Tax Legal Services · Primary-source case analysis

Valley Park Ranch: Treasury’s Conservation-Easement Proceeds Rule Failed APA Procedure

By Aneeta Mishra and Timothy Chan

Published September 12, 2026

Valley Park Ranch claimed a charitable deduction for donating a conservation easement. The IRS challenged the deed under Treasury’s judicial-extinguishment proceeds regulation, while the partnership argued that the regulation itself had not been validly promulgated.

The regulation controlled post-extinguishment proceeds

Treasury Regulation section 1.170A-14(g)(6)(ii) prescribed how proceeds must be allocated if changed conditions later cause a court to extinguish a conservation easement. Deed language that did not satisfy that formula could defeat the deduction even though the easement otherwise appeared perpetual.

Commenters identified a concrete drafting problem

During rulemaking, commenters warned that the proposed proceeds formula did not account for improvements added after the donation and could produce unfair or impractical results. The Court treated those objections as significant to the regulation’s operation.

Treasury did not supply a reasoned response

The reviewed Court concluded that Treasury’s sparse rulemaking record did not adequately engage the significant comments. Under the Administrative Procedure Act, an agency must show that it considered important objections and explain the path it chose.

Invalidating the regulation did not award the deduction

The Court granted partial summary judgment on procedural validity. Other statutory, valuation, deed, and factual issues remained capable of determining whether Valley Park Ranch was entitled to the claimed contribution deduction.

Key takeaways

• Review both the deed and the regulation governing extinguishment proceeds.
• Preserve rulemaking history when an APA challenge may matter.
• Do not equate invalidation of one regulation with allowance of the deduction.
• Analyze valuation and all remaining section 170 requirements separately.