Supreme Court Review Sought in Easement Reg Validity Case

Oakbrook Land Holdings, LLC,William Duane Horton, Tax Matters Partner,
Petitioner,
v.
Commissioner of Internal Revenue,
Respondent.

In the Supreme Court of the United States

On Petition for Writ of Certiorari the United States Court of Appeals for the Sixth Circuit

Michelle Abroms Levin
Gregory P. Rhodes
Logan C. Abernathy
DENTONS US LLP
305 Church Street SW
Suite 800
Huntsville, AL 35801

Isabelle K. Farrar
Skadden, Arps, Slate,
Meagher & Flom LLP
500 Boylston Street
Boston, MA 02116

David W. Foster
Counsel of Record
Armando Gomez
Skadden, Arps, Slate,
Meagher & Flom LLP
1440 New York Ave., NW
Washington, D.C. 20005
(202) 371-7000
david.foster@skadden.com

Counsel for Petitioner

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Question Presented

This petition presents a direct conflict regarding whether the Treasury Department violated the Administrative Procedure Act (the “APA”) by failing to respond to comments from the public when promulgating a regulation governing charitable donations.

Petitioner donated a conservation easement on land that it owned to a qualified charity, and it claimed the corresponding income tax deduction. The IRS — invoking 26 C.F.R. § 1.170A-14(g)(6)(ii) (the “Proceeds Regulation”) — denied the entire deduction. The Proceeds Regulation requires easement deeds to guarantee that the charity will receive a specified portion of the proceeds in the unlikely event that the easement is judicially extinguished. The IRS determined that Petitioner's easement did not guarantee a sufficient portion of the proceeds to the charity.

When Treasury proposed the Proceeds Regulation, multiple commenters identified problems with the regulation (including the very issue on which the Tax Court disallowed Petitioner's deduction) and explained why those problems mattered. Treasury did not respond to — or even acknowledge — the comments.

A divided Sixth Circuit panel held that Treasury's failure to respond to the comments did not violate the APA. The Sixth Circuit acknowledged that its holding conflicts with a unanimous published Eleventh Circuit decision that the same regulation violated the APA.

The question presented is: Whether Treasury's failure to respond to comments raising concerns about the Proceeds Regulation, 26 C.F.R. § 1.170A-14(g)(6)(ii), violated the Administrative Procedure Act?

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Parties to the Proceedings

Petitioner Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, was the petitioner in the Tax Court and the appellant in the Sixth Circuit.

Respondent Commissioner of Internal Revenue was the respondent in the Tax Court and the appellee in the Sixth Circuit.

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Rule 29.6 Disclosure Statement

Petitioner Oakbrook Land Holdings, LLC does not have a parent corporation. There is no publicly held company that owns 10% or more of Petitioner's stock.

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Related Proceedings

The proceedings directly related to this proceeding are:

• Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner of Internal Revenue, No. 20-2117 (6th Cir. March 14, 2022)

• Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner of Internal Revenue, No. 5444-13 (United States Tax Court May 12, 2020)

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TABLE OF CONTENTS

Question Presented

Parties to the Proceedings

Rule 29.6 Disclosure Statement

Related Proceedings

Table of Contents

Table of Appendices

Table of Authorities

Petition for Writ of Certiorari

Opinions Below

Jurisdiction

Statutes and Regulation Involved

Statement of the Case

Reasons for Granting the Petition

Conclusion

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TABLE OF APPENDICES

APPENDIX A:

APPENDIX B:

APPENDIX C:

APPENDIX D:

APPENDIX E:

APPENDIX F:

APPENDIX G:

APPENDIX H:

APPENDIX I:

APPENDIX J:

APPENDIX K:

APPENDIX L:

APPENDIX M:

APPENDIX N:

APPENDIX O:

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TABLE OF AUTHORITIES

Cases:

Associated Industries of New York State, Inc. v. U.S. Department of Labor, 487 F.2d 342 (2d Cir. 1973)

Automotive Parts & Accessories Ass'n v. Boyd, 407 F.2d 330 (D.C. Cir. 1968)

Azar v. Allina Health Services, 139 S. Ct. 1804 (2019)

Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281 (1974)

Carlson v. Postal Regulatory Commission, 938 F.3d 337 (D.C. Cir. 2019)

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)

Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156 (1981)

Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016)

Glade Creek Partner, LLC v. Commissioner, No. 21-11251, 2022 WL 3582113 (11th Cir. Aug. 22, 2022)

Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd on other grounds, 445 F.2d 985 (10th Cir. 1971)

Gray Mare Farms LLC v. Commissioner, No. 6682-20 (T.C. July 25, 2022)

Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021)

Home Box Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977)

Independent U.S. Tanker Owners Committee v. Dole, 809 F.2d 847 (D.C. Cir. 1987)

Mayo Foundation for Medical Education & Research v. United States, 562 U.S. 44 (2011)

MCI WorldCom Inc. v. FCC, 209 F.3d 760 (D.C. Cir. 2000)

Motor Vehicle Manufacturers Ass'n of the U.S., Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983)

Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner, 28 F.4th 700 (6th Cir. 2022)

Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner, 154 T.C. 180 (2020)

Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner v. Commissioner, T.C. Memo. 2020-54

Perez v. Mortgage Bankers Ass'n, 575 U.S. 92 (2015)

Rowan Cos. v. United States, 452 U.S. 247 (1981)

SEC v. Chenery Corp., 318 U.S. 80 (1943)

Sparta Pink Property, LLC v. Commissioner, T.C. Memo. 2022-8828

Thompson v. Commissioner, T.C. Memo. 2022-8028

United States v. Irvine, 511 U.S. 224 (1994)

United States v. Nova Scotia Food Products Corp., 568 F.2d 240 (2d Cir. 1977)

United States v. Pelzer, 312 U.S. 339 (1941)

Washington Energy Co. v. United States, 94 F.3d 1557 (Fed. Cir. 1996)

STATUTES AND REGULATIONS:

5 U.S.C. § 551

5 U.S.C. § 553

5 U.S.C. § 706

5 U.S.C. § 706(2)(A)

21 U.S.C. § 342(a)(4)

26 U.S.C. § 170(h)

26 U.S.C. § 170(h)(5)(A)

26 U.S.C. § 6110(k)(3)

26 U.S.C. § 6226 (2008)

28 U.S.C. § 1254(1)

39 U.S.C. § 3622(b)(8)

39 U.S.C. § 3622(c)(6)

26 C.F.R. § 1.1170A-14(g)(3)

26 C.F.R. § 1.1170A-14(g)(6)(ii)

OTHER AUTHORITIES:

Elizabeth Byers & Karin Marchetti Ponte, The Conservation Easement Handbook (2d ed. 2005)

Income Taxes, Qualified Conservation Contributions, 51 Fed. Reg. 1496 (Jan. 14, 1986)

I.R.S. P.L.R. 200836014 (dated June 3, 2008, and released to the public on September 5, 2008)

1 Kristin E. Hickman & Richard J. Pierce,  Jr., Administrative Law § 4.8 (6th ed. 2019)

Kristin E. Hickman, Coloring Outside the Lines: Examining Treasury's (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 82 Notre Dame L. Rev. 1727 (2007)

Kristin E. Hickman, The Federal Tax System's Administrative Law Woes Grow, ABA Tax Times (May 2022)

Nancy Ortmeyer Kuhn, A Split in the Circuits: Will Supreme Court Take Up Easement Challenge?, Bloomberg Law (Apr. 5, 2022), https://news.bloomberglaw.com/environment-and-energy/a-split-in-the-circuits-will-su-preme-court-take-up-easement-challenge

Qualified Conservation Contribution; Proposed Rulemaking, 48 Fed. Reg. 22,940 (May 23, 1983)

S. Rep. No. 96-1007 (1980)

Sup. Ct. R. 10(a)

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PETITION FOR WRIT OF CERTIORARI

This case presents a clear and intractable conflict over an important question of administrative law. The Sixth Circuit and the Tax Court divided internally on the question, and the Sixth Circuit acknowledged that its decision created a conflict with the Eleventh Circuit's unanimous decision on the same question. Compare App. 2a-6a and 61a-170a with Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021). This Court should grant certiorari to correct the Sixth Circuit's and the Tax Court's flawed application of the Administrative Procedure Act, 5 U.S.C. § 551 et seq., and to restore uniformity to administrative agency obligations to respond to public comments.

Congress amended the Internal Revenue Code in 1980 to encourage land conservation by providing an income tax deduction for the value of conservation easements donated to a qualifying charitable organization. 26 U.S.C. § 170(h). Congress placed a number of restrictions on this deduction, including that the easement's conservation purpose must be “protected in perpetuity.” Id. § 170(h)(5)(A).

However, after the donation, an unexpected change in the conditions surrounding the land could occur that would make continued conservation impossible or impractical, leading to judicial extinguishment of the easement. (For example, the government could condemn some or all of the land to build a school or road.) If that happens, how is the charitable organization compensated after extinguishment? Congress did not answer this question in the statute.

In 1983, Treasury proposed a large package of regulations to address the conservation easement income tax deduction. Qualified Conservation Contribution; Proposed Rulemaking, 48 Fed. Reg. 22,940 (May 23, 1983); App. 217a. Throughout the regulations, and in the subparagraph addressing the possibility of judicial extinguishment, Treasury balanced at least three policy objectives: (1) encouraging donations of conservation easements given “that conservation easements now play an important role in preservation efforts,” (2) satisfying “the need of potential donors to be secure in their knowledge that a contemplated contribution will qualify for a deduction,” and (3) ensuring that “the conservation purpose is protected in perpetuity.” S. Rep. No. 96-1007, at 9, 13 (1980).

There were many ways that Treasury could have struck this balance with respect to the possibility of extinguishment, such as (1) deeming the possibility sufficiently remote so as not to implicate the perpetuity requirement, (2) clawing back the tax deduction to the extent of any proceeds received by the donor, (3) allowing landowners and charities to negotiate over this point, (4) allowing state law to dictate the relative property rights of the landowner and the charity, or (5) requiring that the donor agree to include a formula in the easement deed that would specify how to share some or all of the post-extinguishment proceeds with the charity. If it chose option (5), Treasury confronted numerous policy choices in selecting the terms of the formula, such as whether and how to account for any landowner improvements made to the property after the donation.

The regulation that Treasury proposed deferred to state law if the state provided that the landowner would be entitled to the full proceeds. App. 223a (“unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction”). Otherwise, the regulation required that the donor agree at the time of the donation to provide a specified portion of the proceeds to the charity. App. 222a-223a.

Treasury received more than 700 pages of comments from 90 commenters on the proposed package of regulations, thirteen of whom specifically expressed concern with what is now the Proceeds Regulation, 26 C.F.R. § 1.170A-14(g)(6)(ii). See App. 8a; see also App. 137a-138a (Holmes, J., dissenting). Many of the commenters were conservation organizations that raised a variety of issues with Treasury's policy choices reflected in the proposed rule, including two that are relevant here: “Why did Treasury choose to require that a donee receive a proportionate share rather than a fixed sum if the easement is extinguished or condemned? And why did Treasury choose to require that a donee share in the value added to the property by later improvements to it?” App. 138a (Holmes, J., dissenting).

The New York Landmarks Conservancy identified specific “inequities” with the proposed Proceeds Regulation and argued that it “contain[s] problems of policy and practical application so pervasive as to cause us to recommend strongly the deletion of these provisions.” App. 226a; 228a. It argued that “the proposed provisions would thwart the purpose of the statute by deterring prospective donors.” App. 226a. It included a mathematical example highlighting the proposed formula's “fail[ure] to take into account that improvements may be made thereafter by the owner which should properly alter the ratio.” App. 227a. Other commenters identified different potential problems with the proposed regulation and requested that Treasury remove it altogether. See App. 230a-242a.

When it issued the final regulations, Treasury provided no response to, or acknowledgment of, these comments. See Income Taxes, Qualified Conservation Contributions, 51 Fed. Reg. 1496 (Jan. 14, 1986); App. 243a-252a. The statement of basis and purpose — a mere two pages (six columns) of the Federal Register — accompanying the final regulations did not even mention the Proceeds Regulation. And it specifically asserted that the notice-and-comment requirements of the APA “did not apply.” App. 251a-252a.

In the absence of any response from Treasury, or justification for its policy choices, a leading conservation organization developed a model easement deed, used by thousands of donors to conserve tens of millions of acres of land, that contained a provision that allows landowners to retain any post-extinguishment proceeds attributable to post-donation improvements made to the land. In 2016, the IRS began denying the entire charitable deduction for any easement donation by taxpayers who used the model deed. As one Tax Court opinion in this case put it, the IRS is denying deductions based on “future hypothetical proceeds from a future hypothetical extinguishment.” App. 172a; see also Nancy Ortmeyer Kuhn, A Split in the Circuits: Will Supreme Court Take Up Easement Challenge?, Bloomberg Law (Apr. 5, 2022), https://news.bloomberglaw.com/environment-and-energy/a-split-in-the-circuits-will-supreme-court-take-up-easement-challenge (describing the “'gotcha' quality of the IRS' current position” given that “[t]here is no evidence that any proceeds have actually been distributed utilizing the proceeds regulation's formula or the taxpayers' easement deeds' formulas”).¹

In 2008, Oakbrook agreed to conserve approximately 106 acres of ridgeline property on White Oak Mountain outside Chattanooga, Tennessee. See App. 9a. The Southeast Regional Land Conservancy used a model deed to impose the necessary restrictions on Oakbrook's land. App. 176a. The IRS denied Oakbrook's tax deduction, and just before trial the IRS asserted that Oakbrook's donation violated the Proceeds Regulation. Oakbrook argued that Treasury's failure to consider the comments that it received regarding the proposed Proceeds Regulation violated the APA.

The Tax Court considered whether Treasury's failure to address the comments on the proposed Proceeds Regulation violated the APA. Following a vote by seventeen of the court's active judges, a majority of the Tax Court upheld the regulation in an opinion by Judge Lauber. App. 61a. Judges Toro and Holmes authored separate opinions explaining why the regulation violated the APA's procedural requirements. App. 89a (Toro, J., concurring in the result); App. 131a (Holmes, J., dissenting).

The Tax Court denied Oakbrook's deduction and also applied its holding to other cases presenting the same issue, including Hewitt v. Commissioner, which involved land conservation in Alabama. Oakbrook and the Hewitts filed separate appeals in the Sixth and Eleventh Circuits, respectively, arguing that the Proceeds Regulation was invalid.

The Eleventh Circuit, in a unanimous opinion by Judge Lagoa, held that the Proceeds Regulation “is arbitrary and capricious under the APA for failing to comply with the APA's procedural requirements and is thus invalid.” Hewitt v. Commissioner, 21 F.4th 1336, 1350 (11th Cir. 2021).

But the Sixth Circuit, in an opinion by Judge Moore, found Hewitt “unpersuasive” and concluded that Treasury was not required to respond to the comments on the Proceeds Regulation. App. 27a. The Sixth Circuit held that Treasury was not required to respond to the comments that it received because the comments “did not engage with [the] perpetuity requirement and whether the rule served this end.” App. 23a. As Judge Guy explained in his concurring opinion, this rationale conflicts with Hewitt and with decisions from other Courts of Appeals, including United States v. Nova Scotia Food Products Corp., 568 F.2d 240 (2d Cir. 1977) and Carlson v. Postal Regulatory Commission, 938 F.3d 337 (D.C. Cir. 2019). See App. 43a-50a (Guy, J., concurring in the judgment).

This Court has held that the APA requires administrative agencies to “consider and respond to significant comments received during the period for public comment.” Perez v. Mortg. Bankers Ass'n, 575 U.S. 92, 95 (2015). Where agencies do not comply with this requirement, a “reviewing court shall * * * hold unlawful and set aside” the resulting regulation. 5 U.S.C. § 706(2)(A).

The question of when a comment is sufficiently significant to require an agency response affects not only Treasury and the IRS but also all other administrative agencies that promulgate legislative rules — and the members of the public that they regulate. This case thus has implications far beyond the tax context.

Absent this Court's intervention, other administrative agencies will invoke the Sixth Circuit's decision to support post-hoc justifications for their failure to respond to comments and thereby unduly narrow their obligation to interact with the regulated public. There is no justification for reducing the accountability of administrative agencies to the public in this manner.

As matters now stand, hundreds if not thousands of taxpayers who made charitable donations to conserve millions of acres of land, as encouraged by Congress, find themselves in financial limbo. The Tax Court is deferring decision in many of their cases, including those appealable to other Courts of Appeals, pending resolution of the split in authority. Because the various opinions from the Tax Court, Eleventh Circuit, and Sixth Circuit have fully debated the relevant issues of administrative law, the question presented is ripe for review by this Court. The Court should grant certiorari to determine whether Treasury's failure to respond to comments invalidates the Proceeds Regulation.

OPINIONS BELOW

The opinion of the United States Court of Appeals for the Sixth Circuit is reported at 28 F.4th 700 and reproduced at App. 2a-60a. One opinion of the Tax Court is reported at 154 T.C. 180 and reproduced at App. 61a-170a. Another opinion of the Tax Court, T.C. Memo. 202054, is not reported, but is reproduced at App. 171a-207a.

JURISDICTION

The United States Court of Appeals for the Sixth Circuit rejected Oakbrook's challenge to 26 C.F.R. § 1.170A-14(g)(6)(ii) in a decision rendered on March 14, 2022. The court denied a petition for rehearing en banc on July 6, 2022. App. 1a. This Court has jurisdiction pursuant to 28 U.S.C. § 1254(1).

STATUTES AND REGULATION INVOLVED

The statutes involved are 5 U.S.C. §§ 553 and 706 and 26 U.S.C. § 170(h).

The regulation involved is 26 C.F.R. § 1.170A-14(g)(6)(ii), which provides in relevant part:

STATEMENT OF THE CASE

A. Treasury's Proposed Rulemaking

Congress revised the Internal Revenue Code in 1980 to encourage private land conservation by allowing a charitable contribution deduction for gifts of qualified conservation contributions, i.e., donations of conservation easements to charity. Congress imposed a number of requirements on tax deductions for these gifts, one of which was that the conservation purpose of the gift be “protected in perpetuity.” 26 U.S.C. § 170(h)(5)(A).

In 1983, Treasury published a notice of proposed rulemaking on the income tax deduction for conservation easements. The notice cited House and Senate Committee reports on the 1980 legislation as having “provided, for the first time, an in-depth statement of congressional intent concerning the donation of partial interests for conservation purposes (H.R. Rep. No. 96-1278, S. Rep. No. 96-1007).” App. 219a. Treasury stated that “[t]he regulations reflect the major policy decisions made by the Congress and expressed in these committee reports.” Id.

The Report of the Senate Committee on Finance that Treasury cited recognized that “conservation easements now play an important role in preservation efforts.” S. Rep. No. 96-1007, at 9 (1980). Given “the need of potential donors to be secure in their knowledge that a contemplated contribution will qualify for a deduction” the report instructed that “the committee expects that regulations under this section will be classified among those regulation projects having the highest priority.” Id. at 13.

The proposed regulations consisted of “10 paragraphs, 23 subparagraphs, 30 subdivisions, and 21 examples” regarding this charitable contribution deduction. App. 69a. “One of these 23 subparagraphs became” the Proceeds Regulation, 26 C.F.R. § 1.170A-14(g)(6)(ii). App. 69a-70a. It mandated that landowners agree in advance to grant a portion of the proceeds from any sale or exchange following a future judicial extinguishment to the charity.

Treasury received more than 700 pages of public comments from 90 commenters and held a five-hour hearing at which thirty members of the public spoke. App. 70a, 117a (Toro, J., concurring in the result).

B. The Comments Treasury Received

Thirteen of the 90 submitted comments addressed the proposed Proceeds Regulation, including two key questions that are relevant here. “Why did Treasury choose to require that [the donee charity] receive a proportionate share rather than a fixed sum if the easement is extinguished or condemned? And why did Treasury choose to require that a donee charity share in the value added to the property by later donor land-owner improvements?” App. 138a (Holmes, J., dissenting).

The New York Landmarks Conservancy (“NYLC”) raised these questions in a five-page comment letter. See App. 224a-229a. NYLC stated that the proposed judicial extinguishment provisions “contain problems of policy and practical application so pervasive as to cause us to recommend strongly the deletion of these provisions.” App. 226a. It said that “the proposed provisions would thwart the purpose of the statute by deterring prospective donors.” Id. NYLC identified four specific “inequities” caused by the provisions. App. 228a. One of those inequities was that the “formula fails to take into account that improvements may be made thereafter by the owner which should properly alter the ratio.” App. 227a. It demonstrated this problem by applying values to an example Treasury had proposed regarding a different issue elsewhere in the proposed regulations. See App. 227a-228a. NYLC posited that, in Treasury's example, the owner of Greenacre, land whose fair market value was $100,000, donated an easement to charity to protect the scenic view of a nearby national park, resulting in a 10% reduction in the value of Greenacre. Thereafter, the owner spends $2 million on the construction of homes as contemplated by Treasury's example. If the easement were subsequently extinguished, the proposed Proceeds Regulation would require the charity to receive 10% of all of the proceeds, including any proceeds attributable to the homes. If the landowner had borrowed money to construct the improvements, its share of the proceeds might be insufficient to repay the loan. NYLC said “[t]his would obviously be undesirable to the prospective donor and would constitute a windfall to the donee organization.” App. 228a.

The Landmarks Preservation Council of Illinois (“LPCI”) explained that the Proceeds Regulation “create[s] a potential disincentive to the donation of easements” because the Proceeds Regulation could leave a building owner in a situation where the proceeds he receives from a subsequent sale are insufficient to pay the donee and third parties, such as lenders. App. 240a. As an alternative, the LPCI suggested that the issue of post-extinguishment proceeds “should not be treated in the regulations, but should be negotiated, defined, and incorporated by the donor and donee into the conservation right document on a property by property basis.” App. 241a.

The Land Trust Exchange's comments identified similar problems and observed that “[t]his section may result in donors and donees having to pay real estate transfer taxes.” App. 232a. As an alternative, the Land Trust Exchange suggested “the tax benefit rule and the remote future event rule should make this section unnecessary.”² Id.

The Trust for Public Land stated, “[w]e have serious doubts whether the provision for the allocation of the [sale proceeds] following extinguishment of an easement could be enforced against anyone other than the original donor of the easement, if that is what is intended.” App. 242a. This commenter also suggested: “[W]e think this provision goes further than the regulations need to go. The remote future event rule of § 1.170A-13(g)(2) should suffice.” Id.

Other commenters, including the Maine Coast Heritage Trust and the Nature Conservancy, suggested that the rule needed more clarity and that donee charities should be entitled to both the original proportionate value and any subsequent increase in value attributable to market forces. See App. 233a-237a.

C. The Statement of Basis and Purpose

Treasury published the final regulations in the Federal Register on January 14, 1986. Income Taxes, Qualified Conservation Contributions, 51 Fed. Reg. 1496 (Jan. 14, 1986); see App. 243a-252a. It began its two-page (six column) statement of basis and purpose with a boilerplate statement that it was issuing the regulations “[a]fter consideration of all comments.” App. 244a. And then it gave no response whatsoever to any of the comments on the Proceeds Regulation. Indeed, it did not even mention the Proceeds Regulation.

Instead, the preamble stated that “the Internal Revenue Service concluded when the notice was issued that the regulations are interpretative and that the notice and public comment procedure requirement of 5 U.S.C. 553 did not apply.”³ App. 251a-252a.

D. The Land Trust Alliance Model Deed

If Treasury had agreed with the comments, it could have deleted the Proceeds Regulation or modified it to address the identified inequities. If Treasury had disagreed with the comments, it could have said so and explained why. Either way, taxpayers considering whether to conserve their land would have adjusted their behavior accordingly.

But Treasury remained silent.

In 2005, the Land Trust Alliance, a national land conservation organization that represents more than 1,000 member land trusts, published the second edition of The Conservation Easement Handbook (the “Handbook”). Elizabeth Byers & Karin Marchetti Ponte, The Conservation Easement Handbook (2d ed. 2005). When allocating proceeds, the Handbook's model excludes “any increase in value after the date of this grant attributable to improvements not paid for by Holder” from the value of the property. Id. at 463. The Handbook explains that the regulations do not address “appreciation in value due to improvements,” and that “allocation [consistent with the model deed] * * * is certainly called for as a matter of basic fairness.” Id. at 464.

As a result, this is a “clause commonly found in easements, particularly in the southeastern part of the country.” App. 172a.

Treasury's silence even infected the IRS. Just three months before Oakbrook donated its easement as described below, the IRS released to the public a private letter ruling interpreting the Proceeds Regulation to permit proceeds attributable to post-donation improvements to be excluded from the pool of proceeds that must be divided between the landowner and the charity. See I.R.S. P.L.R. 200836014 (dated June 3, 2008, and released to the public on September 5, 2008).⁴

E. Oakbrook's Easement Donation

Oakbrook's founder Duane Horton grew up in the Chattanooga, Tennessee area. After founding a successful construction business, he expanded into real estate development. App. 173a. In 2007, he formed Oakbrook Land Holdings, LLC to purchase and develop an overgrown 143-acre property outside Chattanooga, Tennessee on White Oak Mountain, a half-mile from the Tennessee/Georgia border. App. 173a-174a.

Mr. Horton intended to develop the property with residences and a commercial service area, but he had to overcome a number of obstacles. Mr. Horton successfully sought to have a portion of the property rezoned, obtained permits to build (and did build) a bridge across a creek that had rendered much of the property inaccessible, and installed a high-pressure sewer pump station. App. 174a.

In 2008, Mr. Horton learned about a conservation easement placed on nearby property and started researching conservation easements. App. 174a. Conserving a portion of the Oakbrook property appealed to him because it would protect the ridgeline for his nine children to enjoy. His interest piqued, he learned more about conservation easements from the Executive Director of the Southeast Regional Land Conservancy (the “Conservancy”), which agreed to draft the paperwork should Oakbrook decide to donate an easement to the Conservancy. Id.

When Mr. Horton told his investors about his plan to conserve a portion of the Oakbrook property, they initially balked because they wanted to develop the property. App. 174a. But Mr. Horton eventually persuaded them to agree to give up their right to develop 106 acres and to conserve it forever by donating a conservation easement. Id.

Mr. Horton was not an expert in the tax rules governing deductions for easement donations, so Oakbrook relied heavily on the Conservancy to draft the easement deed. App. 175a. The Conservancy used its standard deed language, which likely was drawn from other model agreements, including those produced by the Land Trust Alliance. App. 176a.

The Executive Director of the Conservancy testified that he “did not think it right for the Conservancy to share in any condemnation award or extinguishment proceeds attributable to any improvements” Oakbrook makes after the donation because the Conservancy “did not pay for those improvements.” Moreover, he believed that the Conservancy's deed, which guaranteed it “an absolute” amount, “is [al]ways going to exceed * * * the minimum required by the IRS.” App. 177a (alteration and omission in original).

Therefore, the Oakbrook deed's extinguishment clause provides that the Conservancy would receive a fixed amount of the proceeds equal to the difference between the fair market value of the property with and without the easement, as measured on the date of the donation, i.e., the amount of the tax deduction claimed by Oakbrook. App. 175a-176a. The clause also provides that the Conservancy would not be entitled to any portion of the proceeds attributable to improvements to the property made by Oakbrook after the donation. Id.

Oakbrook donated the easement to the Conservancy in 2008. App. 174a. Oakbrook is classified as a partnership for federal tax purposes, and on its 2008 tax return, it claimed a deduction of $9.545 million, which Oakbrook's appraiser determined to be the difference between the price at which it could sell the Oakbrook property for development and the residual value of the property under easement. App. 177a-178a.

F. The Tax Court Opinions

The IRS opened an examination of Oakbrook's 2008 tax return. In 2012, the IRS issued a Notice of Final Partnership Administrative Adjustment disallowing the deduction (on grounds other than the Proceeds Regulation). App. 178a. In 2013, Oakbrook petitioned the Tax Court for readjustment under 26 U.S.C. § 6226 (as in effect for the 2008 tax year). App. 10a-11a.

The IRS first made the argument that Oakbrook's deed did not comply with the Proceeds Regulation in a motion for partial summary judgment filed in August 2016. By that time, Oakbrook's conservation easement had been in place for almost eight years (where it remains today, without any suggestion of potential judicial extinguishment).

Judge Holmes presided over the Tax Court trial of the Oakbrook case in October 2016. App. 11a. In May 2020, the Tax Court issued two opinions in the case, a reviewed opinion by the full Tax Court regarding the validity of the Proceeds Regulation (with Judge Holmes in dissent) and a memorandum opinion by Judge Holmes containing the Court's factual findings and applying the reviewed opinion's legal conclusions.

The reviewed opinion, authored by Judge Lauber, concluded that the Proceeds Regulation is a legislative rule and that Treasury complied with the APA in issuing it. See App. 73a-81a. The Tax Court majority was of the view that “[t]he purpose of the 'judicial extinguishment' rule is plain on its face.” App. 80a. Moreover, Treasury was not required to explain the basis and purpose for each individual component of such a large regulation project. Id. Treasury made “numerous changes” to the proposed regulations and stated that it was adopting the regulations “[a]fter consideration of all comments.” App. 77a (quoting T.D. 8069, 1986-1 C.B. at 90).

Judge Toro authored a concurring opinion. See App. 89a-130a. In his view, section 170(h) itself (without resort to the Proceeds Regulation) required that the charity's share of the proceeds be calculated based on the fair market value as of the date of extinguishment, not the value as of the date of the gift as provided for in Oakbrook's deed.⁵ See App. 90a-97a.

Judge Toro proceeded to explain why the Proceeds Regulation “fails to meet the procedural requirements of the Administrative Procedure Act.” App. 90a; see App. 109a-130a. He observed that “Treasury was simply following its historical position that the APA's procedural requirements did not apply to these types of regulations.” App. 118a. Thus, “it is not difficult to see why that agency might think that a rather brief explanation, offered as it were out of its own generosity, should be good enough.” App. 119a.

Judge Toro explained that “[t]he record leaves no doubt that NYLC made comments 'that can be thought to challenge a fundamental premise' underlying the proposed agency decision.'” App. 123a (quoting Carlson v. Postal Regul. Comm'n, 938 F.3d 337, 344 (D.C. Cir. 2019) (quoting MCI WorldCom Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000))). “But Treasury gave no explanation” for how it “addressed the concerns expressed in the NYLC Comment Letter.” App. 124a. Thus, “Treasury's actions did not provide 'an explanation [that] is clear enough that its “path may reasonably be discerned.”'” Id. (quoting Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016) (quoting Bowman Transp., Inc. v. Ark. Best Freight Sys., Inc., 419 U.S. 281, 286 (1974))).⁶

Judge Holmes penned a lengthy dissent, which opened with the observation that “[o]ur holding today will likely deny any charitable deduction to hundreds or thousands of taxpayers who donated the conservation easements that protect perhaps millions of acres.” App. 131a. He explained that thirteen of the 90 comments on the regulations project had “specifically expressed concern with” the Proceeds Regulation. App. 137a. After reviewing the comments, he concluded that “[t]hese are multiple serious comments that identified problems with the regulation when it was proposed and explained why those problems mattered. Comments with this level of detail and dispute among the commenters would seem enough to conclude that Treasury had before it 'significant' comments. Such comments deserve responses.” App. 142a.

Judge Holmes made the practical point that “[h]ad Treasury responded in any meaningful way to the comments that it received, such as those from NYLC, neither donors and donees, nor courts” would have to grapple with the issues raised in the case. App. 143a (citing the IRS's 2008 private letter ruling). “Such widespread industry confusion is precisely what APA section 553 is intended to avoid.” Id.

Judge Holmes addressed each of the majority's arguments for letting the regulation stand. He explained that the commenters raised significant issues with the proposed regulation that merited a response. Contrary to the majority's claim that commenters did not propose alternatives, commenters “wrote in to propose other alternatives to achieve the Code's requirement that the conservation purpose of a donated easement be preserved 'in perpetuity.'” App. 149a. He explained that Treasury's unsupported statement that it had considered “all comments” was insufficient under Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983) (decided three years before the Treasury finalized the Proceeds Regulation), and Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 223 (2016). App. 150a-159a. Finally, he explained that the majority's determination that “minor changes to the proposed regulation” were a sufficient basis on which to uphold the regulation was incorrect because the changes to this proposed regulation did not allow a reviewing court to “infer an agency's reasoned response to a significant comment.” App. 160a. Accordingly, Judge Holmes said that the court should “hold that Treasury's failure to respond to significant comments in the Final Rule's statement of basis and purpose violated APA section 553(c).”⁷ App. 161a.

Nevertheless, bound by the Tax Court's reviewed opinion, Judge Holmes denied Oakbrook's deduction in his memorandum opinion. App. 171a-207a.

G. The Sixth Circuit's Decision

The Sixth Circuit, in an opinion by Judge Moore and joined by Judge Gibbons, affirmed. The Sixth Circuit first held that the IRS had waived any argument that Oakbrook's deed did not comply with the statute by not raising the argument before the Tax Court. App. 12a-14a. The Sixth Circuit majority observed that Judge Toro's concurring opinion in the Tax Court had “raised this issue sua sponte with neither the majority nor the dissent addressing it.” App. 13a. Moreover, the Sixth Circuit observed that the argument depended on economic projections “not in the record” and that instead the IRS had relied on data pulled from the websites Zillow.com and Neighborhoodsout.com while it was preparing its appellate brief. The Sixth Circuit stated, “we are hesitant to rely on economic projections that have not been vetted by the adversarial process.” App. 13a & n.4.

Turning to the Proceeds Regulation, the majority first addressed the adequacy of Treasury's concise statement of basis and purpose. The majority concluded that “the statutory text and legislative history that Treasury contemplated in promulgating [the Proceeds Regulation] illuminate the regulation's basis and purpose: to provide an administrable mechanism that would ensure that an easement's conservation purpose as per I.R.C. § 170(h)(5)(A) continued to be protected should the interest be extinguished.”⁸ App. 19a. Therefore, “its concise statement suffices.” Id.

The majority then held that none of the comments regarding the Proceeds Regulation required Treasury's response. NYLC's comment did not require any response because it “did not engage with I.R.C. § 170(h)(5)(A)'s perpetuity requirement and whether the rule served this end.” App. 23a. A comment from the Landmarks Preservation Council of Illinois did not require a response because it was “wrong” and therefore “did not raise a significant issue.” App. 23a-24a. The Land Trust Exchange and the Trust for Public Land suggested that a different part of the regulation package (26 C.F.R. § 1.170A-14(g)(3)) was sufficient to protect Treasury's concerns about perpetuity. App. 24a. That comment required no response because “[n]either organization provided any indication of how expanding [paragraph (g)(3)] would fulfill Congress's express aim in I.R.C. § 170(h)(5)(A) of limiting deductions to those instances where an easement's conservation purpose can be safeguarded forever.” Id.

The majority opinion acknowledged “a recent decision by the Eleventh Circuit that held the proceeds regulation to be procedurally invalid under the APA. See Hewitt v. Commissioner, 21 F.4th 1336, 1339 (11th Cir. 2021).” App. 27a. It stated that “we find that decision's reasoning to be unpersuasive.” Id. It observed that the Eleventh Circuit had found NYLC's comment significant because it “raised significant concerns about possible deterrent effects that the proceeds regulation could have on donations.” Id. In the majority's view, “highlighting this point overlooks a crucial condition that Congress demanded be met by donors seeking deductions: an easement's conservation purpose must be 'protected in perpetuity.'” Id.

Judge Guy concurred in the judgment. He would have found that the “the regulation is procedurally invalid under the Administrative Procedure Act (APA) for substantially the same reasons stated by the Eleventh Circuit in [Hewitt] and by the concurring and dissenting opinions in [the Tax Court's Oakbrook opinion].” App. 39a. (He concurred, rather than dissented, because he credited the argument that the Sixth Circuit held the IRS had waived. App. 53a-59a.)

Judge Guy explained that NYLC's comment was significant for two reasons. App. 43a-44a. First, it showed that the regulation would thwart one of the purposes of the statute by deterring prospective donors. App. 43a. Second, the comment cast doubt on the reasonableness of the regulation's formula and further showed that the proposed regulation would “obviously” deter donors. Id. “The bottom line is there is no doubt that NYLC's comment '“can be thought to challenge [two] fundamental premise[s]” underlying the proposed agency decision' and Treasury failed to respond.” App. 45a (quoting Carlson v. Postal Regul. Comm'n, 938 F.3d 337, 344 (D.C. Cir. 2019) (quoting MCI WorldCom Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000))).

Judge Guy reasoned that the majority had erred by “treat[ing] one other statutory goal — perpetuity — as a trump card, such that Treasury was free to ignore any comment unless the comment showed that the regulation failed to satisfy the perpetuity requirement.” App. 48a. (cleaned up). He rejected the majority's efforts to discern what Treasury was thinking: “Treasury was required to explain to the public, why post-donation improvements are not taken into account and why it balanced the competing statutory interests in favor of adopting a fixed-ratio formula.”⁹ App. 49a.

Notwithstanding his view that the Proceeds Regulation was invalid under the APA, Judge Guy would have excused the IRS's failure to raise its statutory argument in the Tax Court and hold that Oakbrook's deed did not comply with the statute's perpetuity requirement because it fixed the amount to which the charity was entitled at the time of grant rather than at the time of extinguishment. App. 53a-59a.

The Sixth Circuit denied rehearing en banc on July 6, 2022. App. 1a.

REASONS FOR GRANTING THE PETITION

I. The Sixth Circuit's Decision Conflicts with the Eleventh Circuit's Hewitt Decision.

The Sixth Circuit's decision created a square — and widely acknowledged — conflict with the Eleventh Circuit regarding the validity of the Proceeds Regulation. See Sup. Ct. R. 10(a).

In Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), the Eleventh Circuit held that “the Commissioner's interpretation of § 1.170A-14(g)(6)(ii) is arbitrary and capricious and violates the APA's procedural requirements.” Id. at 1339. The court began by listing the APA's procedural requirements for legislative rules as set forth in Perez v. Mortgage Bankers Ass'n, 575 U.S. 92 (2015). The most important of these for present purposes is that “the agency 'must consider and respond to significant comments received during the period for public comment.'” Hewitt, 21 F.4th at 1342 (quoting Perez, 575 U.S. at 96).

The court reviewed the “most extensive” comments submitted by the New York Landmarks Conservancy, along with comments and concerns from six other conservation organizations about the Proceeds Regulation. Id. at 1345-1346. But “Treasury did not discuss or respond to the comments made by NYLC or the other six commenters concerning the extinguishment proceeds regulation.” Id. at 1346 (citing 51 Fed. Reg. at 1497-1498).

The Eleventh Circuit concluded that the comments from NYLC “challenged a fundamental premise underlying Treasury's proposed regulations by 'in effect counter[ing] that the proposed rule on future donor improvements was contrary to those policy decisions [mentioned in the proposed regulations], would lead to inequitable results that were inconsistent with the statute, and would deter future contributions.'” Id. at 1351 (quoting App. 123a (Toro, J., concurring in the result)). Thus, “[s]imply put, NYLC's comment was significant and required a response by Treasury to satisfy the APA's procedural requirements.” Id.

In rejecting the IRS's arguments that NYLC's comment was not significant, the Eleventh Circuit quoted Treasury's preamble to the proposed regulations, which stated that the “regulations reflect the major policy decisions made by the Congress and expressed in the[ ] committee reports.” Id. at 1351 (alteration in original) (quoting 48 Fed. Reg. at 22,940). The IRS argued that NYLC's comment was not significant because “Treasury's 'primary (if not exclusive) consideration in crafting the proceeds regulation was the meaning of the statutory perpetuity requirement' and that, as such, NYLC was required 'to explain why the rule would not further the goal of ensuring that the conservation purpose embodied in the perpetual use restriction would be protected in perpetuity as required by the statute.'” Id. at 1352 (quoting IRS Br. at 29-30). The Eleventh Circuit rejected the IRS argument as “inconsistent with the committee reports Treasury purportedly relied on.” Specifically, “one of the purported purposes set forth in the committee reports was to allow deductions for the donation of conservation easements to encourage donation for such easements. See S. Rep. No. 96-1007, at 9.” Id. Thus, “NYLC's comment was specific to, and casted doubt on, the reasonableness of the proceeds regulation in light of one of Congress's committee reports.” Id.

The Eleventh Circuit rejected additional IRS arguments that Treasury's revisions to the proposed Proceeds Regulation in the final regulation support its representation that it considered “all comments” in the final regulations' preamble. The Eleventh Circuit held the IRS to its concession that the revisions were “simply 'clarifications' in response to other comments,” and the court therefore held that the revisions did not “provide any indication that Treasury was responding to NYLC's significant comment about the post-donation improvements issue.” Id. at 1353.

In creating the circuit split, the Sixth Circuit found Hewitt's “reasoning to be unpersuasive.” App. 27a. It found that Treasury was not required to respond to the New York Landmarks Conservancy's comment because “the comment did not engage with I.R.C. § 170(h)(5)(A)'s perpetuity requirement and whether the rule served this end.” App. 23a. The Sixth Circuit stated that “[a]lthough encouraging the donation of conservation easements is undeniably a goal of the statute, highlighting this point overlooks a crucial condition that Congress demanded be met by donors seeking deductions: an easement's conservation purpose must be 'protected in perpetuity'.” App. 27a (quoting 26 U.S.C. § 170(h)(5)(A)).

Hewitt and Oakbrook thus are in direct conflict regarding the validity of the Proceeds Regulation, the significance of the comments submitted to Treasury, and the obligations of agencies to explain their rules. Those acknowledging the existence of the split include the Tax Court judges tasked with deciding whether to reaffirm their Oakbrook decision or instead to follow Hewitt. The Tax Court is a court of nationwide jurisdiction, and it has a “rule of applying the law of the court of appeals to which an appeal would be taken.” Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156, 164 & n.14 (1981) (citing Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd on other grounds, 445 F.2d 985 (10th Cir. 1971)). Therefore, in cases appealable to the Eleventh Circuit, the Tax Court is following Hewitt. See, e.g., Sparta Pink Prop., LLC v. Commissioner, T.C. Memo. 2022-88 (acknowledging the split and denying IRS motion for partial summary judgment under the Proceeds Clause); Thompson v. Commissioner, T.C. Memo. 2022-80 (same). But in cases appealable to other courts of appeals, the Tax Court has been deferring the choice whether to follow Hewitt or Oakbrook. For example, in Gray Mare Farms, LLC v. Commissioner, a case that may be appealable to the Fourth Circuit, Tax Court Judge Cohen cited Hewitt and Oakbrook in observing that the “the validity of [the Proceeds R]egulation is the subject of a conflict between the Circuit Courts of Appeal” and that “summary judgment on the disputed issue of law is premature and unproductive.” Gray Mare Farms LLC v. Commissioner, No. 6682-20 (T.C. July 25, 2022) (order denying IRS motion for partial summary judgment).

In the end, “[t]he split in the circuits is undeniable, and millions, if not billions, of tax dollars are at stake. Also at stake are millions of acres of land and species of birds and animals that may or may not be protected pending the outcome of this issue.” Nancy Ortmeyer Kuhn, A Split in the Circuits: Will Supreme Court Take Up Easement Challenge?, Bloomberg Law (Apr. 5, 2022), https://news.bloomberglaw.com/environ-ment-and-energy/a-split-in-the-circuits-will-supreme-court-take-up-easement-challenge. The Court should grant certiorari to determine whether the comments that Treasury received were significant enough to merit a response from Treasury.

II. The Sixth Circuit's Decision Conflicts with Decisions of Other Courts of Appeals Regarding the Significance of Comments Outside the Tax Context

The square split between Oakbrook and Hewitt regarding the validity of the Proceeds Regulation is a sufficient reason for this Court to grant the petition. But the effects of the Sixth Circuit's decision in this case stretch far beyond tax law. This Court held in Mayo Foundation for Medical Education & Research v. United States, 562 U.S. 44 (2011), that the administrative law principles that govern the tax system are the same as those that apply to other agencies. Therefore, the Sixth Circuit's decision in this case may be invoked by other administrative agencies to disregard comments they receive from the public. Professor Kristin E. Hickman, who currently serves as Chair of the Committee on Judicial Review of the Administrative Conference of the United States, has explained, “[t]his split has tremendous implications not only for Treasury but for agencies across the administrative state that dedicate substantial effort to responding to comments submitted in the course of notice-and-comment rulemaking.” Kristin E. Hickman, The Federal Tax System's Administrative Law Woes Grow, ABA Tax Times (May 2022). This is because “the key split between the Sixth and Eleventh Circuits over the requirement that an agency respond to significant regulations comes down to a fundamental disagreement over what makes a comment significant.” Id.

In his dissenting opinion in the Tax Court, Judge Holmes observed that, with respect to when a comment is significant, “there is not a precise definition in the caselaw — rather there are themes.” App. 147a. The themes that Judge Holmes identified included:

• An agency should address why it rejected proffered alternatives. See Indep. U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847, 852 (D.C. Cir. 1987) (faulting the agency for “fail[ing] to give an adequate account” of “why alternative measures were rejected”).

• A reviewing court (and the public) “should be able to 'see what major issues of policy were ventilated by the informal proceedings and why the agency reacted to them as it did.'” Auto. Parts & Accessories Ass'n v. Boyd, 407 F.2d 330, 338 (D.C. Cir. 1968).

• Comments that are significant are those, “which, if true, raise points relevant to the agency's decision and which, if adopted, would require a change in an agency's proposed rule.” Home Box Off., Inc. v. FCC, 567 F.2d 9, 35 n.58 (D.C. Cir. 1977).

See App. 147a-148a. The Sixth Circuit's treatment of the comments Treasury received regarding the Proceeds Regulation conflicts with the D.C. Circuit's articulation of these themes. Contrary to the Sixth Circuit's opinion, the comments indeed “identified inequities with the regulation, suggested alternatives, identified potential negative effects on the willingness of donors to make donations, uncovered potential conflicts with state law, and simply asked for more clarity.” App. 150a (Holmes, J. dissenting).

In his Sixth Circuit concurring opinion, Judge Guy highlighted two specific cases in which the Courts of Appeals invalidated regulations based on failure to respond to comments that would have been deemed not significant under the Sixth Circuit's decision. App. 47a-49a (Guy, J., concurring in the judgment).

First, in United States v. Nova Scotia Food Products Corp., 568 F.2d 240 (2d Cir. 1977), the Second Circuit confronted a regulation promulgated under a statute that deemed food to be “adulterated” “if it has been prepared, packed, or held under insanitary conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health.” Id. at 244 (quoting 21 U.S.C. § 342(a)(4)). To prevent botulism, the Food and Drug Administration proposed regulations that required the fish to be cooked to a certain internal temperature and in a certain salinity. Nova Scotia Food Products Corp. (“Nova Scotia”) commented that the proposed temperature and salinity specifications “will completely destroy the product.” Id. at 245. The Second Circuit, after reviewing Judge Friendly's opinion in Associated Industries of New York State, Inc. v. U.S. Department of Labor, 487 F.2d 342, 352 (2d Cir. 1973), held that “to sanction silence in the face of such vital questions would be to make the statutory requirement of a 'concise general statement' less than an adequate safeguard against arbitrary decision-making.” Nova Scotia, 568 F.2d at 253. Nova Scotia's comment was significant because it highlighted an unintended consequence of a proposed rule — unrelated to the specific statutory purpose (preventing botulism) that the regulation was promulgated to accomplish. Under the Sixth Circuit's definition of “significant comments” in this case, Nova Scotia's comment could not have been significant because it did not address the botulism-prevention statutory purpose.¹⁰

Second, in Carlson v. Postal Regulatory Commission, 938 F.3d 337 (D.C. Cir. 2019), the agency decided to increase the price of stamps by five cents in order to achieve one statutory goal of “simplicity of structure.” Id. at 342 (quoting 39 U.S.C. § 3622(c)(6)). Mr. Carlson commented that a five-cent increase was “inconsistent with the statutory objective of 'establish[ing] and maintain[ing] a just and reasonable schedule for rates.'” Id. (alteration in original) (quoting 39 U.S.C. § 3622(b)(8)). The D.C. Circuit held that this comment was significant “because [it] challenged the Commission's primary rationale by raising substantial countervailing statutory considerations.” Id. at 347 (citing MCI WorldCom, Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000)). That is precisely what the New York Landmarks Conservancy's comment did in this case.

This Court recently emphasized the important role that the APA plays in encouraging active dialog between administrative agencies and the regulated public. “Notice and comment gives affected parties fair warning of potential changes in the law and an opportunity to be heard on those changes — and it affords the agency a chance to avoid errors and make a more informed decision.” Azar v. Allina Health Servs., 139 S. Ct. 1804, 1816 (2019) (citing 1 Kristen E. Hickman & Richard J. Pierce, Jr., Administrative Law § 4.8 (6th ed. 2019)). Treasury's decision not to respond to the comments that it received regarding the Proceeds Regulation denied the regulated public fair warning of the IRS's eventual litigating position and led to the confusion reflected in the 2008 IRS private letter ruling that the IRS now claims are incorrect. As a result, the IRS has denied hundreds if not thousands of deductions with a resulting flood of litigation.

Allowing the Sixth Circuit's cramped definition of “significant comments” to stand would serve only to ensure that similar scenarios will play out in other administrative law contexts.

III. The Split Is Unlikely to Resolve on Its Own and This Case Is an Appropriate Vehicle for Resolution of the Split

This Court has long held that “[t]he revenue laws are to be construed in the light of their general purpose to establish a nationwide scheme of taxation uniform in its application,” United States v. Irvine, 511 U.S. 224, 238 (1994) (quoting United States v. Pelzer, 312. U.S. 399, 402-403 (1941)); see also Wash. Energy Co. v. United States, 94 F.3d 1557, 1561 (Fed. Cir. 1996) (“[T]he need for uniformity of decision applies with special force in tax matters.”). Absent this Court's intervention, the outcome in this case will turn not on uniform nationwide application of tax law, but on geography: If the Oakbrook property were located just a half-mile to the south on the other side of the Tennessee/Georgia border (and therefore in the Eleventh Circuit), Hewitt would dictate the opposite result.

It is unlikely that the circuit split will resolve on its own. The Sixth Circuit denied rehearing en banc in this case, and a recent Eleventh Circuit opinion concluded that “Hewitt invalidated the regulation on which the tax court relied in disallowing Glade Creek's charitable contribution deduction. We must follow Hewitt.” Glade Creek Partner, LLC v. Commissioner, No. 21-11251, 2022 WL 3582113, at *3 (11th Cir. Aug. 22, 2022) (citation omitted). The Tax Court is deferring additional rulings regarding the validity of the Proceeds Regulation in cases appealable to other Courts of Appeals. In the meantime, donors who wish to conserve their property but contemplate future improvements after the easement is granted are likely to be chilled from conservation by the ongoing uncertainty.

This case presents an appropriate vehicle for resolution of the split. The view expressed in Judge Toro's concurring opinion in the Tax Court and Judge Guy's concurring opinion in the Sixth Circuit that Oakbrook's easement deed is inconsistent with the statute's “protected in perpetuity” requirement does not pose any obstacle to this Court's review. The IRS waived that argument by not raising it in the Tax Court, and the Sixth Circuit correctly held that it would be inappropriate to excuse that waiver given that the argument depended on economic projections from commercial real estate websites that the IRS had not introduced into the record and thus that had not been subjected to the adversarial process. It would likewise be inappropriate to deny certiorari based on this unpreserved argument.

Oakbrook properly challenged the validity of the Proceeds Regulation under the APA, and the IRS did not raise any defenses to assertion of the APA challenge. Seventeen Tax Court judges fully aired the competing arguments in three separate opinions. The Eleventh Circuit and the Sixth Circuit considered the arguments and came to conflicting conclusions. The issues are fully developed and squarely presented to this Court. This Court should grant review to restore nationwide uniformity to the application of the tax law governing land conservation and charitable contribution deductions.

CONCLUSION

For the foregoing reasons, the Court should grant the petition for a writ of certiorari.

Respectfully submitted,

Michelle Abroms Levin
Gregory P. Rhodes
Logan C. Abernathy
DENTONS US LLP
305 Church Street SW
Suite 800
Huntsville, AL 35801

Isabelle K. Farrar
Skadden, Arps, Slate,
Meagher & Flom LLP
500 Boylston Street
Boston, MA 02116

David W. Foster
Counsel of Record
Armando Gomez
Skadden, Arps, Slate,
Meagher & Flom LLP
1440 New York Ave., NW
Washington, D.C. 20005
(202) 371-7000
david.foster@skadden.com

October 4, 2022