## Facts

- Charles and Susan Glass bought a 10-acre Lake Michigan shoreline parcel in Emmet County, Michigan, containing a cabin, guest cottage, and garage.
- The property included a steep bluff and beach area described as relatively natural and ecologically significant.
- The bluff-and-beach area was associated with wildlife and plant habitat, including bald eagles and plant species classified as threatened or endangered.
- Little Traverse Conservancy (LTC), a nonprofit conservation organization, sought shoreline conservation easements in the area.
- In 1992 and 1993, the Glasses granted two recorded conservation easements to LTC covering most of their shoreline frontage (about 410 of 460 feet), totaling just over one acre.
- The easements substantially restricted development and land disturbance in the encumbered area, while reserving limited rights for small structures and certain vegetation management for safety, views, and paths.
- The Glasses obtained appraisals and claimed charitable contribution deductions on their 1992 and 1993 federal income tax returns for the easement donations.
- The IRS issued a deficiency notice and ultimately contested whether the easements qualified as “qualified conservation contributions” under I.R.C. § 170(h), disputing only whether they were made “exclusively for conservation purposes.”
- The Tax Court held the easements satisfied the “relatively natural habitat” conservation purpose and the exclusivity/perpetuity requirements; valuation was later settled.
- The Commissioner appealed to the Sixth Circuit, challenging the Tax Court’s findings on conservation purpose and exclusivity.

## Issues

1. Whether the easements protected a “relatively natural habitat of fish, wildlife, or plants, or similar ecosystem” under I.R.C. § 170(h)(4)(A)(ii).
2. Whether the easements were granted “exclusively for conservation purposes” in perpetuity under I.R.C. § 170(h)(5), despite reserved rights and questions about enforcement.

## Decision

- The Sixth Circuit affirmed the Tax Court.
- The court held the easements satisfied the conservation purpose requirement because their purpose and effect protected bald eagle and threatened/endangered plant habitat, qualifying as protection of a relatively natural habitat under § 170(h)(4)(A)(ii).
- The court held the easements met the “exclusively for conservation purposes” and perpetuity requirements because they were perpetual, legally enforceable restrictions held by a qualified organization with commitment and resources to enforce them.
- Because the habitat prong was satisfied, the court did not address alternative conservation-purpose theories (such as open space preservation).

## Legal Principles

- A “qualified conservation contribution” under I.R.C. § 170(h) requires a qualified real property interest donated to a qualified organization exclusively for statutorily defined conservation purposes.
- “Protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem” under § 170(h)(4)(A)(ii) can be shown through credible evidence that threatened or endangered species use, or may reasonably use, the encumbered property.
- The “exclusively for conservation purposes” requirement in § 170(h)(5) is satisfied where restrictions are perpetual and enforceable and reserved rights are sufficiently limited so they do not materially impair the conservation interests protected.
- On appeal, the Tax Court’s factual findings are reviewed for clear error, while legal conclusions are reviewed de novo.

## Conclusion

The Sixth Circuit upheld the taxpayers’ deductions for conservation easement donations, concluding the easements protected relatively natural habitat and were perpetual, enforceable restrictions held and administered exclusively for conservation purposes even though the donors retained limited, circumscribed use rights.


Glass v. Comm’r of Internal Revenue, 471 F.3d 698 (6th Cir. 2006)