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Eleventh Circuit Rules in Favor of Culverhouse Family in Landmark Conservation Easement Appeal

WASHINGTON, DC – On Friday, the United States Court of Appeals for the Eleventh Circuit ruled in favor of Florida philanthropists Hugh and Eliza Culverhouse and rejected the IRS’s challenge in one of the largest conservation easement disputes in the nation.

The Culverhouse family donated a tract of land worth $25 million to Sarasota for a public park, community garden, and conservation easement. The IRS challenged the Culverhouse family’s donation and claimed the 82 acre tract of land was essentially worthless. In response, Hugh and Eliza Culverhouse sued the IRS in the United States Tax Court. In 2014, the Tax Court ruled in favor of the Culverhouse family but reduced the value of the donated property from $25 million to $21 million. The IRS claimed the donated property was worth no more than $7 million.

The Culverhouse family appealed the Tax Court’s $4 million reduction and the IRS cross-appealed rearguing its claim that the donated property was essentially worthless because, the IRS argued, the land could not be developed. But last week the Eleventh Circuit ruled in favor of the Culverhouse family and entirely rejected the IRS’s argument. The Eleventh Circuit also ruled in favor of the Culverhouse family and rejected the Tax Court’s $4 million reduction in the value of the donated property.

“The Eleventh Circuit’s decision was a one hundred percent win for the Culverhouse family,” said Thor Hearne, who is lead counsel for the Culverhouse family. “This is the second time the Culverhouse family has won and the second time the IRS has lost. The Eleventh Circuit entirely rejected the bizarre theory the IRS made in Tax Court and made again on appeal.” Partner Debra Albin-Riley and counsel Meghan S. Largent joined Thor as members of the litigation team representing the Culverhouse family in this lawsuit. 

Mr. Hearne heads Arent Fox’s appellate practice and enjoys a national reputation for his successful trial and appellate experience. During just the past year Hearne has argued cases before the United States Supreme Court, the Florida and Missouri Supreme Courts, and before the Eleventh Circuit, Federal Circuit, and Eighth Circuit. Mr. Hearne is lead counsel in a number of other cases now pending against the federal government in federal district court and the Court of Federal Claims. Hearne is also lead trial counsel defending the Commonwealth of Virginia in Lee v. Virginia in the Eastern District of Virginia.

In 2006, the Culverhouse family donated more than 82 acres of valuable land to Sarasota County for a community garden and to preserve the property for future generations. Congress encourages landowners to donate land for conservation and parks by requiring the IRS to grant the owner a tax deduction equal to the fair market value of the donated land. Appraisers and land-planners independently determined that land the Culverhouse family donated was worth at least $25 million.

But, contrary to Congress’s intent, the IRS is aggressively challenging taxpayers who claim a deduction for donating land for parks and conservation. The IRS’s policy does not sit well with federal courts. The United States Court of Appeals for the Fifth Circuit recently observed, “[The IRS’s conduct] exemplifies a practice of the IRS that we see with disturbingly increased frequency, e.g., a grossly exaggerated amount asserted in a notice of deficiency.”

The Culverhouse family fell victim to the IRS’s misguided policy. IRS lawyers concocted a theory that the 82 acre tract of land the Culverhouse family donated was worthless, or essentially worthless, because an eagle nest was once on the property. IRS lawyers argued the eagle nest rendered the entire tract of land undevelopable. On the basis of this theory the IRS sought to disallow the Culverhouse family’s deduction and impose additional millions in penalties and interest on the Culverhouse family. Among its other errors, the IRS overlooked the fact that the bald eagle was no longer an endangered species in 2006 when the Culverhouse family donated the land. Not only that, in an e-mail uncovered during the litigation, the IRS’s lead agent admitted, “I don’t think we have much of leg [sic] to stand on so-to-speak.”

Sadly, though the IRS’s lawyers lacked any evidence and lacked any credible expert support for their theory, the agency nonetheless forced the Culverhouse family to endure a length trial in Tax Court and an appeal to the Eleventh Circuit. The Eleventh Circuit affirmed the Tax Court’s rejection of the IRS’s argument and the Eleventh Circuit reversed the Tax Court’s reduction in the value of the donated property. The Eleventh Circuit said the “IRS is wrong” and the “IRS’s argument does not convince.”

“The Eleventh Circuit got it right,” said Mr. Hearne. “That property the Culverhouse family donated to Sarasota is now a popular and greatly-appreciated public amenity. It is unfortunate the IRS wasted significant taxpayer resources pursuing a half-decade of pointless litigation against the Culverhouse family. I only hope the Eleventh Circuit’s rebuke of the IRS will cause the agency to reconsider its failed strategy of bringing frivolous challenges to donations of conservation easements.”

Mr. Culverhouse had kind words to say of Mr. Hearne and the Arent Fox litigation team. Mr. Culverhouse thanked the Arent Fox team for their “excellent representation” and said, “you have righted an injustice, and that is the greatest victory a lawyer can achieve. I fight injustice even when it is expensive. Our judicial system works when people stand on principle and the law. Thank you for being the best legal team fighting a no-compromise battle to vindicate a just result against an unjust policy.”

Mr. Hearne explained, “The point is this, the IRS, endowed with the unlimited resources of the United States, has elected to pursue an aggressive policy of challenging those taxpayers who accept Congress’s invitation to donate property for a public park or conservation easement. The IRS is wrong to pursue this policy and the Eleventh Circuit’s decision should be a wake-up call.”

About Arent Fox
Founded in 1942, Arent Fox is internationally recognized in core practice areas where business and the law intersect. With more than 400 lawyers, the firm provides strategic legal counsel and multidisciplinary solutions to a global roster of corporations, governments, and trade associations. The firm has offices in Los Angeles, New York, San Francisco, and Washington, DC.


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