t c memo united_states tax_court gordon kaufman and lorna kaufman petitioners v commissioner of internal revenue respondent docket no filed date on remand from the u s court_of_appeals for the first circuit 687_f3d_21 1st cir aff'g in part vacating and remanding in part 136_tc_294 and 134_tc_182 to consider r's disallowance of ps' charitable_contribution deductions on account of their contribution of a facade easement to the national architectural trust and accuracy-related_penalties held disallowance of charitable_contribution deductions sustained on the ground that the value of the facade easement is zero this opinion supplements our opinions in 136_tc_294 and 134_tc_182 aff'd in part vacated and remanded in part sub nom 687_f3d_21 1st cir held further accuracy-related_penalties sustained on the basis of gross_valuation_misstatement or alternatively on the basis of negligence or substantial_understatement_of_income_tax frank agostino julie pruitt barry eleanor e farwell and michael e mooney for petitioners carina j campobasso and janet f appel for respondent supplemental memorandum findings_of_fact and opinion halpern judge this case is before the court on remand from the u s court_of_appeals for the first circuit 687_f3d_21 1st cir aff'g in part vacating and remanding in part 136_tc_294 and 134_tc_182 the case involves deficiencies in petitioners' federal_income_tax for and resulting from respondent's disallowance of petitioners' deductions for contributions of a facade easement and of cash to the national architectural trust nat the case also involves accuracy-related_penalties relating to those deductions in kaufman we sustained respondent's disallowance of petitioners' deductions for and on account of the contribution of the facade easement and of petitioners' deduction for on account of their cash contribution claimed for that year we sustained portions of the penalty determinations the court_of_appeals vacated our decision entered in accordance with our conclusions in kaufman except with regard to the deductibility of petitioners' cash contribution and the associated penalty the court_of_appeals remanded the matter to this court for proceedings consistent with its decision the parties agree that the questions presented on remand are as follows the allocation of the burden_of_proof with respect to the value of the facade easement and the remaining penalties the effect of the contribution of the facade easement on the fair_market_value of petitioners' property burdened by the easement ie the amount if any of the diminution in that fair_market_value resulting from the creation and grant of the easement a whether an accuracy-related_penalty may be imposed on account of either a substantial or a gross_valuation_misstatement b if yes whether the reasonable_cause exception applies to avoid imposition of the penalty c if no accuracy-related_penalty on account of a valuation misstatement is imposed whether an accuracy-related_penalty on account of either negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax may be imposed d if yes whether the reasonable_cause exception applies to avoid imposition of the penalty the parties agree that the record is adequate to answer the questions presented on remand they have filed supplemental briefs unless otherwise stated section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact for convenience we repeat or summarize here portions of our findings_of_fact in kaufman and make additional findings necessary to answer the questions presented background petitioners are husband and wife gordon kaufman is the morris a adelman professor of management emeritus of the sloan school of management at the massachusetts institute of technology he specializes in statistical analysis since both petitioners hold doctoral degrees and both could thus be referred to as dr kaufman we will avoid confusion by in general referring to them individually as gordon kaufman and lorna kaufman respectively lorna kaufman has a ph d in developmental psychology from boston college and is president of her own company the property in lorna kaufman purchased real_property property in boston massachusetts the property consists of a lot and a single-family residence a rowhouse which is petitioners' home the property is in a designated historic_district and is subject_to the south end landmark district residential standards and criteria south end standards and criteria the preservation agreement in date lorna kaufman entered into a preservation restriction agreement preservation agreement with nat pursuant to which she granted to nat an easement in gross in perpetuity ie the facade easement burdening the property and pursuant to which with respect to the property she accorded to nat certain rights and on behalf of herself and her successors in interest she undertook certain duties among those rights and duties are the following without consent of nat the owner of the property may not alter construct or remodel existing improvements on the property nor may she place on the property signs or markers that would change the condition materials or appearance of the building's facade without nat's consent the owner may not extend existing improvements on the property nor may she erect any new or additional improvements the owner may not without nat's consent paint or clean the facade the owner agrees to maintain in good order the roof facade foundations and overall structural integrity of the building in the condition and appearance existing on the date of the preservation agreement the owner also agrees that any repair replacement alteration rehabilitation or new_construction work on the facade will be done in accordance with the secretary of the interior's standards for the treatment of historic properties with guidelines for preserving rehabilitating restoring and reconstructing historic buildings the owner agrees to carry insurance on the property with replacement cost coverage against loss from all perils commonly covered under the broadest standard homeowner's policy the owner agrees that nat may inspect the property the owner also agrees to reimburse nat's costs and legal fees should she violate the preservation agreement and it become necessary for nat to bring suit to enforce it the owner agrees to allow nat to enter the property in order to correct violations and she agrees to reimburse nat's costs the owner agrees that if the preservation agreement is ever extinguished nat will be entitled to a portion of the proceeds from any subsequent sale the hanlon appraisal in date on gordon kaufman's inquiry of it nat recommended to him two appraisers the kaufmans selected one timothy j hanlon whom they engaged to determine the diminution in the value of the property on account of the contribution of the facade easement to nat hereafter sometimes value of the facade easement mr hanlon has been certified by the commonwealth of massachusetts as a state-certified residential real_estate appraiser he is also a housing and urban development fha approved appraiser he is a licensed real_estate broker he inspected the property on date he prepared an appraisal of the property hanlon appraisal as of that date which by letter dated date he submitted to lorna kaufman he reported the value of the property to be dollar_figure before the grant of the facade easement he concluded the property is considered to have a reduction in fair_market_value of of the property's value prior to the easement donation which equates to a loss of dollar_figure rounded nat had put mr hanlon on a list of what it represented to be qualified appraisers that it provided to potential donors to nat the hanlon appraisal is one of nine appraisal reports that beginning in and continuing through approximately the end of mr hanlon completed with respect to contributions of facade easements to nat other than those nine reports he has no experience in appraising partial_interests in real_property in preparing to complete his first appraisal of a facade easement mr hanlon spoke by telephone with someone at nat most likely steven l mcclain now president of nat or mory bahar a representative of nat his purpose for the call was to get a feel for how appraisals of facade easements were done and what had been accepted by the internal_revenue_service irs his notes of that conversation indicate that either mr mcclain or mr bahar told him that the range of values for facade easements is between for properties in highly regulated areas and towards in less regulated or unregulated areas with respect to the figure for properties in highly regulated areas mr hanlon wrote in his notes fall in this percentage his final notation is could use - after he completed a draft of the first of those appraisal reports stating a reduction in the property's fair_market_value of he mailed a copy to mr mcclain asking him to critique it and offer feedback in response he received an email from mr mcclain stating your appraisal is excellent for clarity you may wish to restate your reasoning in the concluding paragraph please see attached as a possibility your call almost verbatim mr mcclain's suggestion appears in the hanlon appraisal and in earlier appraisals subsequently on date after he had completed eight reports with respect to contributions of facade easements to nat mr hanlon received an email from anna c bookwalter nat's director of operations in which she wrote i am writing in regard to the appraisals you have done for the national architectural trust after reviewing these appraisal reports you seem to have a good grasp of the material needed to support your easement valuation as an addendum to the report we require that each appraiser insert the easement document as you have already referenced it in your report the suggested wording almost verbatim is emphasized in the following extract from the hanlon appraisal the estimated fair_market_value of the property as of date is dollar_figure in determining the value of the easement i have taken into account the current city ordinances and laws that apply in the city of boston which are less restrictive than the preservation deed restriction i have also considered the additional restrictions imposed on the property by the preservation deed restriction based upon the guidelines set forth by the internal_revenue_service in a heavily regulated market like boston the lower end of the range is considered more appropriate since the market_value impact of this modification of the bundle of rights on value would likely be less than in minimally regulated markets the property is considered to have a reduction in fair_market_value of of the property's value prior to the easement donation which equates to a loss of dollar_figure rounded no additional information is required in the text just the document itself which i have attached we will add it to the reports we already have but please add it to all future reports you do for our clients if you have any questions about easement appraisals feel free to call me thanks for your help and we look forward to working with you in the future gordon kaufman's concerns as to value lorna kaufman testified that as between her and gordon kaufman he took the lead in facilitating the contribution of the facade easement to nat by email dated date to mr bahar gordon kaufman expressed his concern that the reduction in the resale value of the property due to the facade easement is so large as to overwhelm the tax savings that accrue from it he asked mr bahar d o you have statistical documentation that bears on how much of a reduction in resale value takes place for residential properties mr bahar responded by email of the same date reassuring him as follows impact of the facade conservation easements on the value of the property in areas that are regulated by local historic preservation ordinances and bodies such as boston historic neighborhoods including yours properties with an easement are not at a market_value disadvantage when compared to other properties in the same neighborhood in support of his conclusion mr bahar set forth the following data we have tracked resold properties to-date on which we held an easement and none was resold at a loss or had any issues for resale that we are aware of over lenders have approved to subordinate their loans to our easements to-date in over cases why would these banks including yours approve these transactions if they saw a risk or adverse financial impact on their collateral one of our directors steve mcclain owns fifteen or so historic properties and has taken advantage of this tax deduction himself he would have never granted any easement if he thought there would be a risk or loss of value in his properties mortgage subordination before entering into the preservation agreement lorna kaufman needed the agreement of washington mutual home loans washington mutual to subordinate its mortgage interest in the property to nat's interest with respect to the facade easement to obtain that subordination both petitioners executed and submitted a statement to the washington mutual containing the following paragraph the easement conveys the right of prior approval of any future changes i wish to make on the exterior of the property the laws of _______ already require government approval based on historic preservation criteria the easement restrictions are essentially the same restrictions as those imposed by current local ordinances that govern this property petitioners' tax returns petitioners filed joint federal_income_tax returns for and return and return respectively on the return petitioners reported a charitable_contribution of dollar_figure for the contribution of the facade easement before they filed the return petitioners provided a copy of the hanlon appraisal to their long-time accountant david cohen who reviewed it and found that it was consistent in form with other real_estate appraisals that he had seen because of the limitations on charitable_contribution deductions in sec_170 petitioners claimed a charitable_contribution_deduction with respect to the facade easement of only dollar_figure on the return petitioners claimed a carryover charitable_contribution_deduction of dollar_figure with respect to the facade easement contribution respondent's examination respondent examined the and returns and among other adjustments disallowed any deduction for the contribution of the facade easement to nat on among other grounds the ground that petitioners had failed to establish the value of the contributed easement respondent also determined the accuracy-related_penalties in question petitioners have assigned error to respondent's determination of the resulting deficiencies in tax and to the penalties respondent's expert in preparing for the trial of this case respondent retained the services of john c bowman iii mr bowman has been certified by the commonwealth of massachusetts as a state-certified general real_estate appraiser he has received a certificate of completion for the valuation of conservation easements program offered by the american society of appraisers and other organizations and is endorsed by the land trust alliance his appraisal work includes a particular emphasis on conservation and preservation restrictions he has served on the boston landmarks commission for years serving as chairman of the commission for years he has extensive experience appraising partial_interests in real_property including conservation easements mr bowman was retained by respondent to review the hanlon appraisal and to state his own view of the value of the facade easement in advance of his being retained by respondent respondent's counsel provided mr bowman with copies of the hanlon appraisal and an appraisal of the value of the facade easement prepared by joan gootee gootee appraisal an irs employee in his proposal for expert witness services mr bowman expressed preliminary views as to both appraisals with respect to the hanlon appraisal he stated in developing his opinion of the value of the facade easement the appraiser acknowledged that development potential is not hampered as the property is currently improved to its highest_and_best_use as a single-family dwelling despite recognizing there would be no change in the highest_and_best_use of the property the appraiser made an extraordinary assumption that the facade easement would result in a diminution in value first employing the sales comparison approach to develop an opinion of the property value as unencumbered before value he then applied a percentage discount to the before value to calculate the value of the facade easement the only support for the percentage discount is a reference to an irs memorandum no appraisal of the after value was performed so there was no paired sales data analysis in support of an adjustment to otherwise comparable sales to make them more comparable to the subject as encumbered by the facade easement despite referencing the before and after method as the correct method to be used in appraising conservation easements the appraiser inexplicably employed an inappropriate methodology with respect to the gootee appraisal he stated i also read the review appraisal report prepared by joan gootee of the irs i agree with the reviewer that the application of a discount percentage to the before value is not the appropriate appraisal methodology for the valuation of the facade easement i also agree with the reviewer that the provisions of the facade easement are duplicative of the underlying restrictions of the south end landmark district thus encumbrance by the facade easement would likely have no measurable impact on the after value of the property resulting in only a nominal facade easement value mr bowman is of the opinion that the grant of the facade easement to nat did not reduce the value of the property at all in other words in his opinion the value of the facade easement is zero i burden_of_proof opinion in general the taxpayer bears the burden_of_proof see rule a sec_7491 however shifts the burden_of_proof to the commissioner if the taxpayer both satisfies the preconditions set forth in sec_7491 and introduces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer's proper tax_liability petitioners argue that mr hanlon's testimony represents credible_evidence that the value of the facade easement was dollar_figure and that therefore respondent has the burden of proving that it was not respondent objects that mr hanlon's testimony is not credible nor have petitioners satisfied the preconditions set forth in sec_7491 valuation does not present exclusively questions of fact as the supreme court stated recently in united_states v woods u s __ __ 134_sct_557 w e doubt that value is limited to factual issues and excludes threshold legal determinations cf 312_us_259 w hat criterion should be employed for determining the 'value' of the gifts is a question of law chapman glen ltd v commissioner t c no wl at t hree approaches are used to determine the fair_market_value of property and which approach to apply in a case is a question of law it is possible however that when all threshold questions of law have been settled or are not in dispute there may remain no dispute as to the operative facts and documents in this case because we are able to resolve the valuation question on the basis of essentially agreed facts along with the assistance we may find helpful in the parties' expert's opinions we need not resolve the burden_of_proof issue raised by petitioners see estate of jelke v commissioner tcmemo_2005_131 wl at vacated and remanded on another issue 507_f3d_1317 11th cir see also 87_tc_305 ndollar_figure payne v commissioner tcmemo_2003_90 wl at as a bit more explanation as to why we need not here be concerned with who bears the burden_of_proof consider the following t he placement of the burden_of_proof would be controlling only if as a matter of law the evidence presented by the parties must be deemed of equal weight 667_f2d_551 n 1st cir aff'g tcmemo_1980_321 as this court has stated e xcept for extraordinary burdens eg in fraud cases the burden_of_proof is merely a 'tie-breaker' it is irrelevant unless the evidence is in equipoise steiner v commissioner tcmemo_1995_122 wl at although assignment of the burden_of_proof is potentially relevant at the outset of any case where as in this case the court finds that a preponderance_of_the_evidence favors one of the parties the case is not determined on the basis of which party bore the burden_of_proof and the assignment of burden_of_proof becomes irrelevant see 91_tc_575 ndollar_figure our determinations have been made on the basis of the preponderance_of_the_evidence accordingly it is immaterial who bears the burden_of_proof 87_tc_305 ndollar_figure the question of who bears the burden_of_proof with respect to the penalties is different under sec_7491 the commissioner bears the burden of production with regard to penalties and must come forward with sufficient evidence indicating that it is proper to impose penalties 116_tc_438 however if the commissioner has met his burden of production the burden_of_proof remains with the taxpayer including the burden of proving that the penalties are inappropriate because of reasonable_cause id pincite ii the value of the facade easement a introduction sec_170 allows a deduction for charitable_contributions in general sec_170 denies a deduction for a charitable_contribution of an interest in property that is less than the taxpayer's entire_interest in the property one exception to that general_rule however is for a qualified_conservation_contribution see sec_170 we assume that by delimiting the question before us with respect to lorna kaufman's contribution of the facade easement to nat to the diminution in value if any of the property on account of that contribution the parties agree that the contribution constituted a qualified_conservation_contribution to a qualified_organization of a qualified_real_property interest constituting in particular a perpetual conservation restriction see sec_170 sec_1_170a-14 income_tax regs we will therefore proceed directly to the question of value sec_1_170a-14 income_tax regs addresses the proper method for valuing a contribution of a perpetual conservation restriction the value of the contribution is the fair_market_value of the perpetual conservation restriction at the time of the contribution if there is no substantial record of sales of easements comparable to the donated easement generally the fair market of the donated 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 petitioners defend the dollar_figure value for the contribution reported on the return respondent believes that the facade easement had no value when it was conveyed to nat b arguments of the partie sec_1 introduction the parties defend their respective valuations on the basis of expert and other testimony and for petitioners by reference to the preservation agreement and to an appraisal report by william j pastuszek jr petitioners' witnesses and reports a mr hanlon i introduction petitioners offered and the court accepted mr hanlon as an expert on valuation we received the hanlon appraisal as mr hanlon's direct testimony as stated mr hanlon is of the opinion that the value of the property before the grant of the facade easement to nat was dollar_figure mr hanlon reached that conclusion principally on the basis of a sales comparison analysis pursuant to which he analyzed data from sales of three comparable properties none encumbered by a facade easement all located near the property he did not express an opinion as to the value of the property after grant of the easement but he was of the opinion that t he property is considered to have a reduction in fair_market_value of of the property's value prior to the easement donation which equates to a loss of dollar_figure rounded he therefore concluded that the fair_market_value of the facade easement was dollar_figure generally we receive an expert's written report into evidence as his direct testimony rule g and ii south end standards and criteria mr hanlon ascribes the reduction in fair_market_value of the property to the burdens imposed on lorna kaufman and subsequent owners of the property by the preservation agreement he recognizes that the property like a ll residential buildings in boston is subject_to substantial regulation including building codes and zoning laws and that because of its location in boston's south end it is additionally subject_to the south end standards and criteria the south end standards and criteria state that they are intended to preserve the physical features architectural character and appearance of the south end with certain exceptions they require approval by the south end landmarks commission commission for all exterior alterations to any property within the landmark district they authorize the commission to issue a certificate of design approval when it determines that proposed exterior alterations conform to the south end standards and criteria they provide that no building permit may be issued for exterior alterations unless accompanied by a certificate of design approval from the commission they provide specific repair criteria for many elements of the exterior of a residential building eg stairs entrances exterior walls windows window openings and trim bay oriels and protrusions from walls roofs signs and utility and mechanical equipment the detail of the specific repair criteria is illustrated by the criterion for railings balustrades and decorative balconies existing cast iron stair railings balustrades and decorative balconies shall be retained if they are badly deteriorated or non-existent replacement elements must be of a size and massiveness consistent with the remaining original elements of the design or consistent with the size massing profile and complexity of remaining examples of iron work on nearby buildings simplified adaptions may be allowed if they meet the above criteria all iron work should be black in color iii overlap mr hanlon concedes that there is much overlap between the burdens imposed on the owner of the property by the preservation agreement and the burdens imposed on the owner by preexisting restrictions particularly those found in the south end standards and criteria and while he believes that changes or alterations to the facade of the subject property were already strictly regulated he also believes that the preservation restriction agreement imposes stricter controls than those contained in the landmark commissions standards and criteria he concludes properties encumbered by the preservation restriction agreement should sell at a penalty relative to unencumbered properties in similar locations his principal argument that the preservation agreement imposes stricter controls is as follows unlike the south end landmark commission's standards and criteria the preservation agreement applies to more than just the exterior walls roof and yard which are visible from the public way the agreement's broad definition of facade includes all exterior walls chimneys and roofs of the building and the land the building is situated upon imposing additional restrictions on the property over and above those of the south end landmark commission he catalogs what he believes to be the comparative disadvantages affecting the value of the property of the preservation agreement some changes to the property which may be permitted by the south end historic_district standards and criteria may not be allowed by the national architectural trust the preservation restriction agreement easement is granted in perpetuity while the historic_district ordinances and local zoning practices may change over time to reflect changes in political economic and aesthetic needs and tastes in a community the historic_district ordinances contain relief for economic hardship which the preservation restriction agreement does not the preservation restriction agreement may result in higher insurance and property maintenance_costs than those on properties not so encumbered rehabilitation costs may be higher also as the property owner could be obligated to restore or replace deteriorated materials rather than replace them with cheaper substitute materials the requirement of obtaining consent prior to commencing any exterior work on the property could result in delays in construction and implementation of plans the property owner is subject_to the inconvenience of periodic inspections of the facade to assure compliance with the easement agreement and is at risk for legal action to compel compliance with the terms of the easement agreement in the event of a violation marketability could be affected as a segment of the buying public may show resistance to being subjected to yet additional limitations and restrictions on their property rights marketability may be further diminished as future buyers in the event the preservation restriction agreement is ever extinguished could bear the financial burden of having to pay back to the national architectural trust the full amount of the donation upon any subsequent sale of the property resale value could also be diminished because future owners are not able to benefit from the substantial tax savings associated with the granting of a historic facade easement the potential for the greatest loss of value is attributable to the national architectural trust's right to circumscribe the owner's rights to utilize the property for its highest_and_best_use even if legally permissible the loss of potential for demolition for assemblage subdivision or alternative use could have dramatic financial implications although the subject property is severely restricted by pre-existing regulations any consideration of the possibilities of variances and special permits is made moot by the preservation restriction agreement notwithstanding those supposed comparative disadvantages of the preservation agreement mr hanlon concedes that neither the preservation agreement nor the preexisting restrictions hamper the potential for developing the property to its highest_and_best_use as the property is currently ie at the time of the preservation agreement improved to its highest_and_best_use as a single family home iv mr hanlon's method mr hanlon found no record of sales in massachusetts of easements comparable to the facade easement he understood that where no established market exists for easements conservation restrictions are typically valued indirectly by the difference between the fair_market_value of the burdened property before and after the grant of the restriction because mr hanlon was unaware of any sales in the boston area of residential properties encumbered by facade easements he was unable to determine the value of the property following the contribution of the facade easement to nat using comparable-sales data mr hanlon had seen a document posted on a u s department of the interior national park service web site that reproduced an article entitled facade easement contributions prepared by mark primoli primoli article an irs employee the primoli article includes the following sentence which mr hanlon quoted in his appraisal internal_revenue_service engineers have concluded that the proper valuation of a facade easement should range from approximately to of the value of the property he also believed that court cases had consistently decided that conservation easements had a value typically in the range of to of the value of the encumbered property although the primoli article does not say so mr hanlon believes the range set forth in the article--from approximately of value of the encumbered property to approximately of that value--to be appropriate to properties such as the property situated in historic districts already subject_to architectural restrictions he believes that in heavily restricted areas additional restrictions would have less of an impact on the value of the encumbered property and that in lightly restricted areas they would have a greater impact on the value of the property he believes that the percentage reduction in value of the property on account of the contribution of the facade easement to nat fell somewhere between and to determine the appropriate percentage within that range mr hanlon first made a list of the additional burdens that he believed would affect the value of a residential property already developed to its highest_and_best_use ie as a residence if the owner encumbered the property with a facade easement assuming that in lightly restricted areas those burdens would reduce the value of the burdened property by the full upper bound of the range he assigned a percentage to each of the burdens so that if each percentage were fully applied the sum of the percentages would be his list and the assigned percentages totaling is as follow loss of development potential additional regulation and bureaucracy regulation on end walls new regulation on rear and roof diminishing of marketability recapture explained by mr hanlon as the recapture by nat of a portion of the value of the property if the facade easement is extinguished and the property continued maintenance and insurance requirements in excess of unencumbered properties legal exposure if easement is breached loss of right of future owners to receive tax benefits of easements new strict regulation of front facade new regulation of yard and yard improvements and restrictions on expansion of building he based those percentages on his judgment experience and at least in the case of burden diminishing of marketability common sense that more burdened property would sell for less he presented no numerical data or statistical analysis supporting the particular percentage he assigned to any of the burdens his next step in reaching his conclusion that contribution of the facade easement to nat reduced the fair_market_value of the property by was to compare the south end standards and criteria and the preservation agreement and to make a list of what he thought to be the differences and similarities between the two he then adjusted the percentages he had determined in the first step to reflect those differences and similarities he increased to the weight continued subsequently sold accorded to burden new regulation on rear and roof because of roofing materials specified in the preservation agreement and he accorded no weight to burdens regulation on end walls since the encumbered building was mid- block new strict regulation of front facade since the preservation agreement imposed no additional burden and restrictions on expansion of building since the property was developed to its highest_and_best_use in response to a question from the court mr hanlon acknowledged that his deconstruction of the upper bound of the range in the primoli article into smaller particular percentages reflective of the separate burdens imposed by a facade easement was a method unique to him and was not a generally accepted appraisal practice or valuation method b pastuszek report mr pastuszek a massachusetts certified real_estate appraiser prepared an appraisal report pastuszek report in which he used a matched sales analysis to6 examine the effects of nat's preservation restriction agreements on real_property for purposes of his report mr pastuszek defines matched sales analysis as a comparison and analysis using accepted appraisal methodologies of sales of residential properties encumbered by a perpetual historic preservation restriction or other comparable or analogous perpetual easement or restriction compared to one or more sales of comparable residential properties that are not encumbered by such restriction prices in the boston area mr pastuszek did not appear and the pastuszek report was admitted solely for purposes of demonstrating that the question of valuation is focused on the property at issue and that facade easements do not have a zero value as a matter of law respondent's witness a mr bowman respondent offered and the court accepted mr bowman as an expert in appraising partial_interests in property we received his written report bowman report as his direct testimony the report is styled summary appraisal review report including reviewer's opinion of value mr bowman states that his assignment from respondent had two parts to review the analysis and reasoning of the hanlon appraisal evaluate the adequacy of the supporting data and opine whether the valuation was credible properly supported and developed in accordance with generally accepted valuation principles and standards and to opine as to the fair_market_value of the facade easement b appraisal review i introduction mr bowman's opinion of the hanlon appraisal ie the dollar_figure value that mr hanlon determined for the facade easement is as follows as the fruit of an inappropriate valuation methodology employing a wholly unsupported adjustment factor the preservation restriction value of the hanlon appraisal cannot be said to be reasonable or credible mr bowman's reasons for reaching that conclusion are as follows ii flaw in method mr bowman believes that the preservation agreement resulted in the subdivision of lorna kaufman's fee interest in the property into two partial_interests in the property and that mr hanlon's appraisal task should have been to estimate the value of a partial interest the preservation restriction which is an easement in gross there being no market for perpetual conservation restrictions mr bowman believes that mr hanlon should have accomplished that task by employing a three-step two-appraisal procedure the first step would be to determine by appraisal the precontribution value of the property the second step would be to determine by a second independent appraisal the postcontribution value of the property the third step if the difference between the first and second determined values was negative would be to assign that difference to the value of the partial interest in property the facade easement contributed to nat that he states would be consistent with the three-step procedure both suggested in section 170a-14 h i income_tax regs and generally employed by appraisers in valuing partial_interests in property mr bowman criticizes mr hanlon for failing to take the second step ie for not conducting a second appraisal of the property to determine its postcontribution value and while mr bowman recognizes that mr hanlon did determine both pre- and post-contribution values of the property he emphasizes that mr hanlon determined the postcontribution value not by appraisal but by discounting the precontribution value that he had determined to reflect the range of discounts set forth in the primoli article which mr hanlon modified to reflect his opinion of the added burdens imposed by the preservation agreement over those imposed by the south end standards and criteria he believes that mr hanlon's method was flawed because mr hanlon did not determine the postcontribution value of the property independently from his determination of the precontribution value of the property in his opinion relying on the primoli article to determine a discount to be applied to the precontribution value of the property to estimate its postcontribution value is not a valid methodology for the appraisal of partial_interests iii mr hanlon's assumptions aside from his criticism of mr hanlon's method mr bowman questions mr hanlon's basis for discounting the precontribution value of the property by to determine its postcontribution value he states hanlon offers no data to support either the direction or magnitude of this discount he finds extraordinary mr hanlon's assumption that p roperties encumbered by the preservation restriction agreement should sell at a penalty relative to unencumbered properties in similar locations he addresses under five headings the factors that he understands mr hanlon to have considered as contributing to the discount that he applied to the precontribution value of the property stricter controls result in loss of value mr bowman refers to a study by n edward coulson and michael l lahr gracing the land of elvis and beale street historic designation and property values in memphis real est econ which concludes that the owners of properties in a more restrictive local historic_district enjoyed greater returns more rapidly increasing property values than did owners of properties in less restricted local historic districts or in national historic districts mr bowman believes that the study an online version of the study was published in and can be found at http policy rutgers edu faculty lahr coulson lahr_july 202004_memphis_re economics pdf last visited date implies that buyers value the additional preservation restrictions in the more restrictive local district to him the study suggests that a potential buyer of a preservation restriction-encumbered property does not see any less value in the property even if the terms of the preservation restrictions are more strict than the regulations governing the historic_district the restriction constrains highest_and_best_use mr bowman points out that mr hanlon acknowledges that there is no change in the highest_and_best_use of the property on account of the preservation agreement he adds as a matter of zoning the property already exceeds the maximum allowable building envelope the restriction is inflexible in part the preservation agreement provides that nothing contained herein shall be construed to limit the grantee's right to give its consent eg to changes in the facade or to abandon some or all of its mr bowman believes that homeowners in a historic_district place premium value on the assurance that the neighborhood surrounding their houses will remain unchanged over time the assurance the neighborhood will not change in character has value because the neighborhood condition impacts homeowner value in the form of an externality a well-maintained property will not be as valuable in a neighborhood of poorly maintained properties as it would be if the surrounding area were similarly well preserved regulation of appearance in an historic_district produces positive neighborhood effects on value rights hereunder mr bowman states that in nat distributed a document --commonly asked questions about conservation easements nat q as --to prospective appraisers in the boston area to the question what criteria does the trust use when reviewing a prospective change nat answers the trust follows the 'secretary of the interior's standards for historic rehabilitation ' in general the proposed change is acceptable if it is consistent with the property's original architectural style on the basis of the quotations from the two documents mr bowman believes that in approving changes to the property nat need not be inflexible and indeed it would be no less flexible than would be the commission in approving changes under the south end standards and criteria the restriction imposes higher ownership costs mr bowman disagrees he states that mr hanlon provided no evidence of higher insurance or maintenance_costs he believes the likely level of maintenance required under the preservation restriction would be what any prudent owner occupant would do to protect their sic investment absent the applicability of the historic_district guidelines or the preservation restriction he does not believe that the requirement to obtain consent from nat before commencing outside work on the property would impose costly delays he points out that the nat q as state that it takes approximately two weeks to obtain approval from nat for a proposed exterior change to the property that he states is the same period it would take to obtain from the commission a certificate of appropriateness with respect to any exterior change he concludes a n application filed simultaneously with nat and the commission could be approved simultaneously two weeks later finally he does not think that the periodic inspection of the property's exterior required by nat would inconvenience the owner as his presence is not required nor does he think that the preservation agreement increases the risk of legal action to enforce its terms the property owner is already at risk for legal action by the city of boston's inspectional services department for unauthorized alterations or for failure to maintain demolition by neglect the preservation restriction limits marketability mr bowman disagrees he includes with his report an article entitled using the historic facade conservation_easement deduction reprinted from the practical real_estate lawyer date and written by james m kearns then president of nat the article's lead reads by preserving a piece of historic architecture for future generations the property owner can get a big_tax deduction with little cost or risk with respect to marketability mr kearns states marketability when considering whether a conservation_easement might interfere with a property's marketability consider the three overarching factors donating a conservation_easement often places little additional burden on the property owner over that which already exists from the local governing authority those who purchase property in historic districts generally value the architectural integrity of all the properties within the community and buyers of such properties are supportive of regulations guarding historic preservation and properties in historic districts are uniquely different from each other and few are available on the market at any given time consequently the presence or absence of an easement is only a minor factor in the buying decision because mr bowman believes that no value is lost in granting a facade easement on property in a local historic_district and thus no tax charitable_contribution_deduction is available on account of the contribution he believes that subsequent owners would not discount the value of the property on account of the lost opportunity for a charitable_contribution_deduction finally he believes that if the facade easement has no monetary value there would be no payback to nat in the event it was extinguished c opinion of value i introduction mr bowman's opinion is that there was no diminution in the value of the property on account of the contribution of the facade easement to nat his opinion follows from certain preliminary conclusions viz there is no change in the highest_and_best_use resulting from encumbrance by the preservation restriction there is no difference between the terms of the preservation restriction and the underlying south end landmark commission standards and criteria that would likely be recognized by a typical buyer there is no market evidence of difficulty in marketing or financing preservation restriction-encumbered properties the evidence does not demonstrate a market recognition of diminution in value his final conclusion is that since the precontribution value of the property dollar_figure is equal to its postcontribution value the same the value of the facade easement was zero ii procedures mr bowman followed and precontribution value mr bowman states that to determine the value of the facade easement he followed the procedures outlined in sec_1_170a-14 income_tax regs finding no substantial record of sales of easements comparable to the facade easement he looked to the difference between the pre- and post-contribution values of the property to determine the value if any of the facade easement he agrees with mr hanlon that the highest_and_best_use of the property before the contribution was as a single-family dwelling and he concurs with mr hanlon's conclusion based on his sales comparison analysis that the precontribution value of the property was dollar_figure he did no sales comparison analysis to determine the postcontribution value of the property because like mr hanlon he could find no properties both burdened by a preservation restriction and sold contemporaneously with the contribution of the facade easement to nat iii postcontribution value as stated supra mr bowman believes that the highest_and_best_use of the property did not change on account of the contribution of the facade easement to nat taking that use into consideration he believes that the sales of unencumbered properties found by mr hanlon may without further adjustments serve as comparable sales to determine the postcontribution value of the property he explains although none of the comparable west newton street sales is encumbered by a preservation restriction i conclude that the typical buyer would find the restrictions of the preservation restriction no more burdensome than the underlying south end landmark district standards and criteria to reach that conclusion mr bowman compared the south end standards and criteria with the preservation agreement on a component by component comparing for example restrictions on alteration replacement standards maintenance requirements permitting and access requirements he found the components of the preservation agreement to be basically duplicative of and not materially different from the south end standards and criteria he believes that exterior work approved under the south end standards and criteria would meet the standards of the preservation agreement and that permitting for one set of restrictions would serve for the other he recognizes that the preservation agreement requires additional replacement cost insurance coverage which he believes a prudent homeowner would be wise to carry in any event he likewise believes that a prudent homeowner would maintain his home to the standards required by the preservation agreement making no further adjustments to the precontribution comparables he concluded that the postcontribution value of the property was identical to its precontribution value viz dollar_figure iv resale study to rebut mr hanlon's opinion that encumbering a property with a preservation restriction diminishes the marketability of the property mr bowman obtained and analyzed data concerning sales and resales of residential properties in the boston area he was looking to see whether encumbering a property with a preservation restriction reduced its marketability his approach was to first identify properties for which information was available showing both the sale price of the property before encumbrance with a conservation restriction and the resale price of the property after encumbrance he then compared the differences between the individual sale and resale prices of an appropriate sample of those properties with the differences between the individual sale and resale prices of the population of properties sold during the same period he was looking to see whether encumbering a property with a conservation restriction affected the change in value of the property over time as compared to the change in value of all properties over time he looked for sales of conservation restriction encumbered properties in three historic districts in boston viz beacon hill back bay and the south end he found seven sales of properties encumbered by preservation restrictions conveyed to nat and he used six of them all of those sales occurred after the date of the preservation agreement three of the six sales were of properties in the south end historic_district he compared the prices at which each property sold before being encumbered to the price at which it sold after having been encumbered for all six sales the postencumbrance sale price exceeded the preencumbrance sale price standard poor's case-shiller home price indices are indices measuring changes in the prices of single-family detached residences using the repeat-sales method which compares the sale prices of the same properties over time the indices track such price changes both nationally and in various metropolitan areas including boston for each of the six properties mr bowman compared the appreciation over the holding_period of the property with the case-shiller index for upper-tier residential real properties in boston for the same period for four of the six properties appreciation over the holding_period exceeded the change in the case-shiller index for the same period for two of the six properties total appreciation was less the median year-to-year appreciation rate among the six properties wa sec_8_1 which exceed the median year-to-year rate for the index the same period on the basis of his analysis he concludes n o downward adjustment to an unencumbered comparable sale is necessary to make that sale more comparable to an encumbered property on the basis of that analysis he further concludes that mr hanlon was wrong in suggesting that preservation restrictions diminish marketability the analysis of these six preservation restriction-encumbered properties indicates that they were in fact marketable v interviews as a check on his conclusions he interviewed the buyers of four of the six properties each of whom he reports said the preservation restriction did not affect their offering price he also interviewed three brokers who he concedes had little experience from which to form an opinion about the impact of preservation restrictions he reports that the consensus of their opinions was that preservation restrictions in a historic_district would likely have no effect on the marketability that is either on buyer interest or time on the market or on the ability of a buyer to obtain a mortgage vi literature search he did a literature search and he concludes valuation literature on the influence of historic designation on property value overwhelmingly points to a neutral to positive value effect studies of historic_district regulation offer no systematic recognizing that some buyers might perceive that the preservation agreement diminished value mr bowman notes u nless all potential buyers perceive a value diminution from the preservation restriction the sale price will be set by buyers who do not recognize a diminution evidence that markets have priced homes in historic districts at a discount to reflect the additional burden of regulation instead the results suggest that properties burdened by historic_district regulation outperform comparable properties not subject_to historic_district regulation he believes logically it is unlikely that buyers in a historic_district would value the restrictions of a preservation restriction degrees differently that is as diminishing property value the purpose of a preservation restriction continuity is the same as the purpose of a historic_district the coulson and lahr study in memphis supra suggests that a potential buyer of a preservation restriction-encumbered property does not see any less value in the property even if the terms of the preservation restrictions are more strict than the regulations governing the historic_district vii conclusions from resale study mr bowman summarizes the conclusions he draws from his resale study as follows my analysis of resales of preservation restriction-encumbered properties indicates that in this market neither buyers nor lenders have shown resistence to properties encumbered by such preservation restrictions based on my analysis of preservation restriction-encumbered sales i conclude no downward adjustment to an unencumbered comparable sale is necessary to make that sale more comparable to an encumbered property stepping back from those conclusions he states what he would have to believe to be true to accept mr hanlon's opinion that a preservation restriction on a property in a local historic_district diminishes the value of that property i would have to believe a potential buyer recognizes a marginal difference in the respective restrictions quantifies them as an additional cost of ownership over the holding_period that they then apply as a discount to their perception of the unencumbered value to result in their offer for the encumbered property however it is unlikely that buyers would perceive an additional cost as a certainty and factor that into their offer given that i an appraiser and real_estate developer with years of experience in the field do no t perceive any additional cost associated with the preservation restriction it is even less likely that a typical buyer would perceive such a cost the assumption that if there is a difference in applicable restrictions there is a difference in value is incorrect there is a difference in value only when the collective judgment of the market recognizes a difference there can be a distinction without a difference in value viii conclusions as to value mr bowman concludes in my opinion the encumbrance on rutland square by the facade easement preservation restriction cannot be seen to discernibly affect the value of the property i find that the after value was equal to the before value before value - after value preservation restriction value dollar_figure big_number i conclude that there was no market_value associated with the facade easement preservation restriction as of date c mr bowman's objectivity in his proposal for expert witness services mr bowman expressed his preliminary views set forth supra with respect to both the hanlon appraisal and the gootee appraisal on the basis of those preliminary views petitioners complain respondent proffered an expert who began his work to appraise the facade easement donation at issue here with a foregone conclusion that the easement had zero value proceedings in this court are conducted in accordance with the federal rules of evidence see sec_7453 rule a rule of the federal rules of evidence states in part that expert opinion is admissible if it will help the trier of fact to understand the evidence or to determine a fact in issue an expert whose the full text of fed r evid is as follows rule testimony by expert witnesses a witness who is qualified as an expert by knowledge skill experience training or education may testify in the form of an opinion or otherwise if a the expert's scientific technical or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue continued statements indicate a lack of objectivity is not useful to the court see 94_tc_570 e xperts may lose their usefulness and credibility when they merely become advocates for one side in his proposal mr bowman did review the two appraisals he had been given by respondent's counsel apparently as she had requested his agreement with ms gootee's conclusions that the south end standards and criteria are duplicative of the restrictions imposed by the preservation agreement and therefore the latter restrictions would have no measurable impact in determining the postcontribution value of the property does not indicate a lack of objectivity but rather his intimate knowledge of the south end standards and criteria he had served on the boston landmarks commission for years as chairman we find no fault with mr bowman's objectivity the thoroughness of his report belies any suggestion that he was simply justifying preconceived conclusions continued b the testimony is based on sufficient facts or data c d the testimony is the product of reliable principles and methods and the expert has reliably applied the principles and methods to the facts of the case d analysi sec_1 introduction the parties agree that in the absence of a market for perpetual conservation restrictions the value if any of the facade easement should be determined by the before-and-after method outlined in sec_1_170a-14 income_tax regs the parties rely heavily on expert opinion testimony as to the pre- and post- contribution values of the property qualifications of messrs hanlon and bowman rule of the federal rules of evidence states that one is qualified as an expert witness by knowledge skill experience training or education we have no doubt that on the basis of his credentials set forth supra respondent's expert mr bowman is qualified as offered ie as an expert in appraising partial_interests in property mr hanlon on the other hand was offered only as an expert on valuation without any particular expertise in appraising partial_interests in property nevertheless one may qualify as an expert witness by dint of knowledge skill experience training or education indeed in determining the value of a conservation restriction we have accepted the testimony of a real_estate appraiser with no prior experience in valuing that type of restriction johnston v commissioner tcmemo_1997_475 losch v commissioner tcmemo_1988_230 what does concern us with respect to mr hanlon's qualification to testify however is his close relationship with nat his only experience in appraising facade easements is the nine reports that he did with respect to nine facade-easement contributions to nat he looked to nat to learn how appraisals of facade easements were done before he attempted the first of those reports and he submitted a draft of the first report to nat for validation before he completed it he incorporated in his reports wording suggested by nat after he completed eight reports nat's director of operations ms bookwalter expressed nat's satisfaction with his work but required that he add a document the easement document to all future reports the tone of her communication to him suggests that she believed that nat had a proprietary interest in mr hanlon's reports she begins her communication by speaking of the appraisals you have done for the national architectural trust emphasis added without asking permission from him she says that nat would add the easement document to the reports he had already submitted she thanked him for his work and expressed nat's expectation that it would work with him in the future moreover nat was not indifferent to the values mr hanlon determined nor was he indifferent to what would please nat the court_of_appeals pointed out as indicated by the large cash contributions required of donors the trust had a substantial economic incentive for itself in facilitating such conservation easements and to this end and because of the percent target for donations it also had a stake in assuring a high valuation similarly the appraiser who admitted receiving fees for a succession of such appraisals for trust easements assuredly had an interest in remaining on the list of those recommended by the trust to potential donors kaufman v shulman f 3d pincite mr hanlon had what we might describe as a patron in the person of nat it made work available to him by putting his name on its list of qualified appraisers it reviewed and commented on his work and its views on the range of values for facade easements may have influenced the development of his own views on the basis of his oral testimony articulating the development of his method for valuing the facade easement however we are not persuaded that his objectivity was fatally compromised or that he acted merely as an advocate for nat's views see our discussion of objectivity supra pp however we do not ignore or disregard mr hanlon's closeness to nat and the singularity of his experience in valuing facade easements for clients and for a patron all interested in establishing high values for the easements we weigh those factors in the balance of whether--and the degree to which--to accept mr hanlon's expert testimony see 110_tc_189 similar resolution concerning closeness of appraiser to his client mr hanlon's testimony mr hanlon believes that contributing the facade easement to nat reduced the value of the property since he lacked sale-price data for sales of either facade easements or residential properties encumbered by facade easements he could not use the methods of estimating the value of a facade easement approved in sec_1_170a-14 income_tax regs he had however estimated that the precontribution value of the property was dollar_figure an amount not in dispute which we accept and find with only that one data point he testified that he was grasping for some method to value the facade easement he had the primoli article and he had found repeated references to it he had also found court cases showing a range of discounts for perpetual conservation restrictions he believed that it was generally accepted appraisal practice to apply a discount within the ranges he had found when sufficient market data was unavailable we have described how to find an in-range discount he deconstructed the upper bound of the range in the primoli article into smaller component percentages reflective of the burdens that he thought were imposed by a facade easement he then made adjustments to those component percentages to reflect what he believed to be the differences and similarities between the south end standards and criteria and the preservation agreement concluding that the value of the facade easement wa sec_12 of the precontribution value of the property he concedes that his deconstruction of the upper bound in the primoli article into smaller component percentages reflective of the burdens imposed by a facade easement was a method unique to him and not a generally accepted appraisal practice or valuation method expert testimony must be the product of reliable principles and methods fed r evid c expert witness testimony can be reliable even though the expert's methodology is not generally accepted in her field stephen a saltzburg michael m martin daniel j capra federal rules of evidence manual sec_702 pincite 10th ed nevertheless we need not rely on the unsupported opinion of an expert witness 130_tc_170 aff'd 601_f3d_763 8th cir mr hanlon's deconstruction of the primoli article upper bound depended first on his acceptance of as the standard percentage reduction in value of a property in a lightly regulated area on account of the owner's severance and conveyance of a facade easement he then had to identify the separate burdens that he thought were imposed on the owner because of the conveyance of the easement assigning a percentage value to each so that the sum of the assigned percentages wa sec_15 even were we to accept that he identified the constituent burdens constituting the overall burden imposed by a facade easement we accept neither hi sec_15 starting point nor the relative percentages that he assigned to each constituent burden mr hanlon's starting point--that properties in lightly regulated areas suffer a reduction in value on account of the severance and conveyance of a facade easement--is based on neither reliable market data nor specific attributes of the property it is based on what he believes the courts and the irs had allowed in prior cases whether it is an upper or lower bound there is no standard percentage to which one may make adjustments to arrive at a value appropriate for a particular property as we said in nicoladis v commissioner tcmemo_1988_163 tax ct memo lexi sec_187 at we do not mean to imply that a general 10-percent rule has been established with respect to facade donations there was a fair amount of discussion by the parties at trial about whether the court had established a 10-percent rule in 85_tc_677 we did not there and do not here hilborn establishes as acceptable the before and after method of valuation and while under the circumstances of that case a 10-percent figure was relied upon valuation itself is still a question of facts and circumstances see also scheidelman v commissioner tcmemo_2013_18 at nor can we accept the component percentages that he assigned to the constituent burdens that he identified again there was no market data he testified that the assignments of percentages were just based on his judgment he elaborated that the that he assigned to the burden he identified as additional regulation and bureaucracy was based on his judgment and experience in working with buyers and sellers although on cross-examination he conceded that he had not worked with buyers and sellers who had been considering easement donations when asked how he came to the conclusion that the marketability of property would be diminished by he answered i t's common sense that the more restricted_property is going to have lower marketability he did not however explain how he got to he testified that he based the that he assigned to recapture on what i felt the limitation on marketability would be as to the he assigned to maintenance and insurance requirements in excess of unencumbered properties he admitted that he did no analysis to arrive at that figure and just chose it similarly with respect to the assigned to legal exposure if easement is breached just judgment simply put given his limited experience appraising facade easements and his apparent preconception that the component percentages would total in a lightly regulated area we are not persuaded that mr hanlon's common sense feelings and judgment constitute a reliable basis for the percentage reductions in value that he assigned to each of the constituent burdens constituting a facade easement and further the adjustments he made to those percentages to reflect differences between the burdens imposed by the south end standards and criteria and the burdens imposed by the preservation agreement and while mr hanlon's method of deconstructing the burden imposed by a facade easement into constituent elements and assigning a percentage value to each element is not per se unreliable because it is unique to him and is not a generally accepted appraisal practice or valuation method the lack of general acceptance and the uniqueness of his method are facts relevant to our determining its reliability and those facts support our conclusion that his method is not reliable see saltzburg et al supra pincite general acceptance test is relevant to but not dispositive of admissibility finding his method not to be reliable we give no weight mr as stated supra mr bowman who is experienced in appraising partial_interests in property and conservation easements in particular is of the opinion that relying on the primoli article to determine a discount to be applied to the pre-contribution value 'is not a valid methodology for the appraisal of partial_interests ' hanlon's testimony that the contribution of the facade easement to nat reduced the value of the property by ie by dollar_figure dollar_figure the pastuszek report as discussed supra pp mr pastuszek a massachusetts certified real_estate appraiser prepared an appraisal report in which he used a matched sales analysis to examine the effects of nat's preservation restriction agreements on real_property prices in the boston area at trial petitioners put the pastuszek report before the court as a component of an exhibit that petitioners offered and that was acceptable to respondent but for the pastuszek report which respondent objected to since petitioners had not qualified mr pastuszek as an expert witness the parties agreed that the pastuszek report would not be struck but would be admitted solely for the purpose of demonstrating that the question of valuation is focused on the property at issue and that facade easements do not have a zero value as a matter of law a proposition to which respondent readily assented on brief petitioners propose that we find that in his report mr pastuszek concluded whether we exclude his testimony under fed r evid c as not being the product of reliable principles and methods or consider it and give it no weight would seem to make little difference in this bench trial cf 619_f3d_748 7th cir although we have held that the court in a bench trial need not make reliability determinations before evidence is presented the determinations must still be made at some point that properties with facade easements contributed to nat suffer a diminution in value of to respondent objects citing the limited purpose for which the pastuszek report was admitted into evidence we agree with respondent and make no such finding moreover given respondent's assent to the propositions that the question of valuation is focused on the property at issue and facade easements do not have a zero value as a matter of law we see no reason to and do not consider the content of the pastuszek report mr bowman's testimony a introduction the principal difference in opinion between messrs hanlon and bowman is the latter's conclusion that the typical buyer would find the restrictions of the preservation restriction no more burdensome than the underlying south end landmark district standards and criteria once he reached that conclusion the precontribution comparable properties could do double duty for him as postcontribution comparables since in his opinion the effect of the preservation agreement on value was nil his conclusion that there was no market_value associated with the facade easement preservation restriction naturally followed b comparing the two sets of restrictions although we have rejected mr hanlon's testimony that the contribution of the facade easement to nat reduced the value of the property by it does not necessarily follow that the facade easement had no value as mr bowman believes petitioners argue that b y donating the facade easement the kaufmans ceded control of the maintenance and appearance of the protected facades to the trust they also argue that by conveying an interest in the property to nat lorna kaufman diminished the marketability of the interest in the property she retained they conclude l ack of control and lack of marketability reduce the value of the property acknowledging that we might disregard mr hanlon' sec_12 reduction in value they argue that we should not altogether disregard his consideration of the impact of the preservation agreement on value mr hanlon's opinion is properties encumbered by the preservation restriction agreement should sell at a penalty relative to unencumbered properties in similar locations petitioners summarize the factors that mr hanlon considered in forming his opinion as follows the additional regulation and bureaucracy that resulted from the donation of the facade easement the new regulation on the rear and roof of the property under the rutland square agreement the impact of potentially higher maintenance and insurance costs to comply with the terms of the rutland square agreement the risk that the owner of the property might face legal action to compel compliance with the rutland square agreement and the restrictions on the yard and yard improvements under the rutland square agreement mr bowman on the other hand believes that the two sets of restrictions although using slightly different language share the same intent and effect he is of the opinion that the restrictive components of the preservation agreement are basically duplicative of and not materially different from the south end standards and criteria we think that mr bowman has the better of the argument mr hanlon has failed to persuade us that the preservation agreement is materially more restrictive than the south end standards and criteria we will not proceed to a component-by-component comparison of the two sets of restrictions but will address what seem to be mr hanlon's key points for the rest we rely on and adopt mr bowman's opinion most notably in his discussion of the relative disadvantages of the preservation agreement mr hanlon states the potential for the greatest loss of value is attributable to the national architectural trust's right to circumscribe the owner's rights to utilize the property for its 'highest and best use' even if legally permissible the loss of potential for demolition for assemblage subdivision or alternative use could have dramatic financial implications inexplicably however he subsequently states n either the preservation agreement nor the preexisting restrictions hamper the potential for developing the property to its highest_and_best_use as the property is currently ie at the time of the preservation agreement improved to its highest_and_best_use as a single family home also in his list of the constituent burdens encumbering properties in lightly regulated areas he shows for loss of development potential and he reduces from to the comparative disadvantage for the burden described as restrictions on expansion of building mr bowman states as a matter of zoning the property already exceeds the maximum allowable building envelope mr holman has failed to persuade us that the preservation agreement circumscribes the owner's rights to use the property for its highest_and_best_use and thus reduces its value mr holman believes that the preservation agreement imposes additional restrictions because unlike the south end standards and criteria it applies to more than just the exterior walls roof and yard which are visible from the public way the agreement's broad definition of facade includes all exterior walls chimneys and roofs of the building and the land the building is situated upon nevertheless he reduces from to the comparative disadvantages for the burdens describe as regulation on end walls and restrictions on expansion of building he increases from to the comparative disadvantage for the burden described as new regulation on rear and roof during cross-examination in explaining his increase he testified to his belief that the south end standards and criteria did not cover the roof of the building but he stood corrected when pointed by respondent's counsel to the portion of those standards and criteria addressing roofs in detail the heading of that portion illustrates its comprehensiveness roofs including rooflines cornices and dormers skylights greenhouses arbors penthouses roof fences and decks mechanical penthouses solar panels and devices and the like after reading the restrictions applicable to roofs he insisted nevertheless that the standards and criteria do not cover roofing material that might have to be replaced that is not universally true since with respect to slate roofs the standards and criteria state that for visible portions of a slate roof requiring replacement slate or a non-reflective material similar in color and texture to slate may be allowed in any event the property's roof is described in the preservation agreement as asphalt shingle a commonly used and widely available roofing material and the preservation agreement requires only that the grantor agree to maintain in good order the roof in the condition and appearance existing on the effective date of the this restriction it is difficult for us to see that a buyer of the property would attach any penalty to what appears to be a nonexistent or at best insignificant difference between the south end standards and criteria and the preservation agreement as they apply to roof repairs mr holman attaches a loss in value to new regulation of yard and yard improvements the preservation agreement regulates the property's facade a defined term including landscape features noted as character defining features in attachment b to the preservation agreement attachment b states a small front garden area is covered in smooth rocks encircling a young deciduous tree and is protected by a low decorative iron fence it also states there does not appear to be a back yard associated with this rowhouse the preservation agreement obligates the owner of the property to maintain the facade in good order as it existed on the date of the preservation agreement and it restricts repairs replacements and alterations the south end restrictions and criteria include among the most important features of buildings the front yard they require review of all proposed changes preference is given to alterations that maintain preserve or restore according to stated criteria that disapprove in advance changes such as covering the front yard with asphalt or similar materials and that encourage planting with respect to replacement of fences they incorporate the criteria that we quote supra p for railings balustrades and decorative balconies if anything the south end standards and criteria applicable to yards and fences appear to be more restrictive than the restrictions in the preservation agreement similarly applicable we are unconvinced that a potential buyer of the property would consider any reduction in value to reflect the preservation restrictions' governance of changes to his front yard mr bowman states that mr hanlon provided no evidence of higher insurance or maintenance_costs he believes that a prudent owner would maintain his residence at the same level required by either the preservation agreement or the south end standards and criteria he testified that insurance is required by most lenders we agree with mr bowman we are unconvinced that an owner purchasing the property subject_to the preservation agreement would attach a negative value to the requirement that he maintain property damage insurance or that he maintain his property to standards established in the preservation agreement we are also unconvinced by mr hanlon that an owner would attach a negative value to the additional regulation and bureaucracy resulting from the donation of the facade easement or to the potential for legal action for lack of compliance for instance mr hanlon believes that a comparative disadvantage of the preservation agreement is that it subjects the owner to the inconvenience of periodic inspections mr bowman points out that the inspection is of the exterior of the property which should not be much of an inconvenience since that the owner does not have to be home we agree nor are we convinced by mr hanlon that the legal threat under the preservation agreement is sufficiently more severe than or different from the existing legal threat mentioned by mr bowman for action by the city of boston's inspectional services department for unauthorized alterations or for failure to maintain the property mr hanlon believes that the preservation agreement reduces the marketability of the property because of the added burdens it imposes mr bowman's resale study leads to the opposite conclusion at least with respect to properties encumbered by a preservation restriction conveyed to nat moreover as mr bowman reports mr kearns past president of nat apparently is of the opinion that the presence or absence of an easement is only a minor factor in the buying decision we have little confidence in mr hanlon's opinion that the preservation agreement imposed on the owner of the property restrictions significantly different from or more burdensome than the restrictions imposed by the south end standards and criteria petitioners have failed to persuade us that on account of the preservation agreement lack of control and lack of marketability reduce the value of the property to the contrary our own comparison of the two sets of restrictions and mr bowman's expert testimony have convinced us that the restrictive components of the preservation agreement are basically duplicative of and not materially different from the south end standards and criteria and we so find c mr bowman's opinions of postcontribution value and value of the facade easement accepting mr bowman's opinion that the typical buyer would find the restrictions of the preservation agreement no more burdensome than the underlying south end standards and criteria we agree with him and find that the postcontribution value of the property was equal to its precontribution value dollar_figure we further agree with him that in the absence of any record of sales of easements comparable to the donated easement and applying the before- and-after valuation method of sec_1_170a-14 income_tax regs the facade easement had no fair_market_value when conveyed to nat e conclusion the facade easement had no fair_market_value when conveyed to nat therefore respondent's adjustments to petitioners' and tax returns disallowing any deduction for the contribution of the facade easement to nat are sustained iii penalty a introduction sec_6662 imposes an accuracy-related_penalty if any part of an underpayment_of_tax required to be shown on a return is due to among other things negligence or disregard of rules or regulations without distinction negligence a substantial_understatement_of_income_tax or a substantial_valuation_misstatement sec_6662 and b and the penalty is of the portion of the underpayment_of_tax to which the section applies sec_6662 in the case of a gross_valuation_misstatement is increased to sec_6662 only one accuracy-related_penalty may be applied with respect to any given portion of an underpayment even if that portion is subject_to the penalty on more than one of the grounds set out in sec_6662 sec_1_6662-2 income_tax regs sec_6664 provides a reasonable_cause exception to the accuracy- related penalty generally under sec_6664 no penalty is imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was reasonable_cause for such portion and that the taxpayer acted in good faith with respect to such portion the reasonable_cause exception does not apply however in the case of a substantial or gross_valuation_overstatement with respect to property for which a charitable_contribution_deduction was claimed under sec_170 unless the claimed value of the property was based on a qualified_appraisal by a qualified_appraiser and the taxpayer made a good-faith investigation of the value of the contributed_property sec_6664 and see also sec_1_6664-4 income_tax regs b valuation_misstatement_penalty introduction as stated above sec_6662 and b imposes a penalty of of the portion of an underpayment_of_tax attributable to a substantial_valuation_misstatement a substantial_valuation_misstatement exists if the value of any property reported on a tax_return is percent or more of the amount determined to be the correct amount of such valuation sec_6662 if the valuation misstatement is or more of the correct amount a gross_valuation_misstatement exists and the penalty increases to sec_6662 and a i the value claimed on a return of any property with a correct value of zero is considered to be percent or more of the correct amount sec_1_6662-5 income_tax regs no penalty however is imposed unless the portion of the underpayment attributable to the valuation misstatement exceeds dollar_figure sec_6662 positions of the parties respondent argues that petitioners are liable for the gross_valuation_misstatement penalty for because in taking a charitable_contribution_deduction for petitioners claimed that the value of the facade easement was dollar_figure when in truth it was zero resulting in an underpayment_of_tax attributable to a gross_valuation_misstatement respondent argues likewise for on account of petitioners' carryover to that year of the unused portion of their claimed charitable_contribution_deduction see sec_1_6662-5 income_tax regs petitioners argue that they are liable for no valuation_misstatement_penalty for either or because notwithstanding any valuation misstatement there was reasonable_cause for the resulting underpayments in tax they acted in good_faith the claimed value of the facade was based on a qualified_appraisal made by a qualified_appraiser and in addition to obtaining that appraisal they made a good-faith investigation of the value of the facade easement respondent's burden of production respondent has met his burden of producing sufficient evidence that it is proper to impose the valuation_misstatement_penalty see discussion supra pp see also sec_7491 petitioners' reported value for the facade easement exceeds the correct value by or more petitioners' and underpayments of tax each underpayment exceeding the dollar_figure requirement of sec_6662 and each having been caused by a disallowed charitable_contribution_deduction claimed on account of the contribution of the facade easement to nat result directly from the valuation misstatement petitioners bear the burden of proving that the penalties are inappropriate because they had reasonable_cause for the underpayments of tax and because they acted in good_faith reasonable_cause exception a qualified_appraisal by a qualified_appraiser as stated above before we may consider a taxpayer's reasonable_cause good-faith defense to a valuation_misstatement_penalty we must find that the reported value of the property was based on a qualified_appraisal by a qualified_appraiser and the taxpayer made a good-faith investigation of the value of the contributed_property sec_6664 and the requirement of obtaining a qualified_appraisal is also a condition that most taxpayers must satisfy before they can deduct more than dollar_figure on account of a charitable_contribution of property see sec_1_170a-13 income_tax regs on appeal of our prior decision in this case respondent argued as an alternative ground for disallowing petitioners' deductions on account of the contribution of the facade easement that they had failed to comply with certain recordkeeping and reporting requirements that are imposed by statute sec_170 and elaborated in an accompanying regulation sec_1_170a-13 income_tax regs kaufman v shulman f 3d pincite that regulation includes as part of the definition of the term qualified_appraisal the requirement that the appraisal be prepared by a qualified_appraiser sec_1_170a-13 income_tax regs the term qualified_appraiser is defined in sec_1_170a-13 income_tax regs the regulations provide that an individual is not a qualified_appraiser if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser falsely to overstate the value of the donated property sec_1_170a-13 income_tax regs para was added to sec_170 by the american_jobs_creation_act_of_2004 pub_l_no sec_883 sec_118 stat pincite it is applicable to contributions made after date id sec_883 sec_118 stat pincite it codified the requirements in sec_1_170a-13 income_tax regs which congress had directed the secretary to promulgate see deficit_reduction_act_of_1984 pub_l_no sec a stat pincite the court_of_appeals stated the procedural regulations requiring an appraisal report and summary are designed to provide information 'sufficient to permit the irs to evaluate the taxpayer 's reported contribution and monitor and address concerns about overvaluation ' kaufman v shulman f 3d pincite quoting consol investors grp v commissioner tcmemo_2009_290 wl at respondent had claimed that the method of valuation used by the kaufmans' appraiser lacked 'analytical mooring' and produced an indefensibly inflated valuation also that petitioners' contribution claim constituted a gross_valuation_misstatement id while acknowledging the seriousness of a gross_valuation_misstatement the court_of_appeals stated that the commissioner's argument is largely an attempt to convert an inherently factual issue into a set of violations of the procedural requirements of sec_1_170a-13 in disregard of their language and purpose id the court added but whether the valuation was overstated grossly or otherwise is a factual question different from whether the formal procedural requirements were met either strictly or under the 'substantial compliance' doctrine which may forgive minor discrepancies id emphasis added in one respect however the court found that the commissioner has raised a pertinent point ie whether mr hanlon was not under the regulations a qualified_appraiser which would be true if petitioners had knowledge of facts that would cause a reasonable person to expect the appraiser falsely to overstate the value of the donated property id that question the court stated like the question of whether the easement was overvalued required further fact finding by us id pincite the court_of_appeals rejected the commissioner's alternative ground that as a matter of law any deduction for the contribution of the facade easement must be disallowed we take from the court of appeals' discussion that except with respect to mr hanlon's possible disqualification on account of petitioners' knowledge petitioners satisfied the recordkeeping and reporting requirements of sec_1_170a-13 income_tax regs as stated the regulations provide that an individual is not a qualified_appraiser if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser falsely to overstate the value of the donated property sec_1_170a-13 income_tax regs by way of example the regulations add eg the donor and the appraiser make an agreement concerning the amount at which the property will be valued and the donor knows that such amount exceeds the fair_market_value of the property id we take from the example and from the modification of the infinitive to overstate by the adverb falsely in the regulations that the expression falsely to overstate is intended to convey a sense of collusion and deception as to the value of the property while we will state shortly our finding that petitioners lacked reasonable_cause and did not act in good_faith with respect to the underpayment resulting from the disallowance of their charitable_contribution_deduction on account of the contribution of the facade easement to nat we do not believe that as we interpret the term mr hanlon acted falsely with respect to his appraisal of the facade easement we find that he was a qualified_appraiser within the meaning of sec_6664 that is not to say that he was right or that petitioners did not have reason to question his valuation it is only to say that with respect to the technical meaning of the term qualified_appraiser he was qualified petitioners have carried their burden of proving that the reported value of the facade easement was based on a qualified_appraisal made by a qualified appraiserdollar_figure among the meanings for the word false in the american heritage dictionary of the english language 5th ed are deliberately untrue and intentionally deceptive pursuant to sec_1_170a-13 income_tax regs an individual is not a qualified_appraiser if the individual is among other things an appraiser who is regularly used by the donor or donee and who does not perform most of his or her appraisals for other persons respondent makes no claim regarding whether mr hanlon is excluded from qualifying as a qualified_appraiser pursuant to sec_1_170a-13 income_tax regs so we do not further address that issue b good-faith investigation of value petitioners have not carried their burden of proving that in addition to obtaining a qualified_appraisal of the facade easement they made a good-faith investigation that confirmed that the value of the facade easement was dollar_figure the term good_faith appears in both sec_6664 and b although the term has no precise definition it means among other things honesty in belief black's law dictionary 9th ed see also 25_f3d_55 1st cir similar definition approved in jury instruction on intent to defraud therefore to satisfy the good-faith-investigation requirement imposed on them by sec_6664 petitioners must demonstrate how they honestly came to believe that beyond being simply the amount determined in the hanlon appraisal the value of the facade easement was dollar_figure see 139_tc_304 petitioners argue after receiving the appraisal from hanlon the petitioners verified that the value attributed to the easement was correct in support of that argument petitioners point first to gordon kaufman's testimony that he believed that the preservation agreement reduced the value of the property because it imposed restrictions more stringent than those imposed by the south end standards and criteria he conceded however that he had not compared the burdens imposed by the preservation agreement with those imposed by the south end standards and criteria in any event believing that the preservation agreement reduced the value of the property is not by itself verification that the preservation agreement reduced the value of the property by dollar_figure or anything close to dollar_figure petitioners add reading the appraisal also caused gordon kaufman to question the impact the facade easement would have on the resale value of the property which prompted him to send an email to mr bahar expressing his concern that the reduction in the resale value of the property due to the facade easement is so large as to overwhelm the tax savings that accrue from it mr bahar immediately responded to him assuring him that properties in neighborhoods such as petitioners' subject_to local regulation and also subject_to preservation agreements were not at a market disadvantage when compared to neighboring properties not so additionally burdened gordon kaufman testified that he found the bahar email only mildly informative because he questioned the statistical basis of mr bahar's conclusions it is somewhat odd and not at all persuasive that in support of their argument that gordon kaufman verified that the dollar_figure value for the facade reached by mr hanlon was correct petitioners bring to our attention mr bahar's email in which whether gordon kaufman accepted it or not mr bahar expressed his opinion that the conveyance of the facade easement to nat had little or no effect on the value of the property petitioners have not convinced us that they made a good-faith investigation of the value of the facade easement by virtue of gordon kaufman's email correspondence with mr bahar before they filed the return petitioners provided a copy of the hanlon appraisal to their longtime accountant mr cohen who reviewed it and found that it was consistent in form with other real_estate appraisals that he had seen on that basis petitioners argue that they justifiably relied on mr cohen's positive review of the hanlon appraisal mr cohen however testified that he did not express to petitioners any opinion as to whether the valuation was reasonable indeed in response to a question from the court he agreed that it was fair to say that he had no idea whatsoever as to whether the value reported by petitioners on the basis of the hanlon appraisal was accurate we do not find that by way of mr cohen petitioners made a good-faith investigation as to whether the value of the facade easement was dollar_figure finally petitioners point to the primoli article and argue that their reliance personally and through their advisors on the to range described in the article demonstrates the reasonableness of their reporting on the and returns dollar_figure as the value of the facade easement first of all mr cohen disavowed advising petitioners as to the reasonableness of the value they claimed for the facade easement and he did not in his testimony mention the primoli article mr hanlon did include in his appraisal a reference to the primoli article and he quoted the portion of the article saying that irs engineers have conceded the proper valuation of a facade easement should range from approximately to of the value of the burdened property there is however no evidence that other than perhaps having read that reference to the primoli article petitioners saw the primoli article or any material mentioning it indeed there is no evidence that other than consulting mr bahar petitioners made any independent investigation of the value of the facade easement much less an investigation confirming that its value was the value they reported on the and returns viz dollar_figure because petitioners have failed to prove that they made a good-faith investigation of the value of the facade easement there is no reason for us to consider for purposes of a valuation_misstatement_penalty whether with respect to the resulting underpayments in tax petitioners acted with reasonable_cause and in good_faith see sec_6664 nevertheless for the sake of completeness and because the issue is relevant for a negligence- or substantial-understatement-of- income-tax-based penalty we will do so c reasonable_cause and good_faith under the regulations the most important factor in determining whether the taxpayer had reasonable_cause for his tax treatment and whether he acted in good_faith is the extent of the taxpayer's effort to assess the taxpayer's proper tax_liability sec_1_6664-4 income_tax regs we are here concerned with the underpayments in petitioners' tax resulting from respondent's disallowance of their deductions on account of lorna kaufman's contribution of the facade easement to nat which in turn results from petitioners' overstatement of the value of the easement petitioners state that they had no background in tax real_estate or in appraising real_property interests therefore they continue they looked to an accountant and an appraiser who had the requisite experience to provide them the guidance that was required it is true that good-faith reliance on professional advice may provide a basis for a reasonable_cause defense 469_us_241 sec_1_6664-4 income_tax regs with respect to their reliance on mr cohen their accountant petitioners state mr cohen is an accountant with over years of experience with advanced education in accounting mr cohen researched the tax deduction in conjunction with the facade easement donation when approached by the kaufmans mr cohen also received and reviewed a copy of the appraisal performed by mr hanlon and believed it to be a qualified_appraisal mr cohen received a form_8283 from the trust which verified the donation while all of that may be true the underpayment here resulted from petitioners' overstatement of the value of the facade easement there is no evidence that either petitioner asked mr cohen whether as an accountant or as a return preparer he had any expertise reviewing easement values indeed the value of the facade easement involves an issue valuation on which mr cohen neither was qualified to advise petitioners nor advised them with respect to their reliance on mr hanlon petitioners state they retained timothy hanlon a qualified_appraiser to appraise the property interest that they intended to donate to the trust mr hanlon a state licensed broker and appraiser was qualified to perform the duties for which he was retained the kaufmans received an appraisal report from mr hanlon that purported to comply with uspap requirements and to be a qualified_appraisal the kaufmans believed that they had received a qualified_appraisal from hanlon while reliance on an appraiser may demonstrate reasonable_cause and good_faith the regulations caution that reliance on the advice of an appraiser does not necessarily demonstrate reasonable_cause and good_faith sec_1_6664-4 income_tax regs indeed the regulations continue reasonable_cause and good_faith ordinarily is not indicated by the mere fact that there is an appraisal of the value of the property id other factors to consider include the methodology and assumptions underlying the appraisal the appraised value the relationship between appraised value and purchase_price the circumstances under which the appraisal was obtained and the appraiser's relationship to the taxpayer or to the activity in which the property is used id petitioners had reason to question the conclusion in the hanlon appraisal that the facade easement was worth dollar_figure mr bahar's email to gordon kaufman suggested that giving the facade easement to nat did not reduce the value of the property at all gordon kaufman testified that he found the information in the bahar email only mildly informative he thought that the key information in the email was mr bahar's discussion of the properties encumbered by facade easements and tracked by nat none of which mr bahar reported subsequently sold at a loss gordon kaufman admitted that the discussion of properties may or may not have been correct he accorded it not very much weight however because he found it to lack statistical rigor he admitted that he did not ask mr bahar for his underlying data concerning the sales and he did not actually know that the study carried no weight certainly as an mit professor specializing in analytical statistics he is qualified to have an opinion about the statistical rigor of mr bahar's claims indeed preparatory to his testimony voicing criticism of mr bowman's respondent's expert's sampling techniques he identified himself as a professional statistician whose profession is examining data and interpreting its meaning using modern statistical tools mr bahar's discussion involved a resale study while mr hanlon's appraisal was of the value of a single facade easement nevertheless there was obvious discordance between mr bahar's resale statistic and mr hanlon's value conclusion suggesting that one or the other was or possibly both were in error yet gordon kaufman who was particularly well equipped to apply statistical rigor both to mr bahar's data and to mr hanlon's value conclusion chose to do neither that lack of initiative is certainly in contrast to the professional attention that gordon kaufman paid to mr bowman's opinion that the facade easement had no value in fact gordon kaufman testified that he accepted the hanlon appraisal on the basis of mr hanlon's credential as a professional appraiser and his gordon kaufman's uncritical acceptance of the to range that mr hanlon relied on to fix the value of the facade easement during a discussion with the court he agreed that there was no basis in the hanlon appraisal for judging the accuracy of that range and that to judge its accuracy you would have to see the sample data on which it was based gordon kaufman is an expert in statistics and he as much as admitted that he recognized the risks in mr hanlon's unquestioning acceptance of the range in the primoli article he also failed to ask for the data that might have supported mr bahar's conclusion that contributions of facade easements did not reduce value in determining whether a taxpayer has reasonably relied in good_faith on advice we take into account his education sophistication and business experience see sec_1_6664-4 income_tax regs gordon kaufman was a sophisticated consumer of statistical analyses and both the bahar email and the hanlon appraisal gave him good reason to question mr hanlon's value conclusion we do not believe that he acted with reasonable_cause and in good_faith in relying without question on the hanlon appraisal in subscribing tax returns on which he represented the value of the facade easement to be dollar_figure petitioners have failed to prove that the underpayments in tax resulting from their overstatement of the value of the facade easement are the result of their good- faith reliance on professional advice establishing reasonable_cause for the underpayments conclusion petitioners underpaid the tax required to be shown on their and returns on account of a gross_valuation_misstatement they have failed to show that with respect to the resulting underpayments they acted with reasonable_cause and in good_faith we will therefore sustain respondent's imposition of accuracy-related_penalties on account of that valuation misstatement c negligence_penalty in the alternative we sustain respondent's imposition of accuracy-related_penalties due to a valuation misstatement on account of either negligence or substantial understatements of income_tax negligence has been defined as lack of due care or failure to do what a reasonably prudent person would do under like circumstances see eg 132_tc_105 aff'd 613_f3d_1360 11th cir negligence also includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax_return sec_1_6662-3 income_tax regs we have in our discussion of reasonable_cause and good_faith described the warning signs that should have alerted gordon kaufman to the chance of error in the hanlon appraisal but that he ignored we also have in front of us the fact that when after receiving the hanlon appraisal and before executing the return it came time for lorna kaufman to ask washington mutual to subordinate its mortgage to nat's interest in the property gordon kaufman joined his wife in certifying to the bank that t he easement restrictions are essentially the same restrictions as those imposed by current local ordinances that govern this property after first testifying that he did not notice the statement when he signed the certification he then testified that he did not read it carefully and signing the certification was a mistake since he believed that the preservation restrictions were more stringent than those in the preservation agreement he conceded however that that was his subjective judgment since he had never compared the burdens imposed by the preservation agreement with those imposed by the south end standards and criteria lorna kaufman testified that when she signed the certification she did not focus on the quoted statement she also testified that she could not remember whether she had read and compared the preservation agreement to the south end standards and criteria in any case petitioners were careless whether in not reading what they signed in not reading carefully what they signed or in gordon kaufman's case in reaching a subjective conclusion in willful ignorance of relevant data we think that their carelessness is reflected in their ready acceptance of the hanlon appraisal in the face of warning signs that it overstated the value of the facade easement viz the bahar email and defects in the appraisal that should have been apparent to gordon kaufman the underpayments in tax attributable to the disallowed deductions for contribution of the facade easement to nat are attributable to petitioners' negligence and they have failed to show that they had reasonable_cause and acted in good_faith with respect to those underpayments finally petitioners argue that they escape any negligence_penalty because they had a reasonable basis for claiming deductions on account of their contribution of the facade easement to nat sec_1_6662-3 income_tax regs provides that a return position that has a reasonable basis is not attributable to negligence reasonable basis is a relatively high standard of tax reporting and is not satisfied by a return position that is merely arguable or that is merely a colorable claim sec_1_6662-3 income_tax regs petitioners argue petitioners' facade easement donation was part of a federal tax incentive program when congress provides a general tax incentive through a deduction from income those falling within the general beneficiary class are entitled to participate in the benefit petitioners' argument misses the point petitioners claimed a charitable_contribution_deduction of dollar_figure for lorna kaufman's contribution of the facade easement to nat on the basis of the hanlon appraisal which concluded that it was worth that amount while we have on occasion accepted expert testimony that a facade easement reduced the value of the subject property by a particular percentage eg 85_tc_677 we have cautioned that there is no general safe-harbor percentage with respect to the value of facade easements nicoladis v commissioner tax ct memo lexi sec_187 at v aluation itself is still a question of facts and circumstances petitioners can rely neither on caselaw nor on irs engineers' statements that the proper value of facade easements should range between and of the value of the encumbered property to overcome the fact that the value of the facade easement that lorna kaufman contributed to nat was nil the mere fact that they obtained an appraisal claiming that the value of the facade easement was dollar_figure does not in and of itself constitute a reasonable basis for claiming on their returns that the facade easement was worth dollar_figure see sec_1_6664-4 income_tax regs petitioners have failed to show a reasonable basis for claiming a charitable_contribution_deduction of dollar_figure on account of the contribution of the facade easement to nat d substantial_understatement_of_income_tax sec_6662 and b imposes a accuracy-related_penalty on any portion of an underpayment_of_tax required to be shown on a return which is attributable to any substantial_understatement_of_income_tax an understatement of income_tax generally means the excess of the amount of tax required to be shown on the return for the taxable_year over the amount of the tax imposed that is shown on the return sec_6662 the understatement is deemed substantial if the amount of the understatement for the taxable_year exceeds the greater of of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 the amount of the understatement however is reduced by that portion of the understatement attributable to the tax treatment of any item supported by substantial_authority or for which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return and there is a reasonable basis for the tax treatment of such item sec_6662 adequate_disclosure has no effect where the return position lacks a reasonable basis sec_1_6662-3 income_tax regs since as discussed in the immediately proceeding part iii c of this report petitioners have failed to show a reasonable basis for their tax treatment of lorna kaufman's contribution of the facade easement to nat petitioners cannot satisfy the adequate_disclosure reasonable basis standard the substantial_authority standard is an objective standard involving an analysis of the law and application of the law to relevant facts sec_1_6662-4 income_tax regs petitioners' argument with respect to substantial_authority are substantially the same as their arguments with respect to reasonable basis and for the same reasons we reject them petitioners have failed to show substantial_authority for claiming a charitable_contribution deduction of dollar_figure on account of the contribution of the facade easement to nat we have sustained respondent's disallowance of charitable_contribution deductions on account of the contribution of the facade easement to nat for both and the resulting understatement of income_tax exceeds the greater of of the tax required to be shown on the return or dollar_figure respondent has met his burden of production regarding the existence of substantial understatements petitioners have failed to show that they had reasonable_cause and acted in good_faith with respect to the underpayments attributable to those understatements iv conclusion we sustain respondent's adjustments to petitioners' and returns disallowing any charitable_contribution deductions on account of lorna kaufman's contribution of the facade easement to nat we further sustain respondent's imposition of accuracy-related_penalties on account of the resulting underpayments of tax as discussed decision will be entered under rule