10th Circuit Disallows Conservation Easement Deduction Where Mortgage Not Subordinated at Time of Donation

Earlier this week, the Tenth Circuit issued its opinion in Mitchell v. CIR, 2015 WL 64927 (10th Cir. 2015), affirming the Tax Court’s denial of the taxpayers’ (Charles and Ramona Mitchell) charitable contribution deduction for their donation of a conservation easement on real property that was, at the time of the donation, subject to an unsubordinated mortgage (held by Mr. Sheek). The court explained:

In sum, we conclude the regulations do not permit a charitable contribution deduction unless any existing mortgage on the donated property has been subordinated, irrespective of the likelihood of foreclosure. Therefore, the Tax Court correctly held the Commissioner was entitled to disallow the Mitchells’ charitable contribution deduction because Mr. Sheek’s mortgage encumbering the Lone Canyon Ranch was not timely subordinated.

Check out Jessica Owley’s post on the Land Use Law Prof blog for further discussion of the opinion.