
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388 139 UNITED STATES TAX COURT REPORTS (371)
donee organization provides no goods or services to the tax-
payer in consideration of the taxpayer’s contribution, the
written substantiation must include a statement to that
effect. Id. n.30.
Petitioners assert that the following documents, taken in
their totality, constitute contemporaneous written acknowl-
edgment:
1. the Option Agreements for the Purchase of Conservation
Easement, dated September 26, 2003, in which Irby Ranches,
LLC, received cash consideration totaling $20 for its granting
Colorado Open Lands the options to purchase the conserva-
tion easements;
2. the Forms 8283 attached to petitioners’ respective 2003
and 2004 income tax returns which disclosed the cash peti-
tioners received in the bargain sale transaction, the basis of
the property, and the amount claimed as a deduction arising
from the donation of the property. And the attached form
was signed by the president of Colorado Open Lands;
3. letters from Colorado Open Lands to Stanley Irby, dated
January 21 and December 7, 2004, respectively, in which
Colorado Open Lands states that (a) it is a qualified
organization within the definition of section 170(h), and (b)
it will receive and hold the deeds of conservation easement
with respect to the east and west Irby parcels;
4. the settlement statements prepared by First Gunnison
Title and Escrow, Inc., the title company in the transaction,
which list the amounts paid as part of the bargain sale. Two
settlement statements were drafted, one for the east Irby
parcel easement and one for the west Irby parcel easement.
The west Irby parcel easement statement was signed by
Stanley Irby on behalf of Irby Ranches, LLC, as seller and by
Daniel Pike, president of Colorado Open Lands, and Gary
Finland of the NRCS on behalf of the Government of the
United States. The east Irby parcel easement statement was
signed by Stanley Irby on behalf of Irby Ranches, LLC, as
seller and by Gary Finland on behalf of the Government of
the United States; and
5. the deeds for the east Irby parcel easement and the west
Irby parcel easement, respectively, which (a) state the prop-
erties were acquired in part though cash grants from the
U.S. Government through the NRCS, GOCO, and the Gunnison
Valley Land Preservation board, (b) describe the property
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(371) IRBY v. COMMISSIONER 389
donated, and (c) list the responsibilities and rights that the
donors and donees possess regarding the enforcement of the
easement.
Petitioners assert that collectively the aforementioned
documents disclose (1) the description of the east and west
Irby parcels, (2) that the donee organization, Colorado Open
Lands, provided $268,224.75 in cash in consideration for the
west Irby parcel easement and $537,468.75 in cash in consid-
eration for the east Irby parcel easement, and (3) Colorado
Open Lands would provide a specific list of services to sup-
port and maintain the conservation easements. Moreover, the
documents were created before petitioners filed their respec-
tive income tax returns.
Replying, respondent argues that none of the documents
individually contains sufficient information to constitute a
contemporaneous written acknowledgment. However,
respondent does not assert, and we have found no authority
to indicate, that the contemporaneous written acknowledg-
ment may not be made up of a series of documents. We thus
find that, collectively, the documents petitioners provided
constitute a contemporaneous written acknowledgment. The
deeds of conservation easement with respect to the east and
west Irby parcel easements provide precise descriptions of
the property being contributed; 13 the Option Agreement and
the settlement statements set forth the amounts of cash that
was paid to petitioners in consideration of the donated prop-
erty; 14 the letters from Colorado Open Lands state that it is
a qualified organization; and the Form 8283 provides that
petitioners may deduct only the part of the value of the ease-
ment that is not covered by the bargain sale.
Respondent asserts that none of petitioners’ documents
contains a statement that no services were provided by the
donee organization. While respondent’s assertion is correct,
such a statement in the written acknowledgment is required
only ‘‘[i]f the donee organization provided no goods or services
13 We note that we have held in cases where the property is simply donated to the grantee
that the deeds themselves may constitute contemporaneous written acknowledgments. See
Averyt v. Commissioner, T.C. Memo. 2012–198; Simmons v. Commissioner, T.C. Memo. 2009–
208, aff ’d, 646 F.3d 6 (D.C. Cir. 2011).
14 Respondent argues that because the east Irby parcel easement settlement statement is only
signed by Gary Finland on behalf of the Government of the United States, it is not truly an
acknowledgment by the donee. We reject respondent’s position. We are convinced that the Gov-
ernment of the United States represents the donee’s interest with respect to the acknowledg-
ment.
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390 139 UNITED STATES TAX COURT REPORTS (371)
to the taxpayer in consideration of the taxpayer’s contribu-
tion’’. H.R. Conf. Rept. No. 103–213, supra at 565 n.30, 1993–
3 C.B. at 443 (emphasis added). Since this was a bargain
sale transaction, goods were provided (in the form of cash)
and that fact was disclosed on the option agreement and the
settlement statements. See sec. 1.170A–13(f)(5), Income Tax
Regs. (‘‘[g]oods or services means cash, property,’’). Accord-
ingly, we hold that petitioners have satisfied the require-
ments of section 170(f)(8) with respect to donation of the con-
servation easement.
V. Conclusion
On the basis of the foregoing, we conclude that (1) the
terms and conditions of the conservation easement deeds
comply with the requirements of section 170(h)(5) and section
1.170A–14(g)(6), Income Tax Regs., and that the conservation
purpose for the contribution of the conservation easements
on the east and west Irby parcels is protected in perpetuity;
(2) petitioners obtained a qualified appraisal as required by
section 1.170A–13(c)(3), Income Tax Regs.; and (3) petitioners
complied with the substantiation requirements of section
170(f)(8). In furtherance of the November 3, 2011, agreement
between respective counsel for the parties, a trial will be held
with respect to all remaining issues.
An appropriate order will be issued.
f
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