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Venus Flytraps and Frogs in Gated Communities: US Tax Court Decision

Dec 15, 2015   //   by Bobby Chandran   //   Recent Tax Court Decisions  //  No Comments

Venus Flytraps and Frogs in Gated Communities      

By: Praba ‘Bobby’ Chandran, MAFM, CPA.

How many of you have hit your ball off the fairway into an area sometimes fenced, marked “environmentally sensitive area”.

Well, I have. In Los Angeles, Southern California where I live and play, there are at least two courses that fall into this category. I have had the unpleasant experience of not being able to step into this ‘environmentally sensitive “areas to retrieve my ball, let alone hitting it from where it lay.

Angeles National Golf Course in Sunland, CA and Rustic Canyon Golf Course in Moorpark, CA are two of the many courses nationwide where you encounter environmentally sensitive areas right in the middle of or adjoining the fairways. When the ball enters one of these areas, then you are forced to deal with issues like, “point of entry’, “one or two club lengths” and “drop” etc.

Recently, The US Tax Court was called in to rule on a dispute involving these environmentally sensitive areas being part of a golf course. Before anyone rushes to the conclusion the ruling had anything to do with the USGA rules of golf, let me assure you that the dispute had to do with IRS Tax Regulations.

Here are the facts from the opinion rendered by The US Tax Court on December 9, 2015. (JOHN A. ATKINSON AND JUDY B. ATKINSON, ET AL., Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent (T.C. Memo. 2015-236).

A group of taxpayers claimed charitable contribution deductions in 2003 and 2005 arising from two conservation easements granted to an operating golf course in North Carolina. The golf courses are The Members Club Golf Course and The Reserve Club Golf Course within the St. James Planation in Southport NC. The claimed deductions were $ 5,223,000 plus expenses for tax year 2003 for a conservation easement and $2,657,500 plus expenses for tax year 2005 for a conservation easement.

For the claimed deductions to be allowed the conservation easement must comply with section 170(h) of the IRS Code which requires: (1) the contribution of a “qualified real property interest”, (2) to a “qualified organization”, and (3) “exclusively for conservation purposes.”

The court was satisfied that the easement represented a qualified real property interest and it was made to a qualified organization.

All other conditions of this code section being satisfied, the court was left to decide on whether the easement met the “exclusively for conservation” test.

To satisfy this requirement, the following conditions need be met:

(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,

(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,

(iii) the preservation of open space (including farmland and forest land) where such preservation is for the scenic enjoyment of the general public.

An array of expert witnesses with impressive credentials was brought in on behalf of the taxpayers to testify to the existence of natural habitat that needed protection within the easement area. Experts spoke of Venus Flytraps, pitcher plants and even hearing a chorus of frogs. The golf superintendent had mentioned to one of the expert witnesses that he had seen an American Alligator, a threatened species, occasionally on the course ponds. One witness spoke of spotting a bald eagle overhead while he was on the property.

None of these seem to have impressed the court that the two easements satisfied the “protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem” requirement. The government (Commissioner – IRS) brought in witnesses to make their case that the two easements did not protect a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem. The government (IRS) further argued that an operating golf course and preserving a natural habitat are inconsistent endeavors. The Tax Court did not address this fact, saying that the court concluded that the two easements are NOT a relatively natural habitat.

It would seem that the final blow to the taxpayers came from the access issue. The court took note of the fact that to access the golf courses one has to be a member of the golf course or be a guest of a member of the club. A large portion of the two easements were covered by golf courses. The court also noted that the access to the golf course was through three gates which are guarded. This fact seemed to be in direct contradiction to the requirement, “the preservation of open space (including farmland and forest land) where such preservation is for the scenic enjoyment of the general public”.

The Court ruled that the taxpayers did not satisfy the requirements of section 170(h) and, therefore, are not entitled to deductions for qualified conservation contributions.

(Tax Court Opinion may be viewed at:

About Chandran

Bobby Chandran studied accounting & finance at Keller Graduate School of Management.

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