Tax Court Denies $7.9M in Conservation Deductions For NC Golf Course

On December 9, 2015, the U.S. Tax Court denied $7.9 million in conservation deductions for a North Carolina golf course — finding that members of the course’s residential community could not recover deductions for setting aside land for the golf course as it did not meet any conservation purpose as defined by the government.

In 2003 and 2005, members of St. James Plantation — a gated residential community near Myrtle Beach, North Carolina — granted easements on land in their neighborhood for the benefit of the golf course. In 2003, members of the community filed $5.2 million in deductions for an easement provided by The Members Club at St. James Plantation. In 2005, members of the community filed for $2.7 million in deductions for an easement provided by The Reserve Club at St. James Plantation.

Ultimately, the Tax Court denied the community of the tax deductions totaling $7.9 million. The court found that the deductions were not proper because the land set aside by the community did not meet a clearly defined government conservation purpose. The order listed a number of valid conservation purposes, including the protection of a specific animal, plant, or habitat that the government deems in danger. The members of the community attempted to argue that the property was set aside with the intention of preserving a specific type of pine tree. However, the court shot down this argument, referring to the terms of the 2003 easement deed. The deed allowed the course to cut down trees within 30 feet of the fairway, which included the specific trees that were allegedly intended to be preserved. Members also attempted to argue that certain parts of the property set aside included ponds that would allow wildlife to thrive. The court did not find this argument convincing, concluding that the ponds did not appear to create a natural habitat.

In the courts decision, U.S. Tax Judge Thomas B. Wells concluded, “[p]etitioners have failed to present any evidence showing that the easements were made pursuant to a clearly delineated government conservation policy or for the scenic enjoyment of the general public.”

Although the court denied the deductions, it did not penalize members of the St. James Plantation as it found they reasonably relied on qualified assessors in determining which property to set aside and whether the easements would qualify for deductions.

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