NTUF Amicus Brief: Taxpayers Harmed by IRS's Shifting Positions and Ambiguous Regulations on Easements

Federal law requires that agencies receive public comments on proposed regulations and respond to them. If it is obvious that the IRS ignored submitted comments that urged clarity on an unclear proposed regulation, can the IRS now enforce its interpretation of that regulation?

In a brief filed with the Sixth Circuit Court of Appeals, NTUF argues no. The regulation, adopted in 1986, uses a term ("proportionate value") capable of at least two reasonable interpretations, in a regulation involving the disposition of proceeds from a judicially extinguished conservation easement. The IRS is now asserting that all conservation easement deeds are invalid unless they adhere to the IRS's post-2016 interpretation of that regulation, even if the deed was issued prior to that date. The Tax Court sided with the IRS, and the taxpayer has now appealed.

Congress began authorizing conservation easement deductions in 1976, and today more than 32 million acres of vital wildlife habitat, open spaces, wetlands and rangelands, historically important property, and areas for public enjoyment have been set aside for conservation voluntarily through more than 190,000 conservation easements. Private land trusts generally manage areas with lower costs, fewer staff, and greater public benefits than those managed by government agencies. Despite cross-partisan congressional support for conservation easement deductions, the IRS has engaged in draconian enforcement actions, new rules issued without public input and applying retroactively, and zealous valuation denials against many taxpayers who claim them.

Our brief concludes: "This IRS position, which itself is often motivated by the perspective that all taxpayers are suspect and thus deserve the full weight of enforcement authority used against them as a first resort, is unfortunate. Most taxpayers want to comply with the law. Given the IRS’s shifting interpretations, ambiguous language, and refusal to explain how partnership taxpayers can take conservation easement deductions without running afoul of the IRS, they have made it impossible. The Tax Court was wrong to conclude this all squares with the Administrative Procedure Act, the principles of agency deference, and common sense. NTUF respectfully requests that the decision below be reversed."

The case is Oakbrook Land Holdings, LLC, et al. v. Commissioner of Internal Revenue, Nos. 20-2117/20-2141 (6th Cir.). The decision of the court below is 154 T.C. No. 10 (2020) & T.C. Memo 2020-54.