t c memo united_states tax_court palmer ranch holdings ltd palmer ranch holdings inc tax_matters_partner petitioner v commissioner of internal revenue respondent docket no filed date mark f hearne ii debra albin-riley and meghan largent for petitioner michael kramarz sergio garcia-pages and andrew michael tiktin for respondent contents findings_of_fact zoning designations i rezoning history ii environmental concerns iii iv road access v conservation_easement valuation opinion i ii burden_of_proof the conservation easement’s value a b before-and-after method highest_and_best_use failed rezoning history environmental concerns road access neighborhood opposition conclusion c real_estate market before value after value d conclusion iii accuracy-related_penalty a preliminary matters jurisdiction burden of production b c penalty penalty professional advisers necessary and accurate information actual reliance in good_faith iv conclusion memorandum findings_of_fact and opinion goeke judge this case is a partnership-level proceeding under the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite as amended the tefra partnership palmer ranch holdings ltd palmer ranch claimed a dollar_figure charitable_contribution_deduction on its form_1065 u s return of partnership income respondent issued a notice of final_partnership_administrative_adjustment fpaa to petitioner palmer ranch holdings inc as tax_matters_partner disallowing dollar_figure of the deduction and imposing an accuracy-related_penalty under sec_6662 after concessions the issues for decision are as follows whether palmer ranch overstated the fair_market_value of its conservation_easement donation we hold that it did but we hold the correct fair_market_value is not as low as respondent determined and whether palmer ranch is liable for an accuracy-related_penalty we hold that it is not unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure the parties stipulated and agreed that palmer ranch made a qualified_conservation_contribution and secured a qualified_appraisal findings_of_fact some of the facts have been stipulated for trial under rule the stipulation of facts and the attached exhibits are incorporated by this reference and are found accordingly at the time the petition was filed palmer ranch’s principal_place_of_business was in florida hugh culverhouse owned about of palmer ranch while his wholly owned corporation palmer ranch holdings inc owned the remainder palmer ranch owns the palmer ranch development of regional impact dri which is in sarasota county florida within the dri are two parcels of land we will refer to throughout this opinion parcel b-9 and parcel b-10 parcel b-9 is an undeveloped parcel that consists of dollar_figure acres and lies immediately to the north of parcel b-10 parcel b-10 is the subject property of this valuation dispute parcel b-10 is an irregularly shaped undeveloped parcel of land consisting of dollar_figure acres the parcel’s general topography includes upland developable acreage as well as wetlands natural or man made ponds pinewood flats and mesic hammocks additionally bald eagle nest sa-010 eagle nest is a dri is defined as a development which because of its character magnitude or location would have a substantial effect upon the health safety or welfare of citizens of more than one county fla stat ann sec west on the eastern portion of parcel b-10 in the board_of county commissioners bocc approved the eastside environmental systems analysis for palmer ranch eastside analysis the eastside analysis proposed a wildlife corridor system for the east side of the dri the wildlife corridor was intended to provide open space for an eagle flyway and it provided a habitat for small urban animals parcel b-10 is subject_to the provisions of the eastside analysis because it is on the east side of the dri mr culverhouse desired that a portion of the undeveloped property in the dri remain undeveloped and preserved for public use conservation and open space this desire led mr culverhouse to encumber parcel b-10 with a conservation_easement and donate the easement to sarasota county florida on date valuation_date the land is now used for a public park a community garden a conservation area and preserved open space before making this contribution palmer ranch retained a tax attorney to advise it on how to donate the easement in compliance with the internal_revenue_code the attorney retained chad durrance a licensed appraiser and wilsonmiller a land planning and engineering firm on the basis of wilsonmiller’s land use analysis and mr durrance’s appraisal palmer ranch donated a perpetual conservation_easement with restrictions providing that the land could be used only for conservation purposes public use and open space mr durrance appraised the conservation_easement at dollar_figure ie dollar_figure per acre in date mr durrance based his conclusion on his analysis of various comparable properties that sold for prices between dollar_figure per acre and dollar_figure per acre mr durrance further supported his conclusion on wilsonmiller’s land use analysis wilsonmiller concluded that parcel b-10 would be approved for a 360-unit multifamily development upon application around date because the development was confined to the improved pastures which do not contain the native habitats protected by the wildlife corridor moreover the environmentally sensitive areas such as the wildlife corridor and the eagle nest zone were going to be left as open space because the land use regulations allow for clustering--ie development is concentrated or clustered on the developable portions of parcel b- wilsonmiller further concluded that its plan was consistent with the dri master development order sarasota county’s governing land planning regulations and sarasota county’s comprehensive plan and future land use map a master development order governs the overall development of a dri i zoning designations sarasota county’s zoning regulations provide an official zoning atlas that designated parcel b-10 as residential estate-1 re-1 in which limited current development to units ie one unit per two acres florida law requires local governments to adopt comprehensive plans to guide future development and growth in each of florida’s counties sarasota county’s comprehensive plan includes a future land use map which designates the maximum future zone capacity of property in sarasota county at all relevant times the future land use map indicated parcel b-10 had a moderate density residential mdr zone designation ie two to five units per acre rezoning petitions to change the designation in the zoning atlas are permitted as long as the proposed rezoning is consistent with the comprehensive plan and complies with the zoning regulations the sarasota county zoning regulations define density as the maximum number of residential dwelling units permitted per gross acre of land the wilsonmiller land use plan indicated that parcel b-10 could be rezoned to allow development of dwelling units which equates to a gross density of about dollar_figure units per acre this is more than the re-1 zone designation allows but is consistent with the mdr zone designation in order to rezone and develop an increment of land an applicant must submit a development application and a separate rezoning application to sarasota county the process entails the following a preapplication meeting with county staff holding a neighborhood workshop with adjacent property owners submitting the applications to the county which entails staff review public hearings by a lay body planning commission and a public hearing by the bocc wherein the bocc will take final action even though the bocc issues a final_determination it is still subject_to the circuit court’s review for parcel b-10 to receive rezoning approval the applications must be consistent with the dri master development order the comprehensive plan zoning regulations and land development regulations ii rezoning history in palmer ranch agreed to sell to pulte homes pulte a national home developer approximately acres in parcels b-9 and b-10 the contract was contingent on pulte’s receiving a favorable determination from sarasota county to rezone and develop dwelling units on the land the original plan was to develop units on parcel b-9 and units on parcel b-10 pulte submitted both development and rezoning applications to sarasota county the applications encompassed approximately dollar_figure acres of parcels b-9 and b-10 however pulte’s applications did not include the protective zone eagle nest zone around the eagle nest on parcel b-10’s east side the original rezoning application sought to change the zone designation on parcels b-9 and b- from re-1 ie one unit per two acres to residential single family rsf - pud ie units per acre in date the bocc considered pulte’s two applications to develop and rezone the property the bocc voted three to two to deny approval for the development application pulte requested and was granted a continuance to revise its development plan the rezoning application was not voted on in date palmer ranch and pulte amended their purchase agreement to drop parcel b-10 in date pulte submitted a revised development application and a revised rezoning application_for parcel b-9 only this rezoning application sought to change the zone designation from re-1 ie one unit per two acres to residential multifamily rmf -1 pud ie six units per acre the bocc considered pulte’s two revised applications in date and voted three to two to deny both applications the bocc issued ordinance denying the development application and resolution denying the rezoning application the bocc stated in ordinance that the following changes would be necessary to allow for a favorable consideration present an amended application_for development approval setting forth development plans which includes both parcel b-9 and b-10 totaling dollar_figure acres - in accordance with the master development order the sarasota county comprehensive plan and the sarasota county land development regulations for parcel b-9 this application should include parcel b-10 and should endeavor to keep parcel b-10 in tact sic as it relates to the eagle preservation area the wetlands and the wildlife corridor the denial was never appealed in date pulte terminated its agreement to purchase parcel b-9 iii environmental concerns the comprehensive plan states as a policy that sarasota county shall support state and federal agencies in implementing protection guidelines related to listed species--eg listed as endangered or threatened the u s fish and wildlife service and the florida fish and wildlife conservation commission provide regulations for bald eagle protection in the bald eagle was listed as an endangered species the dri master development order was amended in to include an eagle nest zone and a wildlife corridor in the eagle nest had a primary protection zone of feet and a secondary protection zone of big_number feet with some extended protection to the west of the nest the primary protection zone was designed as open space where development was not permitted development in the secondary protection zone was limited to single-family homes in the bald eagle’s status was dropped from endangered to threatened in the primary and secondary protection zones surrounding the eagle nest were reduced to feet and big_number feet respectively with some extended protection to the west of the nest in the extended protection to the west was eliminated the protection zones remained at a uniform feet and big_number feet respectively in the u s fish and wildlife service determined that the bald eagles using the eagle nest on parcel b-10 appeared to be tolerant of the traffic and noise generated by the surrounding residences and roadways though the bocc ultimately denied pulte’s residential development proposal on parcel b-10 in the u s fish and wildlife service determined in that pulte’s proposal was in compliance with the bald eagle regulations in date the u s fish and wildlife service issued a clearance letter stating that it had proposed to remove the bald eagle from the list of threatened and endangered species because the bald eagle population had recovered the clearance letter also eliminated the secondary protection zone and reduced the primary protection zone surrounding the eagle nest to feet building construction at any height was not permitted in the 660-foot primary protection zone the wilsonmiller plan as of the valuation_date included all of parcel b-10 including the eagle nest zone and proposed no development on the area within a 660-foot radius around the eagle nest zone besides the eagle nest another concern in developing parcel b-10 is the wildlife corridor the wildlife corridor was primarily a flyway for eagles to reach the ocean but it also considered other animals common in sarasota such as rabbits squirrels and raccoons parcel b-10 is within the wildlife corridor the wildlife corridor extended into a neighboring parcel of land known as the hamptons the hamptons is a 5-acre subdivision to the east of parcel b- when the hamptons subdivision was approved for residential development the wildlife corridor designation was removed from a portion of the parcel to allow for the development that portion was a part of the then-existing 900-foot primary protection zone around the eagle nest in the wildlife corridor designation has not been removed from any portion of parcel b-10 but there are still significant developable areas on the land iv road access in sarasota county residential developments of dwelling units or more must have two fully functional access points unless the county engineer or the bocc grants a variance sarasota county’s land development regulations seek to maintain neighborhood interconnectivity in particular they provide that there shall be a continuation of the existing street patterns and coordination of the street systems among adjoining subdivisions to facilitate traffic flow through communities the land development regulations state street stubs to adjoining areas shall be provided when required to give access to such areas or to provide for future traffic circulation sarasota county fla ordinance no subdivision technical manual para a e date sawyer loop road lies to the north of parcel b-10 across parcel b-9 mcintosh road lies to the west of parcel b-10 across the legacy trail parcel b-10 does not front sawyer loop road or mcintosh road ridge road lies in the stonebridge subdivision to the south of parcel b-10 ridge road has a stubbed- out access point at parcel b-10’s southern border a stubbed-out road is configured to have a temporary turnaround or bulb out until a neighborhood is developed on the adjoining property and a street is continued v conservation_easement valuation there was prior litigation involving parcel b-10 in the court of federal claims rogers v united_states no consolidated fed cl filed date the judge in those cases determined that undeveloped land in the dri including parcel b-10 was worth dollar_figure per acre as of date see 112_fedclaims_617 the prices for residential real_estate in sarasota county were increasing during and but peaked in late there was a subsequent softening in demand but no notable nosedive or decrease in value in andres bolano jr was palmer ranch’s accountant and oversaw the preparation of palmer ranch’s tax_return the return shows a charitable_contribution_deduction of dollar_figure for the donated easement and dollar_figure for a cash donation mr bolano included with the return mr durrance’s real_estate appraisal and wilsonmiller’s land use analysis to support the deduction for the donated easement palmer ranch timely filed its tax_return respondent issued an fpaa to petitioner on date disallowing dollar_figure of the continued connected because it is a stubbed-out road there is no lot or house at the future connection point to the adjoining property deduction and asserting a sec_6662 penalty petitioner timely filed its petition with this court for readjustment opinion i burden_of_proof generally the commissioner’s determination is presumed correct and the taxpayer bears the burden of proving by a preponderance_of_the_evidence that the determination is incorrect see rule a 290_us_111 deductions are a matter of legislative grace and a taxpayer bears the burden of proving entitlement to any claimed deductions 503_us_79 while sec_7491 may place the burden_of_proof upon the commissioner in certain circumstances the parties agree that it does not operate to shift the burden in this case because palmer ranch exceeds the net_worth requirement sec_7491 regardless we need not consider the burden_of_proof because the outcome of this case is determined on the preponderance_of_the_evidence see 124_tc_95 ii the conservation easement’s value under sec_170 taxpayers may claim charitable_contribution deductions for the fair_market_value of property they donate taxpayers generally cannot claim deductions for donations of partial property interests but there is an exception for qualified conservation contributions see sec_170 respondent concedes that palmer ranch made a qualified_conservation_contribution he disputes only the fair_market_value of the contributed_property a before-and-after method generally the charitable_contribution amount is the contributed property’s fair_market_value at the time it is contributed sec_1_170a-1 c income_tax regs fair_market_value is the price at which property would change hands between a willing buyer and willing seller neither being under any compulsion to buy or sell and both having a reasonable knowledge of relevant facts sec_1_170a-1 income_tax regs where a substantial record of comparable easement sales exists the donated easement’s fair_market_value is based on the comparable easements’ sale prices sec_1_170a-14 income_tax regs however where there is no established market for similar conservation easements the regulations provide another method to determine fair_market_value t he fair_market_value of a perpetual conservation restriction is equal to the difference between the fair_market_value of the property it encumbers before the granting of the restriction and the fair_market_value of the encumbered property after the granting of the restriction id see generally 85_tc_677 the parties’ appraisers agree that no established market for conservation easements exists in this case and that the before-and-after method is the best way to value the easement under this method appraisers measure the difference in property value before and after the easement was granted an appraiser may use the comparable sales_method or another accepted method to estimate the before and after values of the property hilborn v commissioner t c pincite an appraiser using the comparable sales_method is required to find property sales that meet three criteria the properties themselves are similar to the subject property the sales are arm’s-length transactions and the sales have occurred within a reasonable_time of the valuation_date 72_tc_1 both parties’ appraisers used the comparable sales_method as a basis for their before and after valuations petitioner’s appraiser mr durrance used eight comparables respondent’s appraiser bradley page used four of the same comparables plus another we will confine our review to the four agreed-upon comparables comparable sale date purchase_price dollar_figure big_number big_number big_number size acres price per acre dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure big_number big_number big_number amounts are rounded to the nearest hundred the parties agree that comparable is the only true comparable comparable just under acres is outside of the dri and sold in for dollar_figure million or dollar_figure per acre mr durrance concluded parcel b-10 had a before value of dollar_figure or dollar_figure per acre while mr page concluded the before value was dollar_figure or dollar_figure per acre despite their agreement on selecting comparable properties the two appraisers differ greatly in their before value estimates--ranging from dollar_figure million to dollar_figure million both appraisers calculated the before value using research on and analysis of parcel b-10 including its size shape and location an analysis of comparable properties road access from surrounding communities environmental restrictions on the property and zoning designations on the property both parties recognized that parcel b-10 was similar in size and shape to comparable comparable had acres of developable land that allowed for a maximum of dwelling units ranging from single-family to townhome-style residential in contrast mr page determined that parcel b-10 had only acres of developable land running from the northern to the southern boundary in the western portion of parcel b-10 this he concluded limited development to a range of to dwelling units he also determined these dwelling units were limited to single-family homes because parcel b-10 had a current zone designation of re-1 ie one unit per two acres mr durrance’s appraisal accounts for greater development potential on parcel b-10 and accordingly ascribes greater value to the property mr durrance recognizes that the current zoning of parcel b-10 is re-1 ie one unit per two acres but he also observes that the sarasota county comprehensive plan permitted a higher zoning designation mdr ie two to five units per acre because the sarasota county zoning regulations permit cluster development mr durrance believed multifamily dwelling units would be permitted in parcel b-10 see sarasota county fla code of ordinances app a art secs date in the appraisal mr durrance notes that the current low-density zoning is an interim zoning that is historically typical of undeveloped acreage in the dri mr durrance determined that the most important consideration in determining a property’s development potential is to consider the future land use designation in the sarasota county comprehensive plan therefore mr durrance assumed the property could be developed with two to five units per acre or a total of units he also found this determination consistent with the surrounding residential development mr durrance’s appraisal observed that the sarasota county zoning map shows parcels b-9 and b-10 surrounded by higher density zoning districts another factor differentiating the appraisals is the relevance of pulte’s development proposal on the combined property of parcels b-9 and b-10 excluding the eagle nest zone pulte proposed to develop single-family residential units of which would have been on parcel b-10 pulte later amended the application to remove parcel b-10 from the proposal so that only parcel b-9 was before the bocc the bocc ultimately rejected the application in mr page reviewed ordinance which conveyed the bocc’s denial as well as the transcripts from the bocc hearing mr page concluded that this prior rejection was an indication that the bocc would not approve the type of development which was the basis of mr durrance’s appraisal mr durrance however did not give any value to the outcome of this previous development proposal because it was a two-year-old development denial on parcel b-9 only we are not bound by the opinion of any expert witness when that opinion is contrary to our judgment 86_tc_547 furthermore w e may embrace or reject expert testimony whichever in our best judgment is appropriate 84_tc_722 ‘valuation is necessarily an approximation ’ it is an inexact science at best capable of resolution only by ‘solomon-like’ pronouncements 87_tc_389 alteration in original citations omitted in deciding the property’s fair_market_value before the encumbrance we must take into account not only the property’s then-current use but also its highest_and_best_use see id pincite sec_1_170a-14 and ii income_tax regs a property’s highest_and_best_use is the highest and most profitable use for which it is adaptable and needed or likely to be needed in the reasonably near future 292_us_246 hilborn v commissioner t c pincite this presents a problem of judgment not mathematics stanley works subs v commissioner t c pincite if different from the current use a proposed highest_and_best_use requires closeness in time and reasonable probability hilborn v commissioner t c pincite the dispute here hinges on parcel b-10’s highest_and_best_use because the parties do not agree on whether palmer ranch’s proposed use is reasonably probable b highest_and_best_use a property’s highest_and_best_use may be defined as ‘the 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 ’ 139_tc_304 quoting appraisal institute the appraisal of real_estate 13th ed the most significant dispute here is whether it is reasonably probable that multifamily dwelling units could have been developed on parcel b-10 around date respondent contends that the existing re-1 ie one unit per two acres zone designation reflected parcel b-10’s highest_and_best_use anything exceeding that designation he argues was not reasonably probable petitioner maintains that a rezoning of the property to the mdr ie two to five units per acre zone designation found in sarasota county’s comprehensive plan is reasonably probable respondent argues that a zoning change for parcel b-10 was not reasonably probable given four factors the failed rezoning history environmental concerns limited access to outside roads and neighborhood opposition we address each of these arguments in turn failed rezoning history respondent contends that the failed rezoning history relative to parcel b-10 is evidence that it could not be rezoned and developed in accordance with the mdr designation we disagree in palmer ranch entered into a sale contract with pulte palmer ranch conditionally agreed to sell to pulte approximately acres that combined parcel b-9 and a portion of parcel b-10 the agreement was conditioned on pulte’s receiving a favorable determination from sarasota county to rezone and develop dwelling units on the combined property the original rezoning application sought to rezone the land from re-1 ie one unit per two acres to rsf-2 pud units per acre the bocc denied pulte’s development application by a three-to-two vote in date but granted pulte’s request to continue proceedings pending a development plan revision pulte amended its purchase agreement with palmer ranch in july to drop parcel b-10 in august pulte submitted a revised application to the bocc for development and rezoning of parcel b-9 only in date the bocc voted three to two to deny the revised applications this denial was later conveyed in ordinance no and resolution no respondent argues that petitioner’s appraiser did not give due consideration to this rezoning history respondent cites three cases to support his contention that petitioner’s proposed rezoning is speculative at best see 109_tc_450 aff’d without published opinion 173_f3d_850 4th cir envtl pres co v commissioner tcmemo_1992_ estate of jennings v commissioner tcmemo_1976_152 however the cases respondent relies on are distinguishable from this case in lakewood the taxpayer purchased land that it planned to develop as residential property when purchased the land was zoned for agricultural use the taxpayer applied for rezoning in and was denied in also in new federal wetland regulations reclassified most of the land as wetlands the taxpayer claimed a loss deduction for for the decrease in property value we held that the new regulations did not deny the taxpayer the right to develop the land that it previously possessed because the taxpayer was denied a rezoning that same year the rezoning history in lakewood was much more relevant because rezoning was denied in the year at issue here however the rezoning history is over two years old and concerns a different land segment in estate of jennings the taxpayer died in date owning land that was zoned for single-family dwellings on two-acre lots the estate valued the land at dollar_figure on its tax_return the commissioner argued the land was worth dollar_figure million because the decedent had entered into a contract in to sell the land for dollar_figure million that contract was contingent upon the buyer’s obtaining a zoning change to permit commercial construction the contract was not consummated because the buyer’s rezoning application was denied in after the valuation_date we held that there was no assurance that the land could be rezoned because there were significant issues barring a rezoning respondent cites estate of jennings in arguing that there is no assurance the parcel b-10 rezoning will be successful however as we discuss below we do not believe the environmental concerns respondent raises substantially limit palmer ranch’s ability to have parcel b-10 rezoned also as discussed in this section pulte’s previous failure to have parcel b-9 rezoned does not demonstrate that an attempt to rezone parcel b-10 would necessarily fail in envtl pres co the commissioner determined that the taxpayer- partnership overstated the value of its real_property charitable_contribution on its tax_return the taxpayer argued that the land’s highest_and_best_use was as a deep water marine terminal it based this determination in part on its investigation of ports on similarly situated properties in holding for the commissioner we stated that the issue is not how other ports have used such property but whether the proposed use is likely for this particular property in the near future there were extensive wetlands on the taxpayer’s land however the taxpayer did not offer any evidence regarding the wetlands’ effect on the reasonable probability of its proposed development the taxpayer also failed to establish that demand existed in the area for development in the reasonably near future as we discuss below petitioner presented credible_evidence showing that it accounted for the effect the eagle nest zone the surrounding wetlands and the wildlife corridor would have on the rezoning and development of parcel b-10 respondent maintains that ordinance is a legally binding document that shows a historical rezoning and development denial for parcel b-10 and therefore depresses the value of parcel b-10 we recognize that the ordinance is authoritative but we also note its diluted value the ordinance is a document embodying the bocc’s determination and is entitled to a degree of as discussed infra the ordinance is subject_to interpretation respondent however overstates the ordinance’s importance on the basis of his reliance on reams of hearsay evidence found in the bocc meeting minutes consideration however the bocc made its determination two years before the year at issue and it applied to parcel b-9 only pulte removed parcel b-10 from the rezoning and development applications before the bocc denied them the bocc addressed parcel b-10 in the ordinance only to advise pulte to endeavor to keep parcel b-10 in tact sic as it relates to the eagle preservation area the wetlands and the wildlife corridor we discuss the meaning of this statement infra nothing in the ordinance forecloses the possibility that palmer ranch could have successfully had parcel b-10 rezoned the county comprehensive plan established an mdr ie two to five units per acre zone designation in the future land use map for parcel b-10 we recognize that this is not a guarantee of higher density zoning but it does show that such a rezoning is legally permissible because our caselaw states that legal permissibility is not enough we must also ascertain whether it was reasonably probable that the bocc would have approved rezoning parcel b-10 flu policy of the comprehensive plan states the present use of land may by the zoning atlas continue to be more limited than the future use designated on the future land use map although a zoning change may be consistent with the comprehensive plan the landowner is not presumptively entitled to such use miami-dade cnty v walberg so 2d fla dist ct app because the ordinance did not involve a denial for parcel b-10 we look to the date denial that did relate to parcel b-10 pulte’s development application_for the combined property between parcels b-9 and b-10 excluding the eagle nest zone in date was denied by a three-to-two vote the separate application_for rezoning the combined property was continued and thus no vote took place the date denial related only to a portion of parcel b-10 that portion did not include the eagle nest zone looking at that denial in conjunction with the ordinance we believe the bocc was concerned that the development application did not consider the nearby eagle nest zone wetlands and wildlife corridor moreover that date denial as well as the ordinance was the result of a three-to-two vote the closeness of the vote suggests that the bocc’s decision could have changed over time especially when a later application protects the eagle nest zone the wetlands and the wildlife corridor accordingly this rezoning history does not eliminate the reasonable probability on the valuation_date of a successful rezoning environmental concerns the comprehensive plan states as a policy that sarasota county shall support state and federal agencies in implementing protection guidelines related to listed species in eagles were an endangered species the dri master development order was amended in to include an eagle nest zone and a wildlife corridor the wildlife corridor was primarily a flyway for eagles to reach the ocean but it also served other animals common in sarasota county parcel b-10 is within the wildlife corridor respondent argues that with exception for some minor infringements residential structures are generally not permitted in the wildlife corridor he argues that the express terms of ordinance make this point clear ordinance stated that one of the necessary changes for a favorable determination was that the developer should endeavor to keep parcel b-10 in tact sic as it relates to the eagle preservation area the wetlands and the wildlife corridor what exactly the bocc meant by keeping parcel b-10 intact is unclear from the record respondent contends it means that the land must not be developed while petitioner argues moderate development is permitted so long as the development does not encroach on the concerned lands we agree with petitioner see sarasota county fla comprehensive plan ch env policy https www scgov net compplan comp 20plan 20amendments chapter 20environment pdf the two parties argue over the meaning of intact respondent argues intact means untouched especially by anything that harms or diminishes webster’s new collegiate dictionary petitioner argues intact means complete or whole random house dictionary of the english language 2nd unabridged the bocc was considering an application to rezone and develop only parcel b-9 when it issued ordinance in denying that application the ordinance stated that the developer needed to amend the application to include parcel b-10 and keep it intact as it related to the eagle nest zone the wetlands and the wildlife corridor recall that pulte originally submitted an application_for development on parcels b-9 and b-10 excluding the eagle nest zone which was denied pulte then submitted a revised plan that included only parcel b-9 which resulted in a denial and the ordinance requiring inclusion of parcel b-10 given this context we believe the phrase keep parcel b-10 in tact sic as it relates to the eagle preservation area the wetlands and the wildlife corridor emphasis added was meant to keep those environmental concerns in the picture when development plans were submitted clearly the bocc was concerned about developers planning construction near environmentally sensitive areas without giving those areas due consideration the wilsonmiller plan as of the valuation_date included all of parcel b-10 including the eagle nest zone and proposed development only on the improved pasture land leaving the 660-foot radius surrounding the eagle nest zone as open space therefore this development plan addresses the bocc’s concern and its approval is reasonably probable looking to the hamptons subdivision we find further support for the probability that the bocc would approve residential development in a wildlife corridor the hamptons was built in a wildlife corridor on a tract of land adjoining parcel b-10 near the eagle nest when the bocc approved residential development in the hamptons subdivision the wildlife corridor designation was removed from a portion of the parcel to allow for that development that portion was also part of the then-existing 900-foot primary protection zone around the eagle nest in moreover respondent’s own land use planner recognized that there are significant developable areas in the wildlife corridor accordingly the wildlife corridor does not decrease the reasonable probability of a successful rezoning road access in sarasota county residential developments of dwelling units or more must have two fully functional access points unless the county engineer or the bocc grants a variance respondent contends that it was not reasonably probable that a developer could have built multifamily dwelling units on parcel b-10 because the land does not abut either an arterial or collector road multifamily dwellings are approved only in areas having convenient access to both arterial and collector roads respondent further states that future parcel b-10 residents would be required to travel across parcel b-9 or through the stonebridge subdivision to access parcel b- these are two options respondent contends are not possible even though his own appraiser states the subject site is accessed from ridge road that ends in a cul-de-sac within the stonebridge single family subdivision south of the subject and from sawyer loop road through parcel b-9 adjacent to the north of the subject sarasota county defines an arterial road as one that facilitates long trips at higher operating speeds than collector or local roads sarasota county defines a collector road as one that collects and distributes traffic at moderate and low operating speed with more accessibility to adjacent properties than arterial roads respondent agrees that ridge road provides a legal means of access to parcel b-10 but he contends that neighborhood opposition would have limited its access to emergency use only he argues that it is reasonable to assume that the residents of stonebridge would have made factually based arguments on the valuation_date considering their fervor and organization against pulte’s proposed development on parcels b-9 and b-10 in see miami-dade cnty v walberg so 2d fla dist ct app holding that neighborhood opposition supported by facts may constitute substantial competent evidence to deny a proposed development we disagree with respondent for a number of reasons as stated below neighborhood opposition alone will not preclude development moreover respondent’s position requires three assumptions that stonebridge residents would object to parcel b-10’s ingress and egress over ridge road that any possible objection would be a factually based argument strong enough to preempt such access and that the bocc would find merit in the argument we are not prepared to adopt these assumptions furthermore sarasota county’s land development regulations seek to maintain neighborhood interconnectivity in particular they provide that there shall be a continuation of the existing street patterns and coordination of the street systems among adjoining subdivisions to facilitate traffic flow through communities the land development regulations state street stubs to adjoining areas shall be provided when required to give access to such areas or to provide for future traffic circulation sarasota county fla ordinance no subdivision technical manual para a e date consistent with this policy a public residential street was stubbed out in the stonebridge neighborhood to provide future access to parcel b-10 the stubbed-out road demonstrates a general expectation that future residents of parcel b-10 would use the road to access their homes therefore this road provides one access point for the land a northern access point to parcel b-10 is also possible through parcel b-9 to sawyer loop road respondent argues that this access point is not possible without an additional cost to the hypothetical willing buyer to purchase an access see sarasota county fla comprehensive plan tran policy https www scgov net compplan comp 20plan 20amendments chapter 20transportation pdf see also sarasota county fla ordinance no subdivision technical manual para a d date easement across parcel b-9 however parcels b-9 and b-10 were under common ownership on the valuation_date if mr culverhouse and palmer ranch wanted to sell parcel b-10 at its maximum value it had to have two fully functional access points they could have granted an easement across parcel b-9 to the purchaser with little cost to themselves the necessity of granting an easement across parcel b-9 would not significantly diminish the value of parcel b- palmer ranch could have easily given parcel b-10 the requisite road access to allow for residential development accordingly this factor does not decrease the probability that it could have been rezoned neighborhood opposition respondent contends that neighborhood opposition is another factor that would prevent parcel b-10 from being rezoned for support respondent recalls neighborhood opposition to the pulte rezoning attempt however as stated above that rezoning application related to a different land segment--parcels b-9 and b-10 exclusive of the eagle nest zone it did not involve parcel b-10 alone in its entirety even if we were to assume this rezoning would face neighborhood opposition to find it effective we would again have to make the three assumptions we identified above in our road access discussion we do not make those assumptions and we accordingly find that the potential for neighborhood opposition does not bar the reasonable probability of a successful rezoning conclusion in accordance with our above findings there is a reasonable probability that parcel b-10 could have been successfully rezoned to allow for the development of multifamily dwellings therefore the highest_and_best_use of the property is development for multifamily dwellings we now turn to respondent’s argument that palmer ranch’s valuation is too high because there was a softening in the real_estate market around the valuation_date c real_estate market the parties agree that the prices for residential real_estate in sarasota county were increasing during and however respondent contends that the real_estate market in was not as positive as petitioner’s dollar_figure million before value suggests we assess petitioner’s valuation below before value petitioner argues parcel b-10 had a dollar_figure million fair_market_value before the land was encumbered respondent argues it was dollar_figure million the primary differences between the appraisals result from their zoning determinations and their selected comparison measure mr durrance used mdr ie allow sec_164 to homes as the appropriate zone designation and gross acreage as his comparison measure mr page used rsf-2 pud ie allow sec_72 to homes as his zone designation and density units as his comparison measure on the basis of our analysis above mdr was the more appropriate zone designation we also think gross acreage was the appropriate comparison measure because the sarasota county zoning regulations define density as the maximum number of residential dwelling units permitted per gross acre of land sarasota county fla ordinance no app a art sec date emphasis added because mr durrance used a gross acreage comparable measure based on the mdr zone designation we believe mr durrance’s appraisal is more accurate we also find compelling that both appraisers used four of the same comparables yet only mr durrance’s appraisal is within the selected comparables’ price-per-acre range we understand that appraisers must make adjustments but mr page’s were excessive given that he claimed the properties he selected were comparable though we find mr durrance’s appraisal more accurate it is not without fault there was prior litigation involving parcel b-10 in the court of federal claims see supra p the judge in those cases determined that undeveloped land in the dri including parcel b-10 was worth dollar_figure per acre as of date see 112_fedclaims_617 using that price as a starting point mr durrance states that a market condition or time adjustment must be made to account for the trend of increasing land values he estimates that the value of parcel b-10 was about dollar_figure per acre in date as support for his estimate mr durrance provides alternative calculations apply a monthly appreciation rate to dollar_figure for months date through date or apply a monthly appreciation rate to dollar_figure for months date through date mr durrance borrowed these alternative time adjustment calculations from the government’s appraiser john underwood in the rogers case however mr durrance’s use of these calculations is incomplete mr underwood stated in his rogers appraisal that there was a per month increase in values from to however he said appreciation rates for raw land lag behind those for developed land so he used a per month adjustment for palmer ranch’s undeveloped land parcel b-10 is raw land so we believe the per month time adjustment is appropriate mr durrance applied the appreciation factor over months ending in date citing numerous newspaper articles reporting a third- quarter decline in housing prices respondent argues the appreciation rate is too high on cross-examination mr durrance stated that the real_estate market peaked in late he stated there was a softening in demand but no notable nosedive or decrease in value in according to his own admission mr durrance should not have applied a steady appreciation factor to parcel b-10 for the months after the market hit its peak in even if property values did not decline in we think they likely stagnated accordingly we will reduce petitioner’s appraisal by the amount of appreciation mr durrance calculated this results in a before value of dollar_figure after value to calculate the after value messrs durrance and page looked to recent sales of encumbered properties however neither relied on these sales comparisons because each conservation_easement had restrictions specifically tailored to its particular situation that made a comparison impractical both appraisers analyzed the restrictions of the conservation_easement to determine the impact it would have on parcel b-10 the easement permitted limited development for a nature park or recreational improvements such as campgrounds swimming pools and athletic fields it also permitted agricultural uses such as breeding raising and grazing cattle except as otherwise permitted the easement restricted construction dumping mining excavation vegetation removal billboard and advertisement displays and industrial or commercial use both appraisers agree that the conservation_easement severely limits the marketability of parcel b-10 and therefore significantly reduces its value both appraisers estimated the property’s after value pincite or less of its before value mr page appraised encumbered parcel b-10 pincite of its unencumbered value while mr durrance appraised it pincite of the unencumbered value the two appraisals are relatively close in their estimations and we see no significant error in either appraiser’s conclusions we believe reasonable minds may disagree when it comes to providing estimates such as these ‘valuation is necessarily an approximation ’ it is an inexact science at best capable of resolution only by ‘solomon-like’ pronouncements stanley works subs v commissioner t c pincite alteration in original citations omitted however we find mr durrance’s estimate more accurate as encumbered the land could be used for agricultural or recreational use respondent looked at three encumbered properties that were used for agricultural purposes that ranged in size from big_number to big_number gross acres parcel b-10 is only dollar_figure acres and surrounded by an urban community we therefore do not see much value in using parcel b-10 for agricultural purposes as its size and location do not lend itself to this type of use thus we must determine how valuable parcel b-10 is when used for recreational purposes the size and location of parcel b-10 are appropriate for developing a nature park campground or swimming pool however these developments are limited to a potential purchaser that is either a nonprofit organization or the state of florida this already shallow buyer pool is further reduced because any potential buyer must also be willing to carry out these developments subject_to the easement’s restrictions therefore we agree with mr durrance and will use of the unencumbered value as the appropriate percentage to value parcel b-10 in its encumbered state accordingly the after value of parcel b-10 is dollar_figure d conclusion under the before-and-after valuation method we calculate the fair_market_value of the easement by subtracting the property’s after value from its before value on the basis of analysis above we hold the conservation easement’s fair_market_value is dollar_figure ie dollar_figure dollar_figure iii accuracy-related_penalty respondent determined that the underpayment_of_tax resulting from the adjustment of partnership items was attributable to a gross_valuation_misstatement as defined in sec_6662 and therefore imposed a penalty alternatively respondent imposed a penalty because he determined that the underpayment_of_tax was attributable to one or more of the following negligence or disregard of rules or regulations a substantial_understatement_of_income_tax or a substantial_valuation_misstatement see sec_6662 and b and a preliminary matter sec_1 jurisdiction under the tefra framework a court in a partnership-level proceeding like this one has jurisdiction to determine the applicability of any penalty which relates to an adjustment to a partnership_item sec_6226 united_states v woods u s ___ ___ 134_sct_557 tefra authorizes courts in partnership-level proceedings to provisionally determine the applicability of any penalty that could result from an adjustment to a partnership_item even though imposing the penalty requires a subsequent partner-level proceeding whether the commissioner may not stack or compound alternative grounds for the sec_6662 penalty to determine a penalty greater than the maximum of on any given portion of an underpayment or if such portion is attributable to a gross_valuation_misstatement sec_1_6662-2 income_tax regs there is a substantial or gross_valuation_misstatement in the partnership context is determined at the partnership level sec_1_6662-5 income_tax regs burden of production under sec_7491 the commissioner has the burden of production in any court_proceeding with respect to the liability of any individual for any penalty imposed by the code however sec_7491 does not shift the burden_of_proof which remains on the taxpayer 116_tc_438 petitioner relies on sec_7491 to support its argument that respondent bears the burden of justifying any penalty in this case however sec_7491 is not as clear as petitioner states it is not entirely instructive whether that section imposes the initial burden on the commissioner when the taxpayer is an entity that has petitioned this court under sec_6226 by its terms sec_7491 applies only to the liability of any individual for penalties see santa monica pictures llc v commissioner tcmemo_2005_104 plainly by using the different in contrast sec_7491 which provides the general_rule for shifting the burden_of_proof to the commissioner in certain circumstances applies in ascertaining the liability of a taxpayer terms ‘individual’ and ‘taxpayer’ congress intended to distinguish the two terms we need not resolve any potential uncertainty even if we assume that respondent has the initial burden of production we are satisfied that he has carried it therefore the burden remains with petitioner to prove the penalty determinations are incorrect higbee v commissioner t c pincite respondent has made several alternative penalty determinations we address each below b penalty under sec_6662 a taxpayer may be liable for a penalty on any portion of an underpayment_of_tax attributable to a gross_valuation_misstatement a gross_valuation_misstatement exists if the value or adjusted_basis of any property claimed on a tax_return is or more of the amount determined to be the correct amount of such value or adjusted_basis sec_6662 modifying subsection e a palmer ranch claimed a dollar_figure million charitable_contribution_deduction on its return as stated above dollar_figure is the correct value of the conservation_easement that is about a overstatement therefore there was no gross_valuation_misstatement and a penalty under sec_6662 is inappropriate c penalty under sec_6662 and b - a accuracy-related_penalty shall be imposed on any portion of an underpayment of federal_income_tax attributable to one or more of the following negligence or disregard of rules or regulations a substantial_understatement_of_income_tax or a substantial_valuation_misstatement sec_6664 provides a reasonable_cause exception to the accuracy- related penalty generally under sec_6664 the sec_6662 accuracy-related_penalty is not imposed if the taxpayer acted with reasonable_cause and in good_faith however the reasonable_cause exception does not apply to a substantial_valuation_overstatement with respect to charitable_contribution property unless the claimed value was based on a qualified_appraisal by a qualified_appraiser and the taxpayer made a good-faith investigation of the contributed property’s value sec_6664 and see also sec_1_6664-4 income_tax regs respondent concedes the appraisal requirement but argues that palmer ranch has not met the good-faith investigation requirement we disagree respondent’s chief criticism of palmer ranch’s efforts was that it did not inform its appraiser or tax_return_preparer of ordinance while it is true that messrs durrance and bolano were not aware of the ordinance at the time the appraisal was prepared we do not believe that omission shows a lack of good_faith mr durrance testified that the ordinance would not have mattered to his appraisal because the ordinance was a development denial for a different property in a different time period similarly this omission would not have affected mr bolano’s tax_return preparation because he was not the appraiser palmer ranch retained a tax attorney to advise it on how to donate the easement in compliance with the internal_revenue_code the attorney further retained mr durrance a licensed appraiser and wilsonmiller a land planning and engineering firm we have identified flaws in the appraisal but they were not due to information contained in the omitted ordinance we think these actions represent a good-faith attempt to determine the easement’s value accordingly palmer ranch may raise a reasonable_cause defense for the tax underpayment whether a taxpayer acted with reasonable_cause and in good_faith is determined on a case-by-case basis taking into account all of the pertinent facts and circumstances including the taxpayer’s experience knowledge and education sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax_liability id reliance on professional advice may constitute reasonable_cause and good_faith but only if considering all the circumstances such reliance was reasonable 89_tc_849 aff’d 904_f2d_1011 5th cir aff’d 501_us_868 sec_1_6664-4 income_tax regs reasonable_cause exists where a taxpayer relies in good_faith on the advice of a qualified_tax adviser where the following three elements are present the adviser was a competent professional who had sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 aff’d 299_f3d_221 3d cir see sec_6664 professional advisers palmer ranch retained an experienced tax attorney to advise it on how to donate the conservation_easement in compliance with sec_170 that attorney retained mr durrance who respondent stipulated was a qualified_appraiser providing a qualified_appraisal palmer ranch also retained wilsonmiller to provide advice on the relevant land planning zoning and other land use regulations relevant to the donated property respondent does not dispute that the conservation_easement satisfied all the requirements for a qualified donation of a conservation_easement as specified in sec_170 therefore we have no trouble finding these advisers to have at least an adequate level of expertise necessary and accurate information there is some dispute as to whether palmer ranch provided the appraiser and the tax preparer with all necessary information messrs durrance and bolano did not know about ordinance however as discussed above this ordinance is not as critical as respondent contends because it was outdated and dealt with a different land segment therefore we see no problem with the information palmer ranch provided the appraiser and the tax preparer actual reliance in good_faith respondent contends that palmer ranch could not have relied on its advisers’ analysis in good_faith when it did not provide them with ordinance again ordinance is not as critical as respondent contends therefore we do not find this fatal to a finding that palmer ranch acted in good_faith in accepting this appraisal value as reasonable we conclude that palmer ranch had reasonable_cause and acted in good_faith with respect to its underpayment for accordingly we hold that palmer ranch is not liable for the accuracy-related_penalty iv conclusion palmer ranch overvalued the contributed conservation_easement on parcel b-10 but is not liable for the accuracy-related_penalty in reaching our holdings herein we have considered all arguments made and to the extent not mentioned above we conclude they are moot irrelevant or without merit to reflect the foregoing an appropriate decision will be entered


smug is epqo- internal_revenue_service department of the treasury washington dc q14 contact person telephone number in reference ta date jan ' dear sir or madam this is requesting advance approval of your amended grant procedures in reference to your letter of october we originally approved your grant procedures in a letter dated date under your amended grant-making procedures your current scholarship program will be separated into two distinct programs one for children of the employees of subsidiaries who work at locations within h and one for children of the employees of b and its wholly owned subsidiaries who work at locations within i b and its wholly owned c program d program the the children of active full-time employees of b and its wholly owned subsidiaries who are employed at locations within h are eligible to participate in the c program an applicant must be a secondary school senior graduating during the current academic year and entering college in the summer or fall of the following year junior in good standing at university during subsequent years including appointments to g the c program in any year will not exceed percent of the number of employees’ children who are applicants for such grants and winners may hold other scholarships an accredited four-year college or persons who are winners are not eligible to reapply the number of grants awarded under or a freshman sophomore or are considered by the are eligible a sees ane aay selection committee in selecting the recipients of grants in that year successful applicants will be selected by f or such other f or such other independent selection outside independent nonprofit_educational_organization as selected by you organization will evaluate records extracurricular activities test scores and outstanding talents and achievements selected participants each year and you will award priority scholarships to selected participants up number of scholarships f will prepare a prioritized list of in order of applicants based on overall academic to the maximum the scholarship award will consist of a one-time grant of checks will be payable to the student dollar_figure payable upon receipt of the winner's verification of registration at intent prior to the start of the school year an accredited college or university and a signed letter of the grant is while f will be responsible for the general administration of the c program you will monitor all reports from f and other aspects of the program to assure compliance with the program's purpose and procedures a result of the termination of there is scholarship recipients to apply for employment with you or b and recipients are free to choose their own course of study without influence from you or b no commitment intention or requirement to induce grants are not subject_to termination as a parent’s employment with b children of active full-time employees of b and its wholly owned subsidiaries who are employed at locations within i are eligible to participate in the d program an applicant must be a secondary school senior graduating during the current academic year and entering college in the summer or fall of the following academic year or a freshman sophomore or junior in good standing at college or university to reapply during subsequent years scholarships in any year will not exceed percent of the number of employees’ children who such grants and selecting the recipients of grants in that year the number of grants awarded under the d program persons who are winners are not eligible are considered by the selection committee in an accredited four-year winners may hold other are applicants for are eligible successful applicants will be selected by f or such other outside independent nonprofit_educational_organization as selected by you organization will evaluate applicants based on overall academic or such other independent selection f a n o s o records extracurricular activities test scores and outstanding talents and achievements selected participants each year up to the maximum number of scholarships f will prepare a prioritized list of the scholarship award will consist of a one-time grant of the scholarship will be issued on the student‘s behalf dollar_figure to the college or university at which the student is registered to attend you have received verification that the student is registered at an accredited college or university no scholarship will be issued however until f or while f will be responsible for the general administration of the d program you will monitor all reports from f and other aspects of the program to assure compliance with the program's purpose and procedures a result of the termination of there is scholarship recipients to apply for employment with you or b and recipients are free to choose their own course of study without influence from you or b no commitment intention or requirement to induce grants are not subject_to termination as a parent’s employment with b in both the c and d programs scholarships will not be used a means of inducement to recruit employees for b nor will a as grant be terminated if the employee leaves the company scholarships will only be awarded to students that plan to enroll in an institution that meets the requirements of sec_170 b a ii the recipient will not be restricted in his her course of study information on applications received and grants made which will enable you to maintain the records required by rev c b you will ensure compliance with the percentage tests under section dollar_figure of rev with respect to your other scholarship programs available to the same individuals proc in the aggregate f will supply statistical of the code proc sec_4945 of the code provides for the imposition of taxes on each taxable_expenditure of a private_foundation sec_4945 of the code provides that the term taxable_expenditure private_foundation as or other similar purposes by such individual unless such grant satisfies the requirements of sec_4945 g means any amount_paid or incurred by a a grant to an individual for travel study sec_4945 of the code provides that sec_4945 objective and nondiscriminatory basis pursuant to approved in advance by the secretary if shall not apply to an individual grant awarded on an a procedure is demonstrated to it the satisfaction of the secretary that the grant constitutes a scholarship or fellowship_grant which is subject_to the provisions of sec_117 educational_institution described in sec_170 the code to be used for study at an and is a ii of rev proc c b sets forth guidelines for a private_foundation conducting an employer related grant program to obtain advance approval of its procedures for conducting such a program under sec_4945 of the code through dollar_figure set forth seven conditions which a private_foundation must meet in order to obtain advance approval of its procedures under sec_4945 of the code provides that a private_foundation which makes scholarship awards to children of employees of themselves will meet this test if of all eligible applicants or of all those shown to be eligible in any given year renewals of grants awarded in prior years will not be considered in determining the number of grants awarded in a company or to the employees it limits these grants to a current_year sections dollar_figure section dollar_figure the information provided indicates that your amended scholarship program and the procedures under which it conducted will not differ materially from your original program approved in the letter dated date is therefore based upon the information submitted and assuming your amended program will be conducted as proposed with a view to providing objectivity and nondiscrimination in the awarding of scholarship grants we rule that your c and d programs for the awarding of scholarship grants comply with the requirements of sec_4945 expenditures made in accordance with these procedures will not constitute taxable_expenditures within the meaning of sec_4945 da exclusion from income provided for in sec_117 of the code to the extent that such grants are actually used for qualified_tuition_and_related_expenses within the meaning of sec_117 and as such are eligible for the of the code of the code of the code thus this ruling is conditioned on the understanding that there is based is further conditioned on the understanding that no grants will be no material changes in the facts upon which it it will be awarded to creators officers directors trustees or members of the selection committee or for a purpose inconsistent with the purposes described in sec_170 b of the code please note that this ruling is only applicable to grants awarded under your scholarship program as outlined above before og d c we you enter into any other scholarship programs you should submit a request for advance approval of that program we are informing your key district_director of this action please keep a copy of this ruling with your organization's permanent records this ruling is directed only to the organization that requested it may not be used or cited as precedent sec_6110 of the code provides that it sincerely yours bervetet vv ba0k gerald v sack chief exempt_organizations technical branch