Abstract
Case Name: Oakhill Woods, LLC v. Commissioner, T.C. Memo. 2020-24 (Feb. 13, 2020).
Jurisdiction: U.S.T.C.
Petitioners: Oakhill Woods, LLC; Effingham Managers, LLC; Tax Matters Partner.
Respondent: Commissioner of the Internal Revenue Service
Concepts: Tax; Charitable Contribution; Charitable Deduction; Form 8283; Tax Return; Appraisal Summary; Strict Compliance.
Nature of Case: The Internal Revenue Service denied a charitable contribution deduction made by Oakhill Woods, LLC. In 2010, Oakhill failed to properly comply with the requirements of section 1.170A-139(c) of the Internal Revenue Service that requires recording and return of charitable contributions. Specifically, Oakhill failed to attach an appraisal summary in the form of a “cost or adjusted basis” of the property that was the subject of the charitable contribution.
Lower Ct. Decision: The Tax Court, the Honorable Albert G. Lauber held in favor of respondent (IRS).
Appellate Decision: Upheld, granted Motion for Summary Judgment.
Introduction
Oakhill Woods, LLC, classified as a partnership for tax purposes, was disallowed a deduction for a charitable contribution of a conservation easement after failing to properly attach a completed “appraisal summary” to its 2010 tax form.1 The Internal Revenue Service (IRS or respondent) requires that a charitable contribution deduction include a completed “appraisal summary” on Form 8283 for noncash charitable contributions.2 Oakhill failed to disclose on that form the “cost or adjusted basis” of the property that was the subject of contribution.3
When a partnership has reasonable cause for failure to supply a completed appraisal summary, the IRS allows for it to instead attach an explanation for not providing the information.4 The Tax Court held that Oakhill did not strictly or substantially comply with the requirements and upheld the validity of the regulation.5
The main issues focused on strict compliance with IRS regulations. This is important because when claiming a charitable contribution over $5,000, the IRS requires a Form 8283 to be attached to the donor’s tax return in the first year following the charitable contribution. The IRS allows for a donor to provide an explanation for not attaching a “cost or adjusted basis” to the Form 8283 so that the contribution will not be automatically disallowed. This regulation must be strictly complied with. Despite being an unpublished opinion, this case stresses the compliance guidelines followed when the IRS selects a tax return for examination.
Background
The United States Tax Court held that Oakhill Woods, LLC did not strictly comply with filing of Form 8283 in regard to taxing a Noncash Charitable Contribution.6
During the financial crisis of 2007, Augusta Woodlands, LLC (Augusta) the subsidiary of a paper company, was forced to liquidate assets. Augusta sold to HRH Investments, LLC, a real estate development company, 1,895 acres of forest property located in Effingham County, Georgia.7 When purchasing the property, HRH believed that it held potential for residential development, but the financial crisis took an even bigger toll on the housing market in the Southwestern states in the following years 2008-2009.8 HRH then reconsidered ways other than development to gain financial value from the forest property acquired from Augusta and ultimately entered into a contract with Oakhill.9
Case Description
Oakhill is a Georgia limited liability company that has operated at all times as a partnership for Federal income tax purposes.10 In 2008, Oakhill contracted with HRH to purchase 388 acres of undeveloped forest property in exchange for an ownership interest in Oakhill.11 A year later, in 2009, Oakhill executed a deed for 379 of the 388 acres of forest property in the form of a conservation easement with the Georgia Land Trust.12 The Georgia Land Trust is a qualified organization in terms of charitable organizations for tax purposes.13 Following execution of the easement, Forever Forests, LLC (Forever Forests) a consulting firm that specializes in maximizing tax benefits of conservation easements advised Oakhill with respect to its tax filings in regards to the easement conveyed to the Georgia Land Trust.14
Oakhill timely filed its tax returns following execution of the easement to the Georgia Land Trust and claimed it as a charitable contribution deduction of $7,949,000, or $20,975 per acre.15
In addition to the tax return, the IRS requires a Form 8283 when a charitable contribution is made and valued in excess of $5,000. The form 8283 must include: (1) a description of the donated property, (2) a brief summary of its physical condition, (3) its appraised fair market value, (4) the date the property was acquired by the donor, (5) the manner of acquisition, and (6) the donor’s “cost or adjusted basis.”16 In lieu of the “costs or adjusted basis” the Form 8283 requires that if you have reasonable cause for not providing the information, you can instead attach an explanation so your deduction will not be automatically disallowed.17 Oakhill relied on using Forever Forests management of the Form 8283 believing that it had first obtained legal advice in regards to its completion.18 With respect to the “cost or adjusted basis” Forever Forests claimed, “A declaration of the taxpayer’s basis in the property is not included in * * * the attached Form 8283 because of the fact that the basis of the property is not taken into consideration when computing the amount of the deduction. Furthermore, the taxpayer has a holding period in the property in excess of 12 months and the property further qualifies as “capital gain property.”
Oakhill’s tax return was selected for examination by the IRS and disallowed because it failed to complete the cost or adjusted basis of its charitable donation.19
Conclusion
The IRS concluded that Oakhill did not report its cost basis as the regulation requires, and that the explanation attached by Forever Forests asserted that the information required under Form 8283 was not necessary.20 Ultimately, the statement attached by Forever Forests, and relied on by Oakhill, concluded that it was not providing the cost basis of the property because the cost basis was not relevant for computing the deduction.21