T.C. M em o . 2 0 1 8 -1 9 3

UNITED STATES TAX COURT

W ENDELL FALLS DEVELOPM ENT, LLC, GREGORY ALAN FERGUSON,

TAX M ATTERS PARTNER, Pet it i on er v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t *

Do ck etNo . 3 4 9 4-1 4. Fi l edNo vem b er 2 0 , 2 01 8
.

Dav i dM . W o o l d ri d g e, Th o m as Al l enW o rt h , an dTu ck er J . Th o ni , fo r p et i t i o n er. Sco t t Ly o ns an dJ o hn n y

Crai g Yo u n g , fo r res po n d en t.

* Th i s o p i n i on s up p lem en t s o u r p rev i o us l y fi l ed o p i n io n W en d el l Fal l s Dev ., LLC v . Co m

m i s s i o n er, T.C. M em o . 2 0 1 8-4 5
.- 2
-

[* 2 ] SUPPLEM ENTAL M EM ORANDUM OPINION
M ORRISON, J u d g e: W e wi l l d en y p et i t i o n er’ s J u ne 5 , 2 0 18 m o t i on fo r
reco n s i d erat i on o f fi n d i n g s o r o p in i o n p u rs u an tt o Ru l e 1 6 1 an dm o t i on t o v acat e p u rs u an t t o Ru l e 1 6 2
. 1 On Ap ri l 4 , 2 0 1 8 , th e Co u rti s s u edi t s M em o ran du m Fi n d i n g s o f Fact an d Op i ni o n i n th i s cas e, W en d el l Fal l s Dev ., LLC v . Co m m i s s i o n er, T.C. M em o . 2 0 1 8 -4 5 , wh i ch we refer t o as th e o p i ni o n. On Ap ri l 1 6 , 2 0 1 8, t he Co u rten t ered an o rd er an dd eci s i on i n acco rd an ce wi t h th e o p i n i o n . On J u ne 5 , 2 0 18 , th e p et i t i o n er, Greg o ry Al an Ferg u s o n , fi l eda m o ti o n t o
reco n s i d er t h e o pi n i o n . On t h e s am e d ay , h e fi leda m o ti o n t o v acat e t h e o rd er an d d eci s i o n . Fo r t h e reas on s ex p l ai n edb el o w, we d en y h i s m o t io n s . A m ot i o n fo r reco n si d erat i o n g en eral ly wi l l n o tb e g ran t edu n l es s th e
m o vi n g p art y

s h o ws u n u s u al ci rcu m s t an ces o r s ub s tan t i al erro r. Es t at e o f Qu i ckv . Co m m i s s i o n er, 1 1 0 T.C. 4 4 0 , 4 4 1 (1 9 9 8). Ferg u s o n co m p l ai n s o f t h ree al l eg ed
erro rs i n t h e o p in io n . He th erefo re as k s u s t o reco n s i d er t he o p i n i o n . Becau s e o u r

1 Un l es s o t h erwi s e i nd i cat ed , al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
-

[* 3 ] o rd er an dd eci s i on en t ered o n Ap ri l 1 6 , 2 0 1 8 , were i n acco rd an ce wi t h th e
o p i n i o n , h e u rg es u s t o v acat e th e o rd er an dd eci s i o n . Fi rs t , Ferg u s on co n t en d s t h atth e o p i n io n ap p ears t o i n v al i d at e th e fi ft h
s en t en ce o f s ect io n 1
. 1 7 0 A -1 4 (h )(3 )(i ), In co m e Tax Reg s . Ferg u s on ’ s m o t i o n
co n ten d s i n p ert i n en tp art : Th e Op i n io n ap p ears t o h o l dth aten h an cem en tt o o t h er p ro p ert y o wn edb y Pet i t i o n er (b u tn o ts ub jectt o t h e Eas em en t ) i n co n j u n ct io n wi t h i ts ch ari t ab le g i ftt o W ak e Co u n t y p er s e d i s al l o ws th e d edu ct io n as s o ci at edwi t h th e g ift . Ho w ev er, as d i scu s s edb el o w, th e En h an cem en tReg u l at io n p ro v i d es t haten h an cem en tt o the v al u e o f t h e o t her p ro pert y

o wn edb y

th e d o n o r i n co n

ju n ct i o n wi t h a ch ari t ab l e g i ft d o es n otres u l ti n t o t al d i s al l o wan ce o f t h e d o n o r’ s ch ari t ab l e d edu ct io n , s o l o n g as th e en h an cem en tv al ue i s l es s th an t h e v al u e o f t h e d o n at edeas em en t . Treas . Reg . § 1 .1 70 A-1 4(h )(3 )(i ) (fi ft h s en t en ce). Th e fi ft h s en t en ce o f t h e reg ul at i o n i s : If t h e g ran t i n g o f a p erp etu al co n s erv at i o n res t ri ct i on aft er J an u ary 1 4 , 1 9 8 6 , h as t h e effect o f i ncreas i ng th e v al u e o f an y o th er p ro p ert y o wn edb y t h e d o n o r o r a rel at edp ers on , th e am o un to f th e d edu ct i o n fo r t h e co n serv at io n co n tri b ut i o n s h al l b e red u cedb y th e am ou n t o f t h e i n creas e i n th e v al u e o f t h e o t h er p ro p ert y , wh et h er o r n o ts u ch p ro p ert y i s co n t i g u o u s . * * * Co n traryt o Ferg u so n ’ s co n t en t i o n , th e o pi n i o n d i dn o th ol dth atan y
en h an cem en tt o t h e v al u e o f o t h er p ro p ert y h el d b y th e d o n o r res u l t s i n a t o t al d i s al lo wan ce. Rat h er, t h e Co u rtd et erm i n edth atth e v al u e o f t h e eas em en twas
zero b ecau s e t h e h i g h es tan db es tu s e o f t h e 1 2 5 acres s ub jectt o th e eas em en twas- 4
-

[* 4 ] as p ark l an dan db ecau s e t he eas em en td i d n o tp rev en t t he l an dfro m b ei n g p u t t o i ts b es tu s e. W en d el l Fal l s Dev
. , LLC v . Co m m i ss i o ner, at * 1 2-* 1 5 . Th e Co u rt ’ s h o l d i n g i s n o ti n co n s i s t en twi t h t h e fi ft h s en t en ce o f t he reg ul at i o n . Seco n d , Ferg u so n co n t en d s th atth e o p in i o n ap p ears t o i nv al i dat e t h e s i x t h
an d s ev en t h s en t en ces o f s ect i o n 1 .1 7 0 A-1 4 (h )(3 )(i ), In co m e Tax Reg s . Ferg u s on ’ s m ot io n co n t en d s i n p ert i n en t p art : Th e Op i n io n ap p ears t o h o l dth atth e ex p ect at i o n o f recei v in g a s ub s t an t i al fi n an ci al o r eco n o m i c b en efi t i n co n ju n ct i o n wi t h a ch ari t ab l e g i ft p er s e d is al l o ws th e d edu ct i o n as s o ci at ed wi th t he g i ft
. Ho wev er, as d i s cu s s edb el o w, th e Sub s t an t i al Ben efi tReg ul at i o n p ro v i d es th att ax p ay ers can recei ve s u ch s ub st an t i al fi n an ci al o r eco n o m i c b en efi t s i n co n

ju nct i o n wi t h co n s erv at i o n eas em en t d o n at i o n s wi t h o u th av i n g th ei r d educt i o n s d i s al l o w ed , s o l o n g as th e v al u e o f t he s ub s t an t ial b en efi trecei v edi s l es s th an the v al u e o f t h e co n t ri b u t edeas em en t . Treas . Reg . § 1 .1 7 0 A-1 4 (h )(3 )(i ) (s i x t h s en t en ce). Th e s ix t h an d sev en t h s en ten ces o f t h e reg u l at i o n are: If, as a res u lto f t h e d o nat i o n o f a p erp etu al co ns erv at i o n res t ri ct i on , t h e d o n o r o r a rel at edp ers o n recei ves , o r can reas o n ab l y ex p ectt o recei v e, fi n an ci al o r eco no m i c b en efi t s th atare g reat er t han th o s e t h at wi l l i n u re t o th e g en eral p ub l i c fro m the t ran s fer, n o d edu ct i o n i s al l o wab l e u n d er t h i s s ect i o n . Ho wev er, i f t h e d o n o r o r a rel at ed p ers on recei v es , o r can reas o n ab l y ex p ectt o recei ve, a fi n an ci al o r eco n o m i c b en efi tth ati s s ub st an t i al , b u ti ti s cl earl y s h own th atth e b en efi ti s l es s th an th e am o u n t o f t h e t ran sfer, t hen a d educt i o n u n d er t h i s s ect io n i s al l o wab l e fo r t h e ex ces s o f th e am o u n ttran s ferred o v er t h e am o u nto f t h e fi n an ci al o r eco n o m i c b en efi trecei v edo r reas o n ab l y

ex p ect edt o b e recei v edb y t h e d o n or o r t h e rel at edp ers o n . * * *- 5
-

[* 5 ] Th e s ev en t h s en t en ce o f t h e reg u lat i o n s u g g es t s thata d edu ct i o n i s n o t p recl u d edi f t h e ex p ect edb en efi tt o th e d o n or o f t h e eas em en t i s d em o n s trab l y l es s t h an th e am o u nto f t h e t ran s fer. See s ec. 1 .1 7 0A-1 4 (h )(3 )(i ), In co m e Tax Reg s . Th e s en t en ce req u i res co m p ari s o n o f t wo v ari ab les : (1 ) t h e ex pect edb en efi tt o th e d o n o r o f t h e eas em en t an d(2 ) th e am o un to f t h e tran s fer. As rel ev an tt o t h e fi rs t
v ari ab l e, t h e o pi n i o n h el d t h at “ W en d el l Fal ls d o n at edth e eas em en twi t h th e
ex p ect at i o n o f recei v i n g a s ub s t an t i al b en efi t .” W en del l Fal l s Dev ., LLC v
. Co m m i s s i o n er, at* 1 3 . Th atm ean s th e ex p ect ed b en efi t t o th e d o no r o f t h e
eas em en ti s h i gh . As rel ev an t t o th e s eco n dv ari ab l e, t he Co u rt h el dth at“ t h e
v al u e o f t h e eas em en ti s zero . ” Id . at* 1 5 . Th atm ean s th e v al u e o f th e tran s fer, i .e., th e v al u e o f t h e eas em en t , i s zero . Itfo l l o ws thatth e ex p ect ed b en efi tt o th e d o n o r i s g reat er t h an the am o u n to f t h e t ran s fer. Th erefo re, t h e s ev en t h s en t en ce
o f t h e reg u lat i o n d o es n o t req u i re t h e al l o wan ce o f a d edu ct i o n . Th e o pi n i o n i s
co n si s t en twi t h th e s i x t h an ds ev en t h s en t en ces o f t h e reg u l at io n . Th i rd , Ferg u s o n co n t en d s th ati n d et erm i ni n g th e v al u e o f t h e 1 2 5 acres b efo re t h e eas em en twas g ran t ed , th e Co u rterred i n d et erm i n i n g t h atth e h i g h es t
an d b es tu s e o f t h e 1 2 5 acres was p ark l an d
. In p art i cu l ar, Ferg us o n s u g g es t s th at t h e o p in i o n i s i n co n s i s ten twi t h Sym i n gt o n v . Co m m i s si o n er, 8 7 T.C. 8 92 , 8 9 6
- 8 9 7 (1 98 6 ), i n wh i ch we s t at ed :- 6
-

[* 6 ] In d et erm in i n g th e fai r m ark etv al u e o f p ro p ert y “ Th e real i s t i c, o b ject i v e p ot en t i al u s es fo r p ro p ert y co n t ro l t h e v al uat i o n thereo f.” St an ley W o rk s an dSubs i d i ari es v . Co m m i s s i o n er, * * * [8 7 T.C. 3 8 9 , 4 0 0 (1 9 8 6 )] . See al s o Ol s o n v . Un i t edSt at es , 2 9 2 U.S. 2 46 , 2 55 -2 5 6 (1 9 3 4 ). Th u s , i n d et erm i n i n g th e “ reas o n ab l e an dp ro b ab le u s e t h at s up p o rt s th e h i g hes tp res en tv al u e” (s ee p . 8 9 6 s up ra), we fo cu s o n “ Th e h i g h es tan dm o stp ro fi t ab l e u s e fo r wh ich th e p ro p ert y i s ad ap t ab l e an dn eed edo r l i k el y t o b e n eed edi n th e reas o n ab l y n ear fu tu re.” Ol s o n v . Un it edSt at es , s up ra at 2 5 5 . M o reo v er, “ Th e fai r m ark etv al u e o f p ro p ert y

i s n o taffect edb y

wh et h er th e o wn er act u al l y h as p u tth e p ro p ert y t o i t s h i g hes tan d b es tu s e” (St an l ey W o rk s an dSubs i di ari es v . Co m m is si o n er, s up ra at 4 0 0; s ee al so Un i t edSt at es v . M ead o wBro o kCl ub , 2 5 9 F.2 d4 1, 4 5 (2 dCi r. 1 9 5 8 )), n o r wh et h er h e ev er i n t en d s t o d o s o (Ak ers v . Co m m i s s i o ner, * * * [T.C. M em o . 1 9 8 4 -4 9 0 , aff’ d , 7 99 F.2 d 2 4 3 (6 t h Ci r. 1 9 8 6 )] ). * * * Ferg u s on i m

p l i es th atth e h i g h es tan db es t u s e o f t he 1 2 5 acres was s om e u s e o t h er t h an as p ark l an dan dthatth erefo re i ts h o u l d n o tm at t er t h at W en del l Fal l s i n t en d ed t o u s e t h e 1 2 5 acres o nl y

as p ark l an d
. Ferg u s o n ’ s m ot io n i s p rem i sedo n th e th eo ry th at t h e 1 2 5 acres wo u l db e
m o re v al u ab l e as res i d en t ial an dco m m erci al s pace. Bu tth e 1 2 5 acres i s p arto f a l arg er 1 ,2 8 0-acre p arcel o f p ro p ert y wh ich , ex cep tfo r t he 1 2 5 acres , was zo n edfo r
res i den t ial an d co m

m erci al d ev el o p m en t
. Itwas o b ject i v el y reas o n ab l e t o d ev o t e
s o m e o f t h e l arg er p arcel to p ark l an dt o s erv e as an am en i ty fo r t h o se wh o wo u l d l i ve an dwo rki n th e res i d en t i al an dco m m erci al b u i l d i n g s . By

J u ne 7 , 2 0 07 , th e d at e t h e eas em en t was g ran t ed , th e b es tp l ace fo r t h e p ark l an dwas th e 1 2 5 acres- 7
-

[* 7 ] b u rd en edb y

th e eas em en t . InOct o b er 2 0 0 6 the To wn o f W en d el l h ad ap p ro v edth e p l an n edu n i td ev el o p m en tu n d er wh ich a m as t er-p l an n edco m m u n i t y
wo u l db e co n s t ru ct edaro u n dth e 1 2 5 acres . InDecem b er 2 0 0 6 th e 1 25 acres h ad b een pl aced u n d er co n t ract t o b e s o l dt o W ak e Co u n t y fo r u s e as p ark l an d
. Th u s , t o v al u e t h e 1 2 5 acres as p ark lan das o f J u n e 7 , 2 0 0 7 , i s n o t m erel y t o d efer t o th e
v i ew o f t h e t h en o wn er o f t he 1 2 5 acres , W en d el l Fal l s . W en d el l Fal l s ’ p l an s fo r t h e l an dwere l o ck edi n t o p lace t h ro u g h l eg al l y b i nd i ng o b l i g at i o n s . Th e o b ject i v e b es tu s e o f t he 1 2 5 acres was as p ark l an d
. Th e eas em en tth erefo re res t ri ct edthe u s e o f th e 1 25 acres t o wh atwo u l d h av e b een i t s m os teffi ci en tu s e an yway . Un d er t h e b efo re-an d -aft er m eth o d
m an d at edb y

th e reg ul at i o n i n th i s cas e, t h e v al u e o f th e eas em en ti s th e am o u n tb y wh i ch th e eas em en td i m i n i sh edth e v al u e o f t h e l an d. Sec. 1 .1 7 0 A -1 4 (h )(3 )(i ), In co m e Tax Reg s . Iti s o u r b es tju d g m en tthatth e am o u n to f t h e d i m i n ut i o n was
zero . Th e v al u e o f t h e eas em en twas t h erefo re zero .- 8
-

[* 8 ] To refl ectthe fo reg o i n g , An o rd er wi l l b e i s s u edd en y in g p et i t i o ner’ s J u n e 5 , 2 0 1 8 m ot i o n fo r
reco n s i d erat i o n o f fi n d i n gs o r o p in i o n p u rs uan tt o Ru l e 1 6 1 an dp et it i on er’ s J u n e 5 , 2 0 1 8 m o ti o n t o v acat e o rd er an d d eci s i o n p u rs uan tt o Ru l e 1 6 2
.