UNITED STATES TAX COURT

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T.C. Memo.

2010-207

UNITED STATES TAX COURT

BILLY L. AND RENETTA J. EVANS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No.

8309-08.

Filed September 22,

2010.

Ps granted two facade easements to a qualified

conservation organization and claimed a $154, 350

charitable contribution deduction on their 2004 Federal

income tax return. R determined a deficiency, in part,

on the basis that Ps overstated the amount of their

charitable.contribution deduction, and R subsequently

asserted an accuracy-related penalty under sec. 6662,

I.R.C.

Held:

Ps are liable for the.deficiency.

Held, further, Ps are not liable for that portion

of the accuracy-related penalty under sec. 6662,

I . R . C . , that relates to the disallowed charitable

contribution deduction.

SERVED Sep 22 2010

- 2 Billy L. Evans, for petitioners.

Jeffrey S. Luechtefeld and Robert Dillard, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge:

In 2004 petitioners granted facade easements

with respect to two properties in the Capitol Hill Historic

District of Washington, D.C.

They claimed a $154,350 charitable

contribution deduction on their 2004 Federal income tax return

for doing so.

Respondent disallowed the deduction and determined

a Federal income tax deficiency of $58,896 for 2004.

This case

is before the Court on a petition for redetermination of that

deficiency.

In addition, respondent affirmatively asserted in

his June 3, 2008, answer that petitioners are also liable for an

$11,779 accuracy-related penalty pursuant to section 6662(a) for

2004.1

The issues for decision are whether petitioners are

liable for (1) the Federal income tax deficiency and (2) the

accuracy-related penalty.2

IUnless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as amended and in effect for

the tax year in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

2On their 2004 Federal income tax return, petitioners also

claimed a $137,172 nonpassive loss related to a broadcasting

company that they partially own. Respondent determined that the

loss was actually attributable to a passive activity and treated

it as a passive activity loss. Petitioners concede that they did

not materially participate in the broadcasting company in 2004,

(continued...)

- 3 FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are hereby incorporated by

r ference into our findings.

At the time the petition was filed,

petitioner Billy Evans resided in Florida and petitioner Renetta

Evans resided in California.

The parties have stipulated that

t e appropriate venue for any review of our decision in this

matter will be the U.S. Court of Appeals for the Eleventh

Circuit.

See sec. 7482(b) (2); Golsen v. Commissioner, 54 T.C.

742,

(1970), affd. 445 F.2d 985

757

(10th Cir.

1971).

Petitioner Billy Evans purchased a single-family rowhouse in

Washington, D.C., on December 29, 1995.

Petitioners purchased

a other single-family rowhouse in.Washington, D.C., on June 7,

.continued)

a defined by sec. 1.469-5T(a), Temporary Income Tax Regs., 53

Fed. Reg. 5725.(Feb. 25, 1988). They indicated in their petition

aNd in the stipulation of facts, however, that they sought to

challenge the validity of the regulation. Despite being reminded

at the end of the trial of the importance of briefing the purely

lŠgal validity issue, petitioners make no mention of it in their

brief or reply brief. Accordingly, and without- knowing the

specifics of petitioners' validity argument, we deem it conceded.

Sëe Levin v. Commissioner, 87 T.C. 698, 722-723 (1986) (citing

Rule 142(a) for the proposition that because "petitioners have

made no argument with respect to * * * deductions claimed * * *

[, they] are deemed to have conceded their nondeductibility"),

affd.

832 F.2d 403

(7th Cir.

1987); Zimmerman v. Commissioner,

T.C. 94, 104 n.7 (1976) (noting "that petitioners alleged in

their petition that their use of * * * [a particular] method in

computing the depreciation deductions claimed on their returns

was proper and that respondent erred in" disallowing these

d ductions.

"However at trial and on brief they made no argument

in this regard and we deem them to have conceded this issue.").

- 4 2004.

Both properties are in the Capitol Hill Historic District

of Washington, D.C.

On December 29, 2004, petitioner Billy Evans

executed two "Conservation Deed of Easement" documents and

petitioner Renetta Evans executed one of the two "Conservation

Deed of Easement" documents.

These documents were intended to

grant facade easements to Capitol Historic Trust, Inc., with

respect to the two properties.

On their joint 2004 Form 1040, U.S. Individual Income Tax

Return, petitioners claimed a $154,350 charitable contribution

deduction attributable to the facade easements.

Petitioners

attached page 2 of two Forms 8283, Noncash Charitable

Contributions, to their return.3

On January 10, 2008, respondent

issued a notice of deficiency determining, inter alia, that the

claimed $154,350 charitable contribution deduction was not

allowable.

Petitioners filed a timely petition for

redetermination of the deficiency on April 7, 2008.

held on January 14, 2009, in Tampa, Florida.

A trial was

The parties

submitted opening briefs and reply briefs.

3The two Forms 8283 showed appraised fair market values of

$67,100 and $87,230, respectively, for the two facade easements,

for a total of $154,330. However, Item 16, Gifts to Charity,

Other than by cash or check, of Schedule A, Itemized Deductions,

to the Form 1040 showed a total of $154,350. We surmise that the

$20 discrepancy arose from an error in reading the handwritten

figure of $87,230 on the second Form 8283 as $87,250 instead.

- 5 OPINION

Applicable Law

Section 170 allows a deduction for a qualified conservation

contribution that a taxpayer makes during the taxable year.

Sec.

170(c),

(f) (3) (B) (iii),

(h).

The value of a qualified

onservation contribution. "is the fair market value of the

perpetual conservation restriction at the time of the

contribution."

Sec. 1.170A-14(h) (3) (i), Income Tax Regs.

Fair market value "is the price at.which the property would

hange hands between a willing buyer and a willing seller,

neither being under any compulsion to buy or sell and both having

easonable knowledge of relevant facts."'

ncome Tax Regs.

Sec. 1.170A-1(c) (2),

Although the fair market value of a facade

easement would ideally be based on the sale prices of comparable

easements, sec . 1. 170A-14 (h) (3) (i) , Income Tax Regs . , such

information is seldom available because conservation easements

are typically granted by deed of gift rather than sold, Symington

'v. Commissioner, 87 T.C. 892, 895 (1986).

A common alternative

s the before-and-after approach, which compares the fair market

value of the easement-encumbered property before it is encumbered

by the easement and after.

Stanley Works & Subs. v.

Commi.ssioner, 87 T.C. 389, 399

and (ii), Income Tax Regs.

(1986); sec. 1.170A-14(h) (3) (i)

- 6 -

The parties dispute (1) whether the facade easements were

qualified conservation contributions under section 170(h);

(2)

whether petitioners satisfied the substantiation requirement of

section 170(f); and (3) what the fair market values of the facade

easements were at the time of their contribution.

II.

Burden of Proof

Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving entitlement to any claimed exemptions

or deductions.

(1992).

INDOPCO,

Inc. v. Commissioner,

503 U.S.

79,

Moreover, the Commissioner's determination of value is

normally presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect.

Welch v. Helvering,

290 U.S.

111,

115

See Rule 142(a);

(1933); Schwab v.

Commissioner, T.C. Memo. 1994-232.

Under section 7491(a), the burden may shift to the

Commissioner with respect to factual matters if the taxpayer.

produces credible evidence and meets several other requirements.

The Commissioner also bears the burden of proof with respect to

any new matter that is not raised in the notice of deficiency but

that either increases the original deficiency or requires the

taxpayer to present different evidence.

Commissioner, 112 T.C. 183, 197

See Rule 142(a); Shea v.

(1999); Wayne Bolt & Nut Co. v.

Commissioner, 93 T.C. 500, 507 (1989); see also sec. 7522.

- 7 -

Petitioners árgue that the -burden of proving the fair market

values of the facade easements shifts to respondent under section

491(a) because they presented credible evidence of the fair

arket values.

As described below, however, petitioners failed

o present credible evidence of fair market values..

Accordingly,

the burden of proof does not shift under section 7491(a).

Petitioners also argue that respondent -bears the burden of

proof with respect to the fair market values of the facade

easements because respondent failed to raise the issue in the

½otice of deficiency.

In the Explanation of Adjustments attached

to the notice of deficiency, respondent stated:

"It is

determined that you did not establish that the amount of

154,350.00 was (a) a contribution, and .(b) paid during taxable

Ýear 2004."

Although respondent could have phrased his statement

more explicitly, we find that the notice of deficiency adequately

apprised petitioners that the amount of the claïmed conservation

contribution deduction was at issue.

The burden of proof with

respect to fair market values therefore remains with petitioners.

III.

Values of the Facade Easements

Both parties'have offered reports and testimony of expert

witnesses to establish the amounts of petitioners' charitable

dontributions.

An expert's opinions are admissible if they

assist the trier of fact to understand the evidence or to

determine a f.act in issue.

Fed. R. Evid. 702.

We evaluate

- 8 expert opinions in light of each expert's demonstrated

qualifications and all other evidence in the record.

v. Commissioner, 86 T.C. 547, 561 (1986).

See Parker

Where experts offer

competing estimates of fair market value, we determine how to

weigh those restimates by, inter alia, examining the factors they

considered in reaching their conclusions.

Commissioner, 38 T.C. 357, 381 (1962).

See Casey v.

We are not bound by an

expert's opinions and may accept or reject an expert opinion in

full or in part in the exercise of sound judgment.

v. Natl. Grocery Co.,

304 U.S. 282,

Commissioner, supra at 561-562.

295

See Helvering

(1938); Parker v.

We may also reach a

determination of value based on our own examination of the

evidence in the record.

933

(2d Cir.

1976),

Silverman v. Commissioner, 538 F.2d 927,

affg. T.C. Memo. 1974-285.

Petitioners called two expert.witnesses:

Sandy L. Lassere,

whò prepared appraisal reports with respect to the facade

easements, and Calvin Mark Lassere, who reviewed the reports.

Mrs. Lassere has a marketing degree from the University of

Washington and is a certified residential appraiser in the

District of Columbia and Virginia.

She testified that she has

been appraising property for almost 10 years and that she has

appraised upwards of 30 easements.

Mr. Lassere has a bachelor of

science degree from Purdue University, is a certified general

appraiser in the District of Columbia, and has other appraisal

- 9 -

licenses in Florida, Georgia, New York, North Carolina, Virginia,

aÅd Maryland.

Mr. and Mrs. Lassere are coowners of CML &

Ašsociates, L.L.C., and serve as principal and president of the

firm, respectively.

Mrs. Lassere claimed to have used both the comparable sales

method and the before-and-after approach to value the facade

easements.4

On cross-examination, she admitted to a variety of

*Sec. 1.170A-14(h) (3) (i),

Income Tax Regs., which authorizes

the use of the before-and-after approach, provides in relevant

pÃrt that

If no substantial record of market-place sales is

available to use as a meaningful or valid comparison,

as a general rule (but not necessarily in all cases)

the fair market value of a perpetual con'servation

restriction is equal to the difference between the fair

market value of the property it encumbers before the

granting of the restriction and the fair market value

of the encumbered property after the granting of the

restriction. * * *

A cursory review of Mrs. Lassere's appraisal reports reveals that

her so-called before-and-after analysis consisted merely of

applying a percentage discount to the respective property's

béfore-donation market value to account for the grant of the

facade easement. We note -that such a percentage discount of a

p operty's before-donation market value without any analysis

tying the percentage discount to the specific property involved

may not constitute a before-and-after valuation under the

regulations, but in the light of our ultimate holding in this

case we need not pursue this any further.

See Scheidelman v.

Commissioner, T.C. Memo. 2010-151 (holding that the taxpayers

"failed to comply with the substantiation requirements under

section 170(f) and section 1.170A-13, Income Tax Regs." because

the appraisal "report used only estimates based on prior cases

and displayed no independent or reliable methodology applied to

the subject property as the basis for the valuation reached");

cf. Simmons v. Commissioner, T.C. Memo. 2009-208 (holding that

appraisals that included "discussions of IRS practice and cases

(continued...)

- 10 -

mistakes in her prepared reports, such as incorrectly describing

the restrictions imposed by the easements,5 making improper size

adjustments with respect to sales of several comparable

properties, and committing numerous miscalculations and spelling

and other typographical errors.

Her testimony also cast doubt on

the rigor and validity of her analysis.

For example, she did not

adjust sale prices for amenities or garage parking, had

difficulty explaining and justifying the adjustments she did

make, and did not review the deeds of easement encumbering

comparable properties.

In addition, Mrs. Lassere's testimony

also implied, explicitly or implicitly, that she may have

prepared the appraisal reports without having personally

inspected the properties;' relied on an inspection by, at the

4(...continued)

of this Court concerning facade easements" were nonetheless

sufficient to satisfy "the substantiation requirements of section

170" because the appraisals also contained statistics gathered by

the donee organization that the appraiser "took into account in

preparing the appraisals. The appraisals likewise identify the

method of valuation used and the basis for the valuations

reached.").

"Though her report indicates that the facade easements

prohibit "any extensions of improvements or erections of new or

additional exterior improvements of the property", on crossexamination Mrs. Lassere acknowledged that this restriction

applied only to that portion of the houses visible from the

street and would not cover extensions or new improvements to the

rear of the houses.

'Mrs. Lassere and Mr. Lassere apparently personally

inspected the two houses after.Dec. 9, 2008, although their

written reports had apparently been prepared by, and were dated

(continued...)

- 11 -

time the properties were actually inspected, an unsupervised

trainee appraiser;, incorrectly indicated in the reports that it

was she who had performed the interior inspection; and claimed in

the reports that the conditions for a qualified conservation

contribution had been satisfied though she failed to check these

conditions.

In fact, Mrs. Lassere's testimony revealed that

despite her expressed experience she was unfamiliar with the

r gulatory requirements that apply to an appraisal report

prepared to support a facade easement donation.

Further, she

used defined terms in her reports despite being unaware of their

t chnical tax meaning and implications .

During her cross-examination, Mrs. Lassere was asked by

respondent's counsel whether she was "familiar with the Internal

Revenue Service's regulations regarding a qualified appraisal

report".

it."

She replied by stating:

"I'm not very familiar with

Respondent's counsel then pressed her and the following

exchange ensued.

If I were to tell you that one of the requirements

of a qualified appraisal report is that it be made

within a certain time period of the appraised donation,

would that change yoùr answer to it being a qualified

appraisal report?

Would it change my answer?

YeS.

4 ( . . . continued)

ec.

2008.

- 12 -

Well, this is a retrospective appraisal.

Right. To be a qualified appraisal report, it has

to be made within a certain time period.

I understand that.

Is this appraisal made in the appropriate time

period to be A:

Yes it is.

When was it made?

It was made as of December 31, 2004.

When was the appraisal report made?

[A:] December 9, 2008.

That is almost four years after the date of the

donation?

That's correct.

Subsequently, during

Mrs. Lassere's cross-examination,

respondent's counsel noted that "Your.appraisal has the words

'qualified real property interest' in quotation marks" and asked

her whether "those words mean something.

understanding of that definition is?"

I'm asking what your

Mrs. Lassere admitted that

her use of the defined term "qualified real property interest" in

her appraisal reports "does not refer to the IRS.

It refers to

the way in which I write or convey information."

Do you know that the words "qualified real

property interest" is defined by the Internal Revenue

Code?

I don't have that definition here.

- 13 -

Are you aware that a qúalified real property

interest is a term defined by the Internal Revenue

Code?

I was not aware of that, no.

So its placement in your report does not mean a

qualified real property interest within the meaning of

the Internal Revenue Code?

Obviously not, or I would have put the definition.

In the·light of her'adèitted lack of familiarity with the

equirements for a qualified appraisal report, her use of terms

without an understanding of their exact meaning, and the various

aonceptual, methodological, and calculation errors that she

acknowledged, we decline to give Mrs. Lassere's appraisal reports

Ány probative weight, and we find that her conclusions regarding

the fair market values of the facade easement lack credibility.

Although Mr. Lassere testified at trial, he was not asked any

substantive questions by either party regarding the facade

èasements' fair market values.

Petitioners also attempt to prove the fair market values of

the easements through two other appraisal reports, each of which

indicates that it was prepared by Douglas K. Wood under the

supervision of John R. Keegan.

The two reports bear signature

dates of January 6 and 7, 2005, respectively, indicating that

both reports had been prepared before petitioners fi'led their

2004 income tax return.

Petitioners presumably relied on these

- 14 reports to complete Part -III of their Forms 8283 and Mr. Wood has

signed Part III, Declaration of Appraiser, o-f each Form 8283.7

Petitioners, however, did not call either Mr. Wood or Mr.

Keegan, the identified authors of these reports, to testify at

trial.

Accordingly, these reports are inadmissible as evidence -

of the fair market values of the facade easements.

Aa Invs.,

Inc. v. Commissioner,

125 T.C.

6-7

See Van Der

(2005)

(indicating that an appraisal report would be inadmissible as

evidence of fair market value if the author did not testify and

make himself available for cross-examination); Droz v.

Commissioner, T.C. Memo. 1996-.81 (refusing to accept an appraisal

report attached to a Federal income tax return where the author

'Mr. Wood's signature on both Forms 8283 bears a date of

of Jan. 5, 2005, a date before either of the two appraisal

reports was signed. Whether or not this fact has any impact on

the validity of the respective Form 8283 as an "appraisal

summary", as defined in sec. 170A-13(c) (4), Income Tax Regs., is

moot in this case because we hold the appraisal reports

inadmissible for purposes of establishing the fair market value

of the facade easements and sustain respondent's disallowance of

the entire amount of the claimed charitable contribution

deduction.

Further, the fact that the signature date on the

Forms 8283 precedes those of the appraisal reports does not

affect our considerat.ion of whether to accept the latter as a

"qualified appraisal", as defined in sec. 1.170A-13(c) (3), Income

Tax Regs. As explained infra note 13 and accompanying text, the

appraisal reports were attached as exhibits to the stipulation of

facts for the purpose of determining whether they constituted

qualified appraisals under sec. 1.170A-13(c) (3), Income Tax

Regs., and the parties have stipulated that petitioners obtained

these reports ,on their respective signature dates, each of which

was before petitioners filed their 2004 income tax return. Also,

respondent has acknowledged that these reports meet the timing

requirement for a qualified appraisal specified in sec. 1.170A13(c) (3) (iv) (B),

Income Tax-Regs.

- 15 |

Was not called as a witness at trial and was therefore not

available to be cross-examined about his qualifications and

methodology)."

We note that ordinarily any encumbrance on real property,

howsoever slight, -would tend to have some negative effect on that

property's fair market value.

Even a nominal encumbrance that is

placed by the current owner of the property would, at the very

least, deprive a subsequent owner of the opportunity of placing a

similar encumbrance on that property.

However, petitioners have

failed to provide sufficient credible evidence with respect to

the fair market values of the facade easements to meet their

burden of sustaining their claimed charitable contribution

deduction.

Respondent disallowed the entire amount of petitioner's

àlaimed deduction, and the burden was on petitioners to show that

this disallowance was in error.

See Rule 142(a)

("The burden of

proof shall be upon the petitioner, except as otherwise provided

by statute or determined by the Court"); Welch v. Helvering, 290

U.S. at 115 (the Commissioner's "ruling has the support ofra

"Petitioners also point.to (1) an excerpt from an Internal

Revenue Service Topical Tax Brief, entitled "Facade Easement

Çontributions" and (2) an excerpt from an Internal Revenue

Service "Market Segment Specialization Program Audit Technique

Guide" related to the rehabilitation tax credit . Even assuming

petitioners could rely on such documents, they do not relate

specifically to petitioners' facade easements and are therefore

inadequate evidence of fair market value.

- 16 -

presumption of correctness, and the petitioner has the burden of

proving it to be wrong"); see also Anselmo v. Commissioner, 757

F.2d 1208, 1210-1211 (11th Cir. 1985)

(taxpayer had the burden of

proving that the valuation of donated property should have been

higher than that stated in the notice of deficiency), affg. 80

T.C.

872

(1983); Philippi v. Commissioner, T.C. Memo. 2003-257

(taxpayer failed to carry his burden of establishing he would be

entitled to disallowed deductions, since his testimony was not

reliable., and no exhibits on which he relied supported his

position with respect to his claimed deductions).

Because

petitioners have failed to meet their burden of proof, they are

not entitled to any deduction.

IV.

Accuracy-Related Penalty

Respondent asserted in his June 3, 2008, answer that

petitioners were liable for an $11,779 accuracy-related penalty

under section 6662(a)."

Section 6662(a) imposes an accuracy-

9In the light of this finding, we need not address the other

issues addressed by the parties. We also need not address

respondent's motion at trial to strike certain pages from Mrs.

Lassere's appraisal reports on the grounds that she was not the

author of those pages.

"Our discussion below relates only to so much of the

$11,779 accuracy-related penalty as pertains to that portion of

petitioners' determined deficiency of $58,896 that arises from

the disallowance of the claimed $154,350 charitable contribution

deduction. As'discussed supra note 2, we deem petitioners to

have conceded the claimed $137,172 nonpassive loss related to a

broadcasting company that they partially own. Therefore, the

portion of the $58,896 determined deficiency, along with the

(continued...)

- 17 -

elated penalty of 20 percent of any underpayment that is

attributable to one of the causes listed in subsection (b).

One

such cause is any substantial understatement of income tax,

defined for individuals as an understatement (with certain

exceptions under section 6662(d) (2) (B) not applicable here) that

exceeds the greater of (1) 10 percent of the tax required to be

shown on the return for the taxable year or (2) $5,000.

6662 (b) (2) ,

Sec.

(d) (1) (A) .

A. Burden of Proof

Under section 7491(c), respondent bears the burden of

production with respect to petitioners' liability for the section

6662(a) penalty;

Generally, this means that respondent "must

come forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalty."

ommissioner,

116 T.C.

438,

446

(2001).

Higbee v.

Petitioners'

nderstatement of income tax for their 2004 tax year is

substantial under section 6662(d) (1) (A) because it exceeds $5,000

and is greater than 10 percent of the amount required to be shown

on their return.

Respondent has therefore satisfied his burden

of production with respect to the section 6662(a) penalty."

°(...continued)

associated accuracy-related penalty, if any, that is attributable

to the claimed $137,172 nonpassive loss is also deemed conceded.

"The amount of the understatement under sec. 6662(d) (2) (A)

is to be reduced by that portion of the understatement which is

(continued...)

- 18 There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate (1) reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment.

Sec. 6664(c) (1).

Regulations

promulgated under section 6664(c) provide further that the

determination of.reasonable cause and good faith "is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances."

Sec. 1.6664-4(b) (1), Income Tax Regs.

Notably,

pursuant to section 6664(c) (2), there may be reasonable cause and

good faith in the case of any underpayment "attributable to a

substantial or gross valuation over, statement * * * with respect

"(...continued)

attributable to (1) "the tax treatment of any item by the

taxpayer if there is or was substantial authority for such

treatment",

sec.

6662(d) (2) (:B) (i), or (2.)

any item if

(a)

"the

relevant facts affecting the item's tax treatment are adequately

disclosed in the return or in a statement attached to the

return",

sec.

6662(d) (2) (B) (ii) (I), and (b)

"there is a

reasonable basis for the tax treatment of such item by the

taxpayer", sec.

6662(d) (2) ()B) (ii) (II).

For purposes of

satisfying his burden of production for the sec. 6662(a)

accuracy-related penalty, the Commissioner is not generally

obligated to show why the penalty should be imposed on the entire

amount of the understatement and why no part of the

understatement should be reduced under sec. 6662(d) (2) (B).

See

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

However,

here, since respondent also bears the burden of proof, and

therefore the ultimate burden of persuasion, for the sec. 6662(a)

accuracy-related penalty, it could be argued that respondent is

indeed obligated to establish, by a preponderance of the

evidence, unless a higher evidentiary standard applies, that no

reduction is warranted under sec. 6662(d) (2) (]B). But we decline

to pursue this point any further because we hold below that

petitioners have satisfied the requirements of the reasonable

cause and good faith exception of sec. 6664(c) to the sec.

6662(a) penalty.

- 19 -

o charitable deduction property

* * * [only if] the claimed

value of the property was based on a qualified appraisal made by

a qualified appraiser," where the terms "qualified appraisal" and

qualified appraiser" have the meanings ascribed to them in

section 1.170A-13(c) (3) and (5), Income Tax Regs., respectively.

See also section 1.6664-4(h), Income Tax Regs.

We note that disallowance of the entire amount of

petitioners' claimed facade easement charitable contribution

deduction results in a substantial or gross valuation

Aisstatement under section 6662(e) or (h), respectively, with

respect to charitable deduction property, and consequently

ection 6664(c) (2) requires that petitioners have obtained a

qualified appraisal before claiming the deduction in order to be

eligible for the reasonable cause and good faith exception to the

áccuracy-related penalty under section 6662(a).

Since respondent asserted the -section 6662(a) penalty in his

answer and not in the notice of deficiency, respondent bears the

burden not only of production but also of proof with respect to

that penalty.

See Rule 142(a) (1)

("The burden of proof shall be

úpon the petitioner, except * * * that, in respect of any new

matter * * *, it shall be upon the respondent.") .

We have long

ecognized that when the Commissioner does not determine an

addition to tax or penalty in the notice of deficiency but

asserts one in his answer, he "has introduced a 'new matter' on

- 20 -

which he bears the burden of proof."

Sanderling, Inc. v.

Commissioner; 66 T.C. 743; 758 (1976)

(citing McSpadden v.

Commissioner, 50 T.C. 478 (1968), Papineau v. Commissioner, 28

T.C. 54 (1957), Tauber v. Commissioner, 24 T.C. 179 (1955), and

Estate of Falese v. Commissioner, 58 T.C. 895 (1972)), affd. in

part and revd. in part on other grounds 571 F.2d 174

(3d Cir.

1978); see also Gagliardi v. Commissioner, T.C..Memo. 2008-10;

Bhattacharyva v.

Appx. 934

Commissioner, T.C. Memo. 2007-19, affd. 357 Fed.

(9th Cir. 2009); Lenihan v. Commissioner, T.C. Memo.

2006-259, affd. 296 Fed. Appx. 160

(2d Cir. 2008); Snyder v.

Commissioner, T.C. Memo. 2006-92; Paleveda v. Commissioner, T.C.

Memo. 1997-416, affd. without published opinion 178 F.3d 1303

(11th Cir.

1999).

Examining the record before us, and for the reasons

disc'ussed below, we conclude that petitioners have made a

sufficient showing of reasonable cause and good faith that

respondent has failed to rebut.

Therefore, the exception under

section 6664(c) applies and petitioners are not liable for the

section 6662 accuracy-related penalty.

See sec. 1.6664-4(b) (1),

Income Tax Regs.

B. Section 6664(c) (2) Qualified Appraisal Requirement

We begin with the requirement under section 6664(c) (2) of a

qualified appraisal made by a qualified appraiser, as defined by

section 1.170A-13(c) (3) and (5), Income Tax Regs., respectively.

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This requirement applies to petitioners since our disallowance of

the entire amount of their claimed facade easement charitable '

contribution deduction results in a substantial or gross

aluation misstatement under section 6662(e) or (h),

espectively, with respect to charitable deduction property.

Consequently, under section 6664(c) (2), petitioners may not claim

the reasonable cause exception of section 6664(c) to an accuracyrelated penalty under section 6662(a) unless "the claimed value

of the property was based on a qualified appraisal made by a

qualified appraiser".

Sec. 6664(c) (2).

Mrs. Lassere's appraisal reports that were signed December

, 2008, could not have been "received by the donor before the

due date * * * of the return on which a deduction is first

álaimed" and, therefore, pursuant to section 1.170A13(c) (3) (iv) (JB), Income Tax Regs., cannot constitute a quali,fied

appraisal.

As we have noted above, in addition to Mrs. Lassere's

appraisal reports, petitioners also attempted to prove the fair

market values of the easements through two written appraisal

reports, each prepared by Mr. Wood under the supervision of Mr.

Keegan.

And, as we concluded above, petitioners' failure to call

either of the two signatories of these reports to testify at

rial precludes us from considering these reports as evidence of

the fair market values of the facade easements.

We arrived at

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this conclusion because petitioners bear the burden of proof for

their claimed deductions and, therefore, for establishing the

fair market values of the facade easements by a preponderance of

the evidence.

Petitioners' failure to call the two signatories

of these reports to testify at trial prevented them from meeting

this evidentiary standard and satisfying their burden of proof.

However, we do not believe that the lack of trial testimony by

Messrs. Wood and Keegan prevents us from determining whether

their appraisal reports constitute a qualified appraisal under

section 1.170A-13(c) (3),

Income Tax Regs.

"A qualified appraisal under sec. 1.170A-13(c) (3), Income

Tax Regs., is a necessary but not a sufficient^condition for

purposes of both satisfying the substantiation requirement of

sec. 170(f) and invoking the reasonable cause and good faith

exception of sec. 6664(c) (2). .Had we found Mrs. Lassere's trial

testimony credible and accepted her appraisal reports as

conclusive evidence of petitioners' claimed fair market values of

the facade easements, we would have been confronted with deciding

whether to accept Messrs. Wood and Keegan's apprais'al reports as

a qualified appraisal for purposes of satisfying the

substantiation requirement of sec. 170(f) since Mrs. Lassere's

appraisal reports, which were prepared in anticipation of trial,

could not constitute a qualified appraisal pursuant to sec.

1.170A-13(c) (3) (iv) (B),

Income Tax Regs.