Mitchell v Commissioner of Internal Revenue

Mitchell claimed a deduction for a conservation easement. The existing mortgage was not subordinated until two years after the easement was granted. Commissioner denied the deduction on the ground that the controlling regulation required subordination at the time the deduction is claimed. The panel affirmed. It held the plain language of the regulation requires subordination as perquisite for the deduction and, in any event, this interpretation of the regulation is reasonable given statutory requirement that the easement be in perpetuity and thus protected from foreclosure. The panel also held that foreclosure is not so highly improbable as to be a remote event which will allow a deduction such as a need for future owners to rerecord the easement and, in any event, the interpretation is reasonable and deference requires the court to apply it.