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Minnick v. Commissioner of Internal Revenue

United States Court of Appeals, Ninth Circuit

August 12, 2015

WALTER C. MINNICK; A.K. LIENHART, Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee

Argued and Submitted, Seattle, Washington: July 6, 2015.

Appeal from a Decision of the United States Tax Court. Tax Ct. No. 29632-09.

SYLLABUS

SUMMARY[*]

Tax

The panel affirmed the Tax Court's decision, holding that for a taxpayer to take a charitable deduction for the donation of a conservation easement, any mortgage on the property must be subordinated to the easement at the time of the donation.

Taxpayers took out a loan secured by an undeveloped plot of land, for purposes of developing that land, then donated a conservation easement on parts of the land that would not be developed. The land was still subject to the mortgage, the mortgage had not been subordinated to the easement, and the bank was not informed of the easement. Taxpayers then claimed a charitable deduction. The panel deferred to the Internal Revenue Service's reasonable interpretation of its own regulations that require a mortgagee to subordinate its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.

Tim A. Tarter (argued), Woolston & Tarter, P.C., Phoenix, Arizona, for Petitioners-Appellants.

Tamara W. Ashford, Principal Deputy Assistant Attorney General; Bethany B. Hauser (argued) and Francesca Ugolini, Attorneys, Department of Justice, Washington, D.C., for Respondent-Appellee.

Before: Andrew J. Kleinfeld, Jacqueline H. Nguyen, and Michelle T. Friedland, Circuit Judges.

OPINION

PER CURIAM:

We are asked to decide whether Treasury Regulation § 1.170A-14(g)(2) requires that, for a taxpayer to take a deduction for the donation of a conservation easement, any mortgage on the property must be subordinated to the easement at the time of the donation. We hold that this is required by the regulation and thus affirm the decision of the Tax Court to that effect.

I. Background

Walter C. Minnick and A.K. Lienhart (" Taxpayers" ) are a married couple. In 2005, Minnick took out a $400,000 loan from U.S. Bank. The loan was secured by an undeveloped plot of land Minnick already owned in Ada County, Idaho. Minnick intended to use the funds to develop that land. After Minnick received preliminary approval to develop parts of the land, the loan amount was increased to $1.4M in March 2006, and then to $1.5M in August 2006. In September 2006, Minnick received final approval of the development plans. Two days later, Minnick donated to the Land Trust of Treasure Valley a conservation easement on parts of the plot that would not be developed. ...


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