Kiva Dunes Golf Course, in Gulf Shores, Alabama is one of the ten best golf courses in the country. In 2002 Kiva Dunes LLC placed a conservation easement on the property, limiting its use to a golf course, a park, or a farm, and claimed an income tax deduction of $30,588,235 under Section 170(h) of the Internal Revenue Code.
Conservation easements meet a valuable public purpose. They protect land from development so that it will be available for public use and enjoyment or scenic open space. The IRS is sensitive to conservation easement deductions. For many years taxpayers made a game out of placing conservation easements on property and claiming excessive deductions for inflated value of easements.
Concerned with losing green dollars, the IRS gave taxpayers a rough time, and won many of the fights with taxpayers. In this case the taxpayer showed that its calculation of the deduction was done in a fairway, as a matter of course, and that the approach of the IRS was below par.
Kiva Dunes LLC's professional real estate appraiser had decades of experience in the county, had lived and worked near Kiva Dunes for 22 years, owned property nearby, and had a vast knowledge of the value of comparable properties. The Tax Court substantially accepted his appraisal.
The IRS appraiser lived and worked 250 miles away, had no particular expertise in the county, and in fact had been to the Kiva Dunes area only twice. He prepared an appraisal for the IRS, but the U. S. Tax Court concluded it had holes in it.
A deduction is allowed for a conservation easement for the difference in value of the property before the easement and after the easement is imposed. The taxpayer claimed the value of the property before the easement was $31,938,985, and the "after" value was $1,050,750. the government's appraiser claimed that the "before" value was $10,018,000, and the "after" value was $8,808,000.
The Tax Court determined that the value of the easement was $28,656,004.38, substantially accepting the taxpayer's appraisals and finding that there were holes in the governments appraisals. The case proves that in tax controversies, as in golf games, preparation pays.
