Federal Takings

Arent Fox's Eminent Domain & Property Rights Practice

Federal Takings

Arent Fox Wins Tax Court Decision in Closely Watched Charitable Contribution Case

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Arent Fox Wins Tax Court Decision in Closely Watched Charitable Contribution Case

On May 6, 2014, the United States Tax Court ruled in favor of the taxpayer and rejected the Internal Revenue Service’s effort to impose penalties on noted philanthropists Hugh and Liza Culverhouse. Complex Litigation partner Thor Hearne represented the Culverhouse family and Palmer Ranch Holdings Ltd. in one of the largest conservation easement deduction cases in the nation, leading a team that included partner Debra Albin-Riley and associate Meghan S. Largent. A link to the decision can be found here.

In 2006, the Culverhouse family donated more than 80 acres of valuable land to Sarasota County, Florida for a park, community garden, and nature conservancy. Hugh Culverhouse testified that he made this donation to preserve some of the undeveloped land for the Sarasota community and its future generations. The US Congress encourages owners to make such donations of conservation and park land by allowing the donor to claim a deduction for the fair market value of the donated land. Appraisers and land-planners determined the land was worth at least $23.9 million and the Culverhouse family claimed a charitable contribution in that amount. But the IRS disputed the contribution and challenged the value of the land, while also seeking to impose draconian penalties on the Culverhouse family.

“The IRS refused to reconsider its position in light of overwhelming evidence and expert opinion to the contrary,” said Mr. Hearne. “The IRS insisted on putting the Culverhouse family to the expense and drama of a Tax Court trial to validate a lawful deduction that is out-of-step with Congress’s desire to encourage donations of conservation land, such as the land the Culverhouse family gave Sarasota. This case provides a road map for other taxpayers to follow when defending IRS challenges to conservation easements.”

The Palmer Ranch claimed the charitable contribution deduction based on the fair market value of an 82 acre tract of land located in the heart of the valuable Palmer Ranch community, where a similar property sold for nearly $50 million. In response, the IRS disallowed $16.9 million of that amount and imposed penalties, claiming it was impossible to develop the land and, therefore, the property had no value.

Judge Joseph Goeke of the Tax Court vindicated the Culverhouse family. The Tax Court rejected the IRS’s argument and agreed the Culverhouse family, the appraiser, and the land planners were correct that this was valuable land that could be developed for multifamily dwellings. In addition, the court soundly rejected the IRS’s attempt to impose both a 40 percent gross valuation misstatement penalty and a 20 percent accuracy-related penalty. The Tax Court found the Culverhouse family acted in good faith when it determined the value of the property it donated.

“The Culverhouse family presented a well-crafted, well-reasoned position that applies established legal precedent to undisputed factual testimony by experienced and knowledgeable experts,” said Ms. Albin-Riley. “This is a big win for the citizens of Sarasota and will hopefully encourage more charitable donations of conservation land as Congress intended.”

Mr. Hearne counsels high net-worth families and closely held businesses on wealth preservation, tax and succession-planning, and political and election law. He has earned a national reputation for his work in complex federal and state litigation and appeals, constitutional law, and election issues. Much of Mr. Hearne’s practice involves representing citizens in litigation against federal, state, and local government. With more than 30 years of experience, Ms. Albin-Riley is a seasoned trial lawyer who handles complex multiparty litigation, including sophisticated health care matters, complex commercial contract and tort disputes, eminent domain and real estate valuation cases, trust and estate litigation, and class actions.

Arent Fox’s Complex Litigation practice is recognized by Chambers USA for its “streamlined” approach that delivers “quality” results. With more than 125 litigators, the practice boasts a deep bench and international reach, while having extensive experience in high-stakes litigation before federal and state courts, regulatory agencies, and international arbitration and dispute resolution venues.

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ABOUT ARENT FOX LLP

Arent Fox LLP, founded in 1942, is internationally recognized in core practice areas where business and government intersect. With more than 350 lawyers, the firm provides strategic legal counsel and multidisciplinary solutions to clients that range from Fortune 500 corporations to trade associations. The firm has offices in Los Angeles, New York, San Francisco, and Washington, DC.