Tax Court voids $46.1M easement deductions; Liberty Global heads to SCOTUS
A S&C roundup: conservation easement deductions fully disallowed with 40% penalties, Liberty Global's cert bid on economic substance, a denied rehearing in K Alain, and uncertain lame-duck tax legislation.
The Tax Court in Murphy Hollow and Hales Gap (consolidated) disallowed $46.1 million of charitable contribution deductions for two donated tracts bought for roughly $2.85 million, upheld 40% gross valuation misstatement penalties, and disqualified the appraiser under Reg. 1.170A-13(c)(5)(ii) because sponsors knew the valuations would be overstated. In Morgan Run Partners, the court valued a contributed easement at $1,165,000 rather than the claimed $26 million and sustained the penalty. Separately, Liberty Global confirmed it will seek Supreme Court review of the Tenth Circuit decision denying a $2.4 billion section 245A deduction, with its cert petition due December 16, 2026, pressing whether section 7701(o) requires a threshold relevancy determination. The Fifth Circuit also denied rehearing in K Alain on the section 1402(a)(13) limited partner exception, and lame-duck tax legislation looks uncertain after the midterms. Clients funding easement gifts should re-audit valuations and appraiser independence, and watch the cert petition and any end-of-year spending bill.