Walker Church Greene 819, LLC et al. v. Commissioner of Internal Revenue

The $48.9 Million Charitable Deduction at Stake: Court Blocks Majority Partners from Derailing Settlement

The stakes in Walker Church Greene 819, LLC v. Commissioner hinge on a $48.9 million charitable contribution deduction for a conservation easement donation. The IRS seeks full disallowance, while 40 partners challenge a settlement reducing penalties from 40% to 10%. The Tax Court’s ruling in T.C. Memo. 2026-11 (filed February 3, 2026) reaffirmed its authority over TEFRA partnership proceedings, a power increasingly asserted as partnerships and the IRS clash over audit procedures and partner participation rights.

The case highlights the Tax Court’s willingness to exercise judicial oversight in TEFRA cases, particularly when partners attempt to derail settlements negotiated by the Tax Matters Partner (TMP). Under § 6224(c), partners may intervene only if they make a "substantial showing" that their interests are not adequately represented. The court’s denial of the 40 objecting partners’ motions to participate underscores the intentionally high bar for intervention, rejecting last-minute challenges that threaten the finality of settlements. For partnerships, this ruling serves as a reminder that judicial deference to TMP authority is not absolute but difficult to overcome.

The Conservation Easement Donation

In 2016, Walker LLC; a Georgia partnership; donated a conservation easement on 754.79 acres to the Atlantic Coast Conservancy, Inc., restricting the land’s use to preserve its conservation value. The donation qualified for a charitable contribution deduction under Section 170(h).

Walker claimed a $48.95 million deduction on its 2016 tax return, with $48.92 million attributable to the easement. The deduction was supported by an appraisal using the before-and-after method.

The IRS challenged the deduction in a Final Partnership Administrative Adjustment (FPAA) under TEFRA, disallowing the easement deduction and imposing a 40% gross valuation misstatement penalty under Section 6662(h), asserting the claimed value exceeded the correct value by 150% or more. The IRS also asserted alternative penalties under Sections 6662A and 6662(c), (d), or (e).

Oconee, the majority partner in Walker with a 96.88% ownership stake, petitioned the Tax Court in January 2022 to contest the FPAA. In August 2024, Oconee accepted a settlement offer from the IRS. The settlement disallowed the $48.92 million conservation easement deduction but allowed an additional $11.27 million in other deductions, including a previously disallowed $791,365. The penalty was reduced to a 10% accuracy-related penalty under Section 6662(h), and the additional $11.27 million was excluded from the 2% adjusted gross income floor under Section 67.

On February 6, 2025, the IRS filed a Motion for Entry of Decision and a Proposed Stipulated Decision under Tax Court Rule 248(b), formalizing the settlement terms. The motion noted Oconee’s agreement to the entry of the proposed decision but did not certify that no party objected to the settlement; a detail that later became a focal point of disputes.

The Objecting Partners: A Last-Minute Challenge to the Settlement

The proposed resolution of Walker v. Commissioner; a case involving a disputed $48.9 million conservation easement deduction; hit an unexpected snag when 40 partners, collectively holding 62.27% of the partnership interests, filed last-minute Motions for Leave to participate under Tax Court Rule 248(b)(4). Their intervention sought to derail a settlement that Oconee, the Tax Matters Partner (TMP), had negotiated with the IRS, arguing the deal failed to protect their financial interests.

The 40 Objecting Partners, represented by Ryan C. Pulver, collectively owned 64.27% of Oconee, with the largest three partners holding 14.18%, 10.63%, and 7.09% of the entity. The smallest three partners held stakes of 0.09%, 0.09%, and 0.13%, averaging 1.61% per partner. Their Motions for Leave, filed on April 7, 2025; within the 60-day window triggered by the IRS’s Motion for Entry of Decision; stated that the proposed settlement did not adequately represent their position and that they wished to continue with the case apart from the partnership. The Motions also asserted that the partners were prepared to litigate and acknowledged the risk that a court decision could leave them worse off than the settlement terms.

Oconee and the IRS swiftly pushed back, arguing the Objecting Partners had failed to meet the “substantial showing” standard required under Rule 248(b)(4). The IRS contended that the partners had taken “no discernable steps before April 2025 to participate in” the partnership action and had not articulated how they could coordinate litigation with Oconee, a prerequisite for intervention in a TEFRA proceeding. The agency also noted that the Objecting Partners had not alleged the settlement was unreasonable or identified any substantive flaws in the proposed decision; merely restating their desire to litigate without providing evidence of preparedness or legal strategy.

The dispute underscored a critical tension in TEFRA proceedings: while partners retain the right to intervene, the Tax Court has repeatedly emphasized that the bar for participation is high. The IRS and Oconee framed the Objecting Partners’ challenge as an eleventh-hour attempt to disrupt a settlement that had already secured majority support, while the objecting partners positioned themselves as dissenting stakeholders whose financial stakes warranted their inclusion. The stage was now set for the court to weigh whether their procedural maneuver met the legal threshold; or whether their objections would be dismissed as untimely and unsubstantiated.

TEFRA and the High Bar for Partner Participation

The Tax Court’s intervention underscores its authority to enforce TEFRA’s procedural boundaries. TEFRA streamlines partnership audits by resolving disputes at the entity level, with outcomes binding on all partners unless they opt to participate in the Tax Court proceeding. While TEFRA aims for efficiency, it imposes strict rules, and the Tax Court wields significant discretion to enforce them.

Procedural gatekeeping is particularly tight when partners seek to intervene after the Tax Matters Partner (TMP) and the IRS have reached a settlement. Rule 245(b) gives partners a 90-day window from the petition’s filing to elect participation, while Rule 245(c) allows late participation only upon a showing of sufficient cause. Under Rule 248(b)(4), partners must file a motion for leave to participate and a notice of election within 60 days of the IRS’s motion for entry of decision, making a "substantial showing" that their participation is warranted. The Tax Court has emphasized that this is not a perfunctory requirement. In Blomquist Holdings, LLC v. Commissioner, the court rejected conclusory assertions that a settlement was unfair, requiring partners to articulate why the TMP failed to protect their interests and how they are prepared to litigate.

The Objecting Partners argued that their collective 62.27% stake in Walker Church Greene 819, LLC justified their late intervention, but the court saw no basis to relax the rules. Ownership alone does not override the need for a substantial showing; especially when the partners failed to explain why they did not participate earlier, despite three years of proceedings. The Tax Court’s discretion under Rule 248(b)(4) is not a rubber stamp; it is a deliberate check against eleventh-hour disruptions that could derail settlements secured by the majority. In this case, the court’s refusal to grant leave to participate reaffirms its power to enforce TEFRA’s procedural framework; and to ensure that partnership-level resolutions are not hijacked by dissenting partners who missed their chance to weigh in.

The Court's Analysis: Why the Objecting Partners Fell Short

The Tax Court’s denial of the Objecting Partners’ Motions for Leave under Rule 248(b)(4) was a deliberate exercise of judicial power to enforce TEFRA’s procedural framework and prevent eleventh-hour disruptions to a settlement negotiated in good faith by Oconee and the IRS. The court’s reasoning hinged on three core failures by the Objecting Partners: their lack of substantive arguments against the settlement terms, their failure to demonstrate any meaningful preparedness to litigate, and their absence of allegations that Oconee breached its fiduciary duty. These deficiencies fell far short of the "substantial showing" standard required under Rule 248(b)(4), a standard the court has repeatedly emphasized as a high bar to prevent abuse of the TEFRA process.

The court dissected the Objecting Partners’ Motions for Leave, which amounted to conclusory statements asserting disagreement with the settlement and a vague willingness to "litigate." The Motions did not identify a single substantive flaw in the settlement terms, which included disallowing the $48.9 million conservation easement deduction but allowing an $11.2 million increase in other deductions; terms the court found reasonable and consistent with prior precedents like Blomquist Holdings, LLC v. Commissioner and Chimney Rock Holdings, LLC v. Commissioner. The Objecting Partners did not challenge the valuation methodology, the IRS’s disallowance of the easement, or the imposition of penalties. Instead, they asserted that the settlement did not adequately represent their position, a claim the court dismissed as insufficient under Rule 248(b)(4)’s "substantial showing" requirement. The court noted that this standard demands a "specific, non-conclusory" explanation of why the settlement is unreasonable or how the Objecting Partners’ interests are not being protected.

The court addressed the Objecting Partners’ assertion that they were "prepared to litigate," finding it devoid of merit. The Motions for Leave contained no details about litigation strategy, expert witnesses, or coordination with Oconee’s defense. The court contrasted this with prior rulings in Chimney Rock Holdings, where it denied similar motions due to lack of concrete steps toward litigation. The Objecting Partners had three years to participate but remained silent until the settlement. Their last-minute assertion of preparedness was an attempt to disrupt the settlement, a tactic the court has consistently rejected as incompatible with TEFRA’s goal of efficient, unified partnership-level resolutions.

The court addressed the Objecting Partners’ failure to allege any breach of fiduciary duty by Oconee, a factor emphasized in prior cases like Blomquist and Chimney Rock Holdings. The Objecting Partners did not claim Oconee acted in bad faith, failed to consider their interests, or entered into the settlement without proper authority. Their Motions for Leave contained no allegations of self-dealing, conflicts of interest, or other misconduct justifying intervention. The court noted that the Objecting Partners had ample opportunity to raise concerns during the three years of proceedings but squandered them. The court refused to infer a substantial showing based on their 62.27% interest, emphasizing that majority ownership alone does not confer special rights under TEFRA. Each Objecting Partner is treated as a separate party, and their lack of coordination or shared litigation strategy further undermined their claims.

The court’s application of Rule 248(b)(4) and the "substantial showing" standard reaffirmed its authority to enforce TEFRA’s procedural guardrails. Rule 248(b)(4) requires partners seeking to participate after a settlement to make a "substantial showing of sufficient cause," a standard the court has described as "high" and "deliberately unforgiving." The Objecting Partners’ Motions for Leave failed this standard: they offered no substantive arguments against the settlement, no evidence of preparedness to litigate, and no allegations of fiduciary breach. Their majority ownership was irrelevant to this analysis. The Tax Court’s discretion under Rule 248(b)(4) is not a rubber stamp for dissenting partners who missed their chance to participate earlier; it is a deliberate check against eleventh-hour disruptions that could derail settlements secured by the majority.

The Implications: What This Means for Partnership Settlements

The Tax Court’s refusal to grant the Objecting Partners leave to participate under Rule 248(b)(4) sends a clear warning to dissenting partners in partnership-level settlements: timing is everything. For practitioners and taxpayers navigating TEFRA audits, the ruling underscores the procedural rigor required to challenge partnership-level resolutions. Late-stage objections will face an uphill battle, particularly when majority partners and the IRS have negotiated a settlement in good faith.

For partnerships, proactive engagement is non-negotiable. Under TEFRA, the Tax Matters Partner (TMP) or Partnership Representative (PR) holds outsized authority to shape settlements. Dissenting partners risk forfeiting their right to contest adjustments if they fail to participate early. The IRS’s ability to finalize settlements without constant interference is now judicially protected, emboldening the agency to pursue aggressive audit strategies without fear of last-minute disruptions. Practitioners should counsel clients to document all objections in real time to avoid being barred from later participation under Rule 248(b)(4).

The ruling carries direct implications for conservation easement deductions, where valuation disputes and procedural challenges are common. Partnerships claiming these deductions must recognize that delayed objections to settlement terms; whether related to appraisals, conservation purposes, or penalty assessments; will be met with skepticism. The Tax Court’s stance suggests conservation easement cases will see even fewer opportunities for partners to derail settlements after the fact. Challenges to easement valuations or conservation purposes will be resolved at the partnership level, with dissenting partners having little recourse to reopen issues post-settlement.

For future litigation, the decision signals a shift in judicial deference toward the IRS and majority partners in TEFRA proceedings. The court’s emphasis on finality means procedural missteps by dissenting partners; such as missing deadlines or failing to articulate a substantial showing; will be fatal to their claims. This trend may embolden the IRS to take harder lines in negotiations. Practitioners should prepare for a landscape where TEFRA settlements are harder to challenge and the burden of proof for late objections is nearly insurmountable.

Ultimately, the ruling reaffirms the hierarchy of authority in partnership tax disputes: the IRS and majority partners wield the power to resolve cases, while dissenting partners must act swiftly or forfeit their rights. For taxpayers, the takeaway is simple; participate early, or risk being left out of the conversation entirely.