Fifth Circuit Vacates Entirety of Tax Court Ruling Against Owners of the Bosque Canyon Ranch in West Texas
August 11, 2017 in Case Summaries
In a ruling that attracted national attention, a tax court in 2015 disallowed over $15 million in charitable contribution deductions taken by the owners of the 3700-acre Bosque Canyon Ranch. The tax court also imposed a 40 percent gross valuation misstatement penalty and held that the entirety of the limited partners’ contributions were made in exchange for “disguised sales” subject to taxation as ordinary income. The owners appealed, and Levinger PC successfully convinced the Fifth Circuit to vacate all of these tax court rulings. First, over the dissent of Judge Dennis, Judges Wiener and Haynes held that the owners’ donation of conservation easements satisfied the “perpetuity” requirement of IRC section 170, notwithstanding the reserved right to modify the boundaries of homesite parcels within the easements. Second, the panel unanimously held that the tax court clearly erred in finding the “baseline documentation” relating to the easements to be inadequate. Third, the panel vacated the gross valuation misstatement penalty because the tax court’s disallowance of the deduction was not based on the easements’ values. And fourth, the panel rejected the tax court’s determination that the entirety of the partners’ contributions were made in exchange for “disguised sales” of partnership property. The Fifth Circuit remanded the case to the tax court to consider certain issues raised by the IRS but not decided in the first proceeding. Bosque Canyon Ranch v. Commissioner of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).
Courts: Federal Courts of Appeals
Subject Matter: Business Litigation, Oil & Gas/Real Estate