The full Tax Court decided an important conservation easement case on Tuesday, Turner v. Commissioner, 126 T.C. No. 16 (5/16/06):

P, a real estate investor, purchased 29.3 acres of unimproved land in a historical overlay district, 15.04 acres of which were located within a designated floodplain. Property development was subject to county regulations that were more stringent for property within a historical overlay district. Among the regulations were zoning and rezoning requirements, as well as limitations on development of designated floodplain areas. Thirty lots were permissible under current zoning. County approval would be required for denser zoning usage. P, claiming that he was entitled to develop up to 62 residences on smaller lots, executed a deed to Fairfax County purporting to limit development of the property to 30 residences. On their 1999 Federal income tax return, Ps claimed a contribution deduction for a qualified conservation easement under § 170(h)(1).

1. Held: P did not make a contribution of a qualified conservation easement under § 170(h)(1) because the attempted grant did not satisfy the conservation purposes required under § 170(h)(4)(A). Specifically, the deed did not preserve open space or a historically important land area or certified historical structure.

2. Held, further, Ps are liable for a 20% penalty for negligence under § 6662.

(Hat Tip:  Nancy McLaughlin.)