TAX COURT OPINION

Case: Brank Cove Capital, LLC, Gene Larson, Tax Matters Partner
Docket Number: 12074-20
Judge: Weiler
Opinion Type: bench
Filed: 06/17/2025
Pages: 17

BRANK COVE CAPITAL, LLC, GENE LARSON, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket No. 12074-20 ORDER Trial of this case was held at a special session of the Court commencing on May 5, 2025, in Atlanta, Georgia. On Thursday, May 8, 2025, the Court rendered a bench opinion; however, petitioner has also argued the imposition of section 6662 penalties in this case violates his constitutional right to a jury under the Seventh and Eighth Amendments to the Constitution. Petitioner also cites to a case pending before the United States Court of Appeals for the Eleventh Circuit dealing with this issue. As previously noted, the Court also has a case pending in which the same or similar issue has been raised. At the suggestion of petitioner, we are inclined to await entering a decision in this case and allow the parties to submit post-trial briefing on this legal issue-should they choose to do so. Accordingly, we will not enter a Decision at this time. Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall serve with this Order a copy of the pages of the transcript of the proceedings before Judge Christian N. Weiler at Atlanta, Georgia, on May 8, 2025, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. It is further ORDERED that on or before August 18, 2025, the parties shall file a joint status report (or separate if preferred) indicating whether they believe further proceedings are needed in this case. (Signed) Christian N. Weiler Judge Served 06/17/25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 3 Bench Opinion by Judge Christian N. Weiler May 8, 2025 Brank Cove Capital, LLC, Gene Larson, Tax Matters Partner v. Commissioner of Internal Revenue Docket No. 12074-20 THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the 19 following facts: 20 21 22 23 24 25 FINDINGS OF FACT Some of the facts are stipulated and are so found. The four Stipulations of Facts and the attached Exhibits are incorporated herein by this reference. This is a syndicated conservation easement case involving Brank Cove Capital, which is classified as a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 partnership subject to the Tax Equity and Fiscal 4 Responsibility Act (TEFRA) proceedings during the year at issue. Brank Cove Capital is a limited liability company created under the laws of the State of Florida on October 6, 2016. Petitioner Gene Larson was the Tax Matters Partner (TMP) and manager for Brank Cove Capital during the taxable year ending December 31, 2016. Prior to December 26, 2016, Brank Cove Capital was owned by its sole member, Bobby L. Ramsey, Member, and had as its manager, Bobby C. Ramsey (a/k/a Chris Ramsey). The property in question (Subject Property) is 157.11 acres of land and existing residential and accessory structures in unincorporated Buncombe County, North Carolina, bearing a municipal address of 241 Brank Cove. The Subject Property is located outside the city limits of Weaverville, North Carolina, near Interstate 26 and is approximately 15 minutes from downtown Asheville, North Carolina. The total assessed value of the Subject Property was $951,600. The total value consisted of $754,200 for land, $193,000 for improvements, and $4,400 for other improvements. The Subject Property is in the foothills of the Appalachian Mountains and includes steeply graded land. In 2016 Brank Cove Capital retained Hotel & Leisure Advisors to perform a market study to develop the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Subject Property. Brank Cove Capital also retained Clay 5 Weibel president of Weibel & Associates, Inc. to perform an appraisal of the Subject Property. It was the opinion of Clay Weibel, based in part on the study performed by Hotel & Leisure Advisors and his own market analysis, that the Subject Property's highest and best use would be development as a vacation resort consisting of 50 short- term rental cabins. A conceptual plan was drawn by Mercer Design Group, PC reflecting some 50 lots with rental cabins and ranging in size between 2 to 3 acres. The conceptual plan also included access roads to the cabins and common amenities. In 2016 the Subject Property was Brank Cove Capital's only asset. Brank Cove Capital timely filed, with extension, a Form 1065, U.S. Return of Partnership Income, for the short taxable year December 29, 2016, through December 31, 2016 ("2016 Form 1065"). The Brank Cove Capital Schedule M-2, Analysis of Partners' Capital Accounts, attached to its 2016 Form 1065, showed a beginning year capital account balance of $0 and contributed capital of $1,800,636. The Form 1065 also reflects how on December 28, 2016, BC Partners -- the entity used in the sale of syndicated ownership -- acquired a 97% interest in Brank Cove Capital from Bobby L. Ramsey and Gene Larson for $1,800,000 cash. 1 2 3 4 5 6 7 8 9 10 11 12 Brank Cove Capital attached Form 8283, Noncash 6 Charitable Contribution, to its 2016 Form 1065, which was signed by appraiser Clay Weibel, and with a donee acknowledgement from Robert D. Keller, Chief Executive Officer of Atlantic Coast Conservancy, Inc. ("ACC") dated July 24, 2017. On its attachment to Form 8283, Brank Cove Capital reported a before easement value of $12,270,000 and an after easement value of $550,000 for the Subject Property. Based on these two values, on its 2016 Form 1065, Brank Cove Capital claimed a noncash charitable contribution in the amount of $11,720,000 for the donation of a deed of conservation easement related to the Subject 13 Property. 14 15 16 17 18 19 20 21 22 23 24 25 ACC prepared a baseline report dated December 29, 2016, defining a plan for conservation of the Subject Property. ACC well described the Subject Property as consisting of land with diverse elevations, ranging from approximately 2,200 feet in agricultural lands adjacent to Brank Cove Road, and rising steeply from the center to elevations of approximately 3,200 feet to the north and south. The Subject Property is essentially bowl shaped. The IRS audited Brank Cove Capital's Form 1065 and the charitable deduction was denied in its entirety in an Final Partnership Administrative Adjustment dated July 8, 2020. Gene Larson, as the TMP of Brank Cove Capital, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 timely filed a Petition in this case, and he resided in 7 the State of Oklahoma at the time of the filing. At trial, petitioner called three witnesses. First Gene Larson testified. Next petitioner called Greg Womack, a financial advisor who assisted in the private placement memorandum and recruitment of investors for syndication of BC Partners' 97% interest in Brank Cove Capital. Robert D. Keller also testified, and was offered as an expert in in the field of environmental and conservation biology by petitioner. He was accepted by the Court as an expert witness. Respondent called three fact witnesses, including: Kevin Tipton from the Buncombe County Fire Department; Nathan Pennington, the planning director for Buncombe County; and Eric Cregger, an interim assessor for Buncombe County. Respondent also called Leslie Sellers, an MAI appraiser, as an expert witness. He was accepted by the Court, without objection, as an expert witness in the field of real estate valuation, including an expertise in valuing conservation easements. OPINION In his pretrial memorandum, respondent raised three issues for our determination. First, the question of the fair market value of the Subject Property at the time of the granting of a conservation easement, which is 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 necessary to determine the value of the charitable 8 contribution at issue in this case. Second, whether the 40-percent gross valuation misstatement penalty of section 6662(h) applies to the underpayment attributable to the misstatement of value of the conservation easement by Brank Cove Capital. Third, whether the 20-percent accuracy-related penalties under section 6662(c), (d), and (e) apply to the underpayment attributable to the conservation easement deduction by Brank Cove Capital. I. Legal Background Ordinarily the taxpayer bears the burden of proving that the Commissioner's determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). That burden includes proving entitlement to any deductions claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioner therefore generally bears the burden of proving Brank Cove Capital's entitlement to the charitable deduction for qualified conservation contributions under the applicable provisions of section 170, as well as the burden of proving the value of the conservation easement. Section 170(a)(1) allows a deduction for any charitable contribution made within the taxable year. The Code generally restricts a taxpayer's charitable 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contribution deduction for donations of "an interest in 9 property which consists of less than the taxpayer's entire interest in such property." I.R.C. § 170(f)(3)(A). That is, someone who owns property and donates to charity only a partial interest in that property may not claim a charitable contribution deduction for that donation. However, section 170(f)(3)(B)(iii) provides an exception- and allows a deduction-for a "qualified conservation contribution." Section 170(h)(1) defines a "qualified conservation contribution" to be (1) the contribution of a "qualified real property interest" (2) to a "qualified organization" (3) "exclusively for conservation purposes." During trial, the parties agreed that each element under Section 170 has been met in this case. Generally speaking, the amount of a charitable contribution deduction under section 170(a) is defined in the applicable Treasury Regulations as the "fair market value" of the property at the time of the donation. Treasury Regulation § 1.170A-1(c)(2) defines fair market value to be "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." With respect to valuing a donation of a partial interest in property, Treasury Regulation § 1.170A-7(c) provides that 1 2 3 4 5 6 7 8 9 "[e]xcept as provided in § 1.170A-14, the amount of the 10 deduction under section 170 . . . is the fair market value of the partial interest at the time of the contribution." The fair market value of property on a given date is a question of fact to be resolved on the basis of the entire record. McGuire v. Commissioner, 44 T.C. 801, 806-07 (1965); Kaplan v. Commissioner, 43 T.C. 663, 665 (1965). In this case we do not have "a substantial record of sales of easements comparable to the donated easement," 10 and we will therefore base our valuation on the before and 11 after method. 12 13 14 15 16 17 18 19 In using the before and after method to determine the fair market value of property, we first must determine the property's highest and best use. See Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg. § 1.170A-14(h)(3)(i) and (ii). We consider the highest and most profitable use for which it is adaptable and needed or likely to be needed in the reasonably near future. Olson v. United States, 292 U.S. 20 246, 255 (1934). 21 II. Analysis 22 23 24 25 Petitioner presented little evidence supporting its position that the highest and most profitable use for the Subject Property was in fact redevelopment as a vacation resort consisting of 50 short-term rental cabins 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and amenities. In fact, we heard substantial rebuttal 11 evidence presented by respondent, reflecting that development would be difficult and potentially legally and physically impossible, considering the local and State ordinances and requirements for residential housing, road access and construction of necessary utilities for the steep topography of the Subject Property. Respondent's expert witness, Leslie Sellers, testified at trial and opined that the highest and most profitable use for the Subject Property was rural, low- density single family residential home sites, recreation, and timber. It is significant to note that petitioner- despite being given the opportunity-did not present any expert testimony supporting a conclusion that a vacation resort with 50 short-term rental cabins was in fact the highest and best use for the Subject Property. Nor did petitioner present any expert opinion testimony supporting before and after easement values for the Subject Property as originally claimed. After considering the evidence presented at trial, we decline to accept petitioner's proposed highest and best use for the Subject Property as a vacation resort consisting of 50 rental cabins. In sum, we find Leslie Sellers' determination of the Subject Property's highest and best use to be compelling, and therefore we adopt his conclusion. Leslie Sellers' before value is based on sales 12 data between 2014 and 2015 from five properties within Buncombe County. These comparable sales range in size between 50.97 acres and 355.27 acres and have similar topography. Other than cross examination, petitioner has presented no evidence rebutting the comparable sales data used by Leslie Sellers. Accordingly, we adopt his opinion of value, and conclude the rounded before value of the Subject Property is $1,300,000, consisting of $7,000 an acre for the land and a $200,000 value for the existing residences and buildings. This Court has repeatedly affirmed that actual arm's-length sales occurring sufficiently close to the valuation date are the best evidence of value, and typically dispositive, over other valuation methods. See ES NPA Holding, LLC v. Commissioner, T.C. Memo. 2023-55, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 at *14. 18 19 20 21 22 23 24 25 On December 29, 2016, BC Partners purchased a 97-percent interest in Brank Cove Capital from Bobby L. Ramsey and Gene Larson for $1,800,000. Historical transactions of the Subject Property can be indicative of its true value, particularly when it involves the contemporaneous arms-length purchase price of a 97-percent interest in a special purpose entity holding the Subject Property. After considering this additional evidence we find Leslie Sellers' before value to be reasonable and 13 well supported. Petitioner has not contested respondent's proposed finding of fact that the fair market value of the land after easement is $393,000, or $2,500 per acre, with a total value of $593,000 after adding the value of the structures on the Subject Property of $200,000. Similarly, petitioner originally reported an after easement value of $550,000. These two numbers are within a reasonable range of error and the difference between the two are negligible. Therefore, we will accept petitioner's original after easement value of $550,000 for the Subject 1 2 3 4 5 6 7 8 9 10 11 12 13 Property. 14 15 16 17 18 19 20 21 22 23 24 25 Petitioner primary argument at trial was that the market value reached by respondent's expert, and the before and after values being sought by respondent, fail to consider the conservation value attributable to the Subject Property. In other words, petitioner contends that we must consider Congress's intent to conserve land free from development, and the property's future use as conserved land, in determining its fair market value. We do not dispute the Congressional intent favoring conservation of land. Petitioner, however, fails to cite to any legal support for his argument that respondent's proposed before and after values are legally erroneous or contrary to Congressional intent. In sum we find no 14 support for petitioner's argument. Petitioner also contends this Court should not value the Subject Property based on the valuation methods presented in this case by respondent through Leslie Sellers. Petitioner contends we should also consider the valuation methods presented by respondent in Estate of Cecil v. Commissioner, T.C. Memo. 2023-24. While it is true the income approach to value was utilized in Estate of Cecil, we find the case to be materially distinguishable in that it involved the donations of stock in a closely held entity that held multiple assets, including seventeen lines of business and over a thousand employees. T.C. Memo. 2023-24, at *2. After considering the evidence presented at trial, we hold Brank Cove Capital is entitled to a charitable deduction of $750,000 for the qualified conservation contribution it made to ACC for the tax year at issue, under the applicable provisions of section 170. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 III. Penalties 21 22 23 24 25 Section 6662(a) and (b)(1), (2), and (3) imposes an accuracy-related penalty equal to 20% of the portion of an underpayment that is attributable to "[n]egligence or disregard of rules or regulations," "[a]ny substantial understatement of income tax," or "[a]ny substantial valuation misstatement," respectively. There is a 15 "substantial valuation misstatement" when the value of property claimed on the return is 150% or more of the correct amount. I.R.C. § 6662(e)(1)(A). The penalty amount increases from 20-percent to 40-percent in the case of a "gross valuation misstatement," which occurs when the value of the property claimed on the return exceeds 200% of the correct amount. I.R.C. § 6662(h)(1) and (2)(A)(i). The taxpayer may not rely on a reasonable cause, good-faith defense against the imposition of the section 6662(h) penalty with respect to charitable contribution properties. See I.R.C. § 6664(c)(3); Chandler v. Commissioner, 142 T.C. 279, 293 (2014). However, no penalty shall be imposed unless the portion of the underpayment attributable to the valuation misstatement exceeds $5,000. I.R.C. § 6662(e)(2). Although an underpayment may trigger a penalty for more than one reason, the Commissioner may not impose more than one penalty on a single portion of the underpayment. Treas. Reg. § 1.6662-2(c). Respondent filed a Motion for Partial Summary Judgment, asserting that Respondent's penalties at issue in this case were timely approved in writing by the assigned revenue agent's manager. Petitioner objected on October 7, 2024, and by order dated October 10, 2024, we 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 granted Respondent's Motion. Therefore, section 6751(b) 16 penalty approval for the penalties at issue has been established in this case. Finding the value of the Brank Cove Capital's conservation easement donation to be $750,000, its original claimed valuation of $11,700,000 is easily more than 200% of the amount determined to be the correct amount of such valuation. This triggers application of the 40-percent gross valuation misstatement penalty under section 6662(e)(1)(A) and (h). Consequently, we will sustain the 40-percent gross valuation misstatement penalty determined by respondent and we need not address any potential reasonable cause defense, since none apply to this penalty. See I.R.C. § 6664(c)(3); Chandler, 142 T.C. at 293. Since we have sustained respondent's imposition of the 40-percent gross valuation misstatement penalty against Brank Cove Capital, it is not necessary to address whether the alternative penalties should be 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 imposed. 20 21 22 23 24 25 Finally, petitioner has argued the imposition of section 6662 penalties in this case violates his constitutional right to a jury under the Seventh and Eighth Amendments to the Constitution. Petitioner also cites to a case pending before the United States Court of Appeals for the Eleventh Circuit dealing with this issue. As previously noted the Court also has a case pending in 17 which the same or similar issue has been raised. At the suggestion of petitioner we are inclined to await entering a decision in this case and allow the parties to submit post-trial briefing on this legal issue-should they choose to do so. Accordingly we will not enter a decision at this time and will issue an Order calling for a Joint Status Report in two months. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:05 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 18 CASE NAME: Brank Cove Capital, LLC, Gene Larson, Tax Matters Partner v. Commissioner DOCKET NO.: 12074-20 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 18 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Kelley Roberson on May 8, 2025 before the United States Tax Court at its session in Atlanta, GA, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. _______________________________________________ Susan Patterson, CDLT-174 5/17/25 Transcriber Date _______________________________________________ Traci Fine, CDLT-169 Proofreader 5/22/25 Date 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25