For tax professionals representing partnerships in complex examinations, particularly those involving syndicated conservation easements under the centralized partnership audit regime (BBA), the procedural safeguards surrounding the statute of limitations are paramount. The recent stipulated decision in Agate Holdings, LLC v. Commissioner, Docket No. 1464-24, provides a critical examination of the final partnership adjustment (FPA) limitations period under I.R.C. § 6235, the mechanics of modification period extensions via Form 8984, and the high evidentiary burden the IRS faces when attempting to assert the civil fraud penalty under I.R.C. § 6663 to keep an expired assessment statute open.

This article details the facts of the case, the taxpayer’s motion for summary judgment, the troubling IRS actions that necessitated the taxpayer’s defense, and the Tax Court’s ultimate conclusions.

Factual Background of the Transaction and Return Filings

Agate Holdings, LLC ("Agate") was formed in August 2018 and subsequently acquired approximately 115.1 acres of real property in Jefferson Davis Parish, Louisiana. On December 28, 2018, the partnership conveyed a conservation easement over 111.1 acres of the property to the Barn Environmental Group, Inc.

On September 16, 2019, Agate timely filed its Form 1065 for the 2018 tax year, claiming a non-cash charitable contribution deduction of $48,283,000. To substantiate the deduction, Agate included a robust set of disclosures with the return and to the Office of Tax Shelter Analysis (OTSA), ensuring compliance with I.R.C. § 170(f)(11) and related regulations. Specifically, Agate attached a qualified appraisal prepared by Clayton M. Weibel, which explicitly detailed a before-easement value of $50,430,000 and an after-easement value of $2,147,000 based on a highest and best use of clay mining. Agate also attached a fully executed Form 8283, explicitly reporting the donor’s cost basis, the date acquired by the donor (April 2016), and the appraisal value. Furthermore, Agate and its material advisors timely filed Form 8886 (Reportable Transaction Disclosure Statement) and Form 8918 (Material Advisor Disclosure Statement).

The IRS Examination and the Attempted Statute Extension

On July 19, 2022, the IRS issued a Notice of Proposed Partnership Adjustment (NOPPA) to Agate. Notably, the NOPPA did not include an assertion of a penalty for fraud.

Following the issuance of the NOPPA, Agate utilized the modification procedures under the centralized partnership audit regime. On January 9, 2023, Agate filed Form 8984 to request a 60-day extension of the modification submission period until June 14, 2023. The IRS timely approved this first extension.

On June 13, 2023, Agate filed a second Form 8984, requesting another extension from June 14, 2023, to June 27, 2023. For this extension to be valid and to lawfully toll the statute of limitations under I.R.C. § 6235(b), the IRS was required to counter-sign the form before the expiration of the period on June 14, 2023.

An Internal Revenue Agent, Zane Stanger, signed the second extension, but the execution contained highly irregular modifications. The date written by the agent originally appeared as June 15, 2023, but the "5" was visibly written over with a "4" to reflect a June 14, 2023 signature date. Letter 5940, which transmitted the executed Form 8984 back to Agate, was generated and dated June 23, 2023, suggesting the backdating occurred on or around that later date. Consequently, the modification period expired, rendering the FPA—which the IRS ultimately issued months later on November 3, 2023—untimely under the standard assessment period defined in I.R.C. § 6235(a).

The IRS’s Assertion of the Fraud Exception and Taxpayer’s Summary Judgment Motion

After Agate filed its Tax Court petition challenging the timeliness of the FPA, the IRS conceded in discovery that the extension was invalid and that the FPA was not timely under I.R.C. § 6235(a). Recognizing that the standard statute of limitations had expired, the IRS asserted the civil fraud penalty for the first time in its Answer to the petition.

By asserting fraud, the IRS sought to rely on the exception found in I.R.C. § 6235(c)(1), which provides: “In the case of a false or fraudulent partnership return with intent to evade tax, the adjustment may be made at any time”. The IRS argued that Agate intentionally overinflated the appraisal value and created documents to falsely represent a clay mining development plan, thereby acting with fraudulent intent.

In response, Agate filed a rigorous Motion for Summary Judgment, requesting that the Tax Court rule as a matter of law that the civil fraud penalty under I.R.C. § 6663 did not apply. Agate argued that without a valid claim of fraud, the unlimited statute of limitations under I.R.C. § 6235(c)(1) was unavailable, meaning the FPA must be deemed entirely untimely and invalid.

Agate’s central argument hinged on recent Tax Court jurisprudence analyzing fraud in the context of fully disclosed conservation easement transactions. The taxpayer noted that the IRS bears the burden of proving fraud by clear and convincing evidence, demonstrating that the taxpayer acted with an intent to conceal or mislead.

Citing Mill Road 36 Henry, LLC v. Commissioner, Buckelew Farm v. Commissioner, and Lake Jordan Holdings, LLC v. Commissioner, the petitioner emphasized that an alleged valuation misstatement cannot sustain a fraud penalty when the taxpayer fully and expressly complies with the rigorous substantiation reporting regimes of I.R.C. § 170. Agate pointed out that it placed the essential tool for identifying overvalued property squarely in the Commissioner’s hands by attaching the Weibel Appraisal and completing Form 8283, which explicitly highlighted the disparity between the partnership’s low cost basis and the high claimed easement value. As the motion argued, citing Mill Road 36, "compliant reporting was starkly at odds with an intention to conceal".

Furthermore, the taxpayer highlighted the procedural impropriety of the IRS’s actions, noting that the IRS only asserted fraud to cure an administrative mistake. The original examiner and the IRS counsel who reviewed the FPA did not assert fraud during the 18-month examination. The taxpayer argued it was legally improper for the IRS to pivot to a fraud allegation solely to resurrect a statute of limitations that was lost due to an agent’s backdating of an extension form.

The Court’s Analysis and Application of the Law to the Facts

Because the IRS ultimately conceded to the taxpayer’s arguments before the motion for summary judgment went to a full judicial opinion, the Tax Court did not draft an independent memorandum detailing its own legal analysis. Instead, the Court accepted the application of the law to the facts as stipulated by the parties.

The broader context of these IRS actions was analyzed by tax reporter Kristen Parillo in a recent article[^1] for Tax Notes Today. In her piece, Parillo highlights the commentary of tax attorney William A. Stone III, who observed that the timeline strongly suggests the IRS realized the revenue agent had backdated a key form only after the Tax Court petition was filed. Stone explained to Parillo that the IRS settled the case because evidence indicated the agency asserted a fraud penalty "solely to keep the statute of limitations open". Parillo also cited Bryan C. Skarlatos, who noted that backdating allegations have surfaced in other easement cases, such as LakePoint Land II LLC v. Commissioner, indicating a troubling trend. As Skarlatos explained in Parillo’s article, "[t]hese instances of backdating illustrate how a campaign by the IRS can become too aggressive and create an atmosphere in which agents end up doing things that they otherwise would not do". Parillo additionally shared Stone’s conclusion that the IRS’s actions forced the partnership to incur unnecessary legal fees to litigate an issue the IRS should have conceded much earlier.

Conclusions Arrived at by the Court

On March 19, 2026, Judge Kathleen Kerrigan entered a Decision ratifying the stipulations agreed upon by Agate and the IRS. Due to the expiration of the statute of limitations, the FPA was wholly invalidated.

The Court decisively ruled in favor of the taxpayer on all financial and penalty adjustments. The judge’s order explicitly held the following key points:

"It is determined that that there is no imputed underpayment for the taxable year 2018."
"It is determined that no accuracy-related penalty for gross valuation misstatement under I.R.C. § 6662(h) applies to any resulting underpayment of tax."
"It is determined that no accuracy-related penalties pursuant to I.R.C. §§ 6662(c), (d) and/or (e) apply to any underpayment of tax resulting from the above adjustments to partnership items for the taxable year ending December 31, 2018."
"It is determined that no civil fraud penalty pursuant to I.R.C. § 6663 applies to any understatement of tax resulting from the above adjustments to partnership items for the taxable year ending December 31, 2018."

Most importantly, the Court’s order included the exact legal reasoning for the complete concession by the government. The decision stated: "It is further stipulated that the concessions by respondent related to the amount of charitable contribution 50 percent, the amount of imputed underpayment, and the applicability of accuracy-related penalties under I.R.C. §§ 6662(c), (d), (e), (h), and 6662A is solely based on the fact that the FPA issued on November 3, 2023, on which this case is based, was not timely issued under I.R.C. § 6235."

Prepared with assistance from NotebookLM.

[^1]: Kristen Parillo, “IRS Concedes Easement Deduction After Backdating Allegation,” Tax Notes Today, March 25, 2026, https://www.taxnotes.com/tax-notes-today-federal/charitable-giving/irs-concedes-easement-deduction-after-backdating-allegation/2026/03/25/7vjd0 (Subscription required)