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L.Steven Emmert
Virginia Appellate News & Analysis by L. Steven Emmert - Inside the Case Decisions, RUlings & Opinions
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L. STEVEN EMMERT
   


FOURTH CIRCUIT INVALIDATES HUGE TAX DEDUCTION

 

[Posted December 16, 2014] What’s the biggest itemized deduction you’ve ever taken on your taxes? Ten thousand bucks? Thirty? A hundred? Many taxpayers are concerned about listing large deductions for fear that they’ll turn into audit magnets. But the taxpayers in Belk v. Commissioner felt no compunction about claiming a charitable deduction of ten million dollars on their 2004 through 2006 returns.

 

The donation was in-kind: a conservation easement prohibiting development of 184 acres near Charlotte, North Carolina. It would help you to know that the property was already improved, in one of the best ways possible – a golf course. The course was surrounded by homes, against which the easement didn’t apply.

 

The easement contained a provision that allowed the owners to swap out parcels of the covered area, as long as they substituted adjacent areas of equal or greater acreage and value. Thus, the easement would never cover less than 184 acres, though it might encompass more. Finally, a savings clause provided that if any land swap caused the transaction not to comply with the laws permitting tax deductions, that swap would be invalidated.

 

I’m neither a tax lawyer nor a transactional lawyer, but I recognize that one or more attorneys with those specialties must have put considerable effort into crafting the easement in this way, in an effort to fend off Uncle Sam. But as I hinted above, a deduction that large is likely to inspire scrutiny sooner or later. In the Belks’ case, it came in 2009 in the form of a deficiency notice from the IRS Commissioner.

 

I’ll do the math for you. Assuming – as I think is safe – that the taxpayers are in the 38% bracket, they now owe about $4 million in principal, plus penalty, plus several years in interest, all to a creditor who is not widely known for forgiving indebtedness.

 

The taxpayers sought relief in Tax Court, but got none. Today, in a published opinion, the Fourth Circuit affirms. The primary fault with the donation lies in the swap-out provision. Because land can be withdrawn from the easement pretty much at will, and other land substituted, this arrangement conflicts with the Tax Code’s definition of a “qualified conservation contribution.” That phrase, in turn, incorporates the following definition of a “qualified real property interest”: “a restriction (granted in perpetuity) on the use which may be made of the real property.”

 

Since I’m a grammar geek, I should point out the misuse of the word which in that definition; it should be that. But really, the operative word – the multi-million-dollar-decisive word – in this definition is the. Because the restriction has to cover “the real property,” a swap-out provision means that you can never pin down what, exactly, has been donated in perpetuity. Accordingly, this easement doesn’t qualify for the deduction.

 

But what about that savings clause? Doesn’t that reinstate the original boundaries of the easement? Alas for Mr. and Mrs. Taxpayer, no; this would be a condition subsequent that merely attempts to circumvent taxation. The court finds that this is in effect an attempt to rewrite the easement for tax-avoidance purposes, and concludes, “This we will not do.”

 

I’ve heard of cases where, as the saying goes, “a man’s life hangs on a comma.” Here, the use of a definite article – the – is the decisive factor in a multi-million-dollar appeal.




VIRGINIA LOSES AN APPELLATE PIONEER

 

[Posted November 24, 2014] Virginia Lawyers Weekly is reporting the death of Fairfax Circuit Court Judge R. Terrence Ney today. Before he was Judge Ney, Terry Ney was an outstanding appellate lawyer. If you own a copy of the Virginia CLE book, Appellate Practice – Virginia and Federal Courts, you have a wonderful example of his expertise in our field; he’s listed as the editor of the Fifth Edition, which rests comfortably on the small bookcase that is always within easy reach of my office chair.

 

Judge Ney served as a Distinguished Adjunct Professor at George Mason University’s School of Law, where he taught, naturally enough, Appellate Practice and Procedure.

 

Ten years ago, when I set out to create a purely appellate practice, there was no appellate bar in Virginia. There were no established appellate practices on which I could pattern my efforts. I kept hearing that there was this guy up in northern Virginia named Terry Ney who had been a terrific appellate lawyer, but he had been made a judge a few years earlier – he was elevated to the Fairfax Circuit bench in 1999 – so that avenue was closed. That left me to feel my way around in the dark for a while.

 

I’ll always regret that I never got the chance to sit down with Judge Ney to get his take on the development of the appellate bar, and on how things nowadays differ from how they were when he led an uncrowded field. He was a real pioneer for the several dozen of us who are now grateful that we’ve been able to follow in his footsteps.




PROGRAMMING ADVISORY, LEGISLATIVE NEWS, AND

A QUICK NOTE ON REHEARINGS

 

[Posted November 11, 2014] I’ll be away from the keyboard for the rest of the week starting on Thursday, as I’ll be attending the ABA’s appellate summit in Dallas. This is one of the few occasions in the year when I amass a substantial number of MCLE credits without having to prepare written materials. The summit is a priceless opportunity to see appellate practitioners from other states, and to learn from top-notch faculty members from across the nation.

 

Meanwhile, the General Assembly met in special session yesterday, in part to select three new appellate jurists. The Supreme Court will need a new member to replace Chief Justice Cynthia Kinser, who’s retiring at the end of the year, while the Court of Appeals will need to replace retiring Chief Judge Walter Felton and Judge Bob Frank. Those two retirements also will be effective December 31.

 

Despite much negotiation, the House and Senate Republican caucuses were unable to reach a comprehensive accord, so while several new trial-court judges were elected yesterday, the appellate benches will await another special session or the regular session in January. I assume that both chambers will want to fill the slots before the calendar turns, both because it keeps the courts at full strength and because they’ll want to get this out of the way before the upcoming short session.

 

Finally, I’ve received two completely separate inquiries in the past two days, each containing the same misconception. Both queries relate to petitions for rehearing under Rule 5:20, which contains the following directive in paragraph (a):

 

Attempts to incorporate facts or arguments from the petition for appeal are prohibited.

 

Both of my callers felt that this meant they had to make different arguments in a petition for rehearing than had been set out in the petition for appeal. That isn’t the thrust of the sentence. It prohibits incorporation by reference, not repetition of previous arguments. If you think your petition for appeal was perfectly crafted, you don’t have to start over; you can effectively refile it, subject to the much shorter page limit, of course.

 

I’ve covered rehearings comprehensively in an earlier essay, so I won’t duplicate that here. But while taking a new briefing approach on rehearing might be a good tactical decision, it isn’t mandated by the rules.




APPELLATE COURTS’ HOLIDAY CLOSINGS

 

[Posted November 10, 2014] As the autumn and winter holidays approach, here’s your annual summary of the clerk’s offices’ closing schedules, along with the usual reminders how those closings will affect your deadlines.

 

The Supreme Court and Court of Appeals of Virginia and the Fourth Circuit will all be closed tomorrow for Veterans’ Day.

 

I don’t have information yet on the Fourth beyond tomorrow, but the schedules for the state courts are indeed available. For Thanksgiving, the SCV and CAV will close at noon on Wednesday, November 26, and will remain closed all day November 27 and 28. Both courts will close again – all day – on December 24, 25, and 26. And they’ll close at noon on December 31 and will remain closed January 1 and 2, 2015.

 

The rules for those closures are straightforward. On each of the dates mentioned above, if you have a pleading, brief, or other filing that’s due in the appellate-court clerk’s office, then your deadline is extended by operation of law to the next business day. If you have a filing due the day before Thanksgiving, you don’t have to scramble to get it in before noon; you can file it Monday.

 

Now the usual caveat: These extensions, as I note above, apply to filings that are due in the appellate-court clerk’s office. Some appeal-related filings are done in the trial-court clerk’s office. Notices of appeal, transcripts, and appeal bonds are notable – and jurisdictional – examples. For those documents, you must ascertain if your local clerk’s office will be closed. It’s a safe bet that that court will be closed on Thanksgiving or Christmas Day, but the “shoulder dates” might vary, and if your court remains open that day, you do not get the extension. Do yourself a favor and pick up the phone, just to check.

 

Of course, if you wait until the deadline day to file, you’re living on the edge anyway. File a day or two early, and save yourself the heartache.

 




 
         
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