# United States Tax Court

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URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A3956f3a02932241a

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

United States Tax Court
164 T.C. No. 6
RANCH SPRINGS, LLC, RANCH SPRINGS INVESTORS, LLC,
TAX MATTERS PARTNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
__________
Docket No. 11794-21.

Filed March 31, 2025.
—————

P is the tax matters partner of LLC, which claimed
on its 2017 return a charitable contribution deduction for a
conservation easement donation. The easement was
granted upon rural land in Shelby County, Alabama. The
property was zoned A–1 Agricultural, which permitted agricultural and light residential use only.
LLC had acquired the land for $6,500 per acre in December 2016. In December 2017 an appraiser hired by LLC
valued the land at $236,673 per acre, asserting that its
highest and best use (HBU) was limestone mining. Relying
on this appraisal, LLC on its 2017 return claimed a charitable contribution deduction of $25,814,000 for a qualified
conservation contribution under I.R.C. § 170(h).
R commenced an examination of LLC’s return, disallowed the charitable contribution deduction in its entirety, and asserted penalties. R issued P a Notice of Final
Partnership Administrative Adjustment, and P timely petitioned this Court.
Held: The transaction by which LLC acquired the
property in December 2016 occurred at arm’s length between a willing seller and a willing buyer, both with

Served 03/31/25

2
reasonable knowledge of relevant facts and neither being
under any compulsion to buy or sell. The per-acre price
upon which the parties agreed, $6,500, provides very
strong evidence as to the fair market value of the property
before the easement was granted.
Held, further, P failed to establish that the HBU of
the property before the granting of the easement was limestone mining. The property was zoned A–1 Agricultural
and P failed to prove that rezoning to permit mining use
was reasonably probable.
Held, further, assuming arguendo that limestone
mining was a permissible use, the version of the income
method P’s experts used to determine the “before value” of
the property is erroneous as a matter of law because it
equates the value of raw land with the net present value of
a hypothetical limestone business conducted on the land.
A knowledgeable willing buyer would not pay, for one of the
assets needed to conduct a business, the entire projected
value of the business.
Held, further, the “before value” of the property was
$720,500, or $6,550 per acre, as determined by R’s expert
using the comparable sales method. Subtracting from the
“before value” the property’s conceded “after value,” or
$385,000, the value of the easement was $335,500.
Held, further, because the claimed value of the easement exceeded the correct value by 7,694%, LLC is liable
for a 40% penalty for a gross valuation misstatement under
I.R.C. § 6662(h).
—————
Simon P. Hansen, Anthony J. DeRiso III, Charles E. Hodges II, Darianne
DeLeon, and Jeffrey A. Kaplan, Jr., for petitioner.
Brett Chmielewski, Maria S. de Sam Lazaro, Anna L. Boning, Rishi K.
Jain, Eric R. Skinner, Justin D. Scheid, Casey N. Epstein, and Sarah M.
Raben, for respondent.

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LAUBER, Judge: This is a syndicated conservation easement
(SCE) case, with a fact pattern that has become painfully familiar. In
December 2016 Ranch Springs, LLC (Ranch Springs), purchased
110 acres of farmland in rural Alabama for $715,000, or $6,500 per acre.
That approximated the going rate for similar property in the neighborhood during 2014–2020.
One year and six days later, Ranch Springs granted a conservation easement over the property. On its Federal income tax return for
2017, it claimed for this donation a charitable contribution tax deduction
of $25,814,000. It asserted that the “before value” of the farmland—i.e.,
the value of the land before being encumbered by the easement—was
$236,673 per acre. It thus took the position that the land had appreciated by 3,641% in 12 months.
The appraisal accompanying the return, prepared by Claud
Clark III, asserted that the “highest and best use” (HBU) of the farmland was development as a limestone quarry. To value the easement,
Mr. Clark hypothesized—and discounted to present value—the cashflow
that supposedly could be derived from operating a limestone quarry on
the property for 35 years. He opined, in other words, that the value of
the raw land was equal to the assumed value of the hypothetical mining
business.
The property’s zoning classification permitted only agricultural
and light residential use. Petitioner failed to establish a reasonable
probability that the land could be rezoned to permit use as a limestone
quarry. Because mining was not a legally permissible use, it was not
the property’s HBU.
Assuming arguendo that rezoning approval could have been secured, petitioner failed to prove that a limestone quarry would have been
financially feasible, given the laws of supply and demand. In any event,
the appraisal methodology implemented by Mr. Clark is wholly illogical
and erroneous as a matter of law. No rational buyer with knowledge of
all relevant facts would pay, for one asset needed to operate a business,
the entire future value of the business.
We conclude here, as we did in J L Minerals, LLC v. Commissioner, T.C. Memo. 2024-93, at *3, that the valuation of the conservation
easement “was an outrageous overstatement,” wholly untethered from
reality. Employing the comparable sales method, as backstopped by the
price actually paid to acquire the property in December 2016, we find

4
that its “before value” was $6,550 per acre and that the value of the
easement was $335,500. Because the value claimed on Ranch Springs’
return ($25,814,000) exceeded the value of the easement by 7,694%,
Ranch Springs is liable for the 40% gross valuation misstatement penalty. See § 6662(a), (h). 1
FINDINGS OF FACT
The following facts are derived from the pleadings, five Stipulations of Facts with attached Exhibits, one oral stipulation on the record,
numerous trial Exhibits, and the testimony of fact and expert witnesses
admitted into evidence at trial. Ranch Springs is an Alabama limited
liability company (LLC) classified as a TEFRA partnership for its short
taxable period ending December 31, 2017. 2 Petitioner, Ranch Springs
Investors, LLC, its tax matters partner (TMP), had its principal place of
business in Georgia when the Petition was timely filed.
Several of the fact witnesses petitioner called were friends, acquaintances, or business associates of Thomas (Tom) and Robert (Bob)
Lewis, the prime movers behind the SCE transaction. Other witnesses
had invested in SCE deals and thus had a direct or indirect stake in the
outcome of this case. While generally showing good recall of many facts
from the 2016 and 2017 period, they sometimes expressed inability to
recall certain facts about matters that might be regarded as unhelpful
to petitioner’s position. Because of these witnesses’ selective inability to
recall pertinent facts, the Court has been required to make credibility
determinations.
I.

The Sun Valley Tract

Harpersville is a small town in Shelby County, Alabama. It is a
largely rural community about 30 miles southeast of Birmingham. Its
population at times relevant to this case was about 1,700. One witness

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 Rule references are to the Tax Court Rules of Practice and Procedure. We round
all monetary amounts to the nearest dollar.
2 Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, governed the tax treatment and audit process for many partnerships, including Ranch Springs.

5
compared it to Mayberry, the fictional setting of The Andy Griffith Show,
where “everybody knows everybody.”
Jason Carpenter is an experienced businessman who originally
worked in the tobacco industry. In 2012 he and his wife decided to venture into the cattle business. They purchased 88 acres of land in
Harpersville. That sale closed in March 2012 for $627,200, or $7,127
per acre. The Carpenters intended to use the land for cattle grazing.
The Carpenters decided to put their cattle business into an LLC.
In December 2013 they formed Sun Valley Farms, LLC (Sun Valley), for
that purpose. On January 31, 2014, Sun Valley purchased another
105 acres, adjacent to the tract the Carpenters already owned, for
$517,500, or $4,929 per acre. Four days later the Carpenters contributed the 88-acre tract to Sun Valley. As of February 2014 Sun Valley
thus owned 193 acres of contiguous farmland in Harpersville (Sun Valley Tract).
The Sun Valley Tract was surrounded by agricultural and residential property. Several homes were directly adjacent to it. It was
bounded on one side by Sun Valley Road, which passed by 50–60 residences and numerous farms. On its other side the Sun Valley Tract had
frontage along Highway 280, which abuts Ranch Road. Highway 280 is
a major four-lane highway that connects Birmingham with points south.
The approximate location of the Sun Valley Tract—referred to on this
map as the Ranch Springs property, which was carved from it—is shown
below:

6

Approximately 20 acres of the Sun Valley Tract were characterized as “farmland of statewide importance.” Another 88 acres consisted
of “prime farmland.” At all relevant times, the property was zoned “A–1
Agricultural,” a zoning category that permitted agricultural and light
residential use only.
The Carpenters grazed cattle on the Sun Valley Tract starting in
2012. Mr. Carpenter assiduously maintained the property, and he frequently encountered chunks of limestone when using his agricultural
equipment. Limestone outcroppings were plainly visible at multiple locations on the property.

7
II.

The Lewis Brothers

Tom and Bob Lewis are longtime Alabama residents with lifelong
experience in the coal mining business. Tom Lewis, who testified at
trial, studied geology and began working at Birmingham Coal & Coke
(BCC) in 1978. He and his brother built their careers at BCC, which
operated surface mines and supplied much of its coal to an Alabama
electric utility.
In 2009 the Lewis brothers were approached by Tim McCollum
with a different sort of business proposition. Mr. McCollum had just
purchased, at a bank foreclosure sale, the Meadows property, an 18-hole
golf course in Harpersville. It was situated on Highway 280 near the
Carpenters’ property. Jason Rudakas, Tom Lewis’s son-in-law, stated
that the golf course was “right across the road” from the Sun Valley
Tract. Another witness estimated that it was a quarter of a mile away.
The Meadows property consisted of 200 acres. Mr. McCollum
paid $750,000, or $3,750 per acre, for it. Needing help to finance the
acquisition, he approached the Lewis brothers about a partnership or
joint venture, to which they agreed.
The Lewis brothers evaluated several options for developing the
golf course property. They allegedly considered a residential development but concluded that the market for that many homes did not exist.
They considered some sort of sports complex that would include athletic
fields. They ultimately rejected these options and commissioned a report from Bhate Geotechnical Engineering (Bhate) to investigate the
property’s potential for development as a limestone quarry. Bhate
drilled 3 boreholes on the 200-acre property. On the basis of the drilling
results, Bhate asserted that the golf course would be worth $41 million
if developed as a limestone mine.
The Lewis brothers had some experience with limestone and aggregates. They had mined limestone at their coal mine sites, and they
used aggregates in their coal mine reclamation projects. Owing in part
to utilities’ diminished appetite for coal, BCC was undergoing financial
stress around this time, and it eventually filed for bankruptcy in 2015.
Given their surface mining experience and ownership of the necessary
mining equipment, pursuing an opportunity to mine aggregates appeared to be a logical step to diversify their business away from coal.

8
Indeed, Tom Lewis testified that he and his brother “wanted to move
into the limestone [mining] business in [Shelby County].” 3
Notwithstanding their alleged desire to move into the limestone
mining business in Shelby County, and notwithstanding the Bhate report’s assertion that a limestone quarry on the Meadows property might
be worth $41 million, the Lewis brothers did not pursue this limestone
mining opportunity. According to Tom Lewis, the opportunity did not
work out “timing wise” with their efforts to exit the coal business.
Instead, the Lewis brothers donated the golf course to the Town
of Harpersville and claimed charitable contribution deductions on their
tax returns, using the Bhate report to support the deductions claimed.
Tom Lewis said he could not remember the total amount of the deductions they reported, but he thought it was less than $41 million.
When the Town acquired the golf course, the property had been
derelict for several years and was overgrown with weeds. The Town
and/or its lessee spent more than $1 million rehabilitating the property.
The Meadows golf course eventually reopened during the administration
of Mayor Don Greene, who was elected in 2016. He viewed the reopening of the golf course as a major achievement of his (and the prior
mayor’s) administration. The Town of Harpersville owned the golf
course during 2016 and 2017 and continues to own it today.
III.

Negotiations for Purchase of the Ranch Springs Property

In 2016 the Carpenters decided to list most of the Sun Valley
Tract for sale. On July 16, 2016, Judy Naugle, a realtor representing
the Carpenters, listed 175 acres—90% of the Tract—on the Multiple
Listing Service (MLS). The acreage was listed as three separate parcels:
a 25-acre and a 45-acre parcel, each priced at $7,500 per acre, and the
original 105-acre parcel, priced at $7,013 per acre. These listing prices
were determined by analyzing the prices at which nearby properties had
recently been sold. The Carpenters intended to retain the residual

3 Mr. Rudakas expressed the view that, during 2016 and 2017, limestone mining was a more attractive business than coal mining because (1) limestone mining was
much less heavily regulated; (2) permits for coal mining had to be renewed every
5 years, as opposed to 60 years for limestone; (3) limestone could be profitably extracted
from much shallower mines; and (4) the coal business was under economic stress
whereas the aggregates business was allegedly booming.

9
18 acres, which included their personal residence and a residence that
they used as rental property.
In late August 2016 Bob Lewis approached Ms. Naugle about the
MLS listing for the Sun Valley Tract. He and Mr. Rudakas met with
Ms. Naugle and the Carpenters during the first week of September. Mr.
Lewis informed them of his belief that the Sun Valley Tract had the potential for development as a limestone mine. “Knox Group” limestone,
which underlies the Sun Valley Tract, is very common throughout the
region. There is nothing special or unique about the limestone on the
Sun Valley Tract. Surface mapping shows that this limestone formation
covers almost all of Shelby County.
During a subsequent meeting to discuss possible acquisition of
the property, Bob Lewis brought out a geological map and showed Mr.
Carpenter the seams of limestone that underlay the property. Mr. Carpenter credibly testified that Mr. Lewis emphasized “the value of the
limestone” during this meeting. Mr. Lewis indicated that he intended
to speak with (or had already spoken with) the Mayor of Harpersville
about opening a limestone quarry.
Although emphasizing the limestone potential of the Sun Valley
Tract, Messrs. Lewis and Rudakas suggested that an attractive, taxadvantageous, alternative would be to place a conservation easement on
the land. They explained that a partnership could be formed to exploit
this opportunity. They proposed that the Carpenters contribute a portion of the Sun Valley Tract to the partnership in exchange for cash and
a partnership interest.
On September 6, 2016, Mr. Rudakas sent Mr. Carpenter, and
asked him to sign, a draft “membership interest purchase agreement”
(MIP agreement) for such a partnership. At a later date Mr. Carpenter
was given an organizational chart for the proposed venture. The organizational chart resembled those used in many SCE transactions.
Mr. Rudakas and the Lewis brothers preferred that Mr. Carpenter participate as a partner in the proposed SCE venture, as opposed to
selling the land to them outright, for at least two reasons. First, the
partnership could then tack onto the Carpenters’ holding period for the
land, and it could thus consummate an SCE transaction in 2016, rather
than having to hold the land for a year to qualify for long-term capital
gain treatment. See §§ 1231(a)(3)(A)(i), (b)(1), 1223(2). Second, if the
Carpenters contributed rather than sold the land, the partnership would

10
not have to pay cash up front and wait a year to get reimbursed by investors.
Draft iterations of the MIP agreement indicated that the Carpenters might receive as much as $7,000 per acre for the Sun Valley Tract,
roughly equal to their asking price. But Mr. Rudakas explained that a
one-year holding period for the land would impose some risk on the partnership. For that reason, the price the partnership would be willing to
pay might be reduced if the Carpenters declined to join as partners.
Mr. Carpenter sought advice about this proposal from his lawyer,
his accountant, and “a friend who conserved property in the past.” On
September 15, 2016, Mr. Carpenter emailed Mr. Rudakas and thanked
him “for taking the time Tuesday to help me better understand the process of the Conservation Easement and how it would relate to the property.” But “based on the guidance and advice” that he and his wife had
received, they declined to participate in the proposed SCE venture.
After a 6-week quiet period, Mr. Rudakas reopened the negotiations in November 2016. During November and December he negotiated
intensely with Mr. Carpenter and Ms. Naugle. Numerous versions of an
MIP agreement were exchanged with a view to addressing the Carpenters’ concerns. These drafts were reviewed and marked up by Mr. Carpenter’s attorney.
On December 6, 2016, Ms. Naugle emailed Mr. Rudakas at the
Carpenters’ direction and reconfirmed their decision not to participate
in any form of SCE venture. She explained that “the current proposed
purchase/partnership transaction will not satisfy the concerns [the Carpenters] have regarding potential liabilities.” She informed Mr. Rudakas that the Carpenters wished “to do a straight out purchase of the
property,” acknowledging their awareness that “this may change the
price that you are willing to pay.”
Mr. Rudakas finally acquiesced to the Carpenters’ proposal for an
outright sale. But he insisted that the Carpenters execute a “drilling
access agreement” authorizing exploratory drilling on portions of the
Sun Valley Tract. Mr. Rudakas made clear that the sale could not close
until exploratory drilling on the Tract had been completed and the drilling results analyzed. The parties had extensive discussions regarding
the exact number of acres that would be purchased. Mr. Carpenter understood that the acreage purchased needed to be sufficient to satisfy
the requirements for a limestone quarry.

11
On December 6, 2016, the parties executed a contract whereby
Red Mountain Resources, LLC (Red Mountain), agreed to purchase
“122+/− acres” of the Sun Valley Tract for $793,000, or $6,500 per acre.
Red Mountain was controlled by the Lewis brothers. The contract was
later revised to specify the purchase of only 110 acres, but at the same
per acre price of $6,500.
The revised contract substituted Ranch Springs for Red Mountain
as the buyer. Ranch Springs had been formed in October 2016. Its initial members were the Lewis brothers, their children, and Yellowhammer Developments (Yellowhammer). The members of Yellowhammer
were Mr. Rudakas and Brian Lewis, Bob Lewis’s son.
Sun Valley executed the drilling access agreement on December
7, 2016. The exploratory drilling was conducted between December 7
and 13. The drilling was supervised by AquaFUSION, Inc. (AFI), which
later prepared a report addressing the feasibility of operating a limestone quarry on the property.
On December 22, 2016, Ranch Springs purchased the 110-acre
parcel from Sun Valley for $715,000, or $6,500 per acre. This parcel
consisted of 100 acres from the Carpenters’ 105-acre tract and 10 acres
from their 88-acre tract. We will refer to this 110-acre parcel—on which
a conservation easement was granted one year and six days later—as
the Ranch Springs Property.
During negotiations for purchase of the Ranch Springs Property,
Mr. Rudakas assured Mr. Carpenter that the partnership “wouldn’t be
doing anything with the land” and that Sun Valley could lease it back
for cattle grazing on a year-to-year basis. For several years after the
purchase, Sun Valley did in fact lease the Ranch Springs Property (then
subject to a conservation easement) for cattle grazing. The Carpenters
continued to reside on the remainder of the Sun Valley Tract until 2022,
when they sold it to a farmer for about $6,000 per acre.
IV.

AFI’s Exploratory Drilling on the Sun Valley Tract

AFI drilled 10 holes on the property. Nine of these holes were
made using “air-rotary drilling.” Air-rotary drilling causes small chips
of subsurface material to be blown up and out of the drill hole, enabling
the chips to be collected for examination. Air-rotary drilling is considered preliminary, because the chips collected are not necessarily representative of the subsurface material because of the potential for sample

12
mixing and contamination. We will refer to the 9 drillholes created by
air-rotary drilling as “boreholes.”
“Diamond core drilling” is a more reliable (and expensive) exploratory technique. It enables the exploration team to recover a solid cylinder of subsurface material from the top to the bottom of the drillhole.
We will refer to drillholes created by diamond core drilling as “coreholes.”
AFI drilled only one corehole on the Ranch Springs Property. The
single corehole was drilled to a depth of 225 feet, and only 210 feet of
subsurface material were recovered for testing. In its feasibility analysis, AFI nevertheless presupposed a quarry pit that was 385 feet deep.
Exploratory drilling provides data, not only about subsurface
minerals, but also about “overburden,” i.e., commercially worthless material on top of the mineral layer. Overburden must be removed, transported, and stored to gain access to the minerals below. The greater the
overburden, the higher the quarry’s operational costs would be. Exploratory drilling also provides data about the subsurface presence of Athens shale, undesirable material that must be removed and cannot be
considered part of the limestone mineral resource.
AFI’s 10 drillholes revealed overburden varying in depth between
8 feet and 80.5 feet. The depth and thickness of the overburden increased rapidly toward the easternmost portion of the Sun Valley Tract.
Three boreholes encountered Athens shale. Athens shale also appeared
in at least two visible outcroppings on the Tract, in areas where AFI
chose not to drill. AFI proposed storing this overburden and deleterious
material on the northern edge of the Ranch Springs Property along highway 280, in a pile up to 75 feet high.
V.

Land Prices in Shelby County

Whenever real property is sold in Shelby County by recorded
deed, the Office of the Shelby County Property Tax Commissioner (Tax
Office) receives a copy of the deed. According to its records, 64 large
parcels of vacant land (i.e., parcels consisting of 45+ acres) were sold in
arm’s-length transactions between October 2014 and September 2020.
The median sale price for these parcels was $4,253 per acre, and the
average sale price was $6,935 per acre. The highest price paid during
this 6-year period was $35,320 per acre, for a 47-acre parcel of timberland sold in March 2018.

13
Della Pender has been a realtor in Harpersville since 1991. In
her experience, parcels of agricultural land comparable in size to the
Ranch Springs Property typically sold during 2017 for $3,500 to $4,500
per acre. The highest price she could recall having been paid for agricultural land in Harpersville was $8,500 per acre. That price was paid
for an 80-acre tract with frontage along Highway 280, which was purchased by a developer for use as a residential subdivision.
In December 2015 Locust Creek, LLC (Locust Creek), purchased
a 177-acre tract in the neighboring town of Vincent, Alabama, roughly
3 miles from the Ranch Springs Property, for $825,000, or $4,661 per
acre. Locust Creek was owned by the Lewis brothers and Mr. Rudakas.
They allegedly believed that the HBU of the Locust Creek tract was
limestone mining. Instead, they granted a conservation easement on
the property, which they valued for charitable contribution purposes at
$24,907,471. See Locust Creek LLC v. Commissioner, No. 13011-20 (T.C.
filed Nov. 9, 2020).
In December 2016 Bradford Resources, LLC (Bradford Resources), acquired a 151-acre tract in Harpersville, roughly 3 miles from
the Ranch Springs Property. As confirmed by the RT–1 form that accompanied the deed, the market value that the Tax Office placed on the
Bradford Resources parcel was $647,320, or $4,294 per acre. 4 Bradford
Resources was owned by the Lewis brothers and Mr. Rudakas. They
allegedly believed that the HBU of the Bradford Resources tract was
limestone mining. Instead, they granted a conservation easement on
the property, which they valued for charitable contribution purposes at
$24,874,151. See Bradford Resources LLC v. Commissioner, No. 1301220 (T.C. filed Nov. 9, 2020).
In December 2016 Tanyard Farms, LLC (Tanyard Farms), acquired a 138-acre tract in Harpersville, roughly 3 miles from the Ranch
Springs Property. As confirmed by the RT–1 form that accompanied the
deed, the market value that the Tax Office placed on the Tanyard Farms
parcel was $556,808, or $4,049 per acre. Tanyard Farms was owned by
the Lewis brothers and Mr. Rudakas. They allegedly believed that the
HBU of the Tanyard Farms tract was limestone mining. Instead, they
granted a conservation easement on the property, which they valued for
4 The RT–1 form is a sales validation document used to determine the transfer
tax associated with a transfer of real property. This form must be submitted to the
Tax Office with the deed if the deed does not indicate the value of the property transferred.

14
charitable contribution purposes at $24,612,000. See Tanyard Farms,
LLC v. Commissioner, No. 11216-21 (T.C. filed June 14, 2021).
In December 2016 Sunnydale Springs, LLC (Sunnydale Springs),
acquired a 190-acre tract in Harpersville, roughly 3 miles from the
Ranch Springs Property, for $850,000, or $4,474 per acre. Sunnydale
Springs was owned by the Lewis brothers and Mr. Rudakas. They allegedly believed that the HBU of the Sunnydale Springs tract was limestone mining. Instead, they granted a conservation easement on the
property, which they valued for charitable contribution purposes at
$23,701,000. See Sunnydale Springs, LLC v. Commissioner, No. 1447923 (T.C. filed Sept. 11, 2023).
In October 2014 Lhoist North America (Lhoist) purchased two
parcels of undeveloped land, totaling 240 acres, in Calera, within Shelby
County, about 29 miles southeast of Harpersville. As of 2017 Lhoist was
the ninth largest producer of aggregates in the United States. For several years it had operated the O’Neal quarry in Calera; in 2017 that
quarry produced about 5.5 million tons of limestone. Lhoist paid $2.56
million, or $16,000 per acre, for the 160-acre parcel it acquired in October 2014. It paid $1.44 million, or $17,976 per acre, for the 80-acre parcel it acquired concurrently.
In November 2017 Town Creek, LLC (Town Creek), purchased a
93-acre parcel in Calera for $600,000, or $6,452 per acre. Town Creek
was owned by the Lewis brothers and Mr. Rudakas. In 2019 Town
Creek donated the property to a foundation, reporting that the parcel
was worth $26.95 million, or $289,775 per acre.
VI.

Possibility of Rezoning the Ranch Springs Property

Because the Ranch Springs Property, like the rest of the Sun Valley Tract, was zoned “A–1 Agricultural,” Ranch Springs would have had
to secure rezoning approval to use the 110-acre parcel as a limestone
quarry. Ranch Springs owned the property throughout calendar year
2017. But at no point did it file an application with the Town of Harpersville seeking to have the property rezoned. And that was so even though
the Lewis brothers supposedly believed that a rezoning application
would be viewed favorably.
Rather than file a rezoning application, Mr. Rudakas asked an
Atlanta law firm, Bloom Parham (Bloom firm), to address the possibility
of rezoning. In a letter dated April 25, 2018, the Bloom firm concluded:
“[W]e think there is a reasonable probability that the Property can be

15
rezoned to M–1 [Industrial] and issued a special exception that allows
for mining, as long as there is not strong neighbor opposition to the mining request.” 5
The Bloom letter explained the process for rezoning requests in
Harpersville. Because the Town did not have a zoning classification that
explicitly permitted mining, the landowner would have to go through a
two-step process. First, he would need to secure approval from the
Harpersville Planning and Zoning Commission (Zoning Commission) to
change the zoning classification from Agricultural to M–1 Industrial.
Upon receipt of a rezoning application, the Zoning Commission
would post notices about the proposed change and directly notify neighbors who owned land near the property sought to be rezoned. If the
Zoning Commission approved the change after a public hearing, the application would then go to the Town Council, which would make the final
decision. The mayor cannot unilaterally approve a zoning change, although he would have a vote as a member of the Town Council.
If the Town Council approved the zoning change after a public
hearing, the landowner would then have to go the Harpersville Board of
Adjustment (Board) to secure approval for a “special exception.” The
Board would consider whether the proposed mining use was “compatible” with the M–1 Industrial classification, and it might hold another
public hearing before making its decision. If the Board deemed the mining use “compatible,” it could approve a “special exception” allowing the
mining use.
The Bloom letter concluded that “the rezoning/special exception
process is highly political and will turn on neighbor support/opposition.”
Because the Town had no specified criteria governing the evaluation of
rezoning requests, the process would be “influenced heavily by the
amount of support or opposition by neighbors of the subject Property.”
The Bloom firm spoke with Mayor Greene, whose term began in November 2016. He “emphasized the political nature of the [rezoning] decision
(i.e., neighbor support/opposition is the driving factor).”
The Bloom letter explained that similar considerations would
drive any request for a “special exception.” The Town’s zoning ordinance
provided that the Board could approve a zoning modification only upon
5 The letter did not mention that a conservation easement had been granted on
the Ranch Springs Property in December 2017, which would have precluded its conversion to mining use in April 2018, when the letter was drafted.

16
determining that the proposed use “will not tend to impair the health,
safety, convenience or comfort of the public, including that portion of the
public occupying the property immediately contiguous to the parcel of
land which the modification concerns.” According to the Bloom letter,
the Board’s analysis would thus “focus[] on the health, safety, convenience, and comfort to the public, specifically with respect to immediately
neighboring parcels of land.” The letter noted that the western edge of
the Ranch Springs Property “abuts several properties zoned R–1 Residential. It will be imperative to get these neighbors’ support during the
rezoning/special exception process.”
Neither Ranch Springs nor its agents did any outreach to immediate neighbors or other Harpersville residents during 2016–2018 to
gauge the level of community support for (or opposition to) a limestone
quarry. The Bloom firm likewise conducted no investigation of this kind.
It interviewed the Town Clerk and Mayor Greene, who served as Mayor
from November 2016 through October 2020. Both indicated that fair
consideration would be given to any rezoning request. But they would
provide no assurance about the fate of such a request, emphasizing that
the outcome “would be heavily influenced by whether or not neighboring
property owners oppose the request.”
Given these noncommittal responses, the Bloom letter placed
fairly strong reliance on a September 6, 2016, letter signed by Theo Perkins. Mr. Perkins served as Mayor of Harpersville from 2004 through
October 2016 and is also its current mayor. Mr. Rudakas supplied this
letter to the Bloom firm.
The September 6, 2016, letter is addressed to “Strategic Red
Mountain, LLC, c/o Robert Lewis.” The letter stated the author’s understanding that “Strategic Red Mountain, LLC is interested in purchasing
a controlling interest in a company who owns a tract of land” and was
“intent on using the Property for mining limestone.” The letter states
that the tract of land to which it referred was shown on a map “attached
as Exhibit A.” The letter says that, “if requested by you or the current
owners, the City would certainly approve a rezoning, special use, or conditional use to allow mining in these properties [sic].”
Mayor Perkins testified very credibly at trial. Besides serving as
Harpersville’s current mayor, he is a pastor of the Liberty Christian
Church. He explained that Bob Lewis drafted the September 6, 2016,
letter and requested that he (the mayor) sign it. Mayor Perkins explained that, in stating that Harpersville “would certainly approve a

17
rezoning,” he meant only that the Town would give fair and openminded consideration to a rezoning request.
The Bloom firm appended to its report a copy of the September 6,
2016, letter bearing Mayor Perkins’s signature. But the copy thus appended did not include an “Exhibit A,” which would have identified the
property to which the author was referring. At trial Mayor Perkins testified that the property map attached as Exhibit A to the letter he signed
was not a map of the Ranch Springs Property, but rather was a map of
the Tanyard Farms property (also called the Tanyard Dairy property),
in which the Lewis brothers and Mr. Rudakas also had an interest. 6 In
other words, Mayor Perkins testified that the letter he signed addressed
a possible rezoning of the Tanyard Farms property. He could not recall
a meeting that involved a discussion of the Ranch Springs Property, to
which he referred as the “Carpenter property.”
Mr. Rudakas testified after Mayor Perkins had completed his
trial testimony. Mr. Rudakas testified that Bob Lewis wrote the letter
in question and that he (Mr. Rudakas) typed it up. Mr. Rudakas then
allegedly printed out four identical copies of the letter, one for each of
four properties (including Ranch Springs and Tanyard Farms) in which
the Lewis brothers were interested. Although the Town of Harpersville
letterhead appears at the top of the letter, Mayor Perkins had testified
that this was not the letterhead the Mayor’s office used in 2016. Mr.
Rudakas said that he “must have created the letterhead,” seeking to replicate its font and style when typing up Mr. Lewis’s draft on his computer.
The copy of Mayor Perkins’s letter that was supplied to the Bloom
firm and Mr. Clark did not include an Exhibit A. Mr. Rudakas admitted
that he did not preserve any copy of the letter with an Exhibit A attached. After searching his files, Mr. Rudakas could find only one copy
of the letter, with no Exhibit. Petitioner was unable to produce at trial
any copy of the September 6, 2016, letter with an Exhibit A attached. 7

6 Tom Lewis acknowledged that he had participated in a partnership with an

interest in the Tanyard Farms property. A conservation easement was eventually
granted on that property, and the appraisal was based on the assumption that limestone mining was its HBU. See supra pp. 13–14.
7 In early 2018 Tom Lewis met with Mayor Greene, who succeeded Mr. Perkins
as mayor, to discuss possible rezoning of land in Harpersville for use as limestone
quarries. On June 1, 2018, Mayor Greene sent the Lewis brothers a standard letter

18
At trial respondent called as witnesses two members of the Zoning Commission who held office during 2016 and/or 2017. Ms. Pender
(the realtor mentioned earlier) is a lifelong resident of Harpersville and
has served on the Zoning Commission since 2005. She inherited her
parents’ home, which is on a tract 300 feet from the Ranch Springs Property. Her sister owned a 2-acre parcel that abutted the Ranch Springs
Property.
Ms. Pender stated her belief that most members of the Harpersville community would have opposed a limestone quarry on the Sun Valley Tract. She explained that most homes in Harpersville relied on shallow wells for their drinking water. Concerns about contamination of the
water supply, and about deleterious runoff into the Coosa River 2 miles
south of the Town, would have been at the top of residents’ worry list.
She believed residents would likewise be concerned about traffic congestion on local roads from trucks hauling aggregate. She credibly testified
that she, as a member of the Zoning Commission, would have voted
against a proposal to rezone the Ranch Springs Property for use as a
quarry.
Dale Glasscock is the largest landowner in Harpersville, owning
roughly 11% of the total acreage within the Town limits. His property
is less than half a mile from the Ranch Springs Property, extending
roughly two miles south all the way to the Coosa River. He was appointed to the Zoning Commission in 2017 by Mayor Greene and remained a member of the Commission at the time of trial.
Mr. Glasscock credibly testified that, to his knowledge, no one had
ever submitted an application to rezone land in Harpersville for use as
a quarry. If such a request were submitted, he believed that the public
hearing at which the request was considered would be “standing room
only.” He echoed Ms. Pender’s view that residents would be chiefly concerned about damage to their water supply system, traffic congestion,
noise, and dust from the quarry operation. More generally, he believed
that residents would have viewed a quarry as inconsistent with the
“easy [rural] environment” they prized.
Mr. Glasscock explained that the experience of Vincent, the adjacent town, had “educated” Harpersville’s residents about the problems a
explaining the rezoning process, noting that the Zoning Commission would “certainly
take your request in consideration.” Dissatisfied with this response, Mr. Lewis
drafted, and asked the mayor to sign, a letter expressing more unequivocal support for
rezoning. Mayor Greene refused to sign that letter.

19
limestone quarry might entail. After a bitter debate that divided that
town, the town council had approved rezoning for a quarry to be called
White Rock. But the quarry never opened, so the promises of economic
development, jobs, and high wages were never delivered. Mr. Glasscock
stated that he, as a member of the Zoning Commission, would have
voted against rezoning the Ranch Springs Property for use as a limestone quarry. He believed that his position would have been “the consensus of most of the [community].” Mayor Greene echoed that view,
explaining that a quarry on the Ranch Springs Property “probably would
not be looked on favorably” by nearby property owners. 8
Petitioner presented no testimony at trial from any current or former member of the Zoning Commission or Board of Adjustment. Petitioner offered no analysis that attempted to gauge the level of neighborhood opposition to (or support for) a limestone quarry. Petitioner’s sole
evidence on this point consisted of testimony from one former neighbor,
Daniel Gardner, who once owned a 100-acre tract adjacent to the Ranch
Springs Property. He testified that he would not have opposed a quarry
on that site.
We discounted Mr. Gardner’s testimony. He was a member of a
partnership, Sunrise Valley, LLC, that in 2018 granted a conservation
easement on the property he formerly owned, which was half a mile from
the Ranch Springs Property on the same road. See Sunrise Valley, LLC
v. Commissioner, No. 14353-23 (T.C. filed Sept. 7, 2023). The easement
was valued at $24.18 million, and the magnitude of the charitable contribution deduction Mr. Gardner (and other investors) were allocated
was premised on the theory that the land could have been used as a
limestone quarry. For that reason, Mr. Gardner had a personal interest
in testifying that the Ranch Springs Property, which was next to his,
could have been rezoned to permit limestone mining. Whether or not
his testimony was biased, we find that it was unlikely to be representative of the views of Harpersville residents generally.

8 Harpersville residents voiced strong opposition to the proposed rezoning of
another property—half a mile down the road from the Ranch Springs Property—for
use as a veterans assisted living facility. After residents expressed concerns that the
proposed facility would be inconsistent with the use of neighboring properties and
bring unwanted noise and traffic, the Zoning Commission voted to deny the rezoning
application. It seems reasonable to conclude that residents who considered an assisted
living facility for veterans too disruptive for the neighborhood would have opposed a
limestone quarry at least as strongly.

20
VII.

Permitting Required for a Limestone Quarry

Apart from rezoning, multiple permits would be needed to operate
a quarry on the Ranch Springs Property. Most of the permits would
have to be secured from the Alabama Department of Environmental
Management (ADEM). These would include an air emission discharge
permit, a surface water discharge permit, a National Pollutant Discharge Elimination System permit, and (if groundwater would be affected) an Underground Injection Control permit. For a limestone
quarry, ADEM would need to notify the U.S. Environmental Protection
Agency and the U.S. Fish and Wildlife Service, and those agencies would
conduct their own reviews of the application.
ADEM engages in an extensive technical examination of all permit applications, and it is rare for an applicant to be successful on its
first try. Typically there is a back-and-forth process, with ADEM raising
questions about the applicant’s plans and requesting more information.
If ADEM tentatively approves a permit, it normally must provide the
opportunity for a public hearing.
ADEM makes its final decision to issue permits only after the
public and interagency comment periods have closed and all comments
have been considered. ADEM’s final decision is subject to an administrative appeals process. AFI admitted in its feasibility study that the
“permitting process has become more difficult as public opposition to
quarries has intensified.”
Ranch Springs never submitted an application to ADEM for any
of the required permits. Applicants commonly hire consultants to assist
them with the technicalities of this process. But there is no evidence
that Ranch Springs engaged a consultant or took any other preliminary
steps toward securing permits. Although Ranch Springs held the property throughout 2017, Mr. Rudakas testified that “[w]e weren’t ready
right at that point to start that process.”
The saga of White Rock (the proposed quarry referenced by Mr.
Glasscock) shows how lengthy the process can be. See supra pp. 18–19.
In October 2009 White Rock Quarries, LLC, filed an application to rezone property in Vincent—the town adjacent to Harpersville—for use as
a limestone mine. Nine months later, after a bitter fight, the town approved the rezoning application, but that approval was contested in a
lawsuit that went all the way to the Alabama Supreme Court. White
Rock could not complete the ADEM permitting process until the lawsuit

21
was concluded, and the necessary permits were not secured until 2019.
As of 2024—15 years after the initial rezoning application—the White
Rock quarry had not commenced operations.
VIII. Existing Supply of Limestone
In 2017 Shelby County had 7 well-established limestone quarries,
which produced more than 10 million tons of limestone that year. The
biggest quarries were operated by Vulcan Materials Co. (Vulcan), the
largest producer of construction aggregates in the United States; by
Martin Marietta Aggregates, Inc. (Martin Marietta), the second largest
producer; and by Lhoist, the ninth-largest producer. There were nine
quarries in neighboring counties, which produced another 5.4 million
tons of limestone annually.
A trucking company official knowledgeable about the local market credibly testified that Vulcan and Martin Marietta had a “chokehold” on the limestone aggregate market in the Shelby County area.
And the existing quarries had unused capacity. Vulcan’s Calera quarry,
which produced 3.1 million tons of limestone in 2017, typically could sell
only 85% of what it could produce. Vulcan’s Childersburg, Alabama,
quarry, 12 miles from the Ranch Springs Property, was one of Vulcan’s
three worst performing quarries in the United States. Nationwide, Vulcan reported that it was operating at 55% to 60% of capacity in 2015 and
“well below full capacity” in 2016.
IX.

Preparing for and Marketing the SCE Transaction

In January 2017 Bob Lewis and Mr. Rudakas executed the initial
operating agreement for Ranch Springs, for which they served as the
original managers. On August 22, 2017, Mr. Rudakas, acting on behalf
of Ranch Springs, engaged James Freeman and Ricky Novak, through
several entities they controlled, to assist in implementing an SCE transaction involving the Ranch Springs Property.
Messrs. Freeman and Novak were the managing partners of the
Strategic Group of Companies, which included Strategic Capital Partners, LLC (SCP), and Strategic Fund Manager, LLC (Strategic Fund).
They were in the business of arranging and helping to market SCE
transactions, performing functions commonly regarded as being

22
performed by “promoters.” 9 Messrs. Freeman and Novak were also registered principals of Bridge Capital Associates (Bridge Capital).
The August 2017 engagement letter stated that SCP and Bridge
Capital would offer services to Ranch Springs in three phases. During
Phase 1 SCP would determine the “minimum equity capital” to be raised
from investors and the “estimated net proceeds” that the partnership
would receive after payment of promoters’ fees and transaction costs.
These amounts would be shown in a schedule captioned “Estimated
Sources and Uses of Funds,” a standard template SCP used for its SCE
deals. After reviewing these numbers, Ranch Springs would decide
whether to move to Phase 2, during which SCP and Bridge Capital
would develop a strategy for marketing the transaction and drafting a
private placement memorandum (PPM) for circulation to potential investors. Phase 3 would cover the period after the easement was granted.
The promoters recommended an ownership structure that is common to many SCE transactions. Ranch Springs, which owned the Ranch
Springs Property, would serve as the Property Company or “PropCo.” It
would eventually be owned by an Investment Company or “InvestCo,”
and units in the InvestCo would be marketed to investors. The PropCo
would place a conservation easement on the property, and the investors
would then receive, through the InvestCo, pro rata shares of the tax deduction that Ranch Springs claimed for the easement. On August 23,
2017, Ranch Springs Investors (RSI), a Georgia LLC, was organized as
the InvestCo, with Strategic Fund (controlled by Messrs. Freeman and
Novak) as its manager.
On August 25, 2017, Mr. Rudakas engaged Mr. Clark to perform
an appraisal for a proposed conservation easement on the Ranch Springs
Property. Mr. Clark had already agreed to prepare appraisals for three
other proposed conservation easements in Harpersville, all on properties
owned by the Lewis brothers and/or Mr. Rudakas. For each project AFI
had performed (or was expected to perform) a mining feasibility study,
which Mr. Clark would use as the basis for his appraisal.

9 “Promoter” is sometimes viewed as a loaded term in the tax world because of
the penalty imposed by section 6700(a) for “promoting abusive tax shelters.” In this
Opinion we use the term “promoter” in its ordinary sense, making no determination as
to whether the activities of Messrs. Freeman and Novak, or of the entities they managed, would subject them to a civil penalty under section 6700(a), a question that is
not before us.

23
On November 12, 2017, Mr. Novak prepared an “investor allocations” spreadsheet for the InvestCo. This document was intended to
track the number of units purchased by investors and the tax benefits
each would receive. Even though Mr. Clark had not yet supplied a preliminary appraisal, this spreadsheet showed the “appraised value” of the
PropCo (Ranch Springs) as $26.7 million.
On November 14, 2017, Mr. Novak sent emails to 60+ potential
investors, attaching a 2-page “offering summary.” It estimated that the
Ranch Springs SCE transaction would produce a $26.27 million charitable contribution deduction, yielding investors a deduction in excess of
$4 for every $1 invested. The offering summary included a “case study”
showing how investors could “mitigate [their] effective tax rate and tax
payments.” Neither the email nor the offering summary mentioned any
benefits that might accrue by pursuing a strategy other than a conservation easement.
On November 20, 2017, Mr. Novak emailed employees at Bennett
Thrasher (BT), the accounting firm engaged to prepare Ranch Springs’
tax returns. BT was concurrently proposing year-end SCE deals to its
clients. Mr. Novak informed BT that the Ranch Springs deal would be
priced at $30,000 per unit and would generate a total charitable contribution deduction of $26.27 million. The offering would yield a “total
capital raise” of $5.7 million and would offer investors a deduction-toinvestment ratio of 4.25 to 1.
Mr. Novak asked BT whether he was “correct in assuming [that]
the total BT client needs will be similar to last year.” Mr. Novak indicated that he would “reduce the BT allocation in Ranch Springs to
30 units”—i.e., to $900,000—for the time being. But he noted that the
promoters had 3 other SCE deals expected to close by year-end 2017 and
would give BT “bigger allocations in the other 3” if BT had enough demand from its clients.
SCP and Bridge Capital prepared a confidential PPM dated November 30, 2017, offering 180.5 class A membership units in RSI (the
InvestCo) at $30,000 per unit. The PPM explained that RSI would use
the funds thus raised to purchase units in Ranch Springs (the PropCo).
RSI’s manager would then recommend to investors whether the partnership should place a conservation easement on the Ranch Springs
Property (the “conservation strategy”) or develop it as a limestone
quarry (the “investment strategy”). Assuming that investors voted for
the conservation strategy—as if there were any doubt about this—the

24
class A units would be allocated a charitable contribution deduction of
$24,035,537, or $4.44 for every $1 invested.
X.

Feasibility Study and Appraisal

The PPM included an excerpt from a November 29, 2017, “restricted appraisal report” prepared by Mr. Clark. In this report Mr.
Clark incorrectly stated that “[t]here have been no sales or transfers of
the property in the last three years.” He asserted that the HBU of the
Ranch Springs Property was a limestone quarry. In positing this HBU,
he made the “extraordinary assumption” that “all necessary permits (including those related to zoning) could be obtained to operate a mine on
the property.”
Asserting that no sales of comparable properties existed, Mr.
Clark opined that the “before value” of the Ranch Springs Property
should be determined using the income approach. The version of the
income approach he used is often called the “owner-operator method.”
Under this method, the pre-easement value of the land is determined by
discounting to present value the cashflows an owner-operator supposedly could derive from conducting a limestone mining business on the
property. Mr. Clark thus posited that a prospective owner-operator
would pay—for the raw land alone—the entire net present value (NPV)
of the hypothetical mining business.
In the case of mineral property, the income approach can also be
implemented by using the “royalty income method.” This method posits
that the landowner would lease the land to a mine operator, then determines the land’s pre-easement value by calculating the discounted present value of the royalty income the landowner might receive from the
operator. Witnesses from Vulcan credibly testified that Vulcan typically
leases mineral property rather than buying it outright. And they indicated that, for aggregates, Vulcan on average pays a royalty of 5% or
less, computed on the value of production f.o.b. (free on board) mine. 10
Mr. Clark admitted that “[c]alculating the present value [of the
Ranch Springs Property] using the Royalty Income [method] would result in a substantially lower fair market value . . . , perhaps 1/10th or
10 Witnesses from Vulcan explained that an outright purchase of raw land—
commonly called a “greenfield site”—typically requires the mine operator to incur significant debt, which can be undesirable from a balance-sheet perspective. By leasing
the land instead, the operator avoids encumbering its balance sheet and incurs royalty
expenses that can be written off concurrently with the receipt of mining income.

25
less of the value obtained” using the owner-operator method. But he
asserted that the owner-operator method “is appropriate for this project
due to the owner [i.e., the Lewis brothers] living within close vicinity to
the property, as well as having the ability to operate the mine, rather
than having to hire someone to do so.”
Mr. Clark constructed a discounted cashflow (DCF) spreadsheet
to calculate the NPV of operating a limestone mining business on the
property for 35 years. Assuming incorrectly that the Ranch Springs
Property comprised 103 acres, he asserted that its “before value”—that
is, its value before the granting of a conservation easement—was
$26,034,064. Subtracting from the property’s “before value” its assumed
“after value” ($206,000), Mr. Clark determined a rounded value of
$25,828,000 for the easement.
Mr. Clark premised his appraisal on the “feasibility analysis” for
a limestone quarry prepared by AFI and dated November 9, 2017. This
analysis was based on geological data yielded by AFI’s drilling on the
Sun Valley Tract in December 2016, which consisted of drilling 9 boreholes and 1 corehole. See supra pp. 11–12. David Buss, the principal
author of this report, testified as an expert witness at trial.
Dr. Buss asserted in his report that the Ranch Springs Property
had nearly 23.3 million tons of “proven limestone reserves,” that a
quarry on the property would have a 35-year life, and that 700,000 tons
of limestone could be extracted and sold annually after a brief ramp-up
period. Using a DCF methodology with a 10% discount rate, Dr. Buss’s
model asserted that the NPV of the limestone resources (before taxes,
interest, depreciation, and amortization) was $38.8 million.
Dr. Buss acknowledged that he had prepared similar “feasibility
analyses” for limestone mines on 10 nearby properties in which the
Lewis brothers had invested (or in which they were considering investing). These included Bradford Resources, which Dr. Buss estimated to
have 21.49 tons of recoverable limestone; Tanyard Farms, which he estimated to have 19.23 tons of recoverable limestone; and DeSoto Holdings, which he estimated to have 19.82 tons of recoverable limestone.
See DeSoto Holdings, LLC v. Commissioner, No. 13013-20 (T.C. filed
Nov. 9, 2020). All three properties were within 3 three miles of the
Ranch Springs Property, but Dr. Buss did not take their projected

26
limestone sales into account when analyzing the market share that a
hypothetical quarry on the Ranch Springs Property might secure. 11
XI.

Closing the Deal

The Ranch Springs offering closed on December 12, 2017, and was
fully subscribed. Sixty-two investors purchased 180.5 class A units in
RSI, enabling the offering to reach its target of $5,415,000 ($30,000 ×
180.5 = $5,415,000). RSI paid $1,560,000 to the Lewis brothers and Yellowhammer for a 94% interest in Ranch Springs. The remaining 6% of
Ranch Springs was held by the Lewis brothers, Yellowhammer, and an
entity controlled by Messrs. Freeman and Novak. That same day Ranch
Springs amended its operating agreement to name RSI as its manager
and TMP.
The next day RSI’s manager, Strategic Fund, notified investors
that it recommended pursuing the conservation strategy. Investors
were instructed to return, within 5 days, their votes in favor of or against
that recommendation. As far as the record reveals, all investors voted
for (or were deemed to have voted for) the conservation strategy.
On December 28, 2017, Ranch Springs granted a conservation
easement over the Ranch Springs Property to Heritage Preservation
Trust, a section 501(c)(3) entity and a “qualified organization” under section 170(h)(1)(B). The deed of easement prohibited commercial development of the property but reserved numerous rights to Ranch Springs,
including the rights to use the property for agricultural, forestry, and
recreational purposes and to build structures within a designated area.
XII.

Tax Return and IRS Examination

Victoria Barry, an accountant at BT, prepared the return for
Ranch Springs’ short tax year ending December 31, 2017. The return
claimed a noncash charitable contribution deduction of $25,814,000 for
the easement. (It also reported a $58,000 deduction for a cash contribution, which the IRS did not challenge.)

11 Notwithstanding the supposed limestone mining potential of the three properties discussed in the text, conservation easements were granted on all of them. See
supra pp. 13–14. These 3 properties were carved from a larger tract, the Merrell Brothers Farm, which the Lewis brothers and Mr. Rudakas purchased in December 2016
and subdivided.

27
Ranch Springs attached to its return an appraisal by Mr. Clark,
dated April 20, 2018, that valued the easement as of the contribution
date. This appraisal was substantially identical to the “restricted appraisal report” he had prepared on November 29, 2017, except that it
reflected the property’s correct acreage (110 rather than 103 acres).
Subtracting from the property’s assumed “before value” ($26,034,064)
its assumed “after value” ($220,000), Mr. Clark determined a rounded
value of $25,814,000 for the easement.
The IRS selected the return for examination and assigned the
case to Revenue Agent (RA) Timothy Neighbors. At the conclusion of
his examination, RA Neighbors recommended assertion of the 40% penalty for a gross valuation misstatement under section 6662(e) and (h) or
(in the alternative) a 20% accuracy-related penalty for a substantial valuation misstatement, a reportable transaction understatement, negligence, or a substantial understatement of income tax. See §§ 6662(a)
and (b)(1)–(3), (c)–(e), 6662A(b). RA Neighbors’s immediate supervisor
at the time, Supervisory Revenue Agent Gregory Burris, approved these
penalty recommendations. By Order served October 17, 2023, we held
that Mr. Burris’s approval was timely and that the IRS had satisfied the
supervisory approval requirements of section 6751(b)(1).
On March 22, 2021, the IRS issued petitioner a Notice of Final
Partnership Administrative Adjustment (FPAA) disallowing in its entirety the deduction claimed for the conservation easement. The FPAA
determined that Ranch Springs had not established that it made a contribution or gift in 2017 and had otherwise failed to show that it had
satisfied all the requirements of section 170. The FPAA alternatively
determined that, if Ranch Springs had complied with applicable regulatory requirements, it had failed to establish that the value of the easement exceeded zero. The IRS determined a 40% penalty for a gross valuation misstatement and (in the alternative) a 20% penalty under the
provisions of section 6662 mentioned above. Petitioner timely petitioned
for readjustment of partnership items.
XIII. Tax Court Trial
A.

Petitioner’s Experts
1.

Claud Clark

We recognized Mr. Clark as an expert in real estate appraisal.
His direct testimony consisted of a cover letter dated October 24, 2023,

28
to which he attached a copy of his appraisal dated April 20, 2018. See
supra pp. 24–25, 27.
2.

David Buss

We recognized Dr. Buss as an expert in geologic investigation,
subsurface field investigation, and financial analysis. His direct testimony consisted of a cover letter dated October 27, 2023, to which he attached a copy of the AFI feasibility analysis dated November 9, 2017.
See supra pp. 25–26.
3.

Michael Wick

Michael Wick is a vice president of John T. Boyd Co., a mining
and geological consulting firm. We recognized him as an expert in the
mining industry, quarrying operations, mineral reserves, mineral market analyses, and production and distribution. He was retained to perform “a valuation of the limestone underlying the [Ranch Springs Property].” Like Mr. Clark and Dr. Buss, he employed an owneroperator/DCF model to develop “a going concern valuation . . . for the
site.”
Mr. Wick posited a limestone quarry with a 28-year life. He assumed that the quarry would sell 100,000 tons of limestone in its first
year of operation, ramping up to 511,000 tons in year 5, then increasing
by 1.7% annually (the estimated rate of population growth). Mr. Wick
did not project annual sales of 700,000 tons—the annual volume assumed by Messrs. Buss and Clark—until year 24. Mr. Wick assumed
that the hypothetical quarry, after its 5-year ramp-up period, would capture 6% of the aggregates market in Shelby County and the five surrounding counties. On the basis of these assumptions he determined
the fair market value (FMV) of “the Ranch Springs Property mineral
and associated mining rights” to be $18 million as of December 28, 2017.
B.

Respondent’s Experts
1.

Bart Stryhas

Dr. Stryhas is a geologist with more than 40 years of domestic and
international mining experience. He is employed by SRK Consulting,
Inc. (SRK), which has expertise in a wide range of mineral resource and
engineering disciplines, with offices in 20 countries on 6 continents. He
has audited numerous geologic investigations and exploration projects
and is a member of the American Institute of Professional Geologists.

29
We recognized Dr. Stryhas as an expert in geology, mineral exploration,
and mineral resource estimation and classification.
Dr. Stryhas’s principal opinion was that the AFI report erred in
classifying the limestone underlying the Ranch Springs Property as a
“proven limestone reserve.” According to Dr. Stryhas, this limestone is
properly classified as an “inferred mineral resource,” viz., a mineral resource whose quantity and quality is estimated on the basis of limited
geological evidence and sampling. As compared to a “proven mineral
reserve,” an “inferred mineral resource” inspires a relatively low level of
geological confidence.
2.

Neal Rigby

Dr. Rigby is a mining engineer with 49 years of experience in the
international mining industry. He was a founding partner of SRK’s U.K.
division and served as SRK’s global chairman for 15 years. He is a member of the Institute of Materials, Mining, and Metallurgy, and the American Institute of Mining, Metallurgical, and Petroleum Engineers. We
recognized him as an expert in mineral evaluations, mineral financing,
and mineral reporting.
Dr. Rigby agreed with Dr. Stryhas that, given the limited exploratory work AFI had done, the limestone beneath the Ranch Springs
Property could be classified only as an “inferred mineral resource.” “Inferred resources,” he explained, “do not have the completed technical
work to demonstrate that the project will be viable.” “To be considered
a viable mining project,” in his view, “the technical work to support Reserves must be completed to the prefeasibility or feasibility level.”
Dr. Rigby opined that AFI’s technical work—analyzing data from
9 boreholes and one corehole drilled to a depth of 225 feet—did not establish that the Ranch Springs Property could feasibly be exploited as a
limestone quarry. Alleging numerous deficiencies in the AFI report, he
concluded that “the Ranch Springs project is simply too early stage and
the knowledge base too low upon which to base a quarry design and development plan other than on a conceptual basis.” 12

12 Seeking to supplement the modest drilling work AFI had done in 2016, petitioner commissioned additional drilling on the Ranch Springs Property in April 2024.
Petitioner sought to call Jim Stroud as a witness to testify about the results of that
drilling. By Order served June 13, 2024, we granted respondent’s Motion in Limine to

30
3.

Andrew Sheppard

Mr. Sheppard has been a licensed commercial real estate appraiser in Alabama and elsewhere for 26 years. During his career he
has appraised 58 mineral properties at various stages of development
(including proposed, operating, and depleted mines). He holds the MAI
designation from the Appraisal Institute. We recognized him as an expert in real estate appraisal.
Mr. Sheppard opined that the Ranch Springs Property should be
characterized, for valuation purposes, as an “exploratory stage mineral
property.” Citing valuation texts and peer-reviewed articles, Mr. Sheppard concluded that the appropriate methodology for determining the
FMV of such property is the sales comparison approach. He searched
for transactions involving similarly sized parcels, where the parties
knew that minerals were present, but where no entitlements (such as
required zoning and permits) had yet been obtained that would allow
the minerals to be mined.
Mr. Sheppard selected three comparable sales. The first was the
Carpenters’ sale of the subject property to Ranch Springs for $6,500 per
acre in December 2016. The second was the sale of a 74-acre parcel in
Calera for $6,466 per acre in December 2016. Mr. Sheppard confirmed
that there was limestone on this property, that it was located in a “heavily active” quarrying market, and that exploratory drilling had been conducted on the property before the sale. The third comparable was the
sale of a 197-acre parcel in Chelsea, Shelby County, for $6,738 per acre
in June 2016. This property, like the other two, was on a major highway
and had visible limestone outcroppings. Rather than using the property
for mining, the buyer decided to develop it into a residential subdivision.
After making appropriate adjustments to these sale prices, Mr.
Sheppard concluded that the “before value” of the Ranch Springs Property was $720,500, or $6,550 per acre. Again employing the comparable
sales approach, he determined an “after value” of $385,000 for the property, or $3,050 per acre. By stipulation in its Posttrial Brief, petitioner
exclude Mr. Stroud’s testimony. His proposed report, dated May 17, 2024, consisted of
expert testimony, and the Court had set October 27, 2023, as the deadline to exchange
and lodge with the Court opening expert reports. Because the Stroud report was not
timely exchanged with respondent, and because it failed in other respects to comply
with the requirements of Rule 143(g) governing expert witness reports, we excluded it
from evidence. And because Mr. Stroud’s report consisted of expert testimony, we declined to let him testify at trial as a fact witness.

31
accepts the “after value” determined by Mr. Sheppard. Subtracting the
“after value” from the “before value,” Mr. Sheppard concluded a value of
$335,500 for the easement.
OPINION
I.

Burden of Proof

The IRS’s determinations in a notice of deficiency or an FPAA are
generally presumed correct, though the taxpayer can rebut this presumption. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933);
Republic Plaza Props. P’ship v. Commissioner, 107 T.C. 94, 104 (1996).
Deductions are a matter of legislative grace, and taxpayers generally
bear the burden of proving their entitlement to the deductions claimed.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
Section 7491 provides that the burden of proof on a factual issue
may shift to the Commissioner if the taxpayer satisfies specified conditions. Among these conditions are that the taxpayer must have “introduce[d] credible evidence with respect to [that] factual issue,”
§ 7491(a)(1), and must have “complied with the requirements under this
title to substantiate any item,” § 7491(a)(2)(A). Petitioner has not satisfied these requirements with respect to any factual issue that has salience in deciding the questions presented. The burden of proof thus remains on petitioner.
II.

Qualified Appraisal

Section 170(f)(11) disallows a deduction for certain noncash charitable contributions unless specified substantiation and documentation
requirements are met. In the case of a contribution of property valued
in excess of $500,000, the taxpayer must obtain and attach to his return
“a qualified appraisal of such property.” § 170(f)(11)(D). An appraisal
is “qualified” if it is “conducted by a qualified appraiser in accordance
with generally accepted appraisal standards” and meets requirements
set forth in “regulations or other guidance prescribed by the Secretary.”
§ 170(f)(11)(E)(i).
To be a “qualified appraiser,” an individual must have “earned an
appraisal designation from a recognized professional appraiser organization or ha[ve] otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary.”
§ 170(f)(11)(E)(ii)(I). The individual must “regularly perform[] appraisals for which [he] receives compensation” and meet “such other

32
requirements as may be
§ 170(f)(11)(E)(ii)(II) and (III).

prescribed

by

the

Secretary.”

Respondent agrees that Mr. Clark met most of the requirements
listed above at the time he prepared the appraisal attached to Ranch
Springs’ 2017 return. For two reasons, however, respondent urges that
the appraisal was not a “qualified appraisal” prepared by a “qualified
appraiser.” We reject both arguments. 13
First, respondent urges that Mr. Clark neglected to follow the
Uniform Standards of Professional Appraisal Practice (USPAP) when
preparing his appraisal. We have recently held that an appraiser’s failure to strictly follow USPAP does not render his appraisal per se “nonqualified.” Rather, it is simply a factor to be considered in assessing its
persuasiveness. See Seabrook Prop., LLC v. Commissioner, T.C. Memo.
2025-6, at *31–32; J L Minerals, T.C. Memo. 2024-93, at *36–37;
Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52, at *48–49;
Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, at *27
n.25. We reach the same conclusion here.
Second, respondent contends that Mr. Clark was not a “qualified
appraiser” by virtue of the “Exception” set forth in Treasury Regulation
§ 1.170A-13(c)(5)(ii). It provides that an individual is not a qualified
appraiser with respect to a particular donation “if the donor had
knowledge of facts that would cause a reasonable person to expect the
appraiser falsely to overstate the value of the donated property.” This
will be true, for example, if “the donor and the appraiser make an agreement concerning the amount at which the property will be valued and
the donor knows that such amount exceeds the fair market value of the
property.” Ibid.; see Oconee Landing Prop., LLC v. Commissioner, T.C.
Memo. 2024-25, at *39–45 (finding that an appraiser was not “qualified”
by virtue of this regulation), supplemented by T.C. Memo. 2024-73.
As we explain below, we find that that Mr. Clark wildly overvalued the Ranch Springs Property and that his methodology was deficient
in many respects. But we are not convinced that Ranch Springs’ principals were aware of any facts suggesting that Mr. Clark would “falsely
. . . overstate” the value of the easement, which requires a showing of
13 Failure to secure a “qualified appraisal” is not fatal to the allowance of a
charitable contribution deduction “if it is shown that the failure to meet such requirement[] is due to reasonable cause and not to willful neglect.” § 170(f)(11)(A)(ii)(II).
Given our disposition, we need not decide whether petitioner could satisfy this test.

33
deception or collusion. See Oconee Landing, T.C. Memo. 2024-25,
at *44–45. The trial produced little or no evidence of either.
Mr. Clark based his appraisal largely on AFI’s “feasibility analysis,” which estimated the value of the limestone resources on the property at $38.8 million. The Lewis brothers knew that Mr. Clark was relying on AFI’s analysis. There is no evidence that the Lewis brothers
were aware of facts suggesting that AFI had falsely overstated the value
of the minerals. Indeed, the Lewis brothers had received a geological
report from Bhate several years previously, which estimated that the
golf course across the road would be worth $41 million if developed as a
limestone mine. See supra pp. 7–8.
In short, in the absence of evidence that Ranch Springs’ principals
believed AFI’s analysis to be false, it is difficult to charge them with
knowledge that Mr. Clark’s appraisal was false, since Mr. Clark derived
the central components of his appraisal directly from AFI’s analysis. For
purposes of this case, we thus conclude that Mr. Clark was a “qualified
appraiser” and that the appraisal attached to Ranch Springs’ 2017 return was a “qualified appraisal.”
III.

Valuation

Section 170(a)(1) allows a deduction for any charitable contribution made within the taxable year. If the taxpayer makes a gift of property other than money, the amount of the contribution is generally equal
to the FMV of the property at the time of the gift. See Treas. Reg.
§ 1.170A-1(a), (c)(1). The regulations have provided, for a very long time,
that the FMV of property for charitable contribution purposes is “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 of fact to be resolved on the basis of the entire
record. See Kaplan v. Commissioner, 43 T.C. 663, 665 (1965).
The FMV of real property should reflect its HBU on the valuation
date. See Mitchell v. United States, 267 U.S. 341, 344–45 (1925); Stanley
Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg.
§ 1.170A-14(h)(3)(i) and (ii). A property’s HBU is the most profitable,
legally permissible, use for which the property is adaptable and needed,
or likely to be needed in the reasonably near future. Olson v. United
States, 292 U.S. 246, 255 (1934); Symington v. Commissioner, 87 T.C.

34
892, 897 (1986). If different from the current use, a proposed HBU thus
requires both “closeness in time” and “reasonable probability.” Hilborn
v. Commissioner, 85 T.C. 677, 689 (1985).
To support their positions regarding valuation the parties retained experts who testified at trial. We assess an expert’s opinion in
light of his or her qualifications and the evidence in the record. See Parker v. Commissioner, 86 T.C. 547, 561 (1986). When experts offer competing opinions, we weight them by examining the factors 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 that we find contrary to
our judgment. Parker, 86 T.C. at 561. We may accept an expert’s opinion in toto or accept aspects of his or her testimony that we find reliable.
See Helvering v. Nat’l Grocery Co., 304 U.S. 282, 295 (1938); Boltar,
L.L.C. v. Commissioner, 136 T.C. 326, 333–40 (2011) (rejecting expert
opinion that disregards relevant facts). And we may determine FMV
from our own examination of the record evidence. See Silverman v. Commissioner, 538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C. Memo. 1974-285.
“Market prices” typically do not exist for conservation easements.
See Symington, 87 T.C. at 895; Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *30. For that reason, courts usually
value easements indirectly using a “before and after” approach, seeking
to determine the reduction in property value attributable to the easement. See Treas. Reg. § 1.170A-14(h)(3)(i); cf. Browning v. Commissioner, 109 T.C. 303, 320–24 (1997). Under that approach, the value of
the easement is deemed equal to the FMV of the real estate before the
easement was granted (“before value”), minus the FMV of the real estate
as encumbered by the easement (“after value”).
A.

“Before Value” of the Ranch Springs Property
1.

Prior Transactions Involving the Property

“The best evidence of a property’s FMV is the price at which it
changed hands in an arm’s-length transaction reasonably close in time
to the valuation date.” Excelsior Aggregates, T.C. Memo. 2024-60,
at *31; see Estate of Spruill v. Commissioner, 88 T.C. 1197, 1233 (1987)
(“[T]he price set by a freely negotiated agreement made reasonably close
to the valuation date is persuasive evidence of fair market value.” (citing
Ambassador Apartments, Inc. v. Commissioner, 50 T.C. 236, 244 (1968),
aff’d per curiam, 406 F.2d 288 (2d Cir. 1969))); Estate of Newberger v.

35
Commissioner, T.C. Memo. 2015-246, 110 T.C.M. (CCH) 615, 616–17
(observing that no evidence is more probative of a donated property’s
FMV than its direct sale price). For example, in Corning Place Ohio,
LLC v. Commissioner, T.C. Memo. 2024-72, at *28–29, we found that the
most persuasive evidence of a property’s FMV was its actual sale price
15 months before the contribution. Accord, e.g., Wortmann v. Commissioner, T.C. Memo. 2005-227, 90 T.C.M. (CCH) 336, 339–40 (finding that
the most persuasive evidence of the property’s FMV was its actual sale
price 17 months before the contribution).
The record here includes persuasive evidence of this sort. The
110-acre Ranch Springs Property is largely coterminous with the
105-acre parcel the Carpenters purchased in January 2014. They purchased that parcel (through Sun Valley) for $517,500, or $4,929 per acre.
In July 2016 Ms. Naugle, a realtor representing the Carpenters, listed
the 105-acre parcel for sale for $738,500, or $7,013 per acre. On December 6, 2016, Red Mountain agreed to purchase 122 acres of the Sun Valley Tract for $793,000, or $6,500 per acre. The contract was later revised
to reduce the acreage to 110 acres, with Ranch Springs substituted as
the buyer, while retaining the same per-acre price of $6,500. On December 22, 2016, Ranch Springs purchased the 110-acre parcel from Sun
Valley for $715,000, or $6,500 per acre. 14
Petitioner does not dispute that the Carpenters and Ranch
Springs were unrelated parties dealing at arm’s length. But it asserts
that $6,500 per acre—the agreed-upon sale price—was not “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.” Treas. Reg. § 1.170A1(c)(2). First, it contends that the Carpenters were not “willing sellers,”
having assertedly acted under a “compulsion to sell.” In effect, petitioner asserts that the December 2016 sale was a “distress sale.” Second, petitioner contends that the Carpenters lacked “reasonable
knowledge of relevant facts” because they did not know the exact quality
and quantity of the limestone underneath their property.
Mr. Carpenter testified very credibly at trial. He explained that
he and his wife decided to sell part of the Sun Valley Tract to raise cash
to pay legal fees he had incurred in unrelated litigation. The couple had
14 Mr. Clark in his appraisal took no account of this prior transaction, erroneously stating that “[t]here have been no sales or transfers of the property in the last
three years.”

36
other assets they could have accessed for this purpose: Mr. Carpenter
had an IRA, and his wife had a sizable annuity investment. But an IRA
distribution would have been taxed in full as ordinary income, whereas
a sale of real estate would generate tax only on the gain. And Mr. Carpenter was reluctant to suggest liquidation of his wife’s annuity to satisfy an obligation arising from his personal business activities.
Contrary to petitioner’s view, these facts do not show that the
Carpenters were under a “compulsion to sell.” People often sell assets
to raise cash to satisfy their desires or meet their obligations. They may
liquidate assets—stocks, bonds, mutual funds, or real estate—to pay for
their children’s education, to buy a new home, to pay medical bills, or to
treat their family to an extended vacation. Selling an asset for such a
purpose provides no evidence that the seller is under a “compulsion to
sell.”
Sellers like the Carpenters typically attempt to raise cash in a
tax-efficient manner. If a couple owns two assets worth $1 million, one
with a basis of zero and the other with a basis of $800,000, they will
often choose to sell the latter to minimize the tax bite. That is exactly
what the Carpenters did—after consulting their tax adviser—by selling
a portion of the Sun Valley Tract at a modest gain instead of taking a
large IRA distribution. After selling the 110 acres to Ranch Springs, the
Carpenters retained 83 acres on which they continued to reside.
The December 2016 sale bore none of the earmarks of a “distress
sale.” Distress sales commonly occur when sellers are forced to sell when
they do not want to sell, e.g., because market conditions are highly adverse or because they would incur a large loss. See, e.g., Estate of DeBie
v. Commissioner, 56 T.C. 876, 894–95 (1971) (finding a distress sale
where the taxpayer did not try to sell the property “until it only had
30 days in which to vacate its premises”); Adams v. Commissioner, T.C.
Memo. 1995-142, 69 T.C.M. (CCH) 2297, 2299 (finding a distress sale
where the taxpayer was unemployed, two years in arrears in property
taxes, and behind on mortgage payments).
Petitioner has supplied no evidence that the real estate market in
Shelby County was “distressed” at year-end 2016. To the contrary, petitioner asserts that the market for limestone aggregate was booming in
part because real estate conditions were so favorable. And far from taking a loss, the Carpenters achieved a reasonable gain. They purchased
the 105-acre parcel for $4,912 an acre in January 2014, and they sold
the 110-acre parcel for $6,500 an acre in December 2016. They thus

37
realized a gain of $1,588 per acre, or roughly 32%, on an asset they had
held for three years. That is not an earth-shattering profit, but it supplies no evidence that the sale was a “distress sale.”
Four other facts confirm our conclusion that the Carpenters did
not act under any “compulsion to sell.” First, Mr. Carpenter testified
firmly and credibly that the couple would not have sold the Sun Valley
Tract if it meant taking a loss. His wife was adamant about that. A
person who would refuse to sell if it entailed taking a loss can hardly be
described as acting under a “compulsion to sell.”
Second, Mr. Carpenter credibly testified (and his conduct showed)
that he would have walked away from the transaction if raising cash
from the Sun Valley Tract required that he participate as a partner in
the SCE transaction. He consulted the lawyer to whom he owed the
legal fees about this, and they agreed that participation as a partner was
risky and ill advised. The Carpenters understood that their refusal to
participate was disappointing to the promoters and that this could reduce the price Ranch Springs was willing to pay. A party who is willing
to accept a lower price, rather than submit to unappealing conditions
attached to a higher price, cannot be described as acting under a “compulsion to sell.”
Third, the Carpenters negotiated with the Lewis brothers for
6 months regarding a possible sale. The Carpenters broke off discussions in September 2016, not wishing to be part of an SCE transaction.
It was Mr. Rudakas (not they) who reopened negotiations in November.
This temporal pattern hardly suggests that the Carpenters were desperate to unload the property. See Redstone v. Commissioner, T.C. Memo.
2015-237, 110 T.C.M. (CCH) 564, 573 (finding no distressed sale where
leisurely pace of negotiations suggested a lack of compulsion to sell).
Finally, the $6,500 per-acre price the Carpenters achieved substantially exceeded the per-acre prices nearby residents achieved when
selling land to entities controlled by the Lewis brothers. In December
2015 Locust Creek purchased a 177-acre tract in Vincent for $4,661 per
acre. In December 2016 Bradford Resources purchased a 151-acre tract
in Harpersville for $4,294 per acre. In December 2016 Tanyard Farms
purchased a 138-acre tract in Harpersville for $4,049 per acre. And in
December 2016 Sunnydale Springs purchased a 190-acre tract in
Harpersville for $4,474 per acre. See supra pp. 13–14.

38
The four tracts listed above consisted of agricultural land lying
within 3 miles of the Ranch Springs Property. The Lewis brothers purchased all four tracts for their supposed limestone mining potential. The
average of the acquisition prices, $4,370, was 32% lower than the price
the Carpenters achieved for their 110-acre parcel. And the median acquisition price of $4,253 per acre for large parcels of vacant land in
Shelby County during 2014–20 was 35% lower than the price the Carpenters achieved for their 110-acre parcel. Far from suggesting that the
Carpenters made a “distress sale,” this evidence suggests that they were
rather shrewd negotiators. See Lightman v. Commissioner, T.C. Memo.
1985-315, 50 T.C.M. (CCH) 266, 269–70 (finding no distressed sale
where prices received were consistent with prices obtained for similar
property during relevant period).
Petitioner next contends that the Carpenters lacked “reasonable
knowledge of relevant facts” because they did not know the exact quality
and quantity of the limestone underlying the Sun Valley Tract. AFI
conducted exploratory drilling on the property for a week in December
2016. Although the Lewis brothers did not share the results of that
drilling with the Carpenters, the Carpenters definitely knew that the
property had (or was alleged to have) significant potential for limestone
mining:
•

Limestone outcroppings were plainly visible at multiple locations
on the Sun Valley Tract. Mr. Carpenter assiduously maintained
the property, and he frequently encountered chunks of limestone
when using his agricultural equipment.

•

During the second meeting to discuss a proposed sale, Bob Lewis,
an experienced coal mining executive, brought out a geological
map and showed Mr. Carpenter the seams of limestone that underlay the property at various depths.

•

Bob Lewis and Mr. Rudakas assured the Carpenters that the
property could profitably be developed as a limestone quarry. Mr.
Carpenter credibly testified that Mr. Lewis emphasized “the
value of the limestone” during their meeting. Mr. Lewis indicated
that he intended to speak with (or had already spoken with) the
mayor of Harpersville about opening a limestone quarry.

•

Mr. Rudakas insisted that the Carpenters execute, and they did
execute on December 7, 2016, a “drilling access agreement” authorizing exploratory drilling on portions of the Sun Valley Tract.

39
Mr. Rudakas made clear that the sale could not close until the
drilling had been completed and its results analyzed. From this
condition, the Carpenters could logically infer that Ranch Springs
would not purchase the property unless the Lewis brothers regarded the drilling results as promising with respect to the proposed limestone quarry.
•

The parties had extensive discussions regarding the exact number of acres that would be purchased. Mr. Carpenter understood
that the acreage purchased needed to be sufficient to satisfy
quarry requirements. Mr. Carpenter understood, in other words,
that the Lewis brothers had gotten to the point of gauging the
exact size of the proposed quarry. This fact, coupled with the fact
that they had met with the mayor, suggested that they were serious about opening a limestone mine.

In assessing the Carpenters’ “knowledge of relevant facts,” we
consider it important that the promoters, during the 6-month negotiation period, were not seeking to hide the limestone potential of the Sun
Valley Tract. Quite the contrary: They repeatedly emphasized the
Tract’s limestone potential, hoping to persuade Mr. Carpenter to participate as a partner in the SCE transaction. This is not a case where a
clueless seller is hoodwinked by a wily buyer into selling his land at a
below-market price.
Treasury Regulation § 1.170A-1(c)(2) does not require that the
buyer and seller have perfect knowledge of all conceivable facts. It requires only that they have “reasonable knowledge of relevant facts.” The
promoters represented to the Carpenters that the Sun Valley Tract
could be developed into a profitable limestone quarry. That being so,
petitioner is in a poor position to contend that the Carpenters, in agreeing to sell the land for $6,500 per acre, lacked “reasonable knowledge of
relevant facts.”
For these reasons, we conclude that the December 2016 sale was
a transaction 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.” Ibid. The Carpenters and Ranch Springs
were unrelated parties dealing at arm’s length. They negotiated for
6 months regarding the transaction. And the transaction occurred reasonably close in time to the valuation date (specifically, one year and six
days before the easement was granted). We accordingly find that the
price at which the 110 acres changed hands in December 2016—$6,500

40
per acre—provides very strong evidence as to the FMV of the Ranch
Springs Property on the valuation date. See Corning Place, T.C. Memo.
2024-72, at *29–30 (concluding that recent sale of subject property was
the “best evidence” of its value); Excelsior Aggregates, T.C. Memo. 202460, at *32 (same).
2.

Other Valuation Methods

In the absence of actual transactions involving the subject property, courts typically consider one or more of three approaches to determine the property’s FMV: (1) the market approach, (2) the income approach, and (3) an asset-based approach. See Bank One Corp. v. Commissioner, 120 T.C. 174, 306 (2003), aff’d in part, vacated in part, and
remanded on another issue sub nom. JPMorgan Chase & Co. v. Commissioner, 458 F.3d 564 (7th Cir. 2006). In this case we consider these methods as providing a check on (or confirmation of) the $6,500 per-acre value
indicated by the price Ranch Springs paid to acquire the 110-acre parcel.
Cf. Corning Place, T.C. Memo. 2024-72, at *30–31.
In the case of vacant, unimproved property, the market approach—often called the “comparable sales” or “sales comparison”
method—is “generally the most reliable method of valuation.” Estate of
Spruill, 88 T.C. at 1229 n.24 (quoting Estate of Rabe v. Commissioner,
T.C. Memo. 1975-26, 34 T.C.M. (CCH) 117, 119, aff’d, 566 F.2d 1183 (9th
Cir. 1977) (unpublished table decision)). The comparable sales method
determines FMV by considering the sale prices realized for similar properties sold in arm’s-length transactions near in time to the valuation
date. See ibid.; Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1,
19 (1979). Because no two properties are ever identical, the appraiser
must make adjustments to account for differences between the properties (e.g., parcel size and location) and terms of the respective transactions (e.g., proximity to valuation date and conditions of sale). Wolfsen
Land & Cattle Co., 72 T.C. at 19.
The income method determines FMV by discounting to present
value the expected future cashflows from the property. See, e.g., Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 327 (2013); Marine v.
Commissioner, 92 T.C. 958, 983 (1989), aff’d, 921 F.2d 280 (9th Cir.
1991) (unpublished table decision). Income-based methods are generally disfavored when valuing vacant land that has no income-producing
history. 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), supplementing 131 T.C. 112 (2008), aff’d in part, vacated in part and remanded, 755

41
F.3d 236 (5th Cir. 2014). That is because the absence of a financial track
record makes an income-based method inherently speculative and unreliable.
3.

Highest and Best Use

The choice of valuation method is influenced in part by the HBU
of the subject property. We have defined HBU as “[t]he reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that
results in the highest value.” Whitehouse Hotel, 139 T.C. at 331 (quoting
Appraisal Institute, The Appraisal of Real Estate 277–78 (13th ed.
2008)). In short, to be a property’s HBU, a proposed use must be (1) legally permissible, (2) physically possible, (3) financially feasible, and
(4) maximally productive. See Buckelew Farm, T.C. Memo. 2024-52,
at *52.
Because property owners have an economic incentive to put their
land to its most productive use, a property’s HBU is presumed to be its
current use absent proof to the contrary. United States v. Buhler, 305
F.2d 319, 328 (5th Cir. 1962); Mountanos v. Commissioner, T.C. Memo.
2013-138, 105 T.C.M. (CCH) 1818, 1819, supplemented by T.C. Memo.
2014-38, aff’d, 651 F. App’x 592 (9th Cir. 2016). To establish an HBU
different from the current use, a taxpayer must demonstrate both the
“closeness in time” and the “reasonable probability” of the proposed use.
Hilborn, 85 T.C. at 689. Proposed uses that “depend upon events or
combinations of occurrences which, while within the realm of possibility,
are not fairly shown to be reasonably probable,” are excluded from consideration. Olson, 292 U.S. at 257. In a case such as this, our inquiry
entails “an objective assessment of how immediate or remote the likelihood is that the property, absent the [conservation] restriction, would in
fact be developed, as well as any effect from zoning . . . laws that already
restrict the property’s potential highest and best use.” Treas. Reg.
§ 1.170A-14(h)(3)(ii).
The HBU concept “is an element in the determination of fair market value.” Boltar, 136 T.C. at 336. But it is simply one element. It
does not supersede or eliminate the most important prerequisite in determining FMV, namely, that “a hypothetical willing buyer would

42
purchase the subject property for the indicated value.” Ibid.; see Corning Place, T.C. Memo. 2024-72, at *41; Treas. Reg. § 1.170A-1(c)(2). 15
a.

“Legally Permissible”

The Ranch Springs Property is in a rural area, surrounded by agricultural and residential land. It was zoned A–1 Agricultural, a zoning
classification that permitted only farming and low-density residential
use (i.e., homes on one-acre lots). The property was used as pastureland
when Ranch Springs purchased it. Agricultural and light residential
use was thus the property’s presumptive HBU in December 2017.
Respondent’s expert Mr. Sheppard considered a variety of possible other uses, all of which would have required rezoning. These included higher density residential development, commercial or light industrial use, use as a landfill or large-scale solar array, and use as a
limestone quarry. After considering market factors and obstacles to rezoning, Mr. Sheppard concluded that the HBU of the Ranch Springs
Property was a continuation of its existing use, i.e., “agricultural, lowdensity residential, or passive uses as currently zoned.” He used the
term “passive uses” to refer to recreational uses (such as hiking, hunting, or fishing) that required no development.
Petitioner contends that the HBU of the Ranch Springs Property
in December 2017 was as a limestone quarry. We reject that contention.
Because the property was zoned A–1 Agricultural, a quarry was not a
legally permissible use. Petitioner submitted no credible evidence to establish a “reasonable probability” that Harpersville would approve rezoning of the Ranch Springs Property to permit its use for mining.
Ranch Springs owned the tract for an entire year before granting
the easement. But it did not submit a rezoning application or take any
other step toward securing the zoning change, special exception, and
ADEM permits that would be required to conduct mining on the land.
We find that the Lewis brothers neglected to take these seemingly
15 Petitioner errs in suggesting that the central question in this case concerns
the “HBU value” of the property before the easement was granted. The central question concerns the FMV of the property at that time, i.e., the price that a willing buyer
would pay a willing seller for the land, both acting without compulsion and having
reasonable knowledge of relevant facts. See Treas. Reg. § 1.170A-1(c)(2). As stated in
the text, HBU is one factor in determining FMV, but it does not supersede the most
important factor, namely, that “a hypothetical willing buyer would purchase the subject property for the indicated value.” Boltar, 136 T.C. at 336.

43
obvious steps because (1) they feared that a rezoning application would
trigger strong neighborhood opposition and (2) they believed these steps
would be a waste of money because they had no intention of ever operating a limestone mine on the Ranch Springs Property.
In urging that rezoning was reasonably probable, petitioner relies—as did Mr. Clark and AFI—on two pieces of evidence. The first is
the April 2018 letter from the Bloom firm. But that letter did not offer
a definitive opinion that rezoning to permit limestone mining was “reasonably probable.” Rather, it concluded that rezoning might be approved “as long as there is not strong neighbor opposition to the mining
request.”
The Bloom letter explained that the rezoning process “is highly
political and will turn on neighbor support/opposition.” The firm spoke
with Mayor Greene, who “emphasized the political nature of the [rezoning] decision (i.e., neighbor support/opposition is the driving factor).”
Because the Ranch Springs Property “abut[ted] several properties zoned
R–1 Residential,” the Bloom letter advised that “it will be imperative to
get these neighbors’ support during the rezoning/special exception process.”
Neither Ranch Springs nor its agents did any outreach to immediate neighbors or other Harpersville residents during 2016–2018 to
gauge the level of community support for (or opposition to) a limestone
quarry. The Bloom firm likewise conducted no investigation of this kind.
It interviewed the Town Clerk and Mayor Greene, both of whom said
that fair consideration would be given to any rezoning request. But they
would provide no assurance about the fate of such a request, emphasizing that the outcome “would be heavily influenced by whether or not
neighboring property owners oppose the request.” 16
The evidence at trial established that neighborhood opposition
would likely have been intense. Ms. Pender and Mr. Glasscock were
members of the Zoning Commission during 2016 and 2017, and both
owned real estate near the Ranch Springs Property. Mr. Glasscock was
the largest landowner in town—he owned roughly 11% of the total acreage within the Harpersville Town limits—and his property was less
16 Petitioner asserts that neighborhood surveys are difficult to conduct because
people often respond poorly to cold-calling and door knocking. But petitioner did not
need to hire a consulting firm to do this. All it needed to do was file a rezoning application and see how neighbors reacted.

44
than half a mile from the Ranch Springs Property. One suspects that
his views would have carried weight.
Ms. Pender and Mr. Glasscock credibly testified that they and
most other neighbors would have opposed a limestone quarry because of
concerns about (1) contamination of the water supply, most of which
came from shallow wells; (2) deleterious runoff into the Coosa River two
miles south of the Town; (3) noise and dust from a quarry operation;
(4) traffic congestion on local roads from trucks hauling aggregate; and
(5) damage to the comfortable rural environment residents prized. They
credibly testified that, as members of the Zoning Commission, they
would have voted against a proposal to rezone the Ranch Springs Property for use as a quarry. They believed that this position “would have
been the consensus of most of the community.” Mayor Greene, who
served as Mayor during 2016–2020, echoed that view, explaining that a
quarry on the Ranch Springs Property “probably would not be looked on
favorably” by nearby property owners.
Petitioner presented no testimony at trial from any current or former member of the Zoning Commission or Board of Adjustment. Petitioner offered no analysis that attempted to gauge the level of neighborhood opposition to (or support for) a limestone quarry. Petitioner’s sole
evidence on this point consisted of testimony from one former neighbor,
Daniel Gardner. We discounted his testimony because he was an investor in an SCE transaction. He thus had a personal interest in testifying
that the Ranch Springs Property, which was next to his, could have been
rezoned to permit limestone mining. See supra p. 19.
The second piece of evidence on which petitioner relies is the September 6, 2016, letter signed by Theo Perkins, who was Mayor of
Harpersville on that date. This letter was drafted by Bob Lewis and
typed up by Mr. Rudakas, who attempted to mimic the letterhead on the
Town’s official stationery. The letter was presented to Mayor Perkins
during a meeting, and he signed it at Mr. Lewis’s request.
We find this this letter has no probative value in determining
whether rezoning of the Ranch Springs Property was “reasonably probable” in December 2017, when the easement was granted. That is so for
at least three reasons:
•

Mayor Perkins’s term expired in November 2016. He would thus
have held no official position if and when a rezoning application
were submitted.

45
•

Rezoning applications must be approved by the Zoning Commission. The Mayor of Harpersville has no vote on that Commission
and no unilateral authority regarding zoning matters. Although
Bob Lewis drafted the letter to say that “the City would certainly
approve a rezoning . . . to allow mining,” Mayor Perkins credibly
testified that he meant only that the Town would give fair consideration to such a request.

•

Petitioner supplied no credible evidence that Mayor Perkins’s letter addressed possible rezoning of the Ranch Springs Property.
The mayor could not recall a meeting that involved discussion of
the Ranch Springs Property, to which he referred as the “Carpenter property.” Rather, he credibly testified that the meeting he
attended and the letter he signed both addressed a possible rezoning of the Tanyard Farms property, in which the Lewis brothers were also interested. See supra pp. 16–17. Petitioner could
not produce the original of the September 6, 2016, letter with an
attached Exhibit A, which would have identified the property to
which the author was referring.

At trial Mayor Perkins credibly testified that he met with Bob
Lewis only once and that, to the best of his recollection, the property
map attached as Exhibit A to the letter he signed was a map of the Tanyard Farms property. Mr. Rudakas subsequently testified that there
were multiple meetings with Mayor Perkins and suggested that the
Ranch Springs Property may have been discussed at another of those
meetings. But Mr. Rudakas admitted that he himself did not attend any
meeting with Mayor Perkins. Mr. Rudakas has a personal financial interest in the outcome of this case, and we found his testimony to lack
credibility in several respects. We credited Mayor Perkins’s testimony
over his. 17
For these reasons, we conclude that petitioner has failed to carry
its burden of proving that rezoning the Ranch Springs Property to
17 Given our finding that Mayor Perkins’s letter addressed possible rezoning of
the Tanyard Farms property, the letter seems even less helpful to petitioner. The Tanyard Farms property was three miles from the Ranch Springs Property. Assuming
arguendo that neighbors could have been persuaded to support a quarry on the Tanyard Farms property, it seems unlikely—for economic feasibility and other reasons—
that they would have rallied behind a second quarry so near the first. See Mill Road
36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129, at *49 (noting that approval of
rezoning of other properties for the same use might impede or prevent such approval
for the subject property).

46
permit operation of a limestone quarry was “reasonably probable.” Because mining was not a legally permissible use in December 2017, and
because petitioner has not convinced us that rezoning was reasonably
probable, we hold that limestone mining was not the property’s HBU.
b.

“Financially Feasible”

Even if Ranch Springs could have secured rezoning approval, we
find that use of the property as a limestone quarry was not financially
feasible. As we explain more fully below, the income and expense projections made by AFI and Mr. Wick were wildly optimistic. See infra
pp. 58–62. Their most significant error, however, was their unsupported
assumption that the local market could absorb additional supply of aggregates in the range of 500,000 to 700,000 tons annually. Assuming
arguendo that this volume of salable limestone existed on the property,
petitioner has failed to establish “the existence of a market ‘that would
justify its extraction in the reasonably foreseeable future.’” Esgar Corp.
v. Commissioner, T.C. Memo. 2012-35, 103 T.C.M. (CCH) 1185, 1190
(quoting United States v. 69.1 Acres of Land, 942 F.2d 290, 292 (4th Cir.
1991)), aff’d, 744 F.3d 648 (10th Cir. 2014).
In making this assumption, petitioner’s experts relied chiefly on
projected rates of economic and population growth in the local area. But
they failed to show that the needs of an expanding population could not
be met by the quarries already in operation, which had plenty of unused
production capacity. As Dr. Rigby correctly observed, existing players
can capture new demand much faster and more easily than a greenfield
site—i.e., raw land that had never been mined—that would take years
to get up and running.
In 2017 there were seven well-established limestone quarries in
Shelby County and nine more in the adjoining counties. The biggest
quarries in Shelby County were operated by Vulcan and Martin Marietta, the top two producers of construction aggregates in the United
States. A knowledgeable trucking company official credibly testified
that Vulcan and Martin Marietta had a “chokehold” on the local aggregate market.
The Shelby County quarries produced more than 10 million tons
of limestone during 2017, and the nearby quarries produced another
5 million tons. Vulcan’s Calera quarry, which produced 3 million tons
of limestone in 2017, typically sells only 85% of the limestone it can produce. Vulcan’s Childersburg quarry, which was 12 miles from the Ranch

47
Springs Property, was one of Vulcan’s three worst-performing quarries
in the United States. Nationwide, Vulcan reported that it was operating
at 55% to 60% of capacity in 2015 and “well below full capacity” in 2016.
These data suggest to us that Vulcan could have satisfied—virtually by
itself—the relatively modest needs of the area’s growing population. Petitioner’s experts did not convince us otherwise. See Excelsior Aggregates, T.C. Memo. 2024-60, at *35–37 (finding that gravel mining was
not a property’s HBU where there was already an adequate supply in
the market and existing suppliers could meet any new demand); Esgar,
103 T.C.M. (CCH) at 1197 (same).
The saga of White Rock confirms our view that there was little
demand for additional aggregate supply in Shelby County. In October
2009 White Rock applied to rezone property in Vincent, the town adjoining Harpersville, for use as a limestone mine. White Rock eventually
completed the ADEM permitting process in 2019. But as of 2024 no
quarry had commenced operations.
Seeking to understand why, Mr. Sheppard interviewed two local
land brokers, Vulcan’s plant manager at Childersburg, and a zoning official in Vincent. As Mr. Sheppard reported, they “were all under the
impression that the White Rock operators decided not to pursue mining
the 1,000+/− acre property.” This outcome is difficult to reconcile with
petitioner’s experts’ projections that a quarry on the Ranch Springs
Property could capture 6% or more of the local market.
Finally, the Lewis brothers’ own actions—more particularly, their
inaction—shows that limestone mining was not the HBU of the Ranch
Springs Property. Both men had spent their entire careers in mining.
They allegedly desired to diversify their business away from coal and
into limestone, which they thought held greater profit potential. They
allegedly had plenty of mining equipment and startup capital at their
disposal. But they declined to open a limestone quarry on the Ranch
Springs Property, on the Meadows golf course across the road, or on any
of the 10 nearby properties they acquired, all of which were situated over
the same limestone formation. We regard this as strong evidence that
the Lewis brothers themselves did not regard limestone mining on these
properties as “financially feasible.” See Corning Place, T.C. Memo. 202472, at *38–39 (finding that addition of a 34-story tower atop a historic
building was not the property’s HBU where experienced real estate developers chose to pursue a conservation easement instead); Oconee
Landing, T.C. Memo. 2024-25, at *40 (finding that immediate

48
residential development was not property’s HBU where experienced real
estate developers chose to pursue a conservation easement instead).
After considering these market factors and obstacles to rezoning,
Mr. Sheppard (respondent’s expert) concluded that the HBU of the
Ranch Springs Property was a continuation of its existing use as currently zoned. Petitioner has submitted no evidence to controvert that
conclusion, apart from embracing limestone mining as the property’s
HBU. We accordingly accept Mr. Sheppard’s opinion that the HBU of
the Ranch Springs Property in December 2017 was agricultural, lowdensity residential, and recreational use.
4.

Comparable Sales Approach

The comparable sales approach “values property by comparing it
to similar properties sold in arm’s-length transactions around the valuation date.” Savannah Shoals, T.C. Memo. 2024-35, at *36. This
method is usually the most reliable indicator of value when sufficient
information exists about sales of properties resembling the subject property. See United States v. 320.0 Acres of Land, 605 F.2d 762, 798 (5th
Cir. 1979) (“Courts have consistently recognized that, in general, comparable sales constitute the best evidence of market value.”); Whitehouse
Hotel, 139 T.C. at 324–25 (stating that other valuation methodologies
are “not favored if comparable-sales data are available”).
The comparable sales method is based on the “principle of substitution.” It stands for the proposition that “the value of a property can
be estimated at the cost of acquiring an equally desirable substitute.”
Mill Road 36 Henry, LLC, T.C. Memo. 2023-129, at *51; see Buckelew
Farm, T.C. Memo. 2024-52, at *50 n.25, *55 (“[T]he principle of substitution . . . stands for the proposition that a hypothetical buyer will not
pay more for a given property when an alternative property is available
for less.”); Estate of Rabe, 34 T.C.M. (CCH) at 119 (“[A] prudent man will
pay no more for a given property than he would for a similar property.”).
“In the case of vacant, unimproved property . . . the comparable
sales approach is ‘generally the most reliable method of valuation . . . .’”
Oconee Landing, T.C. Memo. 2024-25, at *67 (quoting Estate of Spruill,
88 T.C. at 1229 n.24). That is because “the market place is the best
indicator of value, based on the conflicting interests of many buyers and
sellers.” Estate of Spruill, 88 T.C. at 1229 n.24 (quoting Estate of Rabe,
34 T.C.M. at 119). This general rule applies with no less force when the
unimproved property sought to be valued has potential for mineral

49
extraction. See J L Minerals, T.C. Memo. 2024-93, at *58; Excelsior Aggregates, T.C. Memo. 2024-60, at *38; Savannah Shoals, T.C. Memo.
2024-35, at *35.
Mr. Sheppard correctly characterized the Ranch Springs Property
as “exploratory stage mineral property.” This characterization was supported by Dr. Rigby and Dr. Stryhas, respondent’s geological experts.
They agreed that, given the modest exploratory work AFI had done—
analyzing data from drilling nine boreholes and one corehole to a depth
of 225 feet—the limestone beneath the Ranch Springs Property could be
classified only as an “inferred mineral resource.”
Petitioner’s trial expert, Mr. Wick, agreed that AFI’s exploratory
drilling did not establish any mineral “reserves,” as AFI had concluded,
but only an “indicated resource.” An “inferred mineral resource” inspires a relatively low level of geological confidence because the quantity
and quality of the minerals is estimated on the basis of limited geological
evidence and sampling. See J L Minerals, T.C. Memo. 2024-93, at *48
(finding a geological report that supported only a conclusion of an inferred resource “too preliminary” to establish the existence of commercially exploitable amounts of kaolin clay).
Given these characteristics of the Ranch Springs Property, Mr.
Sheppard properly searched for transactions involving similarly sized
agricultural parcels, where the parties knew that minerals were present, but where no entitlements (such as required zoning and permits)
had yet been obtained that would allow minerals to be mined. Under
the “principle of substitution,” such sales should reflect what willing
buyers pay willing sellers for land that has potential for mineral development, but which would require significant capital investment to determine the feasibility of that potential.
Mr. Sheppard selected sales of three comparable properties. The
first was the Carpenters’ sale of the 110-acre tract to Ranch Springs for
$6,500 per acre in December 2016. As explained previously, that was
an arm’s-length sale in which both parties were aware that the land had
potential for limestone mining. See supra pp. 34–40. Indeed, Mr. Lewis
repeatedly emphasized the property’s limestone potential in the hope of
convincing the Carpenters to participate as partners in the SCE venture. We have previously concluded that this transaction provides
strong evidence as to the FMV of the Ranch Springs Property. See supra
pp. 39–40.

50
Mr. Sheppard’s second comparable sale was the sale of a 74-acre
parcel in Calera for $6,466 per acre in December 2016. The largest limestone quarries in Shelby County—operated by Vulcan, Martin Marietta,
and Lhoist—were not far from Calera. See supra pp. 21, 30. Mr. Sheppard confirmed that there was limestone on this property, that it was in
a “heavily active” quarrying market, and that exploratory drilling had
been conducted on the property before the sale.
Mr. Sheppard’s third comparable sale was the sale of a 197-acre
parcel in Chelsea, Shelby County, for $6,738 per acre in June 2016. This
property, like the other two, was located on a major highway and had
visible limestone outcroppings. Rather than using the property for mining, the buyer decided to develop it into a residential subdivision.
After making appropriate adjustments to these sale prices, Mr.
Sheppard determined that the “before value” of the Ranch Springs Property was $6,550 per acre. This valuation conclusion is consistent with
other evidence in the record. Ms. Pender, a longtime realtor in Harpersville, credibly testified that agriculturally zoned land comparable in size
to the Ranch Springs Property typically sold during 2017 for $3,500 to
$4,500 per acre.
The Shelby County Tax Office maintains comprehensive records
of land sales for tax assessment purposes. According to its records,
64 large parcels of vacant land (i.e., parcels consisting of 45+ acres) were
sold in arm’s-length transactions between October 2014 and September
2020. The median sale price for these parcels was $4,253 per acre. The
average sale price was $6,935 per acre.
In December 2015 Locust Creek, which was controlled by the
Lewis brothers, purchased a 177-acre tract roughly 3 miles from the
Ranch Springs Property. They commissioned exploratory drilling on the
property (apparently supervised by AFI) during 2016. They evidently
viewed the drilling results as demonstrating significant potential for
limestone mining; indeed, Locust Creek took the position that the property would be worth almost $25 million if developed as a limestone
quarry. Given these facts, petitioner cannot seriously dispute that the
Locust Creek property was comparable to the Ranch Springs Property.
But the price at which the Locust Creek property changed hands, in a
December 2015 arm’s-length sale, was $825,000, or $4,661 per acre.
In December 2016 entities controlled by the Lewis brothers purchased three other tracts in Harpersville—Bradford Resources, Tanyard

51
Farms, and Sunnydale Springs—that were similar in size to the Ranch
Springs Property and within 3 miles of it. The Lewis brothers allegedly
believed that all three properties had limestone mining as their HBU.
They acquired these properties in arm’s-length transactions for $4,294
per acre, $4,049 per acre, and $4,474 per acre, respectively. See supra
pp. 13–14.
Mr. Clark acknowledged in his appraisal that the Harpersville
real estate market “was active” during 2015 and 2016. But he asserted
that “sales comparables were not present in sufficient quantity or similarity to use as a basis for the market approach.” He allegedly “made a
search for mining parcels similar to the Subject Property,” but he was
supposedly unable “to find any in the normal course of business.”
The market data discussed above show that Mr. Clark did not
look very hard, or that he was looking for the wrong thing. The statement in his appraisal that he searched for “mining parcels” suggests
that he restricted his inquiry to sales of operating mines or properties
that had been zoned and permitted for mining. At trial he confirmed
that he did not use the sales comparison approach “because there were
no sales of active mining mineral properties with known quantities of
minerals.” The absence of such transactions would not be surprising:
Mr. Glasscock credibly testified that no one had ever submi

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A3956f3a02932241a. Public record. Not legal advice.