On June 23, 2021, the U.S. Court of Appeals for the 11th Circuit in TOT Property Holdings upheld the denial of a charitable deduction for a conservation easement on the grounds that the donated  conservation easement was not protected in perpetuity under I.R.C. § 170(h)(5)(A).  The denial was based once again on an improper proceeds clause that the court determined did not comply with 26 C.F.R. § 1.170A-14(g)(6)(ii) because it allowed the donee’s proceeds in the case of condemnation or extinguishment to be reduced by the increase in value of any improvements constructed after the date of the conservation easement.

What is unique about this case is the inclusion in the conservation easement of language requiring the interpretation of the proceeds clause in a manner consistent with 26 C.F.R. § 1.170A-14(g)(6)(ii).  The intent of this language was to override the express language in the proceeds clause, if challenged, in an attempt to demonstrate compliance with the Internal Revenue Code and the Treasury Regulations. The court determined that the attempted savings clause is an impermissible condition subsequent and unenforceable for federal tax purposes.