On March 14, 2022, the U.S. Court of Appeals for the 6th Circuit delivered its opinion in Oakbrook Land Holdings, LLC v. Commissioner regarding the proceeds clause in conservation easements.  The court upheld the Tax Court’s ruling in determining that the proceeds regulation for conservation easements in Treas. Reg. § 1.170A-14(g)(6)(ii) did not violate the notice and comment requirements of the Administrative Procedure Act (APA).  The 6th Circuit court’s decision is inconsistent with the December 29, 2021 decision in Hewitt v. Commissioner by the U.S. Court of Appeals for the 11th Circuit, creating a circuit split on the issue.  See this prior blog post for a discussion of the Hewitt case.

In Oakbrook the 6th Circuit court determined that the Treasury Department’s adoption of the proceeds regulation for conservation easements in Treas. Reg. § 1.170A-14(g)(6)(ii) without consideration of comments made regarding this regulation did not violate the APA because the comments at issue did not raise a concern related to the provision’s purpose for conservation easements to meet the protected in perpetuity requirement of I.R.C. § 170(h)(5)(A).  The 6th Circuit court was not persuaded by the 11th Circuit court’s decision in Hewitt.

The Circuit split results in two different rules for the proceeds clause in conservation easements based on the location of the land subject to the conservation easement.  It seems that conservation easements donated in Alabama, Georgia and Florida cannot be challenged by the IRS on the grounds that the proceeds clause in the conservation easement violates Treas. Reg. § 1.170A-14(g)(6)(ii), while the IRS can continue to challenge conservation easements on these grounds in all other states.