In the wake of recently’s a damning report from the Senate Finance Committee, the IRS is crowing over the first opponent to surrender in a Tax Court brawl over a syndicated conservation easement based on the Internal Revenue Service offer that was publicized in IR-2020-30 on June 25, 2020.
Deduction Currently Denied
The first taxpayer to accept the settlement is Coal Home Holdings LLC (CPH). CPH had lost its reduction in an opinion from Judge Albert Lauber on October 28, 2019.
“The easement did not ensure that Foothills Land Conservancy would get a proportionate share of the proceeds in the occasion of a judicial extinguishment of the easement.
Judge Lauber’s rigorous construing of the guideline indicates that the sales proceeds on the occasion of extinguishment need to be in the ratio established on the date of the present, approximately 97%. The language in the real easement permits modifications to the portion based upon prior claims and appreciation attributable to improvements.”
Penalties Not Settled
That leaves the matter of charges still open, which depends upon appraisal. CPH had declared a deduction of $155 million for its contribution of an easement on 3,713 acres in Campbell County in Eastern Tennessee. CPH had just recently gotten the land for $32.5 million.
Reading in between the lines of Judge Lauber’s June 15, 2020 order, things were not looking great for CPH.
“On October 14, 2013, the Residential or commercial property appears to have been Coal Holdings’ only considerable asset. Ownership of Coal Holdings was hence a reasonable proxy for ownership of the Home. On that date, LCV Fund XII purchased a 98.99% interest in Coal Holdings for $32.5 million. If that was an arm’s- length transaction, the FMV of a 98.99% interest in the Home would appear to have been $32.5 million. Earning up that figure to represent the minority interest would appear to produce a worth of about $32.83 million for a 100% interest in the Home.
Coal Holdings donated the easement three days later, on October 17, 2013. On its income tax return, it declared that the easement– representing only a partial interest in the Home– was worth $155.5 million on that date. If the Property deserved approximately $33 million three days previously, the petitioner will have to prove that the Property appreciated in worth by a minimum of $44.75 million in 3 days in order to prevent the “gross assessment misstatement” charge.” (Focus added)
The deal that CPH was offered together with other taxpayers with docketed cases is a pretty sweet compared to what Judge Lauber seems to have in store for them. CPH is facing total disallowance of the $155 million reductions, which need to be worth around $55 million in tax and a 40% penalty on top of that and interest since April 2014.
Under the offer, financier partners can write off the cost of the financial investment and the charge is 10% to 20%. It differs based upon the ratio of the reduction to cost. According to the decision, there is only one investment partner called Paul Viera Jr. There is someone by that name who runs an investment firm with $25 billion in possessions under management, but I have been unable to validate that is the very same person and have not heard back from the attorneys.
At any rate, making the deal in this case is a lot easier considering that the deal needs that all partners concur.
Is It Too Excellent An Offer?
I think there is an argument that Paul Viera Jr. might be getting too good a deal. We do not know precisely what the basic partner interests are, however you can be quite well ensured that somebody with the resources to put over $40 million into the offer and the need for shelter on over $310 million in adjusted gross earnings had some sharp legal representation.
So it is affordable to think that when the dust settles he will be owning 3,700 acres of forested hill country land. Naturally. we do not know how much that is worth. The after value in the litigation was just $5 million, but that might have not been that reputable. If we assume that the disappointing results of the litigation may inspire the sponsors to hand back a few of their profit, Mr. Viera’s cost for that land might be rather lower.
And under the regards to the offer, he gets to expenditure his acquisition expense of $40 million. That is as good a deal, potentially better than he would have gotten had he bought the land and offered the entire interest to Foothills Land Conservancy. The land as is will likely be his and over 5 square miles of forest with lots of wildlife – deer, elk, wild turkeys, and more – appears like a very good thing to own.
The Happy Ending Part
Campbell County has the distinction of having formed the very first Tennessee system to serve in the Union Army – Company B of the 1st Tennessee Infantry. The easement protects more than 1% of the acreage of the county. The Foothills Land Conservancy received the easement.
I spoke to Bill Clabough, executive director of Foothills. He was somewhat diffident about my enthusiasm for East Tennessee’s Union leaning. Tennessee is understood as the Volunteer State, however, the referral is to either the Mexican War or the War of 1812, not the Late Discomfort.
He and I had talked about the stunning home prior to and he assured me that the elk and the deer and the wild turkeys are undisturbed by the result of the lawsuits. They stay secured. Mr. Clabough had invited me to visit the home on my trip of the country, however that got a little interfered with by Covid-19. He guaranteed me that my concern about unexploded ordnance from the residential or commercial property’s use as a weapons variety during World War II was misdirected.
About Judge Lauber
There was appealing information in Jacob Dean’s biographical post about Judge Lauber that I have long indicated to act on.
Judge Lauber participated in a Jesuit high school in New York City, and it was there that he initially started to study Latin and Greek. His research studies of the classics continued throughout his undergraduate and graduate education, and as a result, he became a self-described “extremely cautious reader of the text.” He sees these studies as a developmental experience that has colored his judicial mindset.
I have lastly validated that of the 4 possibilities, the New york city City Jesuit high school that Judge Lauber participated in was Xavier High School on West 16th century. The late Supreme Court Justice Antonin Scalia likewise kept in mind for his textualism, also attended Xavier, as did I. Scalia, however, graduated from Xavier when dinosaurs roamed the earth, while Judge Lauber was a senior when I was a freshman.
The other peculiar thing about Xavier beyond the chance to take both Latin and Greek and a contemporary language was that you also studied military science and belonged to a JROTC program.
I had to discover whether Judge Lauber was among the lofty, remote cadet officers with Sam Browne belt and saber or among the senior citizens in the “personal’s club” who would be standing next to a freshman, all of whom were privates, in the ranks. If you would like to know, keep an eye out for my upcoming piece on the education of a Tax Court judge.