United States Court of Appeals
MARLIN AND JANE GREEN,
Petitioners-Appellants
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee
_____________________________________________
Petitioners-Appellants Marlin and Jane Green’s Brief on Appeal
***Oral Argument Requested***
_____________________________________________
Statement
of the Question Presented
The Internal Revenue
Code gives taxpayers a deduction for conservation-easements that protect “significant”
habitats, including habitats for rare, endangered, or threatened species of
animals, fish, or plants. The Greens claimed a deduction for a conservation-easement
which protects the habitat of the only known barn owl family in Michigan. Is the
Greens conservation-easement “significant” enough to qualify for a deduction?
Statement
of the Case
This appeal concerns the qualification
of the Greens conservation-easement that protects the only known barn owl habitat in
Michigan for a federal tax deduction.
The Green’s petitioned the United
States Tax Court to redetermine alleged deficiencies in their 2004 to 2007 tax
returns because the Commissioner of Internal Revenue failed to recognize their
contribution of a conservation-easement as a qualified conservation
contribution. The Tax Court found for the Commissioner, holding that the
conservation-easement wasn’t “significant.” The Greens now appeal that
decision.
Statement
of the Facts
1.
The Greens property is uniquely
attractive to barn owls.
Barn owl habitats require both nesting
and hunting space. (Kensington, Dep. Tr.). They used to live in hollowed out
old-growth tree and rock cavities. Id.
But when their natural habitat was lost to development, they adapted by living
in barns. Id. These days, they have
neither. Id. The Greens own eight
acres in Highland Township, Oakland County. (Tr. Ct. Order). The land includes
their home, an old wooden barn which is used for storage, and a pole barn now
used as a garage. Id. Six of the
eight acres is unimproved land which is partially wooded and partially open. Id. The area surrounding the property is
“entirely developed” suburbia. Id. The
close proximity of the barn and open field on the Greens property provides barn
owls with a “custom made” nesting and hunting habitat. (Kensington, Dep. Tr.).
2. The only known barn owl family in Michigan thrives on the
Greens property.
Barn owls are generally considered a
thing of the past in Michigan. (Kensington, Dep. Tr.). Although abundant in
other parts of the country, they are listed on Michigan’s endangered species
list. Mich.
Admin. Code r. 299.1026 (WL current through 2013 Register #23 (January 1, 2014)).
Barn owls have thrived on the Green’s
property since at least 1985. (Green, Dep. Tr.). Sadly, they are the only known
barn owls in Michigan since the 1990’s. (Kensington, Dep. Tr.). The
qualification of the Oakland County Land Conservancy Trust isn’t in dispute for
this appeal. (Tr. Ct. Order).
3. The Greens gave a conservation-easement to a qualified
organization.
On December 31, 2004, the Greens gave
a conservation-easement to the Oakland County Land Conservancy Trust. (Tr. Ct.
Order). The Greens intended the easement to protect the natural barn owl
habitat on the six undeveloped acres. Id.
4.
Procedural
history.
The Greens claimed a deduction for
their conservation-easement contribution on their 2004-2007 taxes. (Tr. Ct.
Order). The Commissioner of Internal Revenue denied those deductions and found
deficiencies for those tax years. Id.
The Greens asked the Tax Court to redetermine the alleged deficiencies, but the
Tax Court found for the Commissioner. Id.
The Tax Court reasoned the Green’s easement contribution wasn’t “significant”
because there was nothing “unique” about their six acre contribution which
protected a locally endangered species. Id.
The Greens now appeal the Tax Court’s
decision.
Summary of Argument
The Greens conservation-easement
deduction is “significant” as defined by the express terms of the Tax Code, the
implementing regulations, and the case law. Further, both the congressional history
and the implementing regulations indicate that courts interpret the Code
liberally – in favor of the taxpayer.
It is undisputed that barn owls are
endangered in Michigan. Because the Greens conservation-easement protects the
only known barn owl family in southeastern Michigan, they are entitled to a
deduction as a matter of law. The Tax Court was wrong it concluded otherwise
and should be reversed.
Argument
The Greens are entitled to a federal tax deduction because the
Code allows deductions for conservation-easements that protect rare species,
and the Greens easement protects the only known barn owl family in Michigan.
The Tax Court was wrong when it held the Greens were not
entitled to a deduction for their conservation-easement. The Internal Revenue
Code expressly allows deductions for conservation-easements which protect “significant”
relatively natural habitats of fish, wildlife, or plants. Because the Green’s
conservation-easement protects the only known family of barn owls in Michigan
they are entitled to a deduction as a matter of law.
1.
Standard of review
Although this Court reviews findings of
fact for clear error, this Court will review de novo the application of the law to the facts. Ekman v. Comm’r., 184 F.3d 522, 524 (6th
Cir. 1999).
2.
The Code and the regulations recognize the value of habitat
for rare and endangered species.
The Code specifically allows a
deduction during the taxable year for charitable contributions. 26 U.S.C.A. §
170 (WL current through P.L. 113-74 (except P.L. 113-66, 113-67, and 113-73),
approved Jan. 16, 2014) . Further, the Code gives a deduction for qualified
conservation contributions if they are: (1) a qualified real property interest; (2) made to a qualified
organization; and, (3) is exclusively for conservation purposes. Id. at § 170(h). The only issue for this
appeal is the third element.
One way for an easement to qualify for a
“conservation purpose” is if it protects “a relatively natural habitat of fish,
wildlife, or plants, or similar ecosystem.” Id.
at § 170(h). The regulations interpreting the statute add the word
“significant.” Treas. Reg. 170A-14(d) (2009).
A. The Greens conservation-easement is “significant” by the
regulation’s own definition.
The regulations provide non-exclusive
examples of significant habitats. Glass
v. C.I.R., 471 F.3d 698 (6th. Cir. 2006). The taxpayers in Glass owned
a 10-acre parcel bordering Lake Michigan. Id.
at 700. The surrounding area was
increasingly developed with single-family homes. Id. at 701. The conservation-easement in Glass protected, among other things, a natural habitat for bald
eagles. Id. at 700-701.
This Court held the conservation-easement
was significant. Id. at 713. Central
to this Court’s reasoning was that the regulation’s list of significant
habitats was non-exclusive. Id. at
708. The regulations provide: “[s]ignificant habitats and ecosystems include,
but are not limited to, habitats for rare, endangered, or threatened species of
animal, fish, or plants.” Treas. Reg. 170A-14(d).
This Court went on to note there was no
size requirement in the Code or implementing regulations. Glass, 471 F.3d at 711. This Court also observed that neighboring
property use won’t destroy the conservation qualification. Id. at 711-712.
Here, the Greens conservation-easement
protects, among other things, a family of barn owls. (Tr. Ct. Order). In
Michigan, barn owls are an endangered species. Mich. Admin. Code r.
299.1026. Mr. Green testified that barn owls inhabited her property since 1985.
(Green, Dep. Tr.). Further, Dr. Milford G. Kensington testified that he didn’t
know of any other nesting site or reliable sighting of the barn owl in
southeastern Michigan since the 1990s. (Kensington Dep. Tr. at p. 3). The fact
the easement protects the only known nesting place of an endangered species in
Michigan qualifies the Green’s conservation-easement deduction as a matter of
law.
Additionally,
just as this Court in Glass noted how
consideration of surrounding development shouldn’t be used to disqualify an
easement, the fact that the
area surrounding the Greens is entirely developed makes this last remaining
six-acre swath of land even more valuable. In any event, the conservation-easement’s
significance is that it protects the only known barn owl family in Michigan.
B. The implementing regulations indicate courts should interpret
“significant” liberally – in favor of the taxpayer.
The regulations interpreting the Code indicate
“significant” should be interpreted liberally because it provides a
non-exclusive list: “[s]ignificant habitats and ecosystems include, but are not limited to, …”. Treas. Reg. § 170A-14(d)
(emphasis added). This is also consistent with the congressional history when
the deduction was first adopted. The conference report stated Congress
“intended that the term ‘conservation purposes’ be liberally construed with
regard to the types of property with respect to which deductible conservation
easements… may be granted.” H.R. Conf. Rept. 95-263, at 30 (May 6, 1977). Further,
there is nothing in the statute’s text, the interpreting regulations, or the
case-law which requires the conservation-easements to protect a federally
endangered species. In fact, the protected species don’t even have to be
endangered – it’s enough if the species are “rare.” Treas. Reg. §1.170A-14(d).
As applied to the Greens, Dr.
Kensingtion indicated the Green’s property is a “custom made” barn owl habitat.
(Kensington, Dep. Tr.). Barn owls are both rare (Id.) and endangered (Tr. Ct. Order) in Michigan. But, even if barn
owls were neither, the Greens would still be entitled to a deduction because both
the congressional history and implementing regulations intended the deduction
should be liberally interpreted in favor of the taxpayer.
Relief Requested
Petitioner-Appellants ask this Court to
reverse the Tax Court’s decision and enter judgment in favor of the
Petitioner-Appellant removing their tax deficiency for the tax years 2004 to
2007.
By: ______/s/_____________________
Student
# 119483
Attorney for Petitioners-Appellants Marlin and Jane
Green
Dated: February 20, 2014
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