Wendell Falls Again: Taxpayer Denied Second Bite at Easement

Original Tax Court Opinion

I have previously written about the case of Wendell Falls Development, LLC v. Comm’r, T.C. Memo 2018-45.1 In that case, the Tax Court denied a charitable conservation easement deduction relating to a 125-acre parcel that was part of a total 1,280-acre development outside of Raleigh, North Carolina. I noted that the Court was not perfectly clear in the basis of its opinion.

From reading the case, the Court potentially reached its opinion based on any one or more of the following grounds:2

  1. Enhancement in value of other property owned by the taxpayer (or a related party) in an amount exceeding the value of the charitable donation;3
  2. The taxpayer lacked the donative intent necessary to benefit from a charitable donation; or4
  3. That the highest and best use of the property was the use to which it was put after donation of the conservation easement (a park); therefore, the conservation easement did not diminish the value of the property.5

As I noted in my original writing, there were some serious issues with rendering an opinion based on the values involved. This is because there was no expert testimony on which to determine the enhancement in the value of other property to know whether it was more or less than the diminishment in value of the donated property interest. Further, although the Court did not specifically cite to lack of donative intent as a basis for its opinion, some of the authorities cited by the Court turned on that question. As such, it at least appeared to have potentially influenced the Court’s opinion. The opinion rendered on the taxpayer’s Motion for Reconsideration clears the air about the Court’s opinion.

Order on Motion for Reconsideration

Alleged Assignments of Error by the Taxpayer

A Motion for Reconsideration is generally granted if the taxpayer can show unusual circumstances or substantial error.6 After an opinion issued on April 4, 2018, reflected in a final entered order and decision on April 16, 2018, the taxpayer filed a Motion for Reconsideration on June 5, 2018 citing to three alleged errors:

  1. The opinion appears to invalidate the fifth sentence of Treas. Reg. §1.170A-14(h)(3)(i) by holding that enhancement in value to other property per se disallowed the deduction when the regulation allows a deduction when the diminishment in value of the donated property exceeds the value of enhancement to other property.
  2. The opinion appears to invalidate the sixth and seventh sentences of Treas. Reg. §1.170A-14(h)(3)(i) by holding that expectation of a substantial financial or economic benefit in conjunction with the donation per se disallows the deduction when the regulation allows a deduction if the financial or economic benefit received by the taxpayer is less than the value of the contributed easement.
  3. The opinion erred in determining that the highest and best use of the 125-acre parcel subject to the conservation easement was parkland. Instead, the taxpayer argued that residential and commercial development represented the parcel’s highest and best use.
Discussion of Assignments of Error by the Court

In discussing these issues, the Court clarified that its original opinion was based on a determination that the relevant parcel’s highest and best use was for parkland. The Court quickly dismissed the arguments of error under Treas. Reg. §1.170A-14(h)(3)(i) by framing the original opinion as determining the value of the donation as zero. This is because the parcel’s highest and best use is as a park. Since it continued to be used as a park after the conservation easement was placed on the property, “the value of the easement is zero.” As a result, the Court denied that it made any per se rules contrary to the relevant regulation.7

Conclusion by the Court – Highest and Best Use

The Court then went on to address the third area where error was argued, being that the Court erred in determining using the parcel as parkland is its highest and best use. In addressing this argument, the Court cited the following facts:

  1. The larger 1,280-acre parcel, with the exception of the 125-acre parcel, was zoned for residential and commercial development.
  2. It was “objectively reasonable to devote some of the larger parcel to parkland to serve as an amenity for those who would live and work in the residential and commercial buildings.”
  3. In October 2006, the municipality approved the development under a “master-planned community” developed around the 125 acres.
  4. In December 2006, the 125-acre parcel was under contract to be sold to Wake County, North Carolina for use as a park.
  5. The conservation easement was placed on the property on June 7, 2007. This date is after: (a) the development was approved by the municipality subject to the 125-acre park, and (b) the parcel was under contract to be sold for use as a park.

Based on these series of facts, the Court stated that “the easement therefore restricted the use of the 125 acres to what would have been its most efficient use anyway.” As a result, placing a conservation easement on the parcel did not reduce its value at all – “the amount of the diminution was zero.” As a result, the taxpayer is not entitled to a charitable deduction.


In my original writing involving this case, I shared some of the same concerns the taxpayer raised in its Motion for Reconsideration relating to the IRS failing to produce expert testimony on the issue of valuation.8 Likewise, the original opinion appeared to lack clarity as to the basis for its conclusion. From my reading of the opinion, it could have been any of the three grounds described above. The Court’s opinion on the taxpayer’s Motion for Reconsideration clarifies that the basis of the Court’s original opinion was its determination regarding the parcel’s highest and best use.

In terms of lessons to be learned from the case, it appears clear from the facts which allowed the Court to render its opinion that the timing of events was the primary problem for the taxpayer. By the time the conservation easement was placed on the property, the property was reasonably certain to be used as a park due to the city’s approval of the development plans with such a park and the contract in place to sell the parcel at issue for use as a park. Taxpayers seeking conservation easement donation deductions may find this instructive in timing the date they place property under easement. While it may be practically prohibitive to restrict property too early in the development process, it also may cost a tax deduction to wait until the planning is complete. The earlier in the process the easement can be placed on the property (certainly, before the development plans receive governmental approval subject to restricted use is received), the more likely it may be that a charitable contribution deduction can be sustained.


  1. https://esapllc.com/beneficial-giving-bites-taxpayer-wendell-falls-development-llc/
  2. In addition to these issues, there was some discussion in Footnote 3 of the original opinion regarding who carried the burden in the case.
  3. Treas. Reg. §1.170A-14(h)(3)(i).
  4. See David C. Castello v. Comm’r, T.C. Memo 2015-87.
  5. Treas. Reg. §1.170A-14(h)(3)(ii).
  6. Estate of Quick v. Comm’r, 110 T.C. 440, 441 (1998).
  7. Implicit in this position is that the Court made no determination that the value of the benefit to the taxpayer by an increase in other property was greater than the value of the donation, something of concern from the original opinion due to the absence of expert valuation testimony.
  8. Supra note 1.