Minnick v. Commissioner of Internal Revenue
Facts: An owner obtains a mortgage secured by an undeveloped plot of land, intending to use the funds for development. The owner later donates a conservation easement on a portion of the land subject to the mortgage to a conservation agency. The owner does not inform the mortgage holder of the easement and claims a charitable deduction for the donation on their tax return. The Internal Revenue Service (IRS) issues a notice of deficiency rejecting the charitable deduction claim since the mortgage was not subordinated. The owner enters into a subordination agreement with the mortgage holder after receiving the deficiency notice.
Claim: The owner seeks to avoid the deficiency for the charitable deduction, claiming the eventual subordination agreement with the mortgage holder satisfies the subordination requirement for the conservation easement regardless of when the easement was donated.
Counterclaim: The IRS claims the owner is not entitled to the charitable deduction and needs to pay the deficiency since the mortgage was not subordinated to the conservation easement at the time of donation, which threatens the perpetual preservation of the easement.
Holding: A California court of appeals holds the owner is not entitled to the charitable deduction for the donation and is obligated to pay the deficiency since the mortgage was not subordinated to the conservation easement at the time of donation as required to perpetually preserve the easement. [Minnick v. Commissioner of Internal Revenue (2015) 796 F3d 1156]