Walker Church Greene 819, LLC, 830 Oconee, LLC, Tax Matters Partner v. Commissioner

Partners' Last-Minute Bid to Block Settlement Fails

In a dispute over a $48.9 million conservation easement deduction, the Tax Court has denied a motion by 40 partners to intervene and reject a settlement agreement negotiated by their Tax Matters Partner (TMP). The court found that the partners, holding a majority interest, failed to meet the high bar required to overturn a settlement reached under Tax Equity and Fiscal Responsibility Act (TEFRA) procedures, emphasizing the binding nature of the TMP's actions and the difficulty of late-stage intervention.

The Deal on the Table: Penalties Slashed, Deductions Denied

The dispute centered on a $48.9 million charitable contribution deduction that Walker, a Georgia limited liability company treated as a partnership, claimed on its 2016 tax return. The deduction stemmed from the donation of a conservation easement encumbering 754.79 acres of property to the Atlantic Coast Conservancy, Inc. Walker also claimed an "other deduction" of $2,351,099.

The IRS, in its Notice of Final Partnership Administrative Adjustment (FPAA), wholly disallowed the deduction related to the conservation easement. Furthermore, the IRS determined a 40% gross valuation misstatement penalty under Section 6662(h). Section 6662(h) increases the standard 20% accuracy-related penalty to 40% when there is a substantial valuation misstatement. As an alternative, the IRS asserted either a 20% reportable transaction penalty under Section 6662A or a 20% penalty for negligence, a substantial understatement of income tax, or a substantial valuation misstatement under Section 6662(c), (d), or (e).

Litigation ensued, and in August 2024, the Tax Matters Partner (TMP) accepted a settlement offer from the IRS. The terms of the settlement were significant: the charitable contribution deduction for the conservation easement was disallowed entirely. However, the 40% penalty was slashed to a 10% accuracy-related penalty under Section 6662(h). Further sweetening the deal, the settlement allowed an additional "other deduction" of $11,268,651, and stipulated that this increase would not be subject to the 2% adjusted gross income (AGI) floor under Section 67. Section 67, prior to its amendment, limited certain miscellaneous itemized deductions to the extent they exceeded 2% of a taxpayer’s AGI.

The 'Silent Majority' Wakes Up

Despite the apparent benefits of the settlement, it didn't sit well with everyone. On April 7, 2025, just as the settlement was being finalized, 40 partners of Oconee timely filed 40 separate Motions for Leave and Notices of Election to Participate pursuant to Tax Court Rule 248(b)(4). These 40 partners, collectively owning 64.27% of Oconee, represented a significant portion of the entity. To put that in perspective, they owned 62.27% of Walker, the partnership at the center of the dispute. The objecting partners weren't monolithic; the largest three owned 14.18%, 10.63%, and 7.09% of Oconee, respectively, while the smallest three owned only 0.09%, 0.09%, and 0.13%. On average, each objecting partner owned 1.61% of Oconee. Each motion stated that the objecting partner "rejects the . . . settlement and wishes to participate pursuant to" Rule 248(b)(4). Their argument, in essence, was that the settlement didn't adequately represent their interests, but they provided little specific detail to back up this claim.