On Appeal from the United States Tax Court.
No. 005444-13—Mark V. Holmes, Judge.
Argued: October 27, 2021
Decided and Filed: March 14, 2022
Before: GUY, MOORE, and GIBBONS, Circuit Judges.
KAREN NELSON MOORE, Circuit Judge. Under § 170(h) of the Internal Revenue
Code, taxpayers who donate an easement in land to a conservation organization may be eligible
to claim a charitable deduction on their Federal income tax returns. Crucially, the easement’s
conservation purpose must be guaranteed to extend in perpetuity to qualify for the deduction.
See 26 U.S.C. (I.R.C.) § 170(h)(5)(A). Unexpected developments, however, may make this
impossible long after the donor has deeded the easement away. How, then, can an easement
satisfy the perpetuity requirement?
Contemplating such scenarios, the Department of Treasury has promulgated a rule,
26 C.F.R. (Treas. Reg.) § 1.170A-14(g)(6). This regulation addresses situations in which
unforeseen changes to the surrounding land make it “impossible or impractical” for an easement
to fulfill its conservation purpose. Treas. Reg. § 1.170A-14(g)(6)(i). In these events, the
conservation purpose may still be protected in perpetuity “if the restrictions are extinguished by
judicial proceeding and all of the donee’s proceeds . . . from a subsequent sale or exchange of the
property are used by the donee” to further the original conservation purpose. Id. Proceeds are
calculated by a formula in § 1.170A-14(g)(6)(ii), a provision to which we refer as the “proceeds
On this appeal from the United States Tax Court, the petitioners, Oakbrook Land
Holdings, LLC (Oakbrook) and William Duane Horton, challenge the validity of the proceeds
regulation. The petitioners contend that, in promulgating this rule, Treasury violated the notice-and-comment requirements of the Administrative Procedure Act (APA). The petitioners also
argue that Treasury’s interpretation of § 170(h)—the statute that the rule implements—is
unreasonable. Finally, the petitioners argue that the proceeds regulation is arbitrary or
capricious. The full Tax Court considered these arguments and found them to be unpersuasive.
See Oakbrook Land Holdings v. Comm’r, 154 T.C. 180, 181 (T.C. 2020). We agree with the Tax
Court and AFFIRM.