Court Opinion

ID: 9963561
Source: CourtListenerOpinion
Date Created: 2024-04-25 19:03:56.741141+00
Date Added: 2024-06-11T08:24:53.331898
License: Public Domain

United States Tax Court

                         T.C. Memo. 2024-52

         BUCKELEW FARM, LLC f.k.a. BIG K FARMS LLC,
             BIG K LLC, TAX MATTERS PARTNER,
                          Petitioner

                                   v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                              __________

Docket No. 14273-17.                               Filed April 25, 2024.

                              __________

Lynn Ernest Fowler, Burleigh L. Singleton, Jeffrey S. Reed, and Ava J.
Conger, for petitioner.

Keith Lawrence Gorman, Randall S. Trebat, Elizabeth C. Mourges,
Kirsten E. Brimer, John Anthony Guarnieri, and Nicole M. Connelly, for
respondent.

       MEMORANDUM FINDINGS OF FACT AND OPINION

       WEILER, Judge: This case involves a noncash charitable
contribution deduction claimed in 2013, the tax year at issue. By notice
of final partnership administrative adjustment (FPAA), respondent
disallowed a charitable contribution deduction claimed by Buckelew
Farm, LLC, formerly known as Big K Farms, LLC (Big K Farms or
Partnership), for its grant to the Southeast Regional Land Conservancy,
Inc. (SERLC), of a perpetual conservation easement over approximately
1,545.79 acres of real property located in Jones County, Georgia.
Respondent determined that the Partnership is subject to a civil fraud

                           Served 04/25/24
                                            2

[*2] penalty pursuant to section 6663, 1 or, alternatively, that a section
6662 accuracy-related penalty applies.

      After concessions, 2 the issues for decision are (1) whether the
Partnership satisfied the requirements of section 170 for its claimed
conservation easement donation, (2) the fair market value of the
conservation easement, (3) whether the civil fraud penalty under section
6663 applies, or, in the alternative, (4) whether an accuracy-related
penalty pursuant to section 6662 is applicable.

                               FINDINGS OF FACT

      Some of the facts are stipulated and are so found. The Stipulation
of Facts and the attached Exhibits are incorporated herein by this
reference.

       Big K Farms is a limited liability company (LLC) treated as a
partnership under the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, for
federal income tax purposes; petitioner, Big K, LLC (Big K), is its tax
matters partner (TMP). 3 Big K Farms is a Georgia LLC, with its
principal place of business in Atlanta, Georgia. James M. Adams III is
the designated representative of the TMP.

I.      The Subject Property and Ownership History

      On January 4, 1999, former professional major league baseball
players Ryan Klesko and John Smoltz formed the Partnership as a
Georgia LLC, with each member holding a 50% interest. The Articles of
Organization of the Partnership were signed on December 9, 1998.
Mr. Klesko and Mr. Smoltz were both managers of the Partnership from
formation until December 12, 2013. At some point before December 2013
Mr. Smoltz transferred his 50% interest in the Partnership to his wife,

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts are rounded to the nearest dollar.
         2 By way of Stipulations of Settled Issues the parties agree that the

conservation easement at issue satisfies one of the conservation purposes defined in
section 170(h)(4) and that respondent has complied with the procedural requirements
set forth in section 6751(b) for all penalties asserted under sections 6662 and 6663.
       3 Before its repeal TEFRA governed the tax treatment and audit procedures

for many partnerships, including Big K Farms.
                                          3

[*3] Kathryn Smoltz, for estate and financial planning purposes
unrelated to this case. Additionally, Mr. and Mrs. Smoltz have been
retaining John Dodd as their personal financial advisor since 2012.

       Between 1998 and 2006 the Partnership acquired eight parcels of
land in Jones County, Georgia, for $4,014,000, 4 consisting of
approximately 1,561.65 acres. These parcels are bordered by Upper
River Road, McKay Road, and Stirk Road. The eight parcels of land
constitute the Subject Property. The Partnership purchased the land for
its timber value and for various recreational uses including hunting,
fishing, and other outdoor sporting activities. It continued the
recreational uses until 2013. On December 18, 2013, 5.32 acres of the
Subject Property were transferred to Mr. Klesko.

       A.      Prior Listings of the Subject Property

       By 2012 the Partnership was actively trying to sell the Subject
Property, listing it with a broker, Matt Haun, for $9 million. Mr. Haun
is the owner of Quality Timber & Wildlife Management, Inc., and is a
real estate agent with Mossy Oak Properties, which specializes in large
hunting parcels. Mr. Klesko initially wanted to list the Subject Property
for $14 million; however, Mr. Haun informed him that current market
conditions could not support such a price.

       Mr. Haun listed the Subject Property twice for Mr. Klesko and
Mr. Smoltz, and it was on the market for 6 to 12 months. The Subject
Property was listed on Mr. Haun’s company website and through other
online publications. Mr. Haun noted that properties of this size are
“extremely hard to move simply [because] of the acquisition and
inability . . . to borrow.” Despite the Subject Property’s being one of a
kind, Mr. Haun explained that for the “current asking price [of $9
million] a buyer could purchase a plantation in south [Georgia] that’s
[three] times bigger, which makes a difficult sale,” and noted that if
forced to sell it, he would expect the Subject Property to fetch between
$3 million and $3.5 million.

        4 On December 17, 1998, two of the parcels were purchased for $550,000

(294.21 acres) and $2,550,000 (975.28 acres). In September 2002 the Partnership
purchased a single parcel of land for $694,000 (286.32 acres). In July 2006 the
Partnership purchased a single parcel of land for $10,000 (0.52 acre). On August 18,
2005, the Partnership purchased three parcels of land for $70,000 (1.52 acres), $45,000
(1.79 acres), and $65,000 (1.78 acres). Lastly, on July 22, 2005, the Partnership
purchased a single parcel of land for $30,000 (0.23 acre). The aggregate of these
amounts, $4,014,000, constitutes the original purchase price of the Subject Property.
                                          4

[*4] In addition to the online listings Mr. Haun contacted a lumber
company and a large landholder to determine their interest in the
Subject Property, but neither expressed any interest. Ultimately,
Mr. Haun did not receive any concrete offers 5 or interest in the Subject
Property from potential buyers.

       B.      Prior Appraisals of the Subject Property

       The Partnership borrowed money in or around 2010 and used the
Subject Property as collateral. The banks holding the mortgages
engaged several independent appraisers to value the Subject Property
and obtained appraisals in 2010 and 2012. In 2010 Jason Martin of
Tilman & Associates appraised the Subject Property at a fair market
value of $6,712,840, finding the fair market value of a single-family
residence located on the Subject Property to be $525,000 and the four
parcels of land to be worth $4,000 per acre or $6,187,840 (Martin
Appraisal). In ascertaining the fair market value of the Subject
Property, Mr. Martin used the comparable sales approach and concluded
its highest and best use to be “hunting land and recreation property” on
the basis of its then-existing use.

       San Diego Private Bank, which held the mortgage on the Subject
Property, commissioned Integra Resources to perform a desktop review
of the Martin Appraisal (Greenwald Review), which was conducted by
Jeff Greenwald. The purpose of Mr. Greenwald’s review was to verify
the Martin Appraisal’s “compliance with accepted professional
standards and reporting guidelines of San Diego Private Bank, and the
Uniform Standards of Professional Appraisal Practices (USPAP) of the
Appraisal Foundation.” Mr. Greenwald concluded that the Martin
Appraisal is not complete and accurate pursuant to the standards set
forth in USPAP and that the “analyses, opinions and conclusions . . . are
not appropriately developed and are not judged to be reasonably
supported.” Mr. Greenwald noted that on the basis of a series of errors
and lack of reasonable support, he could not agree with the value
conclusions reached in the Martin Appraisal. 6 Mr. Greenwald did not

       5 Timbervest, a timber management organization, considered purchasing the

Subject Property, but determined that the value of the timber was less than $6 million.
        6 On February 29, 2012, Mrs. Smoltz forwarded Mr. Dodd a copy of the

Greenwald Review. Mr. and Mrs. Smoltz engaged Mr. Dodd to conduct due diligence
on the value of the Subject Property. As part of his due diligence Mr. Dodd requested
that Bernie Butler evaluate the Subject Property to best determine how to sell it.
Mr. Butler is a real estate developer and broker with 35 years of experience who
                                         5

[*5] offer an opinion as to the fair market value of the Subject Property
in his report.

       By March 1, 2012, the mortgage on the Subject Property was held
by Brand Bank, which commissioned an appraisal of the Subject
Property to be performed by Cushman & Wakefield. Scott Tonnenson
prepared the Brand Bank Appraisal and concluded that the fair market
value of the Subject Property was $4,020,000, not accounting for the
contributory value of the timber. The Brand Bank Appraisal employed
the cost approach to value the residence and improvements on the
Subject Property at $908,881 and used the sales comparison approach
to determine the fair market value of the vacant land as $3,110,000.
Moreover, the Brand Bank Appraisal determined the highest and best
use of the Subject Property to be “continued agricultural and
recreational use.”

       James Davis of Valuation Management Group, LLC, performed a
technical review of the Brand Bank Appraisal to confirm its compliance
with USPAP; however, his report did not give an opinion as to the value
of the Subject Property. Mr. Davis’s technical review of the Brand Bank
Appraisal concluded that it was credible and in compliance with USPAP.

II.    Conservation Easement Transaction

       Mr. Adams 7 has spent his career in the real estate industry and
has worked for several companies in various roles in the development of
hotels, office buildings, apartments, planned communities, public-
private ventures, golf courses, and other recreational activities. The real
estate firms Mr. Adams worked for include Major, Inc., Chatham Hill,
LLC, and Broad Street Partners, LLC. Mr. Adams also played a role in
redeveloping the Barnsley Gardens Resort in the late 1990s, which is
currently a luxury resort located in Adairsville, Georgia.

      Mr. Adams became aware that the Subject Property might be for
sale in 2012 through Carlton Walstad, who, at the time, was an

concluded that on the basis of his experience, the Subject Property was worth $3
million. Mr. Butler communicated his opinion regarding the value of the Subject
Property to Mr. Dodd.
        7 Mr. Adams is an attorney licensed to practice in Georgia and before this

Court, and he has also represented clients before the Internal Revenue Service (IRS).
Additionally, Mr. Adams was the managing and sole member of Awahili Alliance, LLC,
which, during the relevant periods, provided consulting services regarding
conservation easement transactions. Awahili Alliance, LLC, was treated as a
disregarded entity for federal income tax purposes.
                                   6

[*6] employee of Timbervest. Mr. Walstad was interested in partnering
with Mr. Adams to invest in the Subject Property, either directly or
indirectly. In early 2012 Mr. Adams and Mr. Walstad visited the Subject
Property and met with Mr. Klesko. Despite the Subject Property’s being
listed for $9 million Mr. Adams presented a conservation easement plan
to Mr. Klesko and Mr. Smoltz and discussed a $6 million purchase price.
After the meeting Mr. Klesko instructed Mr. Haun to remove the Subject
Property’s listing since he was planning to go ahead with a conservation
easement.

      A.     The Subject Property in 2012

      On May 17, 2012, Mr. Adams organized Big Knoll Farms, LLC
(Big Knoll Farms), to potentially purchase the Subject Property. On the
same day Mr. Adams organized BKF Management, LLC (BKF
Management), to act as the managing member of Big Knoll Farms. BKF
Management had four members—Mr. Adams, Mr. Walstad, Pete Powell,
and Mr. Klesko—each holding a 25% interest in the LLC.

      Mr. Adams drafted a Purchase and Sale Agreement (2012 P&S
Agreement) that he sent to Mr. Klesko on behalf of Big Knoll Farms,
which gave Big Knoll Farms the exclusive right to purchase the Subject
Property for $6 million. Mr. Dodd advised the Smoltzes with regard to
Mr. Adams’s offer.

       In fact, Mr. Adams often communicated directly with Mr. Dodd
regarding matters related to Big K Farms and the Subject Property. In
a June 19, 2012, email to Mrs. Smoltz, Mr. Dodd notes his belief that the
Subject Property is likely worth about $3 million but that Mr. Adams is
willing to extend the $6 million offer because of the “value of the
potential tax deductions and tax credits.” Mr. Dodd informed
Mrs. Smoltz that he thought it would be unlikely for someone to offer
more than $3 million if they waited longer to sell the Subject Property,
advising her that Mr. Adams’s offer seemed to be a “good bet.” On
February 26, 2012, Mr. Klesko signed the 2012 P&S Agreement.
Mr. Adams, on behalf of Big Knoll Farms, and Mrs. Smoltz added their
signatures to the 2012 P&S Agreement on June 26, 2012.

     The 2012 P&S Agreement contained a provision giving Big Knoll
Farms 180 days to inspect the Subject Property and to determine
whether it wanted to move forward with the purchase. The 2012 P&S
Agreement also contained a “Break Fee” provision giving Big Knoll
Farms the right to collect $1 million should Big K Farms seek to default
                                         7

[*7] on its obligation to sell the Subject Property under the terms of the
agreement once signed. Additionally, the 2012 P&S Agreement included
“Special Stipulations” that provided that “as an alternative to
Purchasing the [Subject] Property” Big Knoll Farms “shall have the
right to purchase up to all but not less than 98% of the membership
interest in [Big K Farms] based upon the stated purchase price . . . of
$6,000,000.”

               1.     Land Plan

        Mr. Adams drafted a land plan for the development of a proposed
upscale residential community on the Subject Property. The land plan
had a design for 307 total residential lots surrounding a lake in the
center of the Subject Property, consisting of 200 village lots, 96
environmental lots, and 11 estate lots. The draft land plan also included
equestrian grounds, a shooting station for sporting clays, an inn, a post
office, and a fitness center on the Subject Property.

       In September 2012 Mr. Adams engaged Spencer Tunnell of
Tunnell & Tunnell, a landscape architect firm in Atlanta, Georgia.
Mr. Adams provided Mr. Tunnell with his draft land plan along with a
topographical map of the Subject Property. After reviewing the draft
land plan, Mr. Tunnell prepared a schematic land plan (2012 Land
Plan), validating the draft land plan in terms of spacing and physical fit
of the lots on the Subject Property. The 2012 Land Plan, entitled “Big
Knoll Farms Land Plan,” is conceptual since it does not take into account
county zoning requirements, water availability, county or state sewage
requirements, septic rules, any cost prohibitions, or utilities associated
with the proposed residential community development.

               2.     2012 Appraisal of the Subject Property

       In 2012 Mr. Adams engaged the services of an appraiser, Jim
Clower, to ascertain the fair market value of the Subject Property
“before” and “after” the granting of the conservation easement. 8
Mr. Clower issued an appraisal report with an effective date of
December 7, 2012, that determined the value of the Subject Property

       8 Petitioner posits that Mr. Adams provided Mr. Clower a “conceptual pro

forma” and “Highest and Best Use, Market & Feasibility Study” prepared by Mark
Reavis for the proposed residential community development. However, these
documents are dated June 1, 2013, and April 30, 2013, respectively. Accordingly, the
“conceptual pro forma” and “Highest and Best Use, Market & Feasibility Study” will
be addressed infra Part II.B.3 and 4 of our Findings of Fact.
                                         8

[*8] “before” the granting of the conservation easement to be
$59,958,570, and the value of the Subject Property “after” the granting
of the conservation easement to be $4,129,886. 9

               3.     Aprio, LLP 10

        In August 2012 Mr. Adams met with Robert Greenberger, a
certified public accountant (CPA) and partner in the professional service
group at Aprio, LLP (Aprio), to discuss a conservation easement project
on the Subject Property. Mr. Greenberger has extensive experience in
real estate, captive insurance companies, family limited partnerships,
trusts, subchapter S corporations, and estate planning, as well as
presenting on the topic of conservation easements. Aprio maintained a
list of ongoing potential conservation easement investments so that they
could inform interested clients whether a potential conservation
easement investment was full or potentially not going to fill up.

               4.     2012 Subject Property Investment

      On November 15, 2012, Big Knoll Farms released an offering
summary for potential investment in the Subject Property, which
included the possibility of encumbering the Subject Property with a
conservation easement. However, the 2012 P&S Agreement between the
Partnership and Big Knoll Farms failed to close because an insufficient
number of investors were located to meet the targeted minimum
subscription requirement. Nearing the end of December 2012
Mr. Adams discussed the possibility of extending the 2012 P&S
Agreement for another year with Mr. Klesko, the Smoltzes, and
Mr. Dodd.

       On January 2, 2013, Mr. Adams sent Mr. Dodd an addendum to
the 2012 P&S Agreement, which proposed extending the agreement
through 2013 at the same $6 million purchase price and explained that
the “sole purpose of the addendum is to extend the closing date until just
after the first of next year in order to allow us to go back to work on
putting the deal together.” On January 29, 2013, Mr. Dodd advised the
Smoltzes to again accept the $6 million offer and enter into an
agreement with Mr. Adams since it “doubles the value” of the Subject

        9 Mr. Clower prepared an additional appraisal in 2013 which came to the same

value conclusions as his 2012 appraisal report.
       10 Formerly known as Habif Arrogeti & Wynne and “HAW.”
                                   9

[*9] Property, especially in the light of his estimation that “no one is
beating down [their] door to buy [it].”

      B.     The Subject Property in 2013

       On February 18, 2013, Mr. Adams organized Big K to again
attempt to lock down the purchase of the Subject Property. The original
members of Big K were Mr. Adams, Mr. Klesko, and Big K Management,
LLC (Big K Management), holding 50%, 48%, and 2% interests in the
LLC, respectively. Big K Management was organized on February 18,
2013, to act as the managing member of Big K. Big K Management’s
initial members were Mr. Adams, Mr. Klesko, and Evrgreen
Management Group, Inc. (Evrgreen Management), holding 51%, 44%,
and 5% interests in the LLC, respectively (collectively, Managers).

      Pursuant to a Purchase and Sale Agreement (2013 P&S
Agreement), executed on February 18, 2013, Big K Farms agreed to sell
the Subject Property to Big K. The 2013 P&S Agreement, except for the
names of the newly formed LLCs, is virtually identical to the 2012 P&S
Agreement. The 2013 P&S Agreement similarly provided for the
acquisition of the Subject Property for $6 million, contained provisions
for an inspection period and a “Break Fee,” and gave Big K the
alternative option to purchase “up to but not less than 98% of the
membership interest in [Big K Farms].”

             1.    Land Plan

       Sometime early in 2013 Mr. Adams communicated with
Mr. Tunnell to change the name on the 2012 Land Plan he had prepared
for Big Knoll Farms. In an email to Mr. Tunnell dated March 11, 2013,
Mr. Adams sent Mr. Tunnell his appreciation for allowing him to change
the name on the land plan from “Big Knoll Farms” to “Big K Farms”
(2013 Land Plan). Except for the name change, the land plan for the
proposed upscale residential development remained unchanged from
2012.

             2.    Jones County Zoning

      The proposed upscale residential development would not have
been permitted on the Subject Property under the existing zoning
regulations without first securing a variance.

     Tim Pitrowski has been the Jones County Zoning director since
1996 and is responsible for monitoring compliance with zoning
                                    10

[*10] requirements and issuing permits for development. In order to
construct a new subdivision in Jones County, a developer would need to
meet with Mr. Pitrowski, who would determine whether the conceptual
plan complied with zoning regulations. Mr. Pitrowski would also
consider lot sizes, density, topography concerns, and utilities to
determine whether a plan was feasible for a given area.

       If a proposed development plan did not comply with existing
zoning regulations, the developer would need to apply for a variance. On
June 25, 2013, Mr. Klesko and Mr. Adams met with Mr. Pitrowski to
discuss the 2013 Land Plan for the proposed development on the Subject
Property. After the meeting, Mr. Pitrowski emailed William Noland, a
Jones County attorney, outlining the conversation he had with
Mr. Adams and Mr. Klesko and attached the documents provided to him,
including the 2013 Land Plan and a draft letter regarding a zoning
variance on the Subject Property. Mr. Pitrowski and Mr. Noland edited
the draft letter slightly, and on June 25, 2013, Mr. Pitrowski issued an
opinion letter from the Jones County Planning and Zoning Department
to Mr. Adams and Mr. Klesko stating that it is his “opinion that it is
‘more likely than not’ that if the [2013 Land Plan] . . . were submitted to
this jurisdiction for a formal approval, given the current rules and
regulations as we currently understand and interpret them, the land
use/subdivision plan would be approved.”

             3.     Conceptual Pro Forma

      In addition to developing the 2013 Land Plan, Mr. Adams created
a conceptual pro forma for the proposed upscale residential development
wherein he stated his opinion that the village lots could be sold for
$64,688,000, that the environmental lots could be sold for $30,508,000,
and that the estate lots could be sold for $4,136,000. The conceptual pro
forma also reflected Mr. Adams’s estimate that it would cost $4,750,000
to develop the fitness center, sporting clays, equestrian facility, and
community garden, as well as his estimate of development, sales, and
marketing expenses of 12%.

             4.     Highest and Best Use, Market and Feasibility Study

      During 2013 Mark Reavis was the shareholder and president of
Coastal Capital Advisors, Inc. On April 9, 2013, Mr. Adams provided
Mr. Reavis with a document that he drafted titled “Draft Highest and
Best Use/Market & Feasibility Study.” Mr. Reavis relied on portions of
Mr. Adams’s draft document in preparing his “Highest and Best Use,
                                          11

[*11] Market & Feasibility Study” (HBU Study) dated April 30, 2013, in
which he states that the Subject Property’s highest and best use is the
“proposed development of the Property as a residential cluster or village
community with a hospitality component as shown in the . . . [2013 Land
Plan].” The HBU Study is substantially similar to the draft provided by
Mr. Adams. Mr. Reavis assumed that all the information and data in
the draft were correct and concluded that proposed development of the
Subject Property had a net present value of $77,874,000, assuming a 10-
year exposure period (i.e., the time it would take to sell the lots).

       C.      2013 Appraisal of the Subject Property

       In 2013 Mr. Adams engaged Dale Hayter, Jr., to provide
appraisals of the conservation easement contemplated on the Subject
Property. Mr. Hayter is the owner of Independent Appraisals, LLC, and
regularly performed real estate appraisals. Mr. Hayter had more than
20 years of experience as a licensed appraiser in the State of Georgia
when he performed his appraisal. He is a member of the Appraisal
Institute, holds its MAI designation, and performed approximately 15 to
20 conservation easement appraisals in or before 2013 and roughly 70
after 2013, a significant portion of which were syndicated conservation
easement transactions.

      Mr. Hayter performed two appraisals of the Subject Property for
the purpose of determining the fair market value of the conservation
easement with effective dates of April 5 and November 5, 2013. 11 Before
Mr. Hayter performed his appraisal of the conservation easement,
Mr. Adams provided him with Mr. Clower’s 2012 appraisal report and
the HBU Study prepared by Mr. Reavis, as well as information and data
concerning potentially comparable developments. Mr. Hayter’s
appraisal notes that six parcels of land on the Subject Property totaling
approximately 10.54 acres are excluded from the area over which the
conservation easement is to be granted. The excluded parcels include
the existing single-family residence that overlooks the lake on the
Subject Property and various other small structures.

        11 Since the November 5, 2013, appraisal was attached to the Partnership’s

Form 1065, U.S. Return of Partnership Income, and offered as petitioner’s expert
report regarding the valuation of the conservation easement, we will not address the
April 2013 appraisal. Accordingly, all references to Mr. Hayter’s 2013 appraisal are to
the appraisal with the November 5, 2013, effective date.
                                          12

[*12]           1.      The Subject Property’s Highest and Best Use

       Mr. Hayter valued the conservation easement using the income
method. 12 Mr. Hayter concluded that the highest and best use of the
Subject Property before the granting of the conservation easement was
the “development of a 307 lot hunting and conservation oriented
residential community.” He reached this conclusion by examining
whether this use was (1) legally permissible, (2) physically possible,
(3) financially feasible, and (4) maximally productive.

      Mr. Hayter noted that under the current zoning—rural
residential—the proposed development would not be allowed. However,
he concluded that the proposed development would be a legally
permissible use of the property “based on conversations with the County
Planning and Zoning Director” that it was very likely that the Subject
Property could receive re-zoning and development approval.

      Mr. Hayter also concluded that the proposed development is
physically possible because of the Subject Property’s suitability for
development, which includes the availability of utilities and access to
public water and community septic. However, Mr. Hayter did not
provide any information on the suitability of community septic for the
proposed development.

       In concluding that the proposed development would be financially
feasible, Mr. Hayter relied on several factors. He noted that the proposed
development would be well received by the market, on the basis of his
survey of other communities with similar features. Mr. Hayter further
highlighted that development funds are available, financially sound
home purchasers are able to obtain mortgages, and national home
builders are acquiring large undeveloped land parcels for near-term
subdivision development. Mr. Hayter further noted that “[r]esidential
development pressure is moving north toward the [S]ubject [P]roperty.”

      Lastly, Mr. Hayter concluded that the proposed development
would be the most productive use of the Subject Property on the basis of

         12 The discounted cashflow method of valuation, which is a subpart of the

income method, values a property by discounting expected cashflow from the property.
See, e.g., Marine v. Commissioner, 92 T.C. 958, 983 (1989), aff’d, 921 F.2d 280 (9th Cir.
1991) (unpublished table decision). A given property’s value is determined under this
method by adding the sum of the present values of the expected cashflows from the
property to the present value of the residual value of the property. See Chapman Glen
Ltd. v. Commissioner, 140 T.C. 294, 327 (2013); see also Crimi v. Commissioner, T.C.
Memo. 2013-51, at *64.
                                   13

[*13] his assertion that there would be substantial entrepreneurial
profit available and that “no known alternative use . . . would generate
a higher present value.”

       With respect to his valuation conclusion Mr. Hayter used the
subdivision method, which is a subpart of the income method, and he
performed a discounted cashflow analysis to determine the “before”
value of the Subject Property, which included estimating the lot prices,
development costs, cost of sales, and other relevant items. Mr. Hayter
analyzed the 307 lots in the proposed development and categorized them
according to the 2013 Land Plan as village lots (46 lake front and 154
interior), environmental lots (44 water front and 52 woods views), and
estate lots. In order to develop estimates for the likely lot values,
Mr. Hayter selected five comparable properties: (1) Palmetto Bluff in
Bluffton, South Carolina, (2) Brays Island Plantation in Sheldon, South
Carolina, (3) Ford Plantation in Richmond Hill, Georgia, (4) Reynold’s
Plantation in Greensboro, Georgia, and (5) Serenbe in Chattahoochee
Hills, Georgia.

             2.    Value of the Subject Property Before Granting of
                   Conservation Easement

       In his appraisal Mr. Hayter determined that the Subject Property
had a fair market value of $50,480,000 “before” the granting of the
conservation easement. Mr. Hayter analyzed sales data from his
selected comparable developments and performed a discounted cashflow
analysis. He made qualitative adjustments on the basis of the
comparable developments’ being (1) significantly inferior, (2) inferior,
(3) superior, or (4) significantly superior to the proposed development.

                   a.     Subject Property Village Lots

      Mr. Hayter estimated the average value of the village lots to be
$325,000 and $450,000 for the interior and lake front lots, respectively.
Mr. Hayter’s two comparable developments for village lots were
Palmetto Bluff and Serenbe.

       According to Mr. Hayter, Palmetto Bluff, which had village lot
sales ranging from $500,000 to $1 million, was significantly superior to
the subject lots because of the extensive amenities, coastal influence,
and larger body of water frontage. Thus, he made downward
adjustments and determined that the lake front village lots would sell
in the $350,000 to $550,000 range. Mr. Hayter considered Serenbe,
which had village lot sales ranging from $50,000 to $100,000, to be
                                    14

[*14] significantly inferior because of the limited amenities, distance
from shopping and entertainment, and the much lower home price
range. Therefore, he made upward adjustments and determined that the
interior village lots would sell in the $300,000 to $350,000 range.

                    b.     Subject Property Environmental Lots

       Mr. Hayter divided the 96 proposed environmental lots into two
categories, south of lake and north of lake, which would be either stream
and water front lots or wooded lots. Mr. Hayter estimated that the
average value of the wooded, and the stream and water front, lots to be
$250,000 and $350,000, respectively. Mr. Hayter selected Palmetto
Bluff, Brays Island Plantation, and Serenbe to be the most appropriate
comparable developments for estimating the value of the stream and
water front environmental lots.

       River front lots at Palmetto Bluff sold in the range of $400,000 to
$1,100,000, and marsh front lots sold in the range of $210,000 to
$825,000. However, Mr. Hayter found that the river front and marsh
front lots were superior to the subject lots because of their location on a
much larger body of water. Therefore, Mr. Hayter made downward
adjustments, indicating that the stream and water front lots would sell
in the $300,000 to $350,000 range when compared to the river front lots
at Palmetto Bluff. Mr. Hayter also analyzed the pond front lots at
Palmetto Bluff, which sold in the range of $125,000 to $350,000, but
Mr. Hayter found them to be inferior to the subject lots because of the
smaller pond. Accordingly, Mr. Hayter made upward adjustments
indicating that the stream and water front lots would sell in the
$300,000 to $450,000 range when compared to the pond front lots at
Palmetto Bluff. According to Mr. Hayter, the aforementioned analysis
indicated to him that the stream and water front lots on the Subject
Property would sell for $350,000 when compared to Palmetto Bluff.

      Marsh front lots in Brays Island Plantation sold in the range of
$400,000 to $750,000, but Mr. Hayter determined Brays Island
Plantation was superior to the proposed development because of its
coastal influence and amenities, in addition to the marsh lots’ being on
larger bodies of water and having more extensive views. Therefore,
Mr. Hayter made downward adjustments and estimated that the stream
and water front lots on the Subject Property would sell in the $300,000
to $350,000 range when compared to Brays Island Plantation.
                                   15

[*15] Lastly, Mr. Hayter analyzed water front pond lots at Serenbe,
which sold in the range of $125,000 to $240,000. Mr. Hayter found the
water front pond lots at Serenbe to be significantly inferior because of
the limited amenities, distance from shopping and entertainment, and
small size of the pond. Therefore, Mr. Hayter made upward adjustments
and estimated that the water and river front lots on the Subject Property
would sell in the $300,000 to $400,000 range when compared to Serenbe.

       On the basis of the three analyzed properties with lots similar to
the stream and water front lots on the Subject Property, Mr. Hayter
determined that stream and water front lots would sell anywhere from
$300,000 to $400,000, concluding the appropriate value to be $350,000.

      Mr. Hayter also selected Palmetto Bluff, Brays Island Plantation,
and Serenbe to be the most appropriate comparable developments for
estimating the value of the wooded environmental lots. Wooded lots at
Palmetto Bluff sold in the range of $50,000 to $395,000 for inferior and
superior lots, respectively. Mr. Hayter found some lots to be inferior to
the subject lots because of their poor shape or distance from nearby
amenities. And he found some lots to be superior because of their size
and proximity to amenities. Accordingly, Mr. Hayter made upward and
downward adjustments and estimated that the wooded lots on the
Subject Property would sell in the $200,000 to $300,000 range when
compared to Palmetto Bluff.

      Wooded lots at Brays Island Plantation sold in the range of
$63,000 to $500,000 for inferior and superior lots, respectively.
Mr. Hayter found some of the lots to be inferior to the subject lots
because of their irregular shape and distance from amenities. As for the
superior lots, Mr. Hayter found that they were larger and closer to
amenities and had better views. Mr. Hayter made upward and
downward adjustments and estimated that the wooded lots on the
Subject Property would sell at $250,000 when compared to Brays Island
Plantation.

      Wooded lots at Serenbe sold in the range of $67,500 to $390,000,
but Mr. Hayter found them to be inferior to the subject lots because they
were generally smaller. Accordingly, Mr. Hayter made slight upward
adjustments and estimated that the wooded lots on the Subject Property
would sell in the $225,000 to $275,000 range when compared to Serenbe.

      On the basis of the three analyzed properties with lots similar to
the wooded lots on the Subject Property, Mr. Hayter determined that
                                   16

[*16] the wooded lots would sell anywhere from $200,000 to $300,000,
concluding the appropriate value to be $250,000.

                   c.     Subject Property Estate Lots

      The proposed development would have 11 estate lots ranging
from 5 to 10 acres. Mr. Hayter selected Palmetto Bluff and the Ford
Plantation to be the most appropriate comparable developments for
estimating the value of the estate lots.

       Estate lots at Palmetto Bluff, which were between 5 and 10 acres,
sold in the range of $600,000 to $650,000, averaging between $65,000
and $120,000 per acre. Mr. Hayter found the estate lots at Palmetto
Bluff to be superior to the subject lots because of the coastal influence
and greater amenities. Accordingly, Mr. Hayter made downward
adjustments and estimated that the estate lots on the Subject Property
would sell in the $70,000 to $80,000 per acre range when compared to
Palmetto Bluff.

       Estate lots at the Ford Plantation, which were smaller at 3 to 8
acres, sold in the $150,000 to $550,000 range, averaging between
$68,750 and $95,000 per acre. Mr. Hayter likewise found the estate lots
in the Ford Plantation to be superior to the subject lots because of the
coastal influence and greater amenities. Therefore, Mr. Hayter made
downward adjustments and estimated that the estate lots on the Subject
Property would sell in the $50,000 to $75,000 range when compared to
the Ford Plantation.

       On the basis of the two analyzed properties with lots similar to
the estate lots on the Subject Property, Mr. Hayter determined that the
5-acre estate lots would sell anywhere from $250,000 to $400,000, and
that the 10-acre estate lots would sell anywhere between $500,000 and
$800,000.

                   d.     Discounted Cashflow Analysis

       For his “before” valuation of $50,480,000, Mr. Hayter performed
a discounted cashflow analysis, which uses projections over a particular
period. Mr. Hayter estimated an absorption period of 10 years,
anticipating that more sales will occur in the early to middle years than
in the later years. Mr. Hayter also estimated an average annual lot price
and expense increase of 2.25% and 2.50%, respectively. Mr. Hayter also
estimated the average annual expense increase, marketing and selling
costs, closing costs, promotional and advertising expenses, management
                                       17

[*17] and administration expenses, legal and professional fees, real
estate taxes, holding and maintenance expenses, homeowner
association dues for unsold lots, infrastructure construction costs, and
amenity construction costs.

      Mr. Hayter’s total estimated construction cost for the proposed
development is $12,057,500, and he determined a developer’s profit to
be 9% of the gross revenue from real estate sales or about $10 million.
Mr. Hayter determined a 10% discount rate to be appropriate on the
basis of his observance of discount rates for properties similar to the
Subject Property.

              3.      Value of the Subject Property After Granting of
                      Conservation Easement

       In determining the “after” value of the Subject Property,
Mr. Hayter noted that the potential uses of the Subject Property will be
substantially limited once the conservation easement is granted since
neither traditional development activities or uses can occur nor are
industrial, commercial, or residential uses allowed. However, timber
and habitat management are still allowed as are hunting and horseback
riding. Limited additional structures can be added when related to
hunting, equestrian uses, wildlife observation, etc. New jeep trails will
be allowed in certain areas.

       Mr. Hayter used the comparable sales method to determine the
“after” value of the Subject Property, researching and analyzing the
sales of similar land parcels with similar conservation easements and/or
restrictions. Mr. Hayter estimated the amount of any enhancement the
conservation easement could have on the excluded parcels.

      Mr. Hayter identified four properties he deemed comparable to
the Subject Property that yielded sale prices of $596 to $2,043 per acre. 13
He highlighted the fact that all the sales occurred after the granting of
a conservation easement and that all of the selected comparable
properties, which are located in the northern portion of Georgia, would
have development potential in the near to moderately near future.
Mr. Hayter made an upward adjustment since he found the comparable
properties to be inferior to the Subject Property as they were further

       13 The four comparable encumbered land parcels were located on Calhoun

Highway in Elbert County, Georgia, Lavender Trail in Floyd County, Georgia,
Wellington Mill Road in Carroll County, Georgia, and the west side of Yellow Creek
Road in Cherokee County, Georgia.
                                    18

[*18] from metro Atlanta. Accordingly, Mr. Hayter determined the
“after” value of the Subject Property to be $1,500 per acre or about
$2,300,000. On the basis of the Jones County tax assessor tax values,
Mr. Hayter concluded the contributory value of the excluded structures
to be $380,000, which results in the Subject Property’s having an “after”
value of $2,680,000 once the conservation easement is granted on the
Subject Property.

             4.     Value Enhancement to Existing Structures

       Mr. Hayter noted that any value enhancement to the excluded
structures because of the granting of the conservation easement would
result from increased land values. Mr. Hayter estimated that the value
of the excluded parcels that are on the interior of the Subject Property
would not increase, but he does estimate that the value of the existing
residence and other lake front sites would increase as they would be
more desirable since they would be perpetually surrounded by
undeveloped land. Accordingly, Mr. Hayter concluded the value
enhancement to the existing structures to be $230,000, which is based
on an analysis of similar lot sales in Serenbe.

             5.     Estimated Deduction Amount

      Mr. Hayter estimated the amount of a potential deduction to be
$47,570,000, which is the difference between the “before” value
($50,480,000) and the “after” value ($2,680,000), less the value of the
enhancement ($230,000).

III.   Sale of Partnership Interests to Investors

       A.    Morris Manning & Martin LLP

      On April 8, 2013, Big K Management retained Timothy Pollock of
Morris Manning & Martin, LLP (Morris Manning & Martin), to provide
advice in connection with the sale of membership interests in Big K and
the acquisition of a controlling interest in the Partnership. Specifically,
Morris Manning & Martin was to assist Big K and Big K Farms in
designing and drafting operating agreements and to work with the
respective entities in preparing a subscription agreement for the sale of
membership interests in Big K and the related documents as well as
supervising the sale transaction.

     Morris Manning & Martin was to review the deed of conservation
easement for Big K Farms should it choose to move forward with a
                                  19

[*19] conservation easement donation. While Morris Manning & Martin
did review Mr. Hayter’s 2013 appraisal, it was not engaged to review
and did not review the appraisal for Big K to determine whether the
value was correct, whether the highest and best use was correct, or
whether it complied with USPAP. Morris Manning & Martin never
provided a tax opinion in connection with the conservation easement
transaction.

      B.     Matt Campbell of Evrgreen Management

       In August or September 2013 Big K Management retained
Evrgreen Management to provide advisory services related to the
Subject Property. During 2013 Matt Campbell was the president of
Evrgreen Management and was experienced in syndicated conservation
easement transactions, as he was involved in more than 50 from 2008 to
2015. Mr. Adams brought Mr. Campbell into the transaction as a
managing member of Big K Management since he had a track record
and reputation in the syndicated conservation easement community
with potential investors and advisors who were often wary of investing
in transactions with inexperienced sponsors. Mr. Campbell was to find
sufficient investors to close the Big K offering in 2013.

      C.     Private Placement Memorandum

       Big K issued an investor package, including a private placement
memorandum (PPM) to potential investors. The PPM outlined the
following steps regarding the transaction. Big K intended to raise up to
$9,800,000 in investments, selling 49 units at $200,000 each. Big K
budgeted $273,500 to reimburse Mr. Adams and Mr. Klesko for prior
services, valuations, and related expenses. Big K was to pay $6 million
to acquire 99% of the Partnership. $250,000 was set aside for legal
expenses. The PPM outlined three possible uses for the Subject Property
after acquisition by Big K: (1) development, (2) investment, and
(3) conservation.

      The development proposal is consistent with the proposed
development, and the PPM notes that “[t]he property lends itself well to
an upscale conservation oriented ‘sporting club’ development and has
market analysis and valuation support for this use.”

      The investment proposal was to acquire the Subject Property,
manage the timber pursuant to the timber management plan, and strive
for an overall return of around 8% annually, which would be
accomplished through both appreciation of the raw land due to its
                                         20

[*20] proximity to Macon, Georgia, and the profits from growing and
harvesting the timber.

       The conservation proposal involves the use of a deed restriction
to perpetually restrict the development of all or portions of the Subject
Property. This restriction would extinguish certain development rights
in perpetuity and restrict future use to agricultural endeavors or passive
recreation pursuant to the terms of a recorded and legally binding
conservation easement deed. 14

      The PPM stated that Mr. Adams would consider each strategy
and make a selection as to Big K’s course of action with regard to one of
them. The PPM also noted that consent to the selection of the
development proposal or the investment proposal requires unanimous
agreement of the Big K members. Moreover, if the manager selected the
development proposal or the investment proposal and was unable to
obtain unanimous consent of the other members, the conservation
proposal was deemed selected.

       D.      Big K Investors and Payments

      Larry King has been working as a CPA since 1971 and started his
own firm, L.S. King & Associates, P.C. During 2012 and 2013 Mr. King
was a board member of the Ellijay Telephone Co., and three
shareholders (Douglass Harrison, John Harrison, and Marianne
Bowman, collectively Ellijay Shareholders) were members of that same
board. Part of his duties as a CPA and board member was to investigate
ways to save on taxes for the Ellijay Shareholders.

      Mr. King became aware of Mr. Adams’s 2012 conservation
easement plan for the Subject Property and forwarded it to Al Threlkeld,
a CPA who also worked with the Ellijay Shareholders, asking him to
review it as it would “save tax[es] for the shareholders.” Mr. Threlkeld
has been a CPA at Haynes & Moore in Rome, Georgia, for the past 40
years. Through Mr. King, Mr. Adams was put in contact with
Mr. Threlkeld. Before December 12, 2013, the Partnership entered into
an agreement with Haynes & Moore under which Big K would pay an
8% commission on the $1 million the Ellijay Shareholders agreed to

        14 The value of the conservation easement is based on Mr. Hayter’s appraisal

with the Subject Property’s highest and best use being Mr. Adams’s envisioned upscale
residential community development. The expected tax ratio under the conservation
strategy was 1 to 4.39, under which a $200,000 investment would return $878,000 in
tax deductions and provide an estimated 200% return on investment.
                                   21

[*21] invest in the conservation easement transaction. However, in a
December 13, 2013, letter to Haynes & Moore, Mr. Adams incorrectly
indicated that the payment was for due diligence services in connection
with the Big K PPM.

       Christopher Graham is a former managing director of the Private
Client Law Group (PCLG) and a former managing member of Emerald
Acquisition 2013, LLC (Emerald 2013), which invested in the
Partnership. Aaron Kowan is a former managing director of the PCLG
and the current managing member of Emerald 2013. CPAs would often
contact the PCLG in search of conservation easement transactions for
clients looking for tax deductions. As a result, Mr. Kowan decided to set
up annual aggregation vehicles known as Emerald Acquisitions Funds
(Emerald Funds) for clients to invest in conservation easement
transactions that he selected. The Emerald Funds would typically invest
in 8 to 15 different conservation easement transactions a year, and
Mr. Kowan would negotiate with the easement sponsors for a percentage
rebate of the fund’s investment, normally between 3% and 6%.

      Mr. Kowan maintained a contemporaneous spreadsheet for the
Emerald 2013 conservation easement transactions that identified the
easement, the sponsor, the amount invested, the return ratio, the
expected deduction, the discount, and the discount percentage that were
negotiated with each sponsor. Emerald 2013’s spreadsheet reflects Big K
as the investor, Mr. Adams as the sponsor, $800,000 as the amount
invested, 5% as the discount rate, $40,000 as the discount, 4.57 as the
return ratio, and $3,656,000 as the expected deduction.

       In a December 13, 2013, letter to the PCLG, Mr. Adams remitted
a $45,000 check purporting to be payment for due diligence and legal
services in connection with the Big K PPM. While the PCLG did provide
comfort letters to two investors in the Big K easement transaction for a
total of $5,000, it did not review the transaction for its compliance with
the Code as the PCLG was not engaged to conduct due diligence for the
Partnership.

       Additional individuals invested in the conservation easement
transaction, and all 49 units of Big K were subscribed by the beginning
of December 2013, meaning the project was filled. On December 12,
2013, with the subscription filled, Big K purchased 99% of the
membership interests in Big K Farms, with Mr. Klesko retaining a 1%
interest.
                                       22

[*22] E.     Big K Member Vote

       In early December 2013, and per the advice of Mr. Pollock, Big K
members were provided with an investor voting form on which they
could either approve or disapprove the conservation proposal. Although
the member vote was not binding on Mr. Adams, nor could it change the
terms of the PPM, all investing members in Big K unanimously voted in
favor of the conservation proposal.

IV.   Grant of Easement

       On December 26, 2013, consistent with the vote of the Big K
members, the Partnership filed the Conservation Easement and
Declaration of Restrictions and Covenants (conservation easement deed)
with the Jones County Clerk of Court. The conservation easement deed
was dated December 20, 2023, and purports to show that Big K Farms
voluntarily granted to SERLC 15 a conservation easement over
approximately 1,545.79 acres on the Subject Property in perpetuity to
protect the conservation values, which refer to natural open space and
scenic and educational values.

       The conservation easement deed identifies five conservation
purposes: (1) water quality protection, (2) natural habitat protection,
(3) open space protection, (4) scenic enjoyment of the general public, and
(5) public conservation education. The conservation easement deed also
imposes several restrictions on Big K Farms and provides SERLC
enforcement rights and remedies. Moreover, the conservation easement
deed contemplates the possibility that the conservation easement could
be extinguished by judicial proceedings, and states in part:

      For purposes of this Conservation Easement, the fair
      market value of SERLC’s right and interest (which value
      shall remain constant) shall be equal to the difference
      between (a) the fair market value of the Conservation Area
      as if not burdened by this Conservation Easement and
      (b) the fair market value of the Conservation Area
      burdened by this Conservation Easement, as such values
      are determined as of the date of this Conservation
      Easement. If a change in conditions makes impossible or
      impractical any continued protection of the Conservation
      Area for conservation purposes, the restrictions contained

      15 A tax-exempt organization as described under section 501(c)(3).
                                          23

[*23] herein may only be extinguished by judicial proceeding.
      Upon such proceeding, SERLC, upon a subsequent sale,
      exchange or involuntary conversion of the Conservation
      Area, shall be entitled to a portion of the proceeds at least
      equal to the fair market value of the Conservation
      Easement as provided above. SERLC shall use its share of
      the proceeds in a manner consistent with the conservation
      purposes set forth in the Recitals herein.[16]

Therefore, the conservation easement deed entitled SERLC to a fixed
amount, rather than a proportionate share of proceeds in the case of
judicial extinguishment.

V.     Partnership Return

      The Partnership timely filed its 2013 Form 1065, which was
prepared by Sam Tuck, CPA, of Aprio and signed by Mr. Adams on
behalf of the Partnership. On Form 1065 the Partnership reported a
charitable contribution deduction of $47,605,000. Attached to the
Partnership’s Form 1065 were Form 8283, Noncash Charitable
Contributions; a supplemental letter; and Mr. Hayter’s 2013 appraisal.
Form 8283, which was signed by Mr. Hayter and clearly identified the
Subject Property on line 5A as “Cons[ervation] easement under IRC
170(h) on land in Macon, Georgia.” Moreover, Form 8283 reported the
Partnership’s adjusted basis in the Subject Property of $3,521,827 and
amount claimed as a deduction of $47,570,000.

      On the supplemental letter attached to Form 8283, the
Partnership stated that the

       before value of the Conservation Area was $50,480,000 and
       the after value was $2,680,000. After subtracting the “after
       value” from the “before value”, a $47,800,000 figure was
       reached and from that number was subtracted the
       enhanced value to the 6 parcels totaling 10.54 acre[s] of
       $230,000. This produced a net conservation easement
       valuation of $47,570,000.

        16 In our Order dated November 22, 2021, we note that the parties to the

original conservation easement deed recorded a correction on June 12, 2020, which
entitled SERLC “to a portion of the proceeds at least equal to that proportionate value
of the Conservation Easement” upon judicial extinguishment.
                                         24

[*24] Form 8283, the supplemental letter attached thereto, and
Mr. Hayter’s 2013 appraisal all explicitly disclosed the conservation
easement transaction to respondent and notified him of the relatively
low adjusted basis in the Subject Property and the substantially higher
claimed value of the conservation easement deduction. 17

       On March 30, 2017, respondent issued petitioner an FPAA
asserting that the Partnership was not entitled to deduct the
$47,605,000 charitable contribution on the basis that “[i]t has not been
established that all the requirements of I.R.C. § 170 and the
corresponding Treasury Regulations have been satisfied for the claimed
noncash charitable contribution.” Respondent also determined that an
accuracy-related penalty was appropriate with respect to the claimed
charitable contribution deduction, asserting a 40% penalty under
section 6662(a) and (h) for gross valuation misstatements and, in the
alternative, a 20% penalty under section 6662(a) and (b)(1), (2), and (3)
for negligence or disregard of rules or regulations, a substantial
understatement of income tax, or a substantial valuation misstatement.

      In his First Amendment to Answer, dated February 10, 2021,
respondent asserted that a civil fraud penalty under section 6663(a)
applies.

VI.    Expert Testimony

       A.      Petitioner’s Experts

               1.      Dale Hayter, Jr.

      Petitioner presented Mr. Hayter as its valuation expert, and we
recognized him as a percipient expert witness in our Order dated
November 7, 2022. Mr. Hayter’s expert report is his 2013 appraisal of
the Subject Property, which is fully discussed supra Part II.C.

               2.      Belinda Sward

      Petitioner presented Belinda Sward as an expert in the field of
real estate marketing, and she was so recognized by the Court.
Ms. Sward was engaged to perform a retrospective market analysis of

        17 However, Form 8283 identifies the value of the donated conservation

easement as $47,570,000, which is $35,000 less than the $47,605,000 charitable
contribution deduction reported on the Partnership’s Form 1065. Petitioner has offered
no evidence at trial or made any argument on brief regarding this $35,000 unidentified
charitable contribution. Therefore, we find that petitioner has conceded this issue.
                                         25

[*25] Mr. Adams’s proposed development on the Subject Property.
Ms. Sward’s report concluded that the Subject Property “has the
characteristics, developer experience and location proximate to Metro
Atlanta to be successfully developed for a sportsman resort/sporting
community or some variation.”

       Ms. Sward’s report relied extensively on data and information
from 2014 or later in an effort to support her conclusions about the real
estate market in 2013. All post-2013 data and information are irrelevant
since none of the data and information were knowable or foreseeable by
any market participant at that time. To the extent Ms. Sward’s
conclusion about the Subject Property is still supported by data and
information in her report from 2013 or before, this Court is not in a
position to make that determination.

       Accordingly, Ms. Sward’s retrospective market analysis does not
assist the Court in making its findings regarding the feasibility of the
proposed development since it relies too much on the benefit of
hindsight.

       B.      Respondent’s Experts

               1.      Zac Ryan

       Respondent offered Zac Ryan as his valuation expert and to rebut
Mr. Hayter’s expert report. Mr. Ryan is a member of the Appraisal
Institute, holds its MAI designation, and is a licensed appraiser in
Georgia, Florida, and South Carolina. Since the 1980s Mr. Ryan has
specialized in appraising large acreage, timberland, and
environmentally sensitive parcels of land, and we recognized him as an
expert in the fields of real estate valuation and appraisal review.

       Mr. Ryan performed a retrospective fair market value appraisal
of the conservation easement with an effective date of December 20,
2013. Mr. Ryan used the comparable sales method, 18 on the basis of a
comparison to other land sales, in a “before” and “after” analysis, which

        18 Mr. Ryan argued that neither the cost nor the income approach to value was

relied upon in the process of determining his estimate as to the value of the
conservation easement. The cost approach was deemed inapplicable since the Subject
Property existed as predominantly vacant land. Similarly, the income approach was
not considered relevant because, in his estimation, neither the Subject Property’s
potential lease rate nor its subdivision potential would have determined or influenced
the way in which the Subject Property was priced, marketed, or traded in the open
market as of the effective date of his valuation report.
                                      26

[*26] involves appraising the Subject Property in the “before” situation
as if it is not encumbered by the conservation easement, and then
appraising the remainder parcel after the easement grant. The
difference between the “before” and “after” values represents the value
of the conservation easement concluded by Mr. Ryan.

                     a.      Market Conditions

       In arriving at his valuation conclusions regarding the Subject
Property, Mr. Ryan researched and included population, employment,
and building permit trends for Jones County and the surrounding areas.
Mr. Ryan analyzed information on sales activity for the local market as
well as land use patterns in Jones County and other parts of Georgia,
and he noted that Jones County was still suffering the consequences of
the 2008 housing market crash. To that end, Mr. Ryan highlighted the
fact that during 2013 new developments were not being created and
older developments still had available inventory. Mr. Pitrowski
confirmed that no new subdivision developments were issued building
permits between 2013 and 2022 in Jones County.

       Mr. Ryan noted that the average population, labor force, and
income statistics in Jones County were all trending downward in the
years leading up to the conservation easement transaction. Mr. Ryan
also noted that almost 90% of the land in Jones County is dedicated to
forest or agricultural use. Accordingly, Mr. Ryan determined that there
was no indication that, in 2013, there would be a significant positive
change in land use trends, development patterns, or population
characteristics in the foreseeable future; rather, the “declines indicated
there would be no demand for near-term development [of the Subject
Property].”

       Mr. Ryan also sought to identify the market area as the area
where a prospective purchaser of a particular property would search for
alternative acquisition opportunities, and he analyzed population data
from 12 surrounding counties 19 (including Jones County). Given the
Subject Property’s overall size and desirable natural features, Mr. Ryan
recognized that the area in which a prospective purchaser might search
for alternative acquisition opportunities may very well cover the entire
State of Georgia; however, he argues that “local area market influences
have a bearing on prevailing prices and the overall value of the [Subject]

      19 The 12 counties were Pulaski, Houston, Peach, Crawford, Monroe, Jasper,

Putnam, Jones, Bibb, Twiggs, Wilkinson, and Baldwin.
                                   27

[*27] [P]roperty.” Moreover, Mr. Ryan noted that between 2010 and
2013 Jones County, along with seven other nearby counties, was
experiencing negative population growth, which he used to support his
conclusion that the Subject Property was not ripe for development.

      While not wholly similar with regard to the scale, elegance, and
amenities of the proposed development envisioned by Mr. Adams,
Mr. Ryan discovered declining market characteristics in various
planned developments in Jones County, including Healy Plantation,
River Cliffs, and Ryland Ridge. Most of these planned developments
were brought to market around 2004 and resulted in roughly 50% of the
available lots’ being improved with finished houses and other lots’
remaining undeveloped.

       Mr. Ryan also analyzed lot sales activity of another Jones County
subdivision known as Little Creek Community Preserve (Little Creek),
which was a recreational and conservation community developed
around the vision where likeminded market participants could own a lot
and a home in a subdivision where they could collectively enjoy outdoor
activities such as hunting, horseback riding, hiking, etc. Little Creek
consists of 1,250 acres of common area, including 40 lots of
approximately 5 acres each. Lots in Little Creek came available on the
market in 2003, and Mr. Ryan noted that the lots originally sold in the
$99,000 to $125,000 range, which in his estimation reflected the
exuberance being experienced in the market at the time; however, by
2008 prices in the community were on a downward trend. The downward
trend continued at least through 2013, when, between 2010 and 2013,
four vacant lots in Little Creek were sold at significantly reduced per-
acre prices by way of bank sales. Similar downward trends were likewise
observed in the coastal Georgia region.

       In the light of the foregoing, Mr. Ryan determined that the
negative effects of the 2008 housing market crash were still being felt in
Jones County and the surrounding areas in 2013 and that diminished
prices and stifled demand dominated market trends. Mr. Ryan further
determined that “buyers with near-term speculative investment goals
were virtually nonexistent and sales activity was dominated by end
users and/or investors who had intentions of holding properties for long
periods of time.”
                                           28

[*28]                   b.      Subject Property’s Highest and Best Use

      Mr. Ryan opined that the highest and best use of the Subject
Property before the granting of the conservation easement would not be
development as envisioned by Mr. Adams; rather, it would be “continued
timber production, possible agriculture, recreation (primarily hunting
and fishing), and extremely low-density residential use in conjunction
with long-term speculative investment for alternative uses.” 20 In
ascertaining the highest and best use of the Subject Property, Mr. Ryan
considered whether the proposed use was (1) legally permissible,
(2) physically possible, (3) financially feasible, and (4) maximally
productive. And Mr. Ryan stated that each criterion should be
considered sequentially for it would not matter if a given use is
financially feasible, but not legally permissible.

      Mr. Ryan noted that under the current zoning classification of
rural residential, which allows for a development density of only one
unit per five acres, the proposed development on the Subject Property
would not be legally permissible.

       Regarding uses that are physically possible, Mr. Ryan noted that
generally, the size of the Subject Property is considered sufficient to
accommodate the full range of uses that currently exist in the area as
well as emerging speculative uses that may emerge in the future.
Mr. Ryan noted that from this standpoint, the physical use potential of
the Subject Property is considered good. Moreover, Mr. Ryan further
noted that public sewer is not currently available and that “[i]f high
density/intensity development was considered on the [Subject]
[P]roperty, it would require construction of on-site sewage treatment
and disposal facilities or connection to the existing sewer line at River
North Subdivision.” Notwithstanding the current state of the utilities
on the Subject Property, Mr. Ryan ultimately concluded that the Subject
Property’s physical characteristics do not preclude any uses that are
legally permissible.

       As for financial feasibility, Mr. Ryan emphasized that financial
feasibility is considered restricted to those uses that are determined to
be physically possible and legally permissible. Uses that would generate
a positive return are considered financially feasible. Mr. Ryan noted that
on the basis of the Subject Property’s location in an area that is

        20 Extremely low-density use refers to less than five units for the entire Subject

Property.
                                    29

[*29] dominated by silvicultural, agricultural, recreational, and/or
moderate- to low-density residential uses, financially feasible uses of the
Subject Property would include consideration of predominant land use
trends in the surrounding area (i.e., silviculture, agriculture, and
recreation) as well as residential development. However, when the
overall market conditions are taken into account, the financially feasible
uses shift toward continued silviculture, agriculture, and/or extremely
low-density residential use with the recognition that the Subject
Property would have the potential to be converted to higher-density
uses—residential—in the mid- to long-term future.

      In the light of the foregoing factors, Mr. Ryan determined that the
highest and best use of the Subject Property at the time of donation
would have been for a combination of silviculture, possible agriculture,
and extremely low-density residential use so as not to interfere with
mid- to long-term prospects for higher-density uses.

                    c.     Value of the Subject Property Before Granting
                           of Conservation Easement

       In his appraisal, Mr. Ryan determined that the Subject Property
had a fair market value of $4,750 per acre or $7,395,000 “before” the
granting of the conservation easement. Mr. Ryan analyzed 12
comparable properties, which were selected for having attributes that
lent themselves to being developed in a fashion similar to Mr. Adams’s
vision for the Subject Property. Mr. Ryan also emphasized the
importance of the principle of substitution, which stands for the
proposition that a hypothetical buyer will not pay more for a given
property when an alternative property is available for less. According to
Mr. Ryan, the comparable properties selected “had the exact same
potential to have [Mr. Adams’s] vision applied to them as [the Subject]
[P]roperty did.”

                    d.     Comparable Properties

       Mr. Ryan selected a total of 12 properties located in Georgia
which he deemed comparable to the Subject Property. The comparable
properties took into account the fact that the Subject Property is a
premium property in an area where the typical competing parcel of land
is not as well maintained and manicured. Mr. Ryan analyzed the
comparable properties on the basis of three economic factors (financing
terms, date of sale, and condition of sale) and nine physical factors
(location, size, encumbrances, use potential, amenities, timber, utilities,
                                   30

[*30] topography, and accessibility). Regarding the comparable
properties, Mr. Ryan made qualitative adjustments on the basis of their
being inferior, superior, or similar to the Subject Property. The sales of
the comparable properties occurred between April 2010 and December
2013 and involved parcels of land ranging from approximately 444.17
acres to 8,411.60 acres.

                          i.     Comparable Property #1

       This property consists of approximately 561.68 acres of vacant
land located on the northeast and southwest sides of Altman Road
approximately 1.4 miles northwest of its intersection with Nathan
Roberts Road in Jones County, Georgia. This property was sold in July
2010 for $900 or $1,602 per acre, which is reflective of the combined
value of land and timber. Mr. Ryan noted that the fact that this property
is significantly smaller than the Subject Property inflated the price per
acre. Mr. Ryan found the property to be superior from the standpoint of
encumbrances since it lacked an underground pipeline found on the
Subject Property.

       However, Mr. Ryan conceded that the property is inferior from
the standpoint of the condition of sale on the basis of its being
transferred under conditions that were favorable to the buyer. Its
location was likewise considered inferior since it is located in a portion
of Jones County that is distanced from the areas that have experienced
any demand for development. The property has a less significant timber
component as well.

       Moreover, this property was considered inferior since it lacked
significant amenity features and access to public roads. Mr. Ryan
determined that the influences of the inferior characteristics outweighed
the superior characteristics of the smaller size and lack of
encumbrances. Therefore, comparable property #1 was considered
inferior and its value per acre of $1,602 less than the value the Subject
Property might be achievable in the market.

                          ii.    Comparable Property #2

       This property consists of approximately 609.39 acres of vacant
land located on the northwest side of U.S. Highway 129 across from its
intersection with Stallings Road in Jones County, Georgia. This
property was sold in December 2010 for $1,828,170 or $3,000 per acre,
which is reflective of the combined value of the land and timber. As with
comparable property #1, this property is significantly smaller than the
                                   31

[*31] Subject Property. Mr. Ryan found this property to be superior
regarding its topography since it has a higher percentage of
plantable/upland.

       However, this property’s location was considered inferior since it
is located in a portion of Jones County that is distanced from the areas
that have experienced any demand for development. Mr. Ryan also
found this property to be inferior in terms of encumbrances since it was
transferred subject to outstanding mineral rights. Additionally, it was
considered inferior from the standpoint of amenities, its lack of
proximity to utilities, and limited road access. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #2 was considered inferior to the Subject Property,
and its value per acre of $3,000 was less than the value the Subject
Property might be able to achieve in the market.

                          iii.   Comparable Property #3

       This property consists of approximately 1,432.60 acres and is
vacant acreage located on the northwest side of Davis Drive, the north
and south sides of James Dykes Road, the east and west sides of
Magnolia Road, and the north side of Centennery Road in Bleckley
County, Georgia. This property sold in December 2011 and January
2012 for a total of $2,701,904 or $1,886 per acre, which is reflective of
the combined value of the land and timber. This property is considered
superior in terms of encumbrances since it lacks features such as a gas
pipeline crossing over it.

       However, this property was considered inferior from the
standpoint of amenities and its lack of proximity to utilities. Mr. Ryan
also considered this property inferior from the standpoint of topography
given its inclusion of a lower percentage of plantable/upland. The
inferior characteristics outweighed the superior characteristics;
therefore, comparable property #3 is considered inferior to the Subject
Property and its value per acre of $1,886 was less than the value the
Subject Property might be able to achieve in the market.

                          iv.    Comparable Property #4

      This property consists of approximately 444.17 acres and is
vacant acreage located along the east side of Bunkham Road and the
west side of Flint River in Talbot County, Georgia. This property sold in
May 2012 for $1,066,100 or $2,400 per acre, which is reflective of the
combined value of the land and timber. This property is significantly
                                   32

[*32] smaller than the Subject Property. This property is considered
superior in terms of encumbrances since it lacks features such as a gas
pipeline crossing over it. It was likewise considered superior from the
standpoint of topography since it included a higher percentage of
plantable/upland.

      However, its location is considered inferior since the property is
further removed from significant population centers when compared to
the Subject Property. Mr. Ryan also found this property to be inferior in
terms of access and its lack of proximity to utilities. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #4 is considered inferior to the Subject Property
and its value per acre of $2,400 was less than the value the Subject
Property might be able to achieve in the market.

                          v.     Comparable Property #5

       This property consists of approximately 1,206.90 acres and is
vacant acreage located on the north and south sides of Anderson Road
and the east and west sides of Carlisle Road, east and south of the
intersection of Nelson Road and Anderson Road, and the east and west
sides of Bonnie Dixon Road and the south side of U.S. Highway 36 in
Talbot County, Georgia. This property was sold in 2012 for $2,172,420
or $1,800 per acre, which is reflective of the combined value of the land
and timber. This property was considered superior in terms of
encumbrances since it lacked features such as a gas pipeline crossing
over it.

       However, its location was considered inferior since the property
is further removed from significant population centers when compared
to the Subject Property. Mr. Ryan also found the property to be inferior
in terms of amenities, its lack of access to public utilities, and
topography. The inferior characteristics outweighed the superior
characteristics; therefore, comparable property #5 is considered inferior
to the Subject Property and its value per acre of $1,800 was less than
the value the Subject Property might be able to achieve in the market.

                          vi.    Comparable Property #6

       This property consists of approximately 1,065.41 acres and is
vacant acreage located on the west side of Pierce Dairy Road, the east
side of Indian Creek Road, and the north side of Aqua Road in Morgan
County, Georgia. This property was sold in December 2013 for
$4,016,353 or $3,770 per acre. Mr. Ryan found this property to be
                                    33

[*33] superior in terms of location and topography since it is relatively
close to Atlanta and includes a higher percentage of plantable/upland.

       However, it was considered inferior from the standpoint of
encumbrances since the property is bifurcated by an active railroad
right-of-way. Mr. Ryan also found the property to be inferior in terms of
amenities and its lack of proximity to utilities. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #6 is considered inferior to the Subject Property
and its value per acre of $3,770 was less than the value the Subject
Property might be able to achieve in the market.

                           vii.    Comparable Property #7

       This property consists of approximately 1,582.83 acres and is
agricultural property located on the east side of State Road 195 across
from its intersection with State Road 377 in Lee County, Georgia. This
property sold partially in April 2010 and September 2010 for a total of
$4,021,208 or $2,541 acre. After making adjustments for the value
contribution of the improvements, the price per acre for the land and
timber was $2,430. This property was considered superior in terms of
encumbrances since it lacked features such as a gas pipeline crossing
over it. Mr. Ryan also considered this property superior from the
standpoint of use potential since it included irrigated agricultural land.

       However, it was considered inferior from the standpoint of
amenities and the fact that much of the merchantable timber had
already been thinned before the sale. Mr. Ryan also found this property
to be inferior in terms of its lack of proximity to utilities and topography
that included a lower percentage of plantable/upland. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #7 is considered inferior to the Subject Property
and its value per acre of $2,430 was less than the value the Subject
Property might be able to achieve in the market.

                           viii.   Comparable Property #8

       This property consists of approximately 8,411.60 acres and is a
shooting plantation located on the east and west sides of Philema Road
and the south side of State Road 32 in Lee County, Georgia. This
property sold in January 2011 for $19,550,000 or $2,324 per acre. After
adjustments for the value contribution of the improvements, the price
per acre for the land and timber was $2,205. This property is considered
                                    34

[*34] superior in terms of use potential since it included irrigated
agricultural land.

       However, it was considered inferior from the standpoint of
conditions of sale since the property was transferred under conditions
that were favorable to the buyer. Mr. Ryan recognized that this property
was substantially larger than the Subject Property, which typically
resulted in a deflated price per acre. Mr. Ryan also found this property
to be inferior in terms of its lack of proximity to utilities and topography
that included a much lower percentage of plantable/upland. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #8 is considered inferior to the Subject Property
and its value per acre of $2,205 was less than the value the Subject
Property might be able to achieve in the market.

                           ix.    Comparable Property #9

        This property consists of approximately 1,319.10 acres and is a
hunting plantation located along the north side of the U.S. Highway 84
Bypass and the west side of State Road 3, along the southeast bank of
the Ochlockonee River, in Thomas County, Georgia. The property sold
partially in December 2012 and June 2013 for a total of $8,673,800 or
$6,576 per acre. After making adjustments for the value contribution of
the improvements, the price per acre for the land and timber was $4,971.
Mr. Ryan considered this property superior in terms of location since it
is in the heart of the Thomasville Shooting Plantation Belt.

       However, the property was considered inferior in terms of its lack
of proximity to utilities and topography that included a much lower
percentage of plantable/upland. The inferior and superior
characteristics were considered equal; therefore, comparable property
#9 is considered a reliable indicator of the value the Subject Property
might achieve in the Market.

                           x.     Comparable Property #10

       This property consists of approximately 1,682.39 acres and was a
hunting plantation located on the east side of State Road 93 and
southeast of Lower Cairo Road, in Grady County, Georgia. This property
sold in March 2013 for $6,996,817 or $4,159 per acre. After making
adjustments for the value contribution of the improvements, the price
per acre for the land and timber was $3,267. Mr. Ryan considered this
property superior from the standpoint of topography since it included a
higher percentage of plantable/upland.
                                    35

[*35] However, the property was considered inferior in terms of its
amenities and lack of proximity to utilities. The inferior characteristics
outweighed the superior characteristics; therefore, comparable property
#10 is considered inferior to the Subject Property, and its value per acre
of $3,267 was less than the value the Subject Property might be able to
achieve in the market.

                           xi.    Comparable Property #11

       This property consists of approximately 6,868 acres and is vacant
acreage located on the north and south sides of Gillionville Road and on
the west side of Old Thompson Road, in Dougherty County, Georgia.
This property sold in April 2013 for $29,160,000 or $4,246 per acre. After
making adjustments for the value contribution of improvements, the
price per acre for the land and timber was $3,605. Mr. Ryan considered
this property superior from the standpoint of encumbrances since it
lacked a gas pipeline crossing over it.

       However, this property was considered inferior in terms of
topography since it included a much lower percentage of
plantable/upland. Mr. Ryan recognized that this property is
substantially larger than the Subject Property, which typically results
in a deflated price per acre. It was also considered inferior as a result of
the property’s containing significantly less timber. The inferior
characteristics outweighed the superior characteristics; therefore,
comparable property #11 is considered inferior to the Subject Property,
and its value per acre of $3,605 was less than the value the Subject
Property might be able to achieve in the market.

                           xii.   Comparable Property #12

       This property consists of approximately 2,333.27 acres and is a
hunting plantation located on the southeast side of Meridian Road and
on the west side of U.S. Highway 319, in Grady County, Georgia. This
property sold in June 2013 for $10,499,715 or $4,500 per acre. After
making adjustments for the value contribution of improvements, the
price per acre for the land and timber was $4,457. Mr. Ryan considered
this property superior from the standpoint of encumbrances since it
lacked a gas pipeline crossing over it. It was also considered superior
regarding topography since the property included a higher percentage
of plantable/upland.

     However, this property was considered inferior in terms of its
amenities and lack of proximity to utilities. The inferior and superior
                                   36

[*36] characteristics were considered equal; therefore, comparable
property #12 is considered a reliable indicator of the value the Subject
Property might achieve in the Market.

       After analyzing the 12 foregoing properties, Mr. Ryan found
comparable properties #9 and #12 to have overall characteristics equal
with the Subject Property, and therefore they formed the basis for his
value conclusion for the Subject Property of $7,395,000 or $4,750 per
acre. Additionally, Mr. Ryan performed a best case scenario discounted
cashflow analysis, which, after taking into account development costs,
resulted in a net present value per acre of $4,500. Consequently,
Mr. Ryan determined that the discounted cashflow analysis validated
his ultimate conclusion under the comparable sales method as to the
value of the Subject Property.

                    e.    Value of the Subject Property After Granting
                          of Conservation Easement

       In determining the “after” value of the Subject Property, Mr. Ryan
noted that the various restrictions imposed on the Subject Property as a
result of granting the conservation easement reduced the property’s use
potential from that in the “before” situation and placed it at a
marketable disadvantage in the “after” situation.

       Mr. Ryan used the comparable sales method to determine the
“after” value of the Subject Property, analyzing sales of properties with
conservation easements in place occurring close in time to the effective
date of his report. Mr. Ryan determined that the conservation easement
would not have any effect on the excluded parcels since they were
constructed for the purpose and intent of being used with, and
surrounded by, a large undeveloped parcel of land; therefore, the value
of the excluded parcels will be the same in the “before” and “after”
situations. Moreover, Mr. Ryan made qualitative adjustments to the
comparable properties.

       Mr. Ryan identified four properties (in addition to the 12 selected
above) that he deemed comparable to the Subject Property in the “after”
situation. The four selected properties were all sold with conservation
easements in place and yielded sale prices from $200 to $1,806 per acre.
These properties were sold between August 2010 and April 2013 and
ranged in size from approximately 513.91 to 2,711 acres. Mr. Ryan
determined that the Subject Property in the “after” situation was worth
more than the two properties he deemed inferior with values from $200
                                   37

[*37] to $1,012 per acre and that its value was more in line with the
remaining two properties, which had per-acre prices in the $1,356 to
$1,806 range.

       Ultimately, Mr. Ryan concluded that the Subject Property in the
“after” situation had a value of $2,800,000 or $1,800 per acre, which is
in the upper range of the selected comparable properties, appropriate
since it included various parcels that remain unencumbered by the
conservation easement.

                    f.    Estimated Deduction Amount

      Mr. Ryan estimated the amount of a potential deduction to be
$4,595,000, which is the difference between the “before” value of
$7,395,000 and the “after” value of $2,800,000.

             2.     Raymond Krasinski

       Respondent engaged Raymond Krasinski to prepare an appraisal
review of Mr. Hayter’s 2013 appraisal of the Subject Property for its
compliance with USPAP. Mr. Krasinski is a member of the Appraisal
Institute, holding its MAI designation in addition to being a General
Review Senior, which qualifies him to perform appraisal reviews.
Mr. Krasinski was recognized by the Court as an expert in real property
appraisals, appraisal review, and USPAP. Mr. Kasinski concludes that
Mr. Hayter’s 2013 appraisal contains significant errors and that it fails
to comply with USPAP.

       Specifically, Mr. Krasinski argued that Mr. Hayter’s appraisal,
among other things, fails to identify the competitive basis of the Subject
Property as a large vacant parcel; ignores numerous directly competitive
sales; relies on an inappropriate valuation technique; uses a discounted
cashflow analysis as the only approach to value; and fails to provide any
local market data to support market absorption.

      On the basis of the foregoing factors, Mr. Krasinski stated that
Mr. Hayter’s appraisal appears to vastly overstate the value of the
conservation easement.

             3.     Steven Hastings

       Respondent engaged Steven Hastings to perform an independent
analysis and review of Ms. Sward’s retrospective market analysis report
and of the discounted cashflow analysis in Mr. Hayter’s 2013 appraisal.
                                   38

[*38] At trial Mr. Hastings was accepted by the Court as an expert in
the areas of discounted cashflow analysis and feasibility studies.

                    a.    Discounted Cashflow Analysis

      Mr. Hastings evaluated and opined on the inputs used in
Mr. Hayter’s discounted cashflow analysis, concluding that the proposed
development was not feasible or viable and would not generally be
considered financeable by a financial institution.

      Mr. Hastings formed his conclusion on the basis of alleged errors
and methodological problems. Regarding the errors, Mr. Hastings noted
that Mr. Hayter failed to include developmental costs for the estate lots
in the planned development, miscalculated real estate taxes,
mismatched construction costs and timing, and incorrectly cited the
discount rate source.

       Methodological problems include issues with the lack of
entitlements, inappropriate timing of development cost and initial sales,
failure to consider entitlement and additional development costs,
incorrect application of discount rate and developer profit, failure to
properly analyze sales price data, failure to apply appropriate
absorption methodology, and failure to sufficiently analyze the difficulty
of permitting and sewage disposal system costs.

       Mr. Hastings took particular issue with the comparable
properties selected by Mr. Hayter. Mr. Hastings determined that more
appropriate comparable properties would have been local developments,
such as Healy Plantation, Little Creek Plantation, and the River Forest
Subdivision, which would have produced significantly lower lot values
in the proposed development.

       Notwithstanding the supposed errors and methodological
problems in Mr. Hayter’s discounted cashflow analysis, Mr. Hastings
was able to recreate his discounted cashflow analysis using the
underlying data in Mr. Hayter’s 2013 appraisal, despite his assertion
that the proposed development would not be considered financeable by
a financial institution.

                    b.    Retrospective Market Analysis Critique

      Mr. Hastings concluded that Ms. Sward’s retrospective market
analysis, which analyzed the market demand for second homes in
vacation and recreational settings, is fundamentally flawed for multiple
                                           39

[*39] reasons. Since the Court has already found Ms. Sward’s
retrospective market analysis to be unhelpful in determining whether
the proposed development was feasible, we need not address Mr.
Hastings’s critique thereof in any more detail.

                                      OPINION

I.      Burden of Proof

       Ordinarily, the taxpayer bears the burden of proving that the
Commissioner’s determinations are erroneous. 21 Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). That burden includes proving
entitlement to any deductions claimed. See INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering,
292 U.S. 435, 440 (1934). Petitioner therefore generally bears the
burden of proving the Partnership’s entitlement to the charitable
deduction for qualified conservation contributions under the applicable
provisions of section 170, as well as the burden of proving the value of
the conservation easement.

      In order to establish its entitlement to the charitable contribution
deduction at issue, petitioner must show (1) that the Partnership made
a qualifying contribution, (2) that it satisfied (or is excused from) the
substantiation requirements for such a contribution, and (3) the value
of the contribution. See Murfam Enters. LLC v. Commissioner, T.C.
Memo. 2023-73, at *15. All three requirements must be met for the
donation to be a qualified conservation contribution. See Simmons v.
Commissioner, T.C. Memo. 2009-208, 2009 WL 2950610, at *3, aff’d, 646
F.3d 6 (D.C. Cir. 2011).

II.     Qualified Conservation Contribution

       Section 170(a)(1) allows a deduction for any charitable
contribution made within the taxable year. The Code generally restricts
a taxpayer’s charitable contribution deduction for donations of “an
interest in property which consists of less than the taxpayer’s entire
interest in such property.” I.R.C. § 170(f)(3)(A). That is, someone who

        21 As to the burden of production, section 7491(c) provides that the

Commissioner “shall have the burden of production in any court proceeding with
respect to the liability of any individual for any penalty, addition to tax, or additional
amount.” However, section 7491(c) does not apply to TEFRA partnership-level
proceedings, such as this case. See Dynamo Holdings Ltd. P’ship v. Commissioner, 150
T.C. 224, 234 (2018). Therefore, petitioner bears not only the burden of proof, but also
the burden of production, even as to any penalty.
                                   40

[*40] owns property and donates to charity only a partial interest in that
property may not claim a charitable contribution deduction for that
donation. However, the statute provides an exception—and allows a
deduction—for a “qualified conservation contribution.” I.R.C.
§ 170(f)(3)(B)(iii). Section 170(h)(1) defines a “qualified conservation
contribution” to be (1) the contribution of a “qualified real property
interest” (2) to a “qualified organization” (3) “exclusively for
conservation purposes.” The parties agree that SERLC is a qualified
organization for purposes of section 170(h)(1)(B) and have stipulated
that the conservation easement satisfies one of the conservation
purposes defined under section 170(h)(4). Accordingly, we need only
address whether the Partnership contributed a qualified real property
interest.

       Under section 170(h)(2)(C) a “qualified real property interest”
includes “a restriction (granted in perpetuity) on the use which may be
made of the real property.” The Partnership donated to SERLC a
perpetual conservation easement on approximately 1,545.79 acres of the
Subject Property, which severely restricts its use of the property in
accordance with Article II of the conservation easement deed, which lists
the various restrictions imposed. Consequently, we determine that the
Subject Property satisfies the definition of a qualified real property
interest under section 170(h)(2)(C).

      However, respondent makes two arguments regarding why the
Partnership did not make a qualified conservation contribution. First,
respondent argues that the conservation easement fails to provide
SERLC a proportionate share of the extinguishment proceeds as
required by the applicable Treasury Regulations. Second, respondent
argues that the Partnership lacked the requisite donative intent. We
address each argument below.

      A.     Whether the Conservation Easement Deed              Satisfies
             Treasury Regulation § 1.170A-14(g)(6)(ii)

       Respondent seeks to negate petitioner’s claim of compliance with
section 170(h)(2)(C) by relying on Treasury Regulation § 1.170A-14(g),
which sets forth the substantive rules to safeguard the perpetual
protection of the conservation purpose. Under the Code, for a
contribution to be made exclusively for conservation purposes, the
conservation purpose must be protected in perpetuity. I.R.C.
§ 170(h)(5)(A). Treasury Regulation § 1.170A-14(g)(6) outlines the
circumstances under which an easement may be considered protected in
                                        41

[*41] perpetuity even if it is later extinguished by judicial proceeding on
the basis of “subsequent unexpected changes in the conditions
surrounding the donated property that make it impossible or
impractical to continue using the property for the intended conservation
purpose.” Carroll v. Commissioner, 146 T.C. 196, 211–12 (2016).
Treasury Regulation § 1.170A-14(g)(6)(ii) requires that

       for a deduction to be allowed under this section, at the time
       of the gift the donor must agree that the donation of the
       perpetual conservation restriction gives rise to a property
       right, immediately vested in the donee organization, with
       a fair market value that is at least equal to the
       proportionate value that the perpetual conservation
       restriction at the time . . . bears to the value of the property
       as a whole . . . . [T]hat proportionate value of the donee’s
       property rights shall remain constant.

      Respondent argues that the requirements of Treasury Regulation
§ 1.170A-14(g)(6)(ii) are to be strictly construed and that the
conservation deed at issue violates the regulation since SERLC is not
guaranteed to receive the proportionate share of the extinguishment
proceeds; rather, it would only have a right to a fixed amount. Needless
to say, petitioner disagrees and avers that respondent’s reliance on
Treasury Regulation § 1.170A-14(g)(6)(ii) is misplaced since the U.S.
Court of Appeals for the Eleventh Circuit held that Treasury Regulation
§ 1.170A-14(g)(6)(ii) is “arbitrary and capricious and violates the APA’s
procedural requirements” and ultimately ruled it to be invalid. Hewitt
v. Commissioner, 21 F.4th 1336, 1339 (11th Cir. 2021), rev’g and
remanding T.C. Memo. 2020-89. 22

        Absent stipulation to the contrary, appeal of this case would lie to
the Eleventh Circuit. See I.R.C. § 7482(b)(1)(E). Respondent argues that
the conservation easement deed in this case presents facts sufficiently
different from those present in Hewitt to render the Eleventh Circuit’s
opinion not “squarely on point” and therefore not binding on this Court.
See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985
(10th Cir. 1971). Instead, respondent would have us follow our decision
in Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020),
aff’d, 28 F.4th 700 (6th Cir. 2022), which, unlike the Eleventh Circuit

         22 The Eleventh Circuit subsequently confirmed that Hewitt invalidated

paragraph (g)(6)(ii) of Treasury Regulation § 1.170A-14. Glade Creek Partner, LLC v.
Commissioner, No. 21-11251, 2022 WL 3582113, at *3 (11th Cir. Aug. 22, 2022), aff’g
in part, vacating in part and remanding T.C. Memo. 2020-148.
                                   42

[*42] decision in Hewitt, upheld the substantive and procedural validity
of Treasury Regulation § 1.170A-14(g)(6)(ii).

       We remind respondent that this Court will depart from its
established precedents and defer to contrary precedent of a particular
court of appeals only to avoid “inevitable” reversal. See Lardas v.
Commissioner, 99 T.C. 490, 494–95 (1992). To follow the U.S. Court of
Appeals for the Sixth Circuit’s precedent in this case would surely result
in reversal; therefore, we are bound to follow the Eleventh Circuit, which
invalidated Treasury Regulation § 1.170A-14(g)(6)(ii).

       In the light of the foregoing, we find respondent’s argument, that
the charitable contribution deduction should be denied in full on the
basis of the conservation purpose’s not being protected in perpetuity as
required by section 170(h)(5)(A) and in violation of Treasury Regulation
§ 1.170A-14(g)(6)(ii), to be meritless.

      B.     Donative Intent

      Respondent argues that the Partnership lacked the requisite
donative intent, and he contends that the charitable contribution was
made only for the personal profit of the Managers by enticing potential
investors with federal income tax deductions. He further argues that the
conservation easement deal was priced so that the return for the
investors in tax savings would substantially exceed the amounts that
they would have to contribute, without which they would not have
invested.

       Additionally, respondent argues Mr. Adams controlled the
decision to move forward with the conservation easement proposal, an
investor tax benefit ratio of more than four times their investment was
all but certain, and that none of the Managers or investors “focused on
the benefits of land preservation or whether SERLC could appropriately
steward the donation.” Consequently, respondent contends this Court
must find that the Partnership lacked any charitable intent and deny
the charitable deduction in full.

      We rejected similar donative intent arguments made by the
Commissioner in Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo.
2023-129, at *28, and Oconee Landing Property, LLC v. Commissioner,
T.C. Memo. 2024-25, at *37, and we reject them again here. In Mill Road
36 Henry, LLC, T.C. Memo. 2023-129, at *28, we found the objective fact
that a perpetual conservation easement was donated to a charitable
organization defeated the Commissioner’s contention as to the donor’s
                                    43

[*43] subjective intent. Similarly, the investors in the Partnership were
presented with and given the opportunity to vote on three options for
the Subject Property: a development proposal, an investment proposal,
and a conservation easement proposal. The investors unanimously voted
in favor of the conservation easement proposal, choosing present tax
benefits over potential future earnings.

       Respondent takes particular issue with the fact that Mr. Adams
could override the investor vote and contends that the conservation
easement was always going to be donated. However, respondent fails to
address the fact that all investors voluntarily voted in favor of the
conservation easement proposal and that Mr. Adams did not exercise his
ability to override their vote. Furthermore, the fact “[t]hat federal
income tax benefits are a consideration in determining whether to make
a contribution does not undermine the validity of the contribution.” Id.

       Respondent cites two Supreme Court cases, Hernandez v.
Commissioner, 490 U.S. 680, 682 (1989), and United States v. American
Bar Endowment, 477 U.S. 105 (1986), and contends that the members
of the Partnership received privileges or other benefits, i.e., receipt of a
quid pro quo, and therefore lacked the requisite donative intent. We find
these cases to be distinguishable since there is no evidence in the record
of the members’ receiving a financial return commensurate with the
amount of charitable contribution, other than a tax deduction.
Hernandez v. Commissioner, 490 U.S. at 690–91. Congress long ago
decided to incentivize charitable contributions by allowing deductions
for those contributions, and it would be improper for us to deny a
deduction to a donor simply because he has received a tax benefit in
exchange. Moreover, we are aware of no case in which the tax benefits
associated with a charitable contribution deduction have been deemed a
“quid pro quo” that negates the donor’s charitable intent. See Oconee
Landing Prop., LLC, T.C. Memo. 2024-25, at *38.

      Therefore, we find that the Partnership had the requisite
donative intent when it made a charitable contribution of property to
SERLC.

III.   Compliance with the Substantiation Requirements

       “A charitable contribution shall be allowable as a deduction only
if verified under regulations prescribed by the Secretary.” I.R.C.
§ 170(a)(1). We briefly summarize the statutory and regulatory
requirements before addressing respondent’s contention that the
                                    44

[*44] Partnership failed to satisfy the qualified appraiser or qualified
appraisal requirements.

      A.     Statutory and Regulatory Requirements

       Section 170(f)(11) imposes, for charitable contribution deductions,
heightened substantiation requirements on taxpayers, depending on the
value of the contribution. Section 170(f)(11)(A)(i) provides that for
deductions greater than $500,000, a taxpayer must attach “a description
of such property,” see I.R.C. § 170(f)(11)(B), obtain “a qualified appraisal
of such property,” see I.R.C. § 170(f)(11)(C), and “attach[] to the return
for the taxable year a qualified appraisal of such property,” see I.R.C.
§ 170(f)(11)(D).

       Treasury Regulation § 1.170A-13(c)(3)(ii) provides that a
“qualified appraisal” must contain, among other things, the following
information: (1) a description of the property; (2) the date(s) on which
the property was appraised; (3) the property’s fair market value; (4) the
method used to value the property; and (5) the specific basis for the
valuation and a justification of that basis.

       Treasury Regulation § 1.170A-13(c)(3)(i)(B) provides that a
qualified appraisal must be “prepared, signed, and dated by a qualified
appraiser.” A “qualified appraiser” must (1) hold himself out to the
public as an appraiser, (2) be qualified to make appraisals of the type of
property being valued, and (3) acknowledge that aiding and abetting an
understatement of tax liability may subject him to a penalty pursuant
to section 6701. Treas. Reg. § 1.170A-13(c)(5)(i). Moreover, a qualified
appraiser cannot be one who (1) receives a deduction under section 170
for the contribution of the property that is being appraised, (2) was a
party to the donor’s acquisition of the property being appraised, (3) is
the donee of the property, (4) was a person employed by any of the
aforementioned, (5) is related to any of the aforementioned within the
meaning of section 267(b) (not applicable here), or (6) is an appraiser
regularly engaged by any of the aforementioned who does not make a
majority of his appraisals for other persons during the taxable year. Id.
subdiv. (iv).

      B.     Whether Mr. Hayter Was a Qualified Appraiser

       Respondent does not seem to contest that Mr. Hayter satisfies the
requirements of Treasury Regulation § 1.170A-13(c)(5)(i); rather, he
seeks to disqualify Mr. Hayter as a qualified appraiser under the theory
that he runs afoul of subdivision (ii) of Treasury Regulation
                                   45

[*45] § 1.170A-13(c)(5). The so-called knowledge regulation provides, in
relevant part, that

      [a]n individual is not a qualified appraiser with respect to
      a particular donation . . . 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 . . . .

Treas. Reg. § 1.170A-13(c)(5)(ii). The regulation gives the following
illustration: “[T]he 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. The foregoing regulation uses the term “a reasonable
person,” which we read to mean a reasonably informed person without
specific knowledge or experience in generally accepted appraisal
practices. In other words, the question becomes whether the Partnership
held specific knowledge of facts that would cause us to expect
Mr. Hayter’s opinion of value to be falsely overstated. We find there are
none in this case.

       In gauging a partnership’s “knowledge,” we look to the knowledge
of the person(s) with ultimate authority to manage the partnership. See,
e.g., CNT Invs., LLC v. Commissioner, 144 T.C. 161, 222 (2015)
(examining the general partner’s knowledge in order to assess “good
faith”); Superior Trading, LLC v. Commissioner, 137 T.C. 70, 91–92
(2011) (stating that partnership-level defenses take “into account the
state of mind of the general partner”), supplemented by T.C. Memo.
2012-110, aff’d, 728 F.3d 676 (7th Cir. 2013). We have also indicated how
the expression “‘falsely to overstate’ is intended to convey a sense of
collusion and deception as to the value of the property.” Kaufman v.
Commissioner, T.C. Memo. 2014-52, at *70–71 (footnote omitted), aff’d,
784 F.3d 56 (1st Cir. 2015); see also Mill Road 36 Henry, LLC, T.C.
Memo. 2023-129, at *42–43.

        Respondent points to facts about the Subject Property that were
known to Mr. Adams and the other Managers of the Partnership that
tend to undermine Mr. Hayter’s valuation conclusion and ultimately the
claimed deduction amount. Namely, respondent argues that Mr. Adams
provided Mr. Hayter with skewed information that he relied upon in his
2013 appraisal, that he withheld information concerning the 2012 P&S
Agreement to purchase the Subject Property for $6 million, and that he
failed to inform Mr. Hayter that the Subject Property was previously
                                   46

[*46] listed for $9 million without any interest from market
participants. However, the example given in the regulation does not
support respondent’s contention but focuses rather on whether there
was “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.” See Treas. Reg. § 1.170A-13(c)(5)(ii).

       There is no evidence of an “agreement” between Mr. Adams and
Mr. Hayter concerning the value of the Subject Property. In fact, when
asked whether Mr. Adams had a specific value that he wanted him to
reach in his appraisal of the Subject Property, Mr. Hayter testified that
he “never enter[s] into an appraisal with a predetermined value,” that
the market determines “what the fair market value is,” and that he
stands by the valuation opinion reflected in his report.

       As the trier of fact, we observe a witness’s candor, sincerity, and
demeanor in order to evaluate the testimony and assign it appropriate
weight in determining disputed facts. See Neonatology Assocs., P.A. v.
Commissioner, 115 T.C. 43, 84 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002).
We are not bound to accept a taxpayer’s self-serving testimony. See
Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Hradesky v.
Commissioner, 65 T.C. 87, 90 (1975), aff’d per curiam, 540 F.2d 821 (5th
Cir. 1976). While respondent might disagree with the methodology and
valuation conclusions in Mr. Hayter’s 2013 appraisal, we find his
testimony credible to negate an inference—as asserted by respondent—
that Mr. Adams “heavily influenced and manipulated the appraisal
process to achieve his desired result.”

       Mr. Hayter is a professional appraiser who holds the MAI
designation from the Appraisal Institute, held himself out to the public
as such, and was qualified to perform an appraisal of the Subject
Property with the proposed development plan in place. Moreover, he
signed Form 8283, which was attached to the Partnership’s Form 1065,
acknowledging that he could personally be subject to penalties under the
Code, including sections 6701(a) and 6695A. Mr. Hayter did not have a
personal interest in the Subject Property, nor does it appear from the
record that he received a tax deduction under section 170 for the
contribution of the Subject Property being appraised. See Treas. Reg.
§ 1.170A-13(c)(5)(iv)(A).

      Consequently, we find that respondent has failed to establish the
applicability of Treasury Regulation § 1.170A-13(c)(5)(ii) and therefore
                                           47

[*47] hold that Mr. Hayter was a “qualified appraiser.” See Treas. Reg.
§ 1.170A-13(c)(5). 23

        C.      Whether Mr. Hayter’s 2013 Appraisal Was a Qualified
                Appraisal

       To be a qualified appraisal under section 170(f)(11)(E), an
appraisal of property must be (1) treated as a qualified appraisal under
regulations or other guidance prescribed by the Secretary and
(2) conducted by a qualified appraiser in accordance with generally
accepted appraisal standards and any regulations or other guidance
prescribed by the Secretary.

       Treasury Regulation § 1.170A-13(c)(3) defines a qualified
appraisal as a document that, among other things (1) relates to an
appraisal that is made not earlier than 60 days before the date of
contribution of the appraised property and not later than the due date
(including extensions) of the return on which a deduction is first claimed
under section 170; (2) is prepared, signed, and dated by a qualified
appraiser; (3) includes (a) a description of the property appraised, (b) the
fair market value of the property on the date of contribution, and the
specific basis for the valuation, (c) a statement that the appraisal was
prepared for income tax purposes, (d) the qualifications of the qualified
appraiser, and (e) the signature and taxpayer identification number of
the appraiser; and (4) does not involve an appraisal fee that violates
certain prescribed rules.

       The regulation imposes substantive requirements on the content
of an appraisal report. Scheidelman v. Commissioner, 682 F.3d 189, 198
(2d Cir. 2012), vacating and remanding T.C. Memo. 2010-151. A
qualified appraisal provides the IRS with sufficient information to
evaluate the claimed deduction and deal more effectively with the
prevalent use of overvaluation. Hewitt v. Commissioner, 109 T.C. 258,
265 (1997), aff’d per curiam, 166 F.3d 332 (4th Cir. 1998) (unpublished
table decision).

       Petitioner argues, and we agree, that Mr. Hayter’s 2013 appraisal
satisfies the regulatory requirements for a qualified appraisal as set
forth above. See Treas. Reg. § 1.170A-13(c)(3). Respondent does not seem
to contest this fact; however, he seeks to disqualify Mr. Hayter’s 2013

        23 This ruling does not mean that we accept Mr. Hayter’s opinion of value or

that petitioner 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.
                                          48

[*48] appraisal from being a qualified appraisal on the basis of his
contention that it was not prepared in accordance with generally
accepted appraisal standards, alleging noncompliance with USPAP. We
address respondent’s contention below.

       Section 170(f)(11)(E)(i)(II) specifies, in relevant part, that a
qualified appraisal must be “conducted by a qualified appraiser in
accordance with generally accepted appraisal standards.” The
Department of the Treasury provided transitional guidance in I.R.S.
Notice 2006-96, 2006-2 C.B. 902. According to that Notice an appraisal
will meet the specifications of section 170(f)(11)(E) if, for example, “the
appraisal is consistent with the substance and principles of [USPAP]”.
Notice 2006-96, § 3.02(2), 2006-2 C.B. at 902.

       Respondent states that Mr. Hayter outright failed to comply with
USPAP, arguing that “his departures from USPAP are significant,
serious, and seemingly intentionally designed to create a report simply
to justify the value hoped by the Partnership.” Specifically, respondent
avers, among other things, that Mr. Hayter failed to report the Subject
Property’s prior sales history, inappropriately ignored comparable sales
that disprove his valuation, failed to analyze the local market, failed to
support his cost projections, failed to analyze demand for housing and
absorption, and used inappropriate comparables for lot pricing.
Petitioner argues that Mr. Hayter’s 2013 appraisal “substantially
complies with appraisal standards because it allowed respondent to
properly understand and monitor the claimed contribution.” We agree
with petitioner’s arguments.

       “Appraising is not an exact science and has a subjective nature.”
Gorra v. Commissioner, T.C. Memo. 2013-254, at *48. USPAP is widely
recognized and accepted as setting out standards applicable to the
appraisal profession. Adherence to those standards is evidence that the
appraiser is applying methods that are generally accepted within the
appraisal profession. Therefore, at a minimum, compliance with USPAP
is an indication that the appraiser’s valuation report is reliable.
However, full compliance with USPAP is not the sole measure of
reliability. See Whitehouse Hotel Ltd. P’ship v. Commissioner, 131 T.C.
112, 127–28 (2008), 24 vacated and remanded, 615 F.3d 321 (5th Cir.

         24 While this case deals with the admissibility of an expert report rather than

whether the report was a qualified appraisal under the Code, we find the case to be
illustrative of the subjective nature of appraisals and in stark contrast to the rigid
standard of compliance respondent would have this Court adopt, which is something
we will refrain from doing here.
                                   49

[*49] 2010). We generally accept Mr. Krasinski’s expert opinion that Mr.
Hayter’s 2013 appraisal lacks full compliance under USPAP; however,
we find these failures go more to the credibility and weight of the
appraisal and not to whether the appraisal complies with generally
accepted appraisal standards. Notwithstanding the highest and best use
conclusions reached for the Subject Property, we cannot say the
appraisal fails to comply with generally accepted appraisal standards.

       In sum, we find that Mr. Hayter’s 2013 appraisal satisfies the
requirements of section 170(f)(11)(E)(i)(II). Accordingly, we hold that
Mr. Hayter’s 2013 appraisal was a qualified appraisal for purposes of
section 170(f)(11).

IV.   Valuation of the Conservation Easement Donation

       Generally, the amount of a charitable contribution deduction
under section 170(a) for a donation of property is the “fair market value”
of the property at the time of the donation. Treas. Reg. § 1.170A-1(c)(1).
Treasury Regulation § 1.170A-1(c)(2) defines fair market value to be “the
price at which the property would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of relevant facts.” With respect
to valuing a donation of a partial interest in property, Treasury
Regulation § 1.170A-7(c) provides that “[e]xcept as provided in § 1.170A-
14, the amount of the deduction under section 170 . . . is the fair market
value of the partial interest at the time of the contribution.” Treasury
Regulation § 1.170A-14(h)(3)(i) in turn sets forth the following method
for valuing a perpetual conservation restriction:

      If there is a substantial record of sales of easements
      comparable to the donated easement (such as purchases
      pursuant to a governmental program), the fair market
      value of the donated easement is based on the sales prices
      of such comparable easements. If no substantial record of
      market-place sales is available to use as a meaningful or
      valid comparison, as a general rule (but not necessarily in
      all cases) the fair market value of a perpetual conservation
      restriction is equal to the difference between the fair
      market value of the property it encumbers before the
      granting of the restriction and the fair market value of the
      encumbered property after the granting of the restriction.
      The amount of the deduction in the case of a charitable
      contribution of a perpetual conservation restriction
                                          50

[*50] covering a portion of the contiguous property owned by a
      donor and the donor’s family . . . is the difference between
      the fair market value of the entire contiguous parcel of
      property before and after the granting of the restriction.

       The fair market value of property on a given date is a question of
fact to be resolved on the basis of the entire record. McGuire v.
Commissioner, 44 T.C. 801, 806–07 (1965); Kaplan v. Commissioner, 43
T.C. 663, 665 (1965). In this case we do not have “a substantial record of
sales of easements comparable to the donated easement,” and we will
therefore base our valuation on the before and after method. See Treas.
Reg. § 1.170A-14(h)(3)(i). Treasury Regulation § 1.170A-14(h)(3)(ii)
provides:

        If before and after valuation is used, the fair market value
        of the property before contribution of the conservation
        restriction must take into account not only the current use
        of the property but also an objective assessment of how
        immediate or remote the likelihood is that the property,
        absent the restriction, would in fact be developed, as well
        as any effect from zoning, conservation, or historic
        preservation laws that already restrict the property’s
        potential highest and best use.

See also Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400
(1986). A property’s highest and best use is the “highest and most
profitable use for which the property is adaptable and needed or likely
to be needed in the reasonably near future.” Olson v. United States, 292
U.S. 246, 255 (1934).

      The two methods generally used to determine the “before value”
and the “after value” are the comparable sales 25 and income methods.
The comparable sales method looks at arm’s-length transactions that
involve properties similar to the subject property and sold within a

         25 Estate of Rabe v. Commissioner, T.C. Memo. 1975-26, 34 T.C.M. (CCH) 117,

119 (1975) (“In the case of vacant, unimproved property the ‘market data’ or
‘comparable sales’ approach is generally the most reliable method of valuation, the
rationale being that the marketplace is the best indicator of value, based on the
conflicting interests of many buyers and sellers. This in turn is based on the principle
of substitution, i.e., that a prudent man will pay no more for a given property than he
would for a similar property. This method requires gathering information on sales of
property similar to the subject property, then comparing and weighing them to reach
a likely value for the land being appraised.”), aff’d, 566 F.2d 1183 (9th Cir. 1977)
(unpublished table decision).
                                   51

[*51] reasonable time of the valuation date. See, e.g., Wolfsen Land &
Cattle Co. v. Commissioner, 72 T.C. 1, 19 (1979); Butler v. Commissioner,
T.C. Memo. 2012-72, 2012 WL 913695, at *16. The income approach
projects the future cashflows the property will generate at its highest
and best use. See, e.g., Butler v. Commissioner, 2012 WL 913695, at *17;
Trout Ranch, LLC v. Commissioner, T.C. Memo. 2010-283, 2010 WL
5395108, at *4, aff’d, 493 F. App’x 944 (10th Cir. 2012). This method
assumes that an investor would pay no more than the present value of
the property’s anticipated future income. Butler v. Commissioner, 2012
WL 913695, at *17.

       To show the value of the conservation easement, including the
property’s highest and best use before and after the donation, the parties
have offered the reports and testimony of expert witnesses. See Rule
143(g). “Opinion testimony of an expert is admissible if and because it
will assist the trier of fact to understand evidence that will determine a
fact in issue,” and we evaluate expert opinions “in light of the
demonstrated qualifications of the expert and all other evidence of
value.” Parker v. Commissioner, 86 T.C. 547, 561 (1986) (citing Fed. R.
Evid. 702). Where experts offer competing estimates of fair market
value, we decide how to weight those estimates by, among other things,
examining the factors they considered in reaching their conclusions. See
Casey v. Commissioner, 38 T.C. 357, 381 (1962). We are not bound by
the opinion of any expert witness, and we may accept or reject expert
testimony in the exercise of our sound judgment. Helvering v. Nat’l
Grocery Co., 304 U.S. 282, 294–95 (1938); Estate of Newhouse v.
Commissioner, 94 T.C. 193, 217 (1990). We may also reach a decision as
to the value of property that is based on our own examination of the
evidence in the record. See Silverman v. Commissioner, 538 F.2d 927,
933 (2d Cir. 1976), aff’g T.C. Memo. 1974-285.

      With these principles in mind, we will now explain the basis of
our valuation of the conservation easement, i.e., the value of the Subject
Property.

       Petitioner’s valuation expert, Mr. Hayter, used a discounted
cashflow analysis, which is a subset of the income approach, and the
comparable sales method to value the Subject Property in the “before”
and “after” situations, respectively. He valued the land before the
granting of the conservation easement (i.e., the before value) at
$50,480,000 and at an “after” value of $2,680,000. If petitioner’s expert
is correct, the conservation easement would have a fair market value of
$47,570,000.
                                   52

[*52] Respondent’s valuation expert, Mr. Ryan, used the comparable
sales method to value the Subject Property in both the “before” and
“after” situations. He determined a “before” value of $7,395,000 and an
“after” value of $2,800,000. If respondent’s expert is correct, the
conservation easement would have a fair market value of $4,595,000.

      The large disparity in the parties’ fair market value estimates lies
in their disagreement as to the highest and best use of the Subject
Property at the time the conservation easement was donated to SERLC
as well as the comparable property sales used in their respective
analyses. Therefore, we must determine the highest and best use of the
Subject Property before the conservation easement grant and whether
the comparable property sales were appropriate.

       Notably, Mr. Hayter and Mr. Ryan, in essence, agree on the
“after” value assessment of the Subject Property as being $2,800,000 and
$2,680,000, respectively. Consequently, the dispute centers on the
“before” value assessment of the Subject Property.

      A.     Before Value Determination

       In determining the fair market value of property, we first must
determine its highest and best use. See Stanley Works & Subs., 87 T.C.
at 400; Treas. Reg. § 1.170A-14(h)(3)(i) and (ii). In determining a
property’s highest and best use we consider the highest and most
profitable use for which it is adaptable and needed or likely to be needed
in the reasonably near future. Olson, 292 U.S. at 255.

        Both Mr. Hayter and Mr. Ryan began their respective highest and
best use analyses by considering whether the potential use of the Subject
Property was (1) legally permissible, (2) physically possible,
(3) financially feasible, and (4) maximally productive. Mr. Hayter
determined that the highest and best use before the grant of the
conservation easement was the “development of a 307 lot hunting and
conservation oriented residential community,” while Mr. Ryan
determined the highest and best use to be “continued timber production,
possible agriculture, recreation (primarily hunting and fishing), and
extremely low-density residential use in conjunction with long-term
speculative investment for alternative uses.” All four criteria are
required to be met, and it does not matter that a potential use is
physically possible, financially feasible, and maximally productive if it
is not legally permissible.
                                    53

[*53] For the reasons explained below we decline to accept Mr. Hayter’s
determination of the Subject Property’s highest and best use, and
therefore we do not adopt his opinion of value. On the other hand, we
find Mr. Ryan’s determination of the Subject Property’s highest and best
use to be compelling, and therefore we do adopt his opinion of value.

             1.     Whether the Proposed Development Was Legally
                    Permissible

       Petitioner asserts that the proposed development was a legally
permissible use of the Subject Property despite its zoning classification
of rural residential, which allows for a development density of only one
unit per five acres. Under this classification the proposed development
would not be a legally permissible use of the Subject Property.

       Notwithstanding the Subject Property’s zoning classification,
petitioner contends that the proposed development would be a legally
permissible use on the basis of its contention that Mr. Pitrowski told
Mr. Hayter that it was “very likely” that the Subject Property would
receive rezoning and development approval. In addition, petitioner
relies on the June 25, 2013, opinion letter that Mr. Pitrowski issued to
Mr. Adams and Mr. Klesko stating that it is his “opinion that it is ‘more
likely than not’ that if the [2013 Land Plan] . . . were submitted to this
jurisdiction for a formal approval, given the current rules and
regulations as we currently understand and interpret them, the land
use/subdivision plan would be approved.”

       However, the evidence in the record contradicts petitioner’s
position that the Subject Property would receive a zoning variance to
allow for development in accordance with the proposed development
plan. While it is true that petitioner received a letter from Mr. Pitrowski,
acting in his capacity as the Jones County Zoning director, stating that
rezoning was “more likely than not,” Mr. Pitrowski testified that he
meant that to mean “[j]ust better than 50/50 that it would happen,” on
the basis of the information that he was given about the proposed
development at the time. The letter was not a guarantee that the Jones
County Planning and Zoning Department would actually approve
rezoning.

      At the time he issued his letter, Mr. Pitrowski was unaware that
the proposed development planned on using gravel roads and
community septic. Mr. Pitrowski testified that he would not have issued
the same opinion and that he would have significant concerns about the
                                      54

[*54] number of lots in the proposed development being served by gravel
roads, which have resulted in “concerns for ambulances and life safety
vehicles gaining access.”

       Moreover, in 2013 a community septic system with a discharge of
wastewater of over 10,000 gallons per day required approval at the state
level by the Georgia Environmental Protection Division. Petitioner does
not contest that the proposed development would exceed 10,000 gallons
per day of wastewater. Had Mr. Pitrowski been aware that community
septic was going to be used, he would have had to submit the proposal
to the Georgia Department of Public Health, which was not done in this
case.

      Given that Mr. Pitrowski did not have full knowledge of the facts
surrounding the proposed development at the time he issued his letter
and on the basis of his testimony at trial, it is not realistic to believe that
the proposed development in its current form would have received
rezoning or a zoning variance. Petitioner’s expert makes an
unreasonable assumption regarding the likelihood that rezoning of the
Subject Property would actually be approved, an error that is fatal to his
valuation conclusion.

       In sum, we have serious concerns as to whether the proposed
development at the Subject Property was a legally permissible use.
However, even if we are to accept that the proposed development was a
legally permissible use of the Subject Property, we must also determine
whether the proposed development was physically possible, financially
feasible, and maximally productive. Therefore, when considering the
remaining highest and best use factors, we are inclined to accept the
opinions and conclusion of Mr. Ryan

              2.     Comparable Property Sales

      Mr. Hayter’s “before” value conclusion is based on the use of a
discounted cashflow analysis using sales data from developments he
deemed comparable to the Subject Property. However, only three of the
developments are located in Georgia, with the other two being in South
Carolina. All selected comparable developments can fairly be classified
as high-end luxury resorts far from Jones County, with vastly different
market conditions and amenity offerings, such as marinas, award-
winning golf courses, restaurants, hotels, etc. While Mr. Hayter did
make qualitative adjustments to the lot prices derived from his
comparable properties, the values determined therefrom far exceed the
                                  55

[*55] price that the proposed development might garner in the market.
Mr. Hayter provided no data to support his contention that national
home builders are acquiring large undeveloped land parcels in the near
term for subdivision development or that “[r]esidential development
pressure is moving north toward the [S]ubject [P]roperty.” Additionally,
Mr. Hayter provided no information concerning market conditions in the
counties where his comparables were located nor any analysis of how
they were similar to or different from Jones County.

       On the other hand, Mr. Ryan provided a detailed analysis of the
market conditions in Jones County, including land use patterns,
building permit activity, population growth trends, etc., to support his
conclusion that, in 2013, Jones County was still suffering the
consequences of the 2008 housing market crash and that there was no
indication that there would be a significant positive change in land use
trends, development patterns, or population characteristics in the
foreseeable future. Ultimately, Mr. Ryan concluded that the Subject
Property was not ripe for development.

       Mr. Ryan’s “before” value is based on comparable sales data from
12 comparable properties, which he selected for having attributes that
lent themselves to being developed in a manner similar to the proposed
development. Moreover, Mr. Ryan selected these vacant parcels on the
basis of the principle of substitution, which stands for the proposition
that a hypothetical buyer will not pay more for a given property when
an alternative property is available for less. This simple proposition
undermines petitioner’s “before” value conclusion since a willing buyer
would not have paid roughly $32,600 ($50,480,000 / 1,545.79 acres) per
acre for nonunique vacant land in Jones County when the price per acre
for substitute properties identified by respondent’s expert was between
$1,602 and $4,971. Mr. Ryan likewise made qualitative adjustments to
the selected properties and arrived at a per-acre value of $4,750 as
appropriate for the Subject Property.

       The substitute price for vacant land in and around Jones County
reveals that petitioner’s “before” value of $50,480,000 is formed on the
basis of the proposed development’s actually being built, and not on the
basis of the value of the underlying property. Petitioner has failed to
show to the Court’s satisfaction that the plan for the proposed
development could not be applied to Mr. Ryan’s comparable properties
or how the qualities or attributes of the Subject Property make it
particularly unique in its state as a vacant parcel.
                                    56

[*56] Treasury Regulation § 1.170A-14(h)(3)(ii) instructs us to make
“an objective assessment of how immediate or remote the likelihood is
that the property, absent the restriction, would in fact be developed.”
Given the number of substitute properties available, we find it unlikely
that the Subject Property would have been developed in accordance with
the proposed development plan and that the probability of development
at the selling price of $50,480,000 is firmly planted somewhere in the
realm of fantasy.

      Consequently, we find respondent’s expert Mr. Ryan’s “before”
value of $4,750 per acre or $7,395,000, which was based on comparable
vacant property sales, to be the proper value of the Subject Property and
adopt it accordingly.

             3.     Transactions Involving the Subject Property

       This Court has repeatedly affirmed that actual arm’s-length sales
occurring sufficiently close to the valuation date are the best evidence of
value, and typically dispositive, over other valuation methods. See ES
NPA Holding, LLC v. Commissioner, T.C. Memo. 2023-55, at *14.
Therefore, the sales history of the Subject Property is indicative of its
true value. The Partnership initially acquired the Subject Property for
$4,014,000 in separate purchases occurring between 1998 and 2006. In
2013 Big K paid $6 million to purchase a 99% interest in the
Partnership. However, petitioner does not view the purchase of an
interest in the Partnership as a sale of the Subject Property. While that
might be true, we still find the purchase reflective of the price that the
market would pay for the Subject Property, especially when the
ownership interest was nearly 100% and the only asset held by the
Partnership was the Subject Property itself. Therefore, we find
Mr. Ryan’s “before” value to be reasonable and supported by the record.

      B.     After Value Determination

       Petitioner does not contest respondent’s proposed finding of fact
that Mr. Ryan’s “after” value of $2,800,000 or $1,800 per acre is the fair
market value of the Subject Property after the grant of the conservation
easement. We therefore find that petitioner has conceded the issue. See,
e.g., Jonson v. Commissioner, 118 T.C. 106, 108 n.4 (2002), aff’d, 353
F.3d 1181 (10th Cir. 2003). Accordingly, we accept respondent’s “after”
value determination.
                                    57

[*57] C.     Charitable Contribution Amount

       As stated above, the fair market value of a perpetual conservation
restriction is equal to the difference between the fair market value of the
property it encumbers “before” the granting of the restriction and the
fair market value of the encumbered property “after” the granting of the
restriction. See Treas. Reg. § 1.170A-14(h)(3)(i). We hold the amount of
the Partnership’s allowable charitable contribution deduction under
section 170 to be $4,595,000, which is the difference between the “before”
value of $7,395,000 and the “after” value of $2,800,000.

V.    Penalties

       Respondent asserts that the Partnership is subject to the civil
fraud penalty under section 6663, or, in lieu of a finding of fraud by this
Court, the Partnership is subject to an accuracy-related penalty under
section 6662. Regarding the accuracy-related penalty, respondent
determined that a 40% penalty under section 6662(a) and (h) for a gross
valuation misstatement is appropriate and, in the alternative, a 20%
penalty under section 6662(a) and (b)(1), (2), and (3) for negligence or
disregard of rules or regulations, a substantial understatement of
income tax, or a substantial valuation misstatement should be imposed.

      For the reasons below, we decline to impose the civil fraud penalty
and sustain a 40% penalty under section 6662(a) and (h) for a gross
valuation misstatement made by the Partnership.

      A.     Section 6663 Civil Fraud Penalty

        Section 6663(a) provides that, “[i]f any part of any underpayment
of tax required to be shown on a return is due to fraud, there shall be
added to the tax an amount equal to 75 percent of the portion of the
underpayment which is attributable to fraud.” However, “[i]n any
proceeding involving the issue whether the [taxpayer] has been guilty of
fraud with intent to evade tax, the burden of proof in respect of such
issue shall be upon the Secretary.” I.R.C. § 7454(a). And that burden
must be “carried by clear and convincing evidence.” Rule 142(b). In
Parks v. Commissioner, 94 T.C. 654, 660–61 (1980), we explained that
“[t]o satisfy his burden of proof, . . . [the Commissioner] must show that
the taxpayer intended to evade taxes known to be owing by conduct
intended to conceal, mislead, or otherwise prevent the collection of
taxes.”
                                    58

[*58] The existence of fraud is a question of fact to be resolved upon
consideration of the entire record. Estate of Pittard v. Commissioner, 69
T.C. 391 (1977); Gajewski v. Commissioner, 67 T.C. 181, 199 (1976),
aff’d, 578 F.2d 1383 (8th Cir. 1978) (unpublished table decision). Fraud
is not to be imputed or presumed, but rather must be established by
some independent evidence of fraudulent intent. Beaver v.
Commissioner, 55 T.C. 85, 92 (1970); Otsuki v. Commissioner, 53 T.C. 96
(1969). Fraud may not be found under “circumstances which at the most
create only suspicion.” Davis v. Commissioner, 184 F.2d 86, 87 (10th Cir.
1950); Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989). However, fraud
may be proved by circumstantial evidence and reasonable inferences
drawn from the facts because direct proof of the taxpayer’s intent is
rarely available. Spies v. United States, 317 U.S. 492 (1943); Stephenson
v. Commissioner, 79 T.C. 995 (1982), aff’d per curiam, 748 F.2d 331 (6th
Cir. 1984). The taxpayer’s entire course of conduct may establish the
requisite fraudulent intent. Stone v. Commissioner, 56 T.C. 213, 223–24
(1971); Otsuki, 53 T.C. at 105–06. The intent to conceal or mislead may
be inferred from a pattern of conduct. See Spies, 317 U.S. at 499. Mere
suspicion, however, is not enough to prove fraud. E.g., Katz v.
Commissioner, 90 T.C. 1130, 1144 (1988).

       Courts have developed a nonexclusive list of factors, so-called
badges of fraud, that demonstrate fraudulent intent. See, e.g.,
Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992). Those badges of
fraud include (1) understatement of income; (2) inadequate records;
(3) failure to file tax returns; (4) implausible or inconsistent
explanations of behavior; (5) concealment of assets; (6) failure to
cooperate with tax authorities; (7) filing false Forms W–4; (8) failure to
make estimated tax payments; (9) dealing in cash; (10) engaging in
illegal activity; and (11) attempting to conceal illegal activity. Bradford
v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff’g T.C. Memo.
1984-601.

       The existence of any one badge is not dispositive, but the
existence of several badges may be persuasive circumstantial evidence
of fraud. Niedringhaus, 99 T.C. at 211. We may also consider a
taxpayer’s intelligence, education, and tax expertise in determining
whether he acted with the requisite fraudulent intent. See Holmes v.
Commissioner, T.C. Memo. 2012-251, at *31, aff’d, 593 F. App’x 693 (9th
Cir. 2015).

      Respondent contends that the Partnership is liable for the section
6663 civil fraud penalty and avers that the “record is replete with lies
                                   59

[*59] and falsehoods promulgated by the Managers, led by [Mr.] Adams,
to conceal the underlying tax avoidance scheme.” However, for the
reasons stated below, we find that respondent has failed to prove by
clear and convincing evidence the applicability of the section 6663 civil
fraud penalty.

       In Mill Road 36 Henry, LLC, T.C. Memo. 2023-129, at *58, we
stressed the importance of the express disclosure on the tax return of
the principal facts about the conservation easement contribution in
finding that the section 6663 civil fraud penalty was inapplicable.
Additionally, charitable contribution deductions under section 170 are
subject to a robust regime of substantiation and reporting requirements
under section 170(f)(11), which requires a taxpayer claiming a deduction
greater than $500,000 to provide information about the property being
contributed, to attach a completed appraisal summary, and to attach a
qualified appraisal. I.R.C. § 170(f)(11)(A)–(D). Under Treasury
Regulation § 1.170A-13(c)(4)(ii), the appraisal summary required to be
included with the taxpayer’s return must include, among other things,
the following information: (1) the date the donor acquired the property,
(2) the cost or other basis of the property, and (3) the date the donee
received the property. Id. subdiv. (ii)(D), (E), (G).

       The reasoning behind these requirements is to allow for the
“Commissioner’s efficient identification of overvalued property.” Belair
Woods, LLC v. Commissioner, T.C. Memo. 2018-159, at *17. When a
taxpayer claims a charitable contribution deduction for recently
purchased property, a wide gap between cost basis and claimed value
raises a red flag suggesting that the return merits examination. Unless
the taxpayer complies with the regulatory requirement that he disclose
his cost basis and the date and manner of acquiring the property, the
Commissioner will be deprived of an essential tool that Congress
intended him to have.

       This is not a case in which the donor intentionally deprived the
Commissioner of an essential tool needed for the “efficient identification
of overvalued property.” See id. In fact, the Partnership complied with
the reporting requirements of section 170(f)(11) when it timely filed its
2013 Form 1065 and attached Form 8283, which expressly disclosed the
Partnership’s relatively low adjusted basis ($3,521,827) in the Subject
Property and, by comparison, its substantially higher amount claimed
as a charitable contribution deduction ($47,750,000, which is an
approximately 1,300% increase in value over the Partnership’s original
adjusted basis in the Subject Property). Moreover, section 170(f)(11)
                                       60

[*60] functioned as Congress intended with respondent being alerted to
the Partnership’s basis in the Subject Property and the value of the
claimed charitable contribution, which resulted in the Partnership’s
return being examined and an FPAA being issued. We find the
Partnership’s compliance with its reporting obligations to stand in stark
contrast to an intentional act, on its part, to conceal the underlying
transaction from respondent.

       Notwithstanding      the    Partnership’s     express    disclosure,
respondent asserts that it is still liable for the section 6663 civil fraud
penalty on the basis that the Managers (1) knowingly understated
income, (2) had the requisite education and knowledge to understand
their fraudulent conduct, (3) engaged in a pattern of conduct specifically
to mislead and conceal, (4) created and used false and misleading
records, (5) failed to keep adequate and accurate records, (6) failed to
cooperate with tax authorities in ascertaining the correct income,
(7) were willing to defraud third parties and were dishonest in business
transactions, and (8) made implausible and inconsistent explanations.

      Although respondent has proffered some evidence of conduct that
might give rise to a suspicion of fraud, most of the evidence concerns
conduct unrelated to the Partnership’s tax return. Respondent must
prove by clear and convincing evidence that the Partnership intended to
evade tax in filing the return. See, e.g., Holmes, T.C. Memo. 2012-251,
at *31–32. On the basis of our review of the record, we find that
respondent has failed to prove by clear and convincing evidence that the
Partnership had the specific intent to evade tax when it filed its 2013
return. 26

       Consequently, we find that the evidence in the record does not
establish an attempt by the Partnership to conceal or deceive
respondent nor thwart his efficient collection of taxes. Therefore, the
section 6663 civil fraud penalty is inapplicable in this case.

       B.     Section 6662 Accuracy-Related Penalty

       Section 6662(a) and (b)(1), (2), and (3) imposes an accuracy-
related penalty equal to 20% of the portion of an underpayment that is
attributable to “[n]egligence or disregard of rules or regulations,” “[a]ny
substantial understatement of income tax,” and “[a]ny substantial

        26 Since some of respondent’s alleged indicia of fraud were considered and

rejected in Mill Road 36 Henry LLC, T.C. Memo. 2023-129, at *60–64, we need not
address them in detail again.
                                        61

[*61] valuation misstatement,” respectively. An understatement of
income tax is a “substantial understatement” if it exceeds the greater of
10% of the tax required to be shown on the return or $5,000. I.R.C.
§ 6662(d)(1)(A). There is a “substantial valuation misstatement” when
the value of property claimed on the return is 150% or more of the correct
amount. I.R.C. § 6662(e)(1)(A).

       The penalty amount increases from 20% to 40% in the case of a
“gross valuation misstatement,” which occurs when the value of the
property claimed on the return exceeds 200% of the correct amount.
I.R.C. § 6662(h)(1) and (2)(A)(i). The taxpayer may not rely on a
reasonable cause, good-faith defense against the imposition of the
section 6662(h) penalty with respect to charitable contribution
properties. See I.R.C. § 6664(c)(3); Chandler v. Commissioner, 142 T.C.
279, 293 (2014). However, no penalty shall be imposed unless the portion
of the underpayment attributable to the valuation misstatement
exceeds $5,000. I.R.C. § 6662(e)(2). Although an underpayment may
trigger a penalty for more than one reason, the Commissioner may not
impose more than one penalty on a single portion of the underpayment.
Treas. Reg. § 1.6662-2(c).

       Pursuant to a Stipulation of Settled Issues dated August 9, 2022,
we find that respondent has established compliance with the procedural
approval requirements of section 6751(b). Because we find the value of
the Partnership’s conservation easement donation to be $4,595,000, its
original claimed valuation of $47,570,000 is more than 200% “of the
amount determined to be the correct amount of such valuation.” This
triggers application of the 40% gross valuation misstatement penalty
under section 6662(e)(1)(A) and (h). Consequently, we will sustain the
40% gross valuation misstatement penalty determined by respondent
and need not address any potential reasonable cause defense, since none
applies to this penalty. 27 See I.R.C. § 6664(c)(3); Chandler, 142 T.C.
at 293.

VI.    Conclusion

      For the 2013 tax year we hold that the Partnership is entitled to
a charitable contribution deduction under section 170 of $4,595,000 for

       27 Since we have sustained respondent’s imposition of the 40% gross valuation

misstatement penalty against the Partnership, it is not necessary to address whether
the alternative penalties for negligence or disregard of rules or regulations, a
substantial understatement of income tax, or a substantial valuation misstatement
should be imposed.
                                   62

[*62] its donation to SERLC of a conservation easement over
approximately 1,545.79 acres of the Subject Property. We find that
respondent has failed to prove the applicability of the section 6663 civil
fraud penalty. However, we hold that the Partnership is liable for a 40%
gross valuation misstatement penalty under section 6662(h).

     We have considered all of the arguments that the parties have
made, and to the extent they are not addressed herein, we find the
arguments to be moot, irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.