Champions Retreat Golf Founders, LLC v. Commissioner

In Champions Retreat Golf Founders, LLC v. Comm’r of Internal Revenue, the United States Tax Court presided over a dispute regarding a charitable contribution tax deduction claimed by Champions Retreat Golf Founders, LLC (“Champions Retreat”) for a conservation easement. The central legal issue revolves around whether the claimed deduction meets the requirements of Section 170 and whether the easement valuation was accurate. Following extensive litigation, culminating in a remand by the Eleventh Circuit Court of Appeals, Champions Retreat pursued an award for reasonable litigation or administrative costs, asserting their status as the prevailing party.


On December 16, 2010, Champions Retreat conveyed an easement to the North American Land Trust (“NALT”) that covered 348.51 acres of the golf course. For the 2010 tax year, Champions Retreat claimed a $10,427,435 charitable contribution deduction on its Form 1065, U.S. Return of Partnership Income, for its grant of the easement to NALT. This easement covered a significant portion of their golf course. In November 2014, the Internal Revenue Service (“IRS”) issued a notice of final partnership administrative adjustment (“FPAA”), denying Champions Retreat’s deduction with the position that the conservation easement did not meet the requirements of Section 170 and the easement did not have a value greater than zero. Champions Retreat contested this decision.

The Tax Court initially ruled against Champions Retreat, agreeing with the IRS that the easement did not meet Section 170’s requirements. However, the Eleventh Circuit Court of Appeals reversed this decision, finding the deduction valid but remanding the case for a reassessment of the easement’s value. Upon remand, the Tax Court valued the easement, and Champions Retreat sought litigation costs, claiming they were the prevailing party.


Section 7430 provides for the award of litigation or administrative costs to a taxpayer in a proceeding brought by or against the United States involving the determination of any tax, interest, or penalty where the taxpayer can demonstrate that it:

  • (1) is the “prevailing party,”
  • (2) has exhausted administrative remedies within the IRS,
  • (3) has not unreasonably protracted the proceeding, and
  • (4) has claimed “reasonable” costs.

The IRS disputed whether Champions Retreat qualified as the “prevailing party” and whether it has claimed “reasonable” costs but conceded that Champions Retreat exhausted all available administrative remedies and did not unreasonably protract the proceeding.

To be the prevailing party, a party must “substantially prevail[ ]” with respect to the amount in controversy or “the most significant issue or set of issues presented” and must satisfy specific net worth requirements. However, a party will not be treated as the prevailing party if the IRS establishes that “the position of the United States in the proceeding was substantially justified.”

Although the IRS agreed that Champions Retreat “substantially prevailed” in the case, it argued that its position in the proceeding was substantially justified, and therefore, Champions Retreat was not the prevailing party. The court analyzed whether the IRS’s position was substantially justified with respect to the requirements of Section 170, the value of the easement, and the conceded issues separately.

The legal framework governing conservation easements under Section 170(h) sets high standards for qualifying donations as charitable contributions. The court scrutinized whether the easement donated by Champions Retreat fulfilled these conservation purposes, considering the ecological impact of maintaining a golf course within the designated area. The IRS’s position that such a managed landscape might not meet the statutory requirements for conservation purposes was deemed to have substantial justification, given the precedent and regulatory guidance on what constitutes a “natural habitat.”

The valuation of the conservation easement presented a contentious issue involving competing appraisals and valuation methods. The “before and after” valuation method, endorsed by Treas. Reg. 1.170A-14(h)(3), requires a nuanced analysis of the property’s highest and best use before and after the easement donation. The court’s evaluation of the IRS’s challenge to Champions Retreat’s appraisal acknowledged the inherent uncertainties and judgments involved in such valuations. The IRS’s skepticism of the petitioner’s appraisal, which posited a dramatic difference in value contingent upon the easement, was found to be justified, especially considering the alternative valuations presented and the expert testimonies.

In this case, the IRS conceded several alternative theories for decreasing the charitable contribution deduction. Because the IRS did so before trial, there was no evidence in the record or the benefit of any briefing specific to these conceded issues. In addition, Champions Retreat did not indicate how much of its litigation costs were allocable to addressing the conceded issues. Thus, the court determined that it could not award litigation costs corresponding to the conceded issues regardless of whether it could have concluded those alternative theories were not substantially justified.

The court determined that the IRS had shown its position was substantially justified under Section 7430(c)(4)(B)(i), and therefore, Champions Retreat was not considered a prevailing party entitled to recover costs. Given the court’s findings on the prevailing party status, a detailed examination of the reasonableness of the claimed costs was deemed unnecessary.


The Tax Court, on remand, determined a proper deduction amount of $7,834,091. Subsequently, Champions Retreat filed for reasonable litigation or administrative costs. However, the Tax Court denied this motion. It found that the IRS’s position was substantially justified, focusing on whether the easement served a conservation purpose and its valuation. Accordingly, Champions Retreat did not meet the criteria as a prevailing party under Section 7430 and, thus, was not entitled to recover litigation or administrative costs.

This article first appeared in the Estate Planning Journal.

Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or [email protected].