DiDonato v Commissioner of Internal Revenue

US Tax Court, 2011 TC Memo 153, June 29, 2011: Tax deduction for conservation easement donated to county denied because owner-county conditional settlement agreement calling for donation was not an “acknowledgment” of the donated property as required by Internal Revenue Code section 170(f)(8).

The taxpayer settled a dispute with the county government by entering into a settlement agreement in 2004 that among other things called for the taxpayer to donate a conservation easement to the county on land owned by the taxpayer. The taxpayer sought a federal income tax deduction for the donation for tax year 2004. The taxpayer’s 2004 return included Form 8283 without signature by the appraiser or an authorized representative of the county but with an appraisal dated in 2005. The conservation easement was executed in 2006.

Without deciding whether the settlement agreement was contemporaneous with the donation, the Tax Court decided that it did not constitute an acknowledgement of the donation.

The taxpayer argued that the settlement agreement “legally obligated” him to donate his development right.  The Court found that the fulfillment of the agreement was “subject to and conditioned upon” further governmental approvals that had not been granted in the year of the tax filing.  Accordingly, at the time of the settlement agreement, the taxpayer “was not under a contractual duty to convey his development rights to the county and no legal obligation was certain to occur” and thus there could be on acknowledgement of receipt of the development rights in 2004.

(The county did give the taxpayer a letter in 2006, “acknowledging and thanking him for his ‘donation’ of the development rights” (in the court’s words).  Although the Court does not address it, it seems that any attempt to take the deduction via an amended return for 2006 would be futile because of other shortcomings of this letter as an acknowledgement.)

Decision available at http://www.ustaxcourt.gov/InOpHistoric/DiDonato.TCM.WPD.pdf.

Comments are closed.