TAX COURT OPINION

Case: Mize Farm, LLC, Focus on Design, Inc., Tax Matters Partner
Docket Number: 8979-23
Judge: Buch
Opinion Type: bench
Filed: 12/01/2025
Pages: 37

United States Tax Court Washington, DC 20217 Docket No. 8979-23. MIZE FARM, LLC, FOCUS ON DESIGN, INC., TAX MATTERS PARTNER, COMMISSIONER OF INTERNAL REVENUE, Petitioner v. Respondent ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Atlanta, Georgia, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Ronald L. Buch Judge Served 12/01/25 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 3 Bench Opinion by Judge Ronald L. Buch November 20, 2025 Mize Farm, LLC, Focus on Design, Inc., Tax Matters Partner v. Commissioner of Internal Revenue Docket No. 8979-23 THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the oral findings of fact and opinion. 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 are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code and Treasury Regulations as in effect at all relevant times. INTRODUCTION This case involves the Commissioner's disallowance of a deduction for the donation of a conservation easement. After stipulations by the parties, the only issues for the Court to decide are the value of what was donated and the potential application of penalties. Mize Farm, LLC, which I will refer to as simply Mize Farm, donated a conservation easement on a roughly 30-acre parcel of undeveloped property in Demorest, 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 4 Georgia, which is in Habersham County. Comparable properties in Demorest and the surrounding area that could have been put to similar uses sold for less than $10,000 per acre, which would correspond to a $303,370 value for the parcel. Yet Mize Farm reported that the value of the easement alone was $10,500,000. The record provides no credible support for such a value. On the basis of the expert's testimony and the values of nearby comparable properties, we conclude that the value of the land before the conservation easement was no more than $425,000. Although this amount is higher than the $10,000 per acre amount that is supported by comparable sales, $425,000 was the amount determined by the Commissioner's expert, which we will treat as a concession by the Commissioner. The value of the land as encumbered by the easement was $46,000, an amount that finds support in the reports of both Petitioner's and the Commissioner's experts. Netting the before donation and after donation values of the easement property results in a value of the easement of $379,000. Of course, the difference between the $10,500,000 value of the easement reported on the return and the actual $379,000 value determined by the Court results in a gross valuation misstatement under section 6662(h) and the attendant penalty. 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 FINDINGS OF FACT 5 I. Demorest, Georgia Virgil and Carol Lovell owned real estate in Demorest, Georgia and the surrounding community. Demorest is a city in Habersham County, with a population of 1,823 in 2010 and 2,022 in 2020. That reflects an annual growth rate of roughly 1%. Habersham County's population grew even more slowly, from 43,041 in 2010 to 46,031 in 2020, an annual growth rate of less than 1%. According to reports prepared by the Environmental Systems Research Institute, the local economy of Habersham County has been reliant on services centered around agriculture. Neither Habersham County, generally, nor Demorest, specifically, is located within the metropolitan Atlanta area. There is modest retail development in Demorest and more robust retail development in nearby Cornelia, Georgia, located about three miles from the Subject Property. There was no pressing need for further retail development in Demorest in 2017. II. Subject Property History In 1992, Ms. Lovell organized Focus on Design, Inc., her wholly owned S-corporation. We will simply refer to this entity as Focus. On August 2, 2001, Imants J. Kranats executed a Warranty Deed conveying 26.19 acres of real property in Habersham Country in favor of Focus 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 for $1,047,600. We have no information to indicate whether this was a transaction that occurred at arms length for fair market value. 6 Adjacent to Mr. Kranats's parcel was a 0.952 acre parcel owned by Greg Kelley. In February 2003, Ms. Lovell and Mr. Kelley submitted an annexation application to the city of Demorest seeking to annex Focus's recently acquired parcel and Mr. Kelley's parcel into the city. In May 2003, the Demorest City Council granted the application to annex the two parcels. On June 26, 2003, Mr. Kelley executed a Warranty Deed conveying his parcel to Focus for $20,000. We will refer to these two combined parcels as the Subject Property. The Subject Property is vacant rural land bounded by roads on three sides, East Mize Road to the south, State Route 365 to the north, and Demorest Mt. Airy Highway to the west. In that area, State Route 365 is a four lane divided highway that is also known as US Highway 23 and US Highway 441. Located approximately 75 miles northeast of Atlanta, the Subject Property is not included in the Atlanta Metropolitan Statistical Area. The Subject Property has steep topographical grade changes and no sewer access. The closest sewer connection is across State Route 365 in the Sweetgrass residential development, a housing development that was designated for 204 single 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 7 family homes and a clubhouse in 2006. More than a decade after it was so designated, the Sweetgrass development had only twelve homes and a clubhouse. III. The Donation of The Conservation Easement On October 3, 2017, Ms. Lovell organized Mize Farm, a Georgia limited liability company. Mize Farm was wholly owned by Ms. Lovell and Focus at the time of its formation. On that same date, Ms. Lovell organized Mize Farm Partners, LLC, another Georgia limited liability company. To avoid confusion, we will refer to this as MFP. Ms. Lovell was the sole member of MFP when it was formed. On December 1, 2017, Focus executed a Warranty Deed conveying the Subject Property to Mize Farm. At that time, Ms. Lovell controlled and owned both Focus and Mize Farm. In the ensuing weeks, 33 individuals received and signed documents to acquire interests in MFP. The documents signed by the individuals included a Participation Agreement, a Suitability Questionnaire, and an Admission Amendment to Operating Agreement. The 33 investors purchased a little over 96,000 membership units in MFP for a little over $2 million. These investors additionally signed a Member Election Agreement, and a majority elected to pursue a conservation plan for 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. 8 On December 21, 2017, MFP entered into a purchase agreement to acquire a 95.5% interest in Mize Farm from Focus in exchange for $10 and promised to pay an additional $1,899,990. As of the date of that transfer, Mize Farm was owned by Ms. Lovell, MFP, and Focus with their respective interests being 4.1, 95.5, and 0.4%. The transfer for a total price of $1,900,000 was not at arms length. Although Mize Farm had three owners, it was controlled entirely by Ms. Lovell. She owned Focus outright. And she was the manager of MFP. As Manager, she had "full and complete authority, power and discretion to manage and control the business and operations of" MFP. Thus, the transfer of the Subject Property from Focus to Mize Farm was a transfer controlled on both ends by Ms. Lovell. On December 29, 2017, Ms. Lovell, as manager of MFP, signed the Admissions to Amendment to Operating Agreement and Mize Farm donated a conservation easement on the Subject Property to the Atlantic Coast Conservancy. Here, we note a slight discrepancy in the documents. The deed of conservation recites that the property consists of 30.337 acres and then describes the two parcels comprising the Subject Property. But the combined former Kranats and Kelley parcels total less than 30.337 acres. Nonetheless, 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 9 the parties' experts all based their reports on 30.337 acres. We will adopt that acreage, as well. To the extent the actual acreage may have differed, it would not significantly alter our conclusions. IV. The 2017 Form 1065 and Accompanying Appraisal On May 19, 2018, Mize Farm electronically filed its Form 1065, U.S. Return of Partnership Income, for the year ending December 31, 2017. On its return, Mize Farm claimed a $10,500,000 charitable contribution deduction for the donation of the conversation easement of the Subject Property. Mize Farm attached to its return a copy of an appraisal as of December 29, 2017, that was signed by W. McRae Greene. We will refer to that as the return appraisal. Using a comparable sales approach, the return appraisal valued the Subject Property at $10,617,950. The return appraisal determined a residual value after granting the conservation easement of $118,458. From those numbers, the return appraisal derived a rounded value of the easement of $10,500,000. V. Petition The Commissioner's Determinations and Mize Farm's By Notice of Final Partnership Administrative Adjustment dated March 27, 2023, the Commissioner determined an adjustment to partnership items of Mize Farm and made partnership-level determinations as to 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 10 applicability of penalties. The Commissioner's sole partnership item determination was a complete disallowance of the $10,500,000 charitable contribution deduction. For the penalty, the Commissioner determined that the disallowance of the charitable contribution deduction was attributable to a gross valuation misstatement, with other penalties asserted in the alternative. On June 6, 2023, Ms. Lovell, as tax matters partner of Mize Farm, filed a petition challenging the Commissioner's determinations. When Ms. Lovell filed the petition, Mize Farm was a Georgia limited liability company with it principal place of business in Georgia. Ms. Lovell passed away in May 2024. Focus was subsequently appointed as the Tax Matters Partner for Mize Farms' 2017 tax year. VI. Trial Trial of this case was held earlier this week. All of the witnesses testified on matters directly or indirectly related to the value of the Subject Property. Fact Witnesses Thomas Mitchell is an attorney in private A. practice. Since 2021, he has also served as the city attorney for the city of Demorest. As part of his responsibilities as city attorney, Mr. Mitchell has dealt with zoning and land use issues. 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 Regarding the Subject Property, Mr. Mitchell 11 explained that in 2017, it was designated as "high intensity" property. Under the city's current zoning laws, this would most closely correspond to industrial. To use the subject property for retail purposes under the designation in place in 2017 would not have required a change in designation, but it would have required a conditional use permit. To obtain such a permit generally would require an application, site plan, public hearing, and approval. Mr. Mitchell also explained the city's plans to expand the sewer system to reach the subject property. This was a long-term project that would have involved boring under State Route 365. The project was to be funded by a special purpose local option sales tax that was approved in 2018. The project was terminated in 2024 without the sewer being extended under State Route 365. The reason the project was terminated was because the two main properties on the side of State Route 365 opposite the existing sewer line were no longer going to be developed. One, the Subject Property, had been placed under conservation, and the other had been acquired by the county. Bryan Popham is the Public Works Director for 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 12 the city of Demorest. His responsibilities include maintenance of water, sewer, and street infrastructure. He explained that in 2014, the city had completed a rehabilitation project of its existing sewer station. As a result, the city planned to expand its sewer system, including boring under State Route 365 from a pump station located in the nearby Sweetgrass residential development to the subject property. The project was abandoned in 2024. McRae Greene prepared an appraisal that was attached to Mize Farm's 2017 return. He is a licensed real estate broker in Georgia, and a certified real estate appraiser in Georgia, Tennessee, and South Carolina. Mize Farm offered Mr. Greene as an expert, but because Mr. Greene's appraisal, which was the appraisal attached to the original return, did not conform to Rule 143(g), the Court did not recognize him as an expert. Mr. Greene nonetheless was able to testify as a fact witness with respect to the appraisal work he performed for Mize Farm. Mr. Greene prepared a "self-contained appraisal" for Mize Farm, meaning in that all of the information he relied on was included in his appraisal. Mr. Greene used a before and after method to value the easement. His report, which was attached to Mize Farm's return, was internally inconsistent as to highest and best use of 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 13 Subject Property. Different parts of his report suggested different highest and best uses, suggesting both future residential development and development as a shopping center. The appraisal that accompanied the return relied on the sales comparison approach to determine the before and after value of the conservation easement. But the appraisal did not include in its before donation comparable sales any properties in Habersham County. Mr. Greene did not recall there being any comparable properties in Habersham County. The before donation comparable sales referenced in the report ranged in price from $345,000 to $6,237,400, which translates to a price per acre of $350,000 to $500,000. The appraisal stated a before value of the Subject Property of $10,617,950, or $350,000 per acre. For the after donation value, the return appraisal identified five potential sales. These sales ranged in price from $25,000 to $625,000, which translates to a price per acre of $527 to $2,122 per acre. After taking into account adjustments, the appraisal stated that the after donation value of the Subject Property was $118,458 or $3,905 per acre. As an aside, we note that those adjustments to the after donation value also took into account a 2.5 acre "acceptable development area" that 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 B. 14 permitted limited development such as the construction of a residence. Netting the before and after values, the appraisal concludes that the fair market value of the easement was $10,500,000. Expert Witnesses 1. Petitioner offered the expert report and Larry Singleton testimony of Larry Singleton, an independent valuation consultant for over 35 years, a licensed real estate broker in Georgia and Florida, and a certified real estate appraiser in Georgia. Mr. Singleton was offered as an expert in real estate, real estate brokerage, and real property appraisal. Mr. Singleton testified as to the value of the conservation easement. He used the before and after method to value the easement. He opined that before the easement, the property's highest and best use was "commercial development anchored by of a large-format retail store and supermarket" or more simply stated, a community retail center. He opined that after granting the easement, the property's highest and best use was limited recreational, passive recreation, or educational uses. Mr. Singleton utilized the sales comparison approach to determine the before and after values of 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 15 conservation easement. Mr. Singleton's report discussed the principle of substitution, the idea that "when a property is replaceable in the open market, its value tends to be set at the cost of acquiring an equally desirable substitute property." His search for potential substitutes for the Subject Property resulted in seven potential sales in the area in between the Atlanta Metropolitan Statistical Area and Habersham County, a range of about 75 miles. These comparable sales ranged in price from $1,300,000 to $5,829,900, which when factoring in the sizes of the properties, equaled a price per acre ranging from $99,617 to $500,000. Most of these sales were in the Atlanta Metropolitan Statistical Area, with only one comparable sale being in the Habersham County area. That sale occurred in 2009 and was for a Walmart site development located on Old 441 heading toward the retail corridor in Cornelia. The other sales were in what he characterized as "outer Atlanta suburbia." He determined the before value of the Subject Property was $6,825,800, or $225,000 per acre. During his testimony, Mr. Singleton mentioned that he was a real estate professional and that, around the time of the donation at issue, he was assisting his clients in identifying properties that could be developed into retail centers. He mentioned that his clients were 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 16 looking for properties in Charlotte, Tampa, and Atlanta. He did not mention the city of Demorest or broader Habersham County as places his clients were looking. To determine the after value of the conservation easement, Mr. Singleton selected another seven comparable sales. These sales all involved properties that were encumbered by conservation easements, and they ranged in price from $25,000 to $150,000 at a price per acre from $439 to $1,350. The average sale price for Mr. Singleton's seven after donation comparable sales was $940 per acre, and he determined the after value of the property was $30,300, or $1,000 per acre. Although Mr. Singleton had made time and market condition adjustments to the before donation comparable sales, he made no such adjustments to his after donation comparable sales. Notably, one of his after donation comparable sales was a property on Nolan Store Road, which was also a comparable sale identified by the Commissioner's expert, Mr. Adamson. This sale took place in 2015 for $1,350 per acre. Although the property is about 70 miles from the Subject Property, it is the closest in proximity of any of the after donation comparable sales identified by either party's experts. Deducting his after donation value from his before donation value, Mr. Singleton ultimately determined 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 17 Patrick Adamson the fair market value of the easement was $6,795,500. 2. The Commissioner offered the expert testimony of Patrick Adamson, a real property appraiser and a certified general appraiser in Georgia. Mr. Adamson was offered as an expert in real estate, real estate valuation, and real property appraisals. Like Mr. Singleton, Mr. Adamson used the before and after approach to determine the value of the conservation easement. And like Mr. Singleton, he determined the before and after values using a sales comparison approach. He opined that the highest and best use of the property before the easement was industrial, specifically to purchase as a long-term investment for development in the future as a high-density development. He agreed with Mr. Singleton that after the easement, the highest and best use of the property was agricultural or recreational with easement limitations. His search for comparable sales for the before value of the Subject Property resulted in twelve comparable sales, ten of which were actual sales and two of which were listings for sale. He identified these sales using parameters of location and physical characteristics including road frontage, utility, market conditions, access, and overall appeal as a long-term 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 18 investment. He looked for properties that were in similar counties, meaning they had attributes similar to Habersham County, such as similarly trafficked roads. Of the twelve comparable sales, Mr. Adamson identified six as "inferior sales" meaning they "were considered to be net inferior of the subject property," and two as "superior sales," which were properties located in superior areas relative to the highest and best use of the site. That left two comparable sales and the two listings as "similar sales," because they were "net similar" to the Subject Property. The listings provide an upper boundary as to the potential value because someone could purchase the listed property in lieu of the Subject Property. The potential sales that Mr. Adamson identified as "similar sales" ranged in a price per acre from $8,500 to $9,021. The listings were valued higher and skewed the "similar sales" average in his report. Mr. Adamson further considered the twelve comparable sales from the perspective of land coverage, topography, potential long-term use, and location. Winnowing the properties on the basis of these criteria yielded five comparable sales. The price per acre for the five sales ranged from $9,392 to $22,221, adjusted by a 7% compounded annualized appreciation rate. Relying on those comparable sales, he concluded that the before value of 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 the Subject Property was $425,000 or about $14,000 per acre. 19 To value the property after the granting of the easement, Mr. Adamson used three encumbered sales. Mr. Adamson's report includes a comparable encumbered sale on Nolan Store Road, which was also included in Mr. Singleton's report. Mr. Adamson, like Mr. Singleton, listed the sale price of this comparable sale as $1,350 per acre. The three comparable encumbered sales selected by Mr. Adamson, adjusted for appreciation of 7%, ranged between $1,621 to $3,053 per acre. He concluded that the after donation value of the Subject Property was $76,000 or $2,500 per acre. Accordingly, he determined the fair market value of the easement was $349,000, the net of his before and after donation values. Raymond Krasinski 3. The Commissioner offered the expert testimony of Raymond Krasinski, a lead senior review appraiser who has been employed by the Commissioner since 2019. He has experience in data analysis, market analysis, appraisal, and valuation. Mr. Krasinski was offered as an expert in real property appraisals, appraisal reviews, and Uniform Standards of Professional Appraisal Practice, sometimes referred to as USPAP. Mr. Krasinski reviewed and disagrees with 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 20 appraisal that was attached to Mize Farm's return. He opined that the "analysis and investigation as well as the presentation of relevant data is inadequate and does not produce credible assignment result." He ultimately opined that the return appraisal's analysis and conclusion are "not credible and not in conformance with generally accepted appraisal standards" and is accordingly "unreliable." Mr. Krasinski's principle critique of the return appraisal is its reliance on comparable properties that are vastly superior to the Subject Property. Robert Driggers 4. The Commissioner offered expert testimony from Robert Driggers, a licensed real estate broker in Georgia and South Carolina, and a certified general appraiser licensed in Georgia, Florida, and South Carolina. Mr. Driggers has more than 35 years of experience in commercial real estate as an appraiser and broker. Mr. Driggers was offered as an expert in real estate, real estate valuation, real property appraisals, appraisal reviews, and USPAP. Mr. Driggers reviewed and disagreed with aspects of the report and testimony of Mr. Singleton, including the highest and best use of the Subject Property and the selected comparable sales. Mr. Driggers disagrees with Mr. Singleton's 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 21 suggested highest and best use of the Subject Property as of 2017. Mr. Driggers opines that the Singleton report's highest and best use conclusion does not include "analysis to suggest that the local market can support additional retail/commercial development." Although he considers the property to be well suited to commercial development in five to ten years, to the extent Mr. Singleton opined that it was ripe for development in 2017, Mr. Driggers disagrees. Relatedly, Mr. Driggers disagrees with Mr. Singleton's choice of comparable sales for determining the before donation value. Mr. Driggers observed that the population density, street traffic, and distance to Atlanta for all but one of Mr. Singleton's before donation comparable sales was vastly superior to the Subject Property. He noted that the Singleton report's only comparable before donation sale that is in close proximity to the Subject Property is for a Super Wal-Mart Store constructed in 2011. But he further observed, "if there were significant demand for more retail development in the subject property's area, more would have been built after the construction of the Super Wal-Mart in 2011." Ultimately, he opines that the comparable before donation sales used in the Singleton report are not reasonable substitutes for the subject property. 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 DISCUSSION 22 Shortly before trial, the parties filed a stipulation of settled issues narrowing the issues for the Court to decide. That stipulation provides that the only issues remaining for trial are: 1. The fair market value of the conservation easement contributed by Mize Farm, and 2. The applicability of the gross valuation misstatement penalty under 6662(h), or in the alternative, the negligence, substantial understatement, and substantial valuation misstatement penalties of section 6662(c), (d), or (e), respectively. We will address each of these issues in turn. I. Burden of Proof Rule 142(a)(1) provides that "[t]he burden of proof shall be upon the petitioner, except as otherwise provided by statute or determined by this Court." Generally, the Commissioner's determinations are presumed to be correct, and the party challenging those determinations bears the burden of proof. Welch v. Helvering, 290 U.S. 111, 115 (1933); Crescent Holdings, LLC v. Commissioner, 141 T.C. 477, 485 (2013). If the taxpayer puts forth credible evidence with respect to any factual issue relevant to determining the liability of the taxpayer and meets certain other 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 23 requirements, the burden of proof shifts to the Commissioner as to that issue. I.R.C. § 7491(a). Credible evidence is the quality of evidence which, after critical analysis, a court would find sufficient to base a decision on the issue if no contrary evidence were submitted. Baker v. Commissioner, 122 T.C. 143, 168 (2004), citing Higbee v. Commissioner, 116 T.C. 438, 442 (2001). Petitioner has not established that the burden should shift to the Commissioner. But even if the burden were shifted, we would reach the same results below, which are based on preponderance of the evidence. II. Valuation We are asked to decide the amount of the charitable contribution by Mize Farm when it donated a conservation easement on the Subject Property. Both parties rely on the before and after method to value the property, and the Court does as well. For the reasons that follow, we find that the value of the Subject Property before donation of the conservation easement was no more than $14,000 per acre, or $425,000. We find that the value of the Subject Property after donation of the conservation easement was $46,000. From those two numbers, we derive the value of the charitable contribution as having been $379,000. 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 A. General Principles Generally, the amount of a charitable 24 contribution deduction under section 170(a) for a donation of property other than money is the fair market value of the property at the time of the donation. Treas. Reg. § 1.170A-1(c)(1); see also TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th 1354, 1369 (11th Cir. 2021). 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." See also Anselmo v. Commissioner, 757 F.2d 1208, 1213 (11th Cir. 1985), aff'g, 80 T.C. 872 (1983). The fair market value of a piece 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); see also TOT Prop. Holdings, 1 F.4th at 1369 ("A determination of fair market value is a mixed question of fact and law: the factual premises are subject to a clearly erroneous standard while the legal conclusions are subject to de novo review."). We evaluate the opinions of the parties' expert witnesses in light of each expert's qualifications and the evidence in 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 25 record, and we may accept an "opinion in toto or accept aspects ... that we find reliable." Oconee Landing Prop., LLC v. Commissioner, T.C. Memo. 2024-25, at *58; see also Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, at *35. We also "may determine fair market value on the basis of our own examination of the evidence in the record." Savannah Shoals, T.C. Memo. 2024-35, at *35. Market prices typically do not exist for conservation easements. See Symington v. Commissioner, 87 T.C. 892, 895 (1986); Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *30. Accordingly, courts usually value such easements indirectly using a "before and after" approach, seeking to determine the amount by which the property reduced in value as a result of granting an easement. See Treas. Reg. § 1.170A- 14(h)(3)(i) and (ii). Under this approach, the value of the easement is deemed to be equal to the fair market value of the property before the easement was granted, less the fair market value of the property as encumbered by the easement. Or more simply, the before value minus the after value. In determining the before value of the Subject Property, we must consider not only the actual use of the property before conveyance of the easement in December 2017, but also its highest and best use. See TOT Prop. 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 26 Holdings, 1 F.4th at 1369-70; Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg. § 1.170A-14(h)(3)(ii). Although this "concept 'is an element in the determination of fair market value, . . . it does not eliminate the requirement that a hypothetical willing buyer would purchase the subject property for the indicated value.'" Excelsior Aggregates, T.C. Memo. 2024-60, at *47 (quoting Boltar, L.L.C. v. Commissioner, 136 T.C. 326, 336 (2011)). Highest and Best Use The Court has defined highest and best use as B. "[t]he reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value." Whitehouse Hotel Ltd. P'ship v. Commissioner, 139 T.C. 304, 331 (2012) supplementing 131 T.C. 112 (2008), aff'd in part, vacated in part and remanded, 755 F.3d 236 (5th Cir. 2014) (quoting Appraisal Institute, The Appraisal of Real Estate 277-78 (13th ed. 2008)). In short, to be a property's highest and best use, a proposed use must be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. See Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52, at *52. "While highest and best use can be any 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 27 realistic, objective potential use of the property, it is presumed to be the use to which the land is currently being put absent proof to the contrary." Esgar Corp. v. Commissioner, T.C. Memo. 2012-35, at *7, aff'd 744 F.3d 648 (10th Cir. 2014). Where "an asserted highest and best use differs from current use, the use must be reasonably probable and have real market value." Id. (citing United States v. 69.1 Acres of Land, 942 F.2d 290, 292 (4th Cir. 1991)). If different from the current use, a proposed highest and best use requires both "closeness in time" and "reasonable probability." Hilborn v. Commissioner, 85 T.C. 677, 689 (1985); see also Savannah Shoals, T.C. Memo. 2024-35, at *37. "Where, as here, the parties proposed different uses, we consider '[i]f there is too high a chance that the property will not achieve the proposed use in the near future,' in which case 'the use is too risky to qualify.'" TOT Prop. Holdings, 1 F.4th at 1369 (quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d 982, 1000 (11th Cir. 2016). "The principle can also be articulated in terms of willingness to pay. If a proposed use is too risky for 'a hypothetical willing buyer [to] consider [the use] in deciding how much to pay for the property,' then the use should not be deemed the highest and best available." Palmer Ranch Holdings., 812 F.3d at 1000 n.14 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 28 (quoting Whitehouse Hotel Ltd. P'ship v. Commissioner, 615 F.3d 321, 335 (5th Cir. 2010), vacating 131 T.C. 112 (2008)). The parties differ in their estimation of the highest and best use of the Subject Property at the time of the conveyance of the easement in December 2017. The Commissioner argues that the highest and best use was to hold for future development. Petitioner argues the highest and best use was commercial development for a retail center. But Petitioner's own expert worked in the area of identifying properties for retail development at the time the easement was granted, and he did not articulate any then-current demand for retail property development in Demorest, Georgia. And nearby Cornelia had existing retail establishments that met the needs of the area. Mize Farm did not establish that the highest and best use at the time of donation was commercial development of a retail center. It is also worth noting that a highest and best use analysis "is an element in the determination of fair market value, but it does not eliminate the requirement that a hypothetical willing buyer would purchase the subject property for the indicated value." Boltar, 136 T.C. at 336. Whether we find the highest and best use is industrial or retail development, our value conclusion 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 29 would not change in this case. This is because other, similar properties that could be put to these same uses are part of the comparable sales presented by the parties. Therefore, those properties provide an indicator of value for either of the suggested uses. The parties agree that the highest and best use after the conveyance of the easement is recreational. Fair Market Value of the Easement We determine the fair market value of an C. easement by subtracting the after donation value of the easement property from the before donation value of the easement property. We typically draw on one or more of three common approaches to determine the fair market value of real property: (1) the market or comparable sales approach; (2) the income approach; or (3) the cost or asset-based approach. See Excelsior Aggregates, T.C. Memo. 2024-60, at *32. Our decision on which approach (or approaches) to use is a question of law. See Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 325-26 (2013); see also Corning Place, T.C. Memo. 2024-72, at *31-32. Regarding the various approaches, the Eleventh Circuit has stated that fair market value "calculation requires reviewing comparable sales of similar easements or, if no substantial record of such sales exist, gauging the difference between the fair market value of the property 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 30 pre- and post-encumbrance." Pine Mt. Pres., LLLP v. Commissioner, 978 F.3d 1200, 1211 (11th Cir. 2020) aff'g in part, rev'g in part, vacating and remanding 151 T.C. 247 (2018). The Commissioner argues that the before value of the Subject Property was $14,000 per acre or $425,000, as valued by Mr. Adamson. Petitioner argues that the before value of the Subject Property was $10,617,950, as valued by Mr. Greene, or $6,825,800, as valued by Mr. Singleton. We adopt the Commissioner's value. Before Valuation 1. Both parties use the comparable sales method to determine the before value of the Subject Property. Their values diverge because the comparable sales they selected were different. The Commissioner argues that we should use the comparable sales identified by Mr. Adamson to determine the before value of the Subject Property. Pointing to the sales data in Mr. Adamson's report, the Commissioner concluded that the before value of the Subject Property was $14,000 per acre. In the case of vacant, unimproved property, the market approach-often called the "comparable sales" or "sales comparison" method-is "generally the most reliable method of valuation." Estate of Spruill, 88 T.C. 1197, 1229 n.24 (1987) (quoting Estate of Rabe v. Commissioner, 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 31 T.C. Memo. 1975-26, aff'd, 566 F.2d 1183 (9th Cir. 1977)). The comparable sales approach "values property by comparing it to similar properties sold in arm's-length transactions around the valuation date." Savannah Shoals, T.C. Memo. 2024-35, at *36. Because no two properties are ever identical, the appraiser must adjust the sale prices of the comparable properties to account for differences between them (for example, parcel size, location, and physical features) and the terms of the sales (for example, proximity to valuation date and conditions of the sale). Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1, 19 (1979). Mr. Adamson's report contains reasonable comparable sales. His initial search parameters were limited by location and physical characteristics including road frontage, utility, market conditions, access, and overall appeal as a long-term investment. That search resulted in twelve comparable sales, two of which were for properties that were listed but had not yet sold. Excluding the listings, these properties ranged in price from $6,714 to $16,831 per acre. Mr. Adamson further reduced the number of comparable sales based on similarities of the land, including land coverage, topography, potential long-term use, and location. Mr. Adamson's remaining five sales had a price per acre 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 32 ranging from $9,392 to $22,221. But Mr. Adamson's report included inferior and superior properties to the Subject Property in these five potential sales. The specific sales that Mr. Adamson's report identified "similar" ranged from $8,500 to $9,021 per acre. The Commissioner's before value of $14,000 per acre is significantly higher than those similar sales on a percentage basis. We accordingly treat Mr. Adamson's before valuation as a concession, because the comparable sales indicate a value of the Subject Property to be no more than that amount and likely less. A review of the sales records from Habersham Country provides a sanity check of this number. The record in this case includes various sales records from Habersham County. Reviewing those records for only the sales of properties of ten acres or more yields 74 such sales. The median land value of the properties underlying those 74 sales is $9,000 per acre and the mean is $9,267 per acre. The highest value was $25,740 per acre, a far cry from the $225,000 per acre put forward by Mr. Singleton or the $350,000 put forward by Mr. Greene. Although we do not base our valuation conclusion on these records, they demonstrate that Mr. Adamson's valuation is far closer to correct than the values suggested by Petitioner. 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 33 In determining the before donation value of the Subject Property, we are disregarding the previous transfers of the Subject Property or its constituent parts. We have held that "[t]he best evidence of a property's [fair market value] is the price at which it changed hands in an arm's-length transaction reasonably close in time to the valuation date." Excelsior Aggregates, T.C. Memo. 2024-60, at *31. For example, in Corning Place Ohio, T.C. Memo. 2024-72, at *28-29, we found that the most persuasive evidence of a property's fair market value was its actual sale price 15 months before the contribution. See also Wortmann v. Commissioner, T.C. Memo. 2005-227 (finding that the most persuasive evidence of the property's fair market value was its actual sale price 17 months before the contribution). Similarly, in Paul-Adams Quarry Trust, LLC v. Commissioner, T.C. Memo. 2025-112, at *77-78, we treated the transfer of a 97% interest in the entity holding the property that was at issue in that case as a comparable sale. But the prior dispositions of the Subject Property in this case are not reliable indicators of value. The Kranats and Kelley parcels were acquired for a total of $1,067,600. But the record does not contain any information to indicate that these exchanges occurred at 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 34 arm's length. And when a 95.5% interest in Mize Farm was transferred for $1,900,000 on December 21, 2017, the record is clear that the transfer was not at arm's length. Moreover, other than the Subject Property, we do not know what assets Mize Farm held as of December 21, 2017. We find that the before donation value of the After Valuation Subject Property was $425,000, as conceded by the Commissioner. 2. Both parties use the comparable sales method to determine the after value of Subject Property. Pointing to the sales data in Mr. Adamson's report, the Commissioner concluded that the after donation value of the Subject Property was $76,000, or $2,500 per acre. Petitioner points to the data in Mr. Singleton's report, concluding that the after donation value of the Subject Property was $30,300, or $1,000 per acre. Because properties encumbered by conservation easements rarely change hands, there is little comparable sales data from which to draw. We note, however, that both Petitioner's and the Commissioner's experts agreed that one encumbered land was a reasonable comparable sale. That property is located at Nolan Store Road and appears in both Mr. Singleton's and Mr. Adamson's report. That property sold in 2015 for $1,350 per acre. 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 35 The parties' experts differed as to their adjustments to this sales price to take into account market conditions. Mr. Adamson adjusted the value of that property to take into account market conditions, making an adjustment of 20%. Mr. Singleton did not make any adjustment for market conditions. But when valuing before donation comparable properties, Mr. Singleton made a 6% annual adjustment for market conditions. We will make a similar adjustment here, adjusting the $1,350 per acre price by 6% annually. This yields a price per acre of $1,517 and a total value of $46,000 after donation of the conservation easement. Valuation Conclusion 3. The value of the Subject Property before donation of the conservation easement was no more than $425,000. The value of the Subject Property after donation of the easement was $46,000. Netting those two numbers, we find that the fair market value of the easement was $379,000. Thus, Mize Farm's 2017 noncash charitable contribution deduction is $379,000. III. Penalties The Code imposes a 20% penalty on any portion of an underpayment of tax that is attributable to a substantial valuation misstatement. I.R.C. § 6662(a), (b)(3), and (e). A misstatement is substantial if 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 36 value of the property claimed on a return is 150% or more of what is determined to be the correct amount. I.R.C. § 6662(e)(1)(A). The penalty is increased to 40% in the case of a gross valuation misstatement. I.R.C. § 6662(h)(1). A misstatement is "gross" if the value of property claimed on the return exceeds 200% of what is determined to be the correct amount. I.R.C. § 6662(h)(2)(A)(i). Mize Farm reported that the value of the conservation easement on the Subject Property that it donated was $10,500,000. We have determined that the correct value of the easement was $379,000. The value of the property claimed on Mize Farm's return exceeds 200% of the correct amount. The valuation misstatement was "gross" per section 6662(h)(2)(A)(i), and thus the 40% gross valuation misstatement penalty applies. The Commissioner determined, in the alternative, an accuracy-related penalty for negligence, substantial understatement, or substantial valuation misstatement. See I.R.C. § 6662(c), (d), and (e), respectively. If applicable, these alternative penalties are imposed at a rate of 20%. I.R.C. § 6662(a). But there is no stacking of penalties. Treas. Reg. § 1.6662-2(c). Having concluded that the 40% gross valuation misstatement penalty applies, we need not decide whether these other 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 penalties might apply. 37 Generally, an accuracy-related penalty is not imposed if the taxpayer demonstrates reasonable cause and shows that it acted in good faith. I.R.C. § 6664(c)(1). But this defense is not available where there is a gross valuation misstatement. See I.R.C. § 6664(c)(3); see also Chandler v. Commissioner, 142 T.C. 279, 293 (2014) ("The [Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat. at 1083] . . . eliminated the reasonable cause exception for gross valuation misstatements of charitable contribution property."). Accordingly, the 40% penalty applies. CONCLUSION Mize Farm is entitled to a charitable contribution deduction of $379,000 for its donation of a conservation easement on the Subject Property. This is more than the Commissioner allowed in his Notice of Final Partnership Administrative Adjustment, which disallowed Mize Farm's charitable contribution deduction in full. Accordingly, decision will be entered under Rule 155. A gross valuation misstatement penalty also applies. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 2:52 p.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 38 CASE NAME: Mize Farm, LLC, Focus on Design, Inc., Tax Matters Partner v. Commissioner DOCKET NO.: 8979-23 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 38 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Erica Grant on November 20, 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 11/21/25 Date Transcriber _______________________________________________ Traci Fine, CDLT-169 11/27/25 Date Proofreader