A Failure to Subordinate (RP Golf, LLC et al. v. Commissioner) *

A Failure to Subordinate (RP Golf, LLC et al. v. Commissioner) *

June 30, 2017

In RP Golf, LLC v. Commissioner, the Tax Court ruled that written subordinations by lenders – issued within 100 days of a conservation easement charitable donation and legally enforceable as of the day after the donation – failed to comply with the strict requirements of Section 170. These requirements, as interpreted by the courts, have held that such written documents of subordination must be dated and issued prior to any charitable conservation easement donation. The case was appealed to the Eighth Circuit. The Eighth Circuit affirmed the Tax Court’s decision.


RP Golf, LLC was the sole member of National Golf Club of Kansas City, LLC (“National Golf”), which held two golf courses RP Golf purchased and developed. In the purchase and development of these golf properties, RP Golf and National Golf entered into various loan agreements, which prohibited any oral modifications.

On December 29, 2003, National Golf entered into an agreement to grant a conservation easement to a valid 501(c)(3) organization, Platte County Land Trust (PLT). RP Golf took a $16.4 million  conservation easement charitable deduction on its 2003 tax returns.

Consents subordinating the interests of the two banks were executed by bank officers on April 14, 2014, approximately 100 days after the PLT agreement, and recorded in the Platte County Recorder’s Office on April 15, 2014. Each consent states that the subordination was made effective as of December 31, 2003, even though National Golf executed the PLT agreement on December 29, 2003, and recorded it on December 30, 2003.2

The Eighth Circuit’s Analysis

The Court noted that Section 170A-14(g)(2)5)(A) states that “… no deduction will be permitted under this section for an interest in property which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.”

Notwithstanding the fact that the likelihood of a default and foreclosure occurring in the intervening period is remote, any deduction “depends upon legislative grace; and only as there is clear provision therefore can any particular deduction be allowed.”

As a result, the Eighth Circuit ruled that “Because the banks’ mortgages were not subordinated before the charitable conveyance occurred on December 4, 2003, RP Golf is not entitled to a deduction on its 2003 tax return for a qualified conservation contribution.”

*RP Golf, LLC et al. v. Commissioner – No. 16-3277, 8th Circuit (June 26, 2017)

2RP Golf, LLC et al. v. Commissioner – T.C. Memo. 2016-80 (April 28, 2016)