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United States Tax Court
T.C. Memo. 2026-45
RISING ROCK PARTNERS, LLC, ROBERT SCHILL, LLC,
TAX MATTERS PARTNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
EDGAR F. YOST, III AND DEBORAH A. YOST,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
__________
Docket Nos. 23614-21, 33677-21.
Filed June 2, 2026.
__________
Anson H. Asbury, Aaron H. Finch, Robert B. Gardner III, and Ethan J.
Vernon, for petitioner in Docket No. 23614-21.
Anson H. Asbury, Aaron H. Finch, Robert B. Gardner III, Ethan J.
Vernon, and Andrew R. Vazquez, for petitioners in Docket No. 33677-21.
Keith Lawrence Gorman, Matthew D. Lucey, and Peyton E. Reed, for
respondent in Docket No. 23614-21.
Keith Lawrence Gorman and Matthew D. Lucey, for respondent in
Docket No. 33677-21.
Served 06/02/26
2
[*2]
MEMORANDUM FINDINGS OF FACT AND OPINION
GREAVES, Judge: These conservation easement cases involve
noncash charitable contribution deductions claimed for 2017. 1 Rising
Rock Partners, LLC (RRP), reported a $12,765,000 deduction for
granting a perpetual conservation easement over 226.014 acres in
Meriwether County, Georgia. 2 The deduction was premised on the
asserted pre-easement value of $13,095,000 for the affected land. By
Notice of Final Partnership Administrative Adjustment (FPAA), the
Internal Revenue Service (IRS or respondent) disallowed RRP’s
deduction in full and determined that RRP is subject to an accuracyrelated penalty under section 6662. 3
Edgar F. Yost III and Deborah A. Yost reported a charitable
contribution of $12,715,000 for granting a perpetual conservation
easement over 191.984 acres in Meriwether County, and they deducted
that amount over several tax years. The value of the Yosts’ charitable
contribution was premised on the asserted pre-easement value of
$13,915,000 for the affected land. By Notice of Deficiency the
Commissioner disallowed the Yosts’ deductions in full and determined
deficiencies and accuracy-related penalties under section 6662.
The issues for decision are (1) the fair market value of the
conservation easement RRP donated and, on the basis of that valuation,
(2) whether accuracy-related penalties under section 6662 apply to RRP
or the Yosts. For the reasons below, we find that the easement value is
$649,955 and that, as a result, the penalty applies.
1 On August 23, 2024, the parties in the Yosts’ case, docket No. 33677-21, filed
a Stipulation to be Bound by the Rising Rock Partners, LLC, case, docket No. 23614-21,
for purposes of determining (1) the Yosts’ entitlement to the charitable contribution
deduction for a qualified conservation easement and (2) the easement’s fair market
value. Accordingly, resolution of the Rising Rock Partners, LLC, case effectively
determines the outcome of the Yosts’ case. The remaining issues in docket No. 3367721 relate to the applicability of penalties and any defenses to penalties. On December
12, 2024, we consolidated these cases for trial, briefing, and Opinion.
2 In the light of the Yosts’ Stipulation to be Bound, we use “petitioner” in the
singular. Unless otherwise indicated, “petitioner” refers to RRP’s tax matters partner,
Robert Schill, LLC.
3 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C., 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.
3
FINDINGS OF FACT
[*3]
The following facts are derived from the pleadings, the stipulation
of facts with attached exhibits, as supplemented, and the testimony of
fact and expert witnesses admitted into evidence at trial. RRP is a
Georgia limited liability company classified as a partnership under the
Tax Equity and Fiscal Responsibility Act 4 for its taxable year ending
December 31, 2017. Petitioner, Robert Schill, LLC, was the tax matters
partner for RRP during tax year 2017. Both entities had a principal
place of business in Georgia when the petition was filed.
I.
Meriwether County
Meriwether County encompasses approximately 505 square miles
in western Georgia, making it the state’s 23rd largest county by land
area. The county is predominately rural, and many local roads remain
unpaved. Situated between Columbus and Atlanta, just east of
LaGrange, Meriwether County has limited interstate access; only three
miles of interstate highway pass through the county, and it has no
interstate exit. Consequently, much of the population and commercial
growth expanding outward from metropolitan Atlanta has bypassed the
county.
Development in Meriwether County has been further constrained
by infrastructure limitations, including limited availability of public
sewer, water, and natural gas services. Although local officials have
pursued economic development initiatives, these structural limitations
have affected the pace and scale of private investment. In response, the
county established the Industrial Development Authority (IDA) to
encourage economic activity and assist prospective businesses and
developers with permitting, zoning, rezoning, and related governmental
processes. The IDA’s efforts are intended to facilitate development
opportunities that might otherwise be difficult to realize given the
county’s rural setting and infrastructure constraints.
A.
Granite in Meriwether and Neighboring Counties
Granite deposits are prevalent throughout Meriwether County
and neighboring areas, including LaGrange. From at least 2005
through the valuation period, Vulcan Materials Co. (Vulcan) operated a
4 Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982, Pub.
L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, governed the tax treatment and audit
procedures for many partnerships, including RRP.
4
[*4] granite quarry in LaGrange. Testimony from Keith Griggs, the
plant manager for Vulcan’s LaGrange and Columbus operations,
established that the LaGrange facility primarily served local customers
rather than large metropolitan markets like Atlanta, which are supplied
by larger quarries located closer to that metropolitan area.
The LaGrange facility operated as a truck quarry, limiting the
geographic range within which its product could be economically
transported. According to Mr. Griggs, demand for granite in the
surrounding region was inconsistent, and the LaGrange operation
historically functioned below full production capacity. These market
conditions created ongoing challenges in maintaining full-time
employment for its workforce at the facility.
B.
Community Pushback Against Mining Activities
Although Meriwether County officials pursued economic
development initiatives, those efforts often conflicted with residents’
desire to preserve the county’s rural character. The record reflects
significant community resistance to large-scale mining operations
within the county.
The tension between economic development objectives and
community opposition is illustrated by the experience of Jerry
Fitzgerald, a commercial real estate developer from North Carolina, who
sought to develop a crushed-stone quarry in Meriwether County
beginning in 2017. Mr. Fitzgerald identified a parcel for sale in the
northeastern part of the county along State Route 85 and traversed by
a railroad line (Randall property). The Randall property was zoned for
low-density residential use.
In 2017 Mr. Fitzgerald contacted the Meriwether County
administrator regarding potential rezoning to permit mineral extraction
on the Randall property. County officials informed him that approval
would require amending the zoning ordinance, and any amendment
request would be reviewed by the Planning Commission followed by a
vote by the Meriwether County Board of Commissioners (BOC).
Believing the county would support his proposal, Mr. Fitzgerald
proceeded with the application process.
Before Mr. Fitzgerald applied to rezone the property from lowdensity residential to industrial with a special use for mining, he sought
an amendment to the industrial zoning ordinance to add quarries as an
allowable special use. On February 27, 2018, Mr. Fitzgerald requested
5
[*5] a text amendment to allow rock quarries as a special use within
industrial zoning districts. Shortly thereafter, he obtained an option
contract to purchase approximately 759 acres making up the Randall
property at $2,650 per acre. The option permitted geological testing but
required zoning and permitting approvals before the seller could enforce
the contract.
Following public notice of the proposed amendment, substantial
opposition emerged. Hundreds of residents organized, submitting
written objections to county officials and appearing at public hearings.
After an initial public hearing, the Planning Commission unanimously
recommended denial of the requested amendment. On April 11, 2018,
the BOC held a public hearing at the county courthouse to accommodate
the large opposition group. Following the hearing, the BOC voted to
deny the proposed amendment permitting quarry operations.
Mr. Fitzgerald thereafter initiated litigation in the Superior
Court of Meriwether County challenging the BOC’s denial. On June 26,
2018, the court ordered the county to amend its zoning ordinance to
allow for mining under restrictions and criteria that the county deemed
appropriate. The court remanded the vote to the BOC for another
hearing regarding the text amendment. At the August 28, 2018, BOC
meeting, the same opposition group returned and continued to pressure
the BOC. The BOC voted to amend its zoning ordinance to allow mineral
extraction operations in an industrial zoning district as a special use
approval. Despite the June 26, 2018, court order, one BOC member
voted to deny the amendment while another abstained from voting.
The next day, Mr. Fitzgerald applied to rezone the Randall
property to industrial with a special use for mining. The rezoning
application was supported by detailed engineering, environmental,
traffic, and economic studies. Mr. Fitzgerald spent approximately
$225,000 to $250,000 in legal and consulting fees related to his rezoning
efforts. The opposition group likewise retained counsel, commissioned
expert reports concerning blasting and environmental impacts, and
organized public opposition.
After reviewing Mr. Fitzgerald’s rezoning application under the
factors required by the zoning ordinance, the Meriwether County
planning staff recommended denying the rezoning application, and the
Planning Commission unanimously adopted that recommendation. In
October 2018 the BOC held another public hearing that again drew a
large crowd in opposition, and it unanimously denied the rezoning
6
[*6] request. Mr. Fitzgerald again challenged the decision in superior
court. On May 1, 2019, the court affirmed the county’s denial. Because
the option contract on the Randall property had already been extended
multiple times, Mr. Fitzgerald elected not to pursue further appeals and
abandoned plans to develop a quarry at the site. 5
II.
Rising Rock Transaction
A.
The Players
1.
The Yosts
Edgar “Ned” F. Yost III and his wife Deborah A. Yost long aspired
to acquire a large tract of rural property with a lake where they could
fish, hunt, and spend time with their family. The tranquil lifestyle they
envisioned stood in contrast to the demands that had defined much of
Mr. Yost’s professional career.
Mr. Yost attended junior college for two years before being drafted
and signed by the New York Mets, beginning a professional baseball
career that spanned nearly seven years. Following his playing career,
Mr. Yost transitioned into coaching, including four years as the third
base coach for the Atlanta Braves. He later served as manager of the
Milwaukee Brewers from 2003 through 2008. During his tenure with
the Brewers, Mr. Yost spent much of the season traveling while Mrs.
Yost maintained the family residence in Georgia. After he left the
Brewers in 2008, the Yosts began pursuing their longstanding goal of
acquiring recreational land. On February 5, 2009, they purchased
203.58 acres in Meriwether County for $1,122,000.
Mr. Yost returned to professional baseball in 2010 as manager of
the Kansas City Royals. Although he experienced success with the
Brewers, his greatest professional achievement came with the Royals’
2015 World Series championship. As Mr. Yost’s professional success
grew, so too did the family’s Georgia landholdings. The Yosts acquired
an additional 247.35 adjoining acres in 2011 for $989,404 and another
219.31 adjacent acres in 2013 for $822,405. Each purchase was
5 Petitioner introduced evidence of a 2006 rezoning application in Meriwether
County in which Greenbow, LLC, sought industrial zoning and a conditional use
permit to develop a solid waste landfill on approximately 698 acres of residential and
agriculture land. We assign this evidence little weight. The proposed landfill involved
a materially different industrial use and occurred more than a decade before the RRP
transaction, limiting its relevance to the property’s highest and best use as of the
valuation date.
7
[*7] negotiated at arm’s length with unrelated parties. Collectively, the
assembled 670.24 acres are referred to as the “Yost property.”
The Yost property functioned primarily as a family retreat. Mr.
Yost hunted deer there with his children, constructed a small barn, and
used the land during the baseball offseason as a respite from the
demands of managing. Approximately 20 acres were later developed
into a motocross practice course for the Yosts’ son, Josh, a professional
freestyle motocross rider.
Following the Royals’ World Series victory, the Yosts began
planning for retirement and reassessing their long-term financial
position, particularly with respect to the Yost property. In connection
with financing discussions with Calumet Bank, James C. Clanton, MAI,
and Robert E. Riggs II, of MVC Consulting, prepared an appraisal dated
April 18, 2016. The appraisal analyzed the Yost property as two
separate tracts: Tract A, consisting of approximately 251 acres, and
Tract B, consisting of approximately 413 acres. 6 The appraisers valued
Tract A at $1 million and Tract B at $1.32 million.
Around this same time, the Yosts retained real estate broker
Robert Upchurch to market for sale a 251.014-acre portion of the Yost
property, later referred to as the “Rising Rock property,” which
substantially corresponded to the Tract A identified in the appraisal. 7
On May 9, 2016, the Yosts listed the Rising Rock property on the
Multiple Listing Service (MLS) for $991,450 based on Mr. Upchurch’s
recommendation. Mr. Upchurch derived the listing price from sales of
comparable rural properties in the surrounding market.
Like the remainder of the Yost property, the Rising Rock property
was rural and surrounded by agricultural and residential land. Most of
the property was zoned A–1 Agricultural, with the remainder zoned lowdensity residential. These zoning classifications permitted agricultural
activities, low-density residential development, and recreational uses.
The property lies within the Cedar Rock Complex, an area known for
multiple granite formations and visible granite outcroppings, from
which the name “Rising Rock” was derived. Approximately 20 acres lie
within a floodplain, an additional 20 acres consist of wetlands, and
6 It is unclear from the record why the appraisers considered only 665.11 acres
and not the entire 670.24 acres making up the Yost property.
7 The record is unclear on exactly when the Yosts engaged Mr. Upchurch for
assistance.
8
[*8] roughly 17% of the property contains moderately steep slopes
exceeding 10% grade.
2.
Wingate and Schill
William Wingate and Robert Schill entered the transaction from
a markedly different perspective. Mr. Wingate had participated in more
than 100 conservation easement transactions, approximately 20 of
which were syndicated easements. He regularly sought rural properties
for which mining could be asserted as the highest and best use.
Using geographical information systems (GIS) data, Mr. Wingate
and Mr. Schill identified properties likely containing construction-grade
granite aggregate. On the basis of his GIS analysis, Mr. Wingate
understood that granite formations were widespread throughout
Meriwether County and had previously consulted on several
conservation easement transactions there in 2015.
After the Rising Rock property was listed for sale, Mr. Wingate
and Mr. Schill contacted Mr. Upchurch regarding the property. Mr.
Wingate and Mr. Schill were the only prospective purchasers to express
interest in the Rising Rock property following its MLS listing. Mr.
Upchurch referred them directly to the Yosts and their financial adviser
to discuss a potential transaction.
B.
Scouting the Rising Rock Property
On August 8, 2016, the Yosts entered into a purchase agreement 8
to sell the Rising Rock property for $941,303 to an entity associated with
Mr. Wingate and Mr. Schill and the soon-to-be-formed RRP. The
agreement granted the buyer a 60-day due diligence period, including
rights to conduct inspections, soil testing, and drilling and to terminate
the contract for any reason with return of earnest money. At Mr. Yost’s
request, the property was removed from the MLS on August 20, 2016.
Mr. Wingate and Mr. Schill retained NOVA Engineering and
Environmental, LLC (NOVA), to perform preliminary geotechnical
exploration. NOVA engaged Premier Drilling, LLC, to drill four core
holes between August 30 and September 1, 2016, reaching depths of
190.5 feet. GeoTesting Express analyzed the recovered samples.
8 The contract involved Equity Trust Co./Custodian Joseph C. Freeman SEP
IRA. This entity was one of the original members of RRP as discussed below.
9
[*9] NOVA prepared a Geotechnical Engineering Report concluding
that the subsurface rock met the Georgia Department of Transportation
Group II, Type A, aggregate standards suitable for road construction.
NOVA engineer Peter Keller testified that the report largely followed
the standardized wording describing the testing procedures. No Phase I
environmental site assessment or additional exploratory work was
requested.
The testing results were forwarded to Richard Capps of Capps
Geoscience, LLC, who was retained by Mr. Wingate and Mr. Schill to
prepare a resource valuation report for the Rising Rock property and for
a proposed conservation easement project. The Yosts also hired Dr.
Capps to provide the same services for their easement project.
C.
New Ownership
On October 25, 2016, RRP was organized as a Georgia limited
liability company. Robert Schill and Joseph Freeman III served as
managers. Ownership interests were divided among four members:
Robert Schill, LLC (25%), 240 Capital, LLC (25%), J.O. Middour, LLC
(25%), and Equity Trust Co. Custodian FBO Joseph C. Freeman IRA
50% Undivided Interest (25%). On November 22, 2016, the Yosts 9
transferred the Rising Rock property to Ogletree Realty Trust for
$941,303.
Following the acquisition, Mr. Wingate and Mr. Schill proceeded
toward a conservation easement transaction premised on potential
mining use. On September 7, 2017, Mr. Schill submitted a Surface
Mining Application and Mining Land Use Plan to the Georgia
Environmental Protection Division (GAEPD) Surface Mining Unit, the
agency responsible for reviewing and issuing surface mining permits in
Georgia. 10 By letter dated September 15, 2017, GAEPD requested
additional information and responses by October 17, 2017. Mr. Schill
9 The record does not clarify how Ogletree Realty Trust became the ultimate
purchaser, as the purchase and sale agreement listed a different buyer.
10 Georgia surface mining regulations also require applicants to address the
potential effects of a proposed mining operation on properties listed on the National
Register of Historic Places located within one mile of the proposed mine. Mr. Schill’s
application did not address the Mark Hall House, a National Register of Historic Places
property, located approximately 0.45 mile from the proposed Rising Rock property
surface mining site.
10
[*10] did not respond to GAEPD’s comments, nor did he submit a
revised application. 11
D.
RRP Takes the Field
On November 21, 2017, Ogletree Realty Trust distributed
undivided 25% ownership interests in the Rising Rock property to Mr.
Schill, Mr. Wingate, Pensco Trust Co. FBO Joseph C. Freeman IRA, and
John Middour. That same day, the grantees contributed their interests
to RRP. 12 Also on November 21, 2017, Rising Rock Partner Investments,
LLC (Rising Investments), was organized as a Georgia limited liability
company.
Less than a month later, the members of RRP sold a 96%
partnership interest to Rising Investments for $1,802,160. Following
the transaction—and at the time of the conservation easement
donation—Robert Schill, LLC, 240 Capital, LLC, J.O. Middour, LLC,
and Pensco Trust Co. FBO Joseph C. Freeman IRA each retained a 1%
interest in RRP, while Rising Investments owned the remaining 96%.
Robert Schill, LLC, was manager of RRP.
E.
The Pitch
A private placement memorandum was circulated to prospective
investors, offering interests in Rising Investments. Mr. Wingate and
Mr. Schill promoted the transaction as a conservation easement
investment projected to generate a 4.5-to-1 deduction ratio, meaning
investors were advised they could expect approximately $4.50 in
charitable contribution deductions for every $1 invested.
On December 19, 2017, RRP executed the Deed of Conservation
Easement in favor of Oconee River Land Trust, Inc. (ORLT), an
organization qualified at the time to receive tax deductible charitable
contributions. Through this conveyance, RRP granted a conservation
easement encumbering 226.014 acres of the Rising Rock property.
RRP retained Dale W. Hayter, Jr., and Clayton Weibel to prepare
an appraisal of the property. Mr. Wingate regularly retained Mr.
11 On February 21, 2018, RRP withdrew its mining permit application from
GAEPD, requested that its status go inactive, and never received a mining permit from
GAEPD.
12 The record provides no explanation for the discrepancy between RRP’s
ownership and the persons and entities that contributed to the Rising Rock property.
11
[*11] Hayter as an appraiser for conservation easement transactions.
Consistent with Mr. Wingate’s and Mr. Schill’s typical practice, the
partnership relied upon the lower of the two valuation conclusions for
reporting purposes—here, Mr. Hayter’s valuation.
Mr. Hayter
concluded that the property’s before easement value was $13,095,000,
or $52,168 per acre, and that the conservation easement reduced the
property’s value by $12,765,000. 13
Mr. Hayter acknowledged in his appraisal the November 16,
2016, purchase of the property for $941,303, but he did not reconcile that
arm’s-length transaction with his substantially higher valuation
approximately one year later. In his preliminary appraisal—and in 12
additional appraisal reports involving properties in the same county—
Mr. Hayter states that he spoke with a county official, Ron Garrett, who
allegedly indicated that rezoning the parcels for industrial use was
probable. Mr. Garrett testified that he did not recall speaking with Mr.
Hayter regarding the Rising Rock property or the other parcels and that
he had never heard of the Rising Rock property before this litigation.
During RRP’s ownership, no rezoning application was filed.
As of December 21, 2017—the date the conservation easement
deed was recorded—Meriwether County assessed the Rising Rock
property at a total fair market value of $662,300, consisting of $625,500
attributable to land and $36,800 attributable to improvements on the
251.014-acre parcel. The county assessment equates to approximately
$2,492 per acre for the land.
F.
RRP’s Tax Return and Examination
RRP timely filed Form 1065, U.S. Return of Partnership Income,
for the tax year ending December 31, 2017. On that return RRP
reported a noncash charitable contribution deduction of $12,765,000 for
the conservation easement donation encumbering the Rising Rock
property. At the time of filing, Robert Schill, LLC, served as the
manager and tax matters partner. RRP attached to its return the
preliminary appraisal report prepared by Mr. Hayter.
The IRS examined RRP’s 2017 tax return, and on June 24, 2021,
the IRS timely mailed an FPAA to Robert Schill, LLC, RRP’s tax matters
partner, disallowing the claimed $12,765,000 deduction and asserting a
13 Mr. Hayter used the income approach and a sales comparison approach to
make his determination. His sales comparison approach used operating mines as
comparable sale properties.
12
[*12] penalty. 14 Robert Schill, LLC, timely filed a petition under section
6226 on September 21, 2021, seeking readjustment of partnership items
for the 2017 tax year.
III.
The Yosts’ Transaction
During this same period, the Yosts learned of conservation
easements and the associated tax deductions through Mr. Wingate and
Mr. Schill. After selling the Rising Rock property, the Yosts retained
substantial acreage from the Yost property. They decided to pursue
their own conservation easement donation on a portion of the remaining
property. The Yosts engaged Mr. Wingate and Mr. Schill as consultants
for the transaction. The promoters provided access to a group of service
providers regularly retained in their conservation easement projects. In
connection with the easement, the Yosts paid more than $200,000 in fees
to various service providers, including an entity owned by Mr. Wingate
and Mr. Schill.
On December 20, 2017, the Yosts donated a conservation
easement in favor of ORLT encumbering 191.984 acres in Meriwether
County (Yost easement). The encumbered acreage formed part of the
land the Yosts had acquired on January 31, 2011.
Mr. Hayter prepared a preliminary appraisal report valuing the
Yost easement. He concluded that the before easement value of the
property was $13,915,000 ($52,168 per acre) and that the conservation
easement reduced the property’s value by $12,715,000. Mr. Hayter’s
report did not reconcile his valuation with the Yosts’ 2011 purchase of
the property for $989,404 or with the November 2016 arm’s-length sale
of adjacent acreage for $941,303. Mr. Yost testified that he was unaware
of any sales of raw land in Meriwether County approaching $50,000 per
acre.
The Yosts timely filed their Form 1040, U.S. Individual Income
Tax Return, for tax year 2017. They reported a charitable contribution
of $12,715,000 attributable to the Yost easement. The charitable
contribution was carried forward and deducted over multiple tax years
in varying amounts as follows:
14
The parties stipulated the Commissioner’s compliance
requirements of section 6751(b)(1) for the penalty asserted in the FPAA.
with
the
13
[*13]
2017
$1,546,632
2018
1,835,140
2019
1,494,161
2020
137,994
2021
164,657
2022
279,002
2023
135,726
On September 14, 2021, the IRS timely issued a Notice of
Deficiency to the Yosts for tax years 2017 through 2019 disallowing the
claimed charitable contribution deductions and determining deficiencies
and penalties. 15 The Yosts timely petitioned this Court on December 13,
2021, seeking redetermination.
IV.
Expert Lineup
The parties presented several expert witnesses at trial addressing
the fair market value of the conservation easement. Each expert’s
written report was admitted as the witness’s direct testimony pursuant
to Rule 143(g)(2). We summarize the principal expert testimony below.
A.
Petitioner’s Experts
1.
F. Adam Nelson
F. Adam Nelson, founder of the Nelson Law Group and an
attorney admitted to practice law in Georgia and South Carolina, was
qualified as an expert in Georgia zoning and land-use regulation. Mr.
Nelson evaluated the regulatory framework governing the Rising Rock
property and opined that development of a granite quarry was
reasonably probable. 16 In his view, applicable zoning and permitting
requirements would likely have allowed mining operations to proceed.
15
The parties stipulated the Commissioner’s compliance with the
requirements of section 6751(b)(1) for each of the penalties determined in the Notice
of Deficiency.
16 We have disregarded Mr. Nelson’s report to the extent it expresses legal
conclusions. See Alumax Inc. v. Commissioner, 109 T.C. 133, 171 (1997) (holding that
legal conclusions are not proper expert testimony), aff’d, 165 F.3d 822 (11th Cir. 1999).
14
[*14]
2.
Douglas R. Kenny
Douglas R. Kenny, a certified general real estate appraiser with
Kenny & Associates, Inc., was qualified as an expert in real estate
valuation, including appraisal of mineral properties.
Mr. Kenny valued the easement using the “before and after”
method. He determined a before value of $12,650,000 for the Rising
Rock property, relying primarily on an income approach premised on
quarry development. Mr. Kenny’s discounted cashflow model assumed
total sales tons ranged from a low of zero tons to a maximum of 713,000
tons. His analysis incorporated elements of the sales comparison
approach and a royalty method to support projected income
assumptions. Mr. Kenny, applying the sales comparison approach,
concluded that the property’s after value was $570,000, resulting in an
easement value of $12,080,000. He determined that the highest and
best use of the property before the easement was granite mining, and
that agricultural, recreational, or forestry use represented the highest
and best use after the easement.
In his rebuttal report Mr. Kenny criticized Thomas Hamilton’s
appraisal, asserting that Dr. Hamilton’s conclusions were inconsistent
with accepted appraisal standards and rested on flawed analyses of legal
permissibility and financial feasibility.
3.
Gregory M. Stanish
Gregory M. Stanish, director of geological services and a
designated expert for John T. Boyd Co., a mining and geological
consultancy firm, was qualified as an expert in the identification and
quantification of mineral resources, with specific experience in
construction aggregates.
Mr. Stanish prepared a mineral reserves analysis of the Rising
Rock property. He opined that approximately 9.3 million run-of-mine
tons of probable granite reserves were present within the proposed
mining pit area. In developing his analysis, Mr. Stanish consulted with
Michael Wick regarding the layout of a proposed quarry and processing
facility.
4.
Michael F. Wick
Michael F. Wick, vice president and a designated expert for John
T. Boyd Co., was qualified as an expert in the crushed-stone aggregate
15
[*15] industry, mineral market analysis, and valuation of mineral
reserves. Mr. Wick determined the mineral property value of the Rising
Rock property was approximately $14.9 million applying the income
approach. His income approach, specifically the discounted cashflow
model, assumed total sales tons ranged from a low of 100,000 tons in
Year 1 to a maximum of 678,000 tons in Year 16 and required capital
expenditures exceeding $15 million for the development of an operating
quarry on the Rising Rock property.
Mr. Wick’s rebuttal report criticized Brian Groff’s report, stating
that contrary to Mr. Groff’s belief, the Rising Rock property occupied a
favorable location for aggregate production and that market demand
extended beyond local population indicators. He further concluded that
rezoning approvals for mining operations were reasonably likely.
B.
Respondent’s Experts
1.
Dr. Hamilton
Dr. Hamilton, executive vice president of JLL Valuation & Risk
Advisory Services, LLC, was qualified as an expert in real estate
appraisal and market studies. He valued the conservation easement
using the “before and after” method. Dr. Hamilton concluded that the
Rising Rock property had a fair market value of $954,000, or $3,800 per
acre, before the easement. He determined that the conservation
easement reduced the property’s value by $625,000. Dr. Hamilton
concluded that the highest and best use of the property before the
easement was low-density residential and recreational uses rather than
mining.
In rebuttal Dr. Hamilton identified several perceived deficiencies
in Mr. Kenny’s analysis, including reliance on a discounted cashflow
model, limited use of comparable sales data, failure to account for recent
arm’s-length sales of the subject property, and insufficient market
supply-and-demand analysis.
2.
Mr. Groff
Mr. Groff, a licensed professional engineer with a degree in
mining engineering, was qualified as an expert in mining engineering
and the valuation of mineral properties. He opined that the Rising Rock
property was not an economically attractive location for quarry
development. He cited distance to end markets, limited transportation
16
[*16] infrastructure, low regional population density, and the absence
of demonstrated unmet aggregate demand.
In rebuttal, Mr. Groff criticized the analyses of Mr. Kenny, Mr.
Nelson, Mr. Stanish, and Mr. Wick, concluding that the available
geological and economic data did not support classification of the site as
commercially viable mineral reserves. He further opined that the
income and discounted cashflow methodologies employed by petitioner’s
experts failed to adequately account for risk and lacked necessary
sensitivity analyses.
3.
Raymond H. Krasinski
Raymond H. Krasinski, a licensed real estate appraiser and lead
appraiser at the IRS, was qualified as an expert in appraisal, appraisal
review, Uniform Standards of Professional Appraisal Practice, and real
estate market analysis. His rebuttal report critiqued Mr. Kenny’s
report. He concluded that Mr. Kenny’s valuation did not reflect marketoriented value of the Rising Rock property in its condition as of the
donation date. Mr. Krasinski further opined that the report failed to
adequately recognize that the property was one of many large vacant
agricultural tracts situated within a granite-rich region, offering buyers
multiple comparable alternatives.
OPINION
I.
Burden of Proof
The IRS’s adjustments in an FPAA are generally presumed
correct, and the taxpayer bears the burden of proving those adjustments
erroneous. See Welch v. Helvering, 290 U.S. 111, 115 (1933); Crescent
Holdings, LLC v. Commissioner, 141 T.C. 477, 485 (2013); see also Rule
142(a)(1). That burden includes proving entitlement to any deduction
claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
Deductions are a matter of legislative grace; therefore, a taxpayer must
demonstrate compliance with the statutory requirements authorizing
the deduction. See id. at 84.
Accordingly, petitioner bears the burden of proving both
entitlement to a charitable contribution deduction under section 170 for
a qualified conservation contribution and the fair market value of the
donated conservation easement. See Jackson Stone S., LLC v.
Commissioner, T.C. Memo. 2025-96, at *65; Buckelew Farm, LLC v.
17
[*17] Commissioner, T.C. Memo. 2024-52, at *39, aff’d, No. 24-13268,
2025 WL 2502669 (11th Cir. Sep. 2, 2025).
II.
Charitable Contribution Deduction
A.
Valuation Principles
Section 170(a)(1) allows a deduction for any charitable
contribution made within the taxable year.
When a taxpayer
contributes property other than cash, the amount of the allowable
deduction generally equals the property’s fair market value at the time
of the gift. See Treas. Reg. § 1.170A-1(c)(1). Fair market value is defined
as “the price at which the property would change hands between a
willing buyer and a willing seller, neither being under any compulsion
to buy or sell and both having reasonable knowledge of relevant facts.”
Id. subpara. (2).
Valuation is not an exact science. The determination of a value
on a given date is a question of fact resolved on the basis of the entire
record. See Kaplan v. Commissioner, 43 T.C. 663, 665 (1965). Because
comparable market sales of conservation easements are rarely
available, courts ordinarily determine the value of a conservation
easement indirectly using the “before and after” method. See Ranch
Springs, LLC v. Commissioner, 164 T.C. 93, 128 (2025); Treas. Reg.
§ 1.170A-14(h)(3)(i). Under this method, the value of an easement
equals the fair market value of the property immediately before the
easement is granted (before value) minus the fair market value of the
property as encumbered by the easement (after value). Ranch Springs,
164 T.C. at 128.
Treasury Regulation § 1.170A-14(h)(3)(i) provides that when a
perpetual conservation easement encumbers only a portion of a
contiguous tract owned by the donor, the fair market value of the
restriction is the difference between the fair market value of the entire
contiguous parcel before and after the restriction is granted. Both
parties apply this rule and value the conservation easement with
reference to the 251.014-acre Rising Rock property. We will do the same.
Both parties rely extensively on expert testimony. We evaluate
an expert’s opinion in the light of the expert’s qualifications, the
reliability of the underlying data, and the soundness of the assumptions
employed. See Helvering v. Nat’l Grocery Co., 304 U.S. 282, 295 (1938);
Estate of Mellinger v. Commissioner, 112 T.C. 26, 39 (1999); Estate of
Davis v. Commissioner, 110 T.C. 530, 538 (1998). We are not bound to
18
[*18] accept an expert’s opinion in whole or in part. Instead, we may
accept those portions we find reliable and reject those we find
unpersuasive. Helvering v. Nat’l Grocery Co., 304 U.S. at 295; Estate of
Hall v. Commissioner, 92 T.C. 312, 338 (1989); see also Leonard Pipeline
Contractors v. Commissioner, 210 F.3d 384 (9th Cir. 2000) (unpublished
table decision) (“The Tax Court could either reject an expert’s opinion in
its entirety, accept it in its entirety, or accept selective potions [sic] of
it.”). We also “may determine fair market value on the basis of our own
examination of the evidence in the record.” Savannah Shoals, LLC v.
Commissioner, T.C. Memo. 2024-35, at *35; see also Jackson Crossroads,
LLC v. Commissioner, T.C. Memo. 2024-111, at *35, aff’d, Nos. 2510744, et al., 2026 WL 822261 (11th Cir. Mar. 25, 2026); Buckelew Farm,
T.C. Memo. 2024-52, at *51.
The parties agree that the valuation should proceed under the
before and after method. Their disagreement centers on how the before
value should be determined. Respondent’s expert, Dr. Hamilton,
applied a market approach (sales comparison). Petitioner’s experts, Mr.
Kenny and Mr. Wick, relied on an income approach employing
discounted cashflow analysis premised on quarry development. 17 The
selection of an appropriate valuation methodology is ultimately a
question of law informed by the facts of the case. See Chapman Glen
Ltd. v. Commissioner, 140 T.C. 294, 325–26 (2013).
B.
“Before Value” of the Rising Rock Property
To determine the property’s “before value,” we begin by
identifying the property’s highest and best use immediately before the
conservation easement was granted. After identifying that use, we
evaluate relevant market evidence, prior transactions involving the
property, and the competing valuation methodologies advanced by the
parties’ experts.
1.
Determination of Highest and Best Use
Under the before and after valuation method, fair market value
reflects not only the property’s existing use but also its highest and best
use. See Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400
(1986); Treas. Reg. § 1.170A-14(h)(3)(i) and (ii). Highest and best use is
the reasonably probable use that is legally permissible, physically
17 In his report, Mr. Kenny used a discounted cashflow analysis as the primary
method for valuing the Rising Rock property with a sales comparison approach as a
“test of reasonableness,” or secondary method.
19
[*19] possible, financially feasible, and maximally productive. Ranch
Springs, 164 T.C. at 136; see also Olson v. United States, 292 U.S. 246,
255 (1934); Symington v. Commissioner, 87 T.C. 892, 897 (1986). A
property’s current use is presumed to be its highest and best use absent
evidence to the contrary. Mountanos v. Commissioner, T.C. Memo.
2013-138, at *7, supplemented by T.C. Memo. 2014-38, aff’d, 651
F. App’x 592 (9th Cir. 2016); Esgar Corp. v. Commissioner, T.C. Memo.
2012-35, 2012 WL 371809, at *7, aff’d, 744 F.3d 648 (10th Cir. 2014). A
proposed alternative highest and best use must be reasonably probable,
not merely speculative. Hilborn v. Commissioner, 85 T.C. 677, 689
(1985). We exclude from consideration uses dependent upon uncertain
future events or contingencies that are only theoretically possible.
Olson, 292 U.S. at 257.
Determining highest and best use therefore requires an objective
assessment of the likelihood, absent the conservation restriction, the
property would have been developed as proposed, considering existing
zoning limitations, regulatory constraints, and market realities. Treas.
Reg. § 1.170A-14(h)(3)(ii). Although highest and best use is an
important component of valuation, it does not displace the governing
willing buyer, willing seller standard. Boltar, L.L.C. v. Commissioner,
136 T.C. 326, 336 (2011). The ultimate question remains whether a
hypothetical purchaser would pay the asserted price for the property
under prevailing market conditions. Id.; see Corning Place Ohio, LLC v.
Commissioner, T.C. Memo. 2024-72, at *41, aff’d, 158 F.4th 715 (6th Cir.
2025); Treas. Reg. § 1.170A-1(c)(2).
Petitioner argues that applying traditional fair market value
principles to conservation easements misapplies the governing legal
standard. According to petitioner, a perpetual restriction on real
property warrants a more stringent valuation standard because the
donor relinquishes the value inherent in the property’s highest and best
use. In petitioner’s view, valuing the easement by reference to the
property’s highest and best use more accurately measures the value
surrendered through the perpetual restriction. We disagree. Our
precedent consistently applies established fair market value
principles—including highest and best use analysis—in valuing
conservation easements, and we adhere to that framework here. See
Boltar, 136 T.C. at 336; see also Ranch Springs, 164 T.C. at 161. In any
event, even if we accepted petitioner’s premise, we would still conclude
that the property’s highest and best use was not mining, for the reasons
discussed below.
20
[*20]
a.
Legally Permissible
The Rising Rock property lies in a rural area, surrounded by
agricultural and residential land. In 2016 and 2017 it was zoned partly
A–1 Agricultural and partly low-density residential. 18 These zoning
classifications permitted farming, forestry, low-density residential
development, and recreational uses but did not permit quarry mining or
other industrial uses. The property was used primarily for recreational
purposes when RRP acquired it. Recreational use was thus its
presumptive highest and best use in December 2017. See Ranch
Springs, 164 T.C. at 137; see also N. Donald LA Prop., LLC v.
Commissioner, T.C. Memo. 2026-19, at *46.
Respondent’s expert, Dr. Hamilton, evaluated potential
alternative uses and, after considering market factors and obstacles to
rezoning, concluded that the property’s highest and best use before the
easement consisted of low-density residential combined with
recreational use. We adopt that conclusion. Limiting the analysis to
recreational use alone fails to account for the property’s residential
development potential and therefore does not reflect a maximally
productive use.
Low-density residential use is consistent with
surrounding land uses, where large-acreage tracts are typically
purchased for recreation, hunting, forestry, or estate-style residential
development.
Petitioner contends that the highest and best use was
development of a granite quarry. Quarry mining, however, was not
legally permissible under existing zoning. Petitioner therefore bears the
burden of establishing that rezoning and issuance of necessary permits
were reasonably probable. The record does not support such a finding.
Between RRP and Ogletree Realty Trust, the property was owned
for more than a year before RRP donated the easement, yet neither
party made any effort to obtain a text amendment, rezoning, or a special
use permit. No applications were filed, no preliminary discussions with
18 The parties stipulated the zoning classifications. However, Dr. Hamilton
identified a zoning discrepancy in his report. Upon verifying with a Meriwether
County official, he was informed that the parcel was entirely zoned A–1 Agricultural
as of the valuation date in 2017. Dr. Hamilton compared the A–1 Agricultural and
low-density residential classifications and determined that the principal distinction
between them was minimum lot size—25 acres for A–1 Agricultural and 5 acres for
low-density residential. The Rising Rock property meets the minimum lot size
requirement under either classification; therefore, Dr. Hamilton concluded that the
property’s marketability would be unaffected.
21
[*21] county officials were initiated, and no community outreach was
attempted. The absence of these actions is significant given the
extensive regulatory approvals required for quarry development.
Petitioner relies primarily on the testimony of Mr. Nelson, who
opined that rezoning could have been obtained if properly pursued. His
opinion assumes successful completion of multiple discretionary
government actions, including a text amendment, rezoning approval,
and issuance of a special use permit. His report, however, does not
meaningfully analyze the factors Meriwether County is required to
consider under its zoning ordinance.
See Code of Ordinances,
Meriwether Cnty., Ga., App. A § 16.8 (2016). Those factors include
compatibility with surrounding land uses, infrastructure impacts,
conformity with the land-use plan, and economic viability under existing
zoning. Application of these considerations weighs strongly against
industrial rezoning of the Rising Rock property. Surrounding properties
were zoned A–1 Agricultural and low-density residential, and quarry
operations would introduce heavy truck traffic, blasting, noise, and dust
incompatible with neighboring rural uses. County roadways in the
vicinity were not designed to accommodate sustained industrial hauling
operations.
Nothing in the record indicates changing land-use
conditions favoring industrial development.
Evidence concerning contemporaneous quarry proposals
elsewhere in the county further undermines petitioner’s position.
Testimony regarding Mr. Fitzgerald’s quarry proposal demonstrated
substantial and organized community opposition to mining projects
during the relevant period. 19 Residents mobilized extensively, retained
counsel and consultants, and participated in large public hearings. 20
19 Petitioner filed a motion in limine to exclude evidence of Mr. Fitzgerald’s
attempt to rezone his Meriwether County property. On March 31, 2025, the Court
denied the motion without prejudice. In a footnote in petitioner’s simultaneous
opening brief, petitioner renewed its motion. We find Mr. Fitzgerald’s testimony
relevant, and it will not be excluded.
20 In Harman Road Property, LLC v. Commissioner, T.C. Memo. 2026-23,
at *33, this Court was reluctant to give weight to the evidence regarding Mr.
Fitzgerald’s rezoning attempt because his efforts were undertaken in 2017 and 2018,
which was after the 2016 tax year at issue in that case. See Estate of Gilford v.
Commissioner, 88 T.C. 38, 52 (1987) (“In general, property is valued as of the valuation
date on the basis of market conditions and facts available on that date without regard
to hindsight.” (emphasis omitted)). Here, we do give weight to Mr. Fitzgerald’s attempt
because it occurred contemporaneously with the RRP easement donation. His attempt
22
[*22] Petitioner attempts to distinguish Mr. Fitzgerald’s experience as
unique to that project. We are not persuaded. The record demonstrates
widespread resistance to quarry mining throughout the county.
Testimony from county officials confirmed that the denial of Mr.
Fitzgerald’s proposal was not attributable to personality conflicts or
procedural missteps but rather to sustained public opposition and
zoning considerations. County residents expressed concern regarding
environmental impacts, traffic, and preservation of the county’s rural
character.
We therefore find that rezoning for quarry development was not
reasonably probable as of December 2017. Quarry mining was not a
legally permissible or reasonably probable use. Considering existing
zoning restrictions, the absence of any successful rezoning efforts, the
discretionary nature of governmental approvals, and substantial
community opposition to quarry development within Meriwether
County during the relevant period, we find that a hypothetical willing
buyer would not have purchased the Rising Rock property based on an
expectation of quarry development. Therefore, the mining potential
would not have influenced market price as of the valuation date and
cannot constitute the property’s highest and best use.
b.
Physical Possibility
The property’s physical characteristics further weigh against
industrial development. More than 15% of the property either lies in a
floodplain or consists of wetlands, and approximately 17% of the
property contains slopes exceeding 10% grade. These conditions reduce
suitability for large-scale industrial operations.
The record supports that certain agricultural or forestry uses—
particularly timber harvesting—may be financially feasible.
Traditional agricultural operations such as livestock grazing or row-crop
farming are less likely given the limited pastureland available on the
property.
c.
Financial Feasibility
Because quarry development was not legally permissible or
reasonably probable, further analysis of financial feasibility is not
required. We nevertheless address financial feasibility to demonstrate
highlights the uncertainty of amending zoning laws in Meriwether County and offers
insight into the views of local residents at the time of the RRP donation.
23
[*23] that, even assuming rezoning approval, petitioner has not
established that quarry development would have been economically
viable. Petitioner’s experts relied on income and discounted cashflow
analyses premised on annual production ranging from 100,000 tons to
upwards of 713,000 tons. The critical flaw in those analyses is the
unsupported assumption that the local market could absorb additional
supply at that level. See Esgar Corp. v. Commissioner, 2012 WL 371809,
at *7–8. (citing United States v. 69.1 Acres of Land, 942 F.2d 290, 292
(4th Cir. 1991)).
Demand for construction aggregate is driven primarily by local
population growth, housing construction, and regional economic
activity. In 2016 and 2017 Meriwether County experienced declining
population trends, stagnant median income levels, and minimal
residential construction activity. Only a small number of housing
permits were issued countywide.
Although broader regional projections suggested population
growth across a larger multicounty area, those projections overstated
the realistic market available to a quarry located on the Rising Rock
property. Adjacent counties with population growth already hosted
quarry operations, and competing facilities were located closer to
primary demand centers.
Crushed stone is highly sensitive to
transportation costs, resulting in quarries typically operating near their
markets. Evidence concerning Vulcan’s LaGrange quarry is instructive.
Despite being an established operator, the LaGrange facility operated
substantially below capacity because of insufficient local demand and
primarily served nearby markets rather than more distant metropolitan
areas.
A new quarry at the Rising Rock property would have faced longer
haul distances, higher transportation costs, and competition from
multiple existing quarries. The record does not establish unmet demand
sufficient to support a new operation. A quarry cannot create demand
where none exists. Moreover, petitioner’s own evidence indicated that
development of an operating quarry at the Rising Rock property would
require capital expenditures exceeding $15 million.
The objective market evidence demonstrates that existing quarry
operators possessed unused production capacity, regional demand for
aggregate was stagnant or declining, and transportation economics
favored established competitors located closer to primary markets.
Under these conditions, a rational purchaser would not undertake the
24
[*24] substantial capital investment required to develop a new quarry
on the Rising Rock property. Accordingly, quarry development would
not have been considered financially feasible by a hypothetical willing
buyer.
d.
Highest and Best Use Conclusion
Considering the zoning restrictions, the lack of reasonably
probable rezoning, the property’s physical characteristics, the absence
of market demand sufficient to support a new quarry, and the economic
realities facing aggregate producers in the relevant market area, we
conclude that a knowledgeable and willing buyer would have valued the
Rising Rock property for low-density residential and recreational
purposes rather than for mining development. Accordingly, we find that
the highest and best use of the Rising Rock property immediately before
the conservation easement donation was low-density residential and
recreational use.
2.
Prior Transactions Involving the Property
Before considering the valuation approaches advanced by the
parties, we begin with the most probative evidence of fair market value:
The price at which it changed hands in an arm’s-length sale occurring
reasonably close to the valuation date. Buckelew Farm, T.C. Memo.
2024-52, at *56; see also J L Mins., LLC v. Commissioner, T.C. Memo.
2024-93, at *55; Corning Place, T.C. Memo. 2024-72, at *28; Excelsior
Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *31 (“The
best evidence of a property’s [fair market value] is the price at which it
changed hands in an arm’s-length transaction reasonably close in time
to the valuation date.”); ES NPA Holding, LLC v. Commissioner, T.C.
Memo. 2023-55, at *14. Courts consistently give substantial weight to
such transactions because they reflect the price that actual market
participants were willing to pay under prevailing market conditions.
See, e.g., Corning Place, T.C. Memo. 2024-72, at *28; Wortmann v.
Commissioner, T.C. Memo. 2005-227, 2005 WL 2387487, at *10 (finding
that the most persuasive evidence of the property’s fair market value
was its actual sale price 17 months before the contribution).
Both this Court and the U.S. Court of Appeals for the Eleventh
Circuit have recognized that the purchase of a partnership interest may
provide reliable evidence of value when the partnership’s sole or primary
asset consists of the subject property itself. Buckelew Farm, T.C. Memo.
2024-52, at *56; see also TOT Prop. Holdings, LLC v. Commissioner,
25
[*25] 1 F.4th 1354, 1368, 1371 n.23 (11th Cir. 2021) (finding that the
sale price for a 98.99% interest in a partnership whose only meaningful
asset was property on which an easement was granted shortly thereafter
was representative of the “before” value of the property); Oconee
Landing Prop., LLC v. Commissioner, T.C. Memo. 2024-25, at *71–72,
supplemented by T.C. Memo. 2024-73. Market evidence and appraisal
approaches should generally reinforce one another rather than produce
widely divergent results. See Ranch Springs, 164 T.C. at 134; Excelsior
Aggregates, T.C. Memo. 2024-60, at *32.
a.
Arm’s-Length Sale of the Rising Rock Property
The record contains an arm’s-length sale of the Rising Rock
property occurring approximately 13 months before the conservation
easement donation. The Yosts listed the 251.014-acre parcel on the MLS
for $991,450 as part of their broader retirement plans. After remaining
on the market for more than three months, the property was sold on
November 22, 2016, to Ogletree Realty Trust for $941,303, or
approximately $3,750 per acre. The parties do not dispute that the Yosts
and Ogletree Realty Trust were unrelated parties engaged in a
negotiated market transaction. Given its proximity to the valuation
date and its arm’s-length nature, this sale constitutes the most
probative evidence in the record of the property’s fair market value.
b.
Sale of RRP Partnership Interests
We also consider the subsequent sale of partnership interests in
RRP as a corroborating measure of market value. Six days before the
easement donation, Rising Investments purchased a 96% interest in
RRP for $1,802,160. At the time, the partnership’s sole asset was the
Rising Rock property. The transaction therefore provides additional
evidence of what investors were willing to pay for indirect ownership of
the property.
While the purchase price exceeded the earlier acquisition price
paid for the property, that increase may reflect some combination of
modest appreciation and the anticipated tax benefits associated with the
conservation easement transaction. Even so, the implied value remains
far closer to the arm’s-length sale price than to petitioner’s substantially
higher valuation derived from income-based projections.
26
[*26]
3.
Valuation Approaches
Although actual market transactions provide the most persuasive
evidence of value, courts may also consider traditional appraisal
methodologies. The principal valuation approaches consist of the
market approach, the income approach, and the asset-based approach. 21
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).
The usefulness of any approach depends on the nature of the property
and the facts of the case. See Chapman Glen Ltd., 140 T.C. at 325–26;
Champions Retreat Golf Founders, LLC v. Commissioner, T.C. Memo.
2022-106, at *21, supplementing T.C. Memo. 2018-146.
The market approach estimates fair market value by reference to
arm’s-length sales of comparable properties occurring reasonably close
in time to the valuation date. See Chapman Glen Ltd., 140 T.C. at 326.
Because no two properties are identical, the appraiser must adjust
comparable sales to account for differences such as size, location,
development potential, and conditions of sale. Wolfsen Land & Cattle
Co. v. Commissioner, 72 T.C. 1, 19 (1979).
The reliability of a comparable sales analysis depends on the
comparability of the selected properties and the reasonableness of the
adjustments made. Id. at 19–20. The approach rests on the economic
principle of substitution—that a prudent buyer will not pay more for a
property than the cost of acquiring a reasonably comparable substitute.
Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129, at *51;
see also 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 v.
Commissioner, T.C. Memo. 1975-26, 34 T.C.M. (CCH) 117, 119 (“[A]
prudent man will pay no more for a given property than he would for a
similar property.”), aff’d, 566 F.2d 1183 (9th Cir. 1977) (unpublished
table decision).
For vacant or lightly improved land, the market approach is
generally regarded as the most reliable valuation method because it
reflects the collective judgment of actual buyers and sellers operating in
21 Neither party uses the asset-based approach to value the easement. We
agree that the asset-based approach is not relevant.
27
[*27] the marketplace. See Oconee Landing, T.C. Memo. 2024-25,
at *67; Estate of Rabe, 34 T.C.M. (CCH) at 119. Identification of
appropriate comparable sales is guided by the property’s highest and
best use. Corning Place, T.C. Memo. 2024-72, at *32.
The income approach estimates fair market value by discounting
to present value the expected future cashflows the property would
generate. See, e.g., Chapman Glen Ltd., 140 T.C. at 327; Marine v.
Commissioner, 92 T.C. 958, 983 (1989), aff’d, 921 F.2d 280 (9th Cir.
1991) (unpublished table decision). This approach is most reliable
where the projections rest on a credible foundation, including market
data and supportable assumptions about cost, timing, and risk. Ranch
Springs, 164 T.C. at 151; Excelsior Aggregates, T.C. Memo. 2024-60,
at *33.
We have observed that the income approach is often most reliable
when applied to an existing income-producing business with a track
record of revenues and expenses. See Ranch Springs, 164 T.C. at 151.
When applied to vacant land, the approach can be highly sensitive to
assumptions, and unsupported projections have undermined income
analyses in many conservation easement cases. See, e.g., Savannah
Shoals, T.C. Memo. 2024-35, at *36 (“Income valuation methods are not
favored when valuing vacant land with no income-producing history
because they are inherently speculative and unreliable.”). For that
reason, we must carefully examine the plausibility of the critical
assumptions underlying the model. See Ranch Springs, 164 T.C. at 151;
Kiva Dunes Conservation, LLC v. Commissioner, T.C. Memo. 2009-145,
slip op. at 10–11.
The choice of valuation method is influenced in significant part
by the property’s highest and best use.
Consistent with our
determination that the Rising Rock’s property’s highest and best use
before the easement consisted of low-density residential and
recreational use, we evaluate the parties’ expert analyses in the light of
that conclusion.
a.
Market Approach
i.
Dr. Hamilton’s Comparable Sales
Dr. Hamilton concluded that, before the easement donation, the
Rising Rock property’s highest and best use was low-density residential
combined with recreational use. To estimate value under the market
approach, he selected sales of rural tracts purchased or marketed for
28
[*28] similar uses. He relied on four arm’s-length comparable sales,
identified as Land Sales 1 through 4:
•
Land Sale 1 (November 2016): Involved the Rising Rock property
itself (Yost sale to Ogletree Realty Trust); 251.014-acre tract
located south of Ogletree Road between Old Durand Road and
Winter Road; zoned A–1 Agricultural and low-density residential;
contained hardwood and pine timber, open areas, multiple
streams and creeks, and rolling to moderately steep terrain;
parcel is situated atop granite formations; sold for $941,303, or
$3,750 per acre.
•
Land Sale 2 (February 2017): 155.34-acre tract located on Jessie
Porch Road approximately six miles northeast of the Rising Rock
property; zoned low-density residential and featured hardwood
and pine timber with rolling to moderately steep topography and
minimal thinned areas; sat atop granite formations but lacked
natural water features; sold for $547,577, or $3,525 per acre.
•
Land Sale 3 (September 2016): 221.16-acre parcel on Oakland
Road near Gay, Georgia, approximately 20 miles northeast of the
Rising Rock property; zoned low-density residential and consisted
of hardwood and pine timber with generally level-to-sloping
terrain; granite subsurface conditions were present, although no
natural water amenities were noted; sold for $750,000, or $3,391
per acre.
•
Land Sale 4 (February 2017): 369.11-acre parcel on Jessie Porch
Road, approximately six miles northeast of the Rising Rock
property; zoned low-density residential and contained hardwood
and pine timber, thinned and open areas, limited creeks and
streams, and rolling to moderately steep topography; granite
formations were present; sold for $1,301,106, or $3,525 per acre.
Dr. Hamilton adjusted each comparable for differences including
property rights conveyed, financing terms, conditions of sale, date of
sale, location, tract size, road frontage, natural water amenities, and
other physical characteristics. After adjustment, he derived the
following indicated values:
•
Land Sale 1: $978,955, or $3,900 per acre.
•
Land Sale 2: $597,845, or $3,849 per acre.
29
[*29]
•
Land Sale 3: $826,875, or $3,739 per acre.
•
Land Sale 4: $1,393,745, or $3,776 per acre.
The adjusted comparables produced a mean value of
approximately $3,797 per acre, and a median of $3,793 per acre. Dr.
Hamilton concluded that the Rising Rock property had a before
easement value of $3,800 per acre, yielding a total value of
approximately $954,000 for the 251.014-acre tract.
ii.
Mr. Kenny’s Comparable Sales
Mr. Kenny reached a markedly different conclusion. He relied on
a discounted cashflow analysis supported by six purported comparable
mining property transactions in Carroll, Jackson, Hall, Athens-Clarke,
Forsyth, and Fulton Counties. Five of the six properties were either
operating mines with established production histories or expansion
acquisitions adjacent to existing mining operations. The sixth was a
greenfield parcel possessing zoning approvals allowing mineral
extraction. The transactions reflected prices ranging from $75,950 to
$291,325 per acre. On the basis of those sales and his discounted
cashflow modeling, Mr. Kenny concluded that the Rising Rock property
had a before easement value of $50,396 per acre as of December 21,
2017.
Petitioner’s primary argument against Dr. Hamilton’s
comparables is that they do not account for the mining highest and best
use and ignore the presence and value of the subsurface mineral on the
Rising Rock property. We have already rejected that premise. The
record does not establish that mining was reasonably probable or legally
permissible as of the valuation date.
Even if mining were assumed to be the highest and best use, Mr.
Kenny’s selected comparables remain unpersuasive. His comparable
properties were either zoned for mining, functioning commercial mines,
or expansion acquisitions benefiting from extensive geological data,
regulatory approvals, and established operating infrastructure. Those
characteristics materially reduce risk relative to the Rising Rock
property, which lacks mining entitlements, meaningful drilling data,
and verified mineral reserves.
30
[*30] Mr. Kenny offered no persuasive evidence that market
participants would pay more than $50,000 per acre for raw rural land
possessing only limited exploratory information and no mineral
approvals. Nor did he analyze market conditions in the counties where
his comparables were located or explain their economic comparability to
Meriwether County. Accordingly, we give little weight to Mr. Kenny’s
valuation.
iii.
Our Analysis
We find Dr. Hamilton’s comparable property sales reliable. Each
involved vacant rural acreage within the same market area, sharing the
subject property’s highest and best use, physical characteristics, and
development potential. The sales’ proximity in both time and location
accords with accepted appraisal methodology and our precedent.
Land Sale 1 is the most probative evidence of value because it
represents the prior arm’s-length sale of the Rising Rock property itself,
occurring only 13 months before the valuation date. We have repeatedly
recognized that an actual sale of the subject property, when reasonably
close in time and free from compulsion, provides the best indicator of
market value. See, e.g., Excelsior Aggregates, T.C. Memo. 2024-60,
at *31; ES NPA Holding, T.C. Memo. 2023-55, at *14.
The remaining sales selected by Dr. Hamilton provide meaningful
corroboration. Land Sale 2 occurred ten months before the donation.
The Land Sale 2 property lies only six miles from the Rising Rock
property within the same county, shares similar zoning, topography,
and granite subsurface conditions, and differs primarily in lacking
natural water features, rendering it slightly inferior to the Rising Rock
property. The Land Sale 3 property, though located farther away,
remains within Meriwether County and is similar in size and zoning
classification. Its somewhat more level terrain suggests modest
superiority, while the absence of natural water amenities offsets that
advantage. The Land Sale 4 property is larger than the Rising Rock
property but remains comparable in overall character. Located only six
miles away and sold within the relevant valuation period, it shares
similar terrain, mineral conditions, and rural residential potential.
Independent market evidence further supports Dr. Hamilton’s
conclusions. Mr. Upchurch, a licensed real estate broker familiar with
the local market, advised the Yosts in 2016 to list the property at
approximately $3,950 per acre, or $991,450, based on comparable
31
[*31] transactions. A 2016 appraisal prepared for Calumet Bank
conducted shortly before the MLS listing indicated a value of
approximately $3,970 per acre, or $1 million for the 251-acre tract.
These opinions from knowledgeable market participants corroborate the
value range indicated by the comparable property sales analysis.
Although Dr. Hamilton ultimately adopted $3,800 per acre, we
give the greatest weight to Land Sale 1—the prior sale of the subject
property. Because the transaction occurred only 13 months before the
donation date and the record reflects modest appreciation during the
intervening period, we adopt the adjusted indication of $3,900 per acre.
Accordingly, we find that the Rising Rock property had a before
easement fair market value of $3,900 per acre as of the valuation date.
b.
Income Approach
Petitioner’s experts Mr. Kenny and Mr. Wick valued the Rising
Rock property using income-based methodologies premised on
development of a granite quarry. Each concluded that the property’s
highest and best use was aggregate mining and constructed valuation
models intended to measure present value of a hypothetical quarrying
operation.
We have already determined that granite mining was not the
property’s highest and best use because petitioner failed to establish
that mining was legally permissible or reasonably probable as of the
valuation date. That determination is dispositive of the income
approach.
The discounted cashflow analyses prepared by Mr. Kenny and
Mr. Wick assume the creation of a long-term mining enterprise and
project revenues, expenses, capital investments, and market demand
over periods ranging from 17 to 19 years. Because those projections
depend entirely on a use that was not legally feasible, the resulting
valuations do not reflect the price that a willing buyer would have paid
for the property in its actual condition. We therefore give no weight to
the discounted cashflow analyses.
Petitioner also presented a royalty income analysis estimating
the value of leasing the property for quarry operations. This method
likewise presumes the existence of a viable mining use. For the same
reason that undermines the discounted cashflow models, the royalty
analysis rests on an unsupported premise and does not assist us in
determining fair market value.
32
[*32] Even if mining were assumed to be the highest and best use, both
income approaches would remain unpersuasive.
Each relies on
speculative forecasts concerning future production levels, market
demand, and operating performance extending decades into the future.
See Ambassador Apartments, Inc. v. Commissioner, 50 T.C. 236, 243–44
(1968) (rejecting real estate valuation premised on the income approach
in favor of market value established by recent sales), aff’d per curiam,
406 F.2d 288 (2d Cir. 1969); J L Mins., T.C. Memo. 2024-93, at *56
(finding that the income approach would be inappropriate even if mining
were the property’s highest and best use); Excelsior Aggregates, T.C.
Memo. 2024-60, at *40 (same). Where reliable comparable sales exist—
as they do here—the market approach provides a far more reliable
measure of value than projections of a hypothetical business enterprise.
Accordingly, we place no weight on petitioner’s income-based valuations
and rely instead on the market evidence discussed above.
C.
Value of the Easement
Fair market value reflects the price at which a willing buyer and
a willing seller, neither under compulsion and both possessing
reasonable knowledge of relevant facts, would agree to exchange the
property. The record before us contains precisely the type of evidence
most probative of that inquiry—recent arm’s-length sales of comparable
rural acreage, including a recent prior sale of the subject property itself.
Giving the greatest weight to the prior arm’s-length sale of the subject
property and the corroborating comparable sales analyzed by
Dr. Hamilton, we conclude that the Rising Rock property had a before
easement fair market value of $3,900 per acre, or $978,955 in total.
In determining the value of the property after encumbrance by
the easement, we note that Dr. Hamilton concluded an “after value” of
$329,000. This figure is lower than the value proposed by Mr. Kenny. 22
Therefore, we treat the Commissioner as having effectively conceded an
after value of $329,000. See Seabrook Prop., LLC v. Commissioner, T.C.
Memo. 2025-6, at *76.
The value of the conservation easement was thus $649,955.
III.
Penalties
Section 6662 imposes a 20% accuracy-related penalty on any
portion of an underpayment attributable to substantial valuation
22 Mr. Wick does not provide an “after value.”
33
[*33] misstatement. § 6662(a), (b)(3). A misstatement is “substantial” if
the value of the property claimed on a return equals or exceeds 150% of
the correct amount. § 6662(e)(1)(A). The penalty increases to 40% in
the case of a “gross valuation misstatement,” which occurs when the
claimed value equals or exceeds 200% of the correct value.
§ 6662(h)(2)(A)(i).
RRP claimed a charitable contribution deduction of $12,765,000
for the conservation easement on its 2017 return. We have determined
that the easement’s fair market value on the valuation date was
$649,955. The claimed value therefore exceeded 1,900% of the correct
value, constituting a gross valuation misstatement within the meaning
of section 6662(h).
Section 6664(c)(1) generally provides that no accuracy-related
penalty shall apply if the taxpayer demonstrates reasonable cause and
good faith. However, that defense is unavailable for gross valuation
misstatements attributable to charitable deduction property.
§ 6664(c)(3). Accordingly, the 40% gross valuation misstatement
penalty applies to the portion of RRP’s underpayment attributable to
the overvaluation of the conservation easement.
On the basis of the Court’s valuation determination in RRP’s case,
gross valuation misstatement penalties also apply to the portions of the
Yosts’ underpayments attributable to the overvaluation of the
conservation easement.
To reflect the foregoing,
Decisions will be entered under Rule 155.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.