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Sirote & Permutt Attorneys Have Successful Outcome In Landmark Conservation Easement Case Before US Tax Court

June 22, 2009

The United States Tax Court issued a seminal decision in a controversy with the Internal Revenue Service concerning a taxpayer’s deduction for contributing a conservation easement to a land trust. The recently announced outcome was the result of a week-long trial in the US Tax Court, tried by Sirote Shareholders David M. Wooldridge and Ronald A. Levitt. The easement was donated by Kiva Dunes Conservation, LLC for the purpose of preserving wildlife habitat and open space vistas. The fair market value of the easement contributed was determined by the Tax Court to be almost $28.7 million.

The opinion by the Tax Court is expected to have significant, favorable implications to taxpayers who take deductions for contributions of conservation easements to qualified charities.

The case involved a taxpayer’s gift of a conservation easement to the North American Land Trust. The easement is part of the Kiva Dunes Golf Course property on the Fort Morgan Peninsula near Mobile Bay, Alabama, and it restricts development of the property beyond its present use.

“Interestingly, the IRS and some lawyers across the nation have stated publicly that it may be inappropriate for a charitable deduction to be allowed for a conservation easement on golf course property,” said lead attorney David Wooldridge. “This case of first impression makes clear that the opposite is true.”

“The Tax Court decision is important because it settled several issues of critical importance to taxpayers making contributions of similar conservation easements,” added Levitt. “The decision will prove crucial to other taxpayers, including several other cases on which our firm is working on behalf of clients.”

Wooldridge and Levitt lead Sirote & Permutt’s Conservation Easement Practice, which serves clients and land trusts nationwide in establishing properly created easements and defending disputed easements.

The case is notable for several reasons:

(1) Following the trial, the IRS conceded that the easement over property used as a golf course can constitute a permissible “conservation purpose”, protecting wildlife habitat and preserving open space vistas available to the public;

(2) The valuation method (known as the “subdivision method”) used by the taxpayer’s appraiser was a permissible method of determining the value of the conservation easement contrary to IRS pronouncements; and

(3) The fair market value of the easement contributed by the taxpayer was almost $28.7 million. This constituted 94% of the value claimed by the taxpayer, an unusually high percentage in litigated tax cases.

In his practice, Mr. Wooldridge handles tax controversies with federal and state authorities involving administrative proceedings and litigation, as well as business, corporate and shareholder controversies in federal and state courts. Mr. Wooldridge earned his LLM in Taxation from New York University, his JD from the University of Alabama School of Law, and his BS from the University of Alabama.

Mr. Levitt’s legal practice focuses on assisting those clients with closely held businesses in dealing with complicated corporate and tax issues. He is a nationally recognized expert on such topics, speaking at numerous conferences and seminars annually. Mr. Levitt earned an LLM in Taxation from the University of Florida, his JD from the University of Alabama School of Law, and a BS and MBA from the University of Alabama.

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