Wendell Falls Development, LLC, Gregory Alan Ferguson, Tax Matters Partner v. Commissioner ( 2018 )

T.C. Memo. 2018-193
UNITED STATES TAX COURT
WENDELL FALLS DEVELOPMENT, LLC, GREGORY ALAN FERGUSON,
TAX MATTERS PARTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 3494-14. Filed November 20, 2018.
David M. Wooldridge, Thomas Allen Worth, and Tucker J. Thoni, for
petitioner.
Scott Lyons and Johnny Craig Young, for respondent.
*
This opinion supplements our previously filed opinion Wendell Falls Dev.,
LLC v. Commissioner, T.C. Memo. 2018-45.
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[*2] SUPPLEMENTAL MEMORANDUM OPINION
MORRISON, Judge: We will deny petitioner’s June 5, 2018 motion for
reconsideration of findings or opinion pursuant to Rule 161 and motion to vacate
pursuant to Rule 162.1
On April 4, 2018, the Court issued its Memorandum Findings of Fact and
Opinion in this case, Wendell Falls Dev., LLC v. Commissioner, T.C. Memo.
2018-45, which we refer to as the opinion.
On April 16, 2018, the Court entered an order and decision in accordance
with the opinion.
On June 5, 2018, the petitioner, Gregory Alan Ferguson, filed a motion to
reconsider the opinion. On the same day, he filed a motion to vacate the order and
decision. For the reasons explained below, we deny his motions.
A motion for reconsideration generally will not be granted unless the
moving party shows unusual circumstances or substantial error. Estate of Quick v.
Commissioner, 110 T.C. 440, 441 (1998). Ferguson complains of three alleged
errors in the opinion. He therefore asks us to reconsider the opinion. Because our
1
Unless otherwise indicated, all Rule references are to the Tax Court Rules
of Practice and Procedure.
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[*3] order and decision entered on April 16, 2018, were in accordance with the
opinion, he urges us to vacate the order and decision.
First, Ferguson contends that the opinion appears to invalidate the fifth
sentence of section 1.170A-14(h)(3)(i), Income Tax Regs. Ferguson’s motion
contends in pertinent part:
The Opinion appears to hold that enhancement to other property
owned by Petitioner (but not subject to the Easement) in conjunction
with its charitable gift to Wake County per se disallows the deduction
associated with the gift. However, as discussed below, the
Enhancement Regulation provides that enhancement to the value of
the other property owned by the donor in conjunction with a
charitable gift does not result in total disallowance of the donor’s
charitable deduction, so long as the enhancement value is less than
the value of the donated easement. Treas. Reg. § 1.170A-14(h)(3)(i)
(fifth sentence).
The fifth sentence of the regulation is:
If the granting of a perpetual conservation restriction after January 14,
1986, has the effect of increasing the value of any other property
owned by the donor or a related person, the amount of the deduction
for the conservation contribution shall be reduced by the amount of
the increase in the value of the other property, whether or not such
property is contiguous. * * *
Contrary to Ferguson’s contention, the opinion did not hold that any
enhancement to the value of other property held by the donor results in a total
disallowance. Rather, the Court determined that the value of the easement was
zero because the highest and best use of the 125 acres subject to the easement was
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[*4] as parkland and because the easement did not prevent the land from being put
to its best use. Wendell Falls Dev., LLC v. Commissioner, at *12-*15. The
Court’s holding is not inconsistent with the fifth sentence of the regulation.
Second, Ferguson contends that the opinion appears to invalidate the sixth
and seventh sentences of section 1.170A-14(h)(3)(i), Income Tax Regs.
Ferguson’s motion contends in pertinent part:
The Opinion appears to hold that the expectation of receiving a
substantial financial or economic benefit in conjunction with a
charitable gift per se disallows the deduction associated with the gift.
However, as discussed below, the Substantial Benefit Regulation
provides that taxpayers can receive such substantial financial or
economic benefits in conjunction with conservation easement
donations without having their deductions disallowed, so long as the
value of the substantial benefit received is less than the value of the
contributed easement. Treas. Reg. § 1.170A-14 (h)(3)(i) (sixth
sentence).
The sixth and seventh sentences of the regulation are:
If, as a result of the donation of a perpetual conservation restriction,
the donor or a related person receives, or can reasonably expect to
receive, financial or economic benefits that are greater than those that
will inure to the general public from the transfer, no deduction is
allowable under this section. However, if the donor or a related
person receives, or can reasonably expect to receive, a financial or
economic benefit that is substantial, but it is clearly shown that the
benefit is less than the amount of the transfer, then a deduction under
this section is allowable for the excess of the amount transferred over
the amount of the financial or economic benefit received or
reasonably expected to be received by the donor or the related person.
***
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[*5] The seventh sentence of the regulation suggests that a deduction is not
precluded if the expected benefit to the donor of the easement is demonstrably less
than the amount of the transfer. See sec. 1.170A-14(h)(3)(i), Income Tax Regs.
The sentence requires comparison of two variables: (1) the expected benefit to the
donor of the easement and (2) the amount of the transfer. As relevant to the first
variable, the opinion held that “Wendell Falls donated the easement with the
expectation of receiving a substantial benefit.” Wendell Falls Dev., LLC v.
Commissioner, at *13. That means the expected benefit to the donor of the
easement is high. As relevant to the second variable, the Court held that “the
value of the easement is zero.” Id. at *15. That means the value of the transfer,
i.e., the value of the easement, is zero. It follows that the expected benefit to the
donor is greater than the amount of the transfer. Therefore, the seventh sentence
of the regulation does not require the allowance of a deduction. The opinion is
consistent with the sixth and seventh sentences of the regulation.
Third, Ferguson contends that in determining the value of the 125 acres
before the easement was granted, the Court erred in determining that the highest
and best use of the 125 acres was parkland. In particular, Ferguson suggests that
the opinion is inconsistent with Symington v. Commissioner, 87 T.C. 892, 896-
897 (1986), in which we stated:
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[*6] In determining the fair market value of property “The realistic,
objective potential uses for property control the valuation thereof.”
Stanley Works and Subsidiaries v. Commissioner, * * * [87 T.C. 389,
400 (1986)]. See also Olson v. United States, 292 U.S. 246, 255-256
(1934). Thus, in determining the “reasonable and probable use that
supports the highest present value” (see p. 896 supra), we focus on
“The highest and most profitable use for which the property is
adaptable and needed or likely to be needed in the reasonably near
future.” Olson v. United States, supra at 255. Moreover, “The fair
market value of property is not affected by whether the owner
actually has put the property to its highest and best use” (Stanley
Works and Subsidiaries v. Commissioner, supra at 400; see also
United States v. Meadow Brook Club, 259 F.2d 41, 45 (2d Cir.
1958)), nor whether he ever intends to do so (Akers v. Commissioner,
* * * [T.C. Memo. 1984-490, aff’d, 799 F.2d 243 (6th Cir. 1986)]).
***
Ferguson implies that the highest and best use of the 125 acres was some use other
than as parkland and that therefore it should not matter that Wendell Falls intended
to use the 125 acres only as parkland.
Ferguson’s motion is premised on the theory that the 125 acres would be
more valuable as residential and commercial space. But the 125 acres is part of a
larger 1,280-acre parcel of property which, except for the 125 acres, was zoned for
residential and commercial development. It was objectively reasonable to devote
some of the larger parcel to parkland to serve as an amenity for those who would
live and work in the residential and commercial buildings. By June 7, 2007, the
date the easement was granted, the best place for the parkland was the 125 acres
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[*7] burdened by the easement. In October 2006 the Town of Wendell had
approved the planned unit development under which a master-planned community
would be constructed around the 125 acres. In December 2006 the 125 acres had
been placed under contract to be sold to Wake County for use as parkland. Thus,
to value the 125 acres as parkland as of June 7, 2007, is not merely to defer to the
view of the then owner of the 125 acres, Wendell Falls. Wendell Falls’ plans for
the land were locked into place through legally binding obligations. The objective
best use of the 125 acres was as parkland.
The easement therefore restricted the use of the 125 acres to what would
have been its most efficient use anyway. Under the before-and-after method
mandated by the regulation in this case, the value of the easement is the amount by
which the easement diminished the value of the land. Sec. 1.170A-14(h)(3)(i),
Income Tax Regs. It is our best judgment that the amount of the diminution was
zero. The value of the easement was therefore zero.
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[*8] To reflect the foregoing,
An order will be issued denying
petitioner’s June 5, 2018 motion for
reconsideration of findings or opinion
pursuant to Rule 161 and petitioner’s June
5, 2018 motion to vacate order and decision
pursuant to Rule 162.