## Facts

- Great Northern Nekoosa Corporation (GNN) owned large timberlands in northern Maine.
- In 1981, GNN granted Maine two perpetual conservation easements covering about 8,000 acres along river corridors.
- GNN claimed an IRC § 170 charitable contribution deduction, treating the grants as “qualified conservation contributions” under § 170(h).
- The easement deeds expressly reserved to GNN rights to extract minerals, including sand and gravel, from easement property.
- The deeds permitted mineral extraction using methods that, in practice, required removal of overburden (surface-mining techniques).
- The sand and gravel deposits were covered by soil and were not exposed at the surface.
- Surface gravel-mining operations occurred within easement areas beginning at least by 1986.
- GNN filed a refund suit for the 1981 tax year; the government moved for partial summary judgment, arguing the easements were disqualified by the retained mineral rights.

## Issues

1. Whether reserving sand and gravel extraction rights that allowed surface-mining methods meant the contribution was not “exclusively for conservation purposes” under IRC § 170(h)(5) and related regulations.
2. Whether the easements satisfied the requirement that the conservation purpose be “protected in perpetuity” under IRC § 170(h)(5)(A) despite the retained mining rights.

## Decision

- The Court of Federal Claims granted the government’s motion for partial summary judgment.
- The court held that GNN’s retained rights to remove sand and gravel by surface-mining methods constituted retention of a “qualified mineral interest” with a permitted possibility of surface mining, disqualifying the easements under § 170(h).
- The court also held that the easements failed the perpetuity requirement because the retained surface-mining rights were incompatible with perpetual protection of conservation purposes.
- GNN was not entitled to a charitable contribution deduction for the easements for the 1981 tax year.

## Legal Principles

- A conservation-easement deduction under IRC § 170(h) requires a qualified real property interest contributed exclusively for conservation purposes, with the conservation purpose protected in perpetuity.
- Under § 170(h)(5)(B), § 170(h)(6), and Treas. Reg. § 1.170A-14(g)(4), no deduction is allowed where a qualified mineral interest is retained and extraction by any surface-mining method is permitted.
- “Subsurface minerals” analysis turns on the factual nature of the deposit and the extraction method; sand and gravel covered by soil that require overburden removal may be treated as subsurface minerals for purposes of the surface-mining restriction.
- The mineral-rights exception for situations where the probability of surface mining is “so remote as to be negligible” does not apply when the donor owns the mineral interest and expressly reserves mining rights.
- Perpetual protection is not satisfied where retained rights allow uses that can materially impair conservation values; deed restrictions must eliminate or render negligible the risk to conservation purposes.

## Conclusion

The court denied the claimed conservation-easement charitable deduction because the donor’s reserved sand and gravel extraction rights permitted surface mining, preventing the easements from being exclusively for conservation purposes and from protecting conservation purposes in perpetuity as required by IRC § 170(h).


Great N. Nekoosa Corp. v. United States, 38 Fed. Cl. 645 (Fed. Cl. 1997)