Charitable donation tax deduction: Whether a petitioner could claim a “partnership-level deduction” in the tax year in question for the “conservation easement” granted to a charity; Untimely correction; Whether the deduction was overstated; Documentation of related expenses; Underpayment penalties

The court held that because petitioner-Corning Place improperly claimed a partnership-level charitable deduction that belonged to its sole partner, and did not correct the error in a timely manner, the Tax Court properly upheld the IRS’s denial of the deduction. In 2015, Corning Place paid $6 million to buy a property in downtown Cleveland. Sixteen months later, it created an “Historic Preservation and Conservation Easement” (the Garfield easement) and donated the right to modify the building to a charity. On its 2016 tax return, it claimed a $22 million tax deduction for the donation, and a deduction for its easement-related expenses. The IRS disallowed the deduction and imposed penalties, asserting that Corning Place had claimed the deduction for the wrong tax year, overstated the value of the easement, and failed to adequately document its expenses. It assessed $8,993,400 in penalties. After a trial, the Tax Court found for the IRS. Corning Place is an LLC. The court explained that it had donated the easement on 5/25/16. But its taxable year began on 7/7/16. On 5/15/16, petitioner-Corning Place Investment had become its sole partner, and it remained so until 7/7/16. Thus, for those seven weeks, “Corning Place did not exist as a taxable partnership. The correct taxpayer with respect to the deduction thus was Investment, not Corning Place.” Corning Place acknowledged that claiming the deduction in its 2016 return was a “reporting mistake.” The court rejected its arguments that the deduction should be allowed anyway. “The question is whether Corning Place may claim the deduction for a period of time that its tax year did not cover.” While it was possible that Investment could claim a deduction during those weeks, this “speaks to any future partner-level tax proceedings, not to the propriety of Corning Place’s return.” Further, the court found that Investment’s attempt to correct the error in 9/20 was “untimely.” The court also upheld the Tax Court’s ruling that Corning Place had overstated the deduction. “The Tax Court did not err, let alone clearly err, in rejecting a valuation premised on a 34-story addition to the Garfield. [It] appropriately” expressed concern whether the proposed construction was “physically possib[le],” and that the chances were slim for regulatory approval. It “did not err, clearly or otherwise, in rejecting Corning Place’s $22 million valuation for a charitable easement with respect to a property that it just purchased for $6 million.” The court also upheld the Tax Court’s rulings as to insufficient documentation of expenses and the imposition of negligence and overstatement penalties. Affirmed.