Court Opinion

ID: 194555
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:19:45+00
Date Added: 2024-06-11T08:54:59.233414
License: Public Domain

February 9, 1993
                United States Court of Appeals
                    For the First Circuit
                                         
No. 92-1513

              HOMER F. AND DOROTHY L. MCMURRAY,
                   Petitioners, Appellants,

                              v.

              COMMISSIONER OF INTERNAL REVENUE,
                    Respondent, Appellee.
                                         

           APPEAL FROM THE UNITED STATES TAX COURT
[Hon. Theodore Tannenwald, Jr., United States Tax Court Judge]
                                         
No. 92-1628

               HOMER F. AND DOROTHY L. MCMURRAY
                   Petitioners, Appellants,

                              v.

              COMMISSIONER OF INTERNAL REVENUE,
                    Respondent, Appellee.
                                         

           APPEAL FROM THE UNITED STATES TAX COURT
    [Hon. Stephen J. Swift, United States Tax Court Judge]
                                         

                            Before

                   Torruella, Circuit Judge,
                                           
              Bownes, Senior Circuit Judge, and
                                          
                    Stahl, Circuit Judge.
                                        
Aline H. Lotter for appellants.
               

Gary  R.  Allen  with  whom  James  A.  Bruton,  Acting  Assistant
                                              
Attorney  General,  Tax  Division,  Department of  Justice,  Bruce  R.
                                                                  
Ellisen, and  William J. Patton  and Abraham N.M. Shashy,  Jr. were on
                                                          
brief for appellee.                          

                       February 9, 1993
                                         

          STAHL,   Circuit  Judge.    In  these  consolidated
                                 

appeals,  Dorothy L.  McMurray  and Homer  F. McMurray  ("the

McMurrays"),  challenge decisions  of  the United  States Tax

Court which upheld determinations made by the Commissioner of

Internal Revenue  ("the Commissioner") that the McMurrays are

jointly liable  for income tax deficiencies  for 1984 through

1988, as well as  penalties stemming from those deficiencies.

The deficiencies are  based on the Commissioner's  conclusion

that the McMurrays overstated the value of certain charitable

land donations.  For  the reasons that follow, we  affirm the

deficiency determinations,  but  reverse  a  portion  of  the

penalty assessments.

                              I.
                                

                          Background
                                    

          The central  issue in this  case is  the amount  of

charitable deduction to which the McMurrays are entitled as a

result  of donating property  known as  the Ponemah  Bog,1 in

Amherst, New Hampshire ("the Bog"), to the Audubon Society of

New Hampshire  ("Audubon").   The McMurrays, who  are husband

                    

1.  Ponemah is a  "kettle hole" bog, formed by  glaciers over
12,000 years ago.   As the   climate warmed and the  glaciers
receded, vegetation grew on the edges of a pond formed by the
melting blocks of ice.   Although the  pond was too deep  and
steep-sided to  support the  growth  of many  types of  marsh
plants, some, such as sphagnum (peat) moss, were able to grow
out  over the  edge of  the pond  and float  on the  surface.
Eventually, a peat  mat formed on  the surface, which  became
thick enough to support  shrubs and stunted trees.   Over the
course  of thousands of years, the pond gradually filled with
peat and the remains of dead vegetation.

                             -2-
                              2

and wife, in 1954 acquired the  approximately 72-acre Bog and

other contiguous parcels of land.

          In  February  1978,   Audubon  solicited  from  the

McMurrays2  a donation  of the  Bog, in  order to  ensure its

perpetual preservation.   The McMurrays agreed,  and in 1979,

1982  and 1985  conveyed their  interests in  the Bog  and an

abutting  residential  lot to  the  Audubon  Society in  four

separate  transactions.  Only the  value of the  1982 and two

1985 conveyances are at issue in this case.

          In 1979,  the McMurrays conveyed  the eastern  24.6

acres of  the Bog to Audubon.   In April 1982,  the McMurrays

conveyed a 65  percent interest in the  remaining 47.57 acres

of the  Bog.   On  their joint federal income  tax return for

1982, the  McMurrays claimed  that the  fair market  value of

their contribution to Audubon was $780,000.  They  based this

valuation on a "letter of opinion" from appraiser Patricia J.

Donovon, who  concluded  that the  fair market  value of  the

property was $25,000 to $27,000 per acre, or between $750,000

and $800,000.  The McMurrays took a $118,981 deduction on the

1982 return,  and calculated  that $349,019 would  be carried

over to future years. 

                    

2.  The  record  indicates that  Homer  F.  McMurray was  the
principal  actor in all  Bog-related transactions.   However,
because  their joint-taxpayer  status  places both  McMurrays
before us, we refer  to all actions as though  they were done
jointly.

                             -3-
                              3

          In September 1985,  after carrying over  deductions

of  $122,458 and  $117,721, respectively,  on their  1983 and

1984 returns, the McMurrays conveyed to Audubon the remaining

35  percent  interest in  the Bog.    In December  1985, they

transferred  a one acre residential lot abutting the Bog.  In

March 1986, Donovon provided  the McMurrays with an appraisal

for  the two 1985 donations.  Donovon increased the price per

acre to $35,000, and concluded  that the 35 percent  interest

in  the  Bog  had  a  value  of  $580,000.   She  valued  the

residential lot at $55,000  to $60,000, resulting in  a total

1985 charitable conveyance value of $635,000 to $640,000.

          On their 1985 return, the McMurrays claimed a value

of  $637,500  for  the  donated  property.    They  used  the

remaining  $123,200 carryover  from  the  1982 donation,  and

claimed $10,636 from the 1985 transfers on their 1985 return,

leaving   a  $371,864  carryover.     The  McMurrays  claimed

deductions of $170,597 in 1986, $135,115 in 1987, and $76,788

in 1988.

     Upon conducting an examination of the McMurrays' returns

for 1984, 1985 and 1986, the Commissioner determined that the

fair market value of the  1982 conveyance was $23,200, rather

than $780,000,  as the  McMurrays claimed.   Accordingly, the

Commissioner ruled that  there was no carryover  from 1982 to

either  1983 or  1984,  and thus  no deduction  allowable for

1984.  The Commissioner also ruled that the fair market value

                             -4-
                              4

of  the 1985  Bog  transfer was  $6,250,  as opposed  to  the

$580,000 the  McMurrays claimed;  and that the  value of  the

residential lot transferred the  same year was $35,000 rather

than  $57,500, as claimed by  the McMurrays.   Based on these

figures, the  Commissioner determined that the McMurrays were

entitled  to  a  1985  deduction  of  $24,750,  and  that  no

carryovers  were  available  for  future years.    Thus,  the

Commissioner found deficiencies for 1984, 1985 and 1986.  The

Commissioner also  asserted additions  to tax under  I.R.C.  

6653 for  negligence and  intentional disregard of  rules and

regulations,  and under I.R.C.   6659 for underpayment of tax

attributable to  a charitable  valuation overstatement.   The

Commissioner  subsequently  determined  tax deficiencies  for

1987 and 1988,  as well  as additions to  tax under  sections

6653 and 6659.3

                    

3.  The deficiencies  and additions to tax  determined by the
Commissioner and upheld by the Tax Court are as follows:

                  Sec.     Sec.      Sec.       Sec.
                  6653     6653      6653       6653      Sec.
 Year    Def.    (a)(1)   (a)(2)  (a)(1)(A)   (a)(1)(B)   6659 
                                                              
 1984  $65,327   $3,266      *        -           -      $19,598

 1985  $53,552   $2,676      *        -           -      $16,058
 1986  $85,176      -        -      $4,259        *      $25,553

 1987  $50,539      -        -      $2,527        *      $15,162

 1988  $22,981      -        -      $1,149        *      $ 6,894

     *  penalty assessed is 50 percent of the interest due on
the deficiency.

                             -5-
                              5

          In March  1990, the  McMurrays filed a  petition in

the  tax court seeking  a redetermination of  the 1984, 1985,

and  1986 deficiencies.   On  March 19,  1992, the  tax court

ruled against the McMurrays (Appeal No. 92-1513).  Meanwhile,

in March  1991, the  McMurrays had sought  redetermination of

their  1987 and 1988 deficiencies.   The Commissioner filed a

motion for summary judgment  in the 1991-filed case, claiming

that the McMurrays were collaterally estopped by the decision

in the  1990 case  from relitigating the  1985 contributions.

On April 23, 1992,  the tax court granted  the Commissioner's

motion  for summary  judgment  (Appeal No.  92-1628).   These

appeals followed.4

                             II.
                                

                          Discussion
                                    

A.  The Deficiencies
                    

          Section 170  of  the Internal  Revenue  Code  ("the

Code")  allows taxpayers  to deduct  charitable contributions

subject to percentage-of-income  limitations and to carryover

excess contributions.   If a charitable  contribution is made

of  property other than money, the amount of the contribution

is the fair  market value of the property at  the time of the

contribution.   Treas.  Reg.    1.170A-1(c)(1).   Fair market

value  is "the price at which the property would change hands

                    

4.  In  their  reply  brief,  the  McMurrays  indicate  their
abandonment  of the  collateral  estoppel issue.   Thus,  our
decision here will apply to both cases.

                             -6-
                              6

between a willing buyer  and a willing seller,  neither being

under  any compulsion  to  buy or  sell,  and both  having  a

reasonable  knowledge  of relevant  facts."    Treas. Reg.   

1.170A-1(c)(2).  The Commissioner's determination of the fair

market value  of donated  property is presumptively  correct,

and the taxpayer has the burden of proving the Commissioner's

determination to be  erroneous.  Welch v. Helvering, 290 U.S.
                                                   

111, 115  (1933); Pescosolido v. Commissioner,  883 F.2d 187,
                                             

189 (1st Cir. 1989).  The  fair market value of property is a

reflection of the "highest  and best use" of the  property on

the  date of valuation.   Symington v.  Commissioner, 87 T.C.
                                                    

892, 896 (1986); Stanley Works  v. Commissioner, 87 T.C. 389,
                                               

400  (1986).   The tax  court's ruling  with respect  to fair

market  value is a factual finding that we must affirm unless

it  is clearly erroneous.  Sammons  v. Commissioner, 838 F.2d
                                                   

330, 333  (9th Cir.  1988); Ebben  v. Commissioner, 783  F.2d
                                                  

906, 909 (9th Cir. 1986). 

          Here, both  sides agree the highest and best use of

the  Bog is as a  natural preserve.   The McMurrays, however,

believe the commercial value of the peat contained in the Bog

should be taken into  account in any valuation.5   In support

of  their theory,  the McMurrays submitted  to the  tax court

appraisals  by  Boston  College  Coastal  Research  Institute

                    

5.  According  to record evidence, peat can be used as a fuel
source for electric power generation.

                             -7-
                              7

Professor  Dr. Benno  Brenninkmeyer, Richard  Kasevich, chief

financial  officer  of  a  Maine  peat-mining operation,  and

botany professor  Ian Worley.6   Brenninkmeyer estimated  the

value  of the  peat in  the Bog,  as a  fuel resource,  to be

greater  than  $35  million;  Worley  calculated  the  profit

potential  of harvesting  the peat;  Kasevich compiled  a pro
                                                             

forma income  statement demonstrating the profitability  of a
     

hypothetical harvesting operation on the Bog.

          Before  the  tax  court,  the  Commissioner  relied

exclusively for the valuation of the gift on the appraisal of

Joseph  G. Fremeau.  After giving much weight to the presence

of state and local zoning restrictions on the use of the Bog,

and interviewing several people  involved in the variance and

permitting  process, Fremeau  opined that  any request  for a

permit to harvest the peat or otherwise develop the Bog would

have met  substantial  opposition during  the  relevant  time

period  and   would  have  had  little   chance  of  success.

Accordingly,  Fremeau's valuation  focused on sale  prices of

eight other supposedly comparable wetland properties suitable

for  conservation  purposes  and  which had  sold  at  prices

                    

6.  Although the Tax Court considered the Donovon  appraisals
accompanying the McMurrays' tax returns  as part of the  peat
valuation theory,  it is  evident  from the  record that  the
McMurrays  essentially abandoned  reliance on  Donovon before
the  Tax Court  and included  her appraisal  only as  part of
their  argument  against penalties,  see  infra.   Thus,  for
                                               
purposes of  our examination of the  peat valuation evidence,
we  discuss  neither  Donovon's  work, nor  the  Tax  Court's
criticism thereof.

                             -8-
                              8

between $200 and $800  per acre.  Fremeau concluded  that the

Bog had a value of $400 per  acre, for a total of $12,500 for

the  1982 transfer, and $6,700  for the 1985  transfer.  With

respect  to  the   residential  lot,  Fremeau   evaluated  20

comparable sales and  found a  range in the  Amherst area  of

$22,533 to $58,000.   As the lot in question is  smaller than

many other Amherst house  lots and is encumbered by  a right-

of-way easement owned by Audubon, Fremeau's $35,000 valuation

fell toward the lower end of the scale.

          In  the end,  the  tax court  found the  McMurrays'

evidence  inadequate because,  unlike Fremeau, none  of their

experts took into account  the restrictions on harvesting the

peat or the costs  associated with such an operation.   Thus,

the court concluded that the  McMurrays failed to carry their

burden  of proving  that the  value of  the Bog  exceeded the

Commissioner's  determination.    Based  on  our   review  of

pertinent  case law, we cannot say the tax court's ruling was

clearly erroneous.

          It  is well  settled  that  legal  restrictions  on

development or other encumbrances  diminish a property's fair

market value.   For example, in Great  Northern Nekoosa Corp.
                                                             

v.  United States, 711 F.2d  473 (1st Cir.  1983), a taxpayer
                 

donated a parcel of land  to the State of Maine for  which he

claimed  a fair  market  value of  $1  million based  on  his

expert's   valuation  of  the  property   as  a  site  for  a

                             -9-
                              9

hydroelectric power  plant.  Prior to  the donation, however,

the National Wild and Scenic Rivers Act, 82 Stat. 906 (1968),

was  enacted,  which  could  have barred,  inter  alia,  such
                                                      

construction,   a  fact  not  considered  by  the  taxpayer's

appraisal.  We concluded  that the taxpayer's valuation could

not be  the  fair  market  value "inasmuch  as  any  rational

prospective purchase would necessarily  take into account the

potential  realization of  that  encumbrance."   Id. at  475.
                                                    

Therefore--despite our  less than complete  satisfaction with

the  Commissioner's expert  appraisal--we concluded  that the

taxpayer failed  to bear  its burden of  proving a  valuation

higher than that of the Commissioner.

          Here, too, we have  a taxpayer appraisal that fails

to consider  potential legal obstacles toward  fulfilling the

property's  full  monetary  potential.     Moreover,  as  the

Commissioner  points out, the  McMurrays' experts also failed

to  consider many other aspects of a peat mining operation in

arriving at their conclusion.7   Thus, given the shortcomings

                    

7.  For   example,  Brenninkmeyer  reached  his  $35  million
conclusion by multiplying the  Bog's estimated volume by $145
per ton, which was the average  retail price of coal in 1989.
He  failed, however, to assess the market for peat during the
relevant  time period,  or  the costs  and  feasibility of  a
complete peat  extraction.   Kasevich's income  statement was
based on the 1990 peat harvesting figures of his own company,
but did  not include any  potential overhead costs.   Worley,
relying  on  Kasevich's  income  statement,  assumed, without
factual  support,  that  all  equipment  could  be  purchased
outright,  and   thus  did  not  consider   financing  costs.
Significantly, both  Kasevich and Worley alluded  to the fact
that successes in  the peat harvesting business were few, and

                             -10-
                              10

of  the  McMurrays'   experts'  reports,   the  tax   court's

conclusion that  the McMurrays  failed to carry  their burden

was not clearly erroneous.

          In the  alternative, the  McMurrays  argue that  if

state and  local regulatory  constraints deprive them  of the

Bog's  economic potential,  then  they are  entitled to  just

compensation under  the United States Constitution  in return

for a regulatory taking.  See Lucas v. South Carolina Coastal
                                                             

Council,     U.S.    , 112 S. Ct. 2886 (1992).  Even assuming
                     

that Lucas would  turn the regulations  involved here into  a
          

"taking,"  the  short  answer  is  that  the  McMurrays  have

overlooked the fact  that any such "taking"  was performed by

state  and local authorities, and as such gives them no right

to seek  compensation--via  tax deductions--from  the  United

States, an  entirely different  sovereign.  Moreover,  to the

extent that the McMurrays argue for including the value of an

inverse condemnation suit against  the State of New Hampshire

in the  Bog valuation, the tax court correctly concluded that

the success of such a suit is not as assured as the McMurrays

declare, and  that  the record  is  "devoid of  any  evidence

                    

that  most of  the peat harvesting  operations of  which they
were aware had failed.   While Kasevich's Down East  Peat Co.
was an  apparent exception,  we cannot  quarrel with  the Tax
Court's conclusion  that  reliance on  Down East's  financial
performance to  estimate the McMurray's potential  success is
"like saying  that anybody  opens a hamburger  chain and  you
estimate the profit potential by what McDonald's does."  

                             -11-
                              11

directed  toward valuing any such  claim."  Thus  we find the

tax court did not err in rejecting this argument.

          Finally, the  McMurrays argue that  the tax court's

reliance on  Fremeau's use of comparative sales  to value the

Bog was inappropriate due to  the Bog's uniqueness.  Instead,

the McMurrays,  relying on Estate of  Palmer v. Commissioner,
                                                            

839  F.2d  420   (8th  Cir.  1988),  assert  that  the  Bog's

replacement cost would be a better method.  We disagree.  The

McMurrays, unlike  the taxpayers in Palmer,  have provided no
                                          

evidence  of replacement cost and thus we find no clear error

in the tax court's  reliance on Fremeau's evaluation method.8

 Accordingly, we  affirm the  tax court's decision  to uphold

the Commissioner's deficiency determinations.9

                    

8.  While it  is true  that Fremeau's  comparative properties
were not identical to the Bog in some respects, the Tax Court
found that  they were  the most comparable  for the  relevant
time and  place.   See  Symington,  87 T.C.  at  900 (in  the
                                 
absence  of  identical  properties, comparable  sales  method
takes  into  account  differences,  and  through  appropriate
adjustment, arrives at a value for the subject property).  As
the  record demonstrates  that the  compared properties  were
also non-developable  wetlands, and that state  Fish and Game
and Forest Protection Society personnel held  at least two of
the properties in  the same high esteem  as the Bog,  we find
the   Tax  Court's   endorsement  of   Fremeau's  methodology
eminently supportable.  See Anselmo v. Commissioner, 757 F.2d
                                                   
1208,  1213 (11th  Cir. 1985)  (Tax Court's  determination of
proper  comparable market is  a question  of fact  subject to
reversal only if clearly erroneous). 

9.  The McMurrays have not  addressed any appellate  argument
to the valuation of the residential  lot transferred in 1985.
Therefore, we deem the argument abandoned.  See, e.g., United
                                                             
States  v. Slade, No. 92-1176,  slip op. at  6, n.3 (1st Cir.
                
Nov. 24, 1992).

                             -12-
                              12

B.  Additions to Tax and Penalties
                                  

     1.  Negligence
                   

          Section  6653(a)(1) of  the  1954 Code  and Section

6653(a)(1)(A) of the 1986  Code impose an addition to  tax of

five  percent of an income tax underpayment where any part of

the  underpayment   is  due  to  negligence   or  intentional

disregard of rules or regulations.  Section 6653(a)(2) of the

1954  Code and Section 6653 (a)(1)(B) of the 1986 Code impose

a penalty of 50 percent of the interest due on the portion of

any  underpayment attributable  to negligence.10   Negligence

in this context is a lack of due care or failure to do what a

reasonable and  ordinarily prudent person would  do under the

circumstances.  Allen v. Commissioner, 925 F.2d 348, 353 (9th
                                     

Cir. 1991).   The  Commissioner's imposition of  a negligence

addition is presumptively correct, leaving the McMurrays with

the  burden of proving that their underpayment was not due to

negligent  or  intentional  rules  violations.    Leuhsler v.
                                                          

Commissioner, 963 F.2d 907, 910 (6th Cir. 1992).  
            

          The McMurrays argue, as  they did below, that their

good faith  reliance on  Donovon--a professional  real estate

appraiser--for the  valuations stated on their  1982 and 1985

returns justifies reversal of the extra assessment.  The  tax

                    

10.  The relevant statutes were renumbered for  taxable years
in  which a  return is due  after December  31, 1986.   Their
substance  remained the same, however.  See Tax Reform Act of
                                           
1986, Pub. L. No. 99-514,   1503(a), 100 Stat. 2085.

                             -13-
                              13

court, however, found that the McMurrays did not sufficiently

establish   that   they   reasonably   relied   on  Donovon's

appraisals, "beyond the bare fact that the [] appraisals were

attached  to the [] returns."   The court  then combined four

factors--its  disparaging  view  of  Donovon's   report,  the

McMurrays'  failure to  testify as  to their  reliance, their

abandonment  of her appraisals at  trial, and evidence of the

McMurrays'  knowledge  of  real  estate  development  in  the

Amherst area--to conclude that they had failed to demonstrate

their reasonable reliance.  We disagree.11

          Reasonable reliance on expert opinion,  asserted in

good  faith,  can  shield  a taxpayer  from  section  6653(a)

penalties.  United States v. Boyle, 469 U.S. 241, 250 (1985);
                                  

Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988);
                       

Betson v.  Commissioner, 802 F.2d  365, 372 (9th  Cir. 1986).
                       

The record  reflects that after being  approached by Audubon,

the  McMurrays sought  professional  advice from  lawyers and

accountants, as well as an appraiser.  In our view, the "bare

fact"  that the  McMurrays attached  Donovon's  appraisals to

support  their 1982  and 1985  returns  is evidence  of their
                                          

reliance  on the appraisals.   In other words,  why else were

they  submitted with the returns,  but for the  fact that the

                    

11.  It  is unclear from the record whether the Tax Court was
questioning  the McMurrays'  actual reliance  on Donovon,  or
whether any such reliance was reasonable.  With that in mind,
we will delve into both areas.

                             -14-
                              14

McMurrays  were relying on them?  Furthermore, we fail to see

how  any of  the other  factors cited  by  the tax  court are

probative of the McMurrays' reliance.  For instance, the fact

that the McMurrays pursued a different legal tack at trial in

1991  has  little  bearing  on the  reasonableness  of  their

actions in 1982 and 1985.  Also, while the McMurrays may have

some knowledge  as to  "real estate development,"  the record

evidence of such knowledge falls far short  of requiring them

to  second-guess a  licensed appraiser--especially  one whose

1979 appraisal apparently passed muster with the Commissioner

as  support for the deductions taken for the 1979 conveyance.

Finally, we note that the minimal probative value assigned by

the  tax  court to  the  McMurrays' expert  opinion  does not

mandate a finding of bad faith or unreasonable reliance.  See
                                                             

Sammons,  838  F.2d   at  337  (although  taxpayer's   expert
       

appraisal  was  not  entitled  to  any  probative  weight  in

determining   the  fair   market   value  of   a   charitable

contribution, imposing a negligence penalty was inappropriate

because taxpayers  had no  reason to question  their expert's

ability) (citing  Biagiotti v. Commissioner, 52  T.C.M. (CCH)
                                           

588, 595  (1986)).  We  conclude, therefore, that  the record

lacks  sufficient evidence  of bad faith  to support  the tax

court's negligence ruling, and instead compels a finding that

the McMurrays met their burden of proof on this issue.

     2.  Valuation Overstatement
                                

                             -15-
                              15

          Section 6659 of the Code imposes an addition to tax

if  the amount  of  any underpayment  of  $1,000 or  more  is

attributable  to  a  valuation  overstatement  of  charitable

deduction  property.12    For  purposes of  this  section,  a

valuation overstatement exists where the claimed value is 150

percent  or more  of  the amount  determined  to be  correct.

I.R.C.   6659(c)(1).   Here, the McMurrays claimed a donation

value  of $803,933 in 1982, and a  value of $637,500 in 1985.

The tax  court, however, ruled  that the values  were $12,500

and  $41,700,   respectively.    These   figures  place   the

McMurrays'  overstatement beyond the 150 percent threshold of

section 6659.  

          The  McMurrays seek  relief under  section 6659(e),

which allows for a waiver of "all or any part of the addition

to tax provided by this section on a showing by  the taxpayer

that there  was  a  reasonable basis  for  the  valuation  or

adjusted  basis claimed on the return and that such claim was

made  in good faith."   While we have  already concluded that

the  McMurrays acted  in reasonable  reliance on  the Donovon

appraisal, the  inquiry does  not end there,  because section

6659(f)(2)  prohibits a  penalty waiver  unless "the  claimed

value of the property was based on a qualified appraisal made

by  a qualified  appraiser," and,  "in addition  to obtaining
                                

                    

12.  The assessed  penalty is 30 percent  of the underpayment
attributable to the valuation overstatement.

                             -16-
                              16

such   an  appraisal,   the  taxpayer   made  a   good  faith

investigation  of the value of the contributed property."  On

appeal, the McMurrays do  not address section 6659(f)(2), nor

does  our  review  of  the  record  indicate  any  additional

investigation  by  the  McMurrays   into  the  value  of  the

property.  Thus, we affirm the imposition of  penalties under

section 6659.

                             III.
                                 

                          Conclusion
                                    

          The  tax  court's  decision  with  respect  to  the

Commissioner's deficiency determination and additions  to tax

under I.R.C.   6659  is affirmed.  The decision  with respect
                        affirmed
                                

to  the  negligence  penalties  under  I.R.C.     6653(a)  is

reversed.   This  case  is remanded  to  the Tax  Court  with
reversed
                                                             

instructions to enter a decision in accordance herewith.
                                                       

                             -17-
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