T.C. M em o . 2 0 1 6 -2 3 3

UNITED STATES TAX COURT

PHYLLIS E. M CGRADY AND CHRISTOPHER R. ANTONIACCI, Pet i t i o n ers v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t

Do ck etNo s . 2 0 6 0 2 -1 2 , 1 1 14 2 -1 3
. Fi l edDecem b er 2 2 , 2 01 6
.

J o h n Pau l Barri e, fo r p et i t i o n ers . J o n at h anE. Beh ren s , fo r res p o n d en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION LAUBER, J u d g e: Onth ei r Fed eral i n co m e t ax retu rn fo r 2 0 07 , p et i t i o n ers rep o rt eda n o n cas h ch ari t ab l e co n tri b u t i o n o f $ 4 .7 m il l io n . Th i s co n t ri b u t i o n co m p ri s edtwo d i s t i n ctg i ft s , wh i ch were co m p o n en t s o f a co m

pl ex co n s erv at i o n p l an i n Bu ck s Co u nt y , Pen n s y l v an i a. Pet i t i o n ers d o n at edt o t h e t o wn s h i p i n wh i ch th ey l i veda qu al i fi ed co n serv at i on eas em en to n th ei r 2 5 -acre h o m es t eadp ro p ert y , an d- 2
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[* 2 ] th ey d o n at ed t o a t ax -ex em

p tco n s erv at i o n o rg an izat i o n a fee s i m p l e i n t eres t i n an ad j o i ni n g 2 0 -acre p arcel o f u nd ev el o p edl an d . Un ab l e t o u s e t h i s d edu ct i o n fu l l y i n 2 0 0 7 , th ey

cl ai m edcarry o ver ch ari t ab l e co n t ri b u t i o n d edu ct i on s fo r 2 0 0 8
- 2 0 1 1
. Th e In t ern al Rev en u e Serv i ce (IRS o r res p o n d en t ) d i sal l o wedth es e d edu ct i on s i n fu l l . Itco n t en dedthatp et i t i o n ers l ack edd o n at i v e i n t en t ; th atth ey fai l ed t o s at i s fy v ari o u s rep o rt i n g req u i rem en t s ; th atth ey o v erv al u edthe d o n at edp ro p erty ; an d t h atth ey recei vedretu rn b en efi t s i n ex ch an g e fo r t h ei r g i ft s . Th e IRS d et erm i n edd efi ci en ci es as fo l l ows : Year Defi ci en cy 2 00 7 $ 3 3 8 ,6 1 4 2 00 8 3 0 8 ,9 60 2 00 9 2 6 0 ,4 05 2 01 0 5 0 6 ,2 96 2 01 1 8 6 , 1 02 Th e IRS al s o d et erm i n edaccu racy -rel at edp en al ti es u n der s ect i o n 6 6 6 2 (h ), co m p u t edas 4 0 % o f t h e u n d erp aym en t s , an d i n the al tern at i v e u n d er s ect i o n 6 6 6 2 (a),
co m p u t edas 2 0 % o f t h e u n d erp aym en t s . 1 W e co n cl u d e t h atp et i t i o n ers are en t i
t l edt o ch ari t ab l e co n tri b u t i o n d edu ct i o n s fo r b ot h g ift s , al b ei ti n am o u n t s

1 Al l s t atut o ry

referen ces are t o th e In t ern al Rev en u e Co de (Co d e) i n effect fo r t h e t ax y ears i n i s s u e, an dal l Ru l e referen ces are t o th e Tax Co u rt Ru l es o f Pract i ce an d Pro cedu re. W e ro u n dal l m o n et ary am o u nt s t o th e n eares td o ll ar.- 3
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[* 3 ] s m al l er t h anth ey

cl ai m ed , an dth atth ey

are n otl i ab l e fo r accu racy -rel at ed p en al t i es . FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Th e s t ip u l at i o n o f fact s an dth e at t ach ed ex h i b i ts are i n co rp o rat ed b y th is referen ce. Pet i t i o n ers res i
d ed i n Pen ns y l v an i a wh en th ey fi l edth ei r p et i t i o ns . A. Pet i t i o ners ’ Acqu i s i t i o n o f Parcel A an dParcel B In 1 9 9 4 Edwardan d Sarah Ro rer o wn ed1 8 2 acres o f l an di n Up p er M ak efi el d T o wn s h i p in Bu ck s Co u n t y , Pen n s y l v an i a (To wn s h i p ). Th i s l an dco m p ri s ed fi ve co n t i g u o u s b u t s ep arat e t ax m ap p arcel s . Wh atwe wi ll cal l Parcel B o r t h e h o m es t eadp ro p erty

was a 2 5 -acre t ract o f p art ial l y i m p ro v edl an d . It i ncl u d eda
s i ng l e-fam i l y

res id en ce, d at i ng i n p artt o t he 1 7 t h cen tu ry , an ds ev eral n earb y o u t b u i l d i n g s . Th e o u tbu i l d i ng s i n cl u d eda co t t ag e, a g u es th o u s e, g arag es , an da l arg e b arn o nce u s edas an ai rp lan e h an g ar. Th i s res id en t i al co m p l ex was l o cat edt o wardth e s o u t h ern b o rd er o f Parcel B. Wh atwe wi l l cal l Parcel A was a 2 0 -acre tract o f un i m

p ro v edl an dth atad

jo i n edParcel B t o t he wes t . Th e rem ai n i n g 1 3 7 acres , co m p ri s i n g t h ree s ep arat e t ax m ap p arcel s , s u rro u n dedParcel s A an dB t o th e wes t , s o u t h, an deas t . W e wi l l refer t o th i s acreag e
as th e Ro rer Tract . Th e Ro rer Tractwas u n d ev el o p ed , co n s i s ti n g o f wo o d lan d s- 4
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[* 4 ] an d cl earedl an du s ed fo r farm i n g . Th e Ro rer Tract , l i k e Parcel s A an dB,
was zo n ed“ CR-1 ” b y

th e To wn s hi p . Th i s m ean tth atal l 1 8 2 acres co u l db e d ev el o p ed as o f ri g h t i n t o s in g l e-fam i l y h o m es wi t h a m in i m

u m l o ts i ze o f o n e
acre. In Feb ru ary

1 9 9 5 p et i t io n ers p u rch as edParcel B fro m the Ro rers fo r $ 1 .5
m i l l io n . Atth e t i m e o f p u rch as e t h e Ro rers g ran tedp et i t i o n ers an i nfo rm al , u n reco rd ed eas em en t t o u s e a g rav el farm ro adacro s s th e Ro rer Tract . Th i s ro adp ro v i d eda b acken tran ce t o th e h o m es t eadp ro pert y fro m Aqu edu ctRo ad , wh i ch b o u n d edth e Ro rer Tract t o the s o u t h
. Pet i t i o n ers u s ed t h i s b acken t ran ce du ri n g
s ev ere wi n t er weat h er, wh en th e m ai n dri v eway l ead i n g t o t h e res i d en ce fro m th e
n o rt h co u l db eco m e i m

p as sab l e. Atth e t im e t h ey

acq u i redParcel B, p et i t i o ners al so recei v edfro m the Ro rers
an o p t io n (ex erci s ab l e wi t h i n 5 y ears ) t o p urch as e Parcel A an dan o p t i o n (ex erci s ab l e wi t h in 1 0 y ears ) t o p urch as e t h e Ro rer Tract . InNo v em ber 2 0 0 0 p et i
t i on ers ex erci s edth e fo rm er o p t i o n an d p u rch as edParcel A fo r $ 5 0 0,0 0 0 . W e wi l l
s o m et i m es refer t o Parcel s A an dB co l lect i v el y as th e M cGrad y

/ A n t o ni acci Tract
. In J an uary2 0 0 5 p et i t i o n ers i n fo rm ed t h e Ro rers o f t h ei r i n t en ti o n t o ex erci s e t hei r o p t io n t o p u rch as e t h e Ro rer Tract . Th e o pt i o n ag reem en t s t i pu l at edth at th e p u rch as e p ri ce was t o b e t h e av erag e o f t h ree i n dep en d en tap prai sal s o f t h at- 5
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[* 5 ] p ro p ert y . Th e l o cal real es t at e m ark etwas ex trem el y s t ro n g du ri n g 2 0 0 3
- 2 0 0 5 ; th e Ro rers h ad recei vedo ffers fo r t h e Ro rer Tracts ub s t an t i al l y i n ex ces s o f $ 1 0 m i l l i o n fro m

s ev eral d ev el o p ers . Th e av erag e o f t h e t h ree ap p rai s al s s t i p u l at edi n th e o p t i o n ag reem en t y i el d eda req u i redp u rch as e p ri ce o f $ 1 3 .4 m i l l i o n . Pet i t io n ers co u l dn o taffo rdthi s p ri ce, an di n J u ly 2 00 6 t hey

t erm i n at ed t h e o p t i o n ag reem en t . B. Dev el o p m en to f t h e En vi ro nm en tal Co n s erv at io n Pl an Th e To wn s h ip was co m

m i tt edt o p ro tect i n g l an d i n i ts n atu ral s t at e an d p res erv i ng as far as p o s s i bl e t h e ag ri cu l tu ral h eri t ag e o f Bu ck s Co u n ty . Its o u g h t t o acco m p li s h th es e g o al s i n v ari o u s way s , e.g . , b y p u rch as i n g o r recei v i n g co n serv at i o n eas em en t s an db y

p ro v i d i n g i n cen t i v es fo r “ co n s erv at i o n s ub d i v i s io n s .” Co n s erv at i o n s ub di v i s io n s al l o wedl i m i t edres i d en t i al d ev el op m en t : Ex p en s i v e h o m es wo u l db e d i sp ers edacro s s a l arg e area, wi t h the l an ds u rro un d in g t h es e
res i den t ial “ en v el o pes ” b ei n g co v eredb y co n serv at i on eas em en ts . Bet ween 1 9 96 an d2 0 0 5 th e To wn s h i p ’ s res i d en t s au t h o ri zed b o n di s s u an ces o f up t o $ 31 m i l li o n t o rai s e fu n d s fo r p res erv at i on o f o p en s p ace. To g u id e th e u s e o f t h es e fu n d s , th e To wn s h i p , a g ov ern m en t al u n i tas d efi n edi n s ect i o n 1 7 0 (c)(1 ), d ev el o p edan “ o pen s p ace p l an ” i n co n s u l t at i on wi t h th e Heri t ag e Co n s erv an cy (Heri t ag e), a n o np ro fi to rg an izat i o n d ed i cat ed t o en v i ro n m en t al co n s er-- 6
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[* 6 ] v at i o n i n Bu ck s Co u nt y an dad jo in i n g areas . Heri t ag e i s t ax -ex em p tu n d er
s ect i on 5 0 1 (c)(3 ) an di s an o rg an i zat i on el i g ib l e t o recei v e “ qu al i fi edco n s erv at i o n
co n tri b u t i o n s” u n d er s ect io n 1 7 0 (h )(1 ) an d (3 ). In M ay 2 0 0 5 th e To wn s h ip an d Heri t ag e i d en t ifi edth e Ro rer Tract an d t he M cGrad y / An to n iacci Tractas am o n g th e m o s t s i g n i fi can t u np res erv edp ro p ert i es rem ai n i n g i n th e area. Pet i t i o ners s h ared t h e To wn s h i p ’ s co n s erv at i o n v al u es . InDecem b er 2 0 0 5 th ey co n t act edHeri t ag e t o ex p res s thei r i n t eres t i n p res erv i ng th e Ro rer Tract , wh i ch th ey

th en h el dan o p t i on t o p u rch as e. In J anu ary 2 0 0 6 t h ey

h i redGreg o ry Gl i t zer, an ex p eri en cedci v i l en g i n eer, t o o ut l i n e p o s s i b le d ev el o p m en ts cen ari os . He p rep aredn um ero u s s k et ch p l an s . He ad v i sedth ati f al l 1 8 2 acres were d ev el
o p ed t o t h ei r fu l l co m

m erci al p o t en t i al , th ey co u l dacco m m od at e atl eas t6 0 res i
d en ti al u n i t s an d(u n d er a “ cl u st er d ev el o p m en t” m o del ) p o s s i b l y as m an y as 2 18
res i den t ial u n i ts . He s k et ch ed p l an s fo r a 9 -l o t res i d en t ial d ev el o p m en to n Parcel A an da 1 0 -l o tres i d en ti al d ev el o p m en t o n Parcel B. As an al t ern at iv e, M r. Gl i t zer i n M arch 2 0 0 6 s ket ch edp lan s fo r a n in e-l o t

“ co n s erv at i o n s ub d i v i s i o n ” carv edo u to f t he Ro rer Tractan dth e s o u t h ern p o rt i o n
o f Parcel A. Un d er t h is p lan , th e M cGrad y / An t o n i acci Tractwo u l db e en l arg edt o i n cl u d e a p o rt i o n o f t h e Ro rer Tractn o tn eed edfo r t h e p ro p o seds ub d iv i s i o n , an da- 7
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[* 7 ] co n serv at io n eas em en two u l db e p l aced o v er al l o f p et i t i o n ers ’ p ro pert y
ex cep tth e res i d en t ial en vel o p e o n Parcel B. In earl y s p ri n g 2 0 0 6 Ri ch ardZav et a, an ex p eri en cedl o cal d ev el op er, ex p res s edh i s wi l l in g n es s t o p ay $ 6 m i l l io n fo r ei g h t b u i l d i ng l o t s as s h o wno n M r. Gl i t zer’ s s k et ch fo r t h e Ro rer Tract , wi t h t he n i n t h l o tb ei n g s o l dt o an o t h er p art y . Th e To wn sh i p g av e p rel i m i n ary ap p ro v al t o t hi s s k et ch p l an . Ital s o ex p res s edi t s wi l l i ng n es s t o co n t ri b u t e atl eas t$ 4 m i l l i o n t o p u rch as e a co ns erv at i o n eas em en t
o v er t h e Ro rer Tract , co n di t i o n edo n p et i t io n ers ’ co n vey i n g co n s erv at i o n eas em en t s o ver Parcel s A an dB. Sub s equen tn eg o t i at io ns am o n g th e p art ies were affect edb y two d ev el o p m en t s . Fi rs t , p et i t i o n ers t erm i n at edthe o p t i on ag reem en t i n J u l y 2 0 06 b ecau s e th ey co u l dn o taffo rdth e $ 1 3 .4 m i ll i o n p u rch as e p ri ce fo r t h e Ro rer Tract
. Seco n d , M r. Zav et a s en s edth atth e h o us i n g m ark et was weak en i n g an di n s i s t edo n
s cal i ng b ackh i s co m

m i t m en t . Th i s m ean t t hath e wo u ldreq u i re m ore t h an th e ei g h tl ot s i n i t i al l y

en vi s io nedan dwo ul dp ay s ub s t an t i al l y

l es s fo r each l o t . Len g t h y n eg ot i at i o n s en s u edam o ng p et i ti o ners , the Ro rers , th e To wn s h i p , Heri t ag e, M r. Zav et a, an dth ei r v ari ou s rep res en t at i v es . OnDecem b er 1 1 , 2 0 0 6, M r. Gl i t zer p rep aredth e fi n al co n s erv at i o n s ub d i v i s io n p lan , wh i ch refl ect edth e p art i es ’ u l t i m at e ag reem en t s . Th e el em en t s o f th is p l an , wh i ch were- 8
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[* 8 ] i m p l em en t edi n v ari o u s s tep s du ri ng th e fo l l o wi n g m o n t h s , can b e
s u m m ari zedas fo l l o ws . • Pet i t i o ners ag reedt o co n v ey t o Heri t ag e, as a ch ari t ab le co nt ri bu t i o n , a fee
s i m p l e i n t eres ti n Parcel A. Th ey ex ecu t ed a d o n at i o n ag reem en td at edJ an u ary 2 4 , 2 0 0 7 , an d th e d eedwas reco rd edi n Heri t ag e’ s n am e o n Feb ru ary 7 , 2 0 0 7
. Heri t ag e ag reed t o d el i v er t o t h e To wn s h i p , an ds ubs equ en t l y d i d d el i v er fo r
co n si d erat io n o f $ 1 0 0 , 0 0 0 , a co n s erv at i o n eas em en t o v er Parcel A. • Pet i t i o ners ag reedt o co n v ey t o th e To wn s h ip , as a ch ari t ab le co nt ri b u t i o n , a co n serv at i on eas em en t o v er Parcel B. Th ey ex ecu teda d o n at i on ag reem en tt o th i s effect o n Feb ru ary 1 , 2 0 0 7 , an dfo rm al l y co n v ey edth e eas em en to n J ul y 1 0 , 2 0 0 7 . Pet i t i o n ers ret ai nedth e ri g htt o m ak e i m p ro v em en t s t o th ei r res id en ce an d th e ex i s t i n g o u tbu i l d i n g s wi t hi n a t wo -acre res i d en t i al en v el o pe. • Th e Ro rers ag reedt o s el l t o th e To wn s h i p , fo r $ 5 ,6 1 5 ,0 0 0 i n a b arg ai n
s al e, a co n s erv at i o n eas em en to v er t h e Ro rer Tract . Heri t ag e ag reedt o p u rch as e th e Ro rer Tract fro m t h e Ro rers , s ub ject t o th i s eas em en t , fo r $ 6 ,0 8 5 ,0 0 0 . Th e
s u m o f t h es e am o un t s , p l u s th e t ax s av in g s t he Ro rers an t i ci p at ed fro m the b arg ai n
s al e, ap p ro xi m at edth e $ 1 3 .4 m i l l i o n p u rch as e p ri ce fo r t h e Ro rer Tract t hath ad b een det erm i nedu n d er t h e o ri g i n al o p t i o n ag reem en t . Th e i n i t i al ag reem en t s were- 9
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[* 9 ] ex ecu t edo n Feb ru ary 1 , 2 0 0 7 ; the eas em en t was fo rm al l y co n v ey edo n J u n e 2 8 , 2 0 0 7 ; an dth e d eedwas fo rm al l y ex ecu t edo n J ul y

1 0 , 2 00 7
. • Heri tag e, as th e o wn er o f Parcel A an dth e Ro rer Tract , ag reed t o s el l t o M r. Zav et a 1 0 res id en t i al l o t s as s etfo rt h i n th e fi nal co n s erv at i o n s ub d i v i si o n p l an , i n ex ch an ge fo r co n s i d erat i o n o f $ 5 ,1 7 5 ,0 0 0 . Heri t ag e co n cu rren t l y ag reed t o s el l an 1 1 t h l o tt o an u n rel at edp art y fo r $ 4 2 5 ,0 0 0 . Th e i n it i al ag reem en t s were
ex ecu t edo n Feb ru ary

1 , 2 0 0 7. Th e To wn s h i p ’ s b o ardo f s up erv i s o rs fo rm al l y ap p ro v edth e fi nal co n s erv at i o n s ub d i v i s i o n p l an o n J u ne 6 , 2 0 07 , an dth e rel ev an t d eed s were fo rm al l y

ex ecu tedo n J u l y

1 0 , 2 0 0 7
. • Pet i t i o ners ag reedt o d o n at e, an dd i d d o n at e i n t h e fo rm o f cas h an dco m m o n s t o ck , $ 2 7 5 ,0 0 0 t o Heri t ag e t o co v er i t s tran sact i o n co st s i n acq u i ri n g t h e Ro rer Tract an d s ecu ri n g d ev el o p m en t ap p ro val fro m th e To wn s h ip . Of th i s s u m , $ 2 6 8 ,0 0 0 was co n t ri bu t eddu ri n g 2 0 0 7
. Th e ag reem en t s d es cri b edab o v e l eftth e p art ies $ 4 8 5 ,0 00 s h o rto f t h e t o t al
n eed edt o m eetth e req u i rem en t s s etb y th e Ro rers an d M r. Zav et a. To en ab l e t h e d eal t o cl o se, p et it i on ers ag reedt o p u rch as e fro m Heri t ag e, fo r $ 4 8 5 ,0 0 0 , a 3 7 -acre p arcel o f l an dcarv edo u tfro m Parcel A an dth e Ro rer Tract . Heri t ag e h adn o i n t eres t i n o wn i ng t h i s l an do ut ri g h t . Ito ffered th i s acreag e t o M r. Zav et a, b u th e d ecl i ned . He ex p lai n ed t h at ho m e b u y ers i n th i s m ark etwere t y p i cal l y s at i s fi ed- 1 0 -

[* 1 0 ] wi th a fi v e-acre l o t ; thatth ey wo u l d n otp ay ap p reci ab l y

m o re fo r ad di t i o n al acreag e s ub

jectt o a co n serv at io n eas em en t ; an dth ato wn ers h i p o f s u ch acreag e
wo u l dreq u i re th e h o m eo wn ers ’ as s oci at i o n t o ch arg e s ub s t an ti al ad d i t i o n al fees t o
co v er m ai n t en an ce, s ecu ri t y , an di n s u ran ce co s ts . W e wi l l refer t o t h is 3 7-acre p arcel as t he b u y -b ack p arcel . M r. Zav et a an d
an o ffi ci al fro m

Heri t ag e t es t i fi edth atth is p arcel rep res en t edl an d t h atwas i n effect “ l eft o v er.” Th i s l an dwas n o t n eed edfo r t h e co n s erv at io n s ub d i vi s i o n g i v en th e l o cat i o n o f t h e 1 0 res i d en t ial en v el o p es , wh i ch were s i tuat edal o n g th e
acces s ro ado n th e s o u th ern an d wes t ern p o rt io n s o f Parcel A an d t h e Ro rer Tract
. An dthi s l an dco u ldn o tb e u s edfo r an y o t h er d ev el o pm en tp u rp o se b ecau s e i twas fu l l y co v eredb y

co n s erv at i o n eas em en ts . By p u rch as i n g th e b u y -b ackp arcel , p et i t i o n ers acq u i reda U-s h ap edtract o f l an d , co m p l et el y s ub jectt o co n s erv at i o n eas em en t s , th ats u rro u n d edParcel B, th ei r h om es t ead p ro p ert y , t o th e wes t , s ou t h , an deas t . As a res u lto f t h is acq u i s i
t i on , p et i t i o n ers i ncreas edth ei r ag g reg at e l an do wn ers h ip fro m 4 5 acres (Parcel A + Parcel B) t o 6 2 acres (Parcel B + b u y -b ackp arcel ). Th e u l t i m at e co n fi g u rat i o n
o f p et i ti o n ers ’ real es t at e t h u s cam e t o res em b l e, t o s o m e d eg ree, t h e co n fi g u rat i o n
en v is i o n edi n M r. Gl i t zer’ s M arch 2 0 06 s k et ch , wh i ch cal l edfo r t h e p art i t i o n o f- 1 1 -

[* 1 1 ] Parcel A an d t h e en l arg em en to f p et i ti o n ers ’ h o m es t eadp ro p ert y t o i n cl u d e
u n d ev el op edp ort io n s o f Parcel A an dth e Ro rer Tract
. In J u l y 2 0 0 7 Heri t ag e an dM r. Zav et a s ub m i t tedt o the To wn sh i p a d et ai l ed d ev el o p m en tp ro p o s al fo r t he n ew s ub d i v i s io n , wh i ch was t o b e cal l ed Creek s Ben d. Th i s p ro p o s al i n cl u d ed a p ri vat e acces s ro adfo r t h e 1 0 n ew res i d en ces , wh i ch wo u l db e p l aced (t o th e ex t en tp o s s i b l e) o n t o p o f t h e o l dg rav el farm ro ad th atran th ro u g h the Ro rer Tract . Th i s p lacem en t o f t h e ro adwas d es i g nedt o m ax i m i ze co n s erv at io n v al u es b y m i n i m i zi n g d i srup t i o n o f p ri s t i n e l an d
. Pet i t i o ners were g ran t eda fo rm al , reco rd edeas em en t t o u se t h i s acces s ro ad , o n es sen t i al l y

th e s am e t erm s as ap p l i edt o th ei r p ri o r u s e o f t h e g rav el farm ro ad
. Pet i t io n ers p ai dn o t h i n g fo r t h i s eas em en t , an dth ey were n o treq ui redt o co n t ri b u t e ei th er t o th e co s to f co n st ru ct i ng th e acces s ro ado r t o th e co s t s o f an nu al m ai n t en an ce an d upk eep (s u ch as s no w rem o v al ). Pet i t i o ners co n t i n u edt o u s e t h i s acces s
ro adas a b acken t ran ce t o thei r p ro p ert y du ri ng wi n ter weat h er an d o ccas io n al l y t o b ri n g i n h eav y farm

equ i p m en t . C. Tax Retu rn an d Ex am i n at i o n Pet i t i o ners t i m el y

fi l edth ei r 2 0 0 7 Fed eral i n co m e t ax retu rn rep o rt i n g a
n o n cas h ch ari t ab l e co n t ri b u t io n o f $ 4 .7 m i l li o n . Th i s am o u n trefl ect eda v al u at i o n
o f $ 2
. 3 5 m i l l i o n fo r t h e d o n at io n o f Parcel A t o Heri t ag e an d a v al u at io n o f $ 2 .3 5- 1 2 -

[* 1 2 ] m il l i o n fo r t h e d o nat i o n o f t h e co n s erv at i o n eas em en tt o th e To wn s h i p . Pet i t io n ers i n cl u d edwi t h t h ei r retu rn p ro perl y ex ecu t edFo rm s 8 2 8 3, No n cas h Ch ari t ab l e Co n tri b u t io n s , co v eri n g b o t h g i ft s , as wel l as ap p rai s al s o f b o th p ro p ert i es co m

p l et edi n l at e 2 0 0 7 b y Vi n cen tD. Qu i n n . Becau se o f s tatu t o ry l i m i tat i on s , p et i t i o n ers were u n ab l e t o cl ai m the en t i re ch ari t ab l e co n t ri b u ti o n d educt i o n fo r 2 0 0 7
. Th ey acco rd i n g l y d edu ct ed$ 9 87 ,8 3 0 o n t h ei r 2 0 0 7 retu rn an d cl ai m edcarry o v er d educt i o n s o f $ 9 2 8 ,3 18 , $ 87 2 , 4 8 1 , $ 1 ,6 6 5 ,3 66 , an d$ 2 4 6 ,0 0 6
o n th ei r retu rn s fo r 2 0 08 , 2 0 0 9 , 2 0 1 0, an d 2 01 1 , res p ect i vel y . OnJ u ne 5 , 2 0 12 , th e IRS t i m el y i s s u eda n o t i ce o f d efi ci en cy fo r 2 0 0 7
- 2 0 1 0 , an do n Ap ri l 4 , 2 0 1 3 , th e IRS t i m el y i s s ueda n o t i ce o f d efi ci en cy fo r 2 0 1 1
. Th es e n o t i ces d i s al l o wed i n thei r en t i rety th e d edu ct i o n s p et i t i o n ers cl ai m edfo r d o n at i n g t h e eas em en tt o th e To wn s h i p an dParcel A t o Heri t ag e. Th e n o t ices al s o d et erm i n edaccu racy -rel at edp en al t i es . Pet i t i o n ers t i m el y p et i t i o n edth i s Co u rtfo r red et erm i n at i o n o f t h es e d efi ci en ci es an dp en al t i es . W e co ns o li d at edth e t wo cas es fo r t ri al , b ri efi ng , an do p i n i o n . Atth e o u t s et
o f t ri al res p o nd en tm o v edt o am en dh i s an s wer t o as s ert an i n creas ed d efi ci en cy b y d i s al lo wi n g a d edu ct i o n fo r p et i t i o n ers ’ $ 2 68 ,0 0 0 co nt ri bu t i o n o f cas h an d s t o ckt o Heri t ag e. W e d en i edth i s m o t i o n as u n ti m el y an dp reju d ici al t o p et it i o n ers .- 1 3 -

[* 1 3 ] D. Ex p ertTes t i m o n y 1
. Vi n cen tD. Qu i n n Pet i t i o ners o ffered , an dth e Co u rtreco g n i zed , Vi n cen tD. Qu i n n as an ex p ert i n the v al u at i on o f res i d en t i al real es t at e. M r. Qu in n, wh o p erfo rm edthe ap p rai
s al s th atacco m

p an i edp et it io n ers ’ 2 0 07 return , h as m o re t h an 4 0 y ears o f ex p eri
en ce ap p rai s in g co m

m erci al an dres id en t i al real es t at e, i n cl u d i n g res i d en t i al s ub d iv i s i o n s . Cert i fi ed as an ap p rai s er b y th e St at e o f Pen ns y l v an i a, h e i s a m em b er o f th e Ap p rai s al In s t i tu t e an dh o l d s i ts M AI d es i g nat i o n . M r. Qu i n n h as ap prai s ed5 0 t o 1 0 0 p ro p ert i es i n Bu ck s Co u nt y du ri n g th e l as t1 0 y ears . He cred i b l y t es t i fi edthatreal es t at e v al u at i o n s i n Bu ck s Co u n t y are
u s u al l y d et erm i n edo n a p er-l o t b as i s fo r p ro p ert ies th at h av e d ev el op m en t p o t en t i al an d o n a p er-acre b as is fo r p ro p ert i es wi th n o d ev el o p m en tp ot en t i al . He t es t i
fi edthatd ev el o pers them s el v es ev al u at edreal es t at e b y d et erm i n i n g h o w m an y

“ b u i l d ab l e l o t s ” t h ey co u l d ex tract fro m i t an dg etap p ro ved . Becau s e a p er-acre ap p rai s al wo u l dn o tcap tu re t he p ro p ert y ’ s actu al d ev el op m en t p o t en t ial , M r. Qu i nn t es t i fi edthata d ev el o p er wo ul d n o tfi n d i trel ev an to r u s efu l
. M r. Qu i n n p erfo rm edh i s o ri g i nal ap p rai s al o f Parcel A o n No v em b er 1 1 , 2 0 0 7 , l i s t i n g i ts effect iv e d at e as J an u ary 2 3 , 2 00 7 , th e d ay

b efo re p et i t i o n ers d o n at edParcel A t o Heri t ag e. He d et erm i nedth atth e h i g h es t an db es tu se o f Parcel- 1 4 -

[* 1 4 ] A was fo r s i n g le-fam i l y res i d en t i al d ev el o p m en t . Onth e b as is o f a s k et ch p l an p rep aredb y

M r. Gl i t zer, h e d et erm i n edth atth i s d ev el o pm en t co u l dco m p ri se
n i n e b ui l d i n g l o t s ran g i n g i n s i ze fro m 1
. 3 t o 3 .5 acres . Em

p lo y i n g t h es e as s u m

p t i on s an dco m

p arab l e s al es o f m

u l t i -l o t p ro p ert i es , h e d et erm i n edth atth e fai r m ark etv al u e o f Parcel A o n a p er-l o tv al u at i o n was $ 2 .3 5 m i l l i o n . M r. Qu i n n p erfo rm edh i s o ri g i nal ap p rai s al o f th e co n s erv at i o n eas em en to n Decem b er 5 , 2 0 0 7, l is t i n g i t s effect i v e d at e as J u l y 1 0 , 2 0 0 7 , th e d at e o n wh i ch p et i ti o n ers fo rm al ly

co nv ey edth e eas em en tt o th e To wn sh i p . He d et erm i n edth atth e h i g h es tan db es tu s e o f Parcel B b efo re p lacem en to f t h e eas em en t was s i n g l efam i l y res i den t i al d ev el op m en t . Onth e b as i s o f an o t h er s k et ch p lan p rep aredb y M r. Gl i t zer, M r. Qu i n n d et erm in edth atthi s d ev el o p m en tco u l d co m p ri s e 1 0 b u i l
d i n g l o t s ran g i n g i n s i ze fro m 1 .1 t o 5 .0 acres . Onth e b as i s o f co m p arab l e s al es o f
m u lt i -l o tp ro p ert i es , h e co n cl u d edthatth e fai r m ark etv al u e o f th i s t ract o n a p erl o tv al uat i o n was $ 3 m i ll i on . Sub tract i n g fro m th is fi g ure wh ath e d et erm in edt o b e t h e v al u e o f Parcel B aft er p l acem en to f th e co n s erv at i o n eas em en t , h e co n cl u d ed th atth e eas em en th ada fai r m ark etv al u e o f $ 2 .3 5 m i l l i o n. In Au g u s t 2 0 1 5 M r. Qu i n n p rep aredfo l l o w-up ap p rai s al s o f Parcel A an do f th e eas em en t , ag ai n as o f J an u ary 2 0 0 7 an dJ u n e 2 0 0 7 , res p ect i v el y . W it h res p ect t o Parcel A, h e m ad e ad

ju st m en t s t o h i s co m

p arab l e s al es th at i ncreas edthe v al u e- 1 5 -

[* 1 5 ] o f each l o tb y

ab ou t$ 5 ,5 0 0 , y i el di n g an o v eral l v al u e i n creas e o f $ 5 0,0 0 0. W i th res p ectt o th e eas em en t , h e m ad e ad ju s t m en t s t o h i s co m

p arab l e s al es th atd ecreas edthe “ aft er” v al ue o f Parcel B b y $ 3 50 ,0 0 0 an d i n creas edth e v al u e o f t h e
eas em en tt o $ 2 .7 m i l l i o n . Acco rd i n g t o M r. Qu i n n ’ s fo l lo w-up ap prai s al s, th erefo re, t h e ag g reg at e v al u e o f p et i t i o n ers ’ ch ari t ab l e co n t ri b u t i o ns was $ 5 .1 m i l l i o n ($ 2 .4 m i l l i o n + $ 2 .7 m i l l i o n), as o p p o s ed t o th e $ 4 .7 m i l li o n rep o rt edo n thei r 2 0 0 7 t ax retu rn . 2
. Leo n ardJ . Pat cel l a Pet i t i o ners o ffered , an dth e Co u rtreco g n i zed , Leo nardJ . Pat cel l a as an ex p erti n real es t at e ap p rai s al an dth e v al uat i o n o f co n s erv at i o n eas em en t s . He h as
m o re th an 4 0 y ears o f ap p rai s al ex p eri en ce an dh as ap p rai s edm o re t h an 7 0 0 p ro p ert i es i n Bu ck s Co u nt y al o n e. Cert i fi ed as an ap p rai ser b y th e St at e o f Pen n s y l v an i a, h e i s a m em

b er o f t h e Ap p rai s al In s t i tu t e an dh o ld s i t s M A I d es i g n at i o n . Li k e M r. Qu i n n , M r. Pat cel l a d et erm i n ed t hatth e h i g hes tan d b es tu s e o f Parcel A an dParcel B was res i d en t i al d ev el o p m en tan drel i edo n M r. Gl i t zer’ s
s k et ch p l an s t o d et erm in e t he n u m ber o f b u il d ab le l o t s. Em p l o y in g a p er-l otan al
y s i s b utad di n g s ev eral co m p arab l e s al es t o th e g ro up s el ect ed b y M r. Qu i n n , M r. Pat cel l a d et erm i nedthatthe fai r m ark etv al u es o f Parcel A an dthe Parcel B eas em en t , as o f t he rel ev an tv al u at io n d at es , were $ 2 ,1 6 0 ,0 0 0 an d $ 1 ,4 60 ,6 0 0 , res p ec-- 1 6 -

[* 1 6 ] t i v el y . M r. Pat cel la s ep arat el y ap p rai s edth e b u y -b ackp arcel an dth e eas em en tp et i t i o n ers recei v edo v er th e Creek s Ben dacces s ro ad . He d et erm i n edth at th e fai r m ark etv al u e o f t h e b u y -b ackp arcel (s ub jectt o th e co ns erv at i o n eas em en t s ) was $ 2 21 ,7 00 an d t h atth e fai r m ark etv al u e o f t h e dri v eway eas em en twas
n o m o re t h an $ 1 2,0 0 0. 3
. M i ch ael J . Acqu aro -M i g n og n a Res p o n d en to ffered , an dth e Co u rtreco gn i zed , M i ch ael J . Acqu aro -M i g n o g n a as an ex p erti n real es t at e ap p rai s al wi t h a s p eci al izat i o n i n res i d en t i al s ub
d i v i s i on s . M r. Acqu aro -M i g n o g n a h as m o re t h an 3 0 y ears o f ex p eri en ce ap p rai
s i ng real es t at e, m o s t l y

i n Bu ck s Co u n ty , al t ho u g h h e h as n otp rev i o u s l y p erfo rm edan ap p rai s al o f a co n s erv at i o n eas em en t . Cert i fi ed as an ap p rai ser b y th e St at e o f Pen n s y l v an i a, h e i s a m em b er o f t h e Ap prai sal In s ti tut e an dh o l d s i t s M AI
an d AIGRS d es i g n at io n s . M r. Acqu aro -M i g no g n a’ s t es t i m o n y d ep art edfro m

thato f M es srs . Qu i n n
an d Pat cel l a i n two m ajo r res p ect s . Fi rs t , wh i l e ag reei n g th atth e h ig h es t an db es t
u s e o f Parcel A was res i d en t ial d ev el o pm en t , h e o p i n edth atth e h i gh es t an d b es t
u s e o f Parcel B b efo re p l acem en to f t h e eas em en twas co n t i n u edu s e as a s i n g l efam i l y “ es t at e p ro p ert y .” Seco n d , i n d et erm in i n g Parcel A’ s v al u e fo r res id en t i al d ev el o p m en t , h e u s eda p er-acre an al y s i s b as ed o n co m p arab le s al es o f raw l an d ,- 1 7 -

[* 1 7 ] rat h er t h an a p er-l o tan al y s i s b as ed o n co m p arab le s al es o f m

u l t i-l o t p ro p ert i es . Em p l o y i n g t h es e ap p ro ach es , M r. Acquaro -M i g n o gn a d et erm i n edthatth e fai r m ark etv al u e o f Parcel A, as o f th e rel ev an tv al u at i o n d at e, was $ 9 20 ,0 0 0 . He d et erm i n edth atth e fai r m ark etv al u e o f t h e Parcel B co n s erv at i o n eas em en t , as o f th e rel ev an tv al u at i o n d at e, was b et ween $ 19 0 ,0 0 0 an d$ 3 9 0,0 0 0 . He was u n ab l e t o d et erm i n e a v al u e fo r t he b u y -b ackp arcel , an dh e co n cl u d ed t h atth e eas em en t p et i t i o n ers recei v edo v er t h e Creek s Ben dacces s ro adwas wo rt h ab ou t$ 29 ,0 0 0
. OPINION Th e IRS’ d et erm i n at i o ns i n a n o t i ce o f d efi ci en cy are g en eral l y

p res u m ed
co rrect , th o u g h th e t ax pay er can reb u tth i s p res um p t i o n . Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ). Dedu ct i o n s are a m at ter o f l eg i s l at i v e g race,
an d t ax p ay ers g en eral l y

b ear t h e b u rd en o f p ro v i n g th ei r en ti t lem en tt o the d edu ct i on s cl ai m ed . INDOPCO v . Co m m i s s i on er, 5 0 3 U.S. 7 9 , 8 4 (1 9 9 2 ). Pet i t i o n ers
co n ten d th atres p o n d en tb ears t h e b u rd en o f p ro o f fo r t wo reas on s : (1 ) t h ey h av e
s at i s fi edth e req u i rem en ts o f s ect i o n 7 4 9 1 (a) fo r s h ift i n g t h e b u rd en o f p ro o f an d (2 ) res p o n d en t rai s eda “ n ew m at t er” i n h i s an s wer. See Ru l e 1 4 2(a)(1 ). Becau se we d eci d e al l fact u al i s s u es o n a p rep o n deran ce o f t h e ev id en ce, we n eedn o td e-- 1 8 -

[* 1 8 ] ci d e wh o h as the b u rd en o f p ro o f. See s ec. 7 4 9 1 (a); Es t at e o f Tu rn er v . Co m m i s s i o n er, 1 3 8 T.C. 3 0 6 , 3 0 9 (2 0 1 2). I. Ch ari t ab l e Co n tri b u t io n Dedu ct i o n s Sect io n 1 7 0 (a)(1 ) al lo w s a d educt i o n fo r an y ch ari tab l e co n t ri b u t i on m ad e wi th i n th e t ax ab le y ear. If t h e t ax p ay er m ak es a ch ari tab l e co n t ri b u t i on o f p ro p erty o th er th an m o n ey , th e am o u nto f t h e co n t ri b u ti o n i s g en eral l y equ al t o t he fai r
m ark etv al u e o f t h e p ro p ert y atth e t i m e th e g i fti s m ad e. See s ec. 1 .1 7 0 A-1 (c)(1 ), In co m e Tax Reg s . A d edu ct io n i s g en eral l y n o tal l o wedfo r a g i fto f p ro p erty co n s i st i n g o f l es s th an th e d o no r’ s en t i re i n teres ti n th atp ro p ert y , b utth ere i s an
ex cep t i o n fo r (am on g o t h er t h in g s ) a “ qu al i fi edco n serv at i on co nt ri bu t i o n .” Sec. 1 7 0 (f)(3 )(A), (B)(i i i ). Th is ex cep t i o n ap p li es wh ere: (1 ) t h e t ax p ay er m ak es a
co n tri b u t i o n o f a “ qu al i fi ed real p ro p ert y i n t eres t ,” (2 ) t h e d o n ee i s a “ qu al i fi ed
o rg an i zat i o n ,” an d(3 ) t h e co n tri b u t i o n i s “ ex cl u si v el y fo r co ns erv at i o n p u rp o s es .” Sec. 1 7 0(h )(1 ). Th e p art i es ag ree t h atth e Parcel B co n serv at i o n eas em en tp et i
t i on ers co n v ey edt o th e To wn s h i p s at i s fi es th es e req u i rem en t s . Wh ere t h e v al ue o f co n t ri b u t edp ro p ert y ex ceed s $ 5 ,0 0 0 , n o d educt i on i s al l o wed un l es s the t ax p ay er o b t ai n s a “ qu al i fi edap p rai s al ” o f s u ch p ro p ert y . Sec. 1 7 0 (f)(1 1 )(C). A qu al i fi edap p rai s al i s “ an ap p rai s al o f s u ch p ro pert y wh i ch * * * i s co n du ct edb y

a qu al i fi edap p rai s er i n acco rd an ce wi t h g en eral l y accep t eds t an d
-- 1 9 -

[* 1 9 ] ard s an dan y

reg u lat i o n s o r o t h er g u i d an ce p res cri bed* * * [b y th e Secret ary ] . Sec. 1 7 0 (f)(1 1 )(E)(i )(II). A t ax p ay er cl ai m in g a d edu ct i o n fo r a co n t ri b u t i on o f p ro p ert y

wh o s e v al u e ex ceed s $ 5,0 0 0 m u s t at t ach t o h is retu rn a fu l l y co m p l et ed“ ap p rai s al s u m

m ary . ” See s ec. 1 .1 7 0A-1 3 (c)(2 ), In co m e Tax Reg s . Th e IRS h as p res cri b edFo rm

8 2 83 t o b e u s edas th e “ ap prai s al s umm ary . ” J o rg en s o n
v . Co m m i s s i o n er, T.C. M em o . 2 0 0 0 -3 8 , 7 9 T.C.M
. (CCH) 1 44 4 , 1 4 5 0 . Wh ere (as h ere) a co n t ri b u ti o n o f p ro p ert y i s v al u edi n ex ces s o f $ 5 0 0 , 0 0 0 , th e t ax p ay er m u s t at t ach t o h is retu rn n o to n l y an ap p rai s al s u m

m ary b u tal s o a co p y

o f t h e ap p rai sal i t sel f. Sec. 1 7 0 (f)(1 1 )(D). Res p o n d en tco n t en d s th atp et i t i o n ers ’ ch ari t ab l e co n tri b ut i o n d edu ct i o n s
s h o u ldb e d en i edi n th ei r en t i ret y o n th e t h eo ry

th at t hey l ack edd o nat i v e i n t en t
an d/o r fai l edt o s at i s fy

s t atu t ory an d reg u l at o ry rep o rt in g req u irem en ts . If we rejectth es e t hres h o l d arg u m en ts , res p on d en tco n t en d s t h at p et i t io n ers ’ d educt i o n s
s h o u ldb e redu ceds ubs t an t i al ly o n t h e t h eo ry

th atth ey o v erv al u edth e d on at ed p ro p erty an d/ o r recei v eda retu rn b en efi tth atp art i al l y o ffs et s th e v al u e o f t h ei r g i ft s . W e co n si d er t h es e arg u m en t s i n tu rn .- 2 0 -

[* 2 0 ] A. Do n at i v e In t en t

“ Th e s i ne q u a n o n o f a ch ari t ab l e co n t ri b u ti o n i s a t ran s fer o f m o n ey o r p ro p erty wi t h o u t ad equ at e co n s i d erat i o n .” Un i t edSt at es v . Am . Bar En d o w m en t , 4 7 7 U.S. 1 0 5 , 1 1 8 (1 9 8 6 ). If a t ran sact i o n wi t h a ch ari t y “ i s s t ru ctu redas a qu i d p ro quo ex ch an g e”--i .e., i f t h e t ax p ay er recei v es fro m th e ch ari t y

p ro p ert y o r
s erv i ces equ al i n v al ue t o wh ath e co n v ey ed --th ere i s n o “ co n t ri b u ti o n o r g i ft ” wi th i n th e m ean i n g o f t h e s t atu t e. Hern an d ez v . Co m m i s si o n er, 4 9 0 U.S. 6 8 0 , 7 0 1 -7 0 2 (1 9 8 9 ). In as s es si n g wh et h er a t ran s act i o n co n s t i tu tes a “ qu i d p ro qu o ex ch an g e,” we g i ve m o s twei g h t t o th e ex tern al feat ures o f t h e t ran s act i on , av oi d i n g i m p reci s e i n qu i ri es i n t o t ax p ay ers ’ s ubject i v e m o t i vat i on s . See Hern an d ez, 4 90 U.S. at 6 9 0 -6 9 1 ; Ch ri st i an s en v . Co m m i s s i o n er, 8 43 F.2 d 4 1 8 , 4 2 0 (1 0 t h Ci r. 1 98 8 ). “ If i t i s u n d ers t o o dth atth e p ro p ert y wi l l n o t p as s t o th e ch ari t ab le reci pi en tu nl es s th e t ax p ay er recei v es a s p eci fi c b en efi t , an d i f t h e t ax p ay er can n o t g arn er t h atb en efi t
u n l es s h e m ak es th e req ui red‘ co n t ri b u ti o n ,’ the t ran s fer d oes n o t qu al i fy t h e t ax p ay er fo r a d edu ct i on u n d er s ect i o n 1 7 0 .” Co s t el l o v . Co m m i s s i o n er, T.C. M em o . 2 0 1 5 -8 7 , at* 2 7; s ee Ch ri s t ian s en , 8 4 3 F.2 d at4 2 0 -4 2 1 ; Grah am v . Co m m i s s i o n er, 8 2 2 F.2 d8 4 4, 8 4 9 (9 t h Ci r. 1 9 87 ), aff’ g 8 3 T.C. 5 7 5 (1 9 8 4 ), aff’ ds ub n o m . Hern an dez v . Co m

m is s i o n er, 4 9 0 U.S. 6 8 0
.- 2 1 -

[* 2 1 ] Th e ex t ern al feat u res o f t h e t ran s act i o ns ati s su e s h o w th atp et i t i o n ers ’ g i ft s
were n o t p arto f a “ qu i dp ro quo ex ch an g e.” Pet i ti o n ers co n v ey eda fee s i m p l e i n t eres t i n Parcel A t o Heri t ag e o n J an u ary 2 4, 2 0 07 . Th i s was an o ut ri g h t g i ftth at p et i t i o n ers co u l dn ot cl aw b ack . Th ei r co n v ey an ce o f Parcel A was n otco n d i
t i on edo n Heri t ag e’ s p ro v i s io n o f an y retu rn b en efi t , an d Heri tag e i n facts up p l i ed p et i t i o n ers wi t h n o retu rn b en efi t . Th e s am e i s tru e o f p et i t i o n ers ’ co n v ey an ce t o t h e To wn s h i p , o n J u l y 1 0 , 2 0 0 7 , o f a co n s erv at i o n eas em en t o v er Parcel B. Pet i ti o ners ret ai n edth e ri g h tt o
m ak e i m p ro v em en t s t o thei r 2 -acre res i d en t i al en v el o p e; th ei r g iftt o o kth e fo rm o f
an eas em en to v er t h e rem ai n in g 2 3 acres . Th atg i ft was m ad e wi t h n o s t ri n g s at t ach ed . Th e g ran t o f t h e eas em en twas n o tco n d i ti o n edo n th e To wn s h i p ’ s p ro v i s i o n o f an y

retu rn b en efi t , n o r was i tm ad e i n t h e ex p ect at i o n th atth e To wn s h ip
wo u l ds up p l y

a retu rn b en efi t . In u rg in g t h atth ere was a “ qu i dp ro qu o ex ch an g e,” res p o nd en t fo cu s es ch i efl y , n o to n an y

s p eci fi c b en efi tp et it i o n ers recei v ed , b u to n t h ei r s up po s edab i l
i ty t o s t eer t h e en t i re s eto f t ran s act i o n s i n a way thatb en efi t ed t h em . Inres p o n d
en t ’ s v i ew, p et i t io n ers were m o t i v at edb y a d es i re t o p ro t ectth ei r p ri vacyan dt o p rev en t s ub u rb an d ev el o p m en tfro m s p o i l i n g t h e at t ract i v e v iews fro m th ei r res i
d en ce. No t i n g th at p et i t io n ers were i n v o l v edi n t h e n eg o t i at i on s fro m th e o u t s et ,- 2 2 -

[* 2 2 ] res p o n d en ts u rm i s es th atth e To wn s h i p an d Heri t ag e, i f n otced i n g p et i t i o n ers actual co n t ro l , al l o wedth em t o g u i d e t h e t ran s act i o n s i n a d irect i o n th at ach i ev edth ei r p ers o n al g o al s . In s up p o rto f t h i s ch aract eri zat i o n, res p o n d en t n o t es th atth e fi n al co n s erv at i on s ub d i v i s i on p l an g rew o u t o f t h e M arch 2 0 0 6 s k et ch b y M r. Gl it zer, wh o m

p et i ti o n ers h adh i red . Un d er t h atp l an , m o sto f t h e res i d en ces i n th e Creek s Ben d
s ub d iv i s i o n were s o u t h o f t h e acces s ro ad , ata co ns i d erab le d is tan ce fro m p et i t i o n ers ’ h om es tead . An db y

acq u iri n g th e b u y -b ackp arcel fo r wh atres po n d en treg ard s as th e b arg ai n p ri ce o f $ 4 8 5 ,0 00 , p et i t i o n ers s ecu red a 3 7 -acre “ cu s h i o n ” o f p ri s t i n e l an dth ats ep arat edthei r h o m es t eadp ro p ert y fro m th e Creek s Ben ds ub
d i v i s i on o n al l th ree s i d es . W e are u np ers uad ed b y res po n d en t ’ s ch aract eri zat i o n o f t h es e ev en t s . Pet i
t i on ers were i n d eedi n v o l v edi n th e n eg o ti at i o n s fro m the o u t s et , b utth i s was i n ev i t ab l e: Th ey

o wn edParcel A an d Parcel B, th ey h el dan o p t i o n t o acq u ire t h e Ro rer Tract , an di t was o bv io u s th atan y s u cces s fu l co n s erv at i o n p l an wo u l drequ i re a s ub s t an t ial eco n o m i c co n t ri b u t i on fro m th em . Th ey

n eg o t iat edfo r 1 8- 2 3 -

[* 2 3 ] m on t h s wi t h th e Ro rers , th e To wn s h i p , Heri t ag e, an dM r. Zav et a t o d et erm i n e t h e eco no m i c co n t ri b u t io n s thateach p art y wo ul db e req ui red t o m ak e. 2 Th ere i s n o ev i d en ce t h atp et i t i o n ers h adth e p o wer t o m an i p u lat e t h es e n eg o t i at i o n s o r t h atth e o t h er p art i es m ad e m ean i ng fu l co n ces s i o ns t o th em . Th e To wn s h i p an d Heri t ag e were s in g l e-m i nd ed l y d ed i cat edt o acco m

p li s hi n g t h e
m ax i m u m d eg ree o f en v i ro nm en t al co n s erv at i o n co n s i st en twi t h t h e fi n an ci al real i t i es th ey

co nfro n t ed
. Th e To wn s h i p ’ s rep res en tat i ve cred i bl y t es t i fi ed t h atp et i ti o n ers as k edfo r n o t h i n g in ex ch an g e fo r t h ei r co n t ri b u t i o n an dth atth ey h el dn o
s way o v er t h e co ns erv at i o n s ub d i v i s i o n p l an n i n g. M r. Zav et a was co m

m i t t edt o ach i ev i n g an en v i ro n m en t al l y s en s i t i v e s ub d i
v i s i o n p l an th at wo u l dy i el dh i m th e g reat es teco n o m i c p ro fi t . He cred i bl y t es t i
fi edthath e n ev er d i scu s s edl o t p l acem en twi t h p et i t i o n ers an dth ath i s fo cu s was
m ax i m i zi n g th e m ark etv al ue o f t h e n ew s ub d i vi s i o n . He ex p l ai nedth atth e l o t s i n th e Creek s Ben ds ub di v i s i o n were s it edm o s t l y t o t h e s o u t h o f t h e acces s ro adfo r

2 Res p o n d en tn o t es th atth e v ari o u s co ns erv at i o n t ran sact i o n s were i n t errel at ed an dd ep en d en t o n o n e an o t h er. Th ati s co rrect , b u ti td oes n o t m ean th at p et i t i o n ers recei v eda qu i dp ro qu o . Pet i t i o n ers d o n at ed Parcel A t o Heri t ag e; th ey d o n at ed an eas em en to ver Parcel B t o th e To wn s h i p; th ey co n t ri b ut ed$ 2 6 8 ,0 0 0 t o Heri t ag e t o co v er i ts tran s act io n co s t s ; an dth ey s up p li ed$ 4 85 ,0 0 0 o f cas h i n ex ch an ge fo r t h e (rel at i v el y wo rt h l es s ) b u y -b ack p arcel . Hadp et i t i o n ers n otact i v el y p art i ci p at edi n the n eg o t i at io ns , i t i s p o s si b l e t h atev en m o re m i g hth av e b een requ i redo f t hem
. Bei ng rel i ev edo f an o b li g at i o n t o p ro v i d e m o re d o es n o tco n s t i
tu t e a qu i dp ro qu o n eg at i n g th e v al u e o f wh ato n e h as p ro v i ded
.- 2 4 -

[* 2 4 ] two reas on s : (1 ) t h ere was n o ten o u g h ro om t o p u tthem

o n th e n o rt h s i d e, g i v en th e p ro x i m it y

o f p et i t i o n ers ’ s o u t hern b o u n daryl i n e; an d (2 ) i f s i t edt o th e
n o rt h , s ev eral ho u s es wo u l dh av e l o o k ed o u to n p et i t io n ers ’ fo rm er ai rp l an e h an ger, wh i ch was n ota d es i rab l e v iew. W i t h m o re-t h an -am p l e acreag e av ai l ab l e b el o w th e acces s ro ad , i twas n o ti n M r. Zav et a’ s eco n o m i c i nt eres t t o h av e h i s
m u lt i -m i l l i o n -d o l l ar h om es s i tuat edch eek -b y -jo wl wi t h p et i ti o n ers ’ p ro pert y . Res p o n d en ti n s i s ts th atth e b u y -b ackp arcel was v ery v al u ab l e t o p et i t i o n ers b ecau s e i tp ro t ect edth em o n al l s i d es fro m res i d en t i al d ev el op m en t . Bu tp et i t i o n ers were al read y

p ro tect edfro m

res i d en t i al d ev el o p m en tb y th e co n s erv at i o n s ub
d i v i s i on p l an , wh ich b arredad d i t i o n al h o m es wi t h i n Creek s Ben d , an db y th e p ri o r p l acem en to f co n serv at i on eas em en t s o v er t h e b u y -b ackp arcel
. Pet i t i o n ers d i dn o t
n eed to p u rch as e t h e b uy -b ack p arcel i n o rd er t o g etth i s p ro t ect io n ; th ey al read y h ad i t . Pet it i on ers p u rch as edth e b u y -b ackp arcel fo r $ 4 8 5,0 0 0 i n o rd er t o s up p l y th e cas h n eed ed t o cl o s e t h e d eal ; far fro m g arn eri n g a qui d p ro qu o t h ereb y , th ey l i kel y p ai dm o re fo r th i s acreag e t h an i twas wo rt h . See i n fra p p . 4 8 -4 9
. In d eci d i ng wh et her p et i t i o n ers h ad t h e req u i s i t e d o n at i v e i n t en t , we l o o kt o th e ex t ern al feat u res o f t h e tran s act i on t o as cert ai n wh et h er t h ey ex p ect edt o recei v e a qu i d p ro qu o t h atcan cel ed o u tth ei r ch ari t ab le g i ft s . W e d o n o t fi n dth e
ex p ect at i o n o f an y

s u ch qu id p ro qu o . Wh en ev er a h om eo wn er p l aces a co n s erv a-- 2 5 -

[* 2 5 ] t i o n eas em en to v er h i s p ro p ert y , o r a n ei g h b o r p l aces a co ns erv at i o n
eas em en to v er n ei g h bo ri n g p ro p ert y , th e h o m eo wn er i n a s en s e “ b en efi t s ” b y h av in g n atu ral l an d s cap es rat h er th an s ub u rb an s p rawl i n h is i m m ed iat e s urro u n d
i n g s . Wh en th e To wn s h i p ap p ro v eda co n s erv at i o n s ub d i v i si o n o n th e Ro rer Tract , p et i t i o n ers m ay

b e s ai dt o h av e “ b en efi t ed ” b ecau s e t h e Ro rer Tract s u rro u n dedth ei r p ro p ert y . Bu tp et i t i o n ers were m ere i n ci d en t al b en efi ci ari es o f t h i s act i on . Heri t ag e an d t h e To wn s h i p ex ecu t edth es e t ran sact io ns n o tt o b en efi tp et i ti o n ers o r t h e Creek s Ben dh om eo wn ers b u tt o acco m pl i sh th ei r ch ari t ab l e p u rp o s es o f co n s erv i n g ru ral an dag ri cu l tu ral l an d. See M cLen n an v . Un i t edSt at es , 2 4 Cl . Ct . 1 0 2, 1 0 7 (1 9 9 1 ) (up ho l d i n g ch ari t ab l e co n t ri b u ti o n d edu ct i o n wh ere

“ [a] n y b en efi twh i ch i n u redt o * * * [t h e t ax p ay er] fro m th e co n v ey an ce was
m erel y i n ci d en t al t o an i m

p o rt an t , p ub l ic s p i ri t ed , ch ari t ab l e p u rp o s e”), aff’ d , 9 9 4 F.2 d8 3 9 (Fed . Ci r. 1 9 93 ). B. Rep o rt i n g an dSub s t an t i at i o n Req u i rem en t s Fo r co nt ri b ut i o n s o f $ 2 5 0 o r m o re, a t ax p ay er m u s to b t ai n a “ co n t em

p o ran eo us wri t t enackn owl ed g m en t ” (CW A) fro m t he d o n ee. See s ec. 1 7 0 (f)(8 )(A). A CWA m

us t in cl u d e (am o n g o t h er t h i n g s ) wh et h er t h e d o n ee o rg an izat i o n fu rn i s h edan y

g o od s o r s erv i ces i n ex ch an g e fo r t h e g i ft an d (i f s o ) a d es cri pt i o n an d g o o d -fai th es t i m at e o f t h e v al u e o f s u ch g o od s o r s erv i ces . Fo r co n t ri b u t i o n s o f- 2 6 -

[* 2 6 ] p ro p ert y

wh o s e v al u e ex ceed s $ 5 ,0 0 0, t he t ax p ay er m u s tat t ach t o h i s retu rn a fu l l y co m p l et ed ap prai s al s u m

m ary o n Fo rm 8 2 8 3 . Sec. 1 .1 7 0 A -1 3 (c)(2 )(i )(B), In co m e Tax Reg s . Th e ap p rai s al s u m m ary m u s tb e s i g n edan dd at edb y th e d o n ee
an d m u s ts etfo rt h s p eci fi edi n fo rm at io n , i n cl ud i n g “ a s t at em en tex p lai n i n g * * * th e am o un to f an y

co n s i derat i o n recei v edfro m the d o nee fo r th e co nt ri b u ti o n .” Id
. s ub p ara. (4 )(i i )(H). An i m p o rt an tg o al o f t he ap p rai s al s u m m ary i s t o “ fo s ter d i s cl o s u re o f ‘ du al p aym en t ’ o r qu i dp ro qu o co n t ri b u t i o n s .” Bo o n e Op erat i on s Co
. v . Co m m i s s i o n er, T.C. M em o . 2 0 1 3 -1 0 1 , at* 7 (qu o t i n g Vi ral am v . Co m m i s s i o n er, 1 3 6 T.C. 1 5 1 , 1 7 1 (2 0 1 1 )). Th e To wn s h ip an d Heri t ag e s up pl i edp et i t i o n ers wi t h t i m el y CWAs fo r t h e
co n tri b u t i o n s i n qu es t i o n. An dp et i t i o ners at t ach edt o thei r 2 0 0 7 t ax return Fo rm s 8 2 8 3 p ro p erl y

ex ecu t ed b y

b o t h o rg an i zat i on s an db y M r. Qu i n n as ap prai s er. Res p o n den tco n t en d s t h atal l o f th es e d o cu m en t s were d efi ci en tb ecau s e t h ey fai l ed t o d i s cl o s e an dv al u e qu i dp ro qu o s th at p et i t io n ers al l eg ed ly recei v ed
. W e fi n dn o m eri t i n th is arg u m en t . As ex p l ai n edp rev i o u s l y , p et i t io n ers recei v edn o qu idp ro qu o i n t erm s o f ab i l i t y t o m an i p ul at e t h e o v eral l co n s erv at i o n tran s act io n s t o thei r b en efi t. See s up ra p p . 2 1 -2 4 . As we d i s cu s s b el ow, p et i t i o ners d i drecei v e o n e (rat h er s m al l ) retu rn b en efi t wh en th e du s ts et t l ed , n am el y , a
reco rd edeas em en to v er t h e Creek s Ben d acces s ro ad , wh i ch p ro vi d ed rear acces s- 2 7 -

[* 2 7 ] t o th ei r h o m es t eadp ro p ert y . See i n fra p p . 5 0 -5 2. Bu tth ere i s n o ev id en ce th atth e To wn sh i p o r Heri t ag e was aware o f t h i s eas em en tarran g em en twh en i t
ex ecu t edth e CW A , o r t hatM r. Qu i n n was aware o f i t wh en h e p erfo rm edh i s ap p rai s al s an d ex ecu t edth e Fo rm s 8 2 8 3 . An dp et i ti o n ers u n d ers tan d ab l y reg ard ed th i s eas em en tas h av i n g n o m at eri al v al u e b ecau s e i ts i m p l y co n t in u edthe i n fo rm al
eas em en tth ey

p rev io u s l y

en jo y edo v er t h e Ro rer Tract . W e fi n d t h atth e CW As
an d Fo rm s 8 2 8 3 co m

p l i edwi t h al l s t atut o ry

an dreg ul at o ry

req ui rem en t s an dth at p et i t i o n ers reas o n ab l y

rel i ed o n al l fo u r d o cu m en t s . C. Val u at i o n Pet i t i o ners co n t en dth atth e fai r m ark et v al ue o f t hei r d o n at io n t o Heri t ag e
o f a fee s i m

p l e i n t eres ti n Parcel A was atl eas t$ 2
. 3 5 m i l l io n , an dth atth e fai r
m ark etv al u e o f t h ei r d o n at io n t o t h e To wn s hi p o f a co n s erv at io n eas em en to v er Parcel B was l i k ewi s e atl eas t $ 2 .3 5 m i l l i o n . Res p o n d en tco n t en ds th atth e v al u e
o f Parcel A was $ 9 2 0 ,0 0 0 an d t h atth e v al ue o f t he co n s erv at i o n eas em en twas b etween $ 1 9 0 ,0 0 0 an d$ 3 9 0 , 0 0 0
. W e co n cl u d e t h atth e ap p ro p ri at e v al u es l i e i n b et ween th es e p o les
.

1
. Gen eral Pri n ci p l es Th e fai r m ark et v al u e o f p ro p ert y i s th e p ri ce atwh i ch i two u l dch an g e h an ds b et ween a wi l l i n g b u y er an da wi l l i n g s el l er, n ei t h er b ei n g u n d er an y co m -- 2 8 -

[* 2 8 ] p u l s i o n t o b u y o r s el l an db o t h h av in g reas o n ab l e kn o wl ed g e o f th e rel ev an t fact s. See s ec. 1 .1 7 0 A-1 (c)(2 ), In co m e Tax Reg s. Th e wi l l i n g b u y er an d t h e wi l l i ng s el l er are h y

p o th et i cal p ers o n s , rat h er th ans p eci fi c i n d i v i du al s o r en t i t i es . See Es t at e o f Bri g h tv . Un i tedSt at es , 6 5 8 F.2 d9 9 9, 1 0 0 5 -1 0 0 6 (5 t h Ci r.1 98 1 ); Es t at e o f Newh o u se v . Co m m i s s i o n er, 9 4 T.C. 1 93 , 2 1 8 (1 9 90 ). Fai r m ark etv al u e i s a qu es t i o n o f fact an di s m eas u redo n t he ap p l i cab le v al u at io n d at e. See s ec. 1 7 0 (a); Ch ap m an Gl en Lt d . v . Co m m is s io n er, 1 4 0 T.C. 2 9 4 , 3 24 (2 0 1 3 ); s ec. 1 .1 70 A-1 (c)(1 ), In co m e Tax Reg s . Ind et erm i n i n g fai r m ark etv al u e, th e t ri er o f fact m u s tdraw ap p ro p ri at e i n feren ces fro m al l rel ev an tev i d en ce o f v al ue. See Co m m i s s i o n er v . Sco t t i s h Am . In v . Co ., 3 23 U.S. 1 1 9, 1 2 3-1 2 5 (1 94 4 ); Hel v eri n g
v . Nat ’ l Gro ceryCo ., 3 0 4 U.S. 2 8 2 , 2 9 4 (1 9 3 8 ). Fai r m ark etv al ue refl ect s th e h i g h es tan db es t u s e o f t h e p ro p erty o n th e
v al u at i o n d at e. See M it ch el l v . Un i t edSt at es , 2 6 7 U.S. 3 4 1 , 3 4 4 -3 4 5 (1 9 25 ); Un i ted St 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 ); Sym i n g t o n
v . Co m m i s s i o n er, 8 7 T.C. 8 9 2, 8 9 6 (1 9 8 6 ); St an ley W o rk s & Sub s. v . Co m

m i s s i on er, 8 7 T.C. 3 8 9 , 4 0 0 (1 9 86 ). W e h av e d efi n ed“ h i g h es tan db es t u s e” as “ [t ] h e
reas on ab l y

p ro b ab l e an dl eg al u s e o f v acan t l an d o r an i m pro v edp ro p ert y

th ati s p h y s i cal l y

p o s s i bl e, ap p ro p ri at el y

s up p o rt ed , an d fi n an ci al l y feas i b l e an d t h atres u l t s i n th e h i g h es tv al u e.” Wh i t eh o u s e Ho t el Lt d . P’ s h ip v . Co m m is s i o n er, 1 3 9- 2 9 -

[* 2 9 ] T.C. 3 0 4 , 3 31 (2 0 1 2) (q uo t i n g Ap p rai s al In st i tu t e, Th e Ap p rai s al o f Real Es t at e 2 7 7 (1 3 t h ed . 2 0 0 8 )), aff’ d i n p art , v acat edi n p art , an d rem an d edo n o t h er g ro u nd s , 7 5 5 F.3 d2 3 6 (5 th Ci r. 2 0 1 4 ). W e t y p i cal ly co ns i der o n e o r m o re o f t h ree ap p ro ach es t o d et erm i ne fai r
m ark etv al u e: (1 ) t h e m ark etap p ro ach , (2 ) t h e i nco m e ap p ro ach , an d(3 ) t he as s et b as edap p ro ach . Ban kOn e Co rp . v . Co m m is s i o n er, 1 2 0 T.C. 1 7 4 , 3 0 6 (2 0 0 3 ), aff’ di n p art , v acat edi n p art , an drem an d edo n an o t h er i s s u e s ub n o m . J .P. M o rg an Ch as e & Co . v . Co m

m i s s i o n er, 4 5 8 F.3 d5 6 4 (7 t h Ci r. 2 00 6 ). Det erm i n i ng wh i ch
m et h o d t o ap p ly

p res en t s a qu es t i on o f l aw. See Ch ap m an Gl en Lt d
. , 1 40 T.C. at 3 2 5 -3 2 6 . Here, al l th ree ex p ertwi t n es ses ag reedthatth e m ark etap p ro ach s up p li es th e ap p ro p ri at e m et h od o l o gy , an dwe co n cu r i n th atas ses s m en t . Th e m ark etap p ro ach --s om et i m es cal l edth e “ s al es co m p ari s o n” ap p ro ach
-- i s n o rm al l y

u s edt o v al u e res i d en t i al p ro p ert y . Itv al u es th e s ub jectp ro p ert y

b y referen ce t o th e p ri ces p ai dfo r s i m i l ar p ro p ert i es thatwere s o l dn ear t h e v al u at i o n d at e. See Es t at e o f Sp ru i l l v . Co m m i s s i o n er. 8 8 T.C. 1 1 9 7 , 1 2 2 9 n .2 4 (1 9 8 7 ); W o l fs en dLan d& Cat t l e Co . v . Co m m i s si o n er, 7 2 T.C. 1 , 1 9 (1 9 7 9 ). Becau s e t wo p i eces o f real es tat e are rarel y i d en t i cal , th e p ri ces o f t h e co m p arab l e p ro pert i es are ad ju s t edt o creat e p ari ty

b et ween tho s e p ro p ert ies an dth e s ubjectp ro p ert y . Th e rel i ab i l i ty o f t h e m ark etm et h o dd ep en d s upo n th e co m p arab i li t y o f t h e p ro p ert i es- 3 0 -

[* 3 0 ] s el ect edan dth e reas o n ab l en es s o f t h e ad ju s t m en ts m ad e t o t h ei r p ri ces . W o l fs en dLan d& Cat t l e Co ., 7 2 T.C. at 1 9 -2 0
. Anex p ertwi t n es s’ o p i n i o n i s ad m i s s i b le i f i t as si st s the t ri er o f fact t o u n d ers t an dth e ev i d en ce o r t o d et erm i n e a fact i n i s su e. Fed . R. Ev i d . 7 0 2 . W e ev al
u at e ex p erto p i n io n s i n l i g h to f t h e ex p ert ’ s qu al i fi cat i o n s an dth e ev i d en ce i n th e
reco rd . See Park er v . Co m m i s s i o n er, 8 6 T.C. 5 4 7 , 5 6 1 (1 9 8 6 ). Wh en ex p ert s o ffer d i fferi n g es t i m at es o f fai r m ark etv al ue, we wei g h t h o s e es t i m at es b y ex am i n i n g (am o n g o t h er t h i n g s ) th e fact ors th ey co n si d eredi n reach i ng th ei r co n cl u s i o ns . See Cas ey

v . Co m m i s s i on er, 3 8 T.C. 3 5 7 , 3 8 1 (1 9 6 2 ). W e are n o tb o un db y a p art i cu l ar ex p ert ’ s o p i n i o n an dm ay accep t o r reject i t i n wh o le o r i n p art . See Hel
v eri n g v . Nat ’ l Gro ceryCo
. , 3 0 4 U.S. at2 95 ; Park er, 8 6 T.C. at 5 6 1 -5 6 2 . W e m ay al s o d et erm i n e a fai r m ark etv al u e b as edo n o ur o wnex am in at i o n o f th e ev i d en ce i n the reco rd . See Si l v erm an v . Co m m i s s i on er, 5 3 8 F.2 d 9 2 7 , 9 3 3 (2 dCi r. 1 9 7 6 ), aff’ g T.C. M em o . 1 9 7 4 -2 8 5
.

2
. Fee Si m

p le In t eres ti n Parcel A Th e p art i es ag ree t h atth e fai r m ark etv al ue o f Parcel A m u s tb e d et erm i n ed
acco rd i n g t o i t s h ig h es tan db es tu s e an dth at t he h i g h es tan db es tu s e o f Parcel A i n J an u ary

2 0 0 7 was res i d en t i al d ev el o p m en t . Th e p art i es d i s ag ree ch i efl y o n two p o i n t s : (1 ) wh et h er “ co m parab l e s al es ” are s al es o f raw l an d ata p er-acre p ri ce o r- 3 1 -

[* 3 1 ] s al es o f m

ul t i -l o tp ro p ert i es ata p er-l o tp ri ce an d(2 ) i f we ad o p tth e l at t er ap p ro ach , wh atd o wn wardad ju s t m en ts h ou l db e ap p li edt o t h e co m p arab le s al e p ri ces t o acco u n tfo r t h e fact th atParcel A h ad n o d ev el o p m en t ap p ro v al s i n p l ace. M r. Qu i n n b as edh i s ap p rai s al o n M r. Gl i t zer’ s No v em b er 2 0 0 6 s k et ch p l an , wh i ch s h o weda n i ne-l o t d ev el o p m en t o n Parcel A. Becau s e Parcel A was zo n ed CR-1 , i t th eo ret ical l y

co u l dacco m

m o d at e up t o 2 0 res i d en ces o n o n e-acre l o t s . Ho wev er, g i v en th e To wn s h i p ’ s co n s erv at i o n p ri o ri t i es an dthe ex i s t en ce o f a creeko n th e p arcel ’ s n o rth s id e, M r. Gl i tzer b el i ev edth ata n i n e-l o td ev el o p m en t
was th e d en s es tp ro p os al l i k el y t o recei v e ap p ro v al
. Ad o pt i n g thi s p rem i s e, M r. Qu i n n s el ect edas h i s co m parab l e p ro p ert i es
m u lt i -l o tp ro p ert i es i n ten d ed fo r res i d en ti al d ev el o p m en t . Two o f t h es e p ro p ert i es were i n th e To wn s h i p an dth ree were el sewh ere i n Bu ck s Co u n t y . Befo re ad ju s t m en t s , th e s al e p ri ces were as fo l l o ws : Pro p ert y Dat e Pri ce # Lo t s Pri ce p er l o t Creek s Ben d 7 /0 7 $ 5
. 1 8 m i l l i o n 1 0 $ 5 1 7 ,5 0 0 Ro ckb ri d g e 5 /0 6 0 .8 5 m i l l i o n 3 2 8 3 ,3 33 Bro adSt reet 8 /0 5 1 .3 4 m i l l i o n 6 2 2 3 ,4 99 Bro ok s h i re 6 /0 5 7 .2 5 m i l l i o n 2 9 2 5 0 ,0 00 Rap u an o Farm 6 /0 4 6 .0 1 m i l l i on 2 0 3 0 0 ,5 00- 3 2 -

[* 3 2 ] Un l i ke Parcel A, each o f t h es e m u l t i -l o tp ro p ert i es was s o l dwi t h d ev el o p m en tap pro v al s al read y

i n p l ace. Am o n g t h e ad

ju s tm en t s M r. Qu in n n eed edt o
m ak e t o h i s co m

p arab l e p ri ces , th erefo re, was a d o wn w ardad ju s tm en tt o acco u n t fo r t h e ex p en s e an du n cert ai n t y o f g et t i n g To wn s h i p ap p ro v al fo r a n i n e-l o tres i
d en ti al d ev el o pm en to n Parcel A. He m ad e a 1 0 % ad ju s t m en tfo r t hi s p u rp o s e. He co n cl ud edth ata l arg er ad ju s t m en twas u n n eces s ary b ecau s e: (1 ) M r. Gl i t zer’ s
s k et ch p l an was co ns erv at i ve an di n co rp o rat ed m u ch o f t he p l an n i n g n eces s ary t o
s ecu re ap p ro v al an d (2 ) M r. Gl i t zer’ s fi rm s erv edas th e To wn sh i p ’ s en g i n eers an d
wo u l dab l e t o us e t h i s ex p eri en ce t o ex p ed i t e t h e ap p ro v al p ro ces s. Aft er m ak i ng o th er ad

ju s t m en t s t o th e co m

p arab l e p ro pert i es ’ p ri ces , M r. Qu i nn d et erm i n eda p er-l otv al u e ran g i ng b et ween $ 2 40 ,6 2 5 an d $ 3 6 2 , 8 5 4 . He
co n cl u d ed t h at Parcel A’ s v al u e s ho u l dfal l n ear t h e m i d d l e o f t h is ran g e at $ 2 8 8 ,8 8 8 p er l ot . He acco rd i n g l y d et erm i n edth atParcel A’ s t o t al v al u e atth e t i m e o f d o n at i o n was $ 2 ,6 0 0 ,0 00 ($ 2 8 8 ,8 88 × 9 l o t s ). M r. Qu i n n th en p erfo rm ed an “ en h an cem en t ” an al y s i s th ath e t h ou g h twas req u i redb y

s ect i o n 1 .1 7 0 A -1 4 (h )(3 ), In co m e Tax Reg s . Th e p u rp o s e o f t hi s an al
y s i s was t o d et erm i n e a d o wn wardad j u s t m en tt o Parcel A’ s v al u e t o acco u n tfo r th e ex p ect edp l acem en tb y Heri t ag e o f a co ns erv at i o n eas em en tup o n i t , wh i ch
wo u l db en efi tp et i t io n ers ’ ad jacen th o m es t eadp ro p ert y . Aft er co n s u l t i n g m ark et- 3 3 -

[* 3 3 ] d at a, M r. Qu in n es t i m at edth atHeri t ag e’ s p l acem en to f a co n s erv at i o n
eas em en to v er Parcel A wo u lden h an ce t h e v al ue o f Parcel B b y $ 20 0 , 0 0 0 . Subtract i n g th ats u m

fro m $ 2 ,6 0 0 ,0 0 0 , h e d et erm i n edi n h i s ex p ertrep orta fi n al d o n at i on v al u e fo r Parcel A o f $ 2 ,4 0 0 ,0 0 0 . Th i s fi g u re was $ 5 0 ,0 00 h i gh er t h an h i s
o ri g i nal 2 0 0 7 ap p rai s al b ecau s e o f refi nem en t s t o h is co m p arab l e s al e p ri ces . Pet i t i o ners ’ s eco n dex p ert , M r. Pat cel l a, ag reedwi t h M r. Qu i n n i n em p l o y i n g a p er-l o tan al y s is . He s el ect edas h i s co m p arab l e s al es th ree o f M r. Qu i n n ’ s
s al es an dthree o t h er s al es o f m u l t i -l o tp ro p ert i es . On e o f h i s p ro p ert i es was i n th e To wn s h i p an d fi v e were el s ewh ere i n Bu ck s Co u n t y , as fo l l o ws : Pro p ert y Dat e Pri ce # Lo t s Pri ce p er l o t Hi g hl an dRo ad 6 / 0 4 $ 5
. 4 6 m i l l i o n 2 0 $ 2 7 3,0 0 0 Durh am

Ro ad 2 / 0 4 2 .7 6 m i l l i o n 2 5 1 1 0 ,3 8 0 M at thews Ri d g e 4 / 06 2 .9 0 m i l l i o n 1 6 1 8 1 ,2 5 0 Ch ap m an Co rn er 7 / 0 6 3 .6 9 m i l l i o n 2 2 1 6 7 ,5 0 9 Bro adSt reet 8 / 0 5 1 .3 4 m i l l i o n 6 2 2 3 ,4 9 9 Bro ok s h i re 6 / 0 5 7 .2 5 m i l l i o n 2 9 2 5 0 ,0 0 0 M r. Pat cel l a’ s co m

p arab l e p ro pert i es h add ev el o p m en t ap pro v al s i n p l ace o r
were s o l dco n ti n g en to n the b u y er’ s recei v i n g ap p ro val fo r t h e d es i redn u m b er o f l o t s . Whi l e s h ari ng M r. Qu i n n ’ s v i ew t h atth e To wn s h i p wo u l d l i kel y ap p ro v e a
n i n e-l o t d ev el o p m en t o n Parcel A fai rl y qu ick l y , M r. Pat cel l a d et erm in edth atM r. Qu i nn ’ s 1 0 % d o wn wardad ju s t m en twas t o o s m al l an dco n cl u d edth atan ad ju s t -- 3 4 -

[* 3 4 ] m en t o f 1 5% t o 2 0 % wo u l db e m o re ap p ro p ri at e. Aft er m ak i n g o t h er ad ju s t m en t s th ath e b el i ev ed ap p ro p ri at e, h e d et erm i n edan av erag e v al u e o f $ 2 4 0 ,0 0 0 p er l otfo r t h e co m p arab le p ro p ert i es , y i el d in g a t o t al v al u e o f $ 2 ,1 6 0 ,0 0 0 ($ 24 0 ,0 0 0 × 9 l o ts ) fo r Parcel A as o f t h e v al u at i o n d at e. Res p o n d en t ’ s ex p ert , M r. Acqu aro -M i gn o gn a, t es t i fi edth ata p er-l o tv al u at i on wo u l db e t o o s p ecu l at i v e b ecau s e i twas u ncert ai n h o w m an y l o t s t he To wn s h i p wo u l dactu al l y

ap p ro v e fo r d ev el o p m en t o n Parcel A. He acco rd i n g l y s el ect eds al es o f raw l an das h i s co m p arab l es an du s edth e p er-acre s al e p ri ces o f t h es e p ro p ert i es as h i s i n d ex o f Parcel A’ s v al u e. He s el ect ed t h e fo ll o wi n g s al es as
co m p arab l es : Pro p ert y Dat e Pri ce # Acres Pri ce p er acre New Ho p e Ro ad 3 / 0 6 $ 0 .5 1 m i l li o n 1 6 .3 5 $ 3 1 ,2 5 4 Lo wer Yo rkRo ad9 / 0 5 5 .4 5 m i l li o n 1 0 6 .0 0 5 1 ,4 1 5 Lo wer Yo rkRo ad2 5 / 0 5 4 .5 5 m i l l i o n 1 0 6.0 0 4 2 ,9 2 5 Ri d g ev i ew Dri v e 8 / 05 2 .1 5 m i l l i o n 4 7 .0 7 4 5,6 7 7 Ol d Yo rkRo ad3 / 0 5 1 .0 0 m i l l i o n 3 0.4 2 3 2 ,8 7 3 Wh ereas Parcel A was zo n edCR-1 (s i n g l e-fam i l y res i d en ces o n o n e-acre l o t s ), th ree o f M r. Acqu aro -M ig n o g n a’ s co m p arab l e p ro p ert i es were zo n edfo r ag ri cu l tu ral u s e o n l y , an d t h e o t h er t wo were zo n edfo r m i x edag ri cu l tu ral an d
res i den t ial u s e. No n e o f h i s co m p arab les was i n the To wn s h i p al t h o u g h al l were i n Bu ck s Co u nt y . Aft er ad ju s t in g th e co m

p arab l e s al e p ri ces h e d et erm i nedan- 3 5 -

[* 3 5 ] av erag e s al e p ri ce o f $ 4 6 ,0 0 0 p er acre; h e acco rd i n g l y v al u ed Parcel A at $ 9 2 0 ,0 0 0 ($ 4 6 ,0 0 0 × 2 0 acres ). If s al es o f m u l ti -l o tap p ro v edp ro p ert i es were t o b e u s edas co m

p arab l es , as M es s rs . Qu i n n an dPat cel l a b el i ev ed ap pro p ri at e, M r. Acquaro -M i g n o g n a ex p res s edth e v iew t h ata d o wn wardp ri ce ad ju st m en to f 5 0 % t o 7 5 % wo u l d b e n eces s ary t o ren d er t h o s e p ro p ert i es co m p arab l e t o Parcel A. W e ag ree wi t h the p er-l o tap p ro ach em p l o y edb y p et i t i o n ers ’ ex p ert s. Si n ce Parcel A’ s h ig h es tan db es t u s e was res i d en t i al d ev el o pm en t , th e m o s t l i k el y b u y er
o f Parcel A wo u l db e a res i den t i al d ev el op er. M r. Zav et a was an ex p eri en cedres i d en t i al d ev el o p er, an dh e cred i b l y t es t i fi edth atres i d en t i al d ev el o p ers i n Bu ck s Co u n ty fo rm

u lat e t h ei r l an do ffers b y referen ce t o the n u m b er o f b ui l d ab l e l o t s th at th e acreag e i s ex p ect edt o y i el d . If th ati s h o w p ro s p ect i ve b u y ers o f Parcel A
wo u l dfo rm

u lat e t hei r o ffers , th atwo u l ds eem the m os tl o gi cal ro u t e t o d et erm i n i n g Parcel A’ s fai r m ark etv al u e. W e are u np ers uad ed b y res po n d en t ’ s s ub m i s s io n th atth is p er-l o t ap pro ach i s t oo s p ecu l at i v e. Wh i l e n o o ne co u l dkn o w fo r s u re wh et h er t he To wn sh i p
wo u l dap p ro v e a n i n e-l o td ev el o p m en to n Parcel A, M r. Gl i tzer h ad co n s i d erab l e
ex p eri en ce i n t h es e m at t ers an d cred i b l y t es t i fi edth ats u ch ap p ro val was l i kel y . M es s rs . Qu i n n an d Pat cel l a, l i kewi s e ex p eri en cedi n t h e way s o f Bu ck s Co u n t y , s eco n d edth ato pi n i o n .- 3 6 -

[* 3 6 ] Th e ev i d en ce es t ab l i s h edth ata d ev el o p er co nt em p l at i n g p u rch as e o f u n i m p ro v edl an d i n Bu ck s Co u n t y wo u l dei t h er m ak e a fu l l -p ri ce o ffer co n t i n g en to n d ev el o p m en tap pro val ’ s b ei n g s ecu redo r m ak e h i s b es tes t i m at e as t o th e l i k el i ho o do f g et t i n g t h e d es i redap p ro v al an dd i s co u n t h i s o ffer acco rd i n gl y . Inei t her
ev en t, th e d ev el o p er wo u l dfo rm u l at e h i s o ffer o n a p er-l o t , n o to n a p er-acre, b as i s . Th e p o ss ib i l i t y

th atth e ex p ect edn u m

b er o f b u i l d ab l e l o t s m i g h tn o tb e ap p ro v edi s ad equ at el y

acco un t edfo r b y

m ak in g an ap p ro p ri at e d o wn wardad
ju s t m en tt o th e s al e p ri ces o f t h e co m p arab l e p ro pert ies
. W e ag ree wi t h res p o n d en t , h o wev er, t h atth e 1 0 % d own ward ad j u s t m en t
m ad e b y M r. Qu i n n an dthe 1 5 % t o 2 0 % d o wn wardad j u s t m en tfav o redb y

M r. Pat cel l a are t o o s m al l . M r. Zav et a t es t ifi edth at Bu ck s Co u n t y i s n o t “ dev el o p erfri en dl y ” an dth at o b t ai n i n g d ev el o p m en t ap pro v al can b e a “ l o n g an dardu o u s p ro ces s .” He n o t edth atth e ap p ro v al p ro ces s co u l dt ak e t h ree y ears t o co m p l et e;
ev en if u l t i m at e ap p ro v al was l i k el y , th e d ev el o p er m i g hti ncu r carry i n g ch arg es
an d o ther co s t s fo r anex t en d edp eri o d
. Onth e o t h er h an d , we are u np ers u ad edb y M r. Acquaro -M i g n o n a’ s v i ew th atan ad ju s t m en ti n th e ran g e o f 5 0 % t o 7 5 % i s n eces s ary . He p ro v i d edn o co n cret e d at a t o s up p ort t h i s es t i m at e, an dan ad ju s t m en tth i s l arg e i s ato d d s wi t h th e
co n sen s us o f t h e o t h er wi t n es s es th ata n in e-l o td ev el o pm en t o n Parcel A wo u l d- 3 7 -

[* 3 7 ] l i k el y

b e ap p ro v edfai rl y qu i ck l y . Ev al u at i n g the wi t n es ses ’ t es t im o n y an d th e reco rdas a wh o l e, we fi n d t h ata d o wn wardad ju s t m en to f 2 5 % t o th e p ri ces o f th e co m parab l e p ro p ert i es s el ect edb y p et i t i o n ers ’ ex pert s i s ap pro p ri at e t o acco u n t fo r t h e fact thatParcel A h adn o d ev el o p m en tap p ro v al s i n p l ace. 3 W e m ay b ri efl y d i s po s e o f t h e rem ai n i n g p o i n t s i n d is p u t e. • Res p o nd en targ u es th ato n e o f M r. Qu in n ’ s co m parab l e s al es --Heri t ag e’ s
s al e t o M r. Zav et a o f t h e 1 0 l o ts th atwo u l db eco m e t h e Creek s Ben ds ub d i v i s i o n -- s h o u ldb e el i m i n at edb ecau s e i to ccu rredaft er J an u ary 2 4 , 2 0 0 7 , th e d at e o n wh i ch p et i t i o n ers co n v ey ed Parcel A t o Heri t ag e. M r. Pat cel l a b el i ev ed t h atth is s al e d i d
n o tfu rn i s h a u sefu l co m

p ari s o n b ecau s e i t s fi n al p ri ci n g was “ affect ed b y t o o
m an y n on -m ark et v ari ab l es ,” i n cl u d i ng th e co n s erv at i o n eas em en t s. W e ag ree wi th res p o n d en tan dM r. Pat cel l a an dwi l l el i m i n at e t h e Creek s Ben dtran s act i o n fro m M r. Qu i n n ’ s s eto f co m

p arab l e s al es . • M r. Qu i n n ’ s fi ft h co m

p arab l e, Rap uan o Farm , s o l d fo r $ 6 ,9 0 0 ,0 0 0 wi t h two o f i t s 2 1 l o t s al read y

i m pro v edwi t h h o m es tead s . M r. Qu i n n co rrect l y s ub
3 Wh il e d o n o t ag ree wi t h an y o f th e ex pert wi t n es s es ’ ad ju s t m en trat es , we n o t e t h atal l th ree co n s id eredthe p h y s i cal ch aract eri s t i cs o f t h e co m p arab l e p ro p ert i es i n d et erm i ni n g Parcel A’ s rel at i v e d ev el o p m en tp ot en t i al . M r. Qu i n n ad
ju s t edh i s p ri ces fo r zo n i n g, d en s i t y , an dap p ro v al s . M r. Pat cel l a ad ju s t edh i s p ri
ces fo r s i t e ch aract eri s t i cs . M r. Acqu aro -M i g n o gn a ad j u s t edh i s p ri ces fo r t o p o g rap h y , s i t e i m

p ro v em en t s , an d zo n i n g .- 3 8 -

[* 3 8 ] tract edfro m

th e reco rd eds al e p ri ce t h e v al u e o f o n e h o m es t ead($ 8 9 0 ,0 0 0 ), b u th e n eg lect edt o s ub t ract th e v al u e o f th e o th er h o m es t ead ($ 5 5 0 , 0 0 0 ). M ak i ng th ats ub tract i o n, we fi n dth atth e co m p arab l e s al e p ri ce fo r Rap u an o Farm s h o u l d b e $ 5 ,4 6 0 ,0 0 0 , y i el di n g an u n ad ju s t edp er-l o t p ri ce o f $ 2 8 7 , 3 68 ($ 5 ,4 6 0,0 0 0 ÷ 1 9 l o t s ) rat h er t h an $ 30 0 ,5 0 0
. • M r. Qu i n n no t edth ata n i n e-l o t res i d en t i al d ev el o pm en two ul dreq u i re
co n st ru ct i o n o f a n ew b ri d g e o ver t h e creek at t h e n o rt h en do f Parcel A. M r. Pat
cel l a ag reed , b u th e o p i n edth atth i s n eg at i v e was o ffs etb y th e at t ract i v e en t ran ce th i s s et t i n g wo u ldp ro v i d e. M r. Acqu aro -M i g n o n a o p i n edth atth e co s to f b u i l d i n g
a n ew b ri d g e wo u l db e $ 3 0 2 , 0 0 0 . Co n s i d eri n g al l th e t es t im on y , we co n cl u d e t h at th e co s to f co n s t ru ct i n g a n ew en t ran ce b ri d g e wo u l db e an i n fras t ru ctu re co s t b o rn e b y t h e d ev el o p er an d d o es n o treq u i re a d o wn wardad ju s t m en t t o Parcel A’ s fai r m ark etv al u e. • M r. Qu i n n m ad e a $ 20 0,0 00 d o wn wardad ju st m en tfo r “ en h an cem en t ” t o th e v al u e o f p et i t i o n ers ’ h om es t eado n Parcel B. Sect i o n 1 .1 70 A-1 4(h )(3 ), In co m e Tax Reg s ., p ro vi d es th at“ [i ] f th e g ran t i n g o f a p erp etu al co n serv at i on res t ri ct i o n
* * * h as th e effect o f i n creas i n g th e v al ue o f an y o t h er p ro p erty

o wn edb y

th e d o n o r,” t h e ch ari t ab l e co n t ri b u t i o n d edu ct i o n al l o wedfo r t h e co ns erv at i o n
eas em en ts h al l b e redu cedacco rd i n g l y . Ag ai n s th i s o wni n t eres t, res p on d en t- 3 9 -

[* 3 9 ] co nt en d s (co ns i s t en t l y wi t h h i s ex p ert ’ s v i ew) th atth i s reg u l at io n d oes n o t ap p ly t o Parcel A, an d we ag ree. Pet i t i o n ers d o n at edt o Heri t ag e a fee s im pl e i n t eres ti n Parcel A , n o ta co n s erv at i o n eas em en t. Th e reg u l at io n b y i t s t erm s d o es
n o tap pl y t o t h i s t ran s act i on , s o th ere i s n o b as i s fo r M r. Qu i n n ’ s $ 2 0 0 ,0 00 d o wn wardad ju s t m en t. To s u m m ari ze: Al t h o u g h M r. Pat cel l a u s eds o m e o f th e s am e co m p arab les
as M r. Qu i n n , we are u n ab l e t o d et erm in e h o w M r. Pat cel l a i n h i s ex p ertrep o rt
m ad e t h e d o wn w ardad

ju s t m en tfo r Parcel A’ s l ack o f d ev el o p m en tap p ro v al . W e wi l l acco rd i n g ly

u s e M r. Qu i nn ’ s rep o rtt o d et erm i n e t h e fai r m ark etv al u e o f Parcel A. If we el i m i n at e t he Creek s Ben ds al e fro m M r. Qu i n n ’ s s eto f co m p arab l es , redu ce t o $ 2 8 7,3 6 8 th e u n ad ju s t edp er-l o tp ri ce o f Rap u an o Farm , rai se t o 2 5 % th e d o wn wardad

ju s t m en tfo r Parcel A’ s l acko f d ev el o p m en tap p ro v al , an dru n th es e
rev i s edn u m

b ers th ro u g h M r. Qu i n n ’ s m at ri x , we g et a rev i s ed p er-l o tp ri ce o f $ 2 4 3 ,5 4 4 fo r t h e co m

p arab le p ro p ert i es . No fu rt h er d o wn wardad ju s t m en ti s requ i redfo r “ en han cem en t ” t o p et i ti o n ers ’ h o m es t eadp ro p ert y . W e t h us fi n dth e fai r m ark etv al u e o f Parcel A t o b e $ 2 ,1 9 1 ,8 96 ($ 2 43 ,5 4 4 × 9 l o t s).

3
. Co n s erv at i o n Eas em en tOv er Parcel B W e tu rn n o w t o t h e v al u at i o n o f t h e co n s erv at io n eas em en tth atp et i ti o n ers d o n at ed t o th e To wn sh i p o n J u l y 1 0 , 2 0 0 7 . Sect i o n 1 .1 7 0 A-1 4 (h )(3 )(i ), In co m e- 4 0 -

[* 4 0 ] Tax Reg s ., requ i res u s t o d et erm i n e “ t h e fai r m ark etv al u e o f t h e p erp etu al
co n serv at i on res t ri ct i o n atth e t i m e o f t h e co n t ri b u ti o n . ” Th e reg u l at i o n el ab o rat es
o n th i s req u i rem en tas fo l l o ws : If t h ere i s a s ub s t an t i al reco rdo f s al es o f eas em en t s co m p arab l e t o t h e d o n at edeas em en t* * * , th e fai r m ark etv al u e o f t h e d o nat edeas em en t i s b as ed o n th e s al es p ri ces o f s u ch co m p arab l e eas em en t s . If n o s ub
s t an ti al reco rdo f m ark et -p l ace s al es i s av ai l ab l e t o u s e as a m ean in g fu l o r v al i dco m

p ari s o n , as a g en eral ru l e (b u tn o t n eces s ari l y i n al l cas es ) t h e fai r m ark etv al u e o f a p erp etu al co n serv at i on res t ri ct i o n i s equ al t o t h e d i fferen ce b et ween th e fai r m ark etv al u e o f t h e p ro p ert y i t en cu m b ers b efo re t h e g ran t in g o f t h e res t ri ct i o n an d t h e fai r m ark et v al u e o f t he en cu m

b eredp ro p ert y

aft er t h e g ran t i ng o f t h e res t ri ct io n . Becau s e a m ark etfo r the p u rch as e an ds al e o f co ns erv at i o n eas em en t s rarel y
ex i s t s, th e v al u e o f a co n s erv at i o n eas em en ti s o rd i n ari l y d et erm i n edu si ng th e

“ b efo re an d aft er” ap p ro ach m en t i o n ed i n t h e reg u l at i o n . Sym i n g t o n v . Co m m i s s i on er, 8 7 T.C. at 8 9 5 ; Hi l b o rn v . Co m m i ss i o n er, 8 5 T.C. 6 7 7 , 6 8 8 -6 89 (1 9 8 5 ). W e wi l l em

p l o y t h at ap p ro ach h ere.
a. “ Befo re” Val u e Sect io n 1 .1 7 0 A-1 4 (h )(3 )(i i ), In co m e Tax Reg s., p ro v i d es th e fo l l o wi n g g u i d an ce i n d et erm i n i n g th e “ b efo re” v al u e: [T] h e fai r m ark etv al u e o f t h e p ro p ert y b efo re co n t ri b u t i on o f t h e co n s erv at io n res t ri ct i o n m u s tt ak e i nt o acco u ntn o t o n l y th e cu rren t u s e o f t h e p ro p ert y

b utal s o an o b

ject i v e as s es sm en to f h o wi m m ed i at e o r rem ot e th e l i k el ih o o di s th atth e p ro p ert y , ab s en tth e res t ri ct i on , wo u ldi n fact b e d ev el o p ed , as wel l as an y effect fro m zo ni n g ,- 4 1 -

[* 4 1 ] co n s erv at io n , o r h i s t o ri c p res erv at i o n l aws th atal read y res t ri ct t h e p ro p ert y ’ s p o t en t i al h i gh es tan db es tu s e. Th e p art i es ag ree t h atth e “ b efo re” v al u e o f Parcel B d ep en d s o n i t s h i g h es t
an d b es tu s e, b u t th ey

d is ag ree as t o wh atth ath i g h es tan db es tu s e was . Pet i t i o n ers co n t en dthatthe h i gh es tan d b es tu s e o f Parcel B p ri o r t o p l acem en to f t h e
eas em en twas res i d en ti al d ev el o p m en t, an dth ei r ex p ert s d et erm i nedi t s fai r m ark et
v al u e u s i n g es s en t i al l y t h e s am e m ark etap p ro ach th atth ey u s edfo r Parcel A. Res p o n den tco n t en d s t h atth e h i g hes tan db es t u se o f Parcel B b efo re p l acem en to f th e eas em en t was co nt in u edu s e as a s i n g l e-h om e “ es t at e p ro p ert y .” Onth i s th res ho l dp o i n twe ag ree wi t h p et it i on ers . Parcel B i s n ex tt o Parcel A. Th e t wo p arcel s are co m p arab l e i n s ize (2 5 v s . 2 0 acres ) an dh av e ro u g h l y s i m i l ar t o p o g rap h y . Th ey

s h are a n o rt h ern fro n t ag e o n W as h i ng t on Cro ss i n g Ro ad
an d a l o ng b ord er ru n n i n g fro m n o rt h t o s o u t h. In m at eri al res p ect s t h es e t wo p arcel s are fu n g i b l e, ex cep t fo r th e p res en ce o f a p re-ex i st i ng res i d en t i al co m p o u n d
o n Parcel B. If t h e h i g hes tan db es tu s e o f Parcel A i s res i d en t ial d ev el o p m en t , as
res p o n d en t co nced es , co m m o n s en s e s u g g es t s th atres i d en ti al d ev el o p m en ti s al s o th e h i g h es tan db es tu s e o f Parcel B. In o p i ni n g t o the co n t rary , M r. Acquaro -M i g n o n a s t art edwi t h th e p rem i s e th atParcel B wi t h i t s ex i s t i n g i m p ro v em en t s was wo rt h $ 2.7 5 m i l l i o n. He s u r-- 4 2 -

[* 4 2 ] m is edth ato wn ers o f es t at e p ro p ert i es l i k e t h is wo u l di ns i s to n s ub s tan t i al acreag e aro u n dth ei r res i d en ce t o p ro t ectth ei r p ri v acy . If p et i t i o ners ’ res i d en t i al
en v el o p e were redu cedt o t wo acres , as p ro p o s edi n M r. Gl it zer’ s 1 0 -l o t s ket ch p l an , M r. Acquaro -M i g n o n a b el i ev edth atth e v al u e o f t h e res i d en t i al co m p o u n d
wo u l db e redu cedt o $ 1.3 m i l l i o n . He fu rt h er o p i n ed t h atth e rem ai n in g 2 3 acres , l ack i ng d ev el o pm en tap p ro v al s , wo u l db e wo rt h n o m o re t h an $ 5 0 ,0 0 0 an acre t o a d ev el o p er, o r $ 1 .1 5 m il l i o n al l t o l d . Becau s e th e l os s i n v al u e t o th e res i den t i al
co m p o u n do ccas i o nedb y

d ev el o p m en t($ 1
. 4 5 m i l l i o n ) s up p o s ed l y ex ceed edth e p ri ce t hata d ev el o per wo u l dp ay fo r t h e o t h er 2 3 acres ($ 1 .1 5 m i l l i o n ), M r. Acqu aro -M i g no n a o p i n edth atres i d en t i al d ev el op m en t wo u l dm ak e n o eco n o m i c
s en s e. He acco rd i n g ly

co ncl u d edth atParcel B’ s h i g h es t an db es t u s e was “ co n t i nu edu s e an dm ai n t en an ce o f t h e ex i s t in g i m p ro v em en t s as a s i n gl e t ract .” W e are n o tp ers u ad edb y

th i s l i n e o f reas o n i n g . Parcel B, ad jacen tt o Parcel A an dthe Ro rer Tract , i s i n an ex t rem el y d es i rab l e p arto f Bu ck s Co un t y . Th e
s u i t ab i l i ty o f th i s l an d fo r res i d en t i al d ev el o p m en ti s s h own b y the fact that
n u m ero u s d ev el op ers m ad e v ery l arg e o ffers t o p u rch as e t h e Ro rer Tract . If
res i den t ial d ev el o p m en t rep res en t s th e h i g h es tan db es t u s e o f al l t h e l an ds u rro u n di n g Parcel B, i ti s h ardt o s ee wh y i t s h i gh es tan d b es tu s e s h o u l d b e d i ffer-- 4 3 -

[* 4 3 ] en t. Farm l an dd oes n o tceas e t o b e s u i t ab l e fo r res i d en t i al d ev el o p m en t b ecau s e i th as a farmh o u s e o n i t . Th e l i nch p i n fo r M r. Acqu aro -M i g n o n a’ s co n t raryco ncl u s i o n i s h i s as s u m p t i on th ata d ev el o per wo u l dp ay n o m o re t h an $ 5 0 ,0 0 0 p er acre fo r t h e 2 3 acres
s u rro u n d i n g th e res i d en t i al co m p o u n d . Th e reco rdd o es n o t s up p o rt t hi s as s u m p t i on . Ino rd er t o ex erci s e t h ei r o p t io n t o p urch as e t h e ad jacen tRo rer Tract , p et i
t i on ers wo u l dh av e b een req u i redt o p ay $ 1 3 .4 m i ll i on . Si n ce th e Ro rer Tract
co m p ri s ed1 3 7 acres , th attran s l at es t o ro u gh l y $ 1 0 0 , 0 0 0 p er acre, o r d oub l e t h e p ri ce M r. Acqu aro -M i g n o n a as s u m ed . As d i s cu s s ed p rev i o u sl y , m o reo v er, d ev el
o p ers i n Bu ck s Co un ty

fo rm u l at e t h ei r o ffers i n t erm s o f a p er-l o tp ri ce, an dco m p arab l e p ro p ert ies were s el l i n g fo r wel l i n ex ces s o f $ 2 0 0 , 0 00 p er l o t . Si n ce Parcel B co u l dacco m

m od at e n i n e l o t s i n ad di t io n t o the res id en t i al co m p o u n d , i ti s
o b v i o u s th ata d ev el o p er wo u l dp ay s ub st an t i al l y

m ore t h an $ 1 .1 5 m i l l i o n fo r t h e
s u rro u n d i n g 2 3 acres . Fo r t h es e reas on s , we ag ree wi t h p et i t i o n ers ’ ex p ert s th atth e h i g h es tan d b es tu s e o f Parcel B b efo re i m p o s i t i o n o f th e eas em en twas res i d en t i al d ev el o p m en t . To d et erm i n e t h i s “b efo re” v al u e, M r. Qu i n n an d M r. Pat cel l a b o th em p l o y edth e s al es -co m

p ari s o n ap p ro ach , u s i n g th e s am e co m parab l e s al es th ey

h ad
u s ed to v al u e Parcel A. Rel y i n g o n M r. Gl i tzer’ s s k et ch p l an s , th ey as s u m edth at- 4 4 -

[* 4 4 ] Parcel B wo u ldb e ap p ro v edfo r a 1 0 -l o t d ev el o p m en t ; n i n e o f t h es e l o t s
wo u l db e n ew res i d en ces an dth e t en t h wo u l d b e p et i t i o n ers ’ ex i s t i n g h o m es t ead
. Becau s e we fo un di n t ern al i n co n s i s t en ci es i n M r. Qu i n n ’ s treat m en to f t h e
res i den t ial co m

p o u n d , 4 we wi ll b as e o u r d et erm i nat i on o f Parcel B’ s “ b efo re”
v al u e o n M r. Pat cel l a’ s ap p ro ach . He co n cl ud ed , as h e h adco n cl ud ed fo r Parcel A, th ateach b u i l d ab l e l o twas wo rth $ 2 4 0,0 0 0 . As d i s cu s s edab o ve, we co n cl u d e th atth e ap pro p ri at e p er-l o tv al u e d eri vedfro m co m p arab l e s al es i s $ 2 4 3 ,5 4 4 ; the fai r m ark etv al u e o f t h e n i n e l o t s i s th u s $ 2 , 1 9 1 ,8 9 6 . M r. Pat cel l a d et erm in edth e
v al u e o f t h e t en t h l ot , co m p ri s in g p et i t i o ners ’ h o m es t ead , b y referen ce t o s al es o f
co m p arab l e h o m es i n Bu ck s Co u n t y res i d en t i al s ub d i v i s io n s . He d et erm in edth i s
v al u e t o b e $ 9 0 0 ,0 0 0 , wh i ch we fi n dreas o nab le. W e acco rd in gl y co n cl ud e t h at th e “ befo re” v al u e o f Parcel B was $ 3 ,0 9 1 , 8 9 6 ($ 2 ,1 9 1,8 9 6 + $ 9 0 0 ,0 00 ).

b
. “ Aft er” Val u e Fo l l owi n g i m

p o si t io n o f t h e co ns erv at i on eas em en t o v er Parcel B, p et i t i o n ers o wn eda 2 5 -acre t ract th ati n cl u d eda t wo -acre res i d en t i al co m p o u n d , t o wh i ch th ey were free t o m ak e fu rt her i m p ro v em en t s , an d2 3 s u rro un d i n g acres , wh i ch

4 M r. Qu i n n as su m edfo r p u rp o s es o f h i s v al u at i o n t h atal l 1 0 l o t s o n Parcel B were v acan tas o f t h e v al u at io n d at e. He ad j u s t edth e p ri ces o f th e co m p arab l e s al es b y s ub t ract i ng th e v al u e o f an y i m p ro v em en ts s itu at edth erei n . Th i s creat ed a h y p o th et i cal co nd i t i o n th atParcel B an dal l o f t h e co m p arab l e p ro pert i es were v acan tl an ds u i t ab l e fo r res i d en t i al d ev el op m en t .- 4 5 -

[* 4 5 ] were fu l ly

co ns erv edan d i n el i g i b l e fo r an y d ev el o p m en t . W e m

us td eci d e th e fai r m ark etv al u e o f t h i s p ro p ert y . M r. Qu i n n d et erm i n ed t h atth e “ b efo re” v al u e o f Parcel B was $ 3 .0 m i l l i o n
an d th ati m

p o s i t i on o f t h e eas em en td i m i n i s h edi t s v al u e b y $ 2 .7 m i ll i on . He th u s
acco rd edth e 2 5 -acre h o m es t eadp ro p ert y an “ aft er” v al ue t h atco u l d n o t ex ceed $ 3 0 0 ,0 0 0 . Al t h o u g h we d o n o t fu l l y u n ders t an dth e m et h o d o l o g y h e u s edt o reach th i s res u l t , th e res u lti s cl earl y i n co rrect . M r. Zav et a p ai d$ 5 1 7 ,5 0 0 p er l o tfo r raw l an di n th e Ro rer Tract . Pet i ti o n ers ’ h o m es t ead p ro p ert y was i m pro v ed wi th a l arg e res id en ce d at i n g t o the 1 7t h cen tu ry , a co t tag e, a g u es th o u s e, g arag es , an d a l arg e b arn , al l o f wh i ch were s u rro u n d edb y 2 3 acres o f p ri s t i n e l an d. Iti s o b v i o u s th atParcel B, aft er p l acem en to f t h e co ns erv at i o n eas em en t , was wo rt h s ub s t an t i al l y m o re t han $ 3 0 0 ,0 0 0
. M r. Pat cel l a d et erm i nedParcel B’ s “ aft er” v al u e b y co n s i d eri n g s al es o f
s i m i l ar h om es tead s o n l arg e l o ts th at were s ub j ectt o co n s erv at i o n eas em en t s o r
o th erwi s e u n s u i t ab l e fo r d ev el op m en t(e.g
. , b ecau se o f p oo r l o cat i o n o r t errai n
co n di t i o n s ). He s el ect edfi v e co m p arab l e p ro p ert i es i n Bu ck s Co u nt y , ran g i n g fro m 2 4 acres t o 6 2 acres , each i m p ro v edwi th an o ri g i n al s to n e h o u s e an d o u t b u i l d i n g s . Th e s al e p ri ces fo r th es e p ro p ert i es ran g edfro m $ 1 .5 9 m i ll i on t o $ 2 .4 5
m i l l io n ; th e p ro p erty wi t h i n th e To wn s h ip s o l dfo r $ 1.6 5 m il l i o n. Onth e b as i s o f- 4 6 -

[* 4 6 ] th es e co m

p arab l e s al es , h e d et erm in edth atth e “ aft er” v al u e o f Parcel B was $ 1 .6 m i l l i o n . W e fi n dM r. Pat cel l a’ s ap pro ach reas on ab l e an dfi n d$ 1 .6 m i l l i o n t o b e t h e v al u e o f Parcel B fo l l o wi n g i m p o si t i o n o f t h e eas em en t . M r. Acqu aro -M i g no g n a d i dn o tp erfo rm a d i s t i n ct“ aft er” v al u at i o n o f Parcel B. Rat h er, h e v al u edParcel B an d t h e b u y -b ackp arcel t o g et h er as a 6 2 -acre tract . Th i s was n eces s ary , h e b el i ev ed , t o co m p l y wi t h t h e “ co n t i g u o u s p arcel ”
ru l e s etfo rt h i n th e reg u lat i o n s. See s ec. 1 .1 70 A-1 4(h )(3 )(i ), In co m e Tax Reg s . Ap p l y in g th i s ru l e, M r. Acqu aro -M i g n o g n a d et erm i n edth atth e 6 2 -acre p arcel h ad a “ b efo re” v al u e ran g i n g fro m $ 3 .3 t o $ 3
. 5 m i ll i on an dan “ aft er” v al u e o f $ 3 .1 1
m i l l io n . W e reject th i s ap pro ach b ecau s e t h e co n t i g u o u s p arcel ru l e h as n o ap p l i cat i on h ere. Byi t s t erm s , th i s ru l e ap p l i es o n ly wh ere a “ p erp etu al co n s erv at i o n res tri ct i o n * * * co v er[s ] a p o rt i o n o f t h e co nt i g uo u s p ro p ert y o wn edb y

a d o n o r.” Id . s ub di v . (i ) (fo u rth s en ten ce) (em p h as i s ad d ed ). When p et i t io n ers acq u iredth e b u y -b ackp arcel , b o t h i tan dParcel B were fu l l y co v eredb y

co n s erv at i o n eas em en t s . Perp etu al co n s erv at io n res t ri ct i on s th u s co v eredn o ta p o rt i o n b u tth e
en t i ret y o f t h e co n t i g u o u s p ro p ert y thatth ey o wn ed . Th e ru le res p o n d en tci t es h as
n o s en si b l e ap p l i cat i o n wh eneas em en t s co ver t h e en t i re co n t i g u ou s p ro p ert y ,- 4 7 -

[* 4 7 ] s i n ce n o p o rt i o n o f t h atp ro p ert y wi l l th en recei v e an y i n crem en t al b en efi t fro m b ei n g ad j acen tt o co n serv edl an d
. To s u m m ari ze: W e fi n dth e “ befo re” v al ue o f Parcel B t o b e $ 3 ,0 91 ,8 9 6 , u s i n g M r. Pat cel l a’ s m et h o d o l og y b u ts ub s t itu t i n g fo r h i s co m p arab l e p er-l o tp ri ce th e $ 2 43 ,5 4 4 v al u e we d et erm i n edp rev i ou s ly . W e fi n dth e “ aft er” v al u e o f Parcel B t o b e $ 1 ,6 0 0 ,0 0 0 , u si n g M r. Pat cel l a’ s co m p arab le-s al es an al y s i s . W e t h u s fi n d th atth e fai r m ark etv al u e o f t h e co n s erv at i o n eas em en to v er Parcel B was $ 1 ,4 9 1 ,8 9 6 ($ 3,0 9 1 ,8 9 6

! $ 1,6 0 0 , 0 0 0 ). D. Retu rn Ben efi t s Res p o n d en tad v an ces a v ari et y o f arg u m en t s i n co n t en d i n g th atp et i t i o n ers recei v edqu i d p ro qu o s th atn eg at edth ei r ch ari t ab l e co n tri b ut i o n s i n wh o le o r p art . W e h av e al read y

reject edres po n d en t ’ s co nt en t io n s t h atHeri t ag e an d/ o r t h e To wn s h i p s up p l i edp et i t io ners wi t h a qu i dp ro qu o b y al l o wi n g t h em

t o m an i p u lat e t h e
o v eral l co n s erv at io n tran s act io n s t o th ei r b en efi t . See s up ra p p . 2 1 -2 4
. Al t ern at i vel y , res p o n d en t ci t es s p eci fi c co m p o nen t s o f t h e t ran s act i o n s i n co nt en d in g th at p et i t i o n ers recei v edretu rn b en efi t s th at o ffs etth ei r co n t ri b u t i o n s i n p art . Th ree o f
res p o n d en t’ s p o i n ts m eri t b ri ef d i s cu s s i o n . Fi rs t , res p o n d en t co n ten d s th atp et it i on ers en jo y eda qu i dp ro qu o wh en Heri t ag e s o l d t h em

th e b u y -b ackp arcel fo r $ 4 8 5,0 0 0 . Th e u n i fo rm t es t i m o n y

at- 4 8 -

[* 4 8 ] tri al was th atth e p art ies were $ 4 8 5 , 0 0 0 s h o rto f t h e s u m n eed edt o cl o s e t h e d eal ; thatn o o n e n eed edth e b u y -b ackp arcel , wh i ch was co m p let el y co v eredb y
co n serv at i on eas em en t s ; an d t h atp et i ti o ners ag reedt o p ay $ 4 8 5 , 0 0 0 fo r t h i s tract i n o rd er t o g ett o th e fi ni s h l i n e. Ind eci d i n g wh et h er t h i s t ran s act i o n g en erat eda qu i dp ro quo , th e qu es t i o n i s wh et h er t h e b u y -b ackp arcel was wo rt h m o re t h an p et i t i o n ers p ai d fo r i t . W e co ncl u d e t h at i twas n o t . M r. Pat cel l a was th e o nl y ex p ertwh o p erfo rm eda s t an d -al o n e ap p rai s al o f t h e b u y -b ackp arcel . He cred i b l y t es t i fi edth at th i s p arcel h adv ery

l i t t l e v al u e b ecau s e t h e co n s erv at i o n eas em en t s p rev en t edan y fu rt her d ev el o p m en to f i t . He acco rd in g l y v al u edthe b u y -b ack p arcel o n a p eracre b as i s, wh i ch M r. Qu i n n ag reedwas ap p ro p ri at e wh en v al ui n g Bu ck s Co u n t y l an dwi th n o d ev el o p m en tp o t en t i al
. M r. Pat cel l a s el ect edas co m p arab l e p ro p ert i es s ev en l arg e p arcel s i n Bu ck s Co u n ty , ran g i n g fro m

4 4 acres t o 9 5 acres . Aft er ad ju st in g th e s al e p ri ces t o rem o ve t h e v al u e o f an y

i m p ro v em en t s , thu s ren d eri ng th es e tract s co m p arab l e t o th e b u y -b ackp arcel , h e d et erm i n edp er-acre p ri ces ran g i n g fro m $ 1 ,5 8 6 t o $ 1 3 ,0 2 1
. No t in g th atth e av erag e o f t h e s al e p ri ces was $ 5 , 5 57 an acre, h e co n cl u d edth at th e b u y -b ackp arcel fu l l y s ub jectt o eas em en twas wo rth ro ug h l y $ 22 2 ,0 0 0 ($ 6 ,0 0 0 × 3 7 acres ). Ev ent ak i n g th e h i g h es to f th e s ev en co m p arab le s al e p ri ces , o r- 4 9 -

[* 4 9 ] $ 1 3 ,0 2 1 p er acre, wo ul dy i el da t o t al v al u e o f $ 48 1 ,7 7 7, wh i ch i s l es s th an th e $ 4 85 ,0 0 0 t h at p et i ti o n ers p ai d
. W e co n cl u d e t h atp et i t i o n ers d eri vedn o qu i d p ro quo fro m

th is tran s act i o n b ecau se t h ey l i k el y p ai dm ore fo r t h e b u y -b ack p arcel th an i twas wo rt h
. 5 Seco n d , res p o nd en tco n t en d s th atp et i t i o n ers recei v eda return b en efi twh en Heri t ag e p ai d $ 7 ,9 5 0 o f real es t at e t ran sfer t ax es as s o ci at edwi t h i t s s al e o f t h e b u y -b ackp arcel t o p et it i o n ers . Pet i t i o n ers co n t en dth at , u nd er l o cal l aw, Heri t ag e
as th e s el l er was res p o n si b l e fo r t h e t ran s fer t ax es , n o t wi t h s t an d i ng i t s t ax -ex em p t
s t atu s. W e ag ree wi t h p et i t i o n ers an dco ncl u d e t hatth ey recei v ed n o return b en efi t
o n th i s acco u n t . See 7 2 Pa. St at . an dCo n s. St at . An n . s ec. 8 10 2 -C (W es t2 0 1 5 ) (“ Ev ery p ers o n wh o m ak es , ex ecu t es , d el i vers , accep t s o r p res en ts fo r reco rd i n g
an y d o cu m en t o r i n wh o s e b eh al f an y d o cu m en t i s m ad e, ex ecu ted , d el i v ered , accep t edo r p res en t ed , s h al l b e s ub jectt o p ay

fo r an di n res p ectt o t h e t ran s act i o n

5 Res p o n d en ts u g g es t s th atth i s tran sact i o n i s s u sp ectb ecau s e p et it i o n ers th ereb y rep u rch as edfro m Heri tag e s ub st an t i al acreag e th at t h ey h add o nat edt o Heri t ag e o n l y

s i x m o n th s p rev i o u s l y . Bu tth e p art i es co u l dh av e acco m p li sh edth e s am e en d res u l ti f p et i t i on ers h adp art it i on edParcel A, d o n at edt o Heri t ag e t h e p o rt i on o f Parcel A req u i redfo r t h e co n s erv at io n s ub d i vi s i o n , an dp l acedan eas em en to v er t h e b al an ce o f Parcel A. Th e t o wn s h i p ’ s rep res en t at i v e cred i b l y t es t i
fi edthatth e p art i es reject edth is ro u t e i n fav o r o f t h e ro u t e act u al l y i m p l em en t ed b ecau s e g et t in g ap p ro v al t o p art i t i o n Parcel A wo ul dh av e b een t i m e co n s u m i n g an d ex p en s i ve i f p et i t i o ners i n st eado f Heri t ag e h adap p l i edt o d o t h i s .- 5 0 -

[* 5 0 ] o r an y

p artth ereo f * * * a St at e t ax atth e rat e o f o n e p er cen to f t h e v al u e o f th e real es t at e[.] ”). Fi n al l y , res p o n d en tco n t en d s t h atp et i t i o n ers recei v eda t an g ib l e b en efi tb y
o b t ai n i n g , fo r n o co n s i d erat i on , a reco rd edeas em en taffo rd i n g th em s eco n d ary

acces s t o thei r h o m es teado v er t h e n ew Creek s Ben dp ri v at e ro ad . Pet i t i o n ers u rg e th atth is eas em en tco n ferred n o m at eri al b en efi to n th em . Becau s e t h e Ro rers h ad al l o wed th em

t o u s e th e p ri o r g rav el ro adwi t h o u t p aym en t , th ey co n t en dth atth e
eas em en tm erel y

p erp etuat eda b en efi t they al read y en jo y ed
. M em b ers o f t h e Creek s Ben dh o m eo wn ers as s o ci at io n were req ui redt o p ay fees t o m ai n t ai n t h e p ri v at e ro ady ear ro u n d , an d p et i t i o n ers were ex em p tfro m th es e fees . Th i s ro adwas ex t en d edt o p et i t i o n ers ’ s o u th ern b o un d ary l i n e fo r t hei r
co n ven i en ce. Al t h ou g h the Ro rers h adal l o wedp et i t i o ners t o u s e t h e o ldg rav el
ro adfo r free, t h at i n fo rm al eas em en twas u n reco rd edan dg av e p et i ti o n ers n o ri gh t s v i s -a-v i s th e n ew o wn ers . Becau s e p et i ti o n ers recei v edo v er t h e n ew p ri v at e
ro ada reco rd edeas em en t t h ataro s e fro m th e fi n al co n s erv at i o n s ub d i v i s io n p l an , we co n cl ud e t hati tco n st i tu t eda retu rn b en efi tth atm u s tb e v al u ed
. 6

6 It i s n oten t i rel y

cl ear wh o , as b et ween Heri t ag e an dM r. Zav et a, s h o u l db e reg ard edas h av i n g p ro v id edth i s b en efi tt o p et i t io n ers . Si n ce t h i s b en efi taro s e as a co m p o n en to f th e o veral l co n s erv at i o n t ran s act i on , we th i n k i ts h o ul do perat e t o redu ce p et i t i o n ers ’ ch ari t ab l e co n t ri b u ti o n. Al tern at i v el y , i f t h i s b en efi twere (co n ti n u ed ...)- 5 1 -

[* 5 1 ] M r. Pat cel l a d i d n o td i rect l y v al ue t hi s eas em en t . In st ead , h e d et erm i n edth e
co s to f i m p ro v i n g an d up g rad in g th e m ai n dri v eway l ead i n g t o p et i t i o ners ’ h o m es t eadfro m

the n ort h. He d id t h i s b y es t i m at i n g t h e co s to f b u il d in g g u ard rai l s an d i n s t al l i n g l ig h t i n g t o m ak e t h e d ri v eway l es s h azard o u s i f an acci d en t were t o o ccu r. He es t i m at edth o s e co st s t o b e n o m o re th an$ 1 2 ,0 0 0. M r. Acqu aro -M i g no g n a u s eda co s t -b as ed m et h odt o v al ue t h e eas em en t . He as cert ai n edth e co s t o f b u i l di n g th e n ew Creek s Ben dacces s ro ad($ 3 18 ,0 9 0 )
an d d i vi d edthatco s t b y

th e n u m b er o f res i d en ces th atwere en ti t ledt o u s e th at
ro ad . El ev en res i den ces were en t i t l edt o u se t h e ro ad(t h e 1 0 h o m eo wn ers i n th e Creek s Ben d s ub d i v i s i o n , p l us p et i t i o n ers ). He acco rd i n gl y d et erm i n edth e v al u e
o f p et i ti o n ers ’ eas em en tt o b e ro u g h l y $ 2 9 ,0 0 0 ($ 3 1 8,0 9 0 ÷ 1 1 ). M r. Acqu aro -M i g no n a’ s ap p ro ach i s n o tp erfect , b ecau s e p et i t i o n ers wo ul d
s u rel y u s e th e acces s ro adl es s freq u en tl y th an th e Creek s Ben dh o m eo wn ers . Bu t h i s ap p ro ach i s s uperi o r t o M r. Pat cel l a’ s : Im p ro v em en t s d es ig n ed t o reduce t h e ri sko f acci d en to n th e m ai n dri v eway d o n o tt el l u s wh atan eas em en to v er t h e Creek s Ben d acces s ro adwas wo rt h . W e fi n d t h atM r. Acqu aro -M i g n o n a’ s ap 6 (...co n t in u ed ) v i ewed as h av i n g b een s upp l i edb y M r. Zav et a u n i l at eral ly , i two u l d co n s t itu t e an acces s i o n t o weal t h i ncl u d i bl e i n p et i ti o ners ’ g ro s s i n co m e. See Co m m i s s i o n er v . Gl en s h aw Gl as s Co ., 3 4 8 U.S. 4 2 6 , 4 3 1 (1 95 5 ); Ru t k i n v . Un i t edSt at es , 3 4 3 U.S. 1 3 0 , 1 3 7 (1 9 5 2).- 5 2 -

[* 5 2 ] p ro ach acco m

p l i s h es ro u g h ju s t ice an dacco rd i n gl y co n cl u de t hat p et i t i o n ers ’ ch ari t ab l e co n t ri b u t i o n d edu ct i o n m u s tb e redu cedb y

$ 2 9 ,0 0 0 t o
acco u n t fo r t h i s retu rn b en efi t. To s u m m ari ze: Th e fai r m ark etv al u e o f p et i ti o n ers ’ d on at i o n t o Heri t ag e o f a fee s i m p l e i n t eres t i n Parcel A i s $ 2,1 9 1 ,8 9 6. Th e fai r m ark et v al u e o f p et i t i o n ers ’ d on at i o n t o th e To wn s hi p o f a qu al i fi edco n s erv at i on eas em en t o v er Parcel B i s $ 1 ,4 9 1,8 9 6 . Redu ci ng th e s u m o f t h es e am o u n ts b y

$ 2 9,0 0 0 p ro du ces a n et ch ari t ab le co n t ri b u t i on o f $ 3 , 6 5 4 ,7 9 2 at t ri b u t ab l e t o t hes e t wo g i ft s . II. Pen al t i es Th e Co d e i m

p os es a 2 0 % p en al t y

o n an y u nd erp aym en t o f t ax req u i redt o b e
s h o wno n a ret u rn th at i s at t ri b u t ab l e t o “ [n ] eg l ig en ce o r d i s reg ardo f ru l es o r reg u l at i o n s ” o r t o a “ s ub s tan t i al u n d ers t at em en to f i n co m e t ax .” Sec. 6 6 6 2 (a) an d (b )(1 ) an d (2 ). Anu nd ers t at em en ti s “ sub st an t i al ” i f i t ex ceed s th e g reat er o f $ 5 ,0 0 0 o r 1 0 % o f t he t ax req u i redt o b e s h o wno n th e ret u rn . Sec. 6 66 2 (d )(1 )(A). Th e Co d e al t ern at i v el y

i m p o s es a 2 0 % p en al t y

o n an y “ s ub s t an ti al v al u at i o n
m i s s t at em en t.” Sec. 6 6 6 2 (a) an d(b )(3 ). A v al u at i o n m i ss t at em en ti s “ s ubs t an t i al ” i f “ th e v al u e o f an y p ro p ert y * * * cl ai m edo n an y

retu rn * * * i s 1 5 0 p ercen to r
m o re o f t h e am o u n td et erm i n edt o b e t h e co rrect am o u nt .” Sec. 6 6 62 (e)(1 )(A). Th i s p en al t y

i s i ncreas edt o 4 0 % i n th e cas e o f “ g ro s s v al u at i o n m i ss t at em en t s .”- 5 3 -

[* 5 3 ] Sec. 6 6 6 2 (h ). A m i s st at em en ti s “ g ro s s ” i f t h e v al u e o f p ro p ert y cl ai m edo n a ret u rnex ceed s 2 0 0 % o f t h e co rrect am ou n t. Sec. 6 6 6 2 (h )(2 )(A)(i ). Th e Co m m is s i o n er b ears th e b u rd en o f p ro du ct i o n wi t h res p ectt o th e l i ab i l i ty o f an i nd i v i du al fo r an y

p en al t y . See s ec. 7 4 9 1(c); Hi g b ee v . Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 0 0 1 ). If t h e Ru l e 1 5 5 co m p ut at i o n s s ho w a s ub s t an t ial u n d ers t at em en to f i n co m e t ax fo r an y o f t h e fi v e y ears ati s s u e, res p o nd en t wi l l h av e carri edh i s b u rd en o f p ro du ct i o n u n d er s ect i o n 6 6 62 (b )(2 ) fo r t h aty ear. See Co o p er
v . Co m m i s s i o n er, 1 4 3 T.C. 1 94 (2 0 1 4 ). W i t h res p ect t o a “ sub s t an t i al v al u at i o n m i s s t at em en t,” res po n d en th as carri edh i s b u rd en o f p ro du ct i o n as t o p et i t i o ners ’ co n t ri b u t io n o f th e co n s erv at i o n
eas em en t , b ecau s e t h e v al u e o f t h at p ro p ert y cl ai m ed o n t h ei r retu rn ($ 2 .3 5 m i l
l i on ) ex ceed s 1 5 0 % o f th e v al u e t h atwe h av e d et erm i n edt o b e co rrect ($ 1 ,4 91 ,8 9 6 ). Res p o n d en th as n o tcarri edh i s b u rd en o f p ro du ct i o n as t o p et i t i o n ers ’ d on at i o n o f Parcel A, b ecau s e t h e v al ue o f t hatp ro p ert y cl ai m edo n th ei r retu rn ($ 2 .3 5 m i l l i o n ) d o es n o tex ceed 1 5 0 % o f t h e v al u e t h atwe h av e d et erm i n edt o b e co rrect($ 2 , 1 9 1 ,8 9 6 ). W i th res p ectt o a “ g ro s s v al u at i o n m i s s t at em en t ,” res p on d en t h as n o tcarri edh i s b u rd en o f p ro du ct i o n as t o ei t h er p ro p ert y b ecau s e i n n ei
th er cas e d idth e cl ai m edv al ue ex ceed 2 0 0% o f t h e v al u e t h atwe h av e d et erm i n ed- 5 4 -

[* 5 4 ] t o b e co rrect . (Th e $ 2 9 ,0 0 0 b en efi t p et i ti o n ers recei v edfro m t h e eas em en t t o u s e t h e Creek s Ben dp ri v at e ro add o es n o t affect th es e d et erm i n at i o n s .) A t ax p ay er m ay

d efen dag ai n s tth e n eg l i g en ce an ds ub s t an t i al u nd ers t at em en tp en al t i es b y s ho wi n g th ath e h ad“ reas o n ab l e cau s e” an d“ act edi n g o o d fai th
. ” Sec. 6 6 6 4 (c)(1 ). Th e t ax p ay er b ears th e b u rd eno f p ro v in g reas o n ab l e
cau s e an d g o o dfai t h . Hi g b ee, 1 1 6 T.C. at4 4 6 -4 4 7 . Reas o nab l e cau s e can b e
s h o wnb y g o o d -fai t h rel i an ce o n th e ad v i ce o f a qu al i fi edt ax p ro fes s io n al . Sec. 1 .6 66 4 -4 (b )(1 ), (c), In co m e Tax Reg s . To ju s t i fy s u ch rel i an ce, “ [t ] h e ad v i ce m u s t b e b as edupo n al l p ert in en tfact s an d ci rcu m s t an ces .” Id . p ara. (c)(1 )(i ). Th e rel i an ce d efen se i s n ot av ai lab l e “ i f t h e t ax p ay er fai l s t o d i scl o s e a fact th at* * * [h e] kn o ws , o r reas o nab l y s h ou l dkn o w, t o b e rel ev an tt o th e p ro per t ax treat m en t
o f an i t em .” Id
. A t ax p ay er m

u s t m eet ad d i t io n al req u i rem en t s i n o rd er t o rai s e a “ g o o d fai th ” d efen s e t o th e s ub s tan t i al o v erv al u at i o n p en al t y . “ [W ] i t h res p ectt o ch ari
t ab l e d edu ct i o n p ro p ert y ,” t h is d efen s e m ay b e rai s edo n l y

i f t h e v al ue cl ai m edo n th e ret urn “ was bas edo n a qu al i fi edap p rai s al m ad e b y a qu al i fi edap p rai s er” an d- 5 5 -

[* 5 5 ] i f, “ i n ad d i t io n t o o b tai ni n g s uch ap p rai s al , th e t ax p ay er m ad e a g o o d -fai t h i n v es t i g at i o n o f t h e v al u e o f t h e co n tri b u t edp ro p ert y .” Sec. 6 6 6 4(c)(3 ). 7 W e co ncl u d e t h at p et i ti o n ers are n o tl i ab l e fo r an y p en al t y . Reg ard i n g th e
n eg li g en ce an ds ub s t an t i al u n ders t at em en t p en al t i es , we fi n d t h atthey rel i edi n g o o dfai th o n the ap p rai s al s p erfo rm edb y M r. Qu i nn an do n th e ad v i ce o f t h e t ax retu rn p rep arer wh o h adco m p et en t l y rep res en t edth em

fo r m an y y ears . M r. Qu i n n h ad s ig n i fi can t ex p eri en ce v al u i n g real es t at e i n Bu ck s Co un t y . Th e co m p arab l e p ro p ert i es h e s el ect edwere al l l o cat edi n Bu ck s Co u n t y an dfu rn i s h edreas o n ab l e
co m p ari s o n s t o Parcel A an dParcel B. Pet i t i o n ers ’ retu rn p rep arer was l i kewi s e kn o wl ed g eab l e ab o u tp ro pert y d o n at i o n s , i n cl u d i ng co n s erv at i o n eas em en t s . Pet i t io n ers m ad e fu l l d i s cl o s u re o f al l rel ev an t fact s t o t h em b ot h
. Reg ard i n g th e p en al t y

fo r s ub s tan t i al v al u at io n m i s st at em en t, we fi n dth at p et i t i o n ers s at i s fi edth e ad d i t io n al t es ts th atare p rereq u i s it e t o rai s i n g the “ g o o d fai th ” d efen s e. Res p on d en td o es n o td i s pu t e t h atM r. Qu i nn was a “ qual i fi ed ap p rai s er” o r th atth e ap p rai s al h e s up p l i edt o p et i t i on ers i n s up p o rto f t he $ 2 .3 5
m i l l io n eas em en tv al ue was a “ qu al i fi ed ap prai s al
. ” See s ec. 6 6 6 4(c)(3 )(A).

7 Befo re M arch 3 0 , 2 0 1 0 , s ect i o n 6 6 6 4 (c)(3 ) ex i s t edas s ect i o n 6 6 6 4 (c)(2 ). Heal th Care an dEdu cat i o n Reco n ci l i at i o n Acto f 2 0 1 0 , Pub . L. No . 1 1 1 -1 5 2 , s ec. 1 4 .0 9 (c)(1 )(A)-(C), 1 2 4 St at . at1 0 6 9- 5 6 -

[* 5 6 ] W e al s o fi n d t h atp et it io n ers m ad e “ a g o odfai t h i n v es t i g at i o n o f t h e v al u e
o f t h e co n t ri b u t edp ro p ert y .” Pet i t io n ers were i n v o l v edfro m th e o u ts et i n t h e n eg o t i at i o n s t o fo rm

u lat e a co n serv at i o n p l anth atwo u l dacco m p l i sh al l o f t h e p art i es ’ g o al s . Th ey

wo rk edwi t h Heri t ag e an dth e To wn s h i p an drel iedo n th ei r ex p ert s t o h el p d et erm i n e th e ap p ro p ri at e m et h o dfo r m ak i n g t hei r d o n at i o n s . Th ey h i redM r. Gl i t zer, a wel l -res pect edci v i l en g i n eer, t o s k et ch a co n s erv at i o n s ub
d i v i s i on p l anth at t h e To wn s h i p u l t i m at el y ap p ro v ed
. Pet i t i o ners were aware o f t h e h ig h d em an dfo r l an di n th e To wn s h ip . Th ey kn ew t h e p ri ces th atd ev el o p ers h ad o ffered fo r t h e Ro rer Tract , wh i ch wo u l dh av e
co m m an d eda p ri ce o f $ 1 3.4 m i l l i o n u n d er t h ei r o wn o p t i o n ag reem en t . Pet i t i o n ers u n d ers t o o d t h at t h ei r p ro pert y was t o b e v al u edacco rd i n g t o i t s h i g h es tan d b es tu s e, wh ich was res i d en t ial d ev el o p m en t, an d t h ey b el i ev edth at M r. Qu i n n h ad em p l o y ed an ap p ro p ri at e v al u at io n m et h o do l o g y . Co n s i d eri n g p et i t io n ers ’ t es t i m o ny an d t h e s urro u n d i n g fact s an dci rcu m s t an ces , we co n cl ud e t h atth ey
m ad e “ a g o o dfai t h i n v es t i g at i on o f t h e v al u e o f th e co nt ri b u tedp ro p erty .” See
s ec. 6 6 64 (c)(3 )(B). To refl ectthe fo reg o i n g , Deci s i o n s wi l l b e en t ered
u n der Ru l e 1 5 5
.