UNITED STATES TAX COURT



     CHARLES F. AND SUSAN G. GLASS, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 17878-99.               Filed May 25, 2005.



     L is a longstanding nonprofit nature conservancy,
the tax-exempt purposes of which include the
preservation of wildlife, plants, and natural land on
or near the shoreline of Lake Michigan. Ps own
approximately 10 acres of land (property) that includes
a high undeveloped bluff on 460 feet of that shoreline.
Bald eagles commonly frequent the bluff. In addition,
dense vegetation grows naturally on the bluff. That
vegetation includes a species of plant, Lake Huron
tansy, that is considered to be threatened. The
natural values of the bluff also allow it to create or
promote a possible habitat for pitcher’s thistle,
another species of plant that is considered to be
threatened and that is found on the Lake Michigan
shoreline. Ps made contributions to L of two
conservation easements (conservation easements) in
perpetuity that generally preclude them or any
subsequent owner of the property from ever developing
or disturbing the natural state of much of the bluff.
Ps contributed the first easement in 1992 and the
                                 - 2 -

     second in 1993. Ps claimed on their 1992 and 1993
     Federal income tax returns that the contributions were
     qualified conservation contributions under sec.
     170(h)(1), I.R.C. R concedes that the contributions
     meet two of the three requirements for such a
     characterization; i.e., the portions of the bluff
     covered by the conservation easements are each a
     “qualified real property interest” and L is a
     “qualified organization”. R asserts that the
     contributions fail the third requirement, that they be
     “exclusively for conservation purposes”.
          Held: Each of the contributions is a qualified
     conservation contribution under sec. 170(h)(1), I.R.C.,
     in that (1) the conservation easements protect a
     relatively natural habitat of plants or wildlife as
     required by sec. 170(h)(4)(A)(ii), I.R.C., and (2) L
     (or any subsequent holder of the conservation
     easements) holds (or will hold) the conservation
     easements exclusively for conservation purposes as
     required by sec. 170(h)(5), I.R.C.



     Charles F. Glass and Susan G. Glass, pro sese.1

     Alexandra E. Nicholaides, for respondent.




     LARO, Judge:     Petitioners petitioned the Court to

redetermine deficiencies of $26,539, $40,175, $26,193, and

$22,771 in their Federal income taxes for 1992, 1993, 1994, and

1995, respectively.    We decide whether petitioners’ respective

contributions in 1992 and 1993 of two conservation easements

(collectively, conservation easements; separately, conservation



     1
       William B. Acker petitioned the Court on behalf of
petitioners and continued to represent them until he withdrew on
Mar. 25, 2002.
                                - 3 -

easement 1 and conservation easement 2) were qualified

conservation contributions under section 170(h)(1).2        We hold

they were.   Petitioners claimed on their 1992 and 1993 Federal

income tax returns (1992 return and 1993 return, respectively)

that their contributions of the conservation easements were

qualified conservation contributions.   As further support for his

disallowance of those claims, respondent in his posttrial brief

argues for the first time that petitioners have not proven that

they met the “contemporaneous written acknowledgment” requirement

of section 170(f)(8).   We consider this position to have been

advanced untimely and do not decide it.      See Leahy v.

Commissioner, 

, 64-65 (1986).

                          FINDINGS OF FACT

I.   Background

      Some facts were stipulated.   We incorporate herein by this

reference the parties’ stipulation of facts and the exhibits

submitted therewith.    We find the stipulated facts accordingly.

Petitioners are husband and wife, and they filed a joint Federal

income tax return for each relevant year.     They resided in Emmet

County, Michigan (Emmet County), when their petition was filed.




      2
       Unless otherwise indicated, section references are to the
Internal Revenue Code applicable to the relevant years, and Rule
references are to the Tax Court Rules of Practice and Procedure.
The relevant provisions of sec. 170(h) are set forth in an
appendix to this Opinion.
                                 - 4 -

Emmet County is on the northern lower peninsula of Michigan and

has 50 or more miles of shoreline on Lake Michigan.

II.    Petitioners

       A.   Charles F. Glass (Mr. Glass)

       Mr. Glass is a lawyer who has practiced law in Michigan

since 1969.     His legal specialties are real estate, medical

malpractice defense, and employment and family and domestic

matters.

       B.   Susan G. Glass (Ms. Glass)

       Ms. Glass has a bachelor of arts degree in English and a

master’s degree in art.     She also has a real estate license.   She

has worked as a copywriter and as an artist.

III.    The Property

       A.   Petitioners’ Purchase of the Property

       On August 17, 1988, petitioners purchased property

(property) at 3445 North Lakeshore Drive, Harbor Springs,

Michigan (Harbor Springs), for $283,000.     The property is sited

along the shoreline of Lake Michigan in northern Emmet County and

includes three buildings and approximately 10 acres of land.

Although the property’s address is listed as in Harbor Springs,

the property is actually outside Harbor Springs in the Township

of Readmond, Michigan (Readmond), approximately 2-1/2 miles north

of Good Hart, Michigan, and 3-1/2 miles south of the Township of

Cross Village, Michigan (Cross Village).
                                 - 5 -

     B.     Petitioners’ Use of the Property

     Petitioners used the property as a vacation home until 1994,

when they began using the property as their primary residence.

During 1992 and 1993, they resided in Grosse Point Farms,

Michigan.     During part of 1994 and all of 1995, they used their

residence in Grosse Point Farms as a secondary residence to the

property.     From 1995 through 1999, they lived part time at the

property and part time in Detroit, Michigan; they continued

during those years to use the property as their primary

residence.     In 1999 or 2000, they began living entirely at the

property.

     C.     Buildings on the Property

     The property has had the same three buildings on it since

1988.     The first building is a single-story small handcrafted

cabin that is made of hand-hewn logs and elm bark shaving.     This

cabin is approximately 1,278 square feet and is used by

petitioners as their home.     The second building is a single-story

guest cottage that is approximately 512 square feet.     The third

building is a single-story garage that is approximately 525

square feet.

     D.     Description of the Property

     The property’s dimensions are generally 460 feet in width

from north to south and 1,055 feet in depth from east to west.

Its eastern edge is a straight line bordering Highway M-119
                               - 6 -

(M-119).3   Its western edge is a crooked line abutting Lake

Michigan.   Lake Michigan cannot be seen through the property from

M-119 because many large trees and dense foliage grow throughout

much of the property.   Included among the trees on the property

is a plantation of large (approximately 100-foot) old growth

original white pine trees.

     A portion of the property that generally includes the

property’s total width and extends approximately 900 feet from

M-119 is relatively flat and is generally open, grassy, and well

lawned around petitioners’ home and wooded and bushy in other

places, especially along M-119.   The rest of the property

(approximately 155 feet in depth and 460 feet in width) slopes

down a steep bluff at an angle of about 100 degrees to the

shoreline of Lake Michigan or, more specifically, to Lake

Michigan’s ordinary high water mark.4   The bluff is approximately

100 feet high, and a stairway goes down it to the shoreline.    The

shoreline is level and consists of rocks, sand, grass, and weeds.



     3
       M-119 is a blacktop highway from Harbor Springs to Cross
Village that is called the “tunnel of trees” because of its
narrowness and the degree of growth near its shoulderless edges.
The side of M-119 closest to Lake Michigan has primarily
residential dwellings ranging in style from basic summer cottages
to elaborate year-round homes. The opposite side of M-119 has
undeveloped land.
     4
       Lake Michigan’s high water mark is 582.35 feet above sea
level. The U.S. Army Corps of Engineers set Lake Michigan’s
ordinary high water mark at approximately 581 feet above sea
level.
                               - 7 -

The side of the bluff contains many trees (e.g., white pine,

cedar, spruce, oak, maple, balsam fir) and dense vegetation

(e.g., juniper bushes and other shrubs).

     Petitioners’ home on the property is sited on relatively

flat land on the top of the bluff approximately 45 to 50 feet

from the edge at the top of the bluff.   On a clear day, a

beautiful panoramic view of Lake Michigan may be seen from the

home and from a further distance of at least 50 more feet towards

M-119.   Petitioners have chairs at the top of the bluff to enjoy

that view and to socialize.

     Species of plants that grow on the Lake Michigan shoreline

in northern Emmet County include Lake Huron tansy and pitcher’s

thistle.   These plants are considered to be threatened and

require undisturbed habitats to survive.   Birds on that shoreline

include bald eagles, piping plovers, and kingfishers.   Other

wildlife in the area includes deer, bears, and raccoons.

     In the early 1990s, bald eagles were returning to the Lake

Michigan shoreline on and near the property, and the presence of

bald eagles along that shoreline is more common today than in

earlier years, when it was unusual to see an eagle on that

shoreline.   An exceptionally old and high tree on the top of the

bluff of the property covered by conservation easement 1 (the

highest tree on the bluff for some miles) is an occasional

roosting site for at least one bald eagle.   The property also has
                                - 8 -

attracted kingfishers and has Lake Huron tansy growing on it,

especially on the bluff.   The property is not an ideal habitat

for Lake Huron tansy or pitcher’s thistle, another threatened

species of plant, but the property, in its natural state, allows

for the creation or promotion of the habitat of those species as

well as the habitat of bald eagles and piping plovers.

     E.   Surroundings of the Property

     The Lake Michigan shoreline from north of Harbor Springs to

Cross Village is generally developed only for residential and

related purposes.   Most of that shoreline is privately owned with

single family vacation homes.   Approximately one home is sited on

that shoreline every 250 feet in the half mile north of the

property and in the half mile south of the property; i.e.,

approximately 21 homes are in the immediate 1-mile vicinity of

the property.

     The typical use of the land in the immediate vicinity of the

property is for single-family dwellings.   Petitioners’ neighbors

to the north, for example, built a large home on two parcels of

land that cover approximately 400 feet of lakefront.   A number of

high density developments with either lakefront or back lots are

also found on the land in the immediate vicinity of the property.

For example, the Sequoia Yacht Club, which is approximately 1 to

2 miles south of the property, is a platted subdivision which was

developed on 300 feet of lake frontage and 1,000 feet of depth
                                 - 9 -

and includes 3 lakefront lots and 19 or 20 back lots.      Mr. Glass

assisted in the development of the Sequoia Yacht Club on the

underlying real estate which, unlike the property, has a large

area between the bluff and the water upon which to build.      Other

nearby densely platted developments, e.g., Blisswood and Old

Trial Inn, both of which are approximately one-half mile from the

property, also consist of lakefront lots and back lots.      Such

developments are not the norm in the area of the property; single

family homes and cottages are.

     The nearest public access to the shoreline on the property

is approximately 1.5 miles to the south at Readmond Township Park

in Readmond.5   Readmond is approximately 40 square miles, is

approximately 10 miles north of Harbor Springs (the nearest

incorporated city), and is in Emmet County.      Readmond abuts Lake

Michigan and is a popular tourist area in the summer when its

population increases substantially.      The year-round, permanent

residents of Readmond totaled approximately 370 and 500 in 1990

and 2000, respectively.

     The Readmond Township Park is a small park that is publicly

owned by Readmond.   It has in it a picnic table, a sandy beach

with approximately 200 feet of frontage, and limited parking for



     5
       Although M-119 is a closer public point, Mr. Glass does
not allow people to cross his property to get to the shoreline
from M-119. Mr. Glass would consider such people to be
trespassers.
                                  - 10 -

approximately 15 cars.       On both sides of the park are private

homes which extend down to the water.       No incorporated cities are

found to the north of Readmond.

       The nearest public access to the shoreline to the north of

the property is approximately 4 miles away in Cross Village.

Cross Village is in Emmet County and is also the nearest public

access for boats to enter Lake Michigan.        The public area in

Cross Village includes 200 to 300 feet of lakefront property.

       F.     Zoning Rules as to the Property

       During 1992 and 1993, part of the property was zoned

“scenic resource 2” (SR-2), and the rest of the property was

zoned “recreation residential 2” (RR-2).        The SR-2 class applied

to the 400 feet of the property that started at the M-119 road

right of way.6       The zoning restrictions overlapped any other

restriction placed on the property as to construction, building,

or development.

               1.   SR-2 Class

       The SR-2 class is essentially a single-family, low-density,

residential classification that allows any residential-related

use.       The SR-2 class requires that a building lot have a minimum

size of 30,000 square feet, with at least one side measuring at

least 150 feet.       The portion of the property zoned SR-2 also



       6
       The road is the traveled part and the road right of way is
the easement in which the road exists.
                               - 11 -

included from the M-119 road right of way a 40-foot scenic

greenbelt setback (which may be included within the 30,000-

square-foot minimum lot size) in which tree removal, clearing, or

construction was restricted.    With the exception of these zoning

rules, the Federal, State, and local governments generally

allowed petitioners to do whatever they desired as to the portion

of the property zoned SR-2.    The portion of the property zoned

SR-2 was large enough that it could probably be divided into four

building lots of 30,000 square feet each.

          2.   RR-2 Class

     The RR-2 class is designed to accommodate cottage and

seasonal home development.    The RR-2 class requires that each

building lot have a minimum size of 22,000 square feet with at

least one side measuring at least 100 feet.    The portion of the

property zoned RR-2 also included from the high water mark a

60-foot waterfront setback in which building or development was

not allowed.   The conservation easements included space that was

within this 60-foot limitation.

          3.   Exceptions to the General Zoning Rules

     The required minimum lot sizes under SR-2 and RR-2 could be

smaller if the lots had central (e.g., from the municipality)

sewer and water.   In the case of RR-2, the required lot size

would then be 12,000 square feet with at least one side measuring

at least 100 feet.   The portion of the property subject to the
                               - 12 -

60-foot limitation may be included in ascertaining the building

site of 12,000 square feet, as may be the portions of the

property covered by the conservation easements.

     G.   Building on the Side of the Bluff

     Some homes in Emmet County were built on the bluff along

Lake Michigan.    The construction of a home on a bluff on or near

the property interferes with the bluff’s natural scenic beauty.

It also interferes with and destroys the natural habitat of

wildlife or plants that live or grow naturally on or near the

bluff.    There also are risks of a landslide in building on or

near a bluff.

     H.    Enjoyment of the Property

     The primary enjoyment of the Lake Michigan shoreline in

Emmet County is derived in the summer, particularly during July

and August.    During the summer months (especially July and

August), people travel to that shoreline primarily to swim in

Lake Michigan and to relax on the beach there.    With the

exception of people staying on the shoreline in Emmet County,

people generally do not travel to Emmet County to go boating.

     A scenic view of the property is seen from watercraft on

Lake Michigan and from the property’s shoreline.    As to the

former, the waters of Lake Michigan near the property at a

distance of at least one-half mile to 1 mile into the water are

some of the most heavily traveled parts of Lake Michigan.      With
                             - 13 -

the exception of recreational watercraft used by people staying

on the shoreline on or near the property, recreational watercraft

generally do not use those waters because a public harbor is not

relatively close to the property.    The recreational watercraft

that do use those waters do so mainly in July and August and,

with the exception of recreational watercraft used by people

staying on the shoreline on or near the property, seldom come

close to the shoreline of the property.    In the winter, only

freighters use the waters near the property, and they do so at a

distance that is approximately 1 mile into the water.

     Few people walk the Lake Michigan shoreline in Emmet County

at times other than in the summer.    In the summer (primarily July

and August), many people walk that shoreline, and many people

believe that the public is allowed to walk along any part of a

Great Lake shoreline up to the ordinary high water mark.7   Some

people do not walk on private beaches on Lake Michigan because

they view those beaches as the private property of another.      The

people who walk the shoreline on or near the property are



     7
       In Glass v. Goeckel, 

(Mich. Ct. App. 2004),
the court ruled contrary to this belief that people who own land
on Lake Huron have the exclusive right to use and enjoy that land
up to the water’s edge. The trial court had ruled that the
public had a right to walk on the portion of that land that was
between the ordinary highwater mark and the water’s edge. In
reversing the trial court, the court of appeals held that the
general public may pass that land only by walking in the water.
The Supreme Court of Michigan agreed to hear an appeal of that
case and is currently considering this issue.
                                  - 14 -

generally neighboring landowners (or the renters of homes on that

land), family, or friends.       The landowners on Lake Michigan

generally have an informal understanding that they (or their

guests, including renters of their land) may walk along Lake

Michigan on each other’s land.

IV.     Easement on the Property Contributed by Petitioners in 1990

      On December 31, 1990, petitioners recorded a document

(previous deed) entitled “Deed of Conservation Easement”.      The

previous deed reflected an easement (previous easement) that

petitioners contributed to the Lake Traverse Conservancy (LTC)

Trust (trust).      The previous easement covers the approximately

2.64 acres of the property consisting of the width of the

property at M-119 and 250 feet inland towards Lake Michigan.8

The previous deed generally restricts the building, construction,

development, or removal of trees on the portion of the property

encumbered by the previous easement (encumbered woodland), but

allows for the building of (and removal of trees for) a

3,200-square-foot garage/work space/studio and related access

road.       When petitioners contributed the previous easement to the

trust, petitioners did not consider whether or how the

development of the unencumbered portion of the property would

affect the encumbered woodland.


        8
       The previous deed notes that an access road runs through
the previous easement to the garage, which is on a portion of the
property not covered by the previous easement.
                              - 15 -

      On their 1990 Federal income tax return (1990 return),

petitioners claimed as a deduction a $94,000 noncash charitable

contribution of the previous easement.   Petitioners attached to

their 1990 return a letter from Robert W. Frame (Frame), C.A.E.,

M.A.I., stating that he had appraised the previous easement at

a fair market value of $94,000.   Frame stated in the letter that

he had estimated that the fair market value of the encumbered

woodland was $114,000 before the previous easement was imposed,

that the fair market value of the encumbered woodland was $10,000

after the previous easement was imposed, and that the previous

easement enhanced by $10,000 the fair market value of the portion

of the property that was not encumbered by the previous easement.

Frame concluded in the letter that these numbers resulted in the

claimed $94,000 fair market value for the previous easement

($114,000 - ($10,000 + $10,000) = $94,000).

V.   Easement on the Property Contributed by Petitioners in 1992

      On December 28, 1992, petitioners signed a document (deed 1)

entitled “Conservation Easement”.   Deed 1 was recorded at the

Register of Deeds for Emmet County on December 29, 1992.   LTC

prepared deed 1 contemporaneously with petitioners’ contribution

to the trust of conservation easement 1 in perpetuity.   At the

time of that contribution, petitioners also contributed $2,000 to

the trust.
                               - 16 -

     Conservation easement 1 covers the part of the property

consisting of the northernmost 150 feet of shoreline and all

portions landward for 120 feet from the ordinary high water mark

(encumbered shoreline 1).    Deed 1 states that encumbered

shoreline 1 “contains a relatively intact forested ecosystem,

providing wildlife habitat, as well as habitat for old growth

white pine trees”, that “lake front property in and around the

area of the Property is under intense development pressure,

thereby causing or at least exacerbating the impact on rare and

protected flora and fauna of the area such as the piping plover

* * * and Huron Tansy”,9 and that petitioners and LTC

     recognize the scenic and natural resource values of the
     Property and share the common intention to conserve
     these values in perpetuity by the conveyance of a
     Conservation Easement to protect the use or development
     of the Property for any purpose or in any manner which
     would conflict with the maintenance of these scenic and
     natural resource values.

Deed 1 states further that

     The purpose of this Conservation Easement is to ensure
     that the scenic and natural resource values of the
     Property will be retained forever. This Conservation
     Easement is intended to prevent the use or development
     of the Property for any purpose or in any manner which
     conflicts with the perpetual maintenance of these
     scenic and natural resource values. By executing this
     Conservation Easement, the Grantors acknowledge that
     they are giving up development rights associated with


     9
       The reference in deed 1 to “wildlife”, “flora and fauna”,
and the specific species of those items was a general reference
to wildlife, flora and fauna, and the specific species found
along the Lake Michigan shoreline in Emmet County and not
necessarily on encumbered shoreline 1.
                               - 17 -

     the Property. In addition, this Conservation Easement
     includes covenants on the part of the Grantors to
     refrain from doing certain acts, as set forth below, so
     that all uses of the Property will be consistent with
     this Conservation Easement. Grantee accepts this
     Conservation Easement to conserve the natural resources
     and scenic values of the Property for the present and
     future generations. The parties acknowledge that this
     Conservation Easement constitutes a servitude upon the
     land and runs with the land.

     Deed 1 goes on to list activities that are restricted on

encumbered shoreline 1 (e.g., mining activities and, except as

otherwise provided in deed 1, development, construction,

improvement, or similar acts that would destroy any part of

encumbered shoreline 1), and activities that are permitted on

encumbered shoreline 1 (e.g., alteration of trees to provide

views of Lake Michigan, construction of foot paths to the Lake

Michigan shoreline, and certain construction of overlook decks,

patios, or boat houses).    Deed 1 generally states that

petitioners are liable for any cost incurred by LTC to enforce

conservation easement 1 and allows conservation easement 1 to be

terminated “If subsequent, unexpected changes in the Property, or

nearby property, render the Purpose of this Conservation Easement

impossible to achieve”.    Deed 1 states that LTC

     may transfer or otherwise assign this Conservation
     Easement only to a qualified conservation organization
     which agrees to enforce this Conservation Easement in
     accordance with the regulations established by the
     Internal Revenue Service governing such transfers and
     the laws of the State of Michigan. If Grantee ceases
     to exist, Grantee’s rights and obligations under this
     Conservation Easement shall immediately vest in the
     following entities in the following order to the extent
                              - 18 -

     they evince an intent to accept this Conservation
     Easement: (a) The Nature Conservancy, (b) the Michigan
     department of Natural Resources, or (c) any other
     appropriate organization which qualifies under Section
     170(h)(3) of the Code, has conservation purposes, and
     is qualified to accept and hold this Conservation
     Easement either voluntarily or through an award of such
     right by a court of competent jurisdiction under the
     doctrine of cy pres.

Deed 1 does not restrict petitioners’ right to develop any part

of the property not covered by conservation easement 1.

     Petitioners obtained from Frame an appraisal of conservation

easement 1 and attached to their 1992 return a letter from Frame

stating that he had appraised conservation easement 1 at a fair

market value of $99,000.   Frame stated in the letter that he had

estimated that the fair market value of encumbered shoreline 1

was $249,000 before conservation easement 1 was imposed, that the

fair market value of encumbered shoreline 1 was $99,500 after

conservation easement 1 was imposed, and that conservation

easement 1 enhanced by $50,500 the fair market value of the

portion of the property not covered by conservation easement 1.

Frame concluded in the letter that these numbers resulted in the

claimed $99,000 fair market value for conservation easement 1

($249,000 - ($99,500 + $50,500) = $99,000).

     Petitioners claimed on their 1992 return that they had made

total charitable contributions of $108,957, consisting of a

$99,000 noncash contribution of conservation easement 1 and cash

contributions of $9,957.   Petitioners deducted on their 1992
                              - 19 -

return $95,569 of the total claimed charitable contributions and

carried over the $13,388 balance to 1993.

VI.   Easement on the Property Contributed by Petitioners in 1993

      On December 28, 1993, petitioners signed a document (deed 2)

entitled “Lakefront Conservation Easement #2”.    Deed 2 was

recorded in the Emmet County Register of Deeds on December 30,

1993, and re-recorded there on November 24, 1994.    LTC prepared

deed 2 contemporaneously with petitioners’ contribution to the

trust of conservation easement 2 in perpetuity.    At the time of

that contribution, petitioners also contributed $2,000 to the

trust.   On December 30, 1993, a mortgagee of the property agreed

to subordinate its mortgage on the property to the extent

necessary to permit LTC to enforce the purpose of conservation

easement 2 in perpetuity.

      Conservation easement 2 covers the part of the property

consisting of the southernmost 260 feet of shoreline and all

portions landward for 120 feet from the ordinary high water mark

(encumbered shoreline 2).   Deed 2 states verbatim with deed 1

that encumbered shoreline 2 “contains a relatively intact

forested ecosystem, providing wildlife habitat, as well as

habitat for old growth white pine trees”, that “the lake front

property in and around the area of the Property is under intense

development pressure, thereby causing or at least exacerbating

the impact on rare and protected flora and fauna of the area such
                             - 20 -

as the piping plover * * * and Huron Tansy”,10 and that

petitioners and LTC

     recognize the scenic and natural resource values of the
     Property and share the common intention to conserve
     these values in perpetuity by the conveyance of a
     Conservation Easement to protect the use or development
     of the Property for any purpose or in any manner which
     would conflict with the maintenance of these scenic and
     natural resource values.

Deed 2 also states verbatim with deed 1 that

     The purpose of this Conservation Easement is to ensure
     that the scenic and natural resource values of the
     Property will be retained forever. This Conservation
     Easement is intended to prevent the use or development
     of the Property for any purpose or in any manner which
     conflicts with the perpetual maintenance of these
     scenic and natural resource values. By executing this
     Conservation Easement, the Grantors acknowledge that
     they are giving up development rights associated with
     the Property. In addition, this Conservation Easement
     includes covenants on the part of the Grantors to
     refrain from doing certain acts, as set forth below, so
     that all uses of the Property will be consistent with
     this Conservation Easement. Grantee accepts this
     Conservation Easement to conserve the natural resources
     and scenic values of the Property for the present and
     future generations. The parties acknowledge that this
     Conservation Easement constitutes a servitude upon the
     land and runs with the land.

     Deed 2 goes on to list activities that are restricted on

encumbered shoreline 2 (e.g., mining activities and, except as

otherwise provided in deed 2, development, construction,

improvement, or similar acts that would destroy any part of


     10
       The reference in deed 2 to “wildlife”, “flora and fauna”,
and the specific species of those items was a general reference
to wildlife, flora and fauna, and the specific species found
along the Lake Michigan shoreline in Emmet County and not
necessarily on encumbered shoreline 2.
                               - 21 -

encumbered shoreline 2), and activities that are permitted on

encumbered shoreline 2 (e.g., alteration of trees to provide

views of Lake Michigan, construction of foot paths to the Lake

Michigan shoreline, and certain construction of overlook decks,

patios, or boat houses).    Deed 2 generally states that

petitioners are liable for any cost incurred by LTC to enforce

conservation easement 2 and allows conservation easement 2 to be

terminated “If subsequent, unexpected changes in the Property, or

nearby property, render the Purpose of this Conservation Easement

impossible to achieve”.    Deed 2 states that LTC

     may transfer or otherwise assign this Conservation
     Easement only to a qualified conservation organization
     which agrees to enforce this Conservation Easement in
     accordance with the regulations established by the
     Internal Revenue Service governing such transfers and
     the laws of the State of Michigan. If Grantee ceases
     to exist, Grantee’s rights and obligations under this
     Conservation Easement shall immediately vest in the
     following entities in the following order to the extent
     they evince an intent to accept this Conservation
     Easement: (a) The Nature Conservancy, (b) the Michigan
     department of Natural Resources, or (c) any other
     appropriate organization which qualifies under Section
     170(h)(3) of the Code, has conservation purposes, and
     is qualified to accept and hold this Conservation
     Easement either voluntarily or through an award of such
     right by a court of competent jurisdiction under the
     doctrine of cy pres.

Deed 2 does not restrict petitioners’ right to develop any part

of the property not covered by conservation easement 2.

     Petitioners obtained from Frame an appraisal of conservation

easement 2 and attached to their 1993 return a letter from Frame

stating that he had appraised conservation easement 2 at a fair
                                - 22 -

market value of $241,800.     Frame stated in the letter that he had

estimated that the fair market value of encumbered shoreline 2

was $483,600 before conservation easement 2 was imposed, that the

fair market value of encumbered shoreline 2 was $193,400 after

conservation easement 2 was imposed, and that conservation

easement 2 enhanced by $48,400 the fair market value of the

portion of the property that was not covered by conservation

easement 2.     Frame concluded in the letter that these numbers

resulted in the claimed $241,800 fair market value for

conservation easement 2 ($483,600 - ($193,400 + $48,400) =

$241,800).

       Petitioners claimed on their 1993 return that they had made

total charitable contributions of $266,602, consisting of a

$241,800 noncash contribution of conservation easement 2, cash

contributions of $11,414, and the $13,388 carryover from 1992.

Petitioners deducted on their 1993 return $128,473 of the total

claimed contributions and carried over the $138,129 balance to

1994.     Petitioners later deducted $86,939 of the carryover for

1994 and the remainder for 1995.

VII.    The Conservation Easements

        Development of the lakefront immediately to the north and

south of the property is not limited by any restrictive easement

similar to the conservation easements.     When petitioners

contributed the conservation easements to the trust, petitioners
                              - 23 -

and LTC understood that restrictions were not placed on

petitioners’ use of the unencumbered portions of the property.

Petitioners also understood at those times that they (or a

subsequent owner of the property) could develop the unencumbered

portions of the property in any desired way (subject to zoning

limitations).   Petitioners did not consider at those times

whether or how development of the unencumbered portions of the

property would affect the ecosystem of the portions of the

property covered by the conservation easements.   Petitioners did

not grant any restrictive easement on the middle of the property

because they wanted to be able to develop it if they desired.

     LTC wanted to obtain the conservation easements, and sought

and continues to seek to obtain similar conservation easements in

northern Michigan, because LTC believes that northern Michigan is

relatively undeveloped as compared with other parts of the State.

Significant and abundant natural resources are present in

northern Michigan, particularly around M-119 and the nearby

shoreline, and LTC believes that these resources may be

threatened by overdevelopment.   LTC attempts to balance a

development of northern Michigan with a development of new nature

preserves and the protection of areas for wildlife and scenic

views.

     LTC made a special effort in the 1990s to attempt to

conserve land in the area of the property.   Bald eagles were
                              - 24 -

returning to that area, and LTC believed that bald eagles are

very sensitive to human activity.   Much development also had

occurred near the property, including the subdividing of land in

a manner that LTC believed threatened to hurt the scenic quality

and drive out the wildlife.   LTC wanted to minimize any

development of the shoreline on or near the property so as not to

drive out the bald eagles, to protect the natural scenic beauty

of the bluff, and to protect the habitat for local wildlife and

plants including Lake Huron tansy and pitcher’s thistle.

     LTC acknowledged and accepted the conservation easements on

the basis of the legal descriptions set forth in deed 1 and deed

2.   LTC accepted the conservation easements in part to protect

the Lake Michigan shoreline of the property going up to and over

the top of the bluff so as to preserve intact the present or

potential habitat there for wildlife and plants.    LTC also

accepted the conservation easements in part to protect the

structure of the bluff itself; e.g., by controlling any erosion

of that bluff.   The bluff is sandy, delicate, and subject to

erosion.   Building on the bluff would erode the bluff and

displace the vegetation growing on it.

     The conservation easements have not restricted petitioners’

use or enjoyment of the property but have limited the development

of encumbered shoreline 1 and encumbered shoreline 2

(collectively, encumbered shoreline).    Petitioners contributed
                               - 25 -

the conservation easements to the trust to protect the encumbered

shoreline from development and to deduct a resulting charitable

contribution.    As to the former, petitioners hoped that their

neighbors would also restrict a similar portion of their real

estate in order to conserve it.

       The conservation easements preclude petitioners from

building on the lakefront lots of the property and, as granted,

cover some but not all of the bluff on the property; neither of

the conservation easements reaches the top of the bluff, and the

conservation easements cover only 410 of the 460 feet of the

shoreline of the property.11   When they granted the conservation

easements, petitioners believed that the conservation easements

extended over the top of the bluff.      They learned they were

mistaken when the property was later surveyed (the property was

not surveyed when they bought it).      In July 2004, petitioners

filed a lawsuit (lawsuit) in Emmet County Circuit Court against

LTC.    The lawsuit, which is currently pending, seeks a

reformation of the deeds underlying the conservation easements to

enlarge the encumbered shoreline.




       11
       When they contributed conservation easement 2 to the
trust, petitioners knew that 50 feet of shoreline was
unencumbered. Petitioners may develop that unencumbered
shoreline in any way consistent with the zoning requirements.
                                 - 26 -

VIII.     LTC

     LTC is a Michigan nonprofit organization described in

section 170(c) and exempt from Federal income tax under section

501(c)(3).      LTC has more than 4,200 members and is the largest

membership-supported nonprofit organization in northern Michigan.

LTC’s current endowment fund is $4 million.      LTC’s endowment fund

from 1992 through 1995 was between $1.25 and $2.5 million.

     LTC has operated for more than three decades to preserve

land and wilderness in trust for conservation and for the

recreation and education of the people of Michigan.      LTC’s

purpose is to protect the natural integrity and scenic beauty of

northern Michigan for the enjoyment of future generations.12      LTC

supports its purpose by:      (1) Acquiring property by contribution

or purchase, (2) obtaining easements such as the conservation

easements by gift or through purchase, and (3) educating the

public about the purposes of LTC.      LTC currently owns

approximately 75 miles of shoreline on rivers, lakes, and streams

in northern Michigan.

     When a landowner contributes an easement to LTC, LTC

typically also asks for and receives a cash contribution from

that landowner.      The cash contribution is meant to help LTC

monitor and, if necessary, enforce the terms of the easement.


     12
       In this context, the “natural integrity” of the land
includes its ecosystem concept which refers to the protection of
the ecosystem of wildlife, fish, plants, and animals.
                              - 27 -

LTC also helps the landowner find an appraiser to value the

contributed property by furnishing the landowner with a list of

appraisers, all of whom attended a seminar on the subject

sponsored by LTC.   LTC also usually gives the landowner some

brochures explaining the mechanics of a conservation easement and

a guide detailing the tax ramifications of a conservation

easement and the contribution thereof.    LTC does not value any

easement that it receives from a landowner, and LTC does not

acknowledge or accept any valuation of the easement.    LTC usually

verifies its receipt of a contributed easement by signing Form

8283, Noncash Charitable Contributions.

     LTC does not on an annual basis formally monitor each

conservation easement that it receives to ensure compliance but

occasionally monitors them informally.    LTC maintains a file for

each of these easements.

                              OPINION

     We decide whether petitioners’ contributions of the

conservation easements are qualified conservation contributions

under section 170(h)(1).   Petitioners argue they are.13

According to petitioners, the conservation easements prohibit any

construction, development, or disturbance of the natural state of



     13
       While petitioners filed the lawsuit to reform the deeds
underlying the conservation easements, we decide this case on the
basis of the specific property that petitioners actually
contributed to the trust in 1992 and 1993.
                              - 28 -

the bluff on the encumbered shoreline.   Petitioners conclude that

the conservation easements:   (1) Protect a relatively natural

habitat for wildlife and plants, (2) preserve open space for the

scenic enjoyment of the general public, which will yield a

significant public benefit, and (3) preserve open space pursuant

to clearly delineated public policies set forth in the Emmet

County zoning ordinances and in the Endangered Species Act of

1973, Pub. L. 93-205, sec. 2(b), 87 Stat. 884, current version at

16 U.S.C. sec. 1531(b) (2000), which will yield a significant

public benefit.   Respondent argues that petitioners have not

proven that the conservation easements did any of those things.

Respondent concludes, argues, and determined that the

conservation easements are not qualified conservation

contributions under section 170(h)(1).

     Respondent’s deficiency determination is presumed correct,

and petitioners must prove it wrong in order to prevail.14

Rule 142(a)(1); Welch v. Helvering, 

, 115 (1933).

Petitioners must prove their entitlement to deduct their claimed


     14
       In certain cases, if an individual introduces credible
evidence with respect to a factual issue relevant to ascertaining
his or her proper tax liability, sec. 7491 places the burden of
proof on the Commissioner as to that issue. See sec. 7491(a);
Rule 142(a)(2). Sec. 7491 applies to court cases arising in
connection with examinations commencing after July 22, 1998. See
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(c)(2), 112 Stat. 726. Because the
examination underlying this case commenced before July 23, 1998,
sec. 7491(a) does not apply to shift the burden of proof to
respondent.
                              - 29 -

charitable contributions; deductions are strictly a matter of

legislative grace, and petitioners must satisfy the specific

statutory requirements for their claimed deductions.    Deputy v.

DuPont, 

, 493 (1940).

     Section 170(a)(1) generally allows a deduction for any

charitable contribution made during the taxable year.   In this

context, a charitable contribution includes a gift of property to

a charitable organization, made with charitable intent and

without the receipt or expectation of receipt of adequate

consideration.   See Hernandez v. Commissioner, 

, 690

(1989); United States v. Am. Bar Endowment, 

, 116-118

(1986); see also sec. 1.170A-1(h)(1) and (2), Income Tax Regs.

While section 170(f)(3) generally does not allow an individual to

deduct a charitable contribution for a gift of property

consisting of less than his or her entire interest in that

property, an exception applies in the case of a “qualified

conservation contribution.”   See sec. 170(f)(3)(B)(iii).   A

contribution of real property is a qualified conservation

contribution if (1) the real property is a “qualified real

property interest”, (2) the contributee is a “qualified

organization”, and (3) the contribution is “exclusively for

conservation purposes” (collectively, three requirements).      Sec.

170(h)(1); see also sec. 1.170A-14(a), Income Tax Regs.
                                - 30 -

     As to the first of the three requirements, an interest in

real property is a qualified real property interest if the

interest is the donor’s entire interest in that real property

(other than a qualified mineral interest), a remainder interest,

or a restriction granted in perpetuity on the use which may be

made of the real property.   Sec. 170(h)(2).   In the case of the

latter, i.e., a restriction granted in perpetuity on the use

which may be made of the real property, the regulations

interpreting that provision clarify that such a restriction must

be legally enforceable to limit any use of the real property that

is inconsistent with the conservation purpose of the

contribution.   See sec. 1.170A-14(g)(1), Income Tax Regs.   These

regulations note that this requirement may be met by recording

the restriction in the land records of the jurisdiction in which

the real property is located.    

the second of the three requirements, a contributee is

a qualified organization if it is described in section 170(h)(3).

The regulations interpreting this provision mandate that the

organization be committed to protecting the conservation purposes

of the contribution and have the resources necessary to enforce

the restrictions granted in perpetuity.   Sec. 1.170A-14(c)(1),

Income Tax Regs.

     As to the third of the three requirements, a contribution is

made exclusively for conservation purposes if it meets the tests
                                - 31 -

of section 170(h)(4) and (5).    Section 170(h)(4)(A) generally

provides that a contribution is for a conservation purpose if it:

(1) Preserves land for outdoor recreation by, or the education

of, the general public, (2) protects a relatively natural habitat

of fish, wildlife, or plants, or similar ecosystem, (3) preserves

open space for the scenic enjoyment of the general public or

pursuant to a Federal, State, or local governmental conservation

policy, and this preservation will yield a significant public

benefit, or (4) preserves a historically important land area or a

certified historic structure.    See also sec. 1.170A-14(d)(1),

Income Tax Regs.   Under the statute, each of these four prongs is

a conservation purpose in and of itself, and a taxpayer’s

satisfaction of one of these prongs suffices to establish the

requisite conservation purpose.    See also S. Rept. 96-1007, at 10

(1980), 1980-2 C.B. 599, 604.    Section 170(h)(5)(A) generally

provides that a contribution of a qualified real property

interest may be exclusively for conservation purposes only if it

is protected in perpetuity.   The statute contains no further

specific guidance as to when a contribution of a qualified real

property interest that is protected in perpetuity will be

exclusively for conservation purposes.

     The requirement in section 170(h)(1)(C) that a qualified

contribution of a conservation easement be “exclusively for

charitable purposes” may be traced to the Tax Reform Act of 1969
                               - 32 -

(TRA 1969), Pub. L. 91-172, sec. 201(a), 83 Stat. 549.    Congress

generally provided in section 170(f)(3)(A), as then enacted, that

an individual may not deduct a charitable contribution for

contributed property in which he or she retained an interest.

See TRA 1969 sec. 201(a)(1).   However, Congress provided in

section 170(f)(3)(B)(ii), as then enacted, that this general rule

of nondeductibility would not apply if the contribution was of an

undivided portion of the taxpayer’s entire interest in the

property.   See TRA 1969 sec. 201(a).   The conferees stated in

their report on section 170(f)(3)(B)(ii) that they intended that

such an undivided interest include an open space easement in

gross where the easement was in perpetuity.15   H. Conf. Rept.

91-782, at 294 (1969), 1969-3 C.B. 644, 654.    In light of this

statement, the regulations interpreting section 170(f)(3)(B)(ii),

as enacted in 1969, allowed a charitable deduction for the fair

market value of an easement contributed to a charitable

organization in perpetuity where the easement restricts the use

of the taxpayer’s property; e.g., by limiting the type and height

of buildings that may be erected, the removal of trees, the




     15
       Sec. 1.170A-7(b)(1)(ii), Income Tax Regs., defines an
“easement in gross” as “a mere personal interest in, or right to
use, the land of another; it is not supported by a dominant
estate but is attached to, and vested in, the person to whom it
is granted.” See also Black’s Law Dictionary 527 (7th ed. 1999)
(the term “easement in gross” denotes “An easement benefitting a
particular person and not a particular piece of land”).
                               - 33 -

erection of utility lines, the dumping of trash, and the use of

signs.    See sec. 1.170A-7(b)(1)(ii), Income Tax Regs.

     In the Tax Reduction and Simplification Act of 1977 (TRSA),

Pub. L. 95-30, sec. 309(a), 91 Stat. 154, Congress enacted the

initial version of section 170(f)(3)(B)(iii), creating an

exception from the general rule of section 170(f)(3)(A) for an

“easement with respect to real property granted in perpetuity to

an organization described in subsection (b)(1)(A) exclusively for

conservation purposes”.16   The conference report on TRSA

explained that

          While it is intended that the term “conservation
     purposes” be liberally construed with regard to the
     types of property with respect to which deductible
     conservation easements * * * may be granted, it is also
     intended that contributions of perpetual easements * *
     * qualify for the deduction only in situations where
     the conservation purposes of protecting or preserving
     the property will in practice be carried out. Thus, it
     is intended that a contribution of a conservation
     easement * * * qualify for a deduction only if the
     holding of the easement * * * is related to the purpose


     16
       Congress coined the terms “conservation purposes” and
“exclusively for conservation purposes” in the Tax Reform Act of
1976 (TRA 1976), Pub. L. 94-455, sec. 2124(e)(1)(C) and (D),
90 Stat. 1919. Congress provided further in the TRA 1976 that
the term “conservation purposes” in this context means (1) “the
preservation of land areas for public outdoor recreation or
education, or scenic enjoyment”, (2) “the preservation of
historically important land areas or structures”, or (3) “the
protection of natural environmental systems”. TRA 1976 sec.
2124(e)(1)(D); see also sec. 170(f)(3)(C), as enacted by TRA
1976. Congress did not in the TRA 1976 define (or indicate the
meaning of) either the word “exclusively” or the term
“exclusively for conservation purposes”. Nor does the
legislative history of the TRA 1976 shed any light on the meaning
of that word or that term.
                               - 34 -

     or function constituting the donee’s purpose for
     exemption (organizations such as nature conservancies,
     environmental, and historic trusts, State and local
     governments, etc.) and the donee is able to enforce its
     rights as holder of the easement * * * and protect the
     conservation purposes which the contribution is
     intended to advance. The requirement that the
     contribution be exclusively for conservation purposes
     is also intended to limit deductible contributions to
     those transfers which require that the donee hold the
     easement * * * exclusively for conservation purposes
     (i.e., that they not be transferable by the donee in
     exchange for money, other property, or services). [H.
     Conf. Rept. 95-263, at 30-31 (1977), 1977-1 C.B. 519,
     523.]

     As originally enacted, the provisions of former section

170(f)(3)(B)(iii) did not apply to contributions made after

June 13, 1981.   TRSA sec. 309(b)(1), 91 Stat. 154.   In the Tax

Treatment Extension Act of 1980 (TTEA), Pub. L. 96-541,

sec. 6(a), 94 Stat. 3206, Congress effectively extended those

provisions permanently.   The Senate report behind this extension

noted the committee’s belief that the preservation of our

country’s natural resources and cultural heritage was important

and that conservation easements play an important role in this

preservation.    S. Rept. 96-1007, supra at 9, 1980-2 C.B. at 603.

The report also noted that

     The committee also recognizes that it is not in the
     country’s best interest to restrict or prohibit the
     development of all land areas and existing structures.
     Therefore, the committee believes that provisions
     allowing deductions for conservation easements should
     be directed at the preservation of unique or otherwise
     significant land areas or structures. Accordingly, the
     committee has agreed to extend the expiring provisions
     of present law on a permanent basis and modify those
     provisions in several respects.
                                - 35 -

          In particular, the committee found it appropriate
     to expand the types of transfers which will qualify as
     deductible contributions in certain cases where the
     contributions are likely to further significant
     conservation goals without presenting significant
     potential for abuse. In addition, the committee bill
     would restrict the qualifying contributions where there
     is no assurance that the public benefit, if any,
     furthered by the contribution would be substantial
     enough to justify the allowance of a deduction. In
     addition, the committee decided that the treatment of
     open space easements should be clarified. [Id. at
     9-10, 1980-2 C.B. at 603.]

     With our understanding of the statute and its relevant

legislative history in mind, we now turn back to the three

requirements for a qualified conservation contribution.

Respondent concedes that the first and second requirements have

been met; i.e., the conservation easements are qualified real

property interests and the contributee is a qualified

organization under section 170(h)(3).    As to the third

requirement, respondent challenges petitioners’ assertion that

the conservation easements protect a relatively natural habitat

of wildlife or plants for purposes of section 170(h)(4)(A)(ii).

Respondent also challenges petitioners’ assertion that the

conservation easements preserve open space in the manner required

by section 170(h)(4)(A)(iii).    Petitioners will prevail as to

this issue if (1) they establish either of those conservation

purposes as to the contributions and (2) they meet the

requirement in section 170(h)(5) that the contributions be

exclusively for at least one of those conservation purposes.
                              - 36 -

     As to the first assertion, section 1.170A-14(d)(3)(i),

Income Tax Regs., interprets section 170(h)(4)(A)(ii) to provide

that a qualified real property interest will meet the

conservation purposes test, and thus satisfy the third

requirement before us, if that interest is contributed “to

protect a significant relatively natural habitat in which a fish,

wildlife, or plant community, or similar ecosystem, normally

lives”.   For this purpose, section 1.170A-14(d)(3)(ii), Income

Tax Regs., lists as examples of significant habitats and

ecosystems:   (1) Habitats for rare, endangered, or threatened

species of animals, fish, or plants, (2) natural areas that

represent high quality examples of a terrestrial or aquatic

community, such as islands that are undeveloped or not intensely

developed where the coastal ecosystem is relatively intact, and

(3) natural areas which are included in, or which contribute to,

the ecological viability of a local, State, or National park,

nature preserve, wildlife refuge, wilderness area, or other

similar conservation area.   Section 1.170A-14(d)(3)(iii), Income

Tax Regs., explains that a contribution of a qualified real

property interest that meets this significant habitat or

ecosystem test is deductible even if, as here, the public’s right

to access that property is restricted.   The legislative history

of the TTEA states that a contribution is “considered to be made

for conservation purposes if it will operate to protect or
                              - 37 -

enhance the viability of an area or environment in which a fish,

wildlife, or plant community normally lives or occurs.”       S. Rept.

96-1007, supra at 10, 1980-2 C.B. at 604.     That legislative

history emphasizes that “The committee intends that contributions

for this purpose will protect and preserve significant natural

habitats and ecosystems”.   

1980-2 C.B. at 604.

     Respondent argues that petitioners have not satisfied any of

the examples set forth in the regulations.     We disagree.   LTC’s

executive director, Thomas Bailey (Bailey), testified credibly

that the property is a “famous” roosting spot for bald eagles and

that the conservation easements establish a proper place for the

growth and existence of Lake Huron tansy and pitcher’s thistle.

Bailey also testified credibly that he has toured the property on

various occasions, that the habitat on the encumbered shoreline

is a proper and normal environment for Lake Huron tansy,

pitcher’s thistle, and bald eagles, among other species, and that

the staff of LTC has seen Lake Huron tansy growing on the

property.   Ms. Glass testified credibly that she also has seen

Lake Huron tansy growing on the property and that she has

regularly seen bald eagles there as well.     She also testified

credibly that at least one of those eagles roosts on a tree

growing on encumbered shoreline 1.     We also find in the record

probative evidence that both Lake Huron tansy and pitcher’s

thistle are considered threatened species which are worthy of
                                - 38 -

special attention towards the goal of preservation and that LTC,

the largest membership-supported nonprofit organization in

northern Michigan, has agreed through the conservation easements

to attempt to preserve those species by giving them that special

attention.

     We apply the plain meaning of the words “habitat” and

“community” to interpret them for purposes of the statute and the

regulations.    Cf. Venture Funding, Ltd. v. Commissioner, 

, 241-242 (1998), affd. without published opinion 

(6th Cir. 1999); Trans City Life Ins. Co. v. Commissioner, 

, 299 (1996).    A habitat denotes “The area or environment

where an organism or ecological community normally lives or

occurs” or “The place where a person or thing is most likely to

be found.”     American Heritage Dictionary of the English Language

786 (4th ed. 2000); see also 7 C.F.R. sec. 636.3 (2002)

(“Wildlife habitat means the aquatic and terrestrial environments

required for wildlife to complete their life cycles, including

air, food, cover, water, and spatial requirements.”).    A

community may be defined in this context as “A group of plants

and animals living and interacting with one another in a specific

region under relatively similar environmental conditions.”

American Heritage Dictionary of the English Language 374.

     The encumbered shoreline fits those definitions of “habitat”

and “community”.    In its natural undeveloped state, it is a
                              - 39 -

“relatively natural habitat” for a community of Lake Huron tansy,

of pitcher’s thistle, and of bald eagles, among other species of

plants and wildlife.   Each of the conservation easements will

therefore protect and preserve significant natural habitats by

limiting the development or use of the encumbered shoreline.17

By the same token, petitioners’ contributions of the conservation

easements operate to protect or enhance the viability of an area

or environment in which a wildlife community and a plant

community normally live or occur.   Both portions of encumbered

shoreline also have natural values that make them possible places

to create or promote the habitat of Lake Huron tansy as well as

the habitat of bald eagles.   We hold that petitioners have proven

that their contributions of the conservation easements were for a

conservation purpose under section 170(h)(4), specifically,

section 170(h)(4)(A)(ii).18

     We turn to the question of whether petitioners’

contributions also meet the “exclusively for conservation

purposes” requirement of section 170(h)(5).   We read that term to

place a focus on the contributee’s holding of a qualified real



     17
       We read sec. 170(h)(4)(A)(ii) to mean that the protection
of a relatively natural habitat of wildlife or plants, in and of
itself, is a significant conservation purpose within the intent
of the statute.
     18
       On the basis of this holding, we need not and do not
consider petitioners’ other arguments that the conservation
easements also meet the requirements of sec. 170(h)(4)(A)(iii).
                              - 40 -

property interest and, more specifically, to require that the

contributee hold such an interest in perpetuity exclusively for

one or more of the conservation purposes listed in section

170(h)(4).   While the term was included in the TRA 1976 without

any specific indication as to its meaning, see discussion supra

note 16, the legislative history of the TRSA briefly discusses

the meaning of that term.   Although the view of a subsequent

Congress is not a controlling basis from which to infer the

intent of an earlier Congress, Haynes v. United States, 

, 87 n.4 (1968); United States v. Philadelphia Natl. Bank,

, 348-349 (1963), we note that the TRSA modified

former section 170(f)(3)(B) by adding a provision (former section

170(h)(3)(B)(iii)) containing the phrase “exclusively for

conservation purposes” and that the legislative history to this

modification is consistent with our reading.   The legislative

history states:

     it is intended that a contribution of a conservation
     easement * * * qualify for a deduction only if the
     holding of the easement * * * is related to the purpose
     or function constituting the donee’s purpose for
     exemption * * * and the donee is able to enforce its
     rights as holder of the easement * * * and protect the
     conservation purposes which the contribution is
     intended to advance. The requirement that the
     contribution be exclusively for conservation purposes
     is also intended to limit deductible contributions to
     those transfers which require that the donee hold the
     easement * * * exclusively for conservation purposes
     (i.e., that they not be transferable by the donee in
     exchange for money, other property, or services). [H.
     Conf. Rept. 95-263, supra at 30-31, 1977-1 C.B. at
     523.]
                              - 41 -

     We conclude that petitioners’ contributions meet the

“exclusively for conservation purposes” requirement of section

170(h)(5).   The contributee, LTC, is a legitimate, longstanding

nature conservancy dealing at arm’s length with petitioners, and

LTC has agreed (and has the commitment and financial resources)

to enforce the preservation-related restrictions included in deed

1 and deed 2 in perpetuity.   LTC’s holding of the conservation

easements also is directly related to its tax-exempt purposes.

We also note that petitioners through the restrictions in deed 1

and deed 2 have gratuitously surrendered valuable property rights

in the encumbered shoreline, that those restrictions are legally

enforceable to limit in perpetuity any inconsistent use of the

encumbered shoreline, and that any subsequent holder of the

conservation easements must be an entity fully committed to

carrying out the contributions’ charitable purposes.   Congress

through the enactment of section 170(h) intended in relevant part

to encourage preservation of our country’s natural resources

through the contribution of easements such as the conservation

easements, see S. Rept. 96-1007, supra at 9, 1980-2 C.B. at 603,

and petitioners’ contributions of the conservation easements,

which serve to preserve this Nation’s natural resources of bald

eagles, Lake Huron tansy, and the bluff, among other things, are

consistent with the statute’s objective.
                             - 42 -

     We hold that petitioners’ respective contributions in 1992

and 1993 of the conservation easements are qualified conservation

contributions under section 170(h)(1) because, in relevant part,

they protect a relatively natural habitat of wildlife and plants

and are exclusively for conservation purposes.19   In so holding,

we have considered all arguments made as to the issues decided

herein, and we have rejected as meritless those arguments not

discussed herein.20


     19
       The encumbered shoreline is a portion of real property
used by petitioners as their personal residence, and sec.
170(h)(4)(A)(ii) does not require that the protection of the
natural habitats referenced therein be pursuant to a clearly
delineated governmental conservation policy. The staff of the
Joint Committee on Taxation has recently prepared a report
stating that sec. 170(h) is “so broad that the IRS effectively
has no basis to challenge contributions claimed to have been made
for such [conservation] purposes” and “the status quo in essence
permits the donor and the donee, the two parties with the
greatest incentive to reach such a conclusion, to determine that
a conservation purpose is served.”   Staff of the Joint Committee
on Taxation, Options to Improve Tax Compliance and Reform Tax
Expenditure 286 (Jan. 27, 2005). The report proposes changes to
sec. 170(h). 

277. The proposal, if adopted, would
provide that the protection of the natural habitats referenced in
sec. 170(h)(4)(A)(ii) is exclusively for conservation purposes
only if it is pursuant to a clearly delineated governmental
policy; i.e., it furthers a specific, identified conservation
project. 

The proposal, if adopted, would provide
that a qualified real property interest is not considered as
contributed exclusively for a conservation purpose if the donor
(or a family member of the donor) has a right to use all or a
portion of the real property as a personal residence at any time
after the contribution. 

     20
       At trial, the Court severed from the matter at hand the
issue concerning the fair market value of petitioners’
contributions. Respondent asserts as to the matter at hand that
petitioners contributed a small portion of the property and
                                                   (continued...)
                             - 43 -

     Accordingly,


                                             An appropriate order

                                        will be issued.




     20
      (...continued)
retained the right to build on the property’s unencumbered
portions. We view this assertion as relating not to the
characterization of the conservation easements as qualified
conservation contributions but as most directly related to a
determination of those contributions’ fair market value.
                          - 44 -

                         APPENDIX

     SEC. 170(h).   Qualified Conservation Contribution.--

     (1) In general.--* * * the term “qualified
conservation contribution” means a contribution--

          (A) of a qualified real property
     interest,

          (B) to a qualified organization,

          (C) exclusively for conservation
     purposes.

     (2) Qualified real property interest.--For
purposes of this subsection, the term “qualified real
property interest” means any of the following interests
in real property:

          (A) the entire interest of the donor
     other than a qualified mineral interest,

          (B) a remainder interest, and

          (C) a restriction (granted in
     perpetuity) on the use which may be made of
     the real property.

          *    *     *    *    *    *      *

     (4) Conservation purpose defined.--

          (A) In general.--For purposes of this
     subsection, the term “conservation purpose”
     means--

               (i) the preservation of land
          areas for outdoor recreation by, or
          the education of, the general
          public,

               (ii) the protection of a
          relatively natural habitat of fish,
          wildlife, or plants, or similar
          ecosystem,
                        - 45 -

               (iii) the preservation of open
          space (including farmland and
          forest land) where such
          preservation is --

                    (I) for the scenic
               enjoyment of the general
               public, or

                    (II) pursuant to a
               clearly delineated
               Federal, State, or local
               governmental conservation
               policy,

               and will yield a
               significant public
               benefit, or

               (iv) the preservation of an
          historically important land area or
          a certified historic structure.

          (B) Certified historic structure.--For
     purposes of subparagraph (A)(iv), the term
     “certified historic structure” means any
     building, structure, or land area which --

               (i) is listed in the National
          Register, or

               (ii) is located in a
          registered historic district (as
          defined in section 47(c)(3)(B)) and
          is certified by the Secretary of
          the Interior to the Secretary as
          being of historic significance to
          the district.

A building, structure, or land area satisfies the
preceding sentence if it satisfies such sentence either
at the time of the transfer or on the due date
(including extensions) for filing the transferor’s
return under this chapter for the taxable year in which
the transfer is made.

     (5) Exclusively for conservation purposes.--For
purposes of this subsection--
                   - 46 -

     (A) Conservation purpose must be
protected.--A contribution shall not be
treated as exclusively for conservation
purposes unless the conservation purpose is
protected in perpetuity.