Court Opinion

ID: 9954682
Source: CourtListenerOpinion
Date Created: 2024-03-26 19:01:53.876605+00
Date Added: 2024-06-11T08:12:11.615982
License: Public Domain

United States Tax Court

                                 T.C. Memo. 2024-35

  SAVANNAH SHOALS, LLC, GREEN CREEK RESOURCES, LLC,
               TAX MATTERS PARTNER,
                      Petitioner

                                            v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                       __________

Docket No. 3412-22.                                            Filed March 26, 2024.

                                       __________

Jeffrey S. Luechtefeld, Hale E. Sheppard, John W. Hackney, Sean R.
Gannon, and William A. Stone, for petitioner.

Christopher D. Bradley, Vassiliki Economides Farrior, Stephen A.
Haller, Rubinder K. Bal, Edward A. Waters, Victoria J. Kanrek,
Jeannette D. Pappas, and Alexandra E. Nicholaides, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       GOEKE, Judge: On December 28, 2017, more than a 50%
membership interest in Savannah Shoals, LLC (Shoals), a partnership
for federal tax purposes, was sold, triggering its technical termination
under section 708(b)(1)(B). 1 See § 708(b)(1)(B) (requiring a technical

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

Code, Title 26 U.S.C. (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 all Rule references are to the Tax Court Rules of Practice and Procedure. Some
dollar amounts are rounded. The technical termination provision of section
708(b)(1)(B) was deleted in amendments to the Code in the Tax Cuts and Jobs Act of
2017, Pub. L. No. 115-97, § 13504(a), 131 Stat. 2054, 2141. The change was effective
for partnership taxable years beginning after December 31, 2017. Id. § 13504(c), 131
Stat. at 2142.

                                   Served 03/26/24
                                          2

[*2] termination of a partnership upon a sale or exchange of 50% or
more of the total interest in the partnership’s profits and capital within
a 12-month period). Later that same day Shoals donated a conservation
easement over 103 acres of undeveloped land in Hart County, Georgia
(easement property). Shoals filed two partnership returns for 2017, one
for a short taxable year ending on December 28, 2017, the date of the
technical termination (Old Shoals), and one for a short taxable year
ending December 31, 2017 (New Shoals), on which it claimed a $23
million charitable contribution deduction for the donation of the
easement (easement deduction).

       Respondent asserts that New Shoals’s easement deduction should
be disallowed in its entirety because New Shoals failed to meet
substantive and reporting requirements for noncash charitable
contribution deductions. He argues that New Shoals did not donate the
easement within the taxable year ending December 31, 2017. 2 He also
argues that it failed to satisfy two reporting requirements: (1) it failed
to attach a qualified appraisal to its return, and (2) the appraisal
summary attached to its return provided inconsistent information
rendering it ineffective. We disagree with respondent and find that New
Shoals satisfied the substantive and reporting requirements for a
noncash charitable contribution deduction. Accordingly, it is entitled to
an easement deduction equal to the easement’s fair market value. 3 We
determine that the easement had a fair market value of $480,000 on the
date of its donation.

       Respondent asserts a 40% penalty under section 6662(h) for a
gross valuation misstatement and, alternatively, a 20% accuracy-
related penalty for a substantial valuation misstatement under section
6662(a) and (b)(3). We find that the 40% penalty applies. 4

       2 For simplicity, further references to December 28, 29, and 31, 2017, generally

omit the year.
       3  Respondent argues that the easement property was inventory in New
Shoals’s hands and that section 170 limits the easement deduction to its adjusted basis
in the easement property. See § 170(e)(1)(A) (reducing the amount of the charitable
contribution deduction by the amount of gain that would not have qualified as long-
term capital gain if the donated property had been sold at its fair market value on the
date of the donation). We do not address this argument because we find that the
easement’s fair market value is less than New Shoals’s basis.
        4 Respondent also asserts section 6662(a) and (b)(1) and (2) accuracy-related

penalties for negligence or disregard of rules or regulations and a substantial
understatement of income tax on the part of the underpayment attributable to New
                                          3

[*3]                         FINDINGS OF FACT

      Shoals is a Delaware limited liability company (LLC) that elected
partnership status for federal income tax purposes. It is subject to the
Tax Equity and Fiscal Responsibility Act (TEFRA). 5 When the Petition
was timely filed, New Shoals’s principal place of business was in
Georgia. Petitioner, Green Creek Resources, LLC (Green Creek), is a
Delaware LLC and is New Shoals’s tax matters partner.

I.     History of the Easement Property

      The easement property is 103 acres of rural, vacant land
approximately 8 miles from Hartwell, Georgia, near Lake Hartwell. It
is heavily wooded with rolling to steep terrain. It does not have any
public road frontage and is accessed by a right of way via a dirt road.
Shoals acquired the easement property from Savannah River Club, LLC
(River Club), a real estate developer. Goldridge Group (Goldridge)
owned River Club, and Gerard Koehn was Goldridge’s president and a
part owner.

       In late 2007 River Club purchased 435.9 acres of land in Hart
County for $5.2 million, approximately $12,000 per acre, in two
purchases of 271.5 and 164.4 acres (River Club property). The 271.5-acre
parcel included the easement property. River Club planned to develop a
325-lot residential community on the property marketed primarily to
second-home buyers. It began work on the project. It received county
approvals, performed grading, and began construction of roads and a
gate house. Although the easement property was part of the planned
community, no development occurred on it. In early 2008 River Club sold
five lots, none of which was on the easement property. No homes were

Shoals’s noncompliance with the substantive and reporting requirements, i.e., the part
of the deduction up to the property’s fair market value. Because we find that New
Shoals complied with the reporting requirements, these penalties are not applicable.
        Respondent also asserts a reportable transaction understatement penalty
under section 6662A. In Green Valley Investors, LLC v. Commissioner, 159 T.C. 80, 103
(2022), we held that the imposition of the reportable transaction understatement
penalty on conservation easements pursuant to I.R.S. Notice 2017-10, 2017-4 I.R.B
544, was invalid because it was issued without the notice and comment required by
the Administrative Procedure Act. See 5 U.S.C. § 553.
        5 TEFRA, Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, codified at

sections 6221 through 6234, was repealed for returns filed for partnership tax years
beginning after December 31, 2017.
                                        4

[*4] ever constructed in the development. We understand that after the
sale of the five lots the River Club property consisted of 429 acres.

       In 2008 River Club stopped working on the development because
of worsening economic conditions from the 2008 recession and its
inability to secure additional financing. It decided to set the project aside
and take a wait-and-see approach with the land. At some point it
defaulted on a construction loan, and in 2010 the loan holder was
awarded a judgment of approximately $2.1 million. The amount that
River Club owed on the development is unclear from the record. In
addition to the $2.1 million judgment award, it owed part of the original
$5.2 million purchase price, fees to subcontractors, and unpaid real
estate tax. During 2013 through 2016 River Club received multiple
offers to purchase the River Club property for $1.3 to $1.5 million,
approximately $3,000 to $3,500 per acre. 6 It declined the offers because
they were too low.

II.    Mr. Bland’s Promotion Activities

        In August 2016 Green Creek was formed to promote conservation
easements as a tax savings strategy. Green Creek promoted easement
transactions in areas where there are known large quantities of crushed
stone suitable for construction material, referred to as aggregate. The
largest use of aggregate is road construction. Other uses are residential,
office, and shopping center construction and public works projects.
Green Creek valued the easements by taking the position that an
aggregate quarry was the highest and best use of the properties
unencumbered by the easements. Jeffery Bland, Green Creek’s
president, is a certified public accountant (CPA). Before Green Creek
was formed, Mr. Bland had prior experience in structuring real estate
investments that provided investors with purportedly three land-use
options primarily to have investors grant conservation easements and
claim charitable contribution deductions. He has no experience in the
mining industry. No one associated with Green Creek had any
experience in the mining industry.

     During 2016 and 2017 Green Creek promoted at least five
easement transactions. 7 Mr. Bland structured each easement

       6 The record lacks information about activities or offers on the River Club
property from 2008 through 2013.
       7 We find that Green Creek’s other easement transactions are relevant. They

tend to establish that the investors did not consider operating a quarry on the
                                          5

[*5] transaction as follows. He formed two LLCs, one to hold the land
(land LLC) and one to promote the easement transaction to investors
(investor LLC). After agreeing to a sale price for the land, the landowner
contributed the land to the land LLC in exchange for a membership
interest. The land was the land LLC’s sole or primary asset. Mr. Bland
promoted and sold membership interests in the investor LLC. He set the
offering price for the investor LLC to raise enough money to cover the
agreed-upon sale price for the land along with fees and compensations.
He represented to potential investors that the easement transactions
would close by the end of 2017 so that they could obtain deductions for
2017. After the offering of the investor LLC was complete, the original
landowner sold almost all of its membership interest in the land LLC to
the investor LLC for the agreed-upon sale price for the land. In each
case, the investor LLC voted to grant a conservation easement on the
land. There was no serious consideration of operating a quarry. 8 The
original landowner retained a small part of its interest in the land LLC
and was allocated part of the easement deduction. For an easement
transaction, Green Creek earned a termination fee of $850,000 to
$950,000 if an investor elected to grant the easement, an arrangement
fee of $500,000 to $600,000, and a management fee of $320,000.

       Green Creek engaged multiple professionals to enable it to
establish values for the properties on the basis of subsurface aggregate
that is known to be abundant. It used the same professionals for the four
transactions that it promoted in Georgia including Geo-Hydro
Engineers, Inc. (Geo-Hydro), purportedly to test for aggregate on the
properties, Richard C. Capps, an economic geologist, to value the
aggregate and quarry operations, Ronald Foster to appraise the
easements, and the law firm of Baker, Donelson, Bearman, Caldwell &
Berkowitz, PC (Baker Donelson), to advise on the easement transactions
and to provide an opinion letter supporting the easement deductions.
For each of the four easement transactions that Green Creek promoted
on land in Georgia, Green Creek had the easements valued at $22 to $23
million.

properties and tend to support respondent’s position that a quarry was not a
reasonably likely use of the easement property. See Fox v. Commissioner, 82 T.C. 1001,
1017 (1984) (considering nonparty transactions involving other customers of broker);
see also Brown v. Commissioner, 85 T.C. 968, 999–1000 (1985), aff’d. sub nom. Sochin
v. Commissioner, 843 F.2d 351 (9th Cir. 1988).
       8 It seems to us that if the investors had any interest in operating a quarry,

they would have worked with someone with experience in mining.
                                       6

[*6] III.   Land Evaluation

      In early 2017 George Agee and Corey Ingram, real estate brokers
who worked with Mr. Bland to identify real property for easement
transactions, brought the River Club property to Mr. Bland’s attention.
They also assisted Mr. Bland in negotiating with Goldridge and
arranging to have the aggregate on the River Club property valued.

       Goldridge agreed to dispose of the River Club property in three
easement transactions that Green Creek would promote in exchange for
a payout of $2.1 million. River Club received membership interests in
Shoals and two other land LLCs and later sold nearly all of its
membership interests in the three land LLCs to Investments and two
other investor LLCs for a total of $2.1 million. 9 The Shoals transaction
was the only one that occurred in 2017. River Club retained a minimal
membership interest in each land LLC and was allocated part of each
easement deduction. Mr. Koehn viewed the deal as a structured sale of
the River Club property for $2.1 million. This is the highest offer that
River Club received for the property. Mr. Koehn believed that $2.1
million would be sufficient to pay part of River Club’s outstanding
obligations. He separately negotiated repayment of River Club’s debt in
excess of $2.1 million.

       Before Mr. Koehn agreed to the $2.1 million, he allowed Green
Creek access to the River Club property so it could prepare its tax
position that the highest and best use of the easement property was an
aggregate quarry (proposed quarry) and establish a value for the
aggregate so that Green Creek could market the easement transaction
to investors. Mr. Koehn did not know that Green Creek had tested the
land’s subsurface materials when he agreed to the $2.1 million price.

       A.     Drilling and Testing

       In July 2017 Geo-Hydro drilled exploratory holes (core holes) on
the easement property to obtain samples of subsurface materials. Green
Creek engaged Testing, Engineering & Consulting Services, Inc. (TEC),
to test samples removed from four core holes. TEC concluded that the
materials met the South Carolina and Georgia Departments of
Transportation’s requirements for crushed rock aggregate that is used

       9 River Club transferred approximately 209.7 acres to Savannah Preserve

Holdings, LLC, and sold its membership interests for $1,004,970, and 116 acres to
Cedar Falls Holdings, LLC, and sold its membership interests for $580,030.
                                           7

[*7] for road base. Geo-Hydro and TEC prepared reports of their
findings. After testing, the core hole samples were not retained. 10

        B.      Colwell Letter of Intent and Quote

       In October 2017 Shoals paid $5,000 to Colwell Construction Co.
(Colwell) for a letter of intent for development and general management
services for the operation of a quarry. These services included startup
and operating budget analysis, quarry design and development, and
equipment procurement, for an hourly fee of $250. By separate letter
Colwell provided a quote for rock crushing services of $8.75 per ton for
the first year of operations with annual 3% price increases. The quote
does not include startup costs or drilling and blasting costs.

        C.      Dr. Capps’s Report

       In October 2017 Dr. Capps prepared an overview of a proposed
quarry on the easement property and the profitability of operating the
proposed quarry. He determined that the net present value of minable
aggregate on the easement property was $23.1 million using a
discounted cashflow analysis. He also prepared a supplement report as
an expert witness for trial. He is not a real estate appraiser and did not
provide a fair market value of the unencumbered easement property.
For his valuation, he determined that a 40-acre quarry could produce
10.5 million tons of aggregate over 25 years that is sold for $15.75 per
ton as follows: 300,000 tons in years 1 and 2 and 400,000 tons in years
3 through 7 with an annual 1% increase in years 8 through 25. 11 He
relied on Colwell’s $8.75 per ton price quote for operating costs and

        10 The parties disagree over what to call the subsurface materials. Their

experts also refer to the subsurface materials by different names including biotite
gneiss and granitic gneiss. Notably, TEC does not use either term in its report. It uses
aggregate, and we adopted its term.
         11 In his report Dr. Capps erroneously used the terms “mineral reserve” and

“mineral resource” to describe the easement property’s aggregate. Both terms have
special meanings in the mining industry, and both a mineral reserve and a mineral
resource must be identified through a feasibility study. The drilling and testing that
Geo-Hydro and TEC conducted do not satisfy the industry guidelines for a feasibility
study that is required to declare either a mineral resource or a mineral reserve.
Accordingly, it was inappropriate for Dr. Capps to use these terms to refer to the
easement property’s aggregate according to industry standards. Dr. Capps attempted
to downplay his use of these terms as typos that do not affect his valuation. We disagree
and find that these mistakes go directly to the reliability of his report and the reports
of petitioner’s other experts that relied on Dr. Capps’s opinions. Petitioner’s expert at
trial Doug Kenny, discussed infra Part VII.A.2, relied on Dr. Capps’s report and also
erroneously used both terms in his report.
                                   8

[*8] applied a discount rate of 11% to calculate the net present value.
He did not adjust the price of aggregate or the operating costs for
inflation and did not account for any startup expenses.

      Dr. Capps determined that the market for the proposed quarry
encompassed an area within a 50-mile radius of the quarry. He
explained that the demand for aggregate is highly dependent on
population growth and construction activity. He estimated that the 50-
mile radius market area had an annual demand for 8 million tons of
aggregate and the proposed quarry could capture 5% of the market.
Accordingly, he determined that the market would support his
production projection of about 400,000 tons annually.

IV.   Hart County

       Hart County is in northeast Georgia along Georgia’s border with
South Carolina. It is largely rural and agricultural. It does not have
zoning laws; land use is controlled through land use ordinances. A
quarry is a legally permissible use of the easement property; no
ordinances prohibit or regulate mining. There were no quarries
operating in the county. The county would defer to the procedures of the
Environmental Protection Division (EPD) of the Georgia Department of
Natural Resources to regulate the development and operation of a
quarry. Shoals would have been required to obtain EPD permits
including permits relating to stormwater and wastewater discharge,
surface and ground water withdrawal, and air quality to operate a
quarry. The county might have imposed a 120- to 180-day moratorium
so that it could enact an ordinance regulating mining.

       Aggregate is abundant in Hart County and throughout Georgia
and southwestern South Carolina. The market for aggregate is generally
limited to the area surrounding the quarry because of the costs of
transporting aggregate, which the buyer typically pays. We refer to the
price of aggregate plus the buyer’s transportation costs as the delivered
price. According to Dr. Capps, the cost to transport aggregate by truck
is 15 to 25 cents per ton per mile. Demand for aggregate depends on
population and population growth as well as commercial growth. The
easement property is approximately 20 miles southwest of the city of
Anderson, South Carolina, 50 miles southwest of Greenville, South
Carolina, 50 miles northeast of Athens, Georgia, and 100 miles
northeast of Atlanta, Georgia.
                                         9

[*9] In 2017 Hart County had a population of approximately 25,000.
In the years leading up to the easement’s grant, Hart County’s
population growth was flat. From 2010 to 2017 its population increased
by 495 residents. Around 2017 the county was experiencing commercial
growth that was expected to add approximately 1,400 jobs.
Approximately 217,000 people lived within 25 miles of the easement
property, 12 and approximately 1 million lived within 50 miles. Part of
the Greenville metro area, which includes parts of Anderson County and
Greenville and Spartanburg, South Carolina, was within the 50-mile
radius. 13 From 2010 to 2017 the population of the Greenville metro area
grew by 1.2%.

       For real estate tax assessment purposes, Hart County divides
land into five zones on the basis of accessibility and desirability. It
determines a parcel’s zone on the basis of its desirability using land sale
price data. Land in zone 1 is the most desirable and includes land near
Lake Hartwell and in the city of Hartwell. Land in zone 5 is the least
desirable. The easement property is in zone 5. Hart County’s 2017 tax
records indicate that the easement property was valued at $550,587 for
assessment purposes.

V.     Easement Transaction

       On October 12, 2017, Shoals was formed, owned 95% by River
Club and 5% by Green Creek. River Club agreed to contribute the
easement property to Shoals in exchange for the 95% membership
interest. Green Creek agreed to provide services as Shoals’ manager for
its interest. That same day, Savannah Shoals Investments, LLC
(Investments), the investor LLC, entered into an agreement with River
Club to purchase 92% of its Shoals membership interests for $515,000.
Shoals’s operating agreement was amended to permit the transfer and
to include Investments as a member of Shoals. The agreement identifies
the easement property as Shoals’s sole asset.

       12 The area within a 25-mile radius of the easement property includes parts of

the county of Anderson, South Carolina, which had a population of approximately
206,000. The city of Anderson had a population of approximately 30,000.
        13 The Greenville metro area had a population of approximately 1 million

people, some of whom lived outside the area within a 50-mile radius of the proposed
quarry. The city of Spartanburg is approximately 90 miles from the easement property.
                                       10

[*10] On November 30, 2017, River Club transferred the easement
property to Shoals by limited warranty deed. 14 The deed was recorded
on December 6, 2017. On December 11, 2017, Shoals and Investments
each entered into management agreements with Green Creek. That
same day Investments issued a private placement memorandum (PPM)
to potential investors. The PPM states that the purpose of the offering
is to raise money to purchase a 92% interest in Shoals from River Club
for $515,000. It identifies the easement property as Shoals’s sole asset
and proposes three uses for the land: operating a quarry, granting a
conservation easement, or holding it for investment for an indefinite
period. Mr. Bland represented to Baker Donelson that the $515,000
purchase price represented a price of $5,000 per acre for the easement
property. He also represented to Baker Donelson for purposes of its
opinion letter that the easement transaction would close by the end of
2017.

       On December 28, 2017, before 9:30 a.m., Investments completed
its purchase of a 92% membership interest in Shoals from River Club by
paying the $515,000 purchase price as follows: $415,000 paid directly to
River Club and $100,000 paid into escrow. No later than 12:05 p.m., the
escrowed funds had been disbursed. After the transfer Investments
owned 92% of Shoals and the remaining 8% was owned 3% by River Club
and 5% by Green Creek. On that same day Investments’ members began
the voting process on the three options for the easement property as
outlined in the PPM. Mr. Bland wanted to close the easement
transaction by the end of 2017 so that investors could obtain the
deductions that he had marketed.

       By noon on December 28, a majority of Investments’ members had
already voted to grant the easement. Once a majority was reached,
Shoals did not wait for all members to vote. It executed a deed granting
a conservation easement (easement deed) to Southeast Regional Land
Conservancy, Inc. (SERLC), a qualified organization as defined in
section 170(h)(1)(B). The deed was recorded at 4:46 p.m. on December
28. The easement deed permits agricultural activities related to
personal use, ecological restoration, and habitat enhancement
improvement and bars industrial use and large-scale commercial
agricultural activities.

        14 That same day a lien holder released a lien on the easement property by

quitclaim deed to Shoals.
                                   11

[*11] VI.   Tax Returns and Notice of Final Partnership Administrative
            Adjustment

        River Club’s sale of the 92% membership interest triggered a
technical termination of Old Shoals that ended its partnership taxable
year. Old Shoals timely filed a partnership return electronically for the
taxable year October 12 to December 28. Old Shoals reported the
technical termination but did not claim the easement deduction. New
Shoals timely filed a partnership return electronically for the taxable
year ending December 31 on which it claimed the easement deduction.
The first page of the return shows New Shoals’s taxable year as
December 29 to 31. Attached to the return were: (1) Form 8283, Noncash
Charitable Contributions, on which New Shoals reported that the
donation date was December 28, (2) SERLC’s written acknowledgment
letter that states that it received the donation on December 28, and (3) a
copy of the easement deed showing that it was recorded on December 28.
Also attached to New Shoals’s partnership return were Schedules K–1,
Partner’s Share of Income, Deductions, Credits, etc., that reported each
partner’s share of the easement deduction in accordance with New
Shoals’s ownership after River Club’s sale of a 92% interest to
Investments. Thus, the December 29 start date shown on the return is
inconsistent with other parts of the return. New Shoals attached
Form 8886, Reportable Transaction Disclosure Statement, to the return
identifying the easement deduction as a syndicated conservation
easement as described in Notice 2017-10.

       Elizabeth Salvati, a CPA with HLB Gross Collins, PC (Gross
Collins), signed Old Shoals’s and New Shoals’s returns as the preparer.
Initially, Gross Collins prepared a draft return for New Shoals with a
start date of December 27. Mr. Bland reviewed the draft and questioned
whether December 27 was the correct start date. He stated that they
needed to make sure that New Shoals’s taxable year started on the
appropriate date and reminded Ms. Salvati that Investments purchased
its interest in Shoals and New Shoals granted the easement on
December 28. Thereafter, Gross Collins prepared New Shoals’s
partnership taxable year return with a start date of December 28 and
attempted to file it electronically. The Internal Revenue Service’s (IRS)
electronic filing system rejected the return, which Ms. Salvati
understood was because its start date was the same as the end date
reported on Old Shoals’s return. Ms. Salvati contacted the provider of
the return preparation and electronic filing software (return
preparation software) that Gross Collins used, which advised her to
change the start date to December 29 to allow for electronic filing. Ms.
                                       12

[*12] Salvati changed the start date as shown on the top of page 1 of the
return but did not change other parts of the return that reported that
the easement donation occurred on December 28, as discussed above.
New Shoals retained a copy of that draft that showed New Shoals’s
taxable year as December 28 to 31.

       A.     Foster Appraisal

       New Shoals attached to its return an appraisal of the easement
that was prepared by Mr. Foster, dated December 1, 2017 (Foster
appraisal). 15 In preparing his appraisal, Mr. Foster relied on Dr. Capps’s
report, the Geo-Hydro and TEC reports, and the Colwell letter of intent.
He did not research the ownership or sales history of the easement
property. He did not know that Shoals acquired the easement property
on November 30, 2017. Nor did he know the details of the acquisition
including that River Club was the transferor, that it received a 95%
membership interest in Shoals in exchange for the property, or that it
sold a 92% interest in Shoals for $515,000. Mr. Bland failed to disclose
these facts to Mr. Foster. In the appraisal, Mr. Foster states that there
are no known sales of the easement property within four years of the
valuation date and no current agreement to sell it.

       The Foster appraisal does not state the date or expected date of
the easement donation as required by Treasury Regulation § 1.170A-13
and omits other required information. It does not state the date on which
Shoals acquired the easement property. It does not provide Mr. Foster’s
college degree although it lists his professional licenses, memberships,
and compliance with continuing education requirements and identifies
him as a member of the Appraisal Institute with the acronym MAI
following his name. It further states that Mr. Foster holds himself out
as an appraiser and performs appraisals regularly, but the appraisal
does not provide specific information about his appraisal experience.

       In the appraisal, Mr. Foster indicated that he was valuing a
conservation easement and described the easement as conserving the
property’s natural, scenic, agricultural, and open space. He stated that
the easement deed prohibited mining and restricted development but
did not provide any further details about the deed’s use restrictions. He
failed to state that the deed limited SERLC’s right to transfer the
easement.

      15 The date of the Foster appraisal is approximately one month before the

easement’s donation. Respondent has not objected to the appraisal on this ground.
                                   13

[*13] Mr. Foster used the “before and after” method to value the
easement. See Treas. Reg. § 1.170A-14(h)(3)(i) and (ii). He determined
the before value on the basis that unencumbered, the highest and best
use was as an aggregate quarry. He performed a discounted cashflow
analysis of income from a quarry. He determined that the net present
value of aggregate produced from the easement property over 25 years
was $23.1 million, the same net present value that Dr. Capps
determined. Mr. Foster copied Dr. Capps’s production estimates, price
for aggregate, operating costs, and discount rate and did not account for
any capital expenditures in his analysis. Mr. Foster adopted the net
present value of the aggregate as the before value of the land. He
determined that after the easement’s grant, the property’s fair market
value was $103,000 (after value) and opined that the easement’s fair
market value was approximately $23 million.

      B.     Form 8283

      Form 8283 is the form that the IRS prescribes for an appraisal
summary. See Treas. Reg. § 1.170A-13(c)(4)(i)(A). Attorneys with Baker,
Donelson prepared Form 8283 (Baker Donelson Form 8283) for the
easement donation, and Ms. Salvati reviewed it. Page 2 of the Baker
Donelson Form 8283 correctly reported that Shoals acquired the
property by contribution and that it had an adjusted basis in the
property of $1,538,622. It also reported that the easement had an
appraised value of $23 million, for which New Shoals claimed a
charitable contribution deduction. Mr. Foster and James Wright,
SERLC’s executive director, signed it.

       Gross Collins attempted to attach a pdf copy of the Baker
Donelson Form 8283 to New Shoals’s return. However, its return
preparation software did not recognize the pdf copy, and Gross Collins
received an error message that the return failed to include Form 8283.
Gross Collins prepared Form 8283 generated by the software (Gross
Collins Form 8283) but mistakenly provided different information on
page 2 from that on the Baker Donelson Form 8283. It reported that
Shoals acquired the property by purchase, its adjusted basis was
$37,776, and the appraisal value and the easement deduction were $22.2
million. Ms. Salvati did not explain why the Gross Collins Form 8283
differed from Baker Donelson’s. Neither Mr. Foster nor Mr. Wright
signed the Gross Collins Form 8283. Both versions of Form 8283 refer
to an attachment for required information relating to the easement
deduction. There is only one attachment, which is consistent with the
Baker Donelson Form 8283.
                                       14

[*14] C.      Issuance of FPAA

       On December 21, 2021, respondent issued a notice of final
partnership administrative adjustment (FPAA) to New Shoals
disallowing the $23 million easement contribution deduction and
asserting penalties. The FPAA identifies New Shoals’s taxable year at
issue as the taxable year ending December 31. It does not state the start
date of the December 31 taxable year. Respondent complied with the
written supervisory approval requirement of section 6751(b) for each
penalty. See Order (Mar. 11, 2023).

VII.   Expert Testimony

       A.     Petitioner’s Experts

       Petitioner engaged Gregory Gold and Doug Kenny as experts to
value the easement property’s subsurface materials. Both men relied on
Geo-Hydro’s and TEC’s reports. Mr. Kenny also relied on Dr. Capps’s
and Mr. Gold’s reports.

              1.      Mr. Gold’s Report

       Mr. Gold opined that “the fair market value of the economically
recoverable gneiss resource” on the easement property is $30.1 million.
He assumed that the highest and best use for the easement property
was aggregate mining. Using a discounted cashflow analysis, he
calculated that aggregate mined over 30 years had a net present value
of $27,645,635 and the unmined aggregate at the end of 30 years had a
terminal value of $2,460,048, for a total value of the aggregate of
$30,105,683. He testified that the easement property holds
approximately 32 million tons of subsurface aggregate and determined
that the proposed quarry could produce 19.6 million tons of aggregate
over 30 years. He priced the aggregate on the basis of its quality, $20.48
per ton for premium aggregate and $13.93 per ton for nonpremium
aggregate. 16 He estimated average sales of 360,000 tons of premium
aggregate and 180,000 tons of nonpremium aggregate annually. For his
cost analysis, he assumed that the owner would operate the proposed
quarry and calculated that the owner-operator would incur initial
capital expenses of $14.8 million including $3.2 million for development
capital, $5.5 million for mining equipment, and $6.1 million for a
processing plant. He estimated that an owner-operated quarry would

       16 Mr. Gold discounted the aggregate prices during the first three years of

production to account for the proposed quarry’s status as a new market entrant.
                                   15

[*15] have operating costs of $5.41 per ton. He also accounted for other
costs including reclamation, insurance, overhead, and tax. He applied a
discount rate of 10% to determine the net present value.

             2.     Mr. Kenny’s Report

       Mr. Kenny performed a discounted cashflow analysis in which he
determined that the net present value from a quarry operating on the
easement property for 26 years is $21 million. On the basis of this
analysis, he opined that a quarry was financially feasible and was the
unencumbered easement property’s highest and best use. He used a
before and after method to value the easement. He opined that the
before value was $21,075,000 ($204,612 per acre), the same as the mined
aggregate’s net present value. He opined that after the easement’s
grant, the property’s highest and best use is agriculture, recreational
use, and forestry. He determined that the after value was $290,000 and
the easement’s fair market value was $20,785,000.

       Mr. Kenny testified that when valuing land with subsurface
materials, the value of the materials must be considered. He performed
a discounted cashflow analysis in which he estimated that the proposed
quarry would have sold 10.5 million tons of aggregate over 26 years with
production starting in year 2 as follows: 300,000 tons in years 2 and 3,
400,000 tons in years 4 to 7, and a 1% annual increase during years 8 to
26. He did not include any production in year 1 because he opined that
it would have primarily involved development activities such as
permitting, site preparation, access road construction, clearing, and
utility infrastructure. He priced the aggregate at $15.75 per ton in
year 2 with annual price increases of 3.15%. He estimated costs under
the assumption that a contractor (rather than the owner) would have
operated the quarry. He testified that contractor-operated quarries have
lower capital costs than owner-operated quarries but higher per-ton
operating costs. He estimated that an owner of a contractor-operated
quarry would incur $3.2 million in startup costs and would have
operating costs of $8.75 per ton with annual cost increases of 3%. He
also accounted for administrative and management costs, property tax,
a surety bond, equipment replacement, contingency reserves, and
reclamation costs, and applied a discount rate of 11% to arrive at his net
present value.

      Mr. Kenny testified about population in Georgia but did not
conduct his own analysis of demand for aggregate from the proposed
quarry. Instead, he cited Dr. Capps’s and Mr. Gold’s demand estimates,
                                    16

[*16] 7.2 and 8 million tons annually of aggregate, and determined that
the proposed quarry would have captured approximately 5% of the
market within five years of beginning production. He testified that this
analysis confirmed that his annual production of 400,000 tons is
reasonable.

      B.     Respondent’s Experts

      Respondent engaged Charles Brigden to prepare a real estate
valuation and Kevin Gunesch to determine whether a quarry was
financially feasible.

             1.     Mr. Brigden’s Report

      Mr. Brigden used the before and after valuation method to
determine the easement’s fair market value. He used a comparable sales
method to determine both the before and after values. He determined a
before value of $420,000 (approximately $4,100 per acre) and an after
value of $100,000, for a fair market value of the easement of $320,000.

       Mr. Brigden determined that the unencumbered easement
property’s highest and best use was low-density residential and
recreational uses. He did not perform an income analysis of a quarry to
determine the highest and best use. He opined that there was no need
to conduct such an analysis because mine operators do not conduct them
before purchasing land to mine. He testified that such studies are not
necessary because aggregate is abundant and quarry owners purchase
land on the basis of access to transportation and the property’s location
relative to market demand. To determine the highest and best use, he
analyzed the market for vacant land in Hart County. He testified that a
quarry was not a likely use on the basis of land use patterns in the
county, the nature of existing transportation infrastructure near the
easement property, the lack of an apparent demand for property on
which to operate a quarry, and the use that landowners actually made
of their properties. He testified that aggregate is abundant in the region
and the easement property did not provide a comparative advantage
over other vacant parcels that could have been mined.

      For his comparable property sales analysis, Mr. Brigden began by
considering the sale prices of vacant land in Hart County in sales of over
25 acres. He testified that from 2006 to 2022 the median price for such
sales was approximately $3,000 per acre and the highest price was
$63,750 per acre. Next, he considered the sales of parcels between 50
and 200 acres. He determined that the average and median prices were
                                         17

[*17] $4,513 and $4,330 per acre, respectively, with prices ranging from
$1,649 to $12,000 per acre after he eliminated two sales of land on Lake
Hartwell that he considered to be outliers. 17 From these sales he
identified four properties that he determined were similar to the
unencumbered easement property (comparables). They ranged in price
from $2,550 to $5,256 per acre: (1) 54 acres sold for $240,000 ($4,435 per
acre) in July 2017; (2) 87 acres sold for $413,400 ($4,752 per acre) in
April 2017; (3) 41.9 acres sold for $220,000 ($5,256 per acre) in February
2016; and (4) 190 acres sold for $484,576 ($2,550 per acre) in December
2015.

       Mr. Brigden adjusted the prices of the comparables to account for
differences in physical characteristics of the land relative to the
easement property and the dates of the sales. He determined average
and median adjusted prices for the four comparables of $3,693 and
$4,014 per acre, respectively. Using these comparables, he determined
a before value of $420,000, approximately $4,100 per acre. He opined
that the $515,000 sale price for 92% of River Club’s membership interest
in Shoals is consistent with the price data from the four comparables
and “appears to be generally reflective of fair market value pricing” for
the unencumbered easement property.

       Respondent requested that Mr. Brigden determine a before value
under the assumption that a quarry was the highest and best use of the
property. Mr. Brigden used a comparable property sale method to value
the unencumbered easement property for use as an aggregate quarry.
In his initial report he identified nine sales from 2011 to 2019 of mining-
use property. 18 In his rebuttal report he expanded the timeframe to 2009
through 2021 and identified five additional sales. These properties were
generally within a 50-mile radius of the easement property. The prices
in these 14 sales ranged from $1,895 to $34,928 per acre with average
and median prices of $8,325 and $6,801 per acre, respectively. 19 Mr.
Brigden adjusted the prices for 5% annual appreciation to account for

        17 The two waterfront properties sold for approximately $40,000 and $28,000

per acre.
       18 Mr. Brigden included sales of land with active quarries and former quarries

and land purchased for future extraction or for expansion of an existing quarry. We
adopted this definition of mining-use property.
        19 Mr. Brigden testified that the $34,928-per-acre sale was land purchased to

expand an existing quarry. He opined that the price was significantly higher because
the quarry was in an area with heavy industrial land use and ready access to
transportation, which resulted in an increased demand for land. He adjusted the price
to $29,157 per acre to account for the purchase having occurred in September 2021.
                                        18

[*18] differences between the sale dates and the valuation date. He
determined adjusted prices ranging from $1,645 to $28,157 per acre with
average and median adjusted prices of $8,532 and $7,392 per acre,
respectively. He opined that had he agreed that mining was the most
likely use of the unencumbered easement property, he would have
determined a before value of $770,000, approximately $7,500 per acre.
He further opined that even where a quarry is the highest and best use
of the land, from 2014 to 2017 there was a negligible difference in prices
for land with known deposits over land without known deposits. He
concluded that land with known aggregate deposits does not enjoy a
price premium above land without known deposits.

               2.     Mr. Gunesch’s Report

       Mr. Gunesch performed a discounted cashflow analysis of a
quarry on the unencumbered easement property and determined that
the aggregate mined over 25 years had a net present value of $2.9
million. He opined that the easement property could have produced
approximately 10.3 million tons of salable aggregate over 25 years which
he divided into two categories on the basis of quality for pricing
purposes: 8.9 million tons of unweathered aggregate at $22 per ton and
1.4 million tons of weathered aggregate at $15.75 per ton. 20 Under his
analysis, the quarry would have produced an average of over 400,000
tons annually, similar to Dr. Capps’s and Mr. Kenny’s projections but
less than Mr. Gold’s 600,000-ton annual production projection. Mr.
Gunesch estimated operating costs at $15.81 per ton. He estimated $2.7
million in capital costs including testing, permitting, and infrastructure
improvements, plus additional amounts for soil stripping, income tax,
and administrative expenses. In his analysis, he applied the same 11%
discount rate as petitioner’s experts but criticized it as too low. Although
he determined a positive net present value of the aggregate from a
quarry on the easement property ($2.9 million), he concluded that a
quarry was not financially feasible. He opined that multiple factors that
he did not account for in his analysis would likely result in a negative
net present value such as factoring in unaccounted-for upfront costs,
increased operating costs, or decreased sales or production.

      Mr. Gunesch determined that the market for the proposed
quarry’s aggregate was smaller than petitioner’s experts projected. He

       20 According to Mr. Gunesch, weathered rock is rock that has been degraded

by natural weathering processes and is weaker than rock at greater depth where it is
protected from natural weathering.
                                   19

[*19] limited the market primarily to the area where the proposed
quarry would have been the closest source of aggregate. He determined
that because of the location of competing quarries the market was a
maximum of 20 miles northwest and southeast of the easement property
and 6 miles southwest and northeast of the property (preferred market).
He further opined that the easement property’s location and distance
from the site where the aggregate would likely be used (point of use)
precludes it from being a viable competitive alternative to existing
quarries. He opined that existing quarries produced adequate supply to
meet demand and there was insufficient demand to support 400,000
tons of annual sales. He further testified that there was a high risk that
projected annual sales would not be realized. He testified that even if
the proposed quarry were to capture the entire preferred market, the
proposed quarry would sell 383,000 tons of aggregate annually.

                               OPINION

       Section 170(a)(1) allows taxpayers to deduct the fair market
values of charitable contributions of property made within the taxable
year if the contributions are verified in accordance with substantiation
and reporting requirements prescribed in the Treasury regulations. See
Treas. Reg. § 1.170A-1(c)(1). Section 170(f)(11) imposes heightened
substantiation requirements for the contribution of property where the
amount of the deduction depends on the value of the donated property.
See Cave Buttes, L.L.C. v. Commissioner, 147 T.C. 338, 347–48 (2016);
Albrecht v. Commissioner, T.C. Memo. 2022-53, at *3. For deductions
greater than $5,000, taxpayers must obtain a qualified appraisal of the
donated property. § 170(f)(11)(C). For deductions of more than $500,000,
taxpayers must attach the qualified appraisal and a fully completed
appraisal summary to the return for the taxable year that it claims or
reports the deduction. § 170(f)(11)(D).

        Partnerships cannot claim charitable contribution deductions.
§ 703(a)(2)(C). Instead, each partner takes into account his distributive
share of the partnership’s charitable contributions. § 702(a)(4); see also
Treas. Reg. § 1.703-1(a)(2)(iv) (“Each partner is considered as having
paid within his taxable year his distributive share of any contribution
or gift, payment of which was actually made by the partnership within
its taxable year ending within or with the partner’s taxable year.”). The
partnership must report the deduction and the amount of each partner’s
distributive share of the deduction on the partnership return. § 6031(a).
                                            20

[*20] I.       New Shoals’s Taxable Year

       Taxpayers compute taxable income and file returns for periods
known as taxable years. § 441(a); Treas. Reg. § 1.441-1(a)(1). “[E]ach
‘taxable year’ must be treated as a separate unit, and all items of gross
income and deduction must be reflected in terms of their posture at the
close of such year.” United States v. Consol. Edison Co. of N.Y., 366 U.S.
380, 384 (1961). In general, the term “taxable year” is defined as the
taxpayer’s annual accounting period, either a calendar or fiscal year.
§§ 441(b)(1), 7701(a)(23). When a taxpayer exists for a period of less than
12 months (short period), it is required to file a return for the short
period in which it exists. §§ 443(a)(2), 7701(a)(23); Treas. Reg. § 1.443-
1(a)(2). When a taxpayer exists and files a return for a short period, the
term “taxable year” means “the period for which the return is made.”
§§ 441(b)(3), 7701(a)(23); Treas. Reg. § 1.441-1(b)(1)(i).

       Although partnerships are not subject to tax, they must file
returns for each taxable year in which they exist. §§ 701, 6031(a).
Section 706 and the accompanying regulations provide rules for
determining a partnership’s taxable year. See Treas. Reg. § 1.441-
1(b)(2)(i)(G) (stating that partnerships must use the required
partnership year determined under section 706 and the accompanying
regulations). A partnership’s taxable year is determined as though the
partnership is a taxpayer. § 706(b)(1)(A). A partnership will have a short
taxable year if the partnership terminates during its taxable year. The
partnership taxable year closes for all partners when the partnership
terminates. Treas. Reg. § 1.706-1(c). In general, a partnership’s taxable
year does not close when a partner sells all or part of its partnership
interest. 21 § 706(c) (providing that a partnership taxable year does not
close as the result of the addition of a new partner, a partner’s death, or
the liquidation, sale, or exchange of a partnership interest). The
technical termination provision of section 708(b)(1)(B) is an exception to
the general rule that a sale of a partnership interest does not terminate
the partnership taxable year.

        21 If a partner sells its entire interest, the partnership taxable year closes only

with respect to the selling partner. Treas. Reg. § 1.706-1(c)(2). The partnership taxable
year does not close for the other partners. If a partner sells less than its entire interest,
the partnership taxable year does not close for the selling partner. Rather, special rules
apply for computing the selling partner’s distributive share before and after the partial
sale. This procedure is known as the varying interest rule, under which the partner’s
distributive share is determined by taking into account its varying interests during the
partnership taxable year. § 706(c)(2); Treas. Reg. § 1.706-4(a).
                                    21

[*21] A.     Technical Termination

       Under section 708(b)(1)(B) a partnership terminates when 50% or
more of its total capital and profits interest is sold or exchanged within
a 12-month period and the partnership’s taxable year closes for all
partners as of the date of the technical termination. Treas. Reg. § 1.708-
1(b)(3) and (4); see Treas. Reg. § 1.706-1(c)(1) (stating that a
partnership’s taxable year closes for all partners when the partnership
terminates). Thus, a partnership has a short period when there is a
technical termination and is required to file a return for the terminated
taxable year. See § 443(a)(2). The date of the technical termination is the
date of the sale or exchange of a partnership interest that itself or
together with other sales or exchanges in the preceding 12 months
results in the transfer of 50% or more of the partnership’s capital and
profits interests. Treas. Reg. § 1.708-1(b)(3)(ii).

       On a technical termination, a new partnership is deemed formed
and it must also file a separate partnership return for the remaining
period of the partnership taxable year. Pursuant to the Treasury
regulations, the terminated partnership is deemed to have contributed
its assets and liabilities to a new partnership in exchange for an interest
in the new partnership, and “immediately thereafter” the terminated
partnership is deemed to have distributed the interests in the new
partnership to the partners in liquidation of the terminated partnership.
Treas. Reg. § 1.708-1(b)(4). For purposes of state law, the partnership
continues to exist as the same entity. See Harbor Cove Marina Partners
P’ship v. Commissioner, 123 T.C. 64, 80 (2004) (holding that the
dissolution of a partnership is governed by state law).

       On December 28, 2017, River Club sold a 92% interest in Shoals
to Investments. The sale terminated Old Shoals’s taxable year, and New
Shoals was deemed to be formed. The parties agree that Old Shoals’s
taxable year ended on December 28, the date of the technical
termination, and that Old Shoals properly filed a return for the taxable
year October 12 to December 28. The parties disagree over the starting
date of New Shoals’s taxable year. Petitioner argues that it started on
December 28, the day of the technical termination; respondent argues it
started on December 29. We hold that New Shoals had a taxable year
December 28 to 31, for which it may claim the easement deduction.

       Respondent’s argument for a December 29 start date is two-fold.
First, he argues that New Shoals’s return reported its taxable year was
December 29 to 31, and the Court should hold it to that reported taxable
                                   22

[*22] year. Second, he argues that on a technical termination, the Code
and the Treasury regulations require a new partnership taxable year to
start the day after the technical termination. Thus, according to
respondent, December 29 to 31 is New Shoals’s correct taxable year. He
argues that New Shoals is not entitled to the easement deduction for the
taxable year December 29 to 31 because it did not donate within that
taxable year as required by section 170(a).

      B.     Jurisdiction to Determine Start Date

       Before we address the substantive issue of the start date, we note
that we have jurisdiction to determine when New Shoals’s taxable year
begins. We have jurisdiction in a partnership proceeding to determine
the date on which the partnership’s taxable year begins because the
starting date of a partnership’s taxable year determines the partnership
items over which we have jurisdiction. See § 6226(f). The determination
of a partnership’s proper taxable year is a partnership item. Treas. Reg.
§ 301.6231(a)(3)-1(b); see § 6231(a)(3) (defining a partnership item).
Thus, the proper beginning and ending dates of a partnership’s taxable
year are partnership items to be determined in a partnership proceeding
where the FPAA places the start date at issue. Harman Road Prop., LLC
v. Commissioner, T.C. Memo. 2023-143, at *7 (holding that the start date
of a short taxable year following a technical termination is a partnership
item that may be adjusted in a partnership proceeding). The FPAA
states the end date of New Shoals’s taxable year but does not state the
start date. Thus, the correct start date of the taxable year ending
December 31 is a partnership item over which we have jurisdiction in a
partnership proceeding.

      C.     Start Date Reported on New Shoals’s Return

       The parties disagree over what date New Shoals’s return reported
as the start date. The second line of the return, under the form’s title,
shows its taxable year is December 29 to 31. This is the only part of the
return that treats the start date as December 29. Otherwise, the return
reports partnership items that correspond to the taxable year December
28 to 31, including Form 8283, the donee’s written acknowledgment
letter, and a copy of the easement deed. Ms. Salvati testified that she
prepared drafts of New Shoals’s return with different start dates. She
discussed the significance of the technical termination date and the start
date with Mr. Bland. She credibly testified that she prepared New
Shoals’s return with a December 28 start date and attempted to file it
electronically, but the IRS rejected it. She credibly testified that upon
                                           23

[*23] the advice of the software provider, she changed the start date
shown on the return to December 29 to permit electronic filing. In the
light of this credible testimony and reporting on other parts of New
Shoals’s return of partnership items incurred on December 28, we find
that New Shoals reported a taxable year December 28 to 31. New Shoals
mistakenly showed its taxable year starting on December 29 only
because of the limitations with return preparation software.

        D.      Permissible Start Date After a Technical Termination

       Next, we turn to the legal question of whether a new partnership
that is deemed to form on a technical termination may use a taxable
year that starts on the date of the termination. Respondent argues that
the Treasury regulations require the new partnership’s taxable year to
begin the date after the technical termination. The Treasury regulations
address the date of the technical termination of the old partnership but
not the date on which the new partnership’s taxable year begins. See
Treas. Reg. § 1.708-1(b)(3). The regulations simply say that the new
partnership is formed “immediately” after the technical termination. 22
Id. subpara. (4). The regulations say nothing expressly about the start
of the partnership year. Moreover, the phrase “immediately thereafter”
does not mean the next day.

       Respondent has not analyzed the text of the regulations or the
meaning of the phrase “immediately thereafter.” He simply argues that
the regulations require the new partnership’s year to start the day after
the technical termination. We agree with petitioner that the phrase
“immediately thereafter” does not prohibit the new partnership’s
taxable year from beginning on the date of the technical termination.
We have allowed taxpayers to begin a new short year on the same day
that their former short year ended. See Moore v. Commissioner, 70 T.C.
1024, 1032 (1978); see also Mill Road 36 Henry, LLC v. Commissioner,

         22 Other parts of the regulations relating to end and start dates of taxable years

are more precise. For example, Treasury Regulation § 1.708-1(d)(2)(i) clearly states
that when a partnership divides into two or more partnerships, the continuing and
new partnerships must file separate returns for the taxable year beginning “after the
date of the division.” Treasury Regulation § 1.706-4(c) clearly states that when a
partner sells part of its interest, its distributive share is determined as of the end of
the day that the partner sold its interest. Id. subpara. (1); see also Treas. Reg. § 1.443-
1(a)(1) (requiring a taxpayer that changes its annual accounting period to file a short
year return “beginning with the day following the close of the old taxable year”); see
also id. para. (b)(2)(ii) (explaining that when a taxpayer has a short taxable year
because of a change in its annual accounting period, the period ends “at the close of
the last day of the short period”).
                                          24

[*24] T.C. Memo. 2023-129, at *21 & n.14 (involving a partnership
formed upon a technical termination that started its taxable year on the
date of the technical termination).

        Beginning New Shoals’s taxable year on December 28 is
consistent with the basic principles of partnership tax law under
TEFRA. Generally, a partnership comes into existence for federal tax
purposes and must file a return beginning when it realizes income or
incurs an expense. See Williams v. Commissioner, T.C. Memo. 1987-308,
53 T.C.M. (CCH) 1203, 1210 (citing § 6031 and Treas. Reg. § 1.6031-
1(a)); see also § 761(a) (defining the term “partnership” and generally
requiring the conduct of a business activity, financial operations, or
venture). New Shoals began to conduct business on December 28. Its
members voted to donate the easement on December 28, and the deed
was executed and recorded that day. 23 Respondent’s position directly
conflicts with these basic principles of partnership tax law. According to
his argument, a new partnership does not come into existence until the
day following the technical termination irrespective of the date on which
the new partnership begins to realize income or incur expenses. Under
ordinary tax principles, New Shoals was in existence on December 28
because it conducted business on that date. Respondent has not provided
sufficient reasons for the ambiguous phrase “immediately thereafter” to
trump the ordinary principles of tax law especially under the
circumstances of a tax fiction of a terminated partnership and deemed
formation of a new partnership.

      Respondent’s position distorts the allocation of the easement
deduction away from the partners that incurred the expense. It is a basic
axiom of tax law that income is taxable to the person who earns it, and
an expense is deductible only by the person who incurs it. Commissioner
v. Culbertson, 337 U.S. 733, 739–40 (1949). “[T]he taxpayer who
sustained the loss is the one to whom the deduction shall be allowed.”
New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440–41 (1934). To this
end, partners are required to report their distributive shares of
partnership items for the period in which they are partners. The

         23 State law controls the determination of a taxpayer’s property rights, and

federal law determines the tax consequences of those property rights. See United States
v. Nat’l Bank of Commerce, 472 U.S. 713, 722 (1985). Therefore, Georgia law governs
when the easement donation is complete. See Zarlengo v. Commissioner, T.C. Memo.
2014-161, at *20–21. Under Georgia law Shoals’s easement donation was effective on
the date that the deed was recorded, December 28. See Ga. Code Ann. § 44-10-3 (2013);
see also Satullo v. Commissioner, T.C. Memo. 1993-614, aff’d, 67 F.3d 314 (11th Cir.
1995) (unpublished table decision).
                                         25

[*25] determination of each partner’s distributive share must have
substantial economic effect. § 704(b)(2). The transferor of a partnership
interest must report its share of pre-transfer partnership profits and
losses, and the transferee must report its share of post-transfer
partnership profits and losses. Marriott v. Commissioner, 73 T.C. 1129,
1139 (1980); Moore, 70 T.C. at 1032. Respondent’s position would result
in the inappropriate shifting of the easement deduction in accordance
with the pre-sale membership interests, i.e., River Club would receive
95% of the deduction even though it received $515,000 for a 92% interest
and held only a 3% membership interest. The members of Old Shoals
are not entitled to the easement deduction; River Club did not incur 95%
of the expense of the easement donation. Under basic principles of tax
law, it is the members of New Shoals that are entitled to the deduction. 24
See § 702(a) (requiring partners to take into account their distributive
shares of partnership items).

       Nothing in the Code or the regulations precludes a partnership
that is deemed to form immediately after a technical termination from
using the date of the technical termination as the start date of its taxable
year. River Club transferred a 92% interest in Shoals and Old Shoals
terminated before 12:05 p.m., and afterwards New Shoals donated the
easement. Accordingly, we find that New Shoals donated the easement
within its taxable year ending December 31.

II.    Substantiation Requirements

       Respondent argues that New Shoals is not entitled to the
easement deduction because it failed to satisfy the heightened
substantiation requirements applicable to noncash charitable
deductions. Specifically, he argues that New Shoals did not attach a
qualified appraisal and a properly completed Form 8283 to its return.

       A.      Qualified Appraisal

      A qualified appraisal is conducted by a qualified appraiser in
accordance with generally accepted appraisal standards and in
compliance with regulatory requirements. § 170(f)(11)(E)(i). The Code
defines a qualified appraiser as an individual who (1) has “earned an
appraisal designation from a recognized professional appraiser

        24 A partner’s distributive share is generally determined by the partnership

agreement unless the agreement’s allocation does not have substantial economic effect.
§ 704(a) and (b). “In all cases, all partnership items for each taxable year must be
allocated among the partners . . . .” Treas. Reg. § 1.706-4(a)(2).
                                    26

[*26] organization or has otherwise met minimum education and
experience requirements set forth in regulations prescribed by the
Secretary,” (2) regularly performs appraisals for compensation, and
(3) meets other requirements in the regulations. Id. cl. (ii). The appraiser
also must demonstrate “verifiable education and experience in valuing
the type of property subject to the appraisal.” Id. cl. (iii)(I).

       Treasury Regulation § 1.170A-13 provides requirements for a
qualified appraisal and a qualified appraiser for the taxable year at
issue. The Secretary promulgated new regulations in Treasury
Regulation § 1.170A-17 that redefine both terms and are applicable to
contributions made on or after January 1, 2019. Taxpayers may rely on
Treasury Regulation § 1.170A-17(c) for returns filed after August 17,
2006. Petitioner relies on part of this section addressing the appraisal’s
required statement of the appraiser’s qualifications. However,
respondent improperly cites parts of this section.

             1.     Definition of a Qualified Appraisal

       Under Treasury Regulation § 1.170A-13(c)(3)(ii), a qualified
appraisal must include the following 11 items of information: (1) a
description of the donated property in sufficient detail for a person who
is not generally familiar with the type of property to ascertain that the
property being appraised is the property that was donated; (2) if the
property is tangible, the physical condition of the property; (3) the date
(or expected date) of the donation; (4) the terms of any agreement or
understanding entered into by the donor or donee, or on their behalf,
relating to the use, sale, or other disposition of the property; (5) the
appraiser’s name, address, and identifying number; (6) the appraiser’s
qualifications including his background, experience, education, and
memberships in professional appraisal associations; (7) a statement that
the appraisal was prepared for income tax purposes; (8) the date of the
appraisal; (9) the property’s appraised fair market value on the donation
date; (10) the method used to determine the fair market value, and
(11) the specific basis for the valuation, such as the specific comparable
sales or statistical sampling, including a justification for using sampling
and an explanation of the sampling procedure employed.

      Of these 11 items, respondent seems to identify 4 items as missing
from the Foster appraisal: item (1), a sufficiently detailed description of
the property; item (3), the date of the easement’s donation; item (4),
                                          27

[*27] agreements relating to the disposition of the donated property;
and item (6), Mr. Foster’s education and experience. 25

                2.      Substantial Compliance

       Before we examine whether the Foster appraisal met the
requirements of a qualified appraisal, we note that substantial
compliance with the regulatory requirements is sufficient for an
appraisal to be qualified. Bond v. Commissioner, 100 T.C. 32, 42 (1993).
The 11 regulatory requirements are “directory” rather than “mandatory”
as they “do not relate to the substance or essence of whether or not a
charitable contribution was actually made.” Id. at 41. Accordingly,
literal compliance is not required. Id. Substantial compliance is
sufficient to satisfy the purpose of requiring appraisals, i.e., “to provide
the IRS with information sufficient to evaluate claimed deductions and
assist it in detecting overvaluations of donated property.” Costello v.
Commissioner, T.C. Memo. 2015-87, at *17; see also RERI Holdings I,
LLC v. Commissioner, 149 T.C. 1, 16–17 (2017), aff’d sub nom. Blau v.
Commissioner, 924 F.3d 1261 (D.C. Cir. 2019). If the appraisal discloses
sufficient information for the IRS to evaluate its reliability and
accuracy, we may deem the requirements satisfied by substantial
compliance with them. Bond, 100 T.C. at 42.

       Substantial compliance is shown where “the taxpayers had
provided most of the information required” or made omissions “solely
through inadvertence.” Hewitt v. Commissioner, 109 T.C. 258, 265 &
n.10 (1997), aff’d, 166 F.3d 332 (4th Cir. 1998). Minor or technical
defects will not prevent an appraisal from being qualified, but
substantial compliance does not excuse taxpayers from the requirement
that they disclose information that goes to the “essential requirements
of the governing statute.” Estate of Clause v. Commissioner, 122 T.C.
115, 122 (2004). We generally decline to apply substantial compliance
where an appraisal either fails to meet multiple substantive

        25 Respondent criticizes the Foster appraisal on the basis of the definitions in

Treasury Regulation § 1.170A-17. We have attempted to match his arguments with
respect to that section with the 11 items listed in Treasury Regulation § 1.170A-13
that are applicable for the taxable year at issue. Some of his arguments do not easily
correspond with those 11 items. For example, he argues that the Foster appraisal does
not satisfy the substance and principles of the Uniform Standards of Professional
Appraisal Practice (USPAP) and cites multiple USPAP Standards Rules. See Treas.
Reg. § 1.170A-17(a)(2). However, Treasury Regulation § 1.170A-13 does not require an
appraisal to satisfy the USPAP, and we do not need to address the USPAP Standards
Rules except to the extent we find them relevant to the 11 items required by Treasury
Regulation § 1.170A-13.
                                   28

[*28] requirements in the regulations or omits entire categories of
required information. See Lord v. Commissioner, T.C. Memo. 2010-196,
slip op. at 5 (holding that the taxpayer did not substantially comply
where the appraisal omitted the donation date, the date of the appraisal,
and the fair market value of the donated property); Friedman v.
Commissioner, T.C. Memo. 2010-45 (holding that the taxpayer did not
substantially comply where the appraisal omitted an adequate
description of the donated property, a description of the property’s
condition, the valuation method used, the manner in which the property
was acquired, and the property’s cost basis). The substantial compliance
doctrine “should not be liberally applied.” Alli v. Commissioner, T.C.
Memo. 2014-15, at *54.

             3.     Substantiation Requirements

       We must determine whether the Foster appraisal provided
sufficient information for the IRS to evaluate the easement deduction.
See Smith v. Commissioner, T.C. Memo. 2007-368, slip op. at 47, aff’d,
364 F. App’x 317 (9th Cir. 2009). Respondent’s arguments raise concern
with respect to four items required under Treasury Regulation
§ 1.170A-13.

                    a.    Description of the Donated Property

      A qualified appraisal must adequately describe the donated
property. Treas. Reg. § 1.170A-13(c)(3)(ii)(A). Respondent argues that
the Foster appraisal valued the wrong asset. He argues that Mr. Foster
valued the easement property’s subsurface materials, not the easement.
An appraisal of the wrong asset prevents the IRS from properly
understanding and evaluating the claimed contribution. Estate of
Evenchik v. Commissioner, T.C. Memo. 2013-34, at *12–13. Such a
mistake can result in the appraisal’s not being in substantial compliance
with the regulations. Id.

       We find that the Foster appraisal correctly indicated that it is an
appraisal of a conservation easement. In his report Mr. Foster
repeatedly stated that he was valuing a conservation easement. He
clearly stated that he was using a before and after valuation method and
that he analyzed the value of the aggregate to determine the before
value. There is no reasonable basis for the IRS to claim that it was
confused about what property rights New Shoals donated or Mr. Foster
valued. See Dunlap v. Commissioner, T.C. Memo. 2012-126, slip op.
at 84. Accordingly, we find that Mr. Foster valued the correct property
                                    29

[*29] and that the Foster appraisal includes a sufficient description of
the donated property for a person who is not generally familiar with
easements to ascertain that the correct property is being appraised.

                    b.     Date of Donation

        A qualified appraisal must include the date or expected date of
the donation. Treas. Reg. § 1.170A-13(c)(3)(ii)(C). Disclosure of the date
of the donation enables the IRS to determine whether the appraisal was
timely performed. It also enables the IRS to “compare the appraisal and
contribution dates for purposes of isolating fluctuations in the property’s
fair market value between those dates.” Rothman v. Commissioner, T.C.
Memo. 2012-163, slip op. at 36, supplemented and vacated on other
grounds, T.C. Memo. 2012-218. Stating the wrong donation date or
omitting it is a significant error and weighs against substantial
compliance. See, e.g., Estate of Hoensheid v. Commissioner, T.C. Memo.
2023-34, at *43; Presley v. Commissioner, T.C. Memo. 2018-171, at *78,
aff’d, 790 F. App’x 914 (10th Cir. 2019); Costello, T.C. Memo. 2015-87,
at *24–25; Alli, T.C. Memo. 2014-15, at *24.

       The Foster appraisal does not state the date of the donation.
However, New Shoals attached Form 8283, SERLC’s acknowledgment
letter, and the easement deed to its return, which all provide the
donation date. Accordingly, the IRS was not significantly affected by the
Foster appraisal’s failure to include the date of the easement grant.
Accordingly, we find that omission of the donation date does not prevent
a finding that the Foster appraisal substantially complied with the
qualified appraisal requirements. See Zarlengo, T.C. Memo. 2014-161,
at *36 (finding that taxpayers substantially complied by disclosing
donation date on appraisal summary); Simmons v. Commissioner, T.C.
Memo. 2009-208, slip op. at 17–18 (same), aff’d, 646 F.3d 6 (D.C. Cir.
2011).

                    c.     Agreements Relating to the Donated Property

       A qualified appraisal must include the terms of any agreements
entered into by the donor or donee that relate to the use, sale, or
disposition of the donated property. Treas. Reg. § 1.170A-13(c)(3)(ii)(D).
Information concerning such agreements is necessary to enable the IRS
to evaluate whether the donor received a quid pro quo in exchange for
the donation. Costello, T.C. Memo. 2015-87, at *19; Alli, T.C. Memo.
2014-15, at *26.
                                           30

[*30] Respondent identifies two potential issues with respect to this
requirement. He argues that the Foster appraisal does not state that the
deed limits SERLC’s right to transfer the easement only to other
charitable organizations. We find that this omission is minor and would
not preclude the IRS from evaluating the reliability of the appraisal. The
Foster appraisal clearly states that New Shoals donated a conservation
easement in perpetuity, and New Shoals attached the easement deed to
its return. The IRS was made aware that New Shoals was claiming an
easement contribution deduction and had the necessary information to
ascertain whether the deed imposed the required restrictions on
SERLC’s right to transfer the easement.

       Respondent also argues that the appraisal’s description of the
deed’s use restrictions is vague. We find that the Foster appraisal
adequately describes the permitted and prohibited uses of the easement
property after the easement’s grant. 26 Notably, while respondent raises
this issue with the appraisal, he has not challenged New Shoals’s
easement contribution deduction on the grounds that it failed to meet
statutory or regulatory requirements for use restrictions or that Shoals
received a quid pro quo for the donation. We find that the Foster
appraisal provided sufficient information for the IRS to determine
whether Shoals overvalued the easement.

                        d.       Mr. Foster’s Qualifications

        A qualified appraisal must state the appraiser’s qualifications
including his background, experience, education, and memberships in
professional appraisal associations. Treas. Reg. § 1.170A-13(c)(3)(i)(B),
(ii)(F); see also id. subpara. (5)(i). Inclusion of the appraiser’s
qualifications in an appraisal allows the IRS to evaluate whether the
appraisal is reliable. Estate of Hoensheid, T.C. Memo. 2023-34, at *41;
Alli, T.C. Memo. 2014-15, at *35.

       As stated above, the Code provides the following requirements for
a qualified appraiser’s education and experience: an appraiser must
(1) have earned an appraisal designation from a recognized professional
appraiser organization or otherwise met minimum education and

        26 The Foster appraisal contains inconsistent statements about whether Mr.

Foster received a copy of a draft of the easement deed. Respondent did not question
Mr. Foster about this discrepancy at trial. In the light of the detailed description of the
deed in his appraisal, we find that Mr. Foster reviewed the draft deed and the
statement in his appraisal to the contrary is a clerical error that does not affect
whether the appraisal is a qualified appraisal.
                                    31

[*31] experience requirements set forth in the regulations,
(2) demonstrate verifiable education and experience in valuing the
specific type of property subject to the appraisal, and (3) regularly
perform appraisals for compensation. § 170(f)(11)(E)(ii)(I) and (II),
(iii)(I). The Foster appraisal states that Mr. Foster has done all three. It
is clear that Mr. Foster is a qualified appraiser, and respondent has not
argued otherwise. See Estate of Hoensheid, T.C. Memo. 2023-34,
at *13, *42 (holding that the appraiser was not a qualified appraiser and
addressing the appraisal’s failure to state his qualifications). Rather,
respondent argues that the Foster appraisal failed to include his
qualifications.

       The appraisal states that Mr. Foster’s qualifications are provided
in the addenda, but the appraisal omitted the addenda. Despite this
oversight, we find that the Foster appraisal provided sufficient
information about his qualifications to allow the IRS to evaluate the
appraisal’s reliability. It states that Mr. Foster is licensed and certified
to appraise conservation easements by the Licensing and Regulation
Real Estate Appraisers Board of the Georgia Department of Labor and
is a member of the Appraisal Institute (AI). His membership is identified
with the acronym MAI. MAI membership requires a four-year bachelor’s
degree, a passing grade on AI’s exam, and a minimum of 4,500 hours of
specialized work. See www.appraisalinstitute.org/ai-grs-designation-
requirements (last visited Mar. 20, 2024) (providing MAI designation
requirements). The appraisal further states that Mr. Foster has
completed AI’s continuing education requirements. Mr. Foster’s
membership in AI ensures he was a qualified appraiser, and the
inclusion of MAI after his name sufficiently demonstrates his education
and experience in valuing conservation easements.

       The definition of education and experience in Treasury
Regulation § 1.170A-17, which petitioner is entitled to rely on for the
year at issue, supports our finding that the Foster appraisal provides
sufficient information about his qualifications to allow the IRS to
evaluate whether his appraisal is reliable. That section requires the
appraisal to state the appraiser’s qualifications to value the type of
property being valued, including his education and experience. Treas.
Reg. § 1.170A-17(a)(3)(iv)(B). Under that section, education and
experience are verifiable if the appraiser specifies his education and
experience and makes a declaration that he is qualified to make
appraisals because of his education and experience. Id. para. (b)(4); see
also id. para. (b)(1) (defining a qualified appraiser as an individual with
verifiable education and experience in valuing the type of property for
                                          32

[*32] which the appraisal is performed). An appraiser is treated as
having education and experience either through coursework or a
recognized appraiser designation. Id. para. (b)(2)(i); see also id. subdiv.
(iii) (defining a recognized appraiser designation as a designation
awarded by a generally recognized professional appraiser organization
on the basis of demonstrated competency).

       The Foster appraisal clearly states that Mr. Foster holds a
recognized appraiser designation with the acronym MAI. An MAI
designation means that he has the education and experience to perform
a valuation, as membership requires education, testing, and experience.
Thus, we find that the Foster appraisal substantially complied with the
statutory and regulatory requirements for stating Mr. Foster’s
qualifications. See Bond, 100 T.C. at 41 (holding that the taxpayer
substantially complied with the reporting requirements even though it
failed to provide the appraiser’s qualifications); see also Cave Buttes,
L.L.C., 147 T.C. at 349–50 (holding that an appraisal substantially
complied where it omitted qualifications on one co-appraiser).

                4.      Conclusion

       Although the Foster appraisal does not strictly comply with the
qualified appraisal requirements, we find that it provided sufficient
information for the IRS to evaluate it. Accordingly, we hold that New
Shoals substantially complied with the reporting requirements for a
qualified appraisal.

        B.      Appraisal Summary

      Taxpayers must attach appraisal summaries to their returns
claiming noncash charitable contributions greater than $5,000. 27 See
Treas. Reg. § 1.170A-13(c)(2)(i)(B). To be fully completed, an appraisal
summary must include the date the donor acquired the property, the

        27 In the Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 155(a)(1) and (2),

98 Stat. 494, 691 (an uncodified statutory provision), Congress directed the Secretary
to issue regulations under section 170(a)(1) imposing heightened substantiation
requirements for noncash charitable contribution deductions greater than $5,000 that
require taxpayers to obtain a qualified appraisal, attach an appraisal summary to their
returns, and include the property’s cost basis and acquisition date. In response, the
Secretary added subparagraph (2) to Treasury Regulation § 1.170A-13(c). In the
American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 883(a), 118 Stat. 1418,
1631, Congress amended section 170(f) to require taxpayers also to obtain a qualified
appraisal of the donated property and attach it to their returns along with any other
information that the Secretary requires. See § 170(f)(11)(C).
                                     33

[*33] manner of acquisition, the donor’s cost or other basis in the
property, the date of the donation, and the appraised fair market value
of the donated property. Id. subpara. (4)(ii)(D), (E), (G), (J). The qualified
appraiser and the donee must sign the appraisal summary. Id. subpara.
(4)(i)(C), (iii). The IRS has prescribed Form 8283 for the appraisal
summary. Jorgenson v. Commissioner, T.C. Memo. 2000-38, slip op.
at 21. Failure to comply with the appraisal summary requirements
results in disallowance of the deduction. See § 170(f)(11)(A).

       Congress enacted the heightened reporting requirements “to give
the IRS tools that would enable it to identify inflated charitable
contribution deductions.” Belair Woods, LLC v. Commissioner, T.C.
Memo. 2018-159, at *16; see also Brooks v. Commissioner, T.C. Memo.
2022-122, at *17 (explaining that Congress “specifically” enacted the
heightened substantiation requirements “to prevent the Commissioner
from having to sleuth through the footnotes of millions of returns”). The
purpose of requiring taxpayers to report cost basis, fair market value,
and the amount of the deduction on an appraisal summary is “to alert
the Commissioner, in advance of audit, of potential overvaluations of
contributed property and thereby deter taxpayers from claiming
excessive deductions in the hope that they would not be audited.” RERI
Holdings I, LLC, 149 T.C. at 16–17 (involving the taxpayer’s failure to
disclose its cost or adjusted basis in the donated property). “Revenue
agents cannot be required to sift through dozens or hundreds of pages of
complex returns looking for clues about what the taxpayer’s cost basis
might be.” Belair Woods, LLC, T.C. Memo. 2018-159, at *20.

       Respondent argues that New Shoals did not satisfy the regulatory
requirements for an appraisal summary because it attached two
Forms 8283 to its return that reported inconsistent information. Only
pages 2 of the two versions differed. Ms. Salvati credibly testified that
Gross Collins encountered problems with its return preparation
software when it submitted the signed Form 8283 as a pdf attachment
to New Shoals’s return. Accordingly, Gross Collins prepared a computer-
generated Form 8283. In an unexplained oversight, it entered incorrect
information for New Shoals’s adjusted basis in the donated property, the
manner of the property’s acquisition, the donated property’s appraised
value, and the amount of the deduction. Regardless of which version the
IRS reviewed, it would have been clear to the IRS that New Shoals
potentially overvalued the easement. The Gross Collins Form 8283
reported a basis of $37,776 and a deduction of over $22.2 million, and
the Baker Donselson Form 8283 reported a basis of $1.5 million and a
                                        34

[*34] deduction of $23 million. 28 Accordingly, we do not face the same
concerns that we did in Belair Woods or Brooks where the taxpayers
failed to disclose and overstated their bases, respectively.

       Both Forms 8283 should have alerted the IRS to a potential
overvaluation of the easement’s fair market value. See Oakhill Woods,
LLC v. Commissioner, T.C. Memo. 2020-24, at *12–15 (involving an
appraisal summary that did not provide the taxpayer’s basis); Loube v.
Commissioner, T.C. Memo. 2020-3, at *8–9 (involving an appraisal
summary that did not provide the date on which the donated property
was acquired, the cost or adjusted basis, or the appraiser’s or the donee’s
signature). New Shoals did not hide pertinent information. Gross
Collins should have been more careful to confirm that it included the
correct information on the computer-generated Form 8283. However,
such carelessness does not render Form 8283 inadequate to satisfy the
substantiation requirements for an appraisal summary. Under the facts
and circumstances of this case, we find that Shoals satisfied the
statutory and regulatory requirements of an appraisal summary. We
find that the careless clerical errors on the Gross Collins Form 8283 are
harmless. The misstatements of the cost basis, the fair market value,
and the amount of the deduction do not rise to the level of the omissions
and overstatements that we have addressed in our prior caselaw.

III.   Valuation

       A.      Valuation Principles

        Shoals is entitled to a charitable contribution deduction for the
easement donation. The amount of a charitable contribution deduction
for a donation of property is generally equal to the fair market value of
the donated property on the donation date. Treas. Reg. § 1.170A-1(a),
(c)(1). The regulations define fair market value as “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.” Id. para. (c)(2). Valuation is not
a precise science, and the value of property on a given date is a question

       28 The appraiser and the donee must sign the appraisal summary. Treas. Reg.

§ 1.170A-13(c)(4)(i)(B) and (C). Mr. Foster and Mr. Wright signed only the Baker
Donelson Form 8283. In addition, both versions refer to an attachment for additional
information, but there is only one attachment, and it is consistent with the Baker
Donelson Form.
                                         35

[*35] of fact to be resolved on the basis of the entire record. See Kaplan
v. Commissioner, 43 T.C. 663, 665 (1965).

       The parties retained experts to testify about the value of the
easement. We evaluate experts’ opinions in the light of their
qualifications and the evidence in the record. See Parker v.
Commissioner, 86 T.C. 547, 561 (1986). When experts offer competing
opinions about fair market value, we decide how to weight the opinions
by examining the factors that the experts considered in reaching their
conclusions. See Casey v. Commissioner, 38 T.C. 357, 381 (1962). We are
not bound by an expert opinion and may accept it in its entirety or accept
it in part 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); Laureys v. Commissioner, 92
T.C. 101, 127 (1989). We may determine fair market value on the basis
of our own examination of the evidence in the record. Emanouil v.
Commissioner, T.C. Memo. 2020-120, at *50–51 (citing Silverman v.
Commissioner, 538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C. Memo.
1974-285).

       The parties agree that we should value the easement using the
before and after valuation method, which values the easement by
calculating the difference between the fair market value of the easement
property unencumbered by the easement and its fair market value after
the easement’s grant. 29 See Treas. Reg. § 1.170A-14(h)(3)(i). We have
used this method to value conservation easements. See, e.g., Browning
v. Commissioner, 109 T.C. 303, 315, 320–24 (1997); Hilborn v.
Commissioner, 85 T.C. 677, 688–89 (1985). However, the parties’ experts
used two different approaches to determine the before value.
Respondent’s expert Mr. Brigden used the comparable sales method,
and petitioner’s experts Mr. Gold and Mr. Kenny used an income
approach, the discounted cashflow method. Determining which method
to apply is a question of law. See Chapman Glen Ltd. v. Commissioner,
140 T.C. 294, 325–26 (2013).

     The comparable sales method is “generally the most reliable
method” for valuing vacant, unimproved land. Estate of Rabe v.
Commissioner, T.C. Memo. 1975-26, aff’d, 566 F.2d 1183 (9th Cir. 1977)
(unpublished table decision); see also United States v. 320.0 Acres of

        29 When using the before and after valuation method, any enhancement in the

value of a donor’s other property resulting from the easement reduces the value of the
charitable contribution. Treas. Reg. § 1.170A-14(h)(3)(i). Shoals did not own property
whose value was enhanced by the easement.
                                    36

[*36] Land, More or Less in the Cty. of Monroe, 605 F.2d 762, 798 (5th
Cir. 1979) (“Courts have consistently recognized that, in general,
comparable sales constitute the best evidence of market value.”); Estate
of Giovacchini v. Commissioner, T.C. Memo. 2013-27; Talkington v.
Commissioner, T.C. Memo. 1998-412. On occasion, we have used the
income approach to value unencumbered, vacant land. See, e.g.,
Chapman Glen Ltd., 140 T.C. at 325; Crimi v. Commissioner, T.C.
Memo. 2013-51, at *64–65.

       The comparable sales method values property by comparing it to
similar properties sold in arm’s-length transactions around the
valuation date. See Estate of Spruill v. Commissioner, 88 T.C. 1197, 1229
n.24 (1987); Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1, 19
(1979). Because no two properties are ever identical, the appraiser must
adjust the sale prices of the comparables to account for differences
between the properties (e.g., parcel size, location, and physical features)
and the terms of the sales (e.g., proximity to valuation date and
conditions of sale). Wolfsen Land & Cattle Co., 72 T.C. at 19. The
reliability of a comparable sales analysis depends on the comparability
of the properties selected as comparables and the reasonableness of the
adjustments made to the prices to establish comparability. Id. at 19–20.

       The income method values a property by computing the present
value of projected future income from the property. See, e.g., Chapman
Glen Ltd., 140 T.C. at 327; Marine v. Commissioner, 92 T.C. 958, 983
(1989), aff’d, 921 F.2d 280 (9th Cir. 1991) (unpublished table decision);
Crimi, T.C. Memo. 2013-51, at *64. The theory behind an income
approach is that an investor would be willing to pay no more than the
present value of a property’s anticipated future net income. See Trout
Ranch, LLC v. Commissioner, T.C. Memo. 2010-283, aff’d, 493 F. App’x
944 (10th Cir. 2012). Income valuation methods are not favored when
valuing vacant land with no income-producing history because they are
inherently speculative and unreliable. See, e.g., Chapman Glen Ltd., 140
T.C. at 327; Whitehouse Hotel Ltd. P’ship v. Commissioner, 139 T.C. 304,
324–25 (2012), aff’d in part, vacated and remanded in part, 755 F.3d 236
(5th Cir. 2014); Marine, 92 T.C. at 983; Ambassador Apartments, Inc. v.
Commissioner, 50 T.C. 236, 243–44 (1968), aff’d per curiam, 406 F.2d
288 (2d Cir. 1969); Crimi, T.C. Memo. 2013-51, at *66–67.

      B.     Highest and Best Use

      We determine property value on the basis of the property’s
highest and best use. See Stanley Works & Subs. v. Commissioner,
                                      37

[*37] 87 T.C. 389, 400 (1986); Treas. Reg. § 1.170A-14(h)(3)(i) and (ii).
Accordingly, before we determine the before value, we must first
determine the unencumbered property’s highest and best use. Petitioner
argues that the highest and best use was as an aggregate quarry;
respondent argues that it was low-density residential and recreational
uses. A property’s highest and best use is the most profitable use for
which it is adaptable and needed or likely to be needed in the reasonably
near future. Olson v. United States, 292 U.S. 246, 255 (1934); Symington
v. Commissioner, 87 T.C. 892, 897 (1986). It can be any realistic,
objective, potential use of the property. Symington, 87 T.C. at 896–97;
Hilborn, 85 T.C. at 689. If the proposed highest and best use is different
from the property’s current use, the proposed use requires “closeness in
time” and “reasonable probability.” Hilborn, 85 T.C. at 689. Highest and
best use is a question of fact and requires an objective assessment of the
likelihood that the property would have been put to such use absent the
easement. Stanley Works & Subs., 87 T.C. at 408. Highest and best use
must be “reasonably probable,” “legal,” “physically possible,” and
“financially feasible.” See Whitehouse Hotel Ltd. P’ship, 139 T.C. at 331
(quoting Appraisal Institute, The Appraisal of Real Estate 277–78 (13th
ed. 2008)). The parties primarily disagree over the last element, whether
a quarry was financially feasible.

       The parties presented expert testimony on the highest and best
use of the unencumbered easement property. Respondent’s expert Mr.
Brigden determined the highest and best use was low-density
residential and agricultural by analyzing the aggregate market and land
use patterns in Hart County. Petitioner’s experts Mr. Kenny and Dr.
Capps determined that a quarry was the highest and best use using a
discounted cashflow analysis of a proposed quarry to evaluate whether
aggregate could have been economically mined. Respondent’s expert Mr.
Gunesch performed a discounted cashflow analysis in rebuttal and
concluded that the proposed quarry was not financially feasible.

             1.      Market Analysis

      Mr. Brigden analyzed highest and best use in large part on the
land use in the area surrounding the easement property. He testified
that aggregate is abundant in the area. 30 He analyzed the predominant
land uses in the area, which he found were recreational, rural
residential, and agricultural. He concluded from land use patterns that
there was not a demand for mining-use properties. He opined that

      30 Mr. Kenny acknowledged that aggregate is abundant in the region.
                                  38

[*38] because aggregate is abundant, the easement property is not
unique and this lack of uniqueness made the discounted cashflow
analysis an inappropriate method to value the easement property. He
further opined that the easement property did not have a comparative
advantage as a quarry over other land with known aggregate deposits.

      We agree with Mr. Brigden’s well-reasoned opinion and find that
the highest and best use of the unencumbered easement property was
low-density residential and recreational uses. It was not reasonably
probable that the easement property would have been needed as a
quarry in the reasonably near future. Furthermore, we find significant
flaws in the discounted cashflow analyses performed by petitioner’s
experts, and the quarry was not financially feasible.

             2.    Discounted Cashflow Analysis

      Petitioner’s experts performed discounted cashflow analyses in
which they concluded that a proposed quarry could have produced
aggregate over 25 to 30 years with a net present value ranging from
$21.1 to $27.6 million. Respondent’s expert Mr. Gunesch determined a
net present value of $2.9 million. The parties argue at length about
errors in the opposing party’s experts’ discounted cashflow analyses
including errors with respect to production and sales projections, the
amount of overburden that would need to be removed and the costs to
remove and store it, the time required to obtain mining permits and its
impact on production and sales in the first year of the proposed quarry,
the quality of the aggregate, operating costs, and capital costs.

       It is unnecessary for us to examine these arguments in detail
because we find that petitioner’s experts severely overestimated
demand for aggregate and failed to account for existing supply in the
market. Accordingly, we find that their production and sales projections
far exceeded likely production and sales. Petitioner’s experts failed to
account for the fact that competing quarries had substantial delivered
price advantages over the proposed quarry because of their locations. As
a result, petitioner’s experts’ production and sales projections were
overly optimistic. We find that it is highly unlikely that the market
would have supported their profitability conclusions. We find that a
proposed quarry was not financially feasible.

                   a.     Demand for Aggregate

      We begin by considering the size of the market for aggregate. Both
parties’ experts testified that generally the market for aggregate is
                                          39

[*39] limited to an area within a 50-mile radius of a quarry because of
the costs of transporting it to the point of use. 31 Mr. Brigden testified
that most aggregate is purchased from quarries within 25 miles of the
point of use because of transportation costs. Both parties’ experts agreed
that demand for aggregate from a quarry depends on its proximity to
customers. Dr. Capps testified that “demand is directly proportional to
the existing population base and rate of population growth” and “[t]he
crushed stone industry is highly dependent on construction activity.”
Mr. Kenny testified that “demand for aggregate material is driven by
population growth, business growth, and housing growth.”

       Petitioner’s experts testified that there was adequate demand to
support the proposed quarry. Respondent’s expert Mr. Gunesch testified
to the opposite. We find Mr. Gunesch’s testimony more convincing. We
find that the market would have likely been limited to an area within a
25-mile radius of the proposed quarry. The market likely would not have
supported petitioner’s experts’ sales projections. The area surrounding
the easement property is primarily rural. Hart County had a small
population and had minimal growth during the relevant period. Mr.
Gold identified the main target markets for the proposed quarry as rural
areas, nearby small towns, and the edges of the larger metro areas,
mainly Greenville. Mr. Kenny testified that “the primary population
epicenter[s]” are Greenville and Augusta. However, the Greenville
metro area, which includes part of Anderson County, is approximately
50 miles away and Augusta is nearly 100 miles away. Dr. Capps
erroneously included northeastern Atlanta in his defined market for the
proposed quarry even though Atlanta is over 100 miles from the
easement property.

      Mr. Gold and Dr. Capps estimated annual market demand at 7.2
and 8 million tons, respectively. Both used population figures to
estimate demand. Mr. Gold calculated that the population within a
25-mile and a 50-mile-radius market was 217,000 and 1 million,
respectively, and estimated that the proposed quarry would have
captured 20% of the 25-mile-radius market and 5% of the 50-mile-radius
market. Using the per-person statewide demand for aggregate in
Georgia and South Carolina, he calculated that the proposed quarry’s
50-mile-radius market would have sold nearly 660,000 tons per year,

        31 Some existing quarries had access to rail lines to transport aggregate, which

allows them to expand their market beyond a 50-mile radius.
                                        40

[*40] i.e., approximately 300,000 tons in the 25-mile-radius market and
360,000 tons in the 50-mile-radius market. 32

       We doubt that the proposed quarry could have sold that much
aggregate in either market. Mr. Gold based his demand calculations on
statewide aggregate demand even though he agreed that the aggregate
market is generally limited to an area within a 50-mile radius. There is
no concrete data in the record on the demand within the 50-mile-radius
market or evidence that demand is uniform statewide. It seems likely
that demand is not uniform especially in the light of the fact that
demand is greater near population centers. The proposed quarry is in a
rural area, and the closest cities with populations over 100,000 and
1 million are both 50 miles away and have closer available aggregate
sources. Mr. Gold’s statewide demand figures, 5.65 and 7.38 tons per
person for Georgia and South Carolina, respectively, are significantly
higher than nationwide demand of 4.5 tons per person. 33 Mr. Gold did
not establish to our satisfaction that the proposed quarry’s market
would match statewide per-person demand especially in the light of the
fact that the 25-mile-radius market was primarily rural. Moreover, we
are not convinced that the proposed quarry would have sold 360,000 tons
in the 50-mile radius market because quarries located closer to the
population centers would have had significant delivered price
advantages, as discussed further below.

       Dr. Capps calculated the 8 million tons of annual demand on the
basis of 1.8 million people living within the 50-mile-radius market,
nearly twice the population that Mr. Gold used in his demand
calculation. 34 We find Mr. Gold’s population figures are more reliable.
Using Mr. Gold’s population figures and Dr. Capps’s per-person demand,
the annual demand within the 50-mile radius market would be less than
4.4 million tons. However, we find that the proposed quarry’s market
was likely limited to the area less than 25 miles from the proposed
quarry. Both Dr. Capps and Mr. Gold failed to adequately account for
the competitive delivered price advantage that competing quarries

       32 From 2013 to 2016 statewide demand for aggregate increased in Georgia and

South Carolina by an average of 9% and 10% per year, respectively. Statewide prices
also increased in both states by an average of over 5% each year during this period.
       33 Dr. Capps testified to nationwide demand. Mr. Gold estimated each state’s

per-person demand by dividing aggregate use in each state by its population. Mr.
Kenny restated Mr. Gold’s population figures in his report.
       34 It seems that Dr. Capps’s population figures are based on the total

population of nearby counties in Georgia and South Carolina and erroneously include
population outside the 50-mile-radius market.
                                         41

[*41] would have had over the proposed quarry because they are closer
to population centers and the likely point of use. Only Mr. Gunesch
adequately examined the effect that competing quarries would have had
on the size of the proposed quarry’s market. We find his testimony
convincing.

                       b.     Competition from Existing Quarries

       Mr. Gunesch testified that the proposed quarry’s market area
would have likely been much smaller than that within a 50-mile radius
because existing quarries are closer to population centers. Both parties’
experts identified at least 12 quarries within a 50-mile radius of the
easement property. 35 Mr. Gunesch examined the location of competing
quarries relative to the easement property and population centers to
determine the size of the proposed quarry’s market. He determined that
a preferred market is limited to an area within 6 to 20 miles (depending
on direction). He testified that transportation costs are the “most critical
factor” for the viability of a quarry. Both Mr. Kenny and Dr. Capps
agreed that “[s]tone is purchased from the closest available sources that
can provide the quantity and quality necessary to match the customers’
requirements.” They testified that “[t]he cost of transportation is the
strongest factor driving the choice of quarry” and “the quarry closest to
existing project sites . . . will eventually acquire that business.” 36 Mr.
Gold conceded that many existing quarries are closer to the population
centers than the easement property. He failed to account for the
aggregate supply from existing quarries when estimating the proposed
quarry’s annual sales. In fact, none of petitioner’s experts took into
account competition from other quarries. 37

      There are two quarries in Anderson County and five in and
around Greenville. These quarries would have easily outperformed the
proposed quarry in delivered price. 38 Quarries closer to the Greenville
metro area would have had a delivered price advantage of $6.75 per ton
assuming transportation costs of 15 cents per mile per ton and those

       35 Some may have no longer been active.

       36 Both Mr. Kenny and Dr. Capps had these quoted statements in their reports.

        37 Green Creek purported to propose operating quarries in at least four other

easement transactions that would have been in competition with the proposed quarry
on the easement property.
      38 The city of Greenville and parts of Anderson County are 50 miles from the

easement property.
                                          42

[*42] quarries’ being 45 miles closer to Greenville. 39 There are
additional quarries outside of the Greenville metro area that are also
closer to it than the easement property. Athens, a city with a population
of approximately 250,000 that is approximately 50 miles from the
easement property, also has multiple suppliers that are closer than the
easement property.

       Nor did petitioner present any evidence that demand was not
being met. Dr. Capps opined that the proposed quarry could have sold
aggregate to underserved projects within a 50-mile radius but did not
identify any underserved projects. He made unsupported statements
about the demand for aggregate and ignored key data. Conversely, Mr.
Gunesch testified that a quarry near Anderson had a target production
of 259,000 tons per year but produced only 135,000 to 145,000 tons
annually, indicating that there was excess supply. This Anderson
quarry’s annual production was approximately 25% of Mr. Gold’s and
35% of Mr. Kenny’s and Dr. Capps’s projected annual production for the
proposed quarry.

       We find Mr. Gunesch’s opinion about the size of the proposed
quarry’s market the most credible. He identified a preferred market that
encompassed the area where the proposed quarry would have been the
closest source of aggregate. He estimated that the annual demand in the
preferred market was 383,000 tons. 40 The proposed quarry would have
had to capture 100% of the preferred market to get close to achieving
Mr. Kenny’s and Dr. Capps’s 400,000-ton annual production estimates
while Mr. Gold estimated annual demand to be even higher, 600,000
tons.

               3.      Conclusion

      On the basis of the record, we find that petitioner’s experts
overestimated annual sales of aggregate from the proposed quarry and
overstated its potential profitability. It is highly unlikely that the

       39 If we used the high end of Dr. Capps’s costs, 25 cents, the delivered price

advantage would have been $11.25 per ton. Mr. Gold testified that the national average
cost was 22 cents.
        40 If we used Mr. Gold’s population figure of 217,000 people living within a 25-

mile radius to calculate demand, the annual demand would have been less than
1 million tons (assuming Dr. Capps’s 4.5 per-person demand). The proposed quarry
would have had to capture over 40% of the market to reach Dr. Capps’s and Mr.
Kenny’s production estimates of 400,000 tons and over 60% to reach Mr. Gold’s
600,0000-ton production estimate, which we find unlikely on the basis of the record
before us.
                                         43

[*43] proposed quarry would have sold 400,000 to 600,000 tons of
aggregate annually. We find that there is a substantial risk that
production and sales estimates that petitioner’s experts used in their
discounted cashflow analyses would not be realized. Aggregate is
abundant in the region. The closest metro area was approximately
50 miles away, and the easement property has a competitive price
disadvantage over existing quarries that are closer to population
centers. Petitioner’s experts’ production figures are unreasonable.41
Accordingly, we conclude that an aggregate quarry was not financially
feasible and that the highest and best use of the unencumbered
easement property was low-density residential and recreational uses.

       C.      Before Value of Easement Property

      Mr. Brigden determined a before value of $420,000 using the
comparable sales method. Petitioner’s experts determined before values
of $21.1 to $27.6 million on the basis of the net present value of
subsurface aggregate using discounted cashflow analyses. Petitioner’s
experts based their valuations on the wrong highest and best use.
Accordingly, their analyses are not helpful to our valuation.

               1.      Comparable Sales Analysis

       Only Mr. Brigden presented an expert opinion as to the value of
the unencumbered easement property for residential and recreational
use. He determined a before value using the comparable sales method,
which we commonly find the most reliable method for valuing vacant
land. He performed a detailed analysis of sales of vacant land in Hart
County before identifying his four comparables. He adjusted the
comparables’ sale prices to account for differences in physical
characteristics, terms of sales, and sale dates. Petitioner did not object
to the comparables or the price adjustments that Mr. Brigden made
except to argue that the comparables were not mining-use properties.
Petitioner did not ask Mr. Brigden a single question on cross-
examination about the easement property’s similarities to and
differences from the comparables or about the price adjustments that he
made. Nor did petitioner’s experts criticize Mr. Brigden’s comparables
on these bases. The four comparables had adjusted prices ranging from

         41 Mr. Gunesch testified that a quarry operating in line with Mr. Gold’s

discounted cashflow analysis would have an operating profit margin of 67%. He
testified that the average industry profit margin is 24%. He opined that Mr. Gold’s
analysis produced unrealistic profit margins and therefore an unrealistic net present
value.
                                   44

[*44] $3,198 to $4,626 per acre and average and median adjusted prices
of $3,693 and $4,014 per acre, respectively. We find Mr. Brigden’s
valuation credible and reliable and place significant weight on the
adjusted prices of the four comparables in reaching our valuation
decision.

             2.    River Club’s Sale Price

       The $515,000 price that River Club received for its 92%
membership interest in Shoals confirms the reasonableness of Mr.
Brigden’s valuation especially in the light of the fact that the easement
property was Shoals’s sole asset. See TOT Prop. Holdings, LLC v.
Commissioner, 1 F.4th 1354 (11th Cir. 2021) (considering the sale price
of LLC membership interests relevant in the valuation of real estate
held as the LLC’s primary asset), aff’g No. 5600-17 (T.C. Nov. 22, 2019)
(bench opinion). River Club purchased the easement property in 2007
for $12,000 per acre as part of a failed residential development. In the
decade since it stopped working on its real estate development, it
received offers to purchase the River Club property for no more than
$1.5 million, approximately $3,500 per acre. Ultimately, it contributed
the property to three land LLCs associated with Green Creek in
exchange for membership interests and then resold the membership
interests for $2.1 million, approximately $5,000 per acre. It retained
small percentages of the membership interests in the three land LLCs
and received parts of three easement deductions. River Club transferred
the easement property to Shoals in exchange for a 95% membership
interest and resold a 92% interest for $515,000.

       Mr. Koehn viewed the three easement transactions as a
structured sale of the River Club property for $2.1 million. River Club’s
transfer of the easement property represents an arm’s-length transfer
for $5,000 per acre. None of petitioner’s experts considered River Club’s
$5,000-per-acre transfer or even its 2017 purchase of the land for
$12,000 per acre. The ownership and sales histories are clearly relevant
to the valuation of the easement property. We agree with Mr. Brigden’s
testimony that $515,000 “appears to be generally reflective of fair
market value pricing” for the easement property.

       Petitioner does not challenge the arm’s-length nature of River
Club’s transfer of the easement property to Shoals except to argue that
River Club did not know the value of the subsurface aggregate. River
Club’s lack of knowledge does not explain away the substantial disparity
between Shoals’s claimed deduction and the $515,000 price. As Mr.
                                          45

[*45] Brigden explained and we discussed above, land with known
aggregate deposits is abundant in the area and does not enjoy a price
premium. We place considerable weight on the $515,000 that River Club
received in the transaction in reaching our valuation decision.

                3.      Mining-Use Valuation

       Even if we were to assume that the unencumbered easement
property’s highest and best use was as a quarry, the record would not
support Shoals’s claimed deduction. Significantly, none of petitioner’s
experts who testified at trial opined as to the fair market value of the
unencumbered easement property. Rather, they determined the net
present value of the subsurface aggregate and ignored the regulatory
definition of fair market value. The regulations require us to determine
fair market value on the basis of the price that a willing buyer and a
willing seller would agree to. Petitioner did not present any evidence
that a prospective buyer of mining-use property would pay the net
present value of aggregate for the land. We are not convinced that a
quarry operator would pay the aggregate’s net present value for the land
as there would be no means for a profit. Petitioner’s experts do not tell
us what a quarry operator would pay for the land.

      Moreover, the record establishes that the presence of known
aggregate deposits has a minimal effect on the price of the land in the
region because aggregate is abundant. 42 At respondent’s request, Mr.
Brigden valued the unencumbered easement property assuming a
quarry would have been its most likely use. He used the comparable
sales method of valuation and determined a before value of $770,000,
approximately $7,500 per acre. In his rebuttal report, he identified
14 mining-use comparables that ranged in appreciation-adjusted prices

         42 When Mr. Brigden prepared his initial report, he was aware of the

subsurface testing on the easement property but did not ask about the results or
receive any testing results. Rather, he determined that granite bedrock was abundant
in the area on the basis of geological maps. Subsequently, he received information on
the testing, and in his rebuttal report he identified areas in Georgia with known biotite
gneiss on the basis of geological maps. At trial he testified that he understood that
biotite gneiss and granitic gneiss are substitutes as construction materials. Mr. Kenny
confirmed that gneiss and granite are similar and lumping them together is
reasonable. He testified that there are biotite gneiss, granitic gneiss, and granite on
the easement property. The Court questioned petitioner’s counsel about evidence in
the record about the difference between granitic gneiss and biotite gneiss, and
petitioner’s counsel did not identify anything in the record that establishes that there
is a substantial difference between them for purposes of this case.
                                          46

[*46] from $1,645 to $29,157 per acre. 43 The $29,157-per-acre
comparable was purchased to expand an existing quarry in an area with
ready access to transportation and a high demand for industrial-use
land. The next highest priced comparable sold for significantly less,
$12,256 per acre. He determined average and median appreciation-
adjusted prices of $8,532 and $7,392 per acre, respectively. Significantly,
the prices paid for land purchased for new extraction ranged from $1,645
to $7,570 per acre. Mr. Brigden opined that there were negligible
differences (approximately 1.5%) in prices paid for land with known
deposits from 2014 to 2017. He explained that there is no price premium
for land with known aggregate deposits because aggregate is abundant.
He testified that the easement property is not unique and that he would
consider property to be unique if the market demonstrated a preference
for the property.

        Mr. Brigden also criticized petitioner’s experts’ use of the
discounted cashflow analysis. He opined that such an analysis is
inappropriate because market participants would not perform one when
deciding whether to purchase land for aggregate mining. 44 He testified
that market participants did not need to perform a discounted cashflow
analysis because aggregate is abundant. He also opined that market
participants would not test mineral deposits before purchasing land. He
testified that the Court should value land with known deposits on the
basis of how market participants value it. We agree that our valuation
should mimic the market. See Treas. Reg. § 1.170A-1(c)(2). Even if we
assumed that a quarry is the highest and best use of the land, petitioner
has not established that a quarry operator would have paid more than
$750,000 for the land.

      Finally, we note that petitioner contests whether the mining-use
property comparables that Mr. Brigden identified are sufficiently

        43 Petitioner argues that Mr. Brigden misstated the price of one comparable,

571 acres sold in October 2018, by over $87,704. It argues that the comparable occurred
in two parts, surface rights for $4.4 million and subsurface rights for $44 million. It
argues that Mr. Bridgen omitted the $44 million from the price of the comparable. Mr.
Brigden credibly testified that the $44 million was a sale of an active quarry operation
and that he based the $4.4 million price on property tax records. Accordingly, the
$44 million transaction would not support a higher before value even if a quarry was
the highest and best use. Moreover, the $44 million sale, $87,704 per acre, would be
completely out of sync with other sale prices.
       44 Mr. Gold testified that under general industry practice quarry operators do

not conduct feasibility studies to value mineral resources or declare mineral reserves
before beginning mining operations. This testimony confirms that aggregate is
abundant in the region.
                                          47

[*47] similar to the easement property. 45 It also argues that it is difficult
to value mining-use property using a comparable sales approach. We
recognize the difficulties in accounting for physical differences in the
land and subsurface materials, the pit size of the quarry, and annual
production capacities. Also, the terms of the sales may be confidential
and not publicly available. However, we do not rely on Mr. Brigden’s
analysis of comparable mining-use properties or his before value of the
unencumbered property as mining use because a quarry is not its
highest and best use. We discuss Mr. Brigden’s mining-use comparables
analysis because it confirms that New Shoals claimed an exorbitantly
high, baseless value for the unencumbered easement property.

        D.     Valuation Decision

       On the basis of the record before us, we find that the before value
was $580,000. In reaching our valuation decision, we place the most
weight on the $515,000 payout that River Club agreed to for the 103-acre
easement property, $5,000 per acre. This payout amount is the largest
offer that it received for the property, with the highest previous offer
approximately $3,500 per acre. Mr. Brigden’s comparable sales analysis
confirms our understanding of the value. We also take into account the
tax savings that River Club may have hoped to achieve by retaining a
small ownership interest in New Shoals.

       Both parties’ experts used the comparable sales method to
determine the after value. Mr. Brigden determined an after value of
$100,000, which is more advantageous to New Shoals than the $290,000
after value that petitioner’s experts determined. We accept respondent’s
after value as a concession and find that the after value was $100,000.
The easement had a fair market value on the donation date of $480,000.

IV.     Accuracy-Related Penalties

       Respondent asserts a 40% penalty under section 6662(e) and (h)
for a gross valuation misstatement and, alternatively, a section 6662(a)
and (b)(3) accuracy-related penalty for a substantial valuation
misstatement. A taxpayer makes a gross valuation misstatement when

         45 Petitioner objects to Mr. Bridgen’s other mining-use comparables for

numerous reasons, arguing, for example, that they were not mined, were not zoned for
mining, were used for storage, were mined for other types of materials such as gravel,
fill materials, or dimension stone, or were not sold in arm’s-length transactions. We do
not need to resolve these issues because we do not rely on Mr. Bridgen’s mining-use
comparable sales analysis.
                                  48

[*48] it claims a value for donated property that is 200% or more of the
amount determined to be the correct value. § 6662(h). Reasonable cause
is not available as a defense to the gross valuation misstatement
penalty. § 6664(c)(3).

       New Shoals claimed a $23 million deduction. The easement had
a fair market value on the donation date of $480,000. Because the
amount of the claimed deduction was more than 200% of the fair market
value, the 40% gross valuation misstatement penalty applies to any
underpayment of tax attributable to the valuation misstatement.

      In reaching our holdings herein, we have considered all
arguments made, and, to the extent not mentioned above, we conclude
they are moot, irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.