Conservation Easement Penalty Rejected

Published 2025-11-14

GiftLaw Note:

In Bayou Serpent Property LLC v. Commissioner; No. 4659-25, the Tax Court determined summary judgment in favor of the partnership was appropriate. The outcome of this case was due to untimely filing of the IRS Notice of Final Partnership Adjustment (FPA). The Tax Court recently decided JM Assets, LP v. Commissioner, 165 T.C. No. 1 (2025), which was on point to clarify that the deadline to issue the FPA is 270 days “after the date on which everything required to be submitted to the Secretary pursuant to such section is so submitted.”

Bayou Serpent Property LLC (Bayou) was involved in a gift of a conservation easement on December 20, 2019. The Internal Revenue Service (IRS) audited the claimed conservation easement deduction of $76.5 million, issued a notice of proposed partnership adjustment and engaged in litigation with Bayou. Bayou moved for summary judgment on the basis the IRS untimely filed the FPA and was invalid.

In JM Assets, LP v. Commissioner, the Court noted there was a discrepancy between Sec. 6235(a)(2) and Reg. 301.6235-1(b)(2), where the regulation extended the statutory period and thus it was an invalid time period. The Court held that the statute’s language of 270 days “after the date on which everything required to be submitted” was plain and the “regulation must give way to the statute.” The regulation’s language extended the statute of limitations beyond the statute to 270 days after the “date on which everything is required to be submitted.”

Bayou argued that the 270-day statute of limitations started tolling on February 8, 2024, which was the date all of the documents were submitted, and no further information was requested. The IRS issued the FPA on January 13, 2025.

Bayou submitted all requested information on February 8, 2024, no further information was provided nor requested by the IRS. The Court agreed with Bayou that the 270-day period ended on November 4, 2024. The Court noted that the IRS did not oppose the motion for summary judgment.

Therefore, the Tax Court held the FPA was issued more than 60 days after the 270-day statute of limitations. The unopposed Motion for Summary Judgment was granted and the case was dismissed.

Editor's Note: The conservation easement deduction in this case is a limited win for the taxpayer. The win was bases solely on the expiration of the statute of limitations.

BAYOU SERPENT PROPERTY, LLC, OTEMANU LAND HOLDINGS, LLC, PARTNERSHIP REPRESENTATIVE,
Petitioner(s)
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

United States Tax Court
Washington, DC 20217

ORDER AND DECISION

This case is before us on petitioner's unopposed Motion for Summary Judgment, fled September 17, 2025. In the light of respondent's acquiescence, and because our recent opinion in JM Assets, LP v. Commissioner, 165 T.C. No. 1 (2025) is squarely on point, we will grant petitioner's motion.

In 2019 Bayou Serpent Property, LLC (Bayou) donated a conservation easement and reported the donation on its 2019 Form 1065. On August 17, 2023, after issuing preliminary notices, respondent issued a Notice of Proposed Partnership Adjustment (NOPPA). The NOPPA proposed to disallow the charitable contribution deduction related to the conservation easement. On February 8, 2024, Bayou fled Form 8980, Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c), seeking to modify the allocation of the charitable contribution to its partners. On September 23, 2024, respondent denied the modification request. After that date Bayou did not submit, and respondent did not request, additional information. On January 13, 2025, respondent issued the Notice of Final Partnership Adjustment (FPA).

Petitioner asserts that the FPA was untimely and so is invalid. Under IRC section 6235(a)(2), when a partnership seeks to modify an imputed underpayment under IRC section 6225(c), the Commissioner must issue the FPA no later than 270 days “after the date on which everything required to be submitted to the Secretary pursuant to such section is so submitted.” Petitioner argues that the applicable date was the date Bayou fled its modification request: February 8, 2024. After that date Bayou did not submit further information and respondent did not request additional information. Taken together those facts establish that Bayou submitted everything required to be submitted on February 8, 2024. See JM Assets, 165 T.C. at 14. Thus the deadline for issuing the FPA was 270 days later: November 4, 2024. Because respondent issued the FPA more than 60 days later on January 13, 2025, the FPA was untimely and so is invalid. See JM Assets, 165 T.C. at 18.

Accordingly it is

ORDERED AND DECIDED that petitioner's unopposed Motion for Summary Judgment, fled September 17, 2025, is granted, and this case is dismissed.

Jeffrey S. Arbeit
Judge