T.C. Memo. 2018-146
UNITED STATES TAX COURT
CHAMPIONS RETREAT GOLF FOUNDERS, LLC., RIVERWOOD LAND, LLC., TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4868-15. Filed September 10, 2018.
Vivian D. Hoard, for petitioner.
Teri L. Jackson and John P. Healy, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PUGH, Judge: After concessions, the issue for decision is whether
Champions Retreat Golf Founders, LLC (Champions Retreat), is entitled to a
$10,427,435 charitable contribution deduction related to the donation of a
qualified conservation contribution for the 2010 taxable year disallowed by -2-
[*2] respondent in a notice of final partnership administrative adjustment (FPAA)
issued on November 19, 2014.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. Champions
Retreat is a Georgia limited liability company with a principal place of business in
Augusta, Georgia. Champions Retreat was formed on November 6, 2001, to
develop and operate a golf club. As of the 2010 taxable year, Champions Retreat
Golf Management, LLC, owned a 21.556% interest in Champions Retreat; Robert
W. Pollard owned a 17.442% interest; Riverwood Land, LLC (Riverwood Land),
owned a 17.1024% interest; Kiokee Creek owned a 15% interest; William F. Paine
owned a 7.718% interest; Meybohm Realty, Inc., owned a 4.114% interest; and
Wayne K. Millar owned a .5172% interest. The remaining interest--approximately
16.6%--was held by 32 other partners, each of whom owned a .5172% interest.
1 Respondent conceded that Champions Retreat did not make a disguised sale to Kiokee Creek Preservation Partners, LLC (Kiokee Creek). Respondent also conceded that Champions Retreat’s allocation of the charitable contribution deduction at issue had substantial economic effect. Finally, respondent conceded that Champions Retreat complied with sec. 704 in decreasing the capital accounts of the members receiving allocations of the charitable contribution deduction and in properly allocating interest income and ordinary business loss to its members. All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. All monetary amounts are rounded to the nearest dollar. -3-
[*3] Riverwood Land is a limited liability company with a principal place of
business in Augusta. As of the 2010 taxable year, Meybohm Realty and Mr.
Pollard each owned a 40% interest and M-Golf, Inc., which is solely owned by Mr.
Millar, owned the remaining 20%.
I. Development of the Golf Club
The easement at issue was placed on part of a 2,215-acre tract of land
owned by Canal Industries before 2000 along the Savannah River in Evans,
Georgia, approximately 13 miles from Augusta. Canal Industries hired Mr. Millar
to develop a golf course on the property because of his relationship with golf
legend Gary Player. On August 28, 2000, Pollard Land, Mr. Pollard’s timberland
investment firm, purchased the property from Canal Industries at the behest of Mr.
Millar and E.G. Meybohm, who owns Meybohm Realty. In 2001 Riverwood Land
began to develop a portion of the property and marketed it as Riverwood
Plantation. On April 5, 2002, Pollard Land conveyed a 463.3-acre tract to
Champions Retreat to build a golf club, which became Champions Retreat Golf
Club (golf club).
Champions Retreat raised an initial $13.2 million for construction of the
golf club by selling 66 residential lots in a development called Founders Village.
A lifetime membership at the golf club and an ownership share in Champions -4-
[*4] Retreat was included in the purchase of a lot in Founders Village. In addition
to the $13.2 million, Champions Retreat borrowed heavily in order to complete
construction of the golf club. The golf club was completed in June 2005.
The golf club is in a section of Riverwood Plantation called the Reserve.
The Reserve is private and can be accessed only through a security gate, which is
manned 24 hours a day. Along with the golf club and Founders Village, the
Reserve includes Bishops Court, the Cottages at Riverwood Plantation (Cottages),
and the Bungalows at Champions Retreat (Bungalows). Bishops Court is a
residential development separate from the golf club. The Cottages and the
Bungalows provide guest accommodations. The Cottages adjoin the golf course.
The golf club accounts for 365.56 acres of the 463.3-acre tract that
Champions Retreat acquired in 2002. Photos and videos in the record show it to
be a visually beautiful, manicured property. It features a 27-hole course (made up
of three 9-hole courses), a pro shop, a restaurant, a locker room, a cart storage
facility, a driving range and practice area, and a paved parking lot. Mr. Player,
Arnold Palmer, and Jack Nicklaus each designed one of the nine-hole courses.
Mr. Player designed the Creek course; Mr. Palmer designed the Island course; and
Mr. Nicklaus designed the Bluff course. -5-
[*5] The Creek course is the westernmost of the three courses, and it almost
completely surrounds the Founders Village development. Due east of the Creek
course is the driving range. The Bluff course is to the north-northeast of the
driving range. The Island course is due east of the driving range. The Little
River--an offshoot of the Savannah River that goes around Germain Island--runs
through the Island course. Six of the nine holes on the Island course are on
Germain Island. The banks of this part of the Savannah River are anywhere from
3 to 10 feet high. Sumter National Forest, which is approximately 120,000 acres,
lies across the Savannah River, 700 feet from the golf club.
II. Donation of the Easement
Champions Retreat was not profitable. After our decision in Kiva Dunes
Conservation, LLC v. Commissioner, T.C. Memo. 2009-145, Douglass Cates, the
accountant for Champions Retreat, proposed the donation of a conservation
easement on the property including the golf club. The proposal was meant, among
other things, to attract additional investment in Champions Retreat so that it could
pay down its debt and remaining construction costs. -6-
[*6] Lee Echols, a conservation biologist with the North American Land Trust
(NALT),2 performed an initial survey of the property on November 30 and
December 1, 2009. The initial survey consisted of a tour of the property to
document and photograph any significant natural features or significant species or
natural communities on the property for the purpose of determining a conservation
purpose. Mr. Echols determined in 2009 that the property met the requirements
for a conservation easement.
Kiokee Creek, a Georgia partnership, was formed on September 24, 2010,
as a vehicle for investing in Champions Retreat. Its 15 original members, most of
whom were Mr. Cates’ clients, contributed a total of $2,705,000 for their interests.
In November 2010 Kiokee Creek contributed $2,700,000 to Champions Retreat in
exchange for a 15% interest.
Mr. Echols returned to Champions Retreat on November 12, 2010, to
perform another site visit. Mr. Echols again determined that the property was
suitable for a conservation easement and, on December 16, 2010, Champions
Retreat conveyed an easement to NALT that covered 348.51 acres (easement
area). The easement was recorded on December 29, 2010, in the deeds records of
2 NALT is registered as a charitable organization in Pennsylvania and has tax-exempt status under sec. 501(c)(3). -7-
[*7] Columbia County, Georgia. NALT acknowledged Champions Retreat’s
donation of the easement on February 7, 2011.
Mr. Echols returned to the golf club again on May 12, 2011, so that NALT
could have a record of the significant natural features of the property throughout
the year. This followup visit, although after the conveyance of the easement, was
included in NALT’s baseline documentation that Champions Retreat submitted to
the Internal Revenue Service (IRS). No representative of Champions Retreat
signed the owner acknowledgment line in the documentation.
Champions Retreat claimed a $10,427,435 charitable contribution deduction
on its Form 1065, U.S. Return of Partnership Income, for the 2010 taxable year for
its donation of the easement to NALT. Champions Retreat allocated
approximately 98.8% of the deduction to Kiokee Creek, the remaining 1.2% of the
deduction to Riverwood Land, and none to the other 37 members.
III. Terms of the Easement
The easement document identifies three conservation purposes:
Preservation of the [easement] area as a relatively natural habitat of fish, wildlife, or plants or similar ecosystem; and
Preservation of the [easement] area as open space which provides scenic enjoyment to the general public and yields a significant public benefit; and -8-
[*8] Preservation of the [easement] area as open space which, if preserved, will advance a clearly delineated Federal, State, or local governmental conservation policy and will yield a significant public benefit * * *.
The easement document imposes several restrictions on Champions Retreat.
It restricts the ways that Champions Retreat can use the easement area, including
the types of structures that Champions Retreat can build on the easement area. It
requires Champions Retreat to use “the best environmental practices then
prevailing in the golfing industry” in maintaining the golf club, to keep records
relating to maintenance of the golf club, and to submit an annual maintenance
report to NALT. In addition, Champions Retreat cannot remove surface or ground
water, live or dead trees, or any other raw materials from the easement area. It
cannot put up signs or outdoor advertising or construct any new roads on the
easement area. It must protect the bodies of water on or near the easement area;
creeks and ponds cannot be manipulated, no chemical discharge can be allowed to
flow into a creek or pond, no vegetation within 100 feet of a creek or pond can be
cleared, and Champions Retreat must take care not to cause soil erosion and
sedimentation. The easement document prohibits the division of the easement
area into lots and requires Champions Retreat to notify NALT in writing before it
exercises a reserved right in a way that may impair the conservation purposes
underlying the donation. -9-
[*9] The easement document allows several exceptions to those restrictions.
Champions Retreat can build additional structures of up to an aggregate 10,000
square feet on the easement area and can remove trees and vegetation to do so, and
it can shift around greens, fairways, and other features of the golf courses. It can
pave and widen an existing road by 10 feet. Champions Retreat has the right to
“[m]aintain in good and manicured condition the * * * fairways, greens, tee boxes,
sand traps, waste bunkers, areas in the rough, and other Golf Course play areas
including any lakes, ponds, and other water courses which are an integral part of
the Golf Course”. This includes the right to use chemicals. It also has the right to
remove any tree--whether standing or fallen--that is within 30 feet of a playable
area. Champions Retreat must give NALT written notice before it exercises these
or any other rights reserved to it in the easement document, and NALT must give
its written approval for the exercise of the right.
IV. Natural Features of the Easement Area
The 348.51-acre easement area includes 25 of the 27 holes in their entirety,
most of the 2 remaining holes, and the driving range. It does not include the
parking lot, the pro shop, the restaurant, the locker room, the cart storage facility,
the Cottages, the Bungalows, or Founders Village. - 10 -
[*10] A. Plants, Animals, and Aquatic Life on the Easement Area
The easement area is in the Lower Piedmont region, which runs from
Virginia to Georgia. The Lower Piedmont region tends to be characterized by
three types of habitat: (1) Piedmont oak-pine-hickory forest, which is
characterized by large canopy trees; (2) Piedmont pine-oak woodlands and forest,
which has a more open canopy but a greater presence of subcanopy trees; and (3)
Piedmont floodplains and bottomlands, which are wetland forests that occur along
rivers and creeks. While efforts were made to preserve the natural beauty of the
easement area--especially certain trees--trees were cut down and vegetation was
removed during the construction of the golf club. Indeed, the open pine
woodlands and savannas in the easement area exhibit very little plant species
diversity. However, swaths of wetland, bottomland and riparian forest, and open
pond habitat survived the development and remain undisturbed. The two largest
undisturbed swaths are the 31 acres to the west of the Little River and the 26 acres
on Germain Island. Together these account for a little over 16% of the easement
area.
Species observed in the easement area are monitored by conservation
organizations. NatureServe is a large, umbrella conservation group that relies on
reports from biologists around the world to classify natural communities and to - 11 -
[*11] track species of conservation concern. NatureServe’s ranking system for the
threat level to a species also is used by each State’s Natural Heritage Program,
which tracks species of conservation concern on a State level. Although not all
States fund this program, scientists continue to contribute observations. The
NatureServe rankings are G1 through G5; the G stands for global, G1 is the
highest threat level, and G5 is the lowest. The State rankings are the same except
that S stands for State.
Several bird-specific conservation organizations also track bird species of
concern. Partners in Flight (PIF) has five threat levels, from Possibly Extinct, at
the highest level, to Planning and Responsibility, at the lowest.3 The Atlantic
Coast Joint Venture (ACJV) ranks the threat to birds from Highest Priority to
Moderate Priority.4 The North American Bird Conservation Initiative (NABCI)
puts birds facing the most serious threats on the Red Watch list and birds facing
less serious threats on the Yellow Watch List. The U.S. Fish and Wildlife Service
3 For PIF the threat levels are, from highest to lowest, (1) Possibly Extinct, (2) Critical Recovery, (3) Immediate Management, (4) Management Attention, and (5) Planning and Responsibility. 4 For ACJV the threat levels are, from highest to lowest, (1) Highest Priority, (2) High Priority, and (3) Moderate Priority. - 12 -
[*12] -- Birds of Conservation Concern 2008 (USFWS) lists bird species that may
be candidates for listing under the Endangered Species Act of 1973.
The table below lists the bird species observed in the easement area that are
of conservation concern, according to one or more of these conservation
organizations:
Name PIF ACJV NABCI USFWS Belted Management -- -- -- Kingfisher Attention Brown- Planning and High -- Yes headed Responsibility Nuthatch Carolina Planning and Moderate -- -- Chickadee Responsibility Carolina Planning and -- -- -- Wren Responsibility Downy Planning and -- -- -- Woodpecker Responsibility Eastern Management Moderate -- -- Kingbird Attention Eastern Planning and -- -- -- Phoebe Responsibility Eastern Wood Management Moderate -- -- Pewee Attention Pine Warbler Planning and -- -- -- Responsibility - 13 -
[*13] Red-Headed Planning and Moderate Yellow -- Woodpecker Responsibility Watchlist Tufted Planning and -- -- -- Titmouse Responsibility
In addition to birds, two other notable species of conservation concern were
observed in the easement area. The southern fox squirrel has a G5 ranking from
NatureServe but is not tracked by Georgia’s Natural Heritage Program. The
southern fox squirrel is a game species in Georgia; there is a six-month hunting
season during which hunters can catch up to 12 per day. The denseflower
knotweed is a plant found in the easement area’s bottomland forest and swamp
habitats. NatureServe gives it a G5 global ranking and indicates that it has an S1?
State ranking in Georgia (the “?” indicating uncertainty). Georgia’s Natural
Heritage Program lists it with an S3? ranking. This discrepancy seems due to
NatureServe’s use of outdated information regarding Georgia’s Natural Heritage
Program.
In the easement area, aquatic life was observed in the man-made water
features. Several native species of fish were observed in ponds, such as blueback
herring, bluegill, mosquitofish, largemouth bass, and brown bullhead catfish.
Some of the larger ponds in the easement area were clear, an indication of a - 14 -
[*14] healthy aquatic environment. Others were green and opaque, however, an
indication of water quality problems. The streams in the easement area offered
low quality aquatic environments; they exhibited little variety of aquatic life and
one emitted a sulfurous odor and had an oily sheen.
B. Maintenance in the Easement Area
Champions Retreat maintained the golf club meticulously. It installed two
nonnative grasses on the fairways and on the greens. Champions Retreat chose
Bermuda grass for the fairways because it would enhance playability and because
it is suitable for warm temperatures. The bentgrass planted on the greens was
suitable for cooler temperatures and required fans to keep it cool. Champions
Retreat’s mowing fleet included large riding mowers, which it used on the
fairways; walk-behind mowers, which it used on the greens and the tee boxes; and
smaller tools such as leaf blowers, hedge trimmers, and weed eaters. Champions
Retreat generally mowed the fairways every other day and kept them at a height of
approximately a quarter of an inch. It kept the bentgrass on the greens at an
approximate height of an eighth of an inch and the grass on the rough at about
three inches.
The easement area includes several man-made water features, in addition to
the Savannah and Little Rivers and wetlands on their banks. Most are ponds, - 15 -
[*15] although there are also man-made “creeks”. Certain of the ponds were used
to provide water throughout the courses. Some were used to feed the man-made
creeks; pumps took water from the pond up to the top of the creek from where it
would flow back down into the pond. One pond was used to irrigate the entire
golf club; anywhere from 70,000 to 600,000 gallons of water (depending on the
day) was pumped from the Little River into the pond and then distributed around
the golf club. Champions Retreat used weed eaters to mow up to the edges of
some of the man-made ponds and creeks. And the staff mowed to within 5 or 10
feet of the banks of the Savannah and Little Rivers.
Champions Retreat used several chemicals on the golf club’s courses that
were subject to regulations. The chemicals were applied by licensed members of
Champions Retreat’s staff or under their supervision. Georgia Department of
Agriculture rules governed the application of certain of the chemicals, and
Champions Retreat complied with those requirements.
Champions Retreat sprayed fungicides throughout the golf club. They were
used primarily to kill fungi on the greens but also were used on the fairways and
tee boxes. The staff members applying the fungicides were required to wear
protective gear, such as gloves and a respirator, while spraying. Champions
Retreat also applied herbicides or plant growth regulators to the courses, - 16 -
[*16] specifically the fairways, the rough, the tee boxes, and the greens. The
herbicides were meant to prevent the growth of or to kill unwanted plants on the
golf courses. Plant growth regulators were meant to make plants short and stubby,
reducing the amount of maintenance needed on the golf courses. Staff applying
the herbicides and plant growth regulators were required to wear gloves and
respirators although certain of the herbicides required the use of coveralls,
covering the applicator up to the waist.
Champions Retreat used insecticides on the greens and tee boxes to prevent
the spread of ants and mole crickets and algaecide on the man-made ponds and
creeks to control algae. Champions Retreat also applied fertilizer to the golf
courses to revive grass that had been damaged by divots, golfers who deviated
from the cart paths, and winter weather. It applied fertilizers to small areas by
broadcast spreader and to larger areas by truck.
Some of the chemicals used on the golf courses had environmental hazards
associated with their use. Several chemicals, including some applied to pond
banks, were toxic to fish and aquatic invertebrates if introduced into their habitats,
through either direct application or runoff. Fertilizer used on the golf courses also
could cause water quality problems such as eutrophication if it made its way into
the ponds. - 17 -
[*17] Some of the holes drain into the creeks and ponds in the easement area and
into swaths of undisturbed wetlands and forest area. One hole on Germain Island
--hole 4 on the Island course--drains into a 26-acre swath of wetlands on the
island. Additionally, two holes--hole 2 on the Island course and hole 8 on the
Bluff course--drain into a 31-acre swath of wetlands just to the west of the Little
River.
C. The Easement Area and Public Use
Local residents frequently used the Savannah River--including the Little
River--for recreational purposes such as kayaking, fishing, or duck hunting. The
Benderdinker Festival--a community boating event held annually that included
upwards of 800 people--also was held annually on the Savannah and Little Rivers,
taking participants in a loop around Germain Island. In 2013 there was a dispute
over whether the Benderdinker Festival could use the Little River while
Champions Retreat was hosting a golf tournament, which turned on whether the
Little River was a public waterway or was privately owned by Champions Retreat.
Champions Retreat eventually gave its permission, but whether the Little River is
public or private remains unresolved.
In addition to the Benderdinker Festival, several other events are held
annually at or around the golf club: the Augusta Charity Classic golf tournament, - 18 -
[*18] the Guardian Cup Charity golf tournament, the YMCA Cloverleaf
Duathalon, the United Way Charity Classic golf tournament, the Christmas at
Champions Retreat holiday festival, the Island Run 3.1, and the Birdies for the
Brave golf event.
Euchee Creek runs near the southern border of the easement area. It opens
into the Little River, but a dam at the mouth of the creek limits access from the
Little River. The Columbia County Planning Commission proposed a network of
trails in 2007 called the Euchee Creek Greenway. The route proposed in 2007
would have overlooked the golf club from across the creek. Because of revisions
in the proposed route, however, the Euchee Creek Greenway was not routed to
overlook the golf club as of the time of trial.
Columbia County participated in the now-defunct Georgia Greenspace
Program, which assisted counties in funding acquisition of property rights to
permanently conserve sensitive or natural areas that met specifications designated
under State law. The golf club was not designated greenspace under this program.
The easement area was designated open space by the Columbia County Planning
Commission for purposes of its Comprehensive Plan, Vision 2035 (Vision 2035).
Vision 2035, which was developed pursuant to a State planning law, is not
connected with Columbia County’s implementation of the Georgia Greenspace - 19 -
[*19] Program. There is no application process for an open space designation
under Vision 2035, and landowners are not required to submit anything for such a
designation to be made. All golf courses in Columbia County are designated open
space under Vision 2035.
V. The FPAA
The FPAA denied Champions Retreat’s deduction of $10,427,435 for the
contribution of the easement on two alternative grounds: (1) the conservation
easement did not met the requirements of section 170 and (2) the easement did not
have a value greater than zero. Riverwood Land, the tax matters partner, timely
petitioned for redetermination.
OPINION
I. Burden of Proof
Ordinarily, the taxpayer bears the burden of proving that the
Commissioner’s determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Deductions are a matter of legislative grace, and
taxpayers bear the burden of proving entitlement to any deductions claimed.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co.
v. Helvering, 292 U.S. 435, 440 (1934). - 20 -
[*20] Petitioner asserts that it has provided complete and conclusive
documentation and credible testimony to show Champions Retreat’s compliance
with section 170(h) sufficient to shift the burden of proof under section 7491(a).
Under section 7491(a)(1), “[i]f, in any court proceeding, a taxpayer introduces
credible evidence with respect to any factual issue relevant to ascertaining the
liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall
have the burden of proof with respect to such issue.” See Higbee v.
Commissioner, 116 T.C. 438, 442 (2001) (“Credible evidence is the quality of
evidence which, after critical analysis, the court would find sufficient upon which
to base a decision on the issue if no contrary evidence were submitted (without
regard to the judicial presumption of IRS correctness).” (quoting H.R. Conf. Rept.
No. 105-599, at 240-241 (1998), 1998-3 C.B. 747, 994-995)). The resolution of
the issue in this case does not depend on which party has the burden of proof. We
resolve it on a preponderance of the evidence in the record. See Knudsen v.
Commissioner, 131 T.C. 185, 189 (2008); Schank v. Commissioner, T.C. Memo.
2015-235, at *16.
II. Qualified Conservation Contributions
Taxpayers are allowed a deduction for charitable contributions made in a
taxable year. Sec. 170(a)(1). A charitable contribution is a contribution or gift to - 21 -
[*21] or for the use of an organization that meets the requirements set out in
section 170(c). No deduction generally is allowed for the contribution of an
interest in property that is less than the taxpayer’s entire interest. Sec.
170(f)(3)(A). A taxpayer can claim a deduction under section 170 for
contributions of three particular partial interests in property: (1) a contribution of
a remainder interest in a personal residence or farm, (2) a contribution of an
undivided portion of the taxpayer’s entire interest in a property, and (3) a qualified
conservation contribution. Sec. 170(f)(3)(B). A qualified conservation
contribution is defined as a contribution of a qualified real property interest to a
qualified organization, made exclusively for conservation purposes. Sec.
170(h)(1). The parties agree that Champions Retreat’s contribution to NALT was
a qualified real property interest and that NALT is a qualified organization. See
secs. 170(h)(2) and (3). We must decide whether Champions Retreat’s
contribution was exclusively for conservation purposes.
III. Conservation Purpose
A contribution is treated as made exclusively for conservation purposes if it
satisfies one of the conservation purposes listed in section 170(h)(4). Champions
Retreat argues that the contribution of the easement to NALT satisfies two
conservation purposes: (1) “the protection of a relatively natural habitat of fish, - 22 -
[*22] wildlife, or plants, or a similar ecosystem” and (2) “the preservation of open
space (including farmland and forest land) where such preservation is * * * for
the scenic enjoyment of the general public, or * * * pursuant to a clearly
delineated Federal, State, or local governmental conservation policy, and will
yield a significant public benefit”. Sec. 170(h)(4)(A)(ii) and (iii). We will address
each of these below.
Both Champions Retreat and respondent presented expert testimony as to
whether the easement area satisfied the conservation purpose requirement.
Several experts testified on behalf of Champions Retreat: Keith Lawrence on land
planning and civil engineering;5 Leslie Ager on fisheries biology; Christopher
Wilson on wildlife biology and conservation; and Lee Echols, of NALT, on
botany, conservation biology, and ecology. Reed Noss testified for respondent on
conservation biology. All of the experts were qualified and credible; they differed
primarily on the conclusions we should draw from their observations. We will
address their testimony in the context of our analysis.
5 Mr. Lawrence is employed by Meybohm Realty and was involved in designing Riverwood Plantation, including the golf club. - 23 -
[*23] A. Relatively Natural Habitat
A taxpayer may satisfy the conservation purpose requirement if its
contribution protects “a relatively natural habitat of fish, wildlife, or plants, or a
similar ecosystem.” Sec. 170(h)(4)(A)(ii). The habitat must be a “significant
relatively natural habitat in which a fish, wildlife, or plant community, or similar
ecosystem normally lives”. Sec. 1.170A-14(d)(3)(i), Income Tax Regs. A habitat
is “‘[t]he area or environment where an organism or ecological community
normally lives or occurs’ or ‘[t]he place where a person or thing is most likely to
be found.’” Glass v. Commissioner, 124 T.C. 258, 281-282 (2005) (quoting
American Heritage Dictionary of the English Language 786 (4th ed. 2000)), aff’d,
471 F.3d 698 (6th Cir. 2006). A significant relatively natural habitat can include
but is not limited to “habitats for rare, endangered, or threatened species of
animals, fish, or plants; * * * and natural areas which are included in, or which
contribute to, the ecological viability of a local, state, or national park, nature
preserve, wildlife refuge, wilderness area, or other similar conservation area.”
Sec. 1.170A-14(d)(3)(ii), Income Tax Regs. Some human alteration of a
significant relatively natural habitat will not result in the denial of a deduction, as
long as “the fish, wildlife, or plants continue to exist there in a relatively natural
state.” Id. subdiv. (i). - 24 -
[*24] 1. Rare, Endangered, or Threatened Species
Champions Retreat argues that the easement area provides a habitat for
several species of conservation concern, namely, birds, the southern fox squirrel,
and the denseflower knotweed. We agree with Champions Retreat that “rare,
endangered, or threatened”, which is undefined in the regulations, should not be
limited to species listed under the Endangered Species Act of 1973, Pub. L. No.
93-205, sec. 4, 87 Stat. at 886-887 (codified as amended at 16 U.S.C. sec. 1533
(2012)). See sec. 1.170A-14(d)(3)(ii), Income Tax Regs. Nonetheless, we do not
find a sufficient presence of rare, endangered, or threatened species in the
easement area to satisfy the conservation purpose requirement.
Mr. Echols and Mr. Wilson each observed several species of birds that were
on conservation watchlists. Half of the species observed were listed only by PIF,
which, as Mr. Wilson notes, “is the most inclusive and includes species that are
quite common * * * but are nonetheless considered important for conservation and
planning purposes based on other factors.” Moreover, all of the species listed by
PIF that both Mr. Echols and Mr. Wilson observed were ranked as either Planning
and Responsibility or Management Attention, the lowest and second lowest
rankings, respectively. Five of the twelve species that both Mr. Echols and Mr.
Wilson observed were listed by the ACJV. All five of the species listed by ACJV - 25 -
[*25] that were observed were listed as Moderate--for species with larger
populations and subject to less serious threats--except one, the brown-headed
nuthatch, which is listed as High, the middle threat level. The brown-headed
nuthatch also is ranked by PIF as Planning and Responsibility, the lowest threat
level. The red-headed woodpecker is the only bird observed by the experts that is
tracked by NABCI and is on the Yellow Watch List, which indicates a lower threat
level. Both PIF and ACJV assigned the red-headed woodpecker their lowest
threat levels. Only 1 of the 12 birds that both Mr. Echols and Mr. Wilson
observed is tracked by the USFWS--the brown-headed nuthatch.
The expert testimony, while credible, leaves us unpersuaded that there is a
sufficient presence of rare, endangered, or threatened bird species on the easement
area. None of the bird species observed by both Mr. Echols and Mr. Wilson were
assigned the highest threat level by any of the conservation organizations. And
although the brown-headed nuthatch was labeled High Priority by ACVJ and
tracked by USFWS, PIF ranked it as Planning and Responsibility, which denotes
species that are not of regional concern. See Atkinson v. Commissioner, T.C.
Memo. 2015-236, at *36 (holding that a species present in the easement area
classified as “only one step above ‘apparently secure’” does not satisfy the
conservation purpose requirement). - 26 -
[*26] The only other species tracked by conservation organizations and observed
by the experts on the easement area are the southern fox squirrel and the
denseflower knotweed. While both Champions Retreat’s and respondent’s experts
agreed that southern fox squirrels may be in decline, we cannot conclude from
their expert testimony that they are rare, endangered, or threatened.6 They have a
G5 NatureServe ranking, which indicates that they are demonstrably secure
globally, are not ranked at all by Georgia’s Natural Heritage Program, and are still
hunted legally in Georgia.
Denseflower knotweed also has a G5 ranking from NatureServe. Its
statewide ranking is unclear; NatureServe gives it an S1? ranking in Georgia while
Georgia’s Natural Heritage Program gives it an S3? ranking. Notwithstanding the
uncertainty of its status in Georgia, Mr. Echols testified that the denseflower
knotweed is found almost exclusively in the 26-acre swath of bottomland forest on
Germain Island. This swath accounts for about 7.5% of the easement area.
6 Petitioner repeatedly cited an article attached to Mr. Wilson’s expert report regarding southern fox squirrels in support of Champions Retreat’s position. But the author did not testify, nor was the article admitted as evidence. Moreover, petitioner tried but was unable to secure his testimony as an expert, and we quashed the trial subpoena petitioner then issued to him as we viewed the testimony petitioner sought to be in the nature of expert testimony. Petitioner’s continued reliance on the article, therefore, is improper, and we do not rely on the article for any facts. - 27 -
[*27] Assuming that denseflower knotweed could flourish in both swaths of
undisturbed bottomland forest in the easement area, its found suitable habitat
would constitute less than 17% of the easement area. Moreover, hole 4 on the
Island course was designed to drain into the only swath of bottomland forest on
the easement area in which the denseflower knotweed is found, introducing the
chemicals used by Champions Retreat (albeit legally and in accordance with the
easement)--including herbicides--into its habitat. Less than 17% of the easement
area is not enough to fulfill the conservation purpose of providing a significant
relatively natural habitat. See Atkinson v. Commissioner, at *35 (holding that a
plant found on 24% of the easement area was “too insignificant” to lead the Court
to conclude that the easement area was a significant relatively natural habitat).
Champions Retreat has presented evidence of only one rare, endangered, or
threatened species with a habitat on the easement area--denseflower knotweed--
and it inhabits just a small fraction of the easement area. To get around these
facts, Champions Retreat would have us ignore the specific wording of the
regulation and adopt a standard that includes any species of current or future
conservation concern. This we cannot do. Even its own expert, Mr. Wilson,
testified that a species’ listing on one of the rankings of conservation concern is
not by itself enough: “While important, these lists are not (by themselves) the best - 28 -
[*28] references for determining the conservation significance of a species or its
habitat, or for prioritizing conservation actions and guiding habitat protection.”
We, therefore, conclude that Champions Retreat has not met the conservation
purpose requirement by providing a “habitat[] for rare, endangered, or threatened
species of animals, fish, or plants”. See sec. 1.170A-14(d)(3)(ii), Income Tax
Regs.
2. Contributes to Ecological Viability
Champions Retreat also contends that the easement area is a relatively
natural habitat because it is a natural area that contributes to the ecological
viability of Sumter National Forest, across the Savannah River. Mr. Wilson
testified that birds, insects, and pollen will travel back and forth between the
easement area and Sumter National Forest, enhancing the ecological viability of
each. Dr. Noss testified that the easement area is not a natural area.
We have no doubt that Sumter National Forest is a “national park”, in the
terms of the regulation. However, we do not find the easement area to be a natural
area. Mr. Echols and Mr. Wilson testified that parts of the easement area between
fairways resembled open pine woodlands or savannas. Together with the
fairways, greens, and tee boxes, the areas that resemble open pine woodlands
make up most of the easement area. Mr. Wilson described these areas as - 29 -
[*29] “obviously the least natural areas of the property, consisting of non-native
grass and maintained through heavy management utilizing chemical fertilizers,
pesticides, and fungicides.” Dr. Noss testified that the open pine areas on the
easement area do not approach the rich plant and animal diversity that generally
characterizes an open pine woodland because--like the fairways, greens, and tee
boxes--they are planted with nonnative grasses and treated to prevent the growth
of native plants at the base of trees. Contrary to Champions Retreat’s claim, just
having “trees and vegetation as well as many species that * * * inhabit” them is
not enough to constitute a natural area when those trees and vegetation are heavily
managed. And the mere fact that a species might inhabit an area--making it
“suitable”--does not make it “natural”. See Atkinson v. Commissioner, at *41
(holding that the golf course did not contribute to the ecological viability of an
adjacent nature preserve because “[a] large portion of the 2003 easement property
is planted with nonnative grass, the ponds do not exist in a relatively natural state,
and the native forests that do remain on the 2003 easement property are at risk of
removal pursuant to the terms of the 2003 easement deed”).
Even were we to find that the areas resembling open pine woodlands were
natural areas, there is no guaranty that they will be protected. The easement
allows the removal of any tree--whether standing or fallen--that is within 30 feet - 30 -
[*30] of a playable area. From the photographs in both Mr. Echols’ and Mr.
Wilson’s expert reports, it appears that several of the trees in these areas would be
eligible for removal under the Easement.
Mr. Ager testified that the ponds he surveyed in the easement area were
high-quality aquatic environments. However, the chemicals that Champions
Retreat uses in the easement area could injure those environments. Some of the
chemicals are harmful to aquatic life if they come into contact with water courses,
whether applied directly or through runoff. Some of the holes were designed to
channel runoff water towards the creeks, ponds, and bottomland forest and
wetland areas on the easement area. The experts also agreed that fertilizer
quickens the process of eutrophication, which can lead to water quality problems
as well.7
Champions Retreat contends that its use of chemicals in the easement area
should not preclude a deduction in this case because it complied with the
applicable State rules. The terms of the easement allow Champions Retreat to
apply chemicals so long as it follows “the best environmental practices then
prevailing in the golf industry”. We have no doubt that Champions Retreat aims
7 The experts did not agree on the extent to which the ponds in the easement area were eutrophic. - 31 -
[*31] to use the chemicals responsibly, but it did not establish that the best
environmental practices in the golf industry are as good as or better than “the best
environmental practices then prevailing for conservation, as might be expected if
conservation was the purpose of the easement.” See Atkinson v. Commissioner, at
*38.
We also cannot conclude that the easement area is a natural area that
contributes to the ecological viability of Sumter National Forest across the
Savannah River. The experts disagreed as to how many species observed in the
easement area have a range that spans the Savannah River or would even be
capable of making the 700-foot flight across the river between the easement area
and the national forest. And we are unable to conclude that the species we
described above as of interest have a range so large.
Because we find that the easement area neither provides a habitat for rare,
threatened, or endangered species nor is a natural area that contributes to the
ecological viability of Sumter National Forest, we find that Champions Retreat’s
contribution was not made for the conservation purpose of protecting a relatively
natural habitat. - 32 -
[*32] B. Preservation of Open Space
A contribution also can satisfy the conservation purpose requirement in
section 170(h) if it preserves open space. Sec. 170(h)(4)(A)(iii). The preservation
must be either for the scenic enjoyment of the general public or pursuant to a
clearly delineated Federal, State, or local governmental conservation policy. Sec.
170(h)(4)(A)(iii). In either case, the preservation of open space must yield a
significant public benefit. Id.
1. Scenic Enjoyment
The preservation of open space can be for the scenic enjoyment of the
general public if “development of the property * * * would interfere with a scenic
panorama that can be enjoyed from a park, nature preserve, road, waterbody, trail,
or historic structure or land area, and such area * * * is open to, or utilized by, the
public.” Sec. 1.170A-14(d)(4)(ii)(A), Income Tax Regs. Satisfaction of the scenic
enjoyment requirement depends on visual access to the property rather than
physical access. Id. subdiv. (ii)(B). It is not necessary that visual access to the
whole property be available to the general public, but visual access to too small a
portion may be insufficient. Id. Scenic enjoyment is evaluated by taking into
account all relevant facts and circumstances. Id. subdiv. (ii)(A). - 33 -
[*33] The easement area is located in the private section of Riverwood Plantation
and is accessible only to members and their guests, through a gate manned 24
hours a day. Even taking into account the annual charity events held at the golf
club, we conclude that the public does not have sufficient physical access to enjoy
the easement area.
And, because of the limited physical access, the public could view the
easement area only from the Savannah and Little Rivers, so visual access is
limited to the areas adjacent to the those rivers. The extent to which the general
public can see the easement area from the rivers is limited further by the 3- to 10-
foot river banks. Finally, uncertainty persists regarding public access to the Little
River. Thus, we conclude that the contribution of the easement area was not for
the scenic enjoyment of the general public.
2. Pursuant to Governmental Conservation Policy
A contribution for the preservation of open space is pursuant to a clearly
delineated governmental conservation policy if it “further[s] a specific, identified
conservation project”. Sec. 1.170A-14(d)(4)(iii)(A), Income Tax Regs. While the
program need not identify individual lots or parcels of land for certification, it
does need to be more than a general declaration of conservation goals. Id. A
government program need not be funded for a contribution to satisfy this - 34 -
[*34] requirement, but there must be a significant commitment from the
government to the conservation project. Id. The regulations give, as an example
of a contribution that meets this requirement, “the donation of a perpetual
conservation restriction to a qualified organization pursuant to a formal resolution
or certification by a local governmental agency established under state law
specifically identifying the subject property as worthy of protection for
conservation purposes”. Id.
Champions Retreat contends that it made the contribution of the easement
to preserve open space pursuant to a Georgia law directing the Georgia
Department of Natural Resources and local governments to promulgate minimum
standards “for the protection of the natural resources, [the] environment, and vital
areas of the state, including, but not limited to, * * * the protection of river
corridors”. Ga. Code Ann. sec. 12-2-8(b) (2018). Champions Retreat also
contends that it made this contribution pursuant to Columbia County’s
implementation of the Georgia Greenspace Program.
We conclude that the Georgia statute cited by Champions Retreat does not
support an “identified conservation project”, nor is there evidence that the
Greenspace Program designated the easement area “as worthy of protection for
conservation purposes” or that NALT’s easement on the easement area is held - 35 -
[*35] under the Greenspace Program. See sec. 1.170A-14(d)(4)(iii)(A), Income
Tax Regs.
Champions Retreat argued at trial that the designation of the golf club as
open space under the Columbia County Planning Commission’s Vision 2035 plan
showed that its contribution was pursuant to a local governmental conservation
policy. While the Planning Commission did produce Vision 2035 pursuant to
State law, it was not a law focused on conservation but rather on land
development. We thus conclude that the preservation of open space was not
pursuant to a clearly delineated governmental conservation policy.
We need not consider whether Champions Retreat’s preservation of open
space yields significant public benefit--as required by section 170(h)(4)(iii)(A)--
because we find that it was neither for the enjoyment of the general public nor
pursuant to a clearly delineated governmental conservation policy.
IV. Conclusion
Champions Retreat is not entitled to a deduction for a qualified conservation
contribution for the 2010 tax year because it has not satisfied the conservation
purpose requirement of section 170(h). Because we have determined that its
contribution was not made for a conservation purpose, we do not reach whether
any of the retained rights in the easement permit a use of the easement area that is - 36 -
[*36] inconsistent with an accomplished conservation purpose, whether the
baseline documentation is sufficient to allow NALT to police the future exercise
of the retained rights in the easement area, or whether the value of the easement
contribution is greater than zero. See sec. 1.170A-14(e)(2), (g)(5)(i), (h), Income
Tax Regs. We have considered all other arguments made and facts presented in
reaching our decision, and, to the extent not discussed above, we conclude that
they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.