The Sixth Circuit has affirmed the Tax Court (124 T.C. 258 (2005)) and held that the taxpayers’ contributions of coservation easements (valued at $330,000) to a nonprofit nature conservancy constituted “qualified conservation contributions” under § 170(h)(1).  Glass v, Commissioner, No. 06-1398 (6th Cir. 12/20/06).

The taxpayers own a ten-acre home on Lake Michigan and granted conservation eeasements over 310 feet of shoreline to protect "a threatened natural habitat of wildlife and plants."  The Sixth Circuit rejected the IRS’s argument that the taxpayer’s retained rights in the property undermined the conservation purpose of the easments protecting a threatened natural habitat of wildlife and plants in perpetuity:

The Commissioner’s argument, that the relatively small size of the encumbered property changes this conclusion, is not supported by the facts or the law. The Commissioner failed to present any testimony or other evidence supporting the conclusion that, given Taxpayers’ retained rights, the identified plant and wildlife habitat cannot exist in an area the size of the encumbered property or that the conservation interests the Easements were designed to protect would be impermissibly impaired. Moreover, as the Commissioner concedes, there is no provision in § 170(h) or the implementing regulations that requires a minimum size for a qualifying conservation contribution. In fact, a Private Letter Ruling from the IRS allowing the deduction under § 170(h) for a conservation easement on a 3/4 acre parcel with a stated conservation purpose of preserving “scenic enjoyment of the general public” provides persuasive authority to the contrary. See PLR at 4-5 (Aug. 21, 1985). It is not the size of the Conservation Easement that matters; rather, it is whether any retained use undermines its stated conservation purpose.