The U.S. Court of Appeals for the Ninth Circuit today affirmed a decision of the Tax Court that, for a taxpayer to take a charitable deduction for the donation of a conservation easement, any mortgage on the property must be subordinated to the easement at the time of the donation.
The case is: Minnick v. Commissioner, No. 13-83234 (9th Cir. August 12, 2015)
Read the Ninth Circuit’s decision [PDF 35 KB]
The taxpayers (husband and wife) took out a loan secured by an undeveloped plot of land in Idaho, for purposes of developing that land, and they then donated a conservation easement on parts of the land that would not be developed. The land was still subject to the mortgage, the mortgage had not been subordinated to the easement, and the bank was not informed of the easement.
The taxpayers claimed a charitable deduction for the easement. The IRS disallowed the deduction for the conservation easement, and the Tax Court agreed and concluded that a mortgage must be subordinated at the time of the gift to be in compliance with the “in perpetuity” requirement of section 170 and specific subordination requirements of Reg. section 1.170A-14(g)(2).
The Ninth Circuit today affirmed, holding that for the donation of a conservation easement to be protected “in perpetuity,” any prior mortgage on the land must be subordinated at the time of the gift.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.