Tax Court values a conservation easement at $800,000 against the $41,635,000 deducted
Eight hundred thousand dollars. That is what the United States Tax Court decided a conservation easement over 377.74 acres in Madison County, Alabama was worth, against the $41,635,000 the partnership deducted for donating it.
Judge Kerrigan issued the opinion on July 15 in Piton Holdings, LLC v. Commissioner, reported at 167 T.C. No. 4. The Internal Revenue Service had issued a Notice of Final Partnership Adjustment for 2018 disallowing a noncash charitable contribution deduction of $42,200,000, made up of $41,635,000 for the easement and $565,000 for a donated fee simple interest, and determining alternative penalties of $6,220,625.
The court put the value of the land before the easement at $1,440,000, or $3,800 per acre, using the comparable sales method advanced by the government's expert. Subtracting an after value of $640,000 that the parties had stipulated leaves an easement worth $800,000. The appraisal filed with the return had put the before value at $42,200,000, resting in part on a study that valued a hypothetical mine on the land at $42,281,000.
The land has a price history. A predecessor bought the 662.42-acre parent parcel in September 2012 for $1,059,872, which is $1,600 an acre.
Because the claimed value exceeded the value found by more than 200 percent, the partnership is liable for the 40 percent gross valuation misstatement penalty under section 6662(h). The court also held that the donations were extraordinary items under Treasury Regulation section 1.706-4(e), so the deductions could not be allocated to members who entered the partnership after the contributions occurred. Two further arguments failed. The partnership's Seventh Amendment claim under SEC v. Jarkesy did not survive the public rights exception, which the court applied following its decision in Riddle Aggregates, and the disclosure exception in section 6662(d)(2)(B)(ii) was held not to reach valuation misstatement penalties under section 6662(e) or (h).
The partnership is an Alabama limited liability company, so an appeal would lie to the Eleventh Circuit.
