United States Tax Court

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162 T.C. No. 6

VALLEY PARK RANCH, LLC, REED OPPENHEIMER,

TAX MATTERS PARTNER,

Petitioner

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 12384-20.

Filed March 28, 2024.

—————

P, tax matters partner of VP, timely petitioned this

Court challenging the IRS’s notice of final partnership

administrative adjustment. In 2016, VP donated a

conservation easement and claimed a charitable

contribution deduction under I.R.C. § 170(a). The easement

deed provides that if the conservation restriction is

terminated, the donee will receive (i) an amount

determined by a court, unless otherwise provided by state

or federal law, or (ii) in the event of the government’s

exercise of eminent domain, the respective share of the

proceeds from a “qualified appraisal.”

The parties filed Cross-Motions for Partial

Summary Judgment as to whether the deed conveying the

easement satisfies the requirements of I.R.C. § 170(h) and

Treas. Reg. § 1.170A-14(g)(6)(ii). P principally contends

that the deed satisfies the statute and the regulation, but

in the alternative contends that the regulation is invalid

under the Administrative Procedure Act, or that the deed

is ambiguous.

Held: Following Hewitt v. Commissioner, 21 F.4th

1336 (11th Cir. 2021), rev’g and remanding T.C. Memo.

2020-89, we hold that Treas. Reg. § 1.170A-14(g)(6)(ii) is

Served 03/28/24

procedurally invalid under the Administrative Procedure

Act and that the deed therefore need not comply with its

requirements. To the extent Oakbrook Land Holdings,

LLC v. Commissioner, 154 T.C. 180 (2020), aff’d, 28 F.4th

700 (6th Cir. 2022), holds otherwise, we will no longer

follow it.

Held, further, the easement deed satisfies the

“restriction (granted in perpetuity)” requirement under

I.R.C. § 170(h)(2)(C) and the “protected in perpetuity”

requirement of I.R.C. § 170(h)(5).

—————

Gabriella K. Cole, John W. Hackney, Erin R. Hines, Jeffrey S.

Luechtefeld, John J. Nail, and Hale E. Sheppard, for petitioner.

Jason P. Oppenheim and John W. Sheffield III, for respondent.

OPINION

JONES, Judge: This case concerns a $14.8 million deduction

claimed under section 170(h) 1 for the conveyance of a conservation

easement (Easement) in taxable year 2016 by Valley Park Ranch, LLC

(Valley Park). This case is a partnership-level proceeding under the

unified partnership audit and litigation procedures of the Tax Equity

and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248,

§§ 401–407, 96 Stat. 324, 648–71. 2 The Internal Revenue Service (IRS)

disallowed the deduction in a notice of final partnership administrative

adjustment (FPAA) dated July 23, 2020. Valley Park’s tax matters

partner (TMP), Reed Oppenheimer (Mr. Oppenheimer), timely

petitioned this Court for review of the adjustment pursuant to section

6226(a)(1).

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulatory references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, Rule

references are to the Tax Court Rules of Practice and Procedure, and paragraph

references are to the paragraphs of the deed of conservation easement at issue.

2 Before its repeal, TEFRA governed the audit and litigation procedures for

many partnerships (including entities that elected to be treated as partnerships).

Before the Court are the parties’ respective Motions for Partial

Summary Judgment on the issues of whether the deed conveying the

Easement is in accord with Treasury Regulation § 1.170A-14(g)(6)(ii),

whether that regulatory provision is valid under the Administrative

Procedure Act (APA), and if not, whether the deed satisfies the statute.

For the reasons elaborated upon below, we find that the regulation is

invalid under the APA. We also find that the deed satisfies certain

statutory requirements. Consequently, we will deny respondent’s

Motion and grant Mr. Oppenheimer’s.

Background

The following background is drawn from the parties’ pleadings,

motion papers, and the exhibits attached therein. This background is

recited only to resolve the present Motions and not as findings of fact in

this case. See Rule 1(b); Fed. R. Civ. P. 52(a)(3); see also Sundstrand

Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th

Cir. 1994).

Valley Park and the Deed of Conservation Easement

Valley Park is a limited liability company organized under the

laws of Oklahoma. It is treated as a partnership for federal income tax

purposes. When Mr. Oppenheimer filed the Petition, Valley Park’s

principal place of business was in Tulsa, Oklahoma. 3

On December 22, 2016, Valley Park conveyed a conservation

easement over approximately 45.76 acres of land (Property) in Rogers

County, Oklahoma, to Compatible Lands Foundation (CLF). The deed of

conservation easement was recorded with the Rogers County Clerk on

the same day.

The conveyance paragraph of the deed provides that Valley Park

“grants and conveys to [CLF] a conservation easement in perpetuity over

the Property of the nature and character and to the extent hereinafter

set forth.”

The deed recites the conservation purpose of the easement in

paragraph 1 as follows:

3 Absent stipulation to the contrary, and as discussed further below, appeal of

this case would lie in the U.S. Court of Appeals for the Tenth Circuit. See

§ 7482(b)(1)(E).

It is the purpose of this Easement to assure that the

Property will be retained forever predominantly in its

natural, scenic, and open space condition and to prevent

any use of the Property that will significantly impair or

interfere with the conservation values of the Property.

[Valley Park] intends that this Easement will confine the

use of the Property to such activities, including, without

limitation, those involving traditional ranching or other

agricultural and agroecology uses that are consistent with

the purpose of this Easement. The duration of this

Easement shall be in perpetuity.

In paragraph 2, the deed provides:

To accomplish the purpose of this Easement the following

rights are perpetually conveyed to [CLF] by this Easement:

(a) To preserve and protect the conservation values of the

Property;

(b) To enter upon the Property at reasonable times in order

to monitor [Valley Park’s] compliance with and

otherwise to enforce the terms of this Easement,

provided that such entry shall be upon prior reasonable

notice to [Valley Park], and [CLF] shall not

unreasonably interfere with [Valley Park’s] use and

quiet enjoyment of the Property; and

inconsistent with the purpose of this Easement and to

require the restoration of such areas or features of the

Property that may be damaged by any inconsistent

activity or use, pursuant to paragraph 6.

At paragraph 4, the deed sets forth a nonexhaustive list of

activities and uses of the Property that are “perpetually prohibited,”

including “[a]ny activity on or use of the Property inconsistent with the

purpose of [the] Easement.”

The deed also acknowledges that future circumstances may arise

that render the conservation purpose of the Easement obsolete or

impossible to accomplish. Under such circumstances, the deed provides

in paragraph 12:

[The Easement] can only be terminated or extinguished,

whether in whole or in part, by judicial proceedings in a

court of competent jurisdiction, and the amount of the

proceeds to which [CLF] shall be entitled, after the

satisfaction of prior claims, from any sale, exchange, or

involuntary conversion of all or any portion of the Property

subsequent to such termination or extinguishment, shall

be determined by the court, unless otherwise provided by

State or Federal law at the time.

Relatedly, the deed also contemplates the prospect

extinguishment via condemnation providing in paragraph 13:

If the Easement is taken, in whole or in part, by exercise of

the power of eminent domain, [Valley Park] and [CLF]

shall be entitled to compensation, by the entity declaring

power of eminent domain, in accordance with applicable

law, policy and procedures. Respective portions shall be

determined by a Qualified Appraisal meeting standards as

established by the United States Department of the

Treasury.

II.

Valley Park’s Return and IRS Examination

Valley Park filed Form 1065, U.S. Return of Partnership Income

(return), for its short taxable year 2016, which began on December 22,

2016, and ended on December 31, 2016. It claimed therein a

$14.8 million deduction under section 170(h) for the conveyance of the

Easement. Valley Park included with the return Form 8283, Noncash

Charitable Contributions, which states that Valley Park acquired the

Property in January 1998 and that its cost or adjusted basis in the

Property was $91,610.

Valley Park’s return was selected for examination, which

culminated in the instant FPAA dated July 23, 2020. 4 Therein, the IRS

4 Shortly before the issuance of the FPAA, Valley Park and CLF executed an

amendment to the deed’s extinguishment and condemnation provisions (i.e.,

paragraphs 12 and 13, respectively) on June 4, 2020. The amendment was recorded

with the Rogers County Clerk on July 21, 2020. In pertinent part, the amendment

provided that the deed “should be amended” such that in the event of the easement’s

extinguishment (including due to condemnation), CLF was entitled to:

disallowed the claimed $14.8 million deduction because Valley Park did

not establish that all of the requirements of section 170(h) and the

corresponding Treasury regulations for deducting a noncash charitable

contribution were satisfied. 5 On October 19, 2020, Mr. Oppenheimer

timely petitioned this Court—in his capacity as Valley Park’s TMP—

for review of the IRS’s adjustments as reflected in the FPAA.

III.

The Parties’ Arguments

In the Motion for Partial Summary Judgment, respondent

principally argues that the IRS’s determination disallowing the

$14.8 million deduction should be sustained because the conservation

purpose of the Easement is not “protected in perpetuity” as required by

section 170(h)(5)(A) and, specifically, by operation of Treasury

Regulation § 1.170A-14(g)(6)(ii).

In his Motion for Partial Summary Judgment, Mr. Oppenheimer’s

principal argument is that the deed satisfies the “protected in

[A] portion of the proceeds of such sale or exchange at least equal to

the proportionate value that the perpetual conservation easement

granted hereunder bears to the value of the Property as a whole on the

date hereof unless state law provides that [Valley Park] is entitled to

the full proceeds for such judicial conversion without regard to the

terms of this Easement. Such portion of the proceeds allocable to [CLF]

shall be used by [CLF] in a manner consistent with the Purpose of this

Easement as set forth herein.

Mr. Oppenheimer does not assert that the amendment to the deed brings the

conveyance into compliance with Treasury Regulation § 1.170A-14(g)(6)(ii). Rather, he

argues that it reflects the parties’ intent to comply with the law. Regardless, we find

the amendment to the deed—which was executed and recorded more than three years

after the end of the taxable year at issue—immaterial for purposes of resolving the

present Motions. All of the requirements of section 170(h) must be satisfied at the time

of the easement’s grant. See Mitchell v. Commissioner, 138 T.C. 324, 332 (2012),

supplemented by T.C. Memo. 2013-204, aff’d, 775 F.3d 1243 (10th Cir. 2015); see also

Palmolive Bldg. Invs., LLC v. Commissioner, 149 T.C. 380, 405 (2017) (rejecting

taxpayer argument that a saving clause cured a deed’s noncompliance with Treasury

Regulation § 1.170A-14(g)(6)(ii) reasoning in part that “the requirements of section 170

must be satisfied at the time of the gift” (emphasis added)). We do not address the

amendment any further.

5 The IRS also made penalty determinations against Valley Park at the

partnership level. These penalties were determined in the alternative under section

6662(h), providing a penalty equal to 40% of any underpayment of tax; section 6662A,

providing a penalty equal to 30% of any underpayment; and section 6662(c), (d), or (e),

providing a penalty equal to 20% of any underpayment. The propriety of these penalty

determinations is not at issue in the present Motions.

perpetuity” requirement of section 170(h)(5)(A) and Treasury

Regulation § 1.170A-14(g)(6)(ii). In his view, the text of the deed

complies on its face with the regulation through “explicit incorporation.”

Nonetheless,

maintains

that

Treasury

Regulation

§ 1.170A-14(g)(6)(ii) is procedurally invalid under the APA and that the

deed therefore need not comply with its requirements. 6

We ordered the parties to further address whether the deed

satisfies the statutory requirements of section 170(h)(2) and (5)(A),

6 The dissent suggests we ought to address “whether the deed complies [with

Treasury Regulation § 1.170A-14(g)(6)(ii)] or a trial is needed because the deed is

ambiguous” before considering the validity of the regulation. See dissenting op. p. 35.

But upon review of the deed, we are not optimistic that Valley Park would prevail

under the regulation. In relevant part, paragraph 12 of the deed provides that, upon

termination or extinguishment of the Easement by a court, “the amount of the proceeds

to which [CLF] shall be entitled . . . shall be determined by the court, unless otherwise

provided by State or Federal law at the time.” First, this paragraph reads much like a

saving clause, which our Court has held does not comply with the regulation. See Coal

Prop. Holdings, LLC v. Commissioner, 153 T.C. 126, 140–45 (2019); Palmolive Bldg.

Invs., LLC, 149 T.C. at 404–05.

Second, the deed’s reference to “Federal law” does nothing to bind an

extinguishing court in terms of allocating the proceeds following a disposition of the

property. Notwithstanding the vague reference to “[f]ederal law,” the requirements of

the regulation are solely for the purpose of a taxpayer’s claiming a tax deduction under

section 170(h) for the charitable conveyance of a conservation easement. Its

applicability is confined to this narrow purpose, and the regulation itself does not

purport to require an extinguishing court to allocate proceeds in any particular

manner.

The dissent also takes up Mr. Oppenheimer’s argument that the deed is

ambiguous. See dissenting op. pp. 34–35. In making this argument, Mr. Oppenheimer

did not clearly articulate where the purported ambiguity lies beyond his conclusory

assertion that the deed is ambiguous and that it could be read multiple ways. We have

examined the deed and concluded that any potential ambiguities—which, for purposes

of this discussion, we will assume are ambiguities as a matter of Oklahoma law—are

moot. Accordingly, we find that Valley Park’s deduction would fail to satisfy Treasury

Regulation § 1.170A-14(g)(6)(ii) regardless of how such purported ambiguities are

construed.

Further rendering any potential ambiguities moot is the effect of the

exempting clause’s reference to “at the time.” In context, “at the time” unambiguously

refers to the time of the easement’s hypothetical extinguishment. Treasury Regulation

§ 1.170A-14(g)(6)(ii) as in effect at the time of the easement’s hypothetical

extinguishment (during some point in perpetuity) is irrelevant; in fact, it may not even

exist at such a time. The propriety of the deduction must be determined with respect

to Treasury Regulation § 1.170A-14(g)(6)(ii) as it was in effect for taxable year 2016

(i.e., the year of the conveyance and for which Valley Park claimed the deduction).

irrespective

Treasury

Regulation

1.170A-14(g)(6)(ii).

Mr. Oppenheimer and respondent timely filed responses to our Order.

IV.

Jurisprudential Development

In an Opinion reviewed pursuant to section 7460(b), a majority of

this Court upheld the substantive and procedural validity of Treasury

Regulation § 1.170A-14(g)(6)(ii). Oakbrook Land Holdings, LLC v.

Commissioner (Oakbrook I), 154 T.C. 180 (2020), aff’d, Oakbrook Land

Holdings, LLC v. Commissioner (Oakbrook II), 28 F.4th 700 (6th Cir.

2022), cert. denied, 143 S. Ct. 626 (2023). 7

After our decision in Oakbrook I, a unanimous panel of the

U.S. Court of Appeals for the Eleventh Circuit reversed this Court’s

reliance on that decision. The Eleventh Circuit held that “the

Commissioner’s interpretation of § 1.170A-14(g)(6)(ii), to disallow the

subtraction of the value of post-donation improvements . . . , is arbitrary

and capricious and therefore invalid under the APA’s procedural

requirements.” Hewitt v. Commissioner, 21 F.4th 1336, 1353 (11th Cir.

2021), rev’g and remanding T.C. Memo. 2020-89. 8

In contrast, a divided panel of the U.S. Court of Appeals for the

Sixth Circuit affirmed this Court’s holdings in Oakbrook I and rejected

the reasoning of the Eleventh Circuit. Oakbrook II, 28 F.4th at 717. In

a concurring opinion, Judge Guy stated that he would find the

regulation invalid for the reasons set forth by the Eleventh Circuit in

Hewitt but would have nonetheless affirmed our decision by applying

the statute to the deed. Id. at 722 (Guy, J., concurring in the judgment

only). Oakbrook Land Holdings sought Supreme Court review of the

Sixth Circuit’s majority opinion. Notably, in briefing that opposed

certiorari to the Supreme Court, the Solicitor General stated that the

statute answered the question, observing that Oakbrook “would be a

poor vehicle in which to address the question [of the regulation’s

validity] because the statute itself compels disallowance of petitioners’

deduction, rendering the validity of the challenged regulation

7 In separate opinions, Judges Toro and Holmes reflect their disagreement with

the majority opinion’s conclusion regarding the procedural validity of Treasury

Regulation § 1.170A-14(g)(6)(ii). See Oakbrook I, 154 T.C. at 216–30 (Toro, J.,

concurring in the result); id. at 235–53 (Holmes, J., dissenting).

8 The Eleventh Circuit subsequently confirmed that Hewitt invalidated

Treasury Regulation § 1.170A-14(g)(6)(ii). Glade Creek Partner, LLC v. Commissioner,

No. 21-11251, 2022 WL 3582113, at *3 (11th Cir. Aug. 22, 2022), aff’g in part, vacating

in part and remanding T.C. Memo. 2020-148.

academic.” Brief for Respondent at 13, Oakbrook Land Holdings, LLC v.

Commissioner, No. 22-323 (U.S. Dec. 7, 2022). Certiorari was denied.

Oakbrook Land Holdings, LLC v. Commissioner, 143 S. Ct. 626.

To effect “efficient and harmonious judicial administration,” this

Court will follow a court of appeals decision that is “squarely in point

where appeal from our decision lies to that Court of Appeals and to that

court alone.” Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d,

445 F.2d 985 (10th Cir. 1971). Appeal of this case would lie in the U.S.

Court of Appeals for the Tenth Circuit, absent written stipulation to the

contrary. § 7482(b)(1)(E). Accordingly, in this case we are not bound to

follow either the decision of the Sixth Circuit in Oakbrook II (upholding

the regulation) or that of the Eleventh Circuit in Hewitt (invalidating

the regulation). See Golsen, 54 T.C. at 757. As of this writing, the Tenth

Circuit has not taken a position on the validity of Treasury Regulation

§ 1.170A-14(g)(6)(ii).

In light of the reversal by the Eleventh Circuit, we reconsider our

holding in Oakbrook I. See Lawrence v. Commissioner, 27 T.C. 713,

716–17 (1957) (observing that when one of our decisions is reversed by

an appellate court, we must “thoroughly reconsider the problem in the

light of the reasoning of the reversing appellate court and, if convinced

thereby, . . . follow the higher court”), rev’d on other grounds, 258 F.2d

562 (9th Cir. 1958); see also, e.g., Tice v. Commissioner, No. 24983-15,

160 T.C., slip op. at 10–11 (Apr. 10, 2023); Peat Oil & Gas Assocs. v.

Commissioner, 100 T.C. 271, 274 (1993), aff’d per curiam sub nom.

Ferguson v. Commissioner, 29 F.3d 98 (2d Cir. 1994).

Where we have been reversed by a single appellate court, we have

at times declined to change our position. See, e.g., Hall v. Commissioner,

135 T.C. 374, 382 (2010) (sticking with our interpretation of section

6015(f) despite reversal by the U.S. Court of Appeals for the Seventh

Circuit in Lantz v. Commissioner, 607 F.3d 479 (7th Cir. 2010), rev’g 132

T.C. 131 (2009)); Metro Leasing & Dev. Corp. v. Commissioner, 119 T.C.

8, 14–17, 23 (2002) (declining to follow the U.S. Court of Appeals for the

Fifth Circuit’s holding and rationale regarding the calculation of

accumulated taxable income under section 535(b)(1) in J.H. Rutter Rex

Mfg. Co. v. Commissioner, 853 F.2d 1275 (5th Cir. 1988), rev’g on this

point T.C. Memo. 1987-296), supplementing T.C. Memo. 2001-119;

Lychuk v. Commissioner, 116 T.C. 374, 408 (2001) (adhering to our view

on the rules of capitalization after reversal by the U.S. Court of Appeals

for the Third Circuit in PNC Bancorp, Inc. v. Commissioner, 212 F.3d

822 (3d Cir. 2000), rev’g 110 T.C. 349 (1998)).

On other occasions, we have adopted the reasoning of the

reversing court. See, e.g., Graev v. Commissioner, 149 T.C. 485 (2017)

(adjusting our interpretation of section 6751(b)(1) to follow the

U.S. Court of Appeals for the Second Circuit after reversal in Chai v.

Commissioner, 851 F.3d 190 (2d Cir. 2017), aff’g in part, rev’g in part

T.C. Memo. 2015-42), supplementing and overruling in part 147 T.C. 460

(2016); Square D. Co. & Subs. v. Commissioner, 118 T.C. 299, 304 (2002)

(changing our position that Treasury Regulation § 1.267(a)-3 was

invalid following the Third Circuit’s reversal in Tate & Lyle, Inc. v.

Commissioner, 87 F.3d 99 (3d Cir. 1996), rev’g and remanding 103 T.C.

656 (1994)), aff’d, 438 F.3d 739 (7th Cir. 2006).

We have also waited for more jurisprudential development. With

respect to the validity of the regulations under section 163, the

U.S. Court of Appeals for the Eighth Circuit’s position was established

in 1995, see Miller v. United States, 65 F.3d 687, 691 (8th Cir. 1995),

before we took a contrary position in 1996, see Redlark v. Commissioner,

106 T.C. 31, 47 (1996), rev’d, 141 F.3d 936 (9th Cir. 1998). When we

ultimately changed our position in Robinson v. Commissioner, 119 T.C.

44 (2002) (holding that we would no longer follow Redlark), five courts

of appeals had taken a position on the issue, see Kikalos v.

Commissioner, 190 F.3d 791, 799 (7th Cir. 1999), rev’g T.C. Memo. 199892; McDonnell v. United States, 180 F.3d 721, 723 (6th Cir. 1999); Allen

v. United States, 173 F.3d 533, 538 (4th Cir. 1999); Redlark v.

Commissioner, 141 F.3d at 942; Miller, 65 F.3d at 691.

In this instance, we recognize that the Sixth Circuit affirmed

Oakbrook I after the Eleventh Circuit’s reversal in Hewitt. But we agree

with Judge Guy and the Solicitor General that resolution of Oakbrook

did not require reaching the validity of the regulation. See Oakbrook II,

28 F.4th at 729 (Guy, J., concurring in the judgment only); Brief for

Respondent at 21–22, Oakbrook Land Holdings, LLC v. Commissioner,

No. 22-323. 9 Accordingly, after careful consideration of the Eleventh

9 The dissent argues that the Sixth Circuit’s affirmance of Oakbrook I after the

Eleventh Circuit’s reversal in Hewitt somehow undermines the reversal. See dissenting

op. pp. 36–37. As we have noted, when one of our decisions is reversed we must

“thoroughly reconsider the problem in the light of the reasoning of the reversing

appellate court and, if convinced thereby, . . . follow the higher court.” Lawrence, 27

T.C. at 716–17; see supra p. 9. We are not aware of any suggestion that chronology—

as between reversal and affirmance—dilutes our duty to undertake thorough

reconsideration.

Circuit’s reasoning in Hewitt, we find it appropriate to change our

position.

We disagree with the dissenting opinion’s argument that our

conclusion fails to follow stare decisis principles and will result in

instability in the law. See dissenting op. pp. 37–39. Respectfully, we

must revisit our decision in Oakbrook precisely because the law is

already unstable. See supra pp. 8–9; see also Analog Devices, Inc. &

Subs. v. Commissioner, 147 T.C. 429, 443 (2016) (noting the requirement

to revisit our analysis in light of a reversal and the parties’ arguments).

To be sure, “[t]he doctrine of stare decisis is important to this Court, and

we are mindful of its role in [relevant cases].” Analog Devices, 147 T.C.

at 443. But where, as here, we are faced with “issues on which a Court

of Appeals has reversed our prior decision,” see id., we are obligated to

thoroughly reconsider our position, Lawrence, 27 T.C. at 716–17;

see supra p. 9.

Moreover, Oakbrook I—decided just four years ago—is not

entrenched precedent. To our knowledge, the Sixth and Eleventh

Circuits are the only courts of appeals to speak on the issues we consider

today. Thus, “the important goals of stare decisis to ensure the

‘evenhanded, predictable, and consistent development of legal

principles’ and to ‘foster[] reliance on judicial decisions’ . . . are not

served by our continued adherence” to Oakbrook I. Analog Devices, 147

T.C. at 444 (alteration in original) (quoting Payne v. Tennessee, 501 U.S.

808, 827 (1991)). In consideration of the split between the Sixth and

Eleventh Circuits, this is the right time to “gracefully and good

naturedly surrender[] former views to a better considered position.”

McGrath v. Kristensen, 340 U.S. 162, 178 (1950) (Jackson, J.,

concurring).

Discussion

For the reasons discussed below, we hold that Treasury

Regulation § 1.170A-14(g)(6)(ii) is procedurally invalid under the APA

and that the deed therefore need not comply with its requirements. See

Hewitt v. Commissioner, 21 F.4th at 1348. To the extent Oakbrook I

Furthermore, the Sixth Circuit was not unanimous in its conclusion that the

proceeds regulation is valid. Judge Guy stated that he would find the regulation invalid

for the reasons set forth by the Eleventh Circuit in Hewitt. Oakbrook II, 28 F.4th at 722

(Guy, J., concurring in the judgment only); see supra p. 8. Thus, four out of six members

of the appellate courts who have analyzed the issue have concluded that the regulation

is procedurally invalid.

holds otherwise, we will no longer follow it. We further hold that the

easement deed satisfies certain requirements set forth in section

170(h)(2)(C) and (5)(A).

Summary Judgment Standard

Summary judgment serves to “expedite litigation and avoid

unnecessary and expensive trials.” See Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). We may grant summary

judgment regarding an issue when there is no genuine dispute of

material fact and a decision may be rendered as a matter of law.

Rule 121(a)(1) and (2); Sundstrand Corp., 98 T.C. at 520.

Upon review of the parties’ pleadings, motion papers, and the

exhibits attached thereto, we conclude that judgment on the issue of the

procedural validity of Treasury Regulation § 1.170A-14(g)(6)(ii) may be

rendered as a matter of law. We also conclude that judgment on the

issues of whether the deed satisfies the “granted in perpetuity”

requirement of section 170(h)(2)(C) and the “protected in perpetuity”

requirement of section 170(h)(5)(A) may be rendered as a matter of law.

II.

Procedural Validity of the Regulation

Applicable Framework for Judicial Review

Under the APA, a “reviewing court shall . . . hold unlawful and

set aside agency action, findings, and conclusions found to be . . .

arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A). Our review standard is

“narrow,” and we will not substitute our judgment for that of the agency.

Zzyym v. Pompeo, 958 F.3d 1014, 1022 (10th Cir. 2020) (quoting Motor

Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 43 (1983)). However, in employing this deferential standard of

review, we must determine whether the decision was based on

consideration of the relevant factors and whether there was a clear error

of judgment. W. Watersheds Project v. Bureau of Land Mgmt., 721 F.3d

1264, 1273 (10th Cir. 2013) (citing State of N.M. ex rel. Richardson v.

BLM, 565 F.3d 683, 704–05 (10th Cir. 2009)). Furthermore, “we may not

supply a reasoned basis for the agency’s action that the agency itself has

not given,” although we will “uphold a decision of less than ideal clarity

if the agency’s path may reasonably be discerned.” Motor Vehicle Mfrs.

Ass’n, 463 U.S. at 43 (first citing SEC v. Chenery Corp., 332 U.S. 194,

196 (1947); and then quoting Bowman Transp., Inc. v. Ark.-Best Freight

Sys., Inc., 419 U.S. 281, 286 (1974)).

The APA “prescribes a three-step procedure for so-called ‘noticeand-comment rulemaking.’” Perez v. Mortg. Bankers Ass’n, 575 U.S. 92,

96 (2015); accord 5 U.S.C. § 553. First, an agency “must issue a ‘[g]eneral

notice of proposed rule making,’ ordinarily by publication in the Federal

(quoting 5 U.S.C. § 553(b)). Second, “if ‘notice [is] required,’ the agency

must ‘give interested persons an opportunity to participate in the rule

making through submission of written data, views, or arguments,’” and

the agency “must consider and respond to significant comments received

during the period for public comment.” Id. (alteration in original)

(quoting 5 U.S.C. § 553(c)).

Third, in promulgating the final rule, the agency must include in

its text a “concise general statement of [the rule’s] basis and purpose.”

Gallegos v. Lyng, 891 F.2d 788, 795 (10th Cir. 1989) (alteration in

original) (quoting 5 U.S.C. § 553(c)). As the Supreme Court has

explained, “[r]ules issued through the notice-and-comment process are

often referred to as ‘legislative rules’ because they have the ‘force and

effect of law.’” Mortg. Bankers Ass’n, 575 U.S. at 96 (quoting Chrysler

Corp. v. Brown, 441 U.S. 281, 302–03 (1979)). Thus, basis and purpose

statements must contain sufficient information to allow a court to

exercise judicial review, see, e.g., Kennecott Copper Corp. v. EPA, 612

F.2d 1232, 1236 (10th Cir. 1979), as “[o]ne of the basic procedural

requirements of administrative rulemaking is that an agency must give

adequate reasons for its decisions,” Encino Motorcars, LLC v. Navarro,

579 U.S. 211, 221 (2016); see also United States v. Frontier Airlines, Inc.,

563 F.2d 1008, 1013 (10th Cir. 1977) (“The Basis and Purpose Statement

is a very significant portion of a regulation when an issue arises as to its

application and scope.”).

Further, an agency must respond to comments “that can be

thought to challenge a fundamental premise” underlying the proposed

agency decision. MCI WorldCom, Inc. v. FCC, 209 F.3d 760, 765 (D.C.

Cir. 2000). Thus, an agency should respond to significant points and

consider vital relevant comments. W. Coal Traffic League v. United

States, 677 F.2d 915, 927 (D.C. Cir. 1982); see also Balt. Gas & Elec. Co.

v. United States, 817 F.2d 108, 116 (D.C. Cir. 1987) (noting that under

the arbitrary and capricious standard of review, an agency is “required

to respond to significant comments that cast doubt on the

reasonableness of the rule the agency adopts”).

Statutory and Regulatory

Rulemaking Process

Framework:

Treasury’s

Section 170(a)(1) generally permits a deduction for charitable

contributions made during the taxable year. However, section

170(f)(3)(A) denies the deduction for contributions of property that

consist of less than the taxpayer’s entire interest in such property. The

denial of the deduction for charitable contributions of partial interests

in property does not, however, apply to “qualified conservation

contribution[s].” See § 170(f)(3)(B)(iii).

A “qualified conservation contribution” is defined under section

170(h)(1) as a contribution (1) “of a qualified real property interest,”

(2) “to a qualified organization,” and (3) “exclusively for conservation

purposes.” Under section 170(h)(2)(C), a “qualified real property

interest” includes “a restriction (granted in perpetuity) on the use which

may be made of the real property.” Moreover, section 170(h)(5)(A)

provides that a contribution shall not be treated as “exclusively for

conservation purposes,” see § 170(h)(1)(C), unless the conservation

purpose of the contribution is “protected in perpetuity.” The statute,

however, does not define the term “protected in perpetuity” nor

elaborate on the requirement. Mitchell v. Commissioner, 775 F.3d

at 1247.

To the extent a taxpayer claims a deduction for the charitable

contribution of a conservation easement under section 170(h), the

Commissioner’s position is that the contribution must also satisfy the

relevant regulatory requirements promulgated pursuant to section

170(h).

On May 23, 1983, the Department of the Treasury (Treasury) and

the IRS issued a notice of proposed rulemaking with “proposed

regulations relating to contributions of partial interests in property for

conservation purposes.” Prop. Treas. Reg. § 1.170A-13, 48 Fed. Reg.

22,940, 22,940 (May 23, 1983). In response to the notice, Treasury

received more than 700 pages of comments during the comment period.

See Oakbrook I, 154 T.C. at 186. A public hearing on the proposed

amendments to the regulations was held on September 15, 1983. Id.

at 188.

On January 14, 1986, Treasury issued final regulations with

revisions, including the regulation at issue in this case—Treasury

Regulation § 1.170A-14(g)(6)(ii)—concerning requirements in

contemplation of an easement’s extinguishment by judicial proceedings.

See T.D. 8069, 1986-1 C.B. 89; see also Oakbrook I, 154 T.C. at 188.

Treasury Regulation § 1.170A-14(g)(6), titled “Extinguishment,”

provides: 10

(i) In general. If a subsequent unexpected change in

the conditions surrounding the property that is the subject

of a donation under this paragraph can make impossible or

impractical the continued use of the property for

conservation purposes, the conservation purpose can

nonetheless be treated as protected in perpetuity if the

restrictions are extinguished by judicial proceeding and all

of the donee’s proceeds (determined under paragraph

(g)(6)(ii) of this section) from a subsequent sale or exchange

of the property are used by the donee organization in a

manner consistent with the conservation purposes of the

original contribution.

(ii) Proceeds. In case of a donation made after

February 13, 1986, 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 restriction gives

rise to a property right, immediately vested in the donee

organization, with a fair market value that is at least equal

to the proportionate 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. . . . For purposes of this

paragraph (g)(6)(ii), that proportionate value of the donee’s

property rights shall remain constant. Accordingly, when a

change in conditions give rise to the extinguishment of a

perpetual conservation restriction under paragraph

(g)(6)(i) of this section, the donee organization, on a

subsequent sale, exchange, or involuntary conversion of

the subject property, must be entitled to a portion of the

proceeds at least equal to that proportionate value of the

perpetual conservation restriction, unless state law

provides that the donor is entitled to the full proceeds from

10 Going forward, we generally refer to Treasury Regulation § 1.170A-14(g)(6)

as the “extinguishment provision” and to paragraph (g)(6)(ii) as the “proceeds

regulation.”

the conversion without regard to the terms of the prior

perpetual conservation restriction.[11]

The Treasury Decision spanned roughly 12 pages, of which

approximately 10 contained the actual text of the regulations, leaving

just over 2 pages for Treasury’s responses to comments and other

administrative matters. See Hewitt v. Commissioner, 21 F.4th at 1348;

see also T.D. 8069.

Application of Analytical Framework to Treasury’s

Rulemaking

Process

for

Treasury

Regulation

§ 1.170A-14(g)(6)(ii)

Relying upon Hewitt v. Commissioner, 21 F.4th at 1339 (holding

the IRS’s “interpretation of [Treasury Regulation] § 1.170A-14(g)(6)(ii)

to be invalid under the APA”), Mr. Oppenheimer contends that the

proceeds regulation is procedurally invalid under the APA. Specifically,

Mr. Oppenheimer contends that the administrative record demonstrates

that comments raising concerns with Treasury Regulation § 1.170A14(g)(6)(ii) were filed during the rulemaking process, that those

comments required a response from Treasury, and that Treasury failed

to adequately respond to those significant comments in the final

regulation’s “basis and purpose” statement, in violation of the APA’s

procedural requirements. He therefore claims that the regulation is

inapplicable to the conveyance at issue. 12 We agree.

Comments and concerns regarding the extinguishment provision,

including how to treat postdonation improvements, were submitted to

Treasury during the comment period. See, e.g., Hewitt v. Commissioner,

21 F.4th at 1351. Turning to the most detailed comment, the New York

Landmarks Conservancy (NYLC) submitted a comment letter urging

11 Mr. Oppenheimer does not argue that the state law exemption applies.

12 As best we understand Mr. Oppenheimer’s motion papers, he is challenging

only the procedural validity of Treasury Regulation § 1.170A-14(g)(6)(ii). Nonetheless,

we acknowledge his passing reference to the regulation’s purported substantive

invalidity under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837

(1984). However, this reference was raised for the first time in his response to our

Order, see Pet’r’s Resp. to Order (No. 35); Order (No. 28), and is beyond the scope of

the briefing requested through that Order. Oakbrook I also held that Treasury

Regulation § 1.170A-14(g)(6) was substantively valid under Chevron. See Oakbrook I,

154 T.C. at 195–200. The Eleventh Circuit’s opinion in Hewitt did not reach the

regulation’s substantive validity under Chevron. See Hewitt v. Commissioner, 21 F.4th

at 1339 n.1. Consequently, Mr. Oppenheimer’s passing reference to the regulation’s

purported substantive invalidity does not alter our disposition of the Motions.

Treasury to delete the proposed proceeds regulation because it

contained pervasive “problems of policy and practical application.”

Id. at 1345. NYLC stated that while Congress enacted the statute “to

encourage the protection of [the] . . . environment through the donation

of conservation restrictions,” the proposed regulation “would thwart the

purpose of the statute by deterring prospective donors.” Id. On the basis

of its concerns and because “the possibility of extinguishment is

relatively remote,” NYLC stated it was “unnecessary” for Treasury

“to provide for allocation of proceeds after extinguishment.” Id.

NYLC also commented on whether the value of postdonation

improvements to the easement property should be included or excluded

from the proceeds formula in the regulation. Id. Specifically, NYLC

stated that the regulation’s structure “contemplates that a ratio of value

of the conservation restriction to value of the fee will be fixed at the time

of the donation and will remain in effect forever thereafter.” Id.

But, according to NYLC, the formula “fail[ed] to take into account that

improvements may be made thereafter by the owner which should

properly alter the ratio.” Id. To support its concern, NYLC presented a

mathematical example, based on a fact pattern in the proposed

regulations, to show that requiring the prospective donor to turn over

extinguishment proceeds “would obviously be undesirable to the

prospective donor and would constitute a windfall to the donee

organization.” Id. at 1351. Thus, NYLC recommended that the proposed

formula be revised to prevent inequities in the event Treasury retained

the extinguishment provision, but NYLC “strongly recommend[ed]

deletion of the entire extinguishment provision.” Id. (alteration in

original).

Although NYLC offered the most extensive comments on the

proposed extinguishment provision, other commenters similarly

expressed criticism or urged caution. Id. at 1345–46. For example, the

Landmarks Preservation Council of Illinois “urge[d] caution in the

treatment of the concept of ‘extinguishment’ in the regulations,” as “[t]he

discussion in the regulations of the conditions under which that binding

agreement may be abrogated lends an undesirable air of legitimacy to

the concept of ‘extinguishment.’” Id. at 1346. It also cautioned that the

regulations could create a disincentive to donate easements. Id.

The Land Trust Exchange cautioned that the regulations “may

result in donors or donees having to pay real estate transfer taxes” and

that it was “unnecessary.” Id. The Trust for Public Land commented

that it had “serious doubts whether the provision . . . could be enforced

against anyone other than the original donor of the easement” and that

“the tax benefit rule is a satisfactory means of meeting any concern the

IRS may have that a donor might receive the double benefit of an

easement deduction followed by later recovery of the value donated.” Id.

The Brandywine Conservancy averred that the proposed

regulation “may unnecessarily restrict the amount, payable to the

holder of an easement, if changes in surrounding territory have made

the easement proportionately more valuable than the retained interest”

and that “[t]he donee should be entitled to proceeds equal to the greater

of its original proportionate value or its proportionate value at the time

of the extinguishment.” Id. And the Nature Conservancy and the Maine

Coast Heritage Trust both stated that the regulation should be “clear”

that the original proportionate value is the minimum that a donee will

receive in extinguishment proceeds. Id.

After a public hearing, Treasury adopted the proposed

regulations with revisions. T.D. 8069. In the preamble to the final

rulemaking, Treasury stated that “[t]hese regulations provide necessary

guidance to the public for compliance with the law and affect donors and

donees of qualified conservation contributions” and that it had

“consider[ed] . . . all comments regarding the proposed amendments.” Id.

In the subsequent “Summary of Comments” section, however, Treasury

did not discuss or respond to the comments made by NYLC or the other

six commenters concerning the extinguishment provision. See id.,

1986-1 C.B. at 90–91; see also Hewitt v. Commissioner, 21 F.4th at 1346;

Oakbrook I, 154 T.C. at 188 (“The ‘judicial extinguishment’ provision is

not among the amendments specifically addressed in the ‘Summary of

Comments.’”); id. at 239 (Holmes, J., dissenting) (“The Final Rule’s

statement of basis and purpose shows absolutely no mention of the

extinguishment-proceeds clause at all . . . .”).

Upon careful consideration of the Eleventh Circuit’s analysis in

Hewitt regarding the promulgation of the proceeds regulation, we are

persuaded that Treasury’s actions did not provide “an explanation [that]

is clear enough that its ‘path may reasonably be discerned.’” Hewitt v.

Commissioner, 21 F.4th at 1349 (alteration in original) (quoting Encino

Motorcars, 579 U.S. at 221). Treasury’s action did not provide any

insight on “what major issues of policy were ventilated . . . and why the

agency reacted to them as it did” with respect to the proceeds regulation.

See id. (quoting Carlson v. Postal Regul. Comm’n, 938 F.3d 337, 344

(D.C. Cir. 2019)). Absent any explanation from Treasury on why the

considerations raised by NYLC and other commentators should not have

been heeded, “[i]t is not the role of the courts to speculate on reasons

that might have supported an agency’s decision. ‘[W]e may not supply a

reasoned basis for the agency’s action that the agency itself has not

given.’” Encino Motorcars, 579 U.S. at 224 (second alteration in original)

(quoting Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43).

We agree with the Eleventh Circuit’s conclusion that “NYLC’s

comment was significant and required a response by Treasury to satisfy

the APA’s procedural requirements.” Hewitt v. Commissioner, 21 F.4th

at 1351. 13 The record leaves no doubt that NYLC—and others—made

comments “‘that can be thought to challenge a fundamental premise’

underlying the proposed agency decision.” Carlson, 938 F.3d at 344

(quoting MCI WorldCom, Inc., 209 F.3d at 765); Oakbrook I, 154 T.C.

at 243 (Holmes, J., dissenting) (describing significant comments as those

that “identify a specific and objective issue created by the language of

the proposed rule and give some explanation for why that language is

troublesome”); see also supra pp. 16–18. The preamble to the proposed

regulations explained that the proposed rules “reflect the major policy

decisions made by the Congress.” Prop. Treas. Reg. § 1.170A-13, 48 Fed.

Reg. at 22940. But the NYLC comments essentially countered that the

proposed proceeds regulation was contrary to those policy decisions and

offered comments that, “if adopted, would require a change in an

agency’s proposed rule.” Home Box Off., Inc. v. FCC, 567 F.2d 9, 35 n.58

(D.C. Cir. 1977).

NYLC stated that while Congress enacted the statute “to

encourage the protection of [the] . . . environment through the donation

of conservation restrictions,” the proposed regulation “would thwart the

purpose of the statute by deterring prospective donors.” Hewitt v.

Commissioner, 21 F.4th at 1345; see also supra p. 17. 14 NYLC noted that

The Eleventh Circuit noted the possibility that in failing to respond to

significant comments, Treasury “was simply following its historical position that the

APA’s procedural requirements did not apply to these types of regulations.” Hewitt v.

Commissioner, 21 F.4th at 1348 (quoting Oakbrook I, 154 T.C. at 222 (Toro, J.,

concurring in the result)). To the extent that position was operative in the

promulgation of the proceeds regulation, the Eleventh Circuit and the majority opinion

in Oakbrook I made clear that it was mistaken. Hewitt v. Commissioner, 21 F.4th

at 1350; Oakbrook I, 154 T.C. at 190–91; see also Oakbrook I, 154 T.C. at 222 (Toro, J.,

concurring in the result).

14 The dissenting opinion argues that NYLC’s comment “suppos[ed] that the

proceeds regulation might disincentivize the donation of easements that did not

comply with the statute.” See dissenting op. p. 37. As a result of the comment’s

the regulation’s structure “contemplates that a ratio of value of the

conservation restriction to value of the fee will be fixed at the time of the

donation and will remain in effect forever thereafter.” Hewitt v.

Commissioner, 21 F.4th at 1345; see also supra p. 17. But, according to

NYLC, the formula “fail[ed] to take into account that improvements may

be made thereafter by the owner which should properly alter the ratio.”

Hewitt v. Commissioner, 21 F.4th at 1345.

NYLC expressly tied its comments both to a specific rule included

in the proposed regulations and to a specific fact pattern contemplated

by the proposed regulations. Hewitt v. Commissioner, 21 F.4th at 1348

(citing Oakbrook I, 154 T.C. at 224 (Toro, J., concurring in the result)).

Thus, NYLC explained why the regulation contained “problems of policy

and practical application” and therefore “strongly recommend[ed]

deletion of the entire extinguishment provision.” Id. at 1345 (alteration

in original); see supra pp. 16–17. We therefore follow the Eleventh

Circuit and hold that those comments were both “relevant and

significant,” requiring a response. Hewitt v. Commissioner, 21 F.4th

at 1351; Grand Canyon Air Tour Coal. v. FAA, 154 F.3d 455, 468 (D.C.

Cir. 1998); accord Carlson, 938 F.3d at 343–44.

purported concern about noncomplying donations, the dissent concludes that the

comment, “did not ‘challenge a fundamental premise’ underlying the proposed

regulation.” See dissenting op. p. 37 (quoting Carlson, 938 F.3d at 344). This is a

strawman. NYLC’s comment never suggested that possible donations would not have

to comply with the statute’s requirement that easements be protected in perpetuity.

NYLC made clear that its concern was pointed at Treasury’s proposed interpretation

of that requirement.

Moreover, we are not aware of any rule that requires commentators to address

every conceivable Congressional purpose in an enactment. As an organization with

experience in donations of conservation easements, NYLC understandably focused

upon Congress’s purpose in the Tax Treatment Extension Act of 1980 to “encourage

the protection of [the] . . . environment through the donation of conservation

restrictions.” See supra p. 17. This purpose is elucidated by the statutory history.

Before 1976, there was no explicit statutory authority for deductions for

contributions of partial interests. See Nancy A. McLaughlin, Internal Revenue Code

Section 170(h): National Perpetuity Standards for Federally Subsidized Conservation

Easements, 45 Real Prop. Tr. & Est. L.J. 473, 476 (2010). In just five years,

Congressional policy changed dramatically to one that provides a permanent deduction

for qualifying contributions of such property. Compare Tax Reform Act of 1976,

Pub. L. No. 94-455, § 2124(e), 90 Stat. 1520, 1919, with Tax Treatment Extension Act

of 1980, Pub. L. No. 96-541, § 6, 94 Stat. 3204, 3206. The significance of NYLC’s

comment is underscored by the backdrop of Congress’s considerable policy shift over

such a short period of time.

In Oakbrook I the opinion of the Court reasoned that Treasury

“clearly considered” comments on the requirement that the donee

receive a proportional share of the proceeds because Treasury

“substantially revised the text of [the proceeds regulation] . . . in

response to those comments.” Oakbrook I, 154 T.C. at 192. But the

regulatory text was changed only to re-articulate the formula by which

the proceeds would be apportioned. See Oakbrook II, 28 F.4th at 707

(finding that Treasury’s revisions to the regulation were only “editorial

in nature” and “aimed at clarifying the rule, not altering its meaning.”);

Oakbrook I, 154 T.C. at 252 (Holmes, J., dissenting) (observing that the

change to the regulatory text “has no obvious explanation other than to

increase editorial clarity”). The regulatory text was not changed to

delete the apportionment provision altogether, as NYLC had explicitly

requested, or as suggested by commentors such as the Land Trust

Exchange and the Trust for Public Land. They respectively found the

regulation “unnecessary” and unlikely to be enforceable beyond the

original easement donor. See supra pp. 17–18. Treasury offered no

explanation for the restatement of the formula, nor did it address

NYLC’s concern about the operation of the proposed rule in the context

of Treasury’s own fact pattern. Hewitt v. Commissioner, 21 F.4th

at 1351, 1353.

In Oakbrook I, 154 T.C. at 194, the opinion of this Court rejected

the argument that Treasury did not comply with the APA because the

preamble “did not discuss the ‘basis and purpose’ of the judicial

extinguishment provision specifically.” See Hewitt v. Commissioner,

21 F.4th at 1347. The majority opinion reasoned that “[e]ven where a

regulation contains no statement of basis and purpose whatsoever, it

may be upheld ‘where the basis and purpose . . . [are] considered

obvious.’” Oakbrook I, 154 T.C. at 194 (alteration in original) (quoting

Cal-Almond, Inc. v. USDA, 14 F.3d 429, 443 (9th Cir. 1993)); Hewitt v.

Commissioner, 21 F.4th at 1347–48. But as the Eleventh Circuit

subsequently explained in Hewitt, “[b]asis and purpose statements must

enable the reviewing court to see the objections and why the agency

reacted to them as it did” and that agencies should rebut relevant

comments. Hewitt v. Commissioner, 21 F.4th at 1350 (quoting Lloyd

Noland Hosp. & Clinic v. Heckler, 762 F.2d 1561, 1566–67 (11th Cir.

1985)); see also Home Box Off., Inc., 567 F.2d at 35–36 (“[A] dialogue is

a two-way street: the opportunity to comment is meaningless unless the

agency responds to significant points raised by the public.” (footnote

omitted)).

The Eleventh Circuit observed that the Court’s majority opinion

in Oakbrook I “concluded that ‘[t]he broad statements of purpose

contained in the preambles to the final and proposed regulations,

coupled with obvious inferences drawn from the regulations themselves,

[were] more than adequate.’” Hewitt v. Commissioner, 21 F.4th at 1348

(quoting Oakbrook I, 154 T.C. at 194). But the Eleventh Circuit rejected

that rationale. In addition to finding its analysis in Lloyd Noland to be

“instructive,” the Eleventh Circuit also cited Encino Motorcars for the

proposition that “[t]he [agency’s] conclusory statements do not suffice to

explain its decision.” Id. at 1350 (quoting Encino Motorcars, 579 U.S.

at 224). 15

In agreement with the Eleventh Circuit’s reasoning in Hewitt v.

Commissioner, 21 F.4th at 1350–53, we hold that Treasury Regulation

§ 1.170A-14(g)(6)(ii) is procedurally invalid under the APA because

Treasury failed to respond to a significant comment. Accordingly, we set

it aside.

III.

The Deed’s Satisfaction of the “Restriction (Granted in

Perpetuity)” Requirement of Section 170(h)(2)(C) and the

“Protected in Perpetuity” Requirement of Section 170(h)(5)

Having concluded that the regulation is not valid and should not

govern our decision, we instead evaluate the deed simply in light of the

statute. The Supreme Court has told us that judicial inquiry begins with

the statutory text and ends there as well if the text is unambiguous.

BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (first citing

Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004); then citing Hartford

Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000);

then citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999);

and then citing Conn. Nat’l Bank v. Germain, 503 U.S. 249, 254 (1992)).

As set forth below, we find that the relevant text is clear and that the

deed satisfies the requirement of “a restriction (granted in perpetuity)”

under section 170(h)(2)(C) and the requirement that the conservation

purpose be “protected in perpetuity” under section 170(h)(5)(A).

15 We likewise agree with the Eleventh Circuit that the fact that Treasury

stated that it had considered “all comments,” without more discussion, does not “enable

[us] to see [NYLC’s] objections and why [Treasury] reacted to them as it did.” Hewitt

v. Commissioner, 21 F.4th at 1350 (quoting Lloyd Noland, 762 F.2d at 1566); Carlson,

938 F.3d at 344; Oakbrook I, 154 T.C. at 250–51 (Holmes, J., dissenting).

The Section 170(h)(2)(C) Requirements for a Restriction

Granted in Perpetuity

A Restriction

Section 170(h)(2)(C) refers to “a restriction (granted in perpetuity)

on the use which may be made of the real property.” The Eleventh

Circuit has found that a sufficient “restriction” exists if the deed in

question “burdens what would otherwise be the landowner’s fee-simple

enjoyment of—and absolute discretion over—the use of its property.”

Pine Mountain Pres., LLLP v. Commissioner, 978 F.3d 1200, 1206 (11th

Cir. 2020), aff’g in part, rev’g in part, vacating and remanding 151 T.C.

247 (2018). 16 Further, the Eleventh Circuit has found it “indisputable”

that an easement imposes “a restriction” when it “broadly restrict[s] . . .

preexisting development rights.” Id. 17

Adopting the construction set forth by the Eleventh Circuit, we

conclude that the section 170(h)(2)(C) requirement for a “restriction” is

met in the instant deed. Paragraph 1 declares that “[i]t is the purpose of

this Easement to assure that the Property will be retained forever

predominantly in its natural, scenic, and open space condition and to

prevent any use of the Property that will significantly impair or interfere

with the conservation values of the Property.” Paragraph 1 further

provides that “[g]rantor will not perform, nor knowingly allow others to

perform, any act on or affecting the Property that is inconsistent with

the purposes of this Easement.” Paragraph 4 sets forth a nonexhaustive

list of “[p]erpetually [p]rohibited [u]ses and [a]ctivities,” which

While we note that the Eleventh Circuit twice referred to section

“170(b)(2)(C)” in its articulation and analysis of its holding, see Pine Mountain Pres.,

LLLP v. Commissioner, 978 F.3d at 1206, it is apparent from the statutory text and

any quotes and references thereto that the reference to subsection “(b)” of section 170

is a typographical error. Accordingly, we will treat the two references to section

“170(b)(2)(C)” as if made to section 170(h)(2)(C). See Pine Mountain Pres., LLLP v.

Commissioner, 978 F.3d at 1206; see also, e.g., id. at 1205 (referring to section

170(h)(2)(C) as the relevant provision).

17 Other courts of appeals have also considered the application of section

170(h)(2)(C) and (5)(A). See, e.g., Oakbrook II, 28 F.4th 700; BC Ranch II, L.P. v.

Commissioner, 867 F.3d 547 (5th Cir. 2017), vacating and remanding Bosque Canyon

Ranch, L.P. v. Commissioner, T.C. Memo. 2015-130; Belk v. Commissioner, 774 F.3d

221 (4th Cir. 2014), aff’g 140 T.C. 1 (2013); Commissioner v. Simmons, 646 F.3d 6, 10

(D.C. Cir. 2011), aff’g T.C. Memo. 2009-208. We find the Eleventh Circuit’s discussion

in Pine Mountain particularly instructive because the court considered issues similar

to those we address here.

encompasses “[a]ny activity on or use of the Property inconsistent with

the purpose of this Easement.”

In addition, prohibited activities expressly enumerated in the

deed include “[t]he right to establish or maintain any residential,

commercial, recreational, or industrial facility on the Property or any

other structure not specifically reserved herein” and “[s]urface mining

or quarrying of soil, sand, or other minerals,” except for “a permitted use

of the Property in a manner consistent with the conservation purpose of

this deed.” In stating that the Easement’s purpose is the retention of the

Property’s “natural, scenic, and open space condition” and “prevent[ion]

[of] any use of the Property that [would] significantly impair or interfere

with the conservation values of the Property,” Valley Park is prohibited

from engaging in any act inconsistent with the Easement’s conservation

purpose. And by providing a nonexhaustive list of “[p]erpetually

[p]rohibited [u]ses and [a]ctivities,” paragraphs 1 and 4 of the deed

“burden[] what would otherwise be the landowner’s fee-simple

enjoyment of—and absolute discretion over—the use of its property.”

Pine Mountain Pres., LLLP v. Commissioner, 978 F.3d at 1206.

Likewise, these terms of the deed broadly restrict Valley Park’s

preexisting development rights. See id.

Further, in Pine Mountain Preserve, the Eleventh Circuit found

that “[a] broad limitation on the use of the property that applies to the

parcel as a whole satisfies the statutory test, even if within that parcel

there exist certain narrow exceptions to that limitation.” Id. 18 We agree.

The deed in the instant case passes muster because, as discussed above,

it forbids the development and maintenance of “residential, commercial,

recreational, or industrial” facilities and proscribes “surface mining or

quarrying of soil, sand, or other minerals” on the entire Property.

Accordingly, we conclude that the instant deed contains “[a] broad

limitation on the use of the property that applies to the parcel as a

whole” and, therefore, satisfies the statutory test. Id.

Granted in Perpetuity

a. Express “in [P]erpetuity” Terms

The “granted in perpetuity” requirement of section 170(h)(2)(C) is

satisfied where “nothing in the grant envisions a reversion of the

18 In his Motion in the instant case, respondent does not allege that the deed

contains the type of “narrow exceptions,” i.e., reserved rights, that were at issue in

Pine Mountain Preserve, LLLP v. Commissioner, 978 F.3d at 1204.

easement interest to the landowner, its heirs, or assigns.” Pine

Mountain Pres., LLLP v. Commissioner, 978 F.3d at 1206. In so holding,

the court of appeals relied on the common law meaning of “perpetuity”

and found that the easements at issue imposed a restriction because

“Pine Mountain, its heirs, or assigns remain indefinitely subject to the

restriction and because nothing in the grants will cause the easements,

either automatically or upon the happening of some event, to revert back

to [the grantor] or its successors.” Id. (citing Jon W. Bruce & James W.

Ely, Jr., The Law of Easements & Licenses in Land § 10:1).

Again, we agree with the Eleventh Circuit’s construction of the

statutory text. See id. at 1208 (“In brief, we hold that § 170(h)(2)(C)

means just what it says it means—that to qualify for a deduction, a

conservation easement must grant ‘a restriction’ . . . ‘in perpetuity,’ as

that term has traditionally been used and understood in common-law

practice.”); see also Perpetuity, Random House Webster’s College

Dictionary (2d ed. 2001) (defining “perpetuity” as “endless or indefinitely

long duration or existence”). 19 Applying that construction in the instant

case, we similarly find that the deed grants a restriction in perpetuity,

as required by section 170(h)(2)(C). The conveyance paragraph of the

deed provides that Valley Park, “grants and conveys to [CLF] a

conservation easement in perpetuity over the Property of the nature and

character and to the extent hereinafter set forth.” (Emphasis added.)

Paragraph 1 states that the purpose of the Easement is to “assure that

the Property will be retained forever predominantly in its natural,

scenic, and open space condition and to prevent any use of the Property

that will significantly impair or interfere with the conservation values

of the Property.” (Emphasis added.) Paragraph 1 continues by stating

that “the duration of this Easement shall be in perpetuity.” These

provisions impose an affirmative obligation upon CLF, “in perpetuity,”

to maintain the Property in a manner consistent with its native

condition. See also Commissioner v. Simmons, 646 F.3d at 10. Our

review of the entire deed reveals nothing in the grant that “envisions a

reversion of the easement interest to the landowner, its heirs, or

assigns.” Pine Mountain Pres., LLLP v. Commissioner, 978 F.3d at 1206.

Thus, between the conveyance paragraph and the stated purpose of the

19 We note that the Sixth Circuit has articulated a somewhat different view.

See Oakbrook II, 28 F.4th at 706 (“[T]he donation of an easement will not qualify for a

charitable deduction unless the taxpayer can guarantee that both the grant of the

interest and the conservation goals which it serves will endure for quite a long time—

forever, to be exact.”).

easement in Paragraph 1, we conclude that the section 170(h)(2)(C)

requirement of a grant “in perpetuity” is met.

b. “Prior [C]laims” Clause

Respondent argues that the “prior claims” clause in paragraph 12

causes the deed to fail the perpetuity requirement of section

170(h)(2)(C). The relevant portion of paragraph 12 provides that in the

event of a judicial extinguishment:

[T]he amount of the proceeds to which Grantee [CLF] shall

be entitled, after the satisfaction of prior claims, from any

sale, exchange, or involuntary conversion of all or any

portion of the Property subsequent to such termination or

extinguishment, shall be determined by the court.

Though respondent seems to acknowledge that there were no claims

against the subject property before the time of the execution of the deed,

see BC Ranch II, L.P. v. Commissioner, 867 F.3d at 554 n.21 (noting that

our perpetuity analysis should not concern itself with trifles), he posits

that the word “prior” may include liabilities that “arise after the [d]eed

was signed but before the date of extinguishment.” Under respondent’s

reading of the prior claims clause, CLF’s proceeds upon judicial

extinguishment could be reduced to zero if an Oklahoma court

prioritized claims that arise on the subject property between the date of

the deed and judicial extinguishment, i.e., after the grant of the

easement. 20 We find his interpretation implausible.

We have long recognized that a contract “is a proper subject of

judicial interpretation as to its meaning, in the light of the language

used and the circumstances surrounding its execution.” Robbins Tire &

Rubber Co. v. Commissioner, 52 T.C. 420, 435–36 (1969) (first citing

Colo. Milling & Elevator Co. v. Howbert, 57 F.2d 769, 771 (10th Cir.

1932); and then citing Big Diamond Mills Co. v. United States, 51 F.2d

721, 724 (8th Cir. 1931)). Accordingly, we look to the text of the contract

and the context in which it was executed to determine the proper

meaning of its terms. See, e.g., McGivney v. Commissioner, T.C. Memo.

2000-224, 2000 WL 1036364, at *1 (applying principles of contract

20 Respondent does not argue that “prior” means any claim that takes

precedence over others. See, e.g., Prior, Black’s Law Dictionary (10th ed. 2016)

(defining “prior” as “[t]aking precedence”). Rather, his argument is framed only in

terms of chronological priority, i.e., the prospect of claims that arise after the grant of

easement but that are “prior” to a later extinguishment.

construction to stipulations). Black’s Law Dictionary defines “prior” as

“[p]receding in time or order.” Prior, Black’s Law Dictionary (10th ed.

2016). 21 A straightforward reading of the text of paragraph 12 leads us

to conclude that “prior” means any claim that preceded the date of the

grant. See Mitchell, 138 T.C. at 332 (focusing on whether the

requirements of section 170(h) were satisfied at the time of the

easement’s grant). 22

Our interpretation of the text is confirmed by the context. See

Robbins Tire & Rubber Co., 52 T.C. at 436. The prior claims clause is in

paragraph 12, which sets forth the terms for the division of proceeds in

the event of judicial extinguishment. In that context, it is logical that

the point of reference for the existence of claims that would be paid

ahead of CLF’s claim would be those in existence before the grant of the

easement. Respondent does not dispute that there were no such claims.

Moreover, respondent does not point us to any Oklahoma caselaw that

holds that a prior claims clause, such as this one, would be read to apply

to claims arising after the time of the grant. Therefore, in light of the

deed’s text and the context in which it was executed, we decline to adopt

respondent’s reading.

The Section 170(h)(5)(A) Requirement that

Conservation Purpose be Protected in Perpetuity

the

Section 170(h)(2)(C) and section 170(h)(5)(A) impose separate

requirements. See Pine Mountain Pres., LLLP v. Commissioner, 978

F.3d at 1207; see also Belk v. Commissioner, 774 F.3d at 228. Building

upon the section 170(h)(1) rule that a contribution is not qualified unless

it is “exclusively for conservation purposes,” section 170(h)(5)(A)

provides that “[a] contribution shall not be treated as exclusively for

At least two other sources—both published contemporaneously with the

execution of the deed—confirm this definition. Prior, American Heritage Dictionary of

the English Language (5th ed. 2016) (defining “prior” as “[p]receding in time or order”);

Prior, Webster’s New World College Dictionary (5th ed. 2016) (defining “prior” as

“preceding in time; earlier; previous; former”).

22 Paragraph 22(b) of the deed also provides that “[a]ny general rule of

construction to the contrary notwithstanding, this Easement shall be liberally

construed in favor of the Grantee to affect the purpose of this Easement.” Clause (b)

continues, stating that “[i]f any provision in this instrument is found to be ambiguous,

an interpretation consistent with the purpose of this Easement that would render the

provision valid shall be favored over any interpretation that would render it invalid.”

Therefore, the terms of the deed itself provide additional support for adopting this

interpretation.

conservation purposes unless the conservation purpose is protected in

perpetuity.”

Conservation Purpose

Titled “[p]urpose,” paragraph 1 of the deed provides that the

purpose of the Easement is to “assure that the Property will be retained

forever predominantly in its natural, scenic, and open space condition

and to prevent any use of the Property that will significantly impair or

interfere with the conservation values of the Property.” See, e.g., Murphy

v. Commissioner, T.C. Memo. 2023-72, at *43–47 (focusing on the

conservation purposes stated in the deeds). Respondent’s Motion does

not argue that the deed lacks a conservation purpose. 23 Therefore, solely

for the purpose of resolving the present Motions, we turn to the

“protected in perpetuity” requirement.

Protected in Perpetuity

The word “‘perpetuity’ [in section 170(h)(5)(A)]—as used in

connection with conservation easements—draws on the term’s common

law meaning and denotes only that the granted property won’t

automatically revert to the grantor, his heirs, or assigns.” Pine

Mountain Pres., LLLP v. Commissioner, 978 F.3d at 1209. As we have

discussed supra Part III.A.2, the conveyance paragraph and

paragraph 1 here provide sufficient basis for us to conclude that the

granted property will not automatically revert to the grantor or his heirs

or assigns. Our review of the entire deed confirms the conclusion that

“nothing in the grant envisions a reversion of the easement interest to

the landowner, its heirs, or assigns.” Id. at 1206.

Respondent argues that “the [d]eed statutorily fails to protect the

conservation purposes in perpetuity” because it “does not require that

the donee use any future proceeds consistent with the purposes of the

23 Respondent “does not concede that Valley Park Ranch’s claimed noncash

charitable contribution meets any of the requirements of I.R.C. § 170 or the regulations

promulgated thereunder which are not discussed herein. Accordingly, respondent

specifically reserves the right, should this motion be denied, to advance any and all

theories supporting the adjustment determined in the FPAA, including other

components of the perpetuity requirement not argued in this motion.” Resp’t’s Mot. for

Summ. J. ¶ 6 (No. 9).

original contribution.” 24 But the statute requires “only that the granted

property won’t automatically revert to the grantor, his heirs, or assigns.”

Id. at 1209. Under that interpretation, respondent’s argument

necessarily fails. 25 Cf. Commissioner v. Simmons, 646 F.3d at 10 (finding

that a remote possibility that the donee might abandon an easement

does not cause the easement to fail the perpetuity requirement in section

170(h)(5)(A)).

Respondent also argues that the prior claims clause of

Paragraph 12 causes the deed to fail the section 170(h)(5)(A) “protected

in perpetuity” requirement. His argument relies on his interpretation of

the clause, which we have rejected. See supra pp. 26–27.

IV.

Conclusion

In conclusion, we will deny respondent’s Motion (Doc. 9) and

grant Mr. Oppenheimer’s Motion (Doc. 16) as set forth herein. Following

the Eleventh Circuit, we hold that the proceeds regulation is invalid

under the APA. Moreover, we hold that the easement deed satisfies the

“restriction (granted in perpetuity)” requirement of section 170(h)(2)(C)

and the “protected in perpetuity” requirement of section 170(h)(5)(A).

24 Because we hold that the proceeds regulation is invalid under the APA, see

supra p. 22, respondent’s arguments that rely upon it and caselaw that applied it, see,

e.g., Coal Prop. Holdings, LLC, 153 T.C. 126, are unavailing.

25 We construe respondent’s argument that the deed fails the protected-in-

perpetuity requirement of section 170(h)(5)(A) because it “does not dictate what [CLF]

. . . must do with any extinguishment or condemnation proceeds in the event [of judicial

extinguishment],” see Resp’t’s Resp. to Order ¶ 28 (No. 39), to be a restatement of his

argument that the deed “statutorily” fails because it “does not require that the donee

use any future proceeds consistent with the purposes of the original contribution,” see

Resp’t’s Resp. to Mot. for Partial Summ. J. ¶ 56 (No. 25). We reject the restated

argument for the same reasons we rejected its original formulation. See supra

pp. 24–26. Respondent lodged the same argument based on Treasury Regulation

§ 1.170A-14(g)(6)(i). See Resp’t’s Resp. to Mot. for Partial Summ. J. (No. 25). Because

we have analyzed and rejected the argument under the statute, we need not consider

the regulation. See also Whirlpool Fin. Corp. v. Commissioner, 19 F.4th 944, 949 (6th

Cir. 2021), aff’g 154 T.C. 142 (2020). But whether asserted under the statute or the

regulation, the argument fails for the reasons we have stated. See supra pp. 24–26.

An appropriate order will be issued.

Reviewed by the Court.

FOLEY, URDA, TORO, GREAVES, MARSHALL, and WEILER,

JJ., agree with this opinion of the Court.

BUCH and COPELAND, JJ., concur in the result.

KERRIGAN, NEGA, PUGH, and ASHFORD, JJ., dissent.

BUCH, J., concurring in the result: The Court, indeed the tax

system at large, is currently faced with a flood of conservation easement

cases. In 2022 it was reported that the Court had over 425 conservation

easement cases. Aysha Bagchi, Tax Court Pondering Three Options for

Ballooning Easement Docket, Daily Tax Rep. (BL) (Dec. 16, 2022). A year

later that number ballooned to more than 750. See Armando Gomez &

Roland Barral, It’s High Time to Clear Out the Tax Court’s Easement

Backlog, 179 Tax Notes Fed. 251 (2023). And with the Commissioner’s

recent commitment to challenging conservation easements, that number

will continue to increase.

We often write that the purpose of summary judgment is to

expedite litigation and avoid costly, unnecessary, and time-consuming

trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74

(2001). Perhaps for this reason, the Commissioner often attempts to

dispose of conservation easement cases by summary judgment. Some of

those motions have been directed at whether the easement serves a

conservation purpose. See, e.g., Village at Effingham, LLC v.

Commissioner, T.C. Memo. 2020-102, at *6–7 (finding conservation

purpose not protected in perpetuity). Others have been directed at

procedural missteps. See, e.g., Belair Woods, LLC v. Commissioner,

T.C. Memo. 2018-159, at *10 (finding that the taxpayer did not

substantially comply with reporting requirements when it failed to

disclose cost or adjusted basis). The Commissioner has even sought to

disqualify easements due to mere foot faults. See, e.g., Bond v.

Commissioner, 100 T.C. 32, 42 (1993) (finding that the taxpayer

substantially complied with reporting requirements notwithstanding

omission of appraiser’s qualifications). But it can be difficult to

distinguish between a misstep and a foot fault.

Counterintuitively, disposing of issues by summary judgment can

create uncertainty in the law and sometimes delay litigation. For

example, Belair Woods and Bond are both well-reasoned cases. But

when taken together, they do not lend certainty to when a taxpayer has

or has not substantially complied with the reporting requirements for

conservation easements. Another example is Friedberg v.

Commissioner, T.C. Memo. 2011-238, 2011 Tax Ct. Memo LEXIS 234,

supplemented by T.C. Memo. 2013-224. Initially we held on summary

judgment that the taxpayer was not entitled to a charitable contribution

deduction with respect to a facade easement because he did not submit

a qualified appraisal. We based this conclusion on the unreliability of

the appraisal method. Friedberg, 2011 Tax Ct. Memo LEXIS 234,

at *40–45. Two years later we were called upon to revisit this conclusion

after the U.S. Court of Appeals for the Second Circuit held that an

appraisal is sufficient if the appraiser’s analysis is present, even if

unconvincing.

Litigation over the proceeds regulation has likewise created

uncertainty rather than clarity. In Oakbrook we found the regulation

procedurally and substantively valid. Oakbrook Land Holdings, LLC v.

Commissioner (Oakbrook I), 154 T.C. 180 (2020), aff’d, Oakbrook Land

Holdings, LLC v. Commissioner (Oakbrook II), 28 F.4th 700 (6th Cir.

2022), cert. denied, 143 S. Ct. 626 (2023). And our holding was affirmed

by the U.S. Court of Appeals for the Sixth Circuit. See Oakbrook II,

28 F.4th 700. However, the U.S. Court of Appeals for the Eleventh

Circuit has held the same regulation to be invalid. See Hewitt v.

Commissioner, 21 F.4th 1336 (11th Cir. 2021), rev’g and remanding T.C.

Memo. 2020-89. Although this conflict among the circuits led the

taxpayer in Oakbrook to seek Supreme Court review, the Solicitor

General opposed certiorari because Oakbrook could be affirmed on

grounds other than the validity of a regulation. Brief for Respondent

at 13, Oakbrook Land Holdings, LLC v. Commissioner, No. 22-323 (U.S.

Dec. 7, 2022). Judge Toro likewise suggested that Oakbrook I could have

been decided by our Court on other grounds, writing: “Since applying

the text of the statute to the terms of the easement before us suffices to

resolve the dispute before the Court, there is no need to address the

much more difficult question of the validity of section 1.170A-14(g)(6),

Income Tax Regs.” Oakbrook I, 154 T.C. at 201 (Toro, J., concurring in

the result).

The Solicitor General’s observation in Oakbrook is equally apt

here. Because there are alternative grounds to grant petitioner partial

summary judgment, an opinion on the validity of the proceeds

regulation is unnecessary to decide this case. 1 The deed at issue

preserves the donee’s interest in the property in the event of

extinguishment. The deed provides that the easement

can only be terminated or extinguished, whether in whole

or in part, by judicial proceedings in a court of competent

jurisdiction, and the amount of the proceeds to which [the

donee] shall be entitled, after the satisfaction of prior

claims, from any sale, exchange, or involuntary conversion

of all or any portion of the Property subsequent to such

termination or extinguishment, shall be determined by the

1 In this regard I agree with Part I of Chief Judge Kerrigan’s dissent.

court, unless otherwise provided by State or Federal law at

the time.

Federal law certainly includes federal tax law. And by preserving for the

donee whatever amount is provided by federal law at the time, the

drafters took into account the ever-shifting landscape of federal law as

it relates to conservation easements. But see Coal Prop. Holdings, LLC

v. Commissioner, 153 T.C. 126, 143–45 (2019) (finding that a saving

clause is an impermissible condition subsequent). We need not reach the

question of the validity of the proceeds regulation to decide this case.

COPELAND, J., agrees with this opinion concurring in the result.

KERRIGAN, C.J., dissenting: I disagree with the outcome in the

opinion of the Court, which concludes that Treasury Regulation

§ 1.170A-14(g)(6)(ii), referred to as the “proceeds” regulation, is

procedurally invalid under the Administrative Procedure Act (APA).

The opinion of the Court relies upon the holding in Hewitt v.

Commissioner, 21 F.4th 1336, 1353 (11th Cir. 2021), rev’g and

remanding T.C. Memo. 2020-89, that the regulation establishing the

values of a donor’s and a donee’s proportionate interests upon judicial

extinguishment of a perpetual conservation easement for purposes of a

charitable contribution deduction was arbitrary and capricious because

it failed to comply with the APA’s procedural requirements and, thus,

was invalid.

The opinion of the Court follows the reasoning of the U.S. Court

of Appeals for the Eleventh Circuit in Hewitt and rejects this Court’s

holding in Oakbrook Land Holdings, LLC v. Commissioner (Oakbrook I),

154 T.C. 180 (2020), aff’d, Oakbrook Land Holdings, LLC v.

Commissioner (Oakbrook II), 28 F.4th 700 (6th Cir. 2022) (Oakbrook II),

cert. denied, 143 S. Ct. 626 (2023), which upheld the substantive and

procedural validity of the “proceeds” regulation. I joined the opinion of

the Court in Oakbrook I, and I adhere to its reasoning and result.

I disagree with the opinion of the Court for three reasons. First,

I do not think it necessary to decide the validity of Treasury Regulation

§ 1.170A-14(g)(6)(ii) to resolve the Cross-Motions for Partial Summary

Judgment. Second, I supported the opinion of the Court in Oakbrook I,

and I find no compelling reason to change my position. Third, the

longstanding principle of stare decisis should be followed.

Deed and Compliance Requirements

The first question the Court should address is whether the deed

of easement at issue complies with Treasury Regulation § 1.170A14(g)(6)(ii). If it does, petitioner’s Motion can be granted (and

respondent’s denied) without any need to consider the validity of the

regulation. 1 Petitioner contends that the deed of easement does comply

with the regulation or is at worst ambiguous. The opinion of the Court

declines to address these contentions because “we hold that [the

regulation] is procedurally invalid under the APA.” See op. Ct. p. 11.

Instead of invalidating a regulation, I think the preferred approach is to

1 In this regard I agree with Judge Buch’s concurrence in the result.

determine whether the deed complies or a trial is needed because the

deed is ambiguous.

If the Court concludes that paragraph 12 of the deed is

ambiguous, the appropriate course of action in my view would be to defer

resolution of this issue to trial, at which documentary and testimonial

evidence could be adduced to help resolve the ambiguity. Instead, the

opinion of the Court invalidated the “proceeds” regulation.

II.

Validity of “Proceeds” Regulation

In Oakbrook I, 154 T.C. at 195, we held that Treasury satisfied

all the APA requirements.

We considered whether the agency

“articulate[d] a satisfactory explanation for its action,” id. at 190

(quoting Motor Vehicle Mfrs. Ass’n of the U.S. v. State Farm Mut. Auto.

Ins. Co., 463 U.S. 29, 43 (1983)), and concluded that “[t]he broad

statements of purpose contained in the preambles to the final and

proposed regulations, coupled with obvious inferences drawn from the

regulations themselves, are more than adequate to enable us to perform

judicial review,” id. at 194. Accordingly, we held that Treasury satisfied

all the applicable APA requirements.

The U.S. Court of Appeals for the Sixth Circuit in Oakbrook II

explained that pursuant to the APA, “[w]hat an agency must include in

a concise general statement of basis and purpose is dictated by

competing considerations.” Oakbrook II, 28 F.4th at 711. The Sixth

Circuit expounded that courts, on the one hand, must be able “to see

what major issues of policy were ventilated by the informal proceedings

and why the agency reacted to them as it did.” Id. (quoting Simms v.

Nat’l Highway Traffic Safety Admin., 45 F.3d 999, 1005 (6th Cir. 1995)).

Courts need not do a laborious examination of the record, formulate in

the first instance the significant issues faced by the agency, and

articulate the rationale of their resolution. Oakbrook II, 28 F.4th at 711;

Auto. Parts & Accessories Ass’n v. Boyd, 407 F.2d 330, 338 (D.C. Cir.

1968). Agencies operate with scarce time and limited resources.

Oakbrook II, 28 F.4th at 711. For these reasons, the APA’s concise

general statement requirement is not meant to be onerous. Id.; Nat’l

Mining Ass’n v. Mine Safety & Health Admin., 512 F.3d 696, 700 (D.C.

Cir. 2008).

The Sixth Circuit concluded that the basis and purpose of the

donor’s improvements’ regulation are clear. Oakbrook II, 28 F.4th

at 711. The Sixth Circuit further concluded that the comments the

taxpayer referenced did not raise significant concerns and that these

comments did not necessitate Treasury to provide a response. Id. at 716.

As the Sixth Circuit observed, “[s]ignificance is difficult to

measure in the abstract.” Id. at 714. Rather, “assessing significance is

context dependent and requires reading the comment in light of both the

rulemaking of which it was a part and the statutory ends that the

proposed rule is meant to serve.” Id. As guidance for this inquiry the

Sixth Circuit adopted the test articulated by the U.S. Court of Appeals

for the D.C. Circuit: “[A]n agency must respond to comments ‘that can

be thought to challenge a fundamental premise’ underlying the proposed

agency decision.” Id. (quoting Carlson v. Postal Regul. Comm’n, 938

F.3d 337, 344 (D.C. Cir. 2019)). The opinion of the Court appears to

accept the Carlson test as setting the appropriate standard for assessing

whether comments are “significant” enough to demand an explicit

response. See op. Ct. p. 19.

This brings us to the central question: Did the comments offered

by 2 of the 90 commenters, suggesting that the extinguishment

regulation “would thwart the [statutory] purpose” by disincentivizing

the donation of conservation easements, “challenge a fundamental

premise” underlying the proposed regulation? Carlson, 938 F.3d at 344

(quoting MCI WorldCom, Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir.

2000)). The opinion of the Court answers this question “yes.” I would

answer “no,” for two major reasons.

First, Oakbrook II was decided after the Eleventh Circuit’s

decision in Hewitt. The Sixth Circuit found the reasoning in Hewitt to

be unpersuasive. Oakbrook II, 28 F.4th at 717. The Sixth Circuit

disagreed with the Eleventh Circuit’s conclusion that the comments at

issue raised significant concerns about possible deterrent effects that

regulation could have on donations and that the goal of section 170 is to

allow for deductions for the donation of conservation easements to

encourage donation of such easements. Id.; Hewitt v. Commissioner, 21

F.4th at 1352. The Sixth Circuit concluded that this point overlooks

Congress’s requirement that an easement’s conservation purpose must

be “protected in perpetuity.” Oakbrook II, 28 F.4th at 717; see

§ 170(h)(5)(A).

Second, the Sixth Circuit in Oakbrook II supplied the correct

answer to the Eleventh Circuit’s argument: “Although encouraging the

donation of conservation easements is undeniably a goal of the statute,

highlighting this point overlooks a crucial condition that Congress

demanded be met by donors seeking deductions: an easement’s

conservation purpose must be ‘protected in perpetuity.’” Oakbrook II,

28 F.4th at 717. Stated differently, Congress’s policy objective was not

to encourage the donation of easements regardless of their terms, but to

encourage the donation of easements that satisfied the statutory

perpetuity requirements. By supposing that the proceeds regulation

might disincentivize the donation of easements that did not comply with

the statute, comments cited by the taxpayer did not “challenge a

fundamental premise” underlying the proposed regulation. Carlson,

938 F.3d at 344.

In 21 cases between 2016 and 2021, this Court sustained the

disallowance of charitable contribution deductions because the deeds of

easement failed to comply with the proceeds regulation. This is not a

case where Treasury failed to conduct a rulemaking, failed to hold a

public hearing, or failed to solicit and consider comments. Treasury did

all these things.

I agree with the Sixth Circuit in Oakbrook II, and I cannot

overlook “Congress’s decision to emphasize that a conservation

easement’s purpose be protected in perpetuity.” Oakbrook II, 28 F.4th

at 718. I see no reason to change my position that Treasury’s lack of

response to comments petitioner cited do not jeopardize the validity of

the regulation. Furthermore, the Eleventh Circuit in Hewitt does not

raise any new arguments that were not considered by this Court in

Oakbrook I.

III.

Stare Decisis

The opinion of the Court does not follow the longstanding legal

principle stare decisis. Stare decisis is “[t]he doctrine of precedent,

under which a court must follow earlier judicial decisions when the same

points arise again in litigation.” Stare decisis, Black’s Law Dictionary

(11th ed. 2019). Courts have repeatedly taken the position that “[s]tare

decisis is the preferred course because it promotes the evenhanded,

predictable, and consistent development of legal principles, fosters

reliance on judicial decisions, and contributes to the actual and

perceived integrity of the judicial process.” Payne v. Tennessee, 501 U.S.

808, 827 (1991). That “today’s Court should stand by yesterday’s

decisions . . . is ‘a foundation stone of the rule of law.’” Kimble v. Marvel

Ent., LLC, 576 U.S. 446, 455 (2015) (quoting Michigan v. Bay Mills

Indian Cmty., 572 U.S. 782, 798 (2014)).

Stare decisis also “reduces incentives for challenging settled

precedents, saving parties and courts the expense of endless

relitigation.” Id. We generally adhere to our prior decisions, absent

exceptional circumstance, because doing so “promotes the evenhanded,

predictable, and consistent development of legal principles, fosters

reliance on judicial decisions, and contributes to the actual and

perceived integrity of the judicial process.” Payne, 501 U.S. at 827.

The Supreme Court views stare decisis as a “principle of policy”

that balances several factors to decide whether the scales tip in favor of

overruling precedent. Citizens United v. Fed. Election Comm’n, 558 U.S.

310, 362–63 (2010) (quoting Helvering v. Hallock, 309 U.S. 106, 119

(1940)). Among these factors are the “workability” of the standard, “the

antiquity of the precedent, the reliance interests at stake, and of course

whether the decision was well reasoned.” Montejo v. Louisiana, 556 U.S.

778, 792–93 (2009).

“Stare decisis is not an inexorable command . . . .” Payne, 501 U.S.

at 828. However, “any departure from the doctrine of stare decisis

demands special justification.” Arizona v. Rumsey, 467 U.S. 203, 212

(1984). This “special justification” is over and above the belief “that the

precedent was wrongly decided.” Halliburton Co. v. Erica P. John Fund,

Inc., 573 U.S. 258, 266 (2014). Assertions previously reviewed and

rejected by the Court are not a “special justification.” Bay Mills Indian

Cmty., 572 U.S. at 798–99.

The opinion of the Court gives the same statutory text a different

interpretation that effectively overrules a prior case interpreting

identical operative text, a course of action that basic principles of stare

decisis wisely counsel us not to take. See United States v. Home Concrete

& Supply, LLC, 566 U.S. 478, 483 (2012) (citing John R. Sand & Gravel

Co. v. United States, 552 U.S. 130, 139 (2008)). “[S]tare decisis in respect

to statutory interpretation has ‘special force,’ for ‘Congress remains free

to alter what we have done.” John R. Sand & Gravel Co., 552 U.S. at 139

(quoting Patterson v. McLean Credit Union, 491 U.S. 164, 172–73

(1989)).

The principle of stare decisis dates back to the Federalist Papers.

Alexander Hamilton stated that “strict rules and precedents” help “[t]o

avoid an arbitrary discretion in the courts.” The Federalist No. 78

(Alexander Hamilton). Professor Kozel explains that the Supreme

Court generally requires some “special justification” to overcome stare

decisis. Randy J. Kozel, Special Justifications: Settled Versus Right: A

Theory of Precedent, 33 Const. Comment 471, 475 (2018).

Under this approach, a precedent is subject to overruling if

it is obviously wrong, but not if it is a close call. The special

justification is the presence of a clear error as compared

with a less egregious mistake. Mere disagreement with a

precedent is not enough to overrule it. But a decision that

is clearly erroneous contains its own basis for departure.

Id.

The Supreme Court examines multiple factors in determining a

special justification, including the “traditional” ones: (1) whether the

statutory and doctrinal underpinnings of the existing caselaw have

eroded over time, either through growth of judicial doctrine or

Congressional action; and (2) whether the existing caselaw has proved

unworkable. Kimble, 576 U.S. at 458–59. The “lesson is that every

successful proponent of overruling precedent has borne the heavy

burden of persuading the Court that changes in society or in the law

dictate that the values served by stare decisis yield in favor of a greater

objective.” Vasquez v. Hillery, 474 U.S. 254, 266 (1986). The Supreme

Court has also considered, as special justification, whether the prior

decision rests on underlying facts that have changed, have come to be

seen differently, or were mistaken from the outset. Kimble, 576 U.S.

at 460. None of the justifications applies to this case.

I am concerned that the Court’s reversing a prior position taken

only four years ago and without compelling new legal argument will

result in instability of the law in the area of conservation easements.

Additionally, the opinion of the Court may result in challenges to

regulations that have been relied upon for over 40 years. I reiterate here

what I stated in my concurrence to 3M about “creat[ing] a slippery slope

whereby courts would be constantly faced with determining whether

comments are significant and whether the agency responded

appropriately to them.” 3M Co. & Subs. v. Commissioner, No. 5816-13,

160 T.C., slip op. at 280 (Feb. 9, 2023) (Kerrigan, C.J., concurring).

For the above-stated reasons, I cannot agree with the opinion of

the Court.

NEGA, PUGH, and ASHFORD, JJ., agree with this dissent.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.