United States Tax Court

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T.C. Memo. 2025-6

SEABROOK PROPERTY, LLC, SEABROOK MANAGER, LLC,

TAX MATTERS PARTNER,

Petitioner

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 5071-21.

Filed January 21, 2025.

__________

Michelle A. Levin, Gregory P. Rhodes, Logan C. Abernathy, Sarah E.

Green, Kristin Martin Centeno, and Sidney W. Jackson IV, for petitioner.

Christopher A. Pavilonis, William Benjamin McClendon, Peter T.

McCary, Randall B. Childs, Erin A. Schaffer-Williams, Hannah Kate

Comfort, Richard C. Mills III, and Patricia M. Zweibel, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

TORO, Judge: This syndicated conservation easement case

involves a noncash charitable contribution deduction claimed for 2017.

Seabrook Property, LLC (Seabrook), claimed a deduction of $32,581,443

for its grant to the Southern Conservation Trust, Inc., of a perpetual

conservation easement on approximately 622 acres of real property in

Liberty County, Georgia. The claimed deduction was premised on the

view that the land over which the easement was granted was worth

approximately $58,084 per acre (approximately $100,000 per upland

acre) before the granting of the easement.

By Notice of Final Partnership Administrative Adjustment

(FPAA), the Commissioner of Internal Revenue disallowed the

deduction in full. The Commissioner also determined that Seabrook is

Served 01/21/25

[*2] subject to an accuracy-related penalty under section 6662 1 and a

reportable transaction penalty under section 6662A.

After concessions, 2 the remaining issues for decision are as

follows:

•

Whether Seabrook and its members had the requisite donative

intent when donating the easement;

•

Whether the appraisal attached to Seabrook’s federal income tax

return for 2017 was a qualified appraisal prepared by a qualified

appraiser under section 170(f)(11) and Treasury Regulation

§ 1.170A-13(c);

•

The value of the easement Seabrook donated; and

•

Whether an accuracy-related penalty applies under section 6662.

For the reasons below, we find that Seabrook and its members had the

requisite donative intent and that the appraisal attached to Seabrook’s

2017 return was a qualified appraisal prepared by a qualified appraiser.

We further find that the value of the easement was $4,718,000 and that,

as a result, the penalty applies. 3

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

Code, Title 26 U.S.C. (I.R.C. or 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. All monetary amounts are shown in U.S. dollars and are rounded to the

nearest dollar.

2 The Commissioner has conceded for purposes of this case that (1) Seabrook’s

contribution satisfies section 170(h)(4)(A), which sets out the requirements for an

adequate conservation purpose, and (2) the rights Seabrook retained under the

easement deed are consistent with section 170(h)(5)(A), which requires that a

contribution’s conservation purpose be protected in perpetuity. Additionally, by Order

served February 8, 2023, resolving a Motion for Partial Summary Judgment, we ruled

that (1) Seabrook’s contribution was of a “qualified real property interest” that satisfied

section 170(h)(1)(A); (2) Seabrook’s contribution was to a qualified organization within

the meaning of section 170(h)(1)(B); and (3) penalties under section 6662A could not

be applied to Seabrook, see Green Valley Investors, LLC v. Commissioner, 159 T.C. 80

(2022).

3 The Commissioner also argued that Seabrook’s deduction should be limited

to its basis under section 170(e). But he explained on brief that, “[a]s a threshold

matter, the deduction limitation imposed by section 170(e) is only applicable in this

case if the Court determines the fair market value of the conservation easement

[*3]

FINDINGS OF FACT

The following facts are derived from the pleadings, a Stipulation

of Facts with attached Exhibits, as supplemented, and the testimony of

fact and expert witnesses admitted into evidence at trial. Seabrook is a

Georgia limited liability company (LLC) that was classified as a TEFRA

partnership 4 for its taxable year ending December 31, 2017. Petitioner

Seabrook Manager, LLC (Manager), is Seabrook’s tax matters partner.

Both entities had their principal places of business in Georgia when the

Petition was timely filed.

The Seabrook Property

The property over which Seabrook granted the easement

(Seabrook property) is in Liberty County, Georgia, approximately 25

aerial miles (or 45 minutes by car) southwest of Savannah. The property

is 637 acres, 5 consisting of approximately 370 upland acres and 267

acres of marsh. It sits about four miles east of I–95. The location of the

Seabrook property relative to Savannah and I–95 is depicted on the

following map, with the Seabrook property indicated by a star:

exceeds $5,668,176 (rounded).” Resp’t’s Op. Br. 166–67. In view of our conclusion on

the value of the conservation easement, we do not address this issue further.

4 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 procedures for many partnerships, including Seabrook.

5 While the property is 637 acres total, 15 acres were excluded from the

easement grant, such that the easement covers 622 acres.

[*4]

The Seabrook property is picturesque, boasting 1.25 miles of tidal

creeks and estuarine waters, as well as live oak trees that are hundreds

of years old. It also contains frontage along Dickinson Creek and the

Georgia coastal salt marsh, providing deep-water access.

The Seabrook property is long and somewhat irregular in shape.

The developable acres (approximately 370 upland acres, because the

marshland could not be developed) generally are on the western side of

the property. Dickinson Creek runs through the eastern side. The

property east of the creek (approximately 213 acres) is entirely marsh.

There are also 54 acres of marsh west of the creek, as shown in the map

and the aerial view photograph below. Dickinson Creek is accessible to

the upland portion of the property, at least by dock, at the property’s

north end (in the general area of the 15-acre outparcel indicated in the

map and photo), and at the south end near the property line. The marsh

views extend approximately 200 to 300 feet from the eastern portion of

the property. The western portion of the Seabrook property does not

have views of the marsh.

[*5]

As of 2017, the year at issue, the Seabrook property was

undeveloped, with only trees and some permeable paths maintained on

the property. There were no commercial, industrial, or residential

structures and no sewer or water systems on the property. The

Seabrook property may have had access to some electricity, but

otherwise it had no utilities. Bald eagles had been sighted on the

property, along with at least one wood stork. The Seabrook property

was zoned A–1 (agricultural) on the western portion of the property and

DM–1 (marsh) on the eastern portion of the property. 6 But Liberty

County generally favored development, and it was reasonably likely that

6 A–1 zoning allows for dwellings on one-acre lots, among other uses, whereas

DM–1 zoning does not allow for development.

[*6] Seabrook could have obtained rezoning to planned use development

(PUD) 7 on the upland portion of the property if it had sought it.

Before the transactions described below, the Seabrook property

was subject to an FLPA covenant with the State of Georgia. 8 In general,

an FLPA covenant is an arrangement that a landowner may enter into

with the state under which the landowner agrees not to develop its

property and, in return, Georgia approves a preferred assessment value

for property tax purposes. If an FLPA covenant is breached, the owner

loses the preferred assessment and must pay a modest penalty. FLPA

covenants were placed on portions of the Seabrook property in 2009 and

2013, each for a term of 15 years. At the end of 2017, the penalty for

breaching the covenants on the Seabrook property would have been no

greater than $51,000.

II.

Liberty County, Georgia

Liberty County is a relatively rural county on the eastern coast of

Georgia. The county’s economy is largely driven by Fort Stewart, a U.S.

army base. In 2020, more than 43,000 of the county’s approximately

65,000 people (or approximately 65%) lived at the Fort or in Hinesville,

a city adjacent to Fort Stewart that also serves as Liberty County’s

county seat. Fort Stewart and Hinesville are located west of I–95,

approximately 30 minutes from the Seabrook property.

As of 2023, Fort Stewart was by far the largest employer in

Liberty County, accounting for 21,100 of the 27,633 jobs offered by the

country’s largest 15 employers. The next three largest employers as of

2023 were SNF Holding, which employed 1,700 people and operated a

chemical manufacturing plant, the Liberty County School District,

which employed 1,479 people, and Target, which employed 1,200 people

and operated a distribution center in an industrial zone approximately

three miles from the Seabrook property. 9

In addition to Hinesville, Liberty County includes the smaller

cities of Allenhurst, Flemington, Gumbranch, Midway, Riceboro, and

Walthourville. The Seabrook property is closest to Midway, which is

west of I–95 off one of the two exits in Liberty County. Midway has a

PUD is a custom zoning that allows a mix of commercial, industrial,

institutional, or residential development and is decided on a case-by-case basis.

8 FLPA stands for “Forest Legacy Program Assessment.”

9 This industrial zone is called Tradeport East Industrial Park.

[*7] population of approximately 2,200 and includes a grocery store.

The Midway area, and Liberty County more generally, does not receive

much tourism because there are few attractions and amenities to draw

visitors to the area.

Liberty County was hit hard by the 2008 recession. In 2017,

Liberty County was still feeling the effects of the related housing

collapse, and the real estate market was still depressed. Liberty County

also generally trailed neighboring counties in terms of population

growth, median household income, and median value of housing units.

For example, just north of Liberty County is Bryan County, where

Richmond Hill, a suburb of Savannah, is located. (Savannah, located in

Chatham County, is about 25 minutes northeast of Richmond Hill,

which in turn is about 20 minutes northeast of the Seabrook property.)

According to the U.S. Census, from April 2010 to July 2021, the

population of Liberty County grew from 63,453 to 65,711, a 3% increase.

During that same period, the population of Bryan County grew from

30,233 to 46,938, a 55% increase. Similarly, the median household

income in Liberty County around the time the easement was donated

was $50,617 and the median value of housing units was $138,400. In

Bryan County, those numbers were $81,032 and $243,800, respectively.

III.

Residential Development in the Area

Liberty County

Although Liberty County is generally rural, particularly east of

I–95, it includes a few residential developments near the Seabrook

property.

Yellow Bluff

Yellow Bluff is a development several miles southeast of the

Seabrook property. Midway is the closest city to the development. The

community features creek frontage with its own marina, allowing for

small boats, kayaking, and fishing. The community has 150 units and

a clubhouse, a pool, sidewalks, and trails. It was established in 2006

and has sold about ten units per year over its lifetime, including ten

sales in 2017. In 2017, lot prices in the Yellow Bluff development ranged

from $70,000 to $200,000.

[*8]

Hampton Island Preserve

Hampton Island Preserve is a high-end development south of the

Seabrook property. Riceboro is the closest city to the development.

Hampton Island Preserve consists of a series of salt marsh islands

connected to the mainland by a bridge. The community started in 2003,

with 4,000 acres and 370 lots. It sold 10 lots per year until further

development stopped in 2007 because of management difficulties with

the property. It originally was planned to include a Davis Love golf

course, an equestrian center and riding trails, an organic farm, boating,

sailing, fishing, food and wine, and spa and fitness facilities. As of 2017,

Hampton Island Preserve was still dormant, with no development

occurring in the previous ten years.

Coastal Developments in the Region

Palmetto Bluff

Palmetto Bluff is in Bluffton, South Carolina, a city just north of

Savannah and adjacent to Hilton Head. Palmetto Bluff is a 20,000-acre

development with 4,000 units and 32 miles of waterfront along the May

River. Its amenities include a Jack Nicklaus Signature golf course, a

five-star quality resort and spa, boating, canoeing, dining, equestrian

facilities, target shooting, trails, pools, fitness facilities, gathering

spaces, fishing, tennis, pickleball, and bocce ball.

It is closer

geographically to both Savannah and Hilton Head than Seabrook is to

Savannah.

Kiawah River

Kiawah River is a community in South Carolina about 30 minutes

south of Charleston. The underlying property spans over 2,003 acres

with 1,168 units planned in two primary villages. The property includes

a five-star luxury boutique inn with rooms, branded residences, and

amenities. The property is situated on the Kiawah River with river and

marsh views, live oak trees with Spanish moss, and a 100-acre working

farm. The farm includes a goatery that produces goat cheese and milk.

There also are nature trails and walking and biking paths throughout

the property, a 9,000-square-foot community house with a fitness

facility, an outdoor pool complex with a junior Olympic-sized family pool

and an adult pool, a full-service kitchen and shaded bar with poolside

dining, a hot tub, pickleball courts, bocce ball, event space, parks, a

kayak launch, viewing areas, and a planned commercial village.

Kiawah River hosts events featuring nature, recreation, food, and art.

[*9] Kiawah River, which started in 2017, is just north of Kiawah

Island, which was built out in the 1990s. Kiawah Island is a beachfront

country club community with 3,800 homes on 10,000 acres. It has at

least three golf courses and has hosted multiple PGA Championships as

well as the Ryder Cup. Its development brought grocery stores,

restaurants, and other amenities to the area years before Kiawah River

began.

IV.

The Devendorfs and the Devendorf Property

Before the transactions at issue in this case, the Seabrook

property belonged to Meredith Devendorf Belford. Before 2015,

Ms. Belford, along with her mother, Laura Devendorf (together,

Devendorfs), owned 9,600 acres of land in Liberty County, Georgia

(Devendorf property).

Nearly all the Devendorfs’ impressive holding was acquired

originally by Ms. Belford’s grandfather on her mother’s side, John Porter

Stevens. Mr. Stevens grew up on a parcel of land in Liberty County

called Springfield Plantation. Portions of that land had been owned by

Mr. Stevens’s family since King George II granted the family 500 acres

of upland and 500 acres of marsh in the 1700s. As an adult, Mr. Stevens

prospered in business and, over a 30-year period from the 1920s to the

1950s, he acquired the Devendorf property, which included 20 miles of

marsh and riverfront. 10 Of the Devendorf property’s 9,600 total acres,

8,400 acres were working forest upland, and the remaining 1,200 acres

were salt marsh.

Mr. Stevens originally used the Devendorf property for

agriculture, but later shifted his focus to forestry. In general,

Mr. Stevens was conservation minded; his goal was to preserve the

property in a relatively natural state for as long as possible. His

daughter Ms. Devendorf and, eventually, his granddaughter Ms. Belford

shared this philosophy. Ms. Belford has managed the Devendorf

property since 1993.

Financial Challenges and Potential Solutions

Maintaining such a large landholding over so long a period proved

challenging. For years, the Devendorfs resisted the idea of development,

focusing instead on continuing their sustainable forestry and even

10 Mr. Stevens purchased Seabrook Plantation, of which the Seabrook property

makes up a part, in the 1930s.

[*10] opening a bed and breakfast and hosting weddings and kayak

tours on their property.

But revenues were unpredictable and

ultimately insufficient to meet their needs. By the early 2000s, the

Devendorfs found themselves land-rich but cash-poor (relatively

speaking), and they began exploring long-term conservation solutions.

As one option, the Devendorfs considered donating the Devendorf

property to an independent conservation organization. None of the

organizations they spoke to, however, could assure them that the

Devendorf property would be protected. For example, some of the

organizations wanted to sell the Devendorf property and use the funds

to further the organizations’ missions elsewhere. To the Devendorfs,

this possibility was unacceptable.

As another alternative, the Devendorfs explored creating their

own self-sustaining foundation to hold the land. This option was

appealing, but required cash that Ms. Devendorf and Ms. Belford did not

have. In 2006, they raised funds by selling a 40-acre parcel for

$2.2 million, or $55,000 per acre. The parcel became part of Yellow

Bluff. The developer of Yellow Bluff needed the parcel to create a septic

drain field adjacent to the development.

Around the same time, the Devendorfs also planned to sell

approximately 1,000 acres of property west of I–95 and south of

Highway 84.

They applied to the Liberty County Board of

Commissioners for rezoning of the 1,000 acres to PUD, and the board

granted their request in late 2007. After receiving the approval, the

Devendorfs listed the northern 500 acres for sale at $17.8 million, or

about $35,600 per acre. But the property failed to sell before the market

crash of 2008, and, after the crash, the Devendorfs took the property off

the market.

Despite this setback, the Devendorfs ultimately did create a

foundation, named the Springfield Legacy Foundation, which was

recognized by the IRS in 2012. Ms. Devendorf donated 82 acres to the

foundation, but she and Ms. Belford never realized their plans to

generate an endowment for the foundation by selling the 1,000-acre

parcel. Nor did they contribute the $2.2 million generated by the 40acre Yellow Bluff sale; instead, they used that amount to pay off debt on

a credit line that supported their living expenses and other endeavors.

At the time of trial, the Devendorfs still owned the parcel they had

planned to sell for development before the market crash.

[*11] VI.

Conservation Easement Alternative

In 2015, the Devendorfs were still feeling financial pressure and

looking for viable conservation options. Around that time, a longtime

friend of the Devendorf family, Charles Kiene, proposed a new solution.

Mr. Kiene had experience working with low-income housing credits and

film credits, and he thought that a syndicated conservation easement

would be a good fit for the Devendorfs. Specifically, Mr. Kiene proposed

that a syndicated conservation easement could raise capital to sustain

Ms. Devendorf and Ms. Belford while also accomplishing their

conservation objective: protecting the Devendorf property in perpetuity.

The Devendorfs liked Mr. Kiene’s proposal and elected to proceed.

They decided to split the Devendorf property into tracts and undertake

multiple transactions over multiple years. To effect their plan, they

sought help from Mr. Kiene as well as Lynn Fedor, Mr. Kiene’s business

partner. Ms. Fedor had certain expertise regarding securities laws and

advised clients regarding financial, tax, and estate planning issues.

To facilitate the Devendorfs’ easement transactions, Mr. Kiene

and Ms. Fedor spoke with various advisors regarding securities and tax

issues related to the easement transactions, including lawyers at

Morris, Manning, & Martin, LLP, in Atlanta.

In 2015 and 2016, with help from Mr. Kiene and Ms. Fedor, the

Devendorfs participated in at least four syndicated conservation

easement transactions that encumbered roughly 4,500 acres of the

Devendorf property with conservation easements. 11 Then, in 2017,

Ms. Belford began planning the Seabrook transaction. Around the same

time, she planned a second transaction that was also completed in 2017,

involving a property just north of Seabrook (Big Sky property).

VII.

Seabrook Easement Transaction

Preliminary Planning

As the first step in the Seabrook easement transaction,

Ms. Belford informed Mr. Kiene and Ms. Fedor which tracts of land she

and Ms. Devendorf wanted to monetize and place under easement in

2017. She communicated her decision via email in late March of that

11 Early on, Ms. Devendorf and Ms. Belford prioritized land owned by

Ms. Devendorf because she was elderly and they wanted to transfer assets out of her

estate before she died.

[*12] year, stating that she wanted to move forward with the Seabrook

property.

Soon thereafter, Mr. Kiene forwarded the email to Clay Weibel,

an appraiser, so that he could prepare a preliminary appraisal.

Mr. Weibel was also provided with a plat and a street location. He gave

Mr. Kiene and Ms. Fedor a preliminary estimated value for the property,

which they used to calculate the amount of capital they hoped to raise

from investors in the transaction. In the case of the Seabrook

transaction, this process yielded a target capital raise of $7.9 million. 12

Next, a Private Placement Memorandum (PPM) dated

October 10, 2017, was prepared for circulation to potential investors.

The PPM offered investors the opportunity to subscribe to “units” (or

shares) in Seabrook Investors, LLC (InvestCo), which would, the PPM

said, ultimately own the Seabrook property through its purchase of a

97% membership interest in Seabrook. Ms. Belford still owned the

Seabrook property at that time but, as we will describe, she was soon to

transfer the property to Seabrook.

The PPM further explained that, after subscribing to the units in

InvestCo, investors would have the opportunity to vote on whether to

(1) develop the Seabrook property for residential use, (2) conserve the

property by donating a conservation easement, or (3) hold the property

for investment. The PPM told potential investors: “In deciding to invest

in [InvestCo] and for purposes of analyzing the risks . . . each Investor[]

should assume the Conservation Strategy will be elected.” Ex. 39-R, p.

28.

Promotional materials prepared shortly after the PPM described

the three potential investment strategies in more detail. Regarding the

potential tax savings of the conservation strategy, the materials stated

as follows:

12 Typically, Mr. Kiene and Ms. Fedor would calculate the target capital raise

by dividing the preliminary appraisal value, which they sometimes discounted, by a

multiple. For the Seabrook property, for example, the discounted preliminary

appraisal value was $31.6 million and the ratio was 4:1, resulting in the target capital

raise of $7.9 million ($31.6 million divided by 4). The goal of the 4:1 ratio is that, if a

conservation easement is donated, investors are able to claim approximately $4 of

deduction for every $1 invested in the transaction, producing a tax benefit that can

significantly exceed the amount invested.

[*13]

Ex. 38-R, pp. 13–17. None of the possible options for investors in the

promotional materials was to sell the Seabrook property at its

discounted preliminary appraised value of $31.6 million, which the

materials said represented a 10% reduction from the fair market value

of the property.

The PPM cautioned investors that, despite its anticipated

ownership of a 97% interest in Seabrook, InvestCo could not

“unilaterally cause [Seabrook] to implement an Investment Strategy.”

Ex. 39-R, p. 18. It explained that “[InvestCo] will recommend a specific

Investment Strategy to [Seabrook], and each [Seabrook] Manager needs

to obtain approval of the other [Seabrook] Manager . . . in order to

proceed with the recommended Investment Strategy.” Id.

Ultimately, the units in InvestCo were sold to 96 individual

investors, and Seabrook proceeded with the conservation strategy as

described further below.

Transaction Mechanics

Creation of Entities

In June 2017, in anticipation of the Seabrook transaction,

Seabrook, Manager, and InvestCo were organized as Georgia LLCs.

Initially, Manager was the sole owner and manager of InvestCo.

Manager and Ms. Belford were the members and managers of Seabrook.

And Manager was 100% owned indirectly by Charles Kiene and Lynn

Fedor.

Each of the three entities had a separate role in the transaction.

Manager was formed to manage the initial monetization of Seabrook

and then to help manage the back-office operations of Seabrook. It

handled the business side of things and legal requirements with respect

to Seabrook, such as preparing Seabrook’s tax returns and annual

reports.

[*14] Seabrook itself was formed to hold the Seabrook property.

Maintaining an interest in Seabrook allowed Ms. Belford to continue to

participate in the conservation management of the Seabrook property.

And Wade McDonald, a forester, was later made a manager of Seabrook

without an ownership interest for similar reasons.

InvestCo was established as a vehicle to allow outside investors

to invest in Seabrook in an orderly fashion. For example, Mr. Kiene was

concerned that if outside investors had invested directly in the Seabrook

property, there would have been no clear delineation of rights or

definition of who owned what. And keeping Ms. Belford’s interest

separate from that of other investors was desirable because it allowed

her and Mr. McDonald to control decisions regarding forestry

management on the property.

Execution of Agreements

On November 22, 2017, the various parties entered into three

agreements that would lay the groundwork for Seabrook’s eventual

easement contribution.

First, Seabrook, Ms. Belford, and Manager entered into a

Contribution Agreement. Under that agreement, Ms. Belford agreed to

contribute the Seabrook property to Seabrook in exchange for a 99%

interest in Seabrook, and Manager agreed to contribute $1,000 in

exchange for a 1% interest. Ms. Belford conveyed the Seabrook property

to Seabrook on November 30, 2017, by recording a limited warranty deed

in Liberty County. 13 Following the conveyance, Seabrook owned the

Seabrook property, with Ms. Belford owning 99% of Seabrook and

Manager owning the remaining 1%.

Second, Ms. Belford and Charles Kiene (acting on behalf of

Manager) signed the Operating Agreement of Seabrook. The Operating

Agreement stated that Ms. Belford and Manager were the managers of

Seabrook and that neither could take any action related to Seabrook

without the written consent of the other. Ms. Belford could, however,

cause Seabrook to redeem Manager’s ownership interest in Seabrook for

$500 if InvestCo had not purchased 97% of Ms. Belford’s membership

interest in Seabrook by December 29, 2017.

13 Manager contributed its $1,000 sometime after December 20, 2017, and

before the end of the year. Before the contribution, the liability of Manager was

reflected on Seabrook’s books.

[*15] Third, Ms. Belford and InvestCo entered into a Membership

Interest Purchase Option Agreement (Option Agreement). The Option

Agreement granted InvestCo the option to purchase a 97% interest in

Seabrook from Ms. Belford for $4.74 million on or before December 31,

2017.

Acquisition of Interest in Seabrook and Contribution

of Easement

On December 22, 2017, InvestCo exercised its option and acquired

the 97% interest in Seabrook from Ms. Belford. Following the

acquisition, Seabrook continued to own the Seabrook property while

Manager owned 1% of Seabrook, Ms. Belford owned 2% of Seabrook, and

InvestCo owned 97% of Seabrook.

On the same day InvestCo exercised its option, InvestCo,

Manager, and Ms. Belford executed an Amended and Restated

Operating Agreement of Seabrook Property, LLC (Amended

Agreement).

The Amended Agreement designated Manager,

Ms. Belford, and Mr. McDonald as the managers of Seabrook. InvestCo

was simply a member. The Amended Agreement generally granted the

managers the authority to operate Seabrook, subject to certain

parameters. Significantly, the Amended Agreement required the

managers to explore and recommend to Seabrook’s members one of three

options with respect to the Seabrook property (the same develop, hold,

and conserve options described in the PPM). If a majority of Seabrook’s

members accepted the managers’ recommendation, then the managers

were required to pursue that option. The agreement was silent on what

would happen if the members rejected the managers’ recommendation.

Members could remove the managers only in specified circumstances.

And members could transfer their interests in Seabrook only with the

prior written consent of the managers, and subject to a right of first

refusal for Ms. Belford.

Less than a week after InvestCo exercised its option and the

Amended Agreement was executed, on December 28, 2017, Seabrook

executed a deed of conservation easement over 622 acres of the Seabrook

property to the Southern Conservation Trust. Seabrook filed the Deed

of Conservation Easement on December 29, 2017, in Liberty County.

[*16] VIII. Big Sky Easement Transaction

Although our primary focus here is on the Seabrook transaction,

we pause briefly to describe a few key aspects of the Big Sky transaction,

which was also completed in 2017. The Big Sky property was just north

of Seabrook in Liberty County. It consisted of 654 acres, with 295 acres

of upland and 359 acres of marsh and river. Ms. Belford received

$3.78 million for her participation in that transaction, which was

structured similarly to the Seabrook transaction. 14

Specifically,

Ms. Belford sold a 97% interest in an entity to which she had contributed

the Big Sky property.

Soon thereafter, that entity donated a

conservation easement over the Big Sky property.

IX.

The Appraiser and Appraisal

Before the Seabrook transaction, Mr. Kiene had been looking for

an appraiser to value the Seabrook property. Mr. Kiene contacted two

land trusts, the Georgia-Alabama Land Trust and the Southern

Conservation Trust, and they both recommended Clayton Weibel.

Another contact also recommended Mr. Weibel, who had spoken at

various land-trust events Mr. Kiene’s contact had organized. Mr. Kiene

was impressed with Mr. Weibel’s resume, and Seabrook hired him.

Following his engagement, Mr. Weibel prepared an appraisal of

the Seabrook property and the conservation easement that would be

donated by Seabrook. Initially, the appraisal stated that “[its] effective

date . . . is November 24, 2017, the date of the report is November 28,

2017, and the date of the conservation easement was recorded is Prior

to December 31, 2017.” Ex. 5-J, p. 1.

The appraisal included various maps and aerial photographs of

the Seabrook property, as well as associated property identification

numbers and a description of its general location on Fort Morris Road

and Dickinson Creek. Based on an analysis that focused primarily on

the characteristics of the Savannah market, the appraisal concluded

that the highest and best use of the Seabrook property before donation

of the easement was residential development. The appraisal concluded

that the easement donated by Seabrook was worth $35.85 million.

14 For example, Ms. Belford contributed her property to an LLC for a 99%

interest in the LLC, while a manager entity contributed $1,000 to the same LLC for a

1% interest. Ms. Belford then sold a 97% interest in the LLC for $3.78 million.

[*17] The appraisal calculated the value of the easement by first

concluding that the value of the Seabrook property before the donation

was $37 million, based on a valuation of $100,000 per upland acre.

Then, the appraisal reduced that amount by the value of the property

after the donation, which it concluded was only $1.15 million. The

appraisal assumed that the easement would apply to the whole of the

Seabrook property (all 637 acres) and so did not consider the value of

any outparcel.

After receiving a copy of the appraisal, Mr. Kiene realized that it

did not account for the 15-acre outparcel that was excluded from the

easement. Ms. Fedor informed Mr. Weibel of the issue, and he prepared

a revised appraisal and transmitted it to Seabrook on January 20, 2018.

The revised appraisal stated that “[its] effective date . . . is December 29,

2017, the date of the report is January 20, 2018, the easement

contribution date is December 28, 2017, and the date the conservation

easement was recorded is December 29, 2017.” Ex. 7-P, p. 2. Unlike the

original appraisal, the revised appraisal accounted for the 15-acre

outparcel. Once again, it determined that the highest and best use of

the Seabrook property before donation of the easement was residential

development. The appraisal determined that the easement donated by

Seabrook was worth $36,605,000. This conclusion was based on a value

for the Seabrook property before the easement was contributed of

$37,750,000 and a value after the easement was contributed of

$1,145,000.

Tax Returns and IRS Examination

Seabrook filed a 2017 Form 1065, U.S. Return of Partnership

Income, for the short period beginning December 21, 2017, and ending

December 31, 2017 (2017 Form 1065), claiming a noncash charitable

contribution deduction of $32,581,443 for the conveyance of the

conservation easement over 622 acres of the Seabrook property. 15 A

Form 8283, Noncash Charitable Contributions, attached to Seabrook’s

2017 Form 1065 reported a fair market value of the conservation

easement of $35,850,000 and also reflected a “conservation easement

reserve” of $3,268,557. 16 An addendum to the Form 8283 reported the

appraised fair market value of the Seabrook property before the

15 InvestCo claimed its proportionate share of the noncash charitable

contribution deduction in the amount of $31,604,000 (97% of $32,581,443) in 2017.

16 The difference between these two amounts equals $32,581,443, the amount

Seabrook claimed as a charitable contribution deduction.

[*18] donation of the easement was $37 million, and the fair market

value after the donation was $1.15 million.

The 2017 Form 1065 included the appraisal dated November 28,

2017, that was prepared and signed by Mr. Weibel. In other words, the

return included the first version of the appraisal, which determined a

before-easement value of $37 million and mistakenly did not account for

the 15-acre outparcel.

The IRS examined Seabrook’s 2017 Form 1065. A revenue agent

made the initial determination to assert penalties against Seabrook, and

that determination was approved, in writing, by the revenue agent’s

immediate supervisor before the revenue agent communicated the

penalties to Seabrook. On February 24, 2021, the Commissioner issued

to Manager an FPAA for Seabrook’s tax year ended December 31, 2017.

The FPAA denied the full amount of Seabrook’s charitable contribution

deduction and also determined a 40% accuracy-related penalty under

section 6662(h) or, in the alternative, a 20% reportable transaction

understatement penalty under section 6662A. To the extent neither of

those penalties applied, the FPAA determined a section 6662(a)

20% accuracy-related penalty for an underpayment due to a substantial

understatement of income tax under section 6662(b)(2) and (d) and for

negligence and disregard of rules and regulations under

section 6662(b)(1) and (c).

Manager timely petitioned our Court for review.

XI.

Trial

During a weeklong trial of this case, the parties called various

witnesses to establish the value of the easement Seabrook contributed.

Among those witnesses were the following experts.

Manager’s Experts

Belinda Sward

Manager offered expert testimony from Belinda Sward, the

founder of Strategic Solutions Alliance—a real estate consulting firm.

Ms. Sward was recognized by the Court as an expert in market analysis

and the feasibility of developing real property. Ms. Sward offered a

“retrospective market analysis” detailing both demand and development

projections for a residential development on the Seabrook property

beginning in 2017. Ex. 100-P, p. 1.

[*19] According to Ms. Sward, her methodology consisted of “primary

research and analysis of relevant secondary data over the period of 20162017 and relevant proceeding years . . . an interview process conducted

by Belinda Sward with local and regional real estate professionals . . .

[and] confidential data and analysis from previous and relevant work in

the regional market.” Id. at 6. The thrust of Ms. Sward’s report was

that the Seabrook property’s natural aesthetics and marshland access,

coupled with a growing demand for second/vacation homes in the

Savannah region, uniquely positioned the Seabrook property to be

developed and marketed as a “modern” residential community with “an

emphasis on health and wellness.” Id. at 77–78. From this, the report

concluded that the Subject Property “has many characteristics that

support its development as a regionally positioned second-home

residential community.” Id. at 16.

Jeff Pate

Manager also offered expert testimony from Jeff Pate, a land

planner and golf course designer with over 26 years of experience.

Mr. Pate prepared a conceptual capacity plan for a proposed

development on the Seabrook property. Mr. Pate received guidance

from Ms. Sward as to the type and size of the lots and placement of the

lots reflected in the plan. Ms. Sward also provided guidance as to the

amenities that the proposed development should offer. The final

capacity plan proposed that 816 units of various sizes could be developed

on the Seabrook property’s 370 upland acres, along with various

amenities such as a community dock, a vegetable garden, tennis and

pickleball courts, a pool, a fitness center, and nature trails and bike

paths, among others.

Gregory Eidson

Finally, Manager offered expert testimony from Gregory Eidson,

a certified real property appraiser in Georgia. Mr. Eidson has decades

of appraisal experience, has taken several classes on the valuation of

conservation easements, and has “fully” appraised two conservation

easements. Mr. Eidson was recognized by the Court as an expert in real

estate valuation, including conservation easements.

In his report, Mr. Eidson determined that the highest and best

use of the Seabrook property before the easement was “vacant land that

could be developed as a Master Planned Residential Development.”

Ex. 102-P, p. 81. Additionally, Mr. Eidson determined the highest and

[*20] best use after the easement to be “vacant land for agricultural and

recreational use.”

Id. at 122.

In reaching these conclusions,

Mr. Eidson’s report relied heavily on data from Ms. Sward’s

“retrospective market analysis” and Mr. Pate’s land development plan.

To determine the value of the Seabrook property before the

easement, Mr. Eidson used the sales comparison approach and the

discounted cashflow (DCF) income approach and subsequently averaged

the two values. Under the sales comparison approach, Mr. Eidson

determined that the “before value” of the property was $32.23 million.

He reached this conclusion by identifying seven properties, located in

various states, that he viewed as comparable. Under the income

approach, Mr. Eidson discounted the anticipated future net operating

income streams and a residual value into an estimate of present value.

From this, Mr. Eidson determined that the value of the property before

the easement was $34.84 million. Mr. Eidson averaged the results of

his sales comparison approach and his income approach and arrived at

$33.52 million as the final value before the easement.

Mr. Eidson then determined the value of the Seabrook property

after the easement to be $2 million. Mr. Eidson reached this conclusion

using the sales comparison method, choosing sales of five comparable

properties in Georgia. Finally, Mr. Eidson subtracted the value after

the easement and an additional $475,000 of excluded land parcel value

from the value before the easement to reach a final easement value of

$31.045 million.

The Commissioner’s Expert: Gerald Barber

The Commissioner offered expert testimony from Gerald Barber.

Mr. Barber has decades of real estate appraisal experience and has

appraised over 200 conservation easements. Mr. Barber was recognized

as an expert in real estate valuation, conservation easements, landscape

architecture, and land planning.

In his appraisal, Mr. Barber determined the highest and best use

of the Seabrook property before the easement to be “its current

recreational use with potential for small scale large tract residential

development.” Ex. 200-R, p. 22. Additionally, he determined the highest

and best use after the easement to be “a large undeveloped tract of land

dedicated to continued recreational uses with a minimum amount of

timber harvests to encourage a healthy forest and premium recreational

and wildlife habitat characteristics.” Id. Mr. Barber reached these

[*21] conclusions by conducting a market study that examined the

number of land permits filed with Liberty County in three preceding

years, the median income of Liberty County, and geographic and

ecological data related to the Seabrook property. Mr. Barber testified

that he “rode around the site [many] times looking at what’s there,

looking at what potentially the people are interested in.” Tr. 1256. From

this, Mr. Barber concluded that the potential for heavy residential

development was not there and that use for recreational activities—such

as forestry or hunting—was a more probable highest and best use.

Mr. Barber calculated the market value of the easement to be

$1.045 million, representing the difference between a value before the

easement of $2.06 million and a value after the easement of

$1.015 million. To reach this conclusion, Mr. Barber relied primarily on

the sales comparison approach, supplemented by his market analysis

and interviews with buyers and sellers of properties in the area. 17 For

his “before” analysis, Mr. Barber proposed six comparable properties, all

in Georgia. Three of the six properties were in Liberty County, and all

six properties were within 50 miles of the Seabrook property. For his

“after” analysis, Mr. Barber proposed three comparable properties in

Georgia—one of which was in Liberty County.

OPINION

Burden of Proof

Rule 142(a)(1) provides that “[t]he burden of proof[18] shall be

upon the petitioner, except as otherwise provided by statute or

determined by the Court.” Generally, the IRS’s adjustments in an FPAA

are presumed to be correct, and the taxpayer bears the burden of proving

them wrong. See Welch v. Helvering, 290 U.S. 111, 115 (1933); Crescent

Holdings, LLC v. Commissioner, 141 T.C. 477, 485 (2013). The taxpayer

bears the burden of proving entitlement to any deduction claimed.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Thus, a

17 Mr. Barber also prepared an analysis using the income approach, but

disavowed it at trial.

18 As to burden of production, section 7491(c) provides that the Commissioner

“shall have the burden of production in any court proceeding with respect to the

liability of any individual for any penalty, addition to tax, or additional amount.”

(Emphasis added.) However, section 7491(c) does not apply to TEFRA partnershiplevel proceedings (such as this case).

See Dynamo Holdings Ltd. P’ship v.

Commissioner, 150 T.C. 224, 234 (2018). Consequently, as a general rule, in a TEFRA

partnership case the petitioner has not only the burden of proof but also the burden of

production, even as to any penalty.

[*22] taxpayer claiming a deduction on a federal income tax return must

demonstrate that the deduction is provided for by statute and must

maintain records sufficient to enable the Commissioner to determine the

correct tax liability. See I.R.C. § 6001; Hradesky v. Commissioner, 65

T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976);

Treas. Reg. § 1.6001-1(a).

If, in any court proceeding, the taxpayer puts forth credible

evidence with respect to any factual issue relevant to ascertaining the

liability of the taxpayer and meets certain other requirements, the

burden of proof shifts to the Commissioner as to that issue. I.R.C.

§ 7491(a)(1) and (2). Additionally, the Commissioner has the burden of

proof with respect to any “new matter” he raises. See Rule 142(a).

When each party has satisfied its burden of production, then the

party supported by the weight of the evidence will prevail, and thus a

shift in the burden of proof has real significance only in the event of an

evidentiary tie. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008),

supplementing T.C. Memo. 2007-340. We do not perceive an evidentiary

tie in this case and are able to decide the remaining issues on the

preponderance of the evidence. 19 See, e.g., Bordelon v. Commissioner,

T.C. Memo. 2020-26, at *11.

II.

Charitable Contribution Deduction

Donative Intent

Section 170(a) allows a deduction for a charitable contribution,

which section 170(c) defines as including a “contribution or gift” to or for

the use of a charity. “The sine qua non of a charitable contribution is a

transfer of money or property without adequate consideration.” United

States v. Am. Bar Endowment, 477 U.S. 105, 118 (1986). If a transaction

with a charity “is structured as a quid pro quo exchange”—i.e., if the

taxpayer receives property or services equal in value to what he

conveyed—there is no “contribution or gift” within the meaning of the

statute. Hernandez v. Commissioner, 490 U.S. 680, 701–02 (1989).

In assessing whether a transaction constitutes a “quid pro quo

exchange,” we give most weight to the external features of the

transaction, avoiding imprecise inquiries into taxpayers’ subjective

motivations. See id. at 690–91; Christiansen v. Commissioner, 843 F.2d

19 We therefore do not address further the arguments the parties raised on

brief regarding the burden of proof.

[*23] 418, 420 (10th Cir. 1988). “If it is understood that the property

will not pass to the charitable recipient unless the taxpayer receives a

specific benefit, and if the taxpayer cannot garner that benefit unless he

makes the required ‘contribution,’ the transfer does not qualify the

taxpayer for a deduction under section 170.” Costello v. Commissioner,

T.C. Memo. 2015-87, at *27; see also Christiansen v. Commissioner, 843

F.2d at 420–21; Graham v. Commissioner, 822 F.2d 844, 849 (9th Cir.

1987), aff’g 83 T.C. 575 (1984), aff’d sub nom. Hernandez v.

Commissioner, 490 U.S. 680. However, if the benefit received is merely

incidental to a charitable purpose, then a deduction is allowable. See

McGrady v. Commissioner, T.C. Memo. 2016-233, at *25 (citing

McLennan v. United States, 24 Cl. Ct. 102, 107 (1991), aff’d, 994 F.2d

839 (Fed. Cir. 1993)).

The Commissioner argues that Seabrook is not entitled to a

charitable contribution deduction because “[t]he external features of the

transaction overwhelmingly show that [Seabrook] donated the

conservation easement intending to monetize the tax deduction for its

members and that the ‘predominant purpose’ of the easement transfer

was not charitable.” Resp’t’s Op. Br. 123. In the Commissioner’s view,

“[Seabrook] cannot demonstrate that it intended to donate a

conservation easement in excess of the value expected to be received in

return” because “[Seabrook’s] intent was to receive substantial tax

benefits and pass them through to the investors.” Id. at 123–24. The

Commissioner points to the significant amount of the promised tax

benefits, how the transaction was marketed to potential investors, and

how advisors were compensated as further evidence of the transaction’s

profit-orientation. In short, the Commissioner says, “the crux of this

transaction was to provide tax benefits, not to engage in any charitable

giving.” Id. at 125.

We rejected similar donative intent arguments from the

Commissioner in J L Minerals, LLC v. Commissioner, T.C. Memo. 202493, at *28, Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52,

at *42, Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023129, at *28, and Oconee Landing Property, LLC v. Commissioner, T.C.

Memo. 2024-25, at *37, supplemented by T.C. Memo. 2024-73, and we

reject them again here. In Mill Road 36 Henry, LLC, T.C. Memo. 2023129, at *28, we found the objective fact that a perpetual conservation

easement was donated to a charitable organization defeated the

Commissioner’s contention as to the donor’s subjective intent.

Similarly, in Oconee Landing, T.C. Memo. 2024-25, at *38, we explained

that, unlike the quid pro quo cases the Commissioner cited, any benefits

[*24] to the taxpayer from contributing the easement were provided not

by the recipient of the easement, but by the U.S. Treasury. As we said

there, “[the Commissioner] has cited, and we have discovered, no case in

which the tax benefits associated with a charitable contribution

deduction have been deemed a ‘quid pro quo’ that negates the donor’s

charitable intent.” Id. We agree with the reasoning of our prior cases

and adopt it here.

Substantiation and Documentation

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.” I.R.C.

§ 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.” I.R.C. § 170(f)(11)(E)(i). In the

case of a partnership or an S corporation, the qualified appraisal

requirements “shall be applied at the entity level.”

I.R.C.

§ 170(f)(11)(G).

In this case, Seabrook obtained an appraisal of the Seabrook

property from Mr. Weibel and attached that appraisal to its 2017 return.

Nevertheless, the Commissioner argues that Seabrook failed to meet

both the “qualified appraisal” and the “qualified appraiser”

requirements. We address the Commissioner’s arguments in turn.

Qualified Appraisal

To be a qualified appraisal under section 170(f)(11)(E)(i), an

appraisal of property must be (1) treated as a qualified appraisal under

regulations or other guidance prescribed by the Secretary and

(2) conducted by a qualified appraiser in accordance with generally

accepted appraisal standards and any regulations or other guidance

prescribed by the Secretary.

Treasury Regulation § 1.170A-13(c)(3)(i) defines a qualified

appraisal as a document that, among other things, (1) relates to an

appraisal that is made not earlier than 60 days before the date of

contribution of the appraised property and not later than the due date

(including extensions) of the return on which a deduction is first claimed

under section 170; (2) is prepared, signed, and dated by a qualified

[*25] appraiser; (3) includes certain information required by the

regulations; and (4) does not involve an appraisal fee that violates

certain prescribed rules. The information required by the regulations

includes, among other things, (1) an adequately detailed description of

the contributed property, (2) the date (or expected date) of the

contribution to the donee, (3) the terms of certain agreements or

understandings entered into with respect to the property, (4) certain

information about the qualified appraiser and the purpose of preparing

the appraisal, (5) the date (or dates) on which the property was

appraised, (6) the fair market value of the property on the date of

contribution, and (7) the method and basis of valuation. Treas. Reg.

§ 1.170A-13(c)(3)(ii).

Strict compliance with these rules is sufficient, but not necessary,

to satisfy the regulatory requirements. In Bond v. Commissioner, 100

T.C. 32, 41 (1993), we held that the requirements of Treasury Regulation

§ 1.170A-13 were directory rather than mandatory and asked whether

the taxpayers had substantially complied with the requirements. Cave

Buttes, L.L.C. v. Commissioner, 147 T.C. 338, 349 (2016).

We have followed the same approach in subsequent cases. For

example, in Hewitt v. Commissioner, 109 T.C. 258, 265 (1997), aff’d per

curiam, 166 F.3d 332 (4th Cir. 1998) (unpublished table decision), we

built on Bond and said that the predominant question in substantialcompliance cases was whether “the taxpayers had provided most of the

information required, and the single defect in furnishing everything

required was not significant.” We have also observed “that our focus in

substantial-compliance cases [is] on whether the appraisals described

the contributed property well enough to permit the Commissioner to

understand the appraiser’s valuation methodology.” Cave Buttes,

L.L.C., 147 T.C. at 350–51.

Failure to Include a Sufficient Description

The Commissioner’s first complaint regarding the Weibel

appraisal is that it did not describe the Seabrook property in sufficient

detail for a person unfamiliar with the property to ascertain that the

appraised property was the same as the Seabrook property. See Treas.

Reg. § 1.170A-13(c)(3)(ii)(A). Nowhere in the Weibel appraisal, the

Commissioner says, is “an exact legal or other description of the

Seabrook property.”

Resp’t’s Op. Br. 103.

Specifically, the

Commissioner points to several blank addenda and the failure to provide

an address, a county tax parcel identification number, or “a clearly

[*26] identified map.” Resp’t’s Op. Br. 104. The Commissioner also

notes that, while the contributed easement ultimately was over 622

acres, the appraised easement was over 637 acres. 20

We disagree with the Commissioner and conclude that the Weibel

appraisal’s description of the Seabrook property was adequate. We have

said that the purpose of the description requirement “is to provide the

IRS with information sufficient to evaluate claimed deductions and

assist it in detecting overvaluations of donated property.” See Costello,

T.C. Memo. 2015-87, at *17 (citing Smith v. Commissioner, T.C. Memo.

2007-368, 2007 WL 4410771, at *13, aff’d, 364 F. App’x 317 (9th Cir.

2009)). As Manager points out, the Weibel appraisal did in fact include

a tax parcel ID number, a map of the Seabrook property with the tax

plat number, and a survey. It also provided a map of the Seabrook

Property relative to I–95 and included physical pictures of the Seabrook

Property, including pictures from the public road. Ex. 5-J, pp. 8, 26–27,

39, 60, 127–30. When faced with similar facts in a prior case, we said as

follows:

The . . . appraisal describes the property as a “hillside lot

with mountain and city views.” It provides an address,

maps, and aerial photographs that identify the property. It

says the property is “located at the southwest corner of

Jomax Road and Cave Creek Dam Road in north Phoenix”

and cites specific measurements of the lots. Since the

purpose of this requirement is to let the IRS know what’s

being donated, a description by address and characteristics

is enough to strictly comply with the regulation.

Cave Buttes, L.L.C., 147 T.C. at 354. So too here, the description

Mr. Weibel gave was enough “to let the IRS know what’s being donated.”

Id. That the description may have been vague in some respects or

reflected some minor mistakes (e.g., the inclusion of 15 additional acres

that ultimately were excluded from the contribution) does not change

our view.

Failure to Include the Date of Contribution

Next, the Commissioner contends that the Weibel appraisal failed

to include the date or the expected date that the contribution was to be

made as required by Treasury Regulation § 1.170A-13(c)(3)(ii)(C). The

20 Recall that Seabrook attached to its return an earlier draft of the Weibel

appraisal that did not account for the 15-acre outparcel.

[*27] Commissioner notes that the Weibel appraisal, which itself was

dated November 28, 2017, says simply that the easement contribution

date is “Prior to December 31, 2017,” and that the date the easement

was recorded is also “Prior to December 31, 2017.” The Commissioner

further says that the absence of a specific date renders him “unable to

verify that the [Weibel a]ppraisal in fact complies with [Treasury

Regulation §] 1.170A-13(c)(i)(A) (requiring that a qualified appraisal be

‘made not earlier than 60 days prior to the date of contribution of the

appraised property nor later than [the due date of the tax return on

which the contribution deduction is first claimed]).’” Resp’t’s Op. Br.

105. Additionally, according to the Commissioner, it also prevents him

from verifying “that [the] fair market value of the conservation

easement listed in the Weibel [a]ppraisal is as of the date or expected

date of contribution.” Resp’t’s Op. Br. 106.

The Commissioner’s purported concerns are overblown. First, the

Weibel appraisal was dated November 28, 2017, and it stated that the

date of appraisal was November 24, 2017. Therefore, when it said that

the easement would be contributed and recorded “Prior to December 31,

2017,” it was representing that the easement would be contributed

within 37 days of the date of appraisal. The easement was in fact

contributed on December 28, 2017, a point that was disclosed in the

Deed of Conservation Easement attached to Seabrook’s tax return for

2017. So the Commissioner can easily see that the 60-day requirement

was satisfied. And the Commissioner does not point to any events

between the date of appraisal and the date of the contribution that

would have materially affected the fair market value of the easement.

See Cave Buttes, L.L.C., 147 T.C. at 355 (holding that, absent some

“significant event that would obviously affect the value of the property”

between the appraisal date and the contribution date, an appraisal that

was late by a few weeks substantially complied with the regulations);

see also Zarlengo v. Commissioner, T.C. Memo. 2014-161, at *35

(reaching the same conclusion with respect to an appraisal report that

was effective six months before the appraised easement was recorded).

Additionally, we have held that failing to include the date of

contribution in the appraisal is not significant when the return includes

a Form 8283 that does so. See, e.g., Emanouil v. Commissioner, T.C.

Memo. 2020-120, at *40 (finding that taxpayers substantially complied

with the regulatory requirements by disclosing the contribution date on

the appraisal summary); Zarlengo, T.C. Memo. 2014-161, at *36 (same);

Simmons v. Commissioner, T.C. Memo. 2009-208, 2009 WL 2950610,

at *7–8 (same), aff’d, 646 F.3d 6 (D.C. Cir. 2011). Here, the Weibel

[*28] appraisal represented that the contribution date would be within

37 days of the valuation date and Seabrook’s return for 2017 attached

the Deed of Conservation Easement confirming the date of the

contribution. Accordingly, we find that the absence of the precise date

from the Weibel appraisal is not fatal in this case.

Failure to Include the Terms of Relevant

Agreements

Next, the Commissioner contends that the Weibel appraisal fails

to comply with Treasury Regulation § 1.170A-13(c)(3)(ii)(D). That

provision requires that a qualified appraisal include:

The terms of any agreement or understanding entered into

(or expected to be entered into) by or on behalf of the donor

or donee that relates to the use, sale, or other disposition of

the property contributed, including, for example, the terms

of any agreement or understanding that—

(1) Restricts temporarily or permanently a

donee’s right to use or dispose of the donated

property,

(2) Reserves to, or confers upon, anyone (other

than a donee organization or an organization

participating with a donee organization in

cooperative fundraising) any right to the income

from the contributed property or to the possession of

the property, including the right to vote donated

securities, to acquire the property by purchase or

otherwise, or to designate the person having such

income, possession, or right to acquire, or

(3) Earmarks donated property for a

particular use[.]

Among other things, this information “enables the IRS to determine

whether the appraiser took restrictions on the disposition of the

contributed property into account when appraising it.”

Alli v.

Commissioner, T.C. Memo. 2014-15, at *25. It also “is essential to enable

the IRS to evaluate . . . whether the donors have received or will receive

something in exchange for their gift.” Costello, T.C. Memo. 2015-87, at *19.

According to the Commissioner, the Weibel appraisal falls short

in two respects. First, he says, the appraisal does not acknowledge or

contend with FLPA covenants that Ms. Belford placed on the property

in 2009 and 2013. Second, he argues, the appraisal failed to disclose or

[*29] analyze the Option Agreement to acquire Ms. Belford’s interest in

Seabrook for $4.74 million, which was in place before the appraisal’s

effective date. We discuss each item in turn.

FLPA Covenants

In general, an FLPA covenant is an arrangement that a

landowner may enter into with the State of Georgia whereby the

landowner agrees not to develop its property and, in return, Georgia

approves a preferred assessment value for property tax purposes.

Ms. Belford entered into FLPA covenants with respect to portions of the

Seabrook property in 2009 and 2013, each for a term of 15 years.

Proceeding with development of the Seabrook property before the end of

the 15-year periods would have breached the FLPA covenants, assuming

they were still in place at the time of the development. 21

In view of these facts, the Commissioner invokes the rule we

articulated in RERI Holdings I, LLC v. Commissioner, 143 T.C. 41

(2014). There, we said that the omission of a restriction from an

appraisal may prevent the appraisal from constituting a qualified

appraisal only if it is “a restriction that reasonably can be said to have

some adverse impact on the value of the donated asset.” Id. at 80.

We agree with this rule, but find that applied here it cuts against

the Commissioner. At trial, David Scott Wall, the GIS and Mapping

Supervisor for the Liberty County Assessor’s Office, testified that

Seabrook could have broken the FLPA covenants at any time and

incurred only minimal penalties. Such penalties would be no more than

$51,000.

In other words, the maximum penalty represents

approximately 0.14% of the total fair market value of the easement

determined by the Weibel appraisal ($35.85 million).

This straightforward computation dooms the Commissioner’s

position. Put simply, we will not disqualify the appraisal for overlooking

a restriction that Seabrook could have breached at any time, incurring

only (in this context) a de minimis penalty. Such a restriction poses no

real bar to development and does not materially affect the property’s fair

21 Manager argues, among other things, that the FLPA covenants were no

longer in place when the easement was contributed. But given our analysis of the

Commissioner’s argument, we need not decide this point or pass on Manager’s other

arguments.

[*30] market value. 22 In view of these specific circumstances, we

conclude that, even if the FLPA covenants were still in effect, their

omission from the Weibel appraisal did not prevent the appraisal from

substantially complying with the regulatory requirements.

ii.

Option Agreement

The Commissioner takes a similar view of the Weibel Appraisal’s

failure to discuss the Option Agreement. The Option Agreement was

executed on November 22, 2017, and, pursuant to the agreement,

InvestCo acquired Ms. Belford’s interest in Seabrook on December 22,

2017. The Commissioner argues that the omission of the Option

Agreement from the appraisal “appears to be a direct attempt to hide

material facts from the IRS and mislead the reader as to the acquisition

of the Seabrook property by [Seabrook].” Resp’t’s Op. Br. 109.

“Further,” the Commissioner says, “the omission disguises the extent of

the valuation disparity between the acquisition cost of the Seabrook

property and the appraised value.” Id.

We see at least two problems with the Commissioner’s position.

First, Treasury Regulation § 1.170A-13(c)(3)(ii)(D) applies to

agreements “by or on behalf of the donor or donee” of a conservation

easement. Here, neither the donor (Seabrook) nor the donee (Southern

Conservation Trust) was a party to the Option Agreement. Nor was the

Option Agreement, which concerned the purchase of interests in

Seabrook and not the Seabrook property, undertaken on Seabrook’s

behalf. Accordingly, the Option Agreement is not covered by the

regulation.

Second, and more generally, we note that the illustrative

examples in Treasury Regulation § 1.170A-13(c)(3)(ii)(D) are forwardlooking in that they concern agreements that bear directly on the

contribution itself or agreements that affect the donee’s interest in the

property going forward.

Consistent with this observation, the

regulation’s operative rule mentions agreements entered into by the

donor related to any “use, sale, or other disposition” of the property, but,

22 As Manager explains in its brief, this point distinguishes the FLPA

covenants from the restrictions at issue in Mountanos v. Commissioner, T.C. Memo.

2013-138, supplemented by T.C. Memo. 2014-38, aff’d, 651 F. App’x 592 (9th Cir. 2016).

As our Court explained, the taxpayer in that case failed to demonstrate that

restrictions imposed by a “Williamson Act contract” would not have prevented

development of the subject property within a reasonable time. Id. at *14–16. By

contrast, Manager has made the requisite showing.

[*31] notably, not to any purchase of the property by the donor. Id.

Therefore, even assuming the Option Agreement related to the purchase

of the Seabrook property by the donor (Seabrook), which it does not, we

would question whether such an agreement (i.e., one that (1) is related

to the donor’s purchase of the property before the contribution, and

(2) does not impose any constraints related to future uses or dispositions

of the property) would be covered by the regulation.

In view of the foregoing, we find that the omission of the Option

Agreement did not prevent the Weibel appraisal from substantially

complying with the regulations.

Failure to Comply with Generally Accepted

Appraisal Standards

Finally, the Commissioner seeks to disqualify the Weibel

appraisal on the grounds that it was not prepared in accordance with

generally accepted appraisal standards, alleging noncompliance with

the Uniform Standards of Professional Appraisal Practice (USPAP).

Section 170(f)(11)(E)(i)(II) specifies, in relevant part, that a

qualified appraisal must be “conducted by a qualified appraiser in

accordance with generally accepted appraisal standards.” The

Department of the Treasury provided transitional guidance in I.R.S.

Notice 2006-96, 2006-2 C.B. 902. According to that Notice, an appraisal

will meet the specifications of section 170(f)(11)(E) if, for example, “the

appraisal is consistent with the substance and principles of [USPAP].”

Notice 2006-96, § 3.02(2), 2006-2 C.B. at 902.

Relying on his expert Steven Shockley, the Commissioner argues

that Mr. Weibel failed to comply with USPAP. The Commissioner

maintains that “the Weibel [a]ppraisal repeatedly violates USPAP and

does not meet any other generally accepted appraisal standards.”

Resp’t’s Op. Br. 111. Specifically, the Commissioner avers, among other

things, that the Weibel appraisal erroneously states the Seabrook

property is in Savannah, mistakenly implies that utilities were in place

on the Seabrook property, fails to mention the FLPA covenants in place

on the Seabrook property, and impermissibly employs an incomplete

highest and best use conclusion. These errors, the Commissioner says,

amount to a failure to comply with USPAP.

“Appraising is not an exact science and has a subjective nature.”

Gorra v. Commissioner, T.C. Memo. 2013-254, at *48. USPAP is widely

recognized and accepted as setting out standards applicable to the

[*32] appraisal profession. Adherence to those standards is evidence

that the appraiser is applying methods that are generally accepted

within the appraisal profession. Therefore, at a minimum, compliance

with USPAP is an indication that the appraiser’s valuation report is

reliable. However, full compliance with USPAP is not the sole measure

of reliability. See Whitehouse Hotel Ltd. P’ship v. Commissioner

(Whitehouse I), 131 T.C. 112, 127–28 (2008), 23 vacated and remanded on

other grounds, Whitehouse Hotel Ltd. P’ship v. Commissioner

(Whitehouse II), 615 F.3d 321 (5th Cir. 2010). Here, even if we were to

accept the Commissioner’s assertions that Mr. Weibel’s 2017 appraisal

lacks full compliance under USPAP, we would find that these failures

go more to the credibility and weight of the appraisal and not to whether

the appraisal complies with generally accepted appraisal standards.

See, e.g., Jackson Crossroads, LLC v. Commissioner, T.C. Memo. 2024111, at *29. In short, having carefully reviewed the Weibel appraisal

and the Commissioner’s complaints, we find that the appraisal is not so

deficient that it fails to comply with generally accepted appraisal

standards. See J L Minerals, LLC, T.C. Memo. 2024-93, at *37.

Qualified Appraiser

Having addressed the Commissioner’s arguments with respect to

the “qualified appraisal” standard, we turn to the related “qualified

appraiser” standard.

Among other requirements, Treasury Regulation § 1.170A13(c)(3)(i)(B) provides that a qualified appraisal must be “prepared,

signed, and dated by a qualified appraiser.” A “qualified appraiser”

must (1) hold himself out to the public as an appraiser, (2) be qualified

to make appraisals of the type of property being valued, and

(3) acknowledge that aiding and abetting an understatement of tax

liability may subject him to a penalty pursuant to section 6701. Treas.

Reg. § 1.170A-13(c)(5)(i). Moreover, a qualified appraiser cannot be one

who (1) receives a deduction under section 170 for the contribution of

the property that is being appraised, (2) was a party to the donor’s

acquisition of the property being appraised, (3) is the donee of the

property, (4) was a person employed by any of the aforementioned, (5) is

related to any of the aforementioned within the meaning of

23 While Whitehouse I addresses the admissibility of an expert report rather

than whether the report was a qualified appraisal under the Code, we find the case to

be illustrative of the subjective nature of appraisals and in stark contrast to the rigid

standard of compliance the Commissioner would have this Court adopt, which we

refrain from doing here. See also Buckelew Farm, LLC, T.C. Memo. 2024-52, at *48.

[*33] section 267(b) (not applicable here), or (6) is an appraiser regularly

engaged by any of the aforementioned who does not make most of his

appraisals for other persons during the taxable year. Treas. Reg.

§ 1.170A-13(c)(5)(iv).

The Commissioner does not seem to contest that Mr. Weibel

satisfies the requirements of Treasury Regulation § 1.170A-13(c)(5)(i);

rather, he seeks to disqualify Mr. Weibel as a qualified appraiser under

the theory that he runs afoul of subdivision (ii) of Treasury Regulation

§ 1.170A-13(c)(5), the so-called knowledge regulation.

Treasury Regulation § 1.170A-13(c)(5)(ii) provides that an

appraiser is not qualified if “the donor [here, Seabrook] had knowledge

of facts that would cause a reasonable person to expect the appraiser

[here, Mr. Weibel] falsely to overstate the value of the donated

property.” 24 Reading this regulation closely, we observe that it is not

the appraisal that may become disqualified, but rather the appraiser.

We further observe that the appraiser does not become disqualified

simply because (1) the appraiser incompetently or carelessly overstated

the value, and/or (2) the donor knew that the appraiser overstated the

value, and/or (3) the donor knew facts about the property that caused

the value to be overstated. Rather, this disqualification occurs when the

donor knows facts that do or should cause him to expect the appraiser

to falsely overstate the value. Mill Road 36 Henry, LLC, T.C. Memo.

2023-129, at *42. Such facts will be facts about the appraiser, and the

resulting expectation is not just an incorrect overstated value but a

“falsely” overstated value. Id. Thus, Treasury Regulation § 1.170A13(c)(5)(ii) provides the following as an illustration: “[T]he 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.” Of course, such an agreement

would be a fact about the appraiser that is known to the donor; and a

valuation known to be in excess of fair market value but agreed to

nonetheless would be not just an incorrect amount but a culpably

24 In gauging a partnership’s “knowledge,” we look to the knowledge of the

person(s) with ultimate authority to manage the partnership. See, e.g., CNT Invs.,

LLC v. Commissioner, 144 T.C. 161, 222 (2015) (examining the general partner’s

knowledge in order to assess “good faith”); Superior Trading, LLC v. Commissioner,

137 T.C. 70, 91–92 (2011) (stating that partnership-level defenses take “into account

the state of mind of the general partner”), supplemented by T.C. Memo. 2012-110, aff’d,

728 F.3d 676 (7th Cir. 2013); see also Jackson Crossroads, LLC, T.C. Memo. 2024-111,

at *25.

[*34] “false[]” overstatement of value. Mill Road 36 Henry, LLC, T.C.

Memo. 2023-129, at *42.

In this case, the Commissioner points to facts about the Seabrook

property that he says (1) were known to Ms. Belford and the ultimate

owners of Manager (Mr. Kiene and Ms. Fedor) and (2) cut against

Mr. Weibel’s valuation conclusion and ultimately the claimed deduction

amount. For example, the Commissioner points to the state of the real

estate market in Liberty County during 2017, Ms. Belford’s receipt of

$4.74 million for a 97% interest in Seabrook in December 2017, and the

FLPA covenants that the Commissioner argues were in place on the

Seabrook Property at the time of the easement’s recordation. The

Commissioner argues that knowledge of these facts would cause a

reasonable person to expect that Mr. Weibel would provide a falsely

overstated valuation. We disagree.

For example, even if the Seabrook Property was subject to the

FLPA covenants at the time of the contribution, 25 there is no indication

that Mr. Weibel knew of them. Additionally, as we have discussed, these

restrictions would not have prevented Seabrook from implementing the

proposed development plan—Seabrook could breach them at any time.

And the penalty that would have resulted from that course of action

would not have materially affected Mr. Weibel’s appraisal.

As another example, Ms. Belford’s receipt of $4.74 million did not

occur until after Mr. Weibel completed his appraisal and there is no

evidence that Mr. Weibel was aware of it. Moreover, the Commissioner’s

expert, Mr. Barber, disclosed in his report the Option Agreement that

provided for the payment, but did not make use of the Option Agreement

in his analysis of the Seabrook property’s value. 26 We will not disqualify

Mr. Weibel in these circumstances.

Nor will we do so based on Mr. Kiene’s opinions about the general

condition of the real estate market in 2017 and the value of the Seabrook

Property if used as agricultural land. As we have said, “the expression

‘falsely to overstate’ is intended to convey a sense of collusion and

deception as to the value of the property.” Kaufman v. Commissioner,

T.C. Memo. 2014-52, at *70–71, aff’d, 784 F.3d 56 (1st Cir. 2015); see

also Jackson Crossroads, LLC, T.C. Memo. 2024-111, at *26; Mill Road

25 Manager disputes that the restrictions were in fact in place or, alternatively,

that any individual believed they were in place; but given the nature of the restrictions,

these points are immaterial.

26 As we describe later, we disagree with Mr. Barber’s approach on this point.

[*35] 36 Henry, LLC, T.C. Memo. 2023-129, at *42–43. The facts the

Commissioner identifies do not establish that any “collusion and

deception” was present here.

The Commissioner urges us to apply the relevant authorities

more broadly, but, as in Mill Road 36 Henry, LLC, T.C. Memo. 2023129, at *42–43, and J L Minerals, LLC, T.C. Memo. 2024-93, at *38–39,

we decline to do so. The Code elsewhere imposes consequences for

overstated value (e.g., disallowance of the overstated deduction) and

even for grossly overstated value (e.g., the 40% penalty we discuss

below). The regulatory text we construe here is manifestly focused on

something beyond that: a taxpayer-donor’s knowledge of an appraiser’s

deception. We see no such knowledge here.

In short, Mr. Weibel was a professional appraiser who held

himself out to the public as such, was qualified to appraise property with

a coastal residential development plan, is not excluded under the

provisions of Treasury Regulation § 1.170A-13(c)(5)(iv), and made the

statement acknowledging that he could be subject to penalty pursuant

to section 6701. We therefore hold that he was a “qualified appraiser”

under Treasury Regulation § 1.170A-13(c)(5).

III.

Amount of the Deduction

Having determined that Seabrook met the threshold

requirements for claiming a charitable contribution deduction, we now

consider the amount of the deduction to which Seabrook is entitled.

General Principles

Generally, the amount of a charitable contribution deduction

under section 170(a) for a donation of property other than money is the

“fair market value” of the property at the time of the donation. Treas.

Reg. § 1.170A-1(c)(1); see also TOT Prop. Holdings, LLC v.

Commissioner, 1 F.4th 1354, 1369 (11th Cir. 2021).

Treasury

Regulation § 1.170A-1(c)(2) defines fair market value to be “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.” See also Anselmo v.

Commissioner, 757 F.2d 1208, 1213 (11th Cir. 1985), aff’g 80 T.C. 872

(1983). “This definition, a fixture in the Treasury Regulations since

1972, is universally acknowledged by professional appraisers when

valuing charitable contributions of property.” Corning Place Ohio, LLC

v. Commissioner, T.C. Memo. 2024-72, at *27; see also Value, Black’s

[*36] Law Dictionary (4th ed. 1968) (defining ‘“[v]alue’ of land for

purpose of taxation” as the “price that would probably be paid therefor

after fair negotiations between willing seller and buyer”); Interagency

Land Acquisition Conference, Uniform Appraisal Standards for Federal

Land Acquisitions 3 (1971) (defining fair market value as “the amount

in cash, or on terms reasonably equivalent to cash, for which in all

probability the property would be sold by a knowledgeable owner willing

but not obligated to sell to a knowledgeable purchaser who desired but

is not obliged to buy”).

The fair market value of property on a given date is a question of

fact to be resolved on the basis of the entire record. McGuire v.

Commissioner, 44 T.C. 801, 806–07 (1965); Kaplan v. Commissioner, 43

T.C. 663, 665 (1965); see also TOT Prop. Holdings, LLC v. Commissioner,

1 F.4th at 1369 (“A determination of fair market value is a mixed

question of fact and law: the factual premises are subject to a clearly

erroneous standard while the legal conclusions are subject to de novo

review.” (quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812

F.3d 982, 994 (11th Cir. 2016), aff’g in part, rev’g in part, and remanding

T.C. Memo. 2014-79)). The parties have retained experts to assist our

inquiry.

We evaluate their opinions in light of each expert’s

qualifications and the evidence in the record, and we may accept an

“opinion in toto or accept aspects . . . that we find reliable.” Oconee

Landing, T.C. Memo. 2024-25, at *58; see also Savannah Shoals, LLC v.

Commissioner, T.C. Memo. 2024-35, at *35. We also “may determine

fair market value on the basis of our own examination of the evidence in

the record.” Savannah Shoals, T.C. Memo. 2024-35, at *35; see also

Jackson Crossroads, LLC, T.C. Memo. 2024-111, at *35; Buckelew Farm,

T.C. Memo. 2024-52, at *51.

In this case we do not have a substantial record of sales of

easements comparable to the donated easement. The parties therefore

agree that the easement should be valued by calculating the fair market

value of the easement property before and after Seabrook granted the

easement. See, e.g., TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th

at 1369 (“‘[I]f no substantial record of market-place sales is available to

use a meaningful or valid comparison,’ the ‘before-and-after’ valuation

method is used.” (quoting Treas. Reg. § 1.170A-14(h)(3)(i))); Esgar Corp.

v. Commissioner, T.C. Memo. 2012-35, 2012 WL 371809, at*7, aff’d, 744

F.3d 648 (10th Cir. 2014). In deciding the “before value,” we must take

into account not only the actual use of the easement property when the

easement was given in December 2017, but also its highest and best use.

See TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369–70;

[*37] Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986);

Treas. Reg. § 1.170A-14(h)(3)(ii). Although this “concept ‘is an element

in the determination of fair market value, . . . it does not eliminate the

requirement that a hypothetical willing buyer would purchase the

subject property for the indicated value.’” Excelsior Aggregates, LLC v.

Commissioner, T.C. Memo. 2024-60, at *47 (quoting Boltar, L.L.C. v.

Commissioner, 136 T.C. 326, 336 (2011)); see also Corning Place, T.C.

Memo. 2024-72, at *41.

Highest and Best Use

Legal Principles

“To determine a property’s highest and best reasonably probable

use, the court focuses on ‘[t]he highest and most profitable use for which

the property is adaptable and needed or likely to be needed in the

reasonably near future.’” Palmer Ranch Holdings Ltd. v. Commissioner,

812 F.3d at 996 (quoting Symington v. Commissioner, 87 T.C. 892, 897

(1986)); accord Olson v. United States, 292 U.S. 246, 255 (1934). We

have defined highest and best use 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.” Oconee Landing, T.C. Memo. 2024-25,

at *59 (quoting Whitehouse Hotel Ltd. P’ship v. Commissioner

(Whitehouse III), 139 T.C. 304, 331 (2012), supplementing 131 T.C. 112

(2008), aff’d in part, vacated in part, and remanded, 755 F.3d 236 (5th

Cir. 2014)); see also TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th

at 1369–70; Savannah Shoals, T.C. Memo. 2024-35, at *37. “The highest

and best use inquiry is one of objective probabilities.” Esgar Corp. v.

Commissioner, 744 F.3d at 657.

“While highest and best use can be any realistic, objective

potential use of the property, it is presumed to be the use to which the

land is currently being put absent proof to the contrary.” Esgar Corp. v.

Commissioner, 2012 WL 371809, at *7. Where “an asserted highest and

best use differs from current use, the use must be reasonably probable

and have real market value.” Id. (citing United States v. 69.1 Acres of

Land, 942 F.2d 290, 292 (4th Cir. 1991)).

If different from the current use, a proposed highest and best use

requires both “closeness in time” and “reasonable probability.” Hilborn

v. Commissioner, 85 T.C. 677, 689 (1985); see also Savannah Shoals,

T.C. Memo. 2024-35, at *37. Any proposed uses that “depend upon

[*38] events or combinations of occurrences which, while within the

realm of possibility, are not fairly shown to be reasonably probable” are

to be excluded from consideration. Olson, 292 U.S. at 257; see also

Excelsior Aggregates, T.C. Memo. 2024-60, at *30; Oconee Landing, T.C.

Memo. 2024-25, at *65.

“Where, as here, the parties proposed different uses, we consider

‘[i]f there is too high a chance that the property will not achieve the

proposed use in the near future,’ in which case ‘the use is too risky to

qualify.’” TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369

(quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d

at 1000). “The principle can also be articulated in terms of willingness

to pay. If a proposed use is too risky for ‘a hypothetical willing buyer

[to] consider [the use] in deciding how much to pay for the property,’

then the use should not be deemed the highest and best available.’’

Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 1000 n.14

(quoting Whitehouse II, 615 F.3d at 335).

Before the Easement

The parties in this case agree that the highest and best use of the

Seabrook property before the easement was granted included some form

of residential development. They disagree, however, regarding the kind

of residential development.

Manager’s View

Manager argues that the highest and best use of the Seabrook

property before the easement was high-end coastal residential

development. In Manager’s telling, the Seabrook property’s aesthetic

characteristics, in particular its marsh views and access to deep water,

render it a rare opportunity for development. Manager points out that

coastal properties up and down the southeast corridor are in demand, as

reflected by high-end developments at Hilton Head, Palmetto Bluff,

Kiawah Island, and St. Simons Island. The reason this kind of

development had not occurred in Liberty County by 2017, Manager says,

is that development generally slowed following the recession in 2008.

Moreover, Manager stresses, the Devendorfs owned much of the

property in Liberty County that would be suitable for such development

and had consistently refused to sell.

In support of this position, Manager points to testimony from

Ms. Belford. During her testimony, Ms. Belford recalled offers to

purchase portions of the Devendorf property she and her mother

[*39] received over the years, as well as sales of what she views as

similar properties along the coast. She spoke about the superior

characteristics of the Seabrook property and the sale of 40 acres to

Yellow Bluff in 2006. All in all, Ms. Belford is certain that the Seabrook

property could and would be developed.

Next, Manager cites reports and testimony from its three experts.

The first is Ms. Sward, who testified that the Seabrook property’s

natural aesthetics and marshland access, coupled with a growing

demand for second/vacation homes in the Savannah region, positioned

the Seabrook property to be developed and marketed as a modern

residential community with an emphasis on health and wellness. From

this, Ms. Sward concluded that the Seabrook property “has many

characteristics that support its development as a regionally positioned

second-home residential community.” Ex. 100-P, p. 16.

Another of Manager’s experts, Jeff Pate, prepared a conceptual

plan to reflect the highest and best use proposed by Ms. Sward. This

concept plan proposed that 816 units of various sizes and densities could

be developed on the 370 upland acres of the Seabrook property. In

addition, the plan proposed amenities such as a village commercial area,

a community dock and kayak launch, a fitness center and pool, and a

vegetable garden and farm stand. The plan also proposed that more

than 100 acres of upland be preserved for natural areas with bike and

nature trails, in keeping with Ms. Sward’s vision for a health-focused

community. 27

Manager’s third expert, Gregory Eidson, prepared a valuation

report determining the value of the Seabrook property. As part of the

report, Mr. Eidson concluded that the highest and best use of the

property was vacant land that could be developed as a master planned

residential development. Mr. Eidson relied significantly on Ms. Sward’s

market analysis in reaching this conclusion. He further noted that the

property’s location, topography, and size could accommodate a wide

variety of uses. While the property was not zoned for a master planned

development at the time the easement was granted, Mr. Eidson found it

reasonably probable that Liberty County would approve a request to

change the zoning. With regard to financial feasibility, Mr. Eidson noted

the desirability of the property’s location on a marsh, as well as the fact

that “[p]rimary and secondary home sites have increased.” Ex. 102,

27 Mr. Pate testified that he relied on the highest and best use conclusion

reached by Ms. Sward.

[*40] p. 81. And he asserted that residential development is the

maximally productive use of the property “[b]ased upon the subject’s

size, location, and demand in the market.” Id.

Commissioner’s View

The Commissioner disagrees that the kind of development

Manager envisions would be feasible for the Seabrook property. In

particular, the Commissioner points to the rural nature of Liberty

County and the lack of any amenities to draw to the area the type of

buyer Ms. Sward describes. According to the Commissioner, the

Seabrook property, while ecologically important, was not beachfront or

coastal property. He further argues that the Seabrook property was in

a “remote area” east of I–95 and that it was not zoned for higher density

development. Another problem, the Commissioner says, was that the

lack of access to public water and sewer, as well as roads and other

utilities, would prevent anything other than very low-density

development on the property. Further, he speculates, the existence of

protected species and potential archeological sites on the property would

have posed additional impediments.

In support of his view, the Commissioner relies on the testimony

and report of his valuation expert, Mr. Barber. In his retrospective

appraisal of the Seabrook property, Mr. Barber concluded that the

highest and best use of the Seabrook property was for “interim use of

the recreational timberland/upland with the potential for large acreage

rural residential development with private water wells and a septic

sewer system.” Ex. 200-R, p. 73; Resp’t’s Op. Br. 131. Regarding the

physical possibility of his proposed use, Mr. Barber observed that, while

the property includes wetlands, there is enough high ground to support

some development and that paved road access and overhead electricity

were available on the west side of the property. Regarding legal

permissibility, Mr. Barber noted that A–1 Agricultural zoning allows for

only minimal residential, but that rezoning could potentially be

achieved to facilitate heavier development.

Regarding financial

feasibility and maximum productivity, Mr. Barber said that, while the

property is within the Savannah-Hinesville-Statesboro, GA Combined

Statistical Area, it is outside city limits. He elaborated at trial that he

did not believe buyers would drive the 20 to 30 miles from population

centers to the Seabrook property for small lots along the lines Mr. Pate

had proposed, but that they potentially would travel for larger acreage

farms or ranchettes.

[*41] In contrast to Manager’s proposed use, the Commissioner says,

Mr. Barber’s proposed use was consistent with existing zoning and

supported by the lack of successful residential development east of I–95

in Liberty County, as well as the relatively low value placed on other

large undeveloped tracts of land nearby. The Commissioner notes that,

leading up to 2017, larger density developments in Liberty County

either failed or were west of I–95, where Hinesville and Fort Stewart

are. The Commissioner further points to unsold lots in Yellow Bluff, the

closest development, at the time of trial, and the lack of grocery stores,

restaurants, hospitals, and schools near the Seabrook property. All

these factors, the Commissioner contends, show that the Seabrook

property could not have reasonably supported higher density

development.

Analysis

The Commissioner’s points are not without merit. For example,

we agree that the location of the Seabrook property in a rural part of

Liberty County rather than in Chatham County (where Savannah is),

Glynn County (where St. Simons is), or even neighboring Bryan County,

is significant. Further, we question the reasonableness of the highdensity Pate plan, which contemplates more people than the entire

population of Midway (the closest city in Liberty County) living on the

property, and which, among other issues, failed to provide for adequate

roads, water, or sewage treatment facilities on the property. 28

With that said, we view these points as more relevant to later

portions of the valuation analysis, such as the selection of a valuation

method (e.g., income versus cost or comparable sales) and potential

comparable properties, rather than the highest and best use

determination. For present purposes, it suffices to say that we agree

with Manager that the highest and best use of the Seabrook property

was residential development, unconstrained by the qualifiers the

Commissioner would place on that concept. The Seabrook property is

picturesque, with beautiful trees, marsh views over parts of the

property, and deep water access. It is approximately 45 minutes from

Savannah and closer to Hinesville and Bryan County. That and its

location on Fort Morris Road, only four miles from I–95, indicate that

the property was not so remote as to deter all potential buyers. Its

zoning would have supported one-acre lots on the upland portion of the

property, and we are convinced that Seabrook could have obtained a

28 We discuss these issues at greater length below.

[*42] zoning change if it had sought one. So we do not believe that

Seabrook’s highest and best use would have been constrained to “large

acreage rural residential development,” as the Commissioner contends.

After the Easement

Seabrook and the Commissioner are in agreement that the

highest and best uses of the Seabrook property after the easement was

granted were recreation and agriculture. We agree with this mutual

determination and do not discuss the issue further.

Valuation of the Easement

Legal Principles

Having determined the highest and best use of the property, we

next turn to determining its value before the grant of the easement.

We typically draw on one or more of three common approaches to

determine the fair market value of a piece of real property: (1) the

market, or comparable sales, approach; (2) the income approach; and

(3) the cost, or an asset-based, approach. See, e.g., Excelsior Aggregates,

T.C. Memo. 2024-60, at *32; see also 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). Our decision on which approach (or

approaches) to use is a question of law, and the utility of the various

approaches can vary based on the type of property at issue. See

Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 325–26 (2013); see

also Corning Place, T.C. Memo. 2024-72, at *31–32; Savannah Shoals,

T.C. Memo. 2024-35, at *35–36.

In addition, and unsurprisingly, “[t]his Court has repeatedly

affirmed that actual arm’s-length sales occurring sufficiently close to the

valuation date are the best evidence of value, and typically dispositive,

over other valuation methods.” Buckelew Farm, T.C. Memo. 2024-52,

at *56; see also J L Minerals, LLC v. Commissioner, T.C. Memo. 202493, at *55; Corning Place, T.C. Memo. 2024-72, at *28; Excelsior

Aggregates, 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. For these purposes, both we and the U.S. Court of Appeals for

the Eleventh Circuit have “f[ou]nd the purchase [of a partnership

[*43] interest] reflective of the price that the market would pay for the

Subject Property, especially when the ownership interest was nearly

100% and the only asset held by the Partnership was the Subject

Property itself.” Buckelew Farm, T.C. Memo. 2024-52, at *56; see also

TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1368 (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, T.C. Memo. 2024-25, at *71–72.

The various approaches and the value indicated by previous sales

provide a valuable sanity check for each other. See Excelsior Aggregates,

T.C. Memo. 2024-60, at *32.

Analysis

In this case, the parties both rely on the comparable sales

approach to value the conservation easement. Manager also relies on

the income approach to support its conclusion, while the Commissioner

invokes (1) the amount Ms. Belford received in exchange for her 97%

interest in Seabrook, whose only material asset at the time was the

Seabrook property, 29 and (2) the amount of capital raised by InvestCo to

facilitate the easement transaction.

We note at the outset that valuing the Seabrook property is not a

straightforward exercise. As Manager points out, it is an aesthetically

pleasing parcel with desirable natural amenities. Few property sales

nearby reflect similar attributes, in part because the Devendorfs long

controlled 9,600 acres of land in Liberty County, mostly east of I–95.

And it is difficult to draw persuasive comparisons to parcels farther

afield in more developed areas, because the Seabrook property’s remote

and rural location bears significantly on its value.

Compounding the difficulty, the appraisals offered by the experts

for each party shade towards advocacy. See Zarlengo, T.C. Memo. 2014161, at *45 (“Experts lose their usefulness and credibility when they

merely become advocates for the position argued by a party.” (citing

Laureys v. Commissioner, 92 T.C. 101, 129 (1989))). For his part,

Mr. Barber, the Commissioner’s expert, gives short shrift to the natural

features of the Seabrook property and therefore undervalues it. By

contrast, Mr. Eidson, Manager’s expert, focuses overmuch on these

29 Seabrook also had recorded a $1,000 receivable from Manager on its books.

[*44] amenities and ignores the disadvantages of the property’s location

in Liberty County. The Seabrook property is not in or next to Savannah,

Palmetto Bluff, St. Simons, Charleston, Jacksonville, or any of the other

desirable and densely populated areas Mr. Eidson invokes. And

possession of some pleasant aesthetic features is not enough to

transform the Seabrook property into a high-end destination for

vacationers and homebuyers.

In these circumstances, we cannot adopt the findings of either

expert. Instead, we value the property based on our own examination

of the record. See Buckelew Farm, T.C. Memo. 2024-52, at *51;

Savannah Shoals, T.C. Memo. 2024-35, at *35. As described further

below, we rely on three sales of comparable properties from Mr. Barber’s

analysis, adjusted in accordance with Mr. Eidson’s methodology. We

also find Ms. Belford’s actual transaction with respect to the Seabrook

property to be a useful indicator of value that supports our analysis. We

place no weight on the parties’ remaining comparable property sales or

on Manager’s analysis under the income approach.

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 (first

citing Estate of Spruill v. Commissioner, 88 T.C. 1197, 1229 n.24 (1987);

and then citing Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1,

19 (1979)); see also Palmer Ranch Holdings Ltd. v. Commissioner, 812

F.3d at 987. “Because no two properties are ever identical, the appraiser

must adjust the sale prices of the comparables to account for differences

between the properties (e.g., parcel size, location, and physical features)

and the terms of the sales (e.g., proximity to valuation date and

conditions of sale).” Savannah Shoals, T.C. Memo. 2024-35, at *36

(citing Wolfsen Land & Cattle Co., 72 T.C. at 19); see also Excelsior

Aggregates, T.C. Memo. 2024-60, at *33. The reliability of a comparable

sales analysis depends on the comparability of the properties selected as

comparables and the reasonableness of the adjustments made to the

prices to establish comparability. Wolfsen Land & Cattle Co., 72 T.C.

at 19–20.

“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); see also J L Minerals, LLC, T.C. Memo. 2024-93,

[*45] at *58; Excelsior Aggregates, T.C. Memo. 2024-60, at *38;

Savannah Shoals, T.C. Memo. 2024-35, at *35. “The comparable sales

approach is usually the most reliable indicator of value when sufficient

information exists” because “‘the market place is the best indicator of

value, based on the conflicting interests of many buyers and sellers.’”

Corning Place, T.C. Memo. 2024-72, at *32 (quoting Estate of Spruill, 88

T.C. at 1229 n.24).

Both parties offered comparable sales analyses based on proposed

sets of comparables. As we have said, we find the approaches of both

experts problematic. We discuss our concerns in greater detail below

and also highlight the few comparables we found useful to our analysis.

Mr. Eidson’s Approach

Having concluded that the highest and best “before” use of the

Seabrook property was a master planned residential development,

Manager’s expert, Mr. Eidson, selected properties that mostly were used

(or intended to be used) for the same purpose. Citing a lack of adequate

comparables for the Seabrook property nearby, Mr. Eidson selected

seven comparables that span a vast area of the southeast. Their

locations include Davenport (near Orlando) and Jacksonville, Florida,

Forsyth and St. Simons Island, Georgia, New Hill and Charlotte, North

Carolina, and Charleston, South Carolina. More significantly, all are in

populated areas with numerous amenities nearby to attract buyers. (In

one case, for example, the comparable is in a densely populated area

30 minutes from Disney World.) For five of the seven comparables,

Mr. Eidson rated the location “inferior” to the location of the Seabrook

property in Liberty County, and so adjusted their prices upward by 5%.

He made a further 30% upward adjustment to each of the same

properties to account for the fact that, unlike the Seabrook property, the

properties had no water frontage. For the remaining two properties,

which were on the coast in Mount Pleasant, South Carolina (near

Charleston), and St. Simons Island, Georgia, Mr. Eidson applied a

negative adjustment of 10% to account for the superior locations of the

properties.

Mr. Eidson made other adjustments to his seven

comparables to account for differences in topography, the availability of

utilities, and the year of sale. He made no adjustments to account for

differences in size, even though each of the properties except

comparable 7, on St. Simons Island, was significantly smaller than the

Seabrook property.

[*46] One other aspect of Mr. Eidson’s approach bears mentioning.

Mr. Eidson initially reported the unadjusted price for each comparable

sale as well as the overall acreage and price per acre. But he did not

provide an adjusted price per acre or even an overall adjusted price.

Instead, he calculated an unadjusted price per unit for each comparable

based on the number of units planned for or built on the property. Then

he adjusted the price per unit in several stages. The resulting adjusted

range is from $33,779 per unit to $42,277 per unit, while the unadjusted

range is from $23,000 per unit to $47,008 per unit. Mr. Eidson opined

that Seabrook was most similar to the higher end comparables he chose

(comparable 1, in Charleston, and comparable 7, in St. Simons Island),

and so settled on a final reconciled price per unit of $39,500. Multiplied

by 816 units, this produced Mr. Eidson’s estimated price of $32,232,000.

By comparison the unadjusted price per acre ranged from $26,223

per acre to $73,974 per acre, with an average of $47,806 per acre. The

adjusted price per acre (calculated by multiplying the adjusted price per

unit by the number of units and then dividing by total acres) ranged

from $29,139 per acre to $85,419 per acre, with an average of $60,552

per acre.

ii.

Mr. Barber’s Approach

Mr. Barber chose six properties, which he labeled comparables 1,

2, 3, 4, 5, and 7. All the comparables were in Georgia, and all the sales

took place from 2015 to 2017. Information regarding each comparable

is as follows:

•

Comparable 1: This sale was an auction sale that involved a

379.76-acre parcel in Liberty County. 30 The parcel was just west

of I–95 at the intersection of I–95 and highway 84, with frontage

on both. The parcel was zoned PUD. It had timber and some

wetlands and appears to have also had several ponds. The parcel

was sold on September 30, 2016, for $1.75 million, or $4,608 per

acre. It had no marsh, river, or creek frontage.

•

Comparable 2: This sale involved a 151.02-acre parcel in Liberty

County. The parcel was in Flemington, Georgia, adjacent to

Hinesville and Fort Morris. The property was zoned PUD and

had city utilities. It has since been developed into a small-lot

residential development. The property was a vacant pine

30 The parcel was owned by a financial institution.

[*47] plantation at the time of purchase. The parcel was sold on

December 27, 2017, for $725,000, or $4,801 per acre. It had no

marsh, river, or creek frontage.

•

Comparable 3: This sale involved a 273.57-acre parcel in Bryan

County just south of Richmond Hill. 31 The parcel was east of I–95

with frontage on the interstate. The parcel was zoned AR–1 and

was vacant timberland at the time of sale. It has since been

converted into a small-lot residential development. The parcel

was sold on September 10, 2015, for $2,017,900, or $7,376 per

acre.

•

Comparable 4: This sale involved a parcel in Bryan County east

of I–95 and Richmond Hill. It was zoned PUD and was a portion

of a mixed residential and commercial development. The parcel

was sold on December 4, 2015. Conflicting evidence presented at

trial leaves us unable to determine its acreage and, as a result, a

per-acre price for the sale, as well as other relevant details.

•

Comparable 5: This sale involved a 253.5-acre parcel in Chatham

County. The parcel was along the south side of Highway 204 just

west of Savannah. It was zoned R–A (Residential Agriculture).

The property had significant marsh acreage (approximately

100 acres) and frontage along the Ogeechee River. It contained

several bodies of water and consisted almost entirely of wetlands.

It was entirely within the flood plain. The parcel was sold on

April 16, 2015, for $570,000, or $2,249 per acre. 32

•

Comparable 7: This sale involved 1,567.28 acres in Liberty

County. The total acreage consisted of two noncontiguous

parcels, both highly irregular in shape. One parcel was roughly

a horseshoe shape that appears to have tracked the boundaries of

a wetland, such that the entire parcel was wetland. The other

parcel also had significant wetland. The parcels were directly

across from a paper mill and not far from Seabrook, west of I–95.

They were zoned A–1 Agricultural and DM–1 Dunes and

Marshland. Approximately 497.78 acres of the total acreage was

31 One page of Mr. Barber’s report reflects a transposed number of 257.53 acres,

but it is clear from the context that the correct number is 273.57.

32 This amount assumes no adjustment for marsh acreage.

Mr. Barber

calculated an alternative price of $2,932 per acre by valuing the 100 acres of marsh at

$1,200 per acre ($120,000) and dividing the remaining $450,000 among the remaining

153.5 acres.

[*48] marshland. The parcels also had creek frontage and varying

stands of pine and hardwood. The parcels were sold on

December 30, 2015, for $3,475,000, or $2,217 per acre. 33

Mr. Barber did not make any adjustments to the comparables to

account for their differences from the Seabrook property. Instead, he

ranked the properties as either inferior, similar, or superior to the

Seabrook property. He deemed comparable 1 to be similar, comparables

2, 3, and 4, to be superior, and comparables 5 and 7 to be inferior. Using

these rankings, along with the per-acre mean ($4,685) and median

($4,705), he selected a value of $4,700 per acre for the upland portion of

the Seabrook property. For the marshland, he selected a value of $1,200

per acre based on several benchmarks described in the report. This

resulted in a total estimated value of $2,060,000 for the Seabrook

property.

Mr. Barber also looked at two sales after 2017 to bolster his

proposed valuation. Because we do not find those sales useful, we do not

discuss them further.

iii.

Analysis

We find the approaches of both experts deficient in significant

respects.

Concerns with

Approach

Mr.

Eidson’s

Mr. Eidson, for his part, ignores real estate’s oldest adage:

“Location, location, location.” Yes, the Seabrook property possesses

some desirable aesthetic characteristics. But it is also in a largely rural

county. The Seabrook property is a 45-minute drive from downtown

Savannah, and much of the area between the two locations is

undeveloped. The Seabrook property is about 30 minutes from

Hinesville and about 20 minutes from Richmond Hill. The closest city,

Midway, Georgia, has a population of only 2,200. The closest economic

area is an industrial zone about three miles away that hosts a Target

distribution center and other industrial buildings.

33 Again, this amount assumes no adjustment for marsh acreage. Mr. Barber

calculated an alternative price of $2,691 per acre by valuing the 497.78 acres of marsh

at $1,200 per acre ($597,336) and dividing the remaining $2,877,664 among the

remaining 1,069.5 acres.

[*49] In view of these facts, it is perhaps unsurprising that there are

few commercial amenities near the Seabrook property that would

attract buyers to the location. There are no restaurants, shops, schools,

hospitals, country clubs, golf courses, resorts, or other similar draws

nearby to make people want to live or vacation there. Essentially, there

is nothing other than the characteristics of the property itself, and

Mr. Eidson leans heavily on those attributes.

Pleasant aesthetics, however, do not render the Seabrook

property comparable to properties in and around major cities such as

Jacksonville, Charlotte, and Charleston, as Mr. Eidson contends. As an

illustration, in Ms. Sward’s rebuttal expert report, Seabrook presented

a heat map demonstrating the price of real property in different areas

of the southeast United States. Ms. Sward invoked the map to show

that property east of I–95 generally sells at higher prices than property

west of I–95. But what it actually shows is that properties in population

centers (e.g., Atlanta, Charleston, and Savannah) command much

higher prices than those in rural areas. This makes perfect sense;

greater demand exists in areas with more people and economic activity,

because buyers value living near their places of work, schools, shopping,

restaurants, and other amenities. The supply of such property is also

limited, further driving up prices.

Consistent with these observations, despite Manager’s

arguments about the value of coastal property relative to property west

of I–95, the highest prices for real property in Liberty County (reflected

in Ms. Sward’s heat map in red and orange) are in Hinesville, miles west

of I–95. Again, this makes sense; Hinesville is Liberty County’s largest

city and its county seat and is adjacent to Fort Stewart, the county’s

largest employer by far. By contrast, Ms. Sward’s heat map depicts the

area east of I–95 in Liberty County, where the Seabrook property is

located, mostly in green, indicating lower prices. 34

34 Two 2017 sales in Liberty County offer a stark illustration of this dynamic.

The first is Mr. Barber’s comparable 2, located just outside Hinesville in a previously

undeveloped area. The property was PUD-zoned and sold for $4,801 per acre. In the

same year, according to evidence the Commissioner introduced at trial, a second PUDzoned property of approximately the same size, located nearby at Hinesville’s city limit,

sold for $16,021 per acre. The second property was closer to other development and

had frontage on Highway 84. Exs. 148-R, 149-R, 207-R (Sale I), Tr. 1112, L. 11-15.

And while other factors, such as an option agreement simultaneously executed by the

buyer and the seller, may have influenced the price for the second sale to some degree,

its more favorable location undoubtedly was significant.

[*50] Given the Seabrook property’s location, none of the properties

Mr. Eidson identified is sufficiently comparable to the Seabrook

property. They are all in developed areas, in most cases in or near major

population centers or well-known vacation destinations. To put it in

terms of Ms. Sward’s map, the proposed comparables are in red and

orange zones. Moreover, they are close to restaurants, shopping, and

other commercial amenities, and in some cases to golf, resorts, and

beaches. One comparable was quite literally down the road from Disney

World.

Mr. Eidson’s analysis did not adequately adjust for these extreme

differences in location. In fact, in five out of seven instances, Mr. Eidson

determined that his comparables, which were in developed areas in or

near population centers with high property values (e.g., Charlotte and

Orlando), were in locations inferior to that of the Seabrook property and

so adjusted their prices up. Mr. Eidson, in other words, attributed no

value to the red and orange locations of the comparables. Instead, he

rated the Seabrook property’s location as superior. This determination

is simply not justified by the record. 35

With respect to Mr. Eidson’s remaining two comparable

properties, in Mt. Pleasant, South Carolina, and St. Simons Island,

Georgia, Mr. Eidson acknowledged their superior locations and adjusted

their prices down by 10%. But this adjustment was not nearly enough.

St. Simons Island is a high-end vacation destination on the Georgia

coast. Its offerings include beaches and luxury resorts, restaurants, and

shopping. Golf courses abound, as do expensive homes, and Mr. Eidson’s

comparable was part of this community. Similarly, Mt. Pleasant is an

island suburb of Charleston, just across the river from the city. It is on

the water and densely populated, with retail, shopping, groceries, and

other typical amenities. In no way does a 10% adjustment account for

the difference between this location—or St. Simons Island—and Liberty

County.

The Seabrook property’s marsh and water frontage is no defense

on this score, because Mr. Eidson adjusted separately for those

attributes. Specifically, for the five out of seven comparables that had

no marsh or water access, he made a further 30% adjustment in

Seabrook’s favor to compensate for the difference. For the St. Simons

35 Mr. Eidson supports his adjustment by comparing estimated prices for lots

in a hypothetical Seabrook development with actual prices for lots in the comparable

communities. This too is unsupportable, for the reasons we explain when discussing

Mr. Eidson’s income analysis.

[*51] Island and Mt. Pleasant properties, both of which Mr. Eidson

rated as similar to Seabrook in this regard, he made no adjustment. 36

In short, Mr. Eidson’s approach strikes us in multiple respects as

directed at generating a high valuation for the Seabrook property rather

than performing an accurate appraisal. For these reasons, we reject

Mr. Eidson’s comparable sales analysis except for parts of his

adjustment methodology, which we apply to certain of Mr. Barber’s

comparables as we describe further below.

Concerns with

Approach

Mr.

Barber’s

On Mr. Barber’s side, we agree with Manager that Mr. Barber’s

report does not give adequate weight to the aesthetic characteristics of

the Seabrook property, such as its mature oak trees, marsh views, and

water access. Mr. Barber appears to recognize that those characteristics

have value and would make the Seabrook property more attractive for

development. He acknowledged in his testimony that water frontage

and marsh views can significantly affect a property’s value. But he

made no adjustments to his comparables to account for the absence of

these important characteristics. And we are not convinced that

Mr. Barber’s ranking of comparables from highest to lowest value was

sufficient to account for this deficiency. This is particularly the case

given that the comparables Mr. Barber proposed that did have water or

marsh frontage also had some of the lowest per-acre values, apparently

because they were not developable (e.g., because they were entirely

wetland) or were undesirable for another reason (e.g., being located next

As a final critique of Mr. Eidson’s analysis, we note that his method of

valuing parcels by unit rather than by acre disguises the fact that, on a per-acre basis,

his comparables do not appear to support the value he reached for the Seabrook

property, even with the questionable adjustments we describe above. This becomes

apparent when one considers that nearly half of the Seabrook property was marsh,

resulting in a valuation of almost $100,000 per upland acre. Mr. Eidson does not break

down buildable versus unbuildable acres for each of his comparables, but, with one or

two exceptions, Mr. Eidson’s comparables appear to have much higher percentages of

buildable acreage than the Seabrook property. Accordingly, when applied to the

Seabrook property’s buildable acres, the values Mr. Eidson determined would in most

cases fall short of justifying the prices he determined. When pressed on this point at

trial, Mr. Eidson insisted that a per-unit analysis was correct, that he always uses it,

and that a per-acre analysis does not make sense for residential development. But in

his only other conservation easement appraisal case, Mr. Eidson concluded a highest

and best use of residential development for a property located in Georgia, and he used

a per-acre basis for his valuation conclusions. See Butler v. Commissioner, T.C. Memo.

2012-72, 2012 WL 913695, at *19.

[*52] door to a paper mill). The property that Mr. Barber viewed as

more comparable to the Seabrook property, pricewise, did not have

water or marsh frontage. And we do not agree with Mr. Barber that its

more valuable attributes (e.g., a location closer to I–95 and population

centers) would have fully offset this lack.

In addition, while Mr. Barber’s comparables have the benefit of

being located in areas closer and more similar to the Seabrook property,

some of them have other fatal deficiencies. We reject comparable 4, for

example, because of conflicting evidence in the record that leaves us

unable to calculate a per-acre price for its December 4, 2015, sale, as

well as other key information. Comparable 5 we reject because the

underlying parcel was nearly all wetland and water, and, as a result,

likely could not have been developed. (This explains its extremely low

price notwithstanding its water and marsh front location close to

Savannah.) Comparable 7 we reject because of its highly irregular

shape and the predominance and location of wetlands on the property,

all of which render it unsuitable for the kind of development that the

Seabrook property could support. 37

Our Analysis

Mr. Barber’s remaining three sales, however, are more helpful,

and we employ them in our own analysis. Comparable 1 was close to

Seabrook, albeit west of I–95, and was zoned PUD, indicating that it was

suitable for development. Comparable 2 was in Liberty County and was

actually developed into a small-lot residential development.

Comparable 3 was in adjacent Bryan County, was east of I–95, and also

was developed into small residential lots. All three comparable sales

took place between late 2015 and late 2017.

Manager raises objections with respect to each of these

comparables. All three comparables, it says, lack the water access and

marsh frontage that made the Seabrook property so valuable.

Additionally, Manager says, all three are in higher chance flood zones

than the Seabrook property. (Presumably Manager here refers to the

Seabrook property’s upland acres rather than the marsh.) With regard

to comparable 1, Manager argues that its status as an auction sale

would have reduced the price paid for the property below its fair market

37 While we cannot determine precise percentages, the map in Mr. Barber’s

report suggests that 80% or more of the property is wetland, with the remaining 20%

segmented into smaller, irregular plots by the property’s shape and the location of the

wetlands.

[*53] value. And it speculates that comparable 2 appears to be an heirs

property, which it says would similarly reduce the price.

Some of these objections are reasonable, but of course no property

will be perfectly comparable. And Manager’s own expert, Mr. Eidson,

proposed adjustments to address similar issues. We therefore adopt the

three comparables in our analysis, applying adjustments that are the

same as or similar to the ones that Mr. Eidson proposed. For example,

we will adopt his 30% adjustment to account for the lack of water and

marsh access. We also will adjust for time of sale, reflecting an increase

in property values of 5% per year, as Mr. Eidson did. Finally, we will

adjust for location, again using Mr. Eidson’s methodology. Mr. Eidson

adjusted his proposed comparables up or down by 5% or 10% to reflect

their inferior or superior locations as compared with the Seabrook

property.

We will do the same, adjusting comparable 1 and

comparable 2 up by 10% to account for the Seabrook property’s pleasant

aesthetics and location east of I–95, closer to the coast. We will adjust

comparable 3 down by 5% because it too is east of I–95 and its location

near the city of Richmond Hill, materially closer to Savannah than the

Seabrook property, more than offsets any other aesthetic characteristics

of the Seabrook property. Applying these adjustments yields the

following results.

Comparable 1

Comparable 2

Comparable 3

Date of

transaction

September 30,

2016

December 27,

2017

September 10,

2015

Price

(unadjusted)

$1,750,000

$725,000

$2,017,836

Acreage

397.76

151.02

273.57

Price per acre

(unadjusted)

$4,608

$4,801

$7,376

Time

adjustment

(5% per year)

+6.25%

+0%

+11.25%

Location

adjustment

+10%

−5%

Water / marsh

adjustment

+30%

Price per acre

(adjusted)

$7,002

$6,865

$10,134

[*54] These adjustments are sufficient to account for Manager’s

complaints regarding the comparables. With respect to water and

marsh access, we apply the same adjustment that Manager’s expert did.

Regarding the flood plain, for comparables 1 and 2 we have provided a

10% adjustment in Seabrook’s favor, crediting the Seabrook property

with a superior location. We applied a negative 5% adjustment to

comparable 3; but given its superior location in Richmond Hill,

essentially halfway between the Seabrook property and Savannah, we

view that adjustment as generous to Manager.

Additionally,

comparable 2 and comparable 3 have both been developed into small-lot

residential developments and comparable 1 is zoned PUD, indicating its

suitability for development.

We further note that our use of a price per total acre, as opposed

to a price per upland acre, is in Manager’s favor. Recall that

approximately 42% of the Seabrook property is marsh and wetland. The

maps in Mr. Barber’s report indicate that comparables 1, 2, and 3 each

have wetlands as well, but that the proportion of nonbuildable acreage

overall is less than that of the Seabrook property. 38 Rather than

attempting further adjustments to account for this discrepancy, we note

it as another mechanism by which Manager has been adequately

compensated for any differences in the flood plain. 39

With respect to Manager’s objections on the auction sale for

comparable 1 and the suspected heirs sale for comparable 2, we are not

persuaded. Regarding comparable 2, Manager has not established that

the sale was in fact an heirs sale. And even if it were, Manager has not

cited any authority that would require us to adjust the sale price in such

circumstances. Regarding comparable 1, it is true that the Supreme

Court has questioned the utility of forced sales in determining fair

market value. See BFP v. Resol. Tr. Corp., 511 U.S. 531, 537–38 (1994)

(“[M]arket value, as it is commonly understood, has no applicability in

the forced-sale context . . . .”); see also Redus Fla. Com., LLC v. Coll.

Station Retail Ctr., LLC, 777 F.3d 1187, 1195 n.15 (11th Cir. 2014) (“The

problem is that ‘fair market value’ has nothing whatsoever to do with

the value received at public auctions.”). But Manager has not shown

38 Comparable 1 appears to be approximately one-third water or wetland, while

comparable 2 contains hardly any wetland. Comparable 3 appears to have wetlands

in a proportion less than or similar to the Seabrook property.

39 We similarly refrain from adjusting for utilities because we lack sufficient

information to make reliable adjustments. This too is in Manager’s favor, because all

three of the comparables appear to have had utility access superior to that of the

Seabrook property.

[*55] that comparable 1 was a forced sale. Moreover, Mr. Barber

acknowledges that the sale was an auction sale but says that

“[i]nterviews with local brokers and appraisers confirmed that adequate

market exposure and advertising were more than enough to support as

fair market value.” Ex. 200-R, p. 122. Based on our review of the entire

record, including the very similar price for comparable 2, we believe Mr.

Barber’s representation in this regard. See Oconee Landing, T.C. Memo.

2024-25, at *69 n.30. Comparables 1 and 2 both involved properties west

of I–95 in Liberty County and occurred within 15 months of each other.

That a financial institution was the seller for comparable 1 does not

show that the sale was for less than fair market value. Moreover, even

if we were to exclude comparable 1 from our analysis, the result would

be the same, as we discuss further below.

In addition to objecting to the comparables Mr. Barber chose,

Manager alleges that his search was one-sided and incomplete, missing

a large number of potential comparables that show much higher peracre values. In support of this allegation, Manager submitted a long list

of potential comparables located by its rebuttal expert that purportedly

met Mr. Barber’s search criteria but did not appear in his report. It also

submitted emails Mr. Barber received regarding certain properties in

Glynn County. 40

After carefully reviewing this evidence, we find little to support

Manager’s position. Most of the 80 additional comparable sales listed in

Manager’s brief involve properties in Chatham County, near or in

Savannah. Some were “under contract” rather than completed sales. A

few of the completed sales were in Bryan County and one was in Camden

40 At trial, the Commissioner objected to the admission of certain of Manager’s

evidence on this score for anything other than impeachment purposes—specifically,

Exhibits 359-P, 362-P, 363-P, 364-P, 365-P, 366-P, 368-P, 369-P, and 370-P. We

directed the parties to provide argument on this issue in their briefs. The

Commissioner did not do so in his Opening Brief and therefore has conceded the issue.

See, e.g., Giambrone v. Commissioner, T.C. Memo. 2024-47, at *19; see also Bank of

Am., N.A. v. Mukami (In re Egidi), 571 F.3d 1156, 1163 (11th Cir. 2009) (“Arguments

not properly presented in a party’s initial brief or raised for the first time in the reply

brief are deemed waived.”); Ashkouri v. Commissioner, T.C. Memo. 2019-95, at *24 n.9

(“Having conceded an issue by failing to advance a meaningful argument on that issue

in their opening brief, [the taxpayers] could not withdraw that concession by belatedly

including a cognizable argument in their reply brief.”). Accordingly, we admit the

exhibits.

[*56] County. Only two were in Liberty County. 41 Moreover, we did not

find any of the underlying properties to be comparable. Many of them

were industrial or commercial, or had improvements and/or were shovel

ready. 42 Moreover, Manager’s supplementary evidence was one-sided

by design—its expert searched only for properties with values over

$35,000 per acre.

It is telling that, of the 11 potential comparables outside the

expert reports that Manager characterizes as “[t]he most notable of the

record’s valuation information,” 5 are pre-recession sales, 4 are listings

(so not sales at all), and 1 is a sale from 2021, almost four years after

the easement was contributed. Only one of the potential comparables,

involving 38.3 acres on Sunbury Road, was a sale close in time to

Seabrook’s easement contribution. That sale was for $2.5 million

($65,274 per acre) on January 30, 2017. Seabrook characterizes the

underlying parcel as a “future development site” and as a “parcel[] that

sold for residential development,” repeatedly chastising Mr. Barber for

overlooking it. Pet’r’s Op. Br. 163, 184. But, in actuality, the parcel was

in a developed industrial park, the same one that houses the Target

Distribution Center, one of the largest employers in Liberty County. As

Manager’s own exhibit reports, the sale was of “industrial land” at

“Building D Pad Site – Tradeport East Business Center” after 1,707 days

(almost five years) on the market. Ex. 301-P, p. 236. The parcel had all

utilities available and was purchased because “[t]he buyer owns the

adjacent property and the current tenant is looking to expand.” Ex.

301-P, p. 237. In other words, the parcel was shovel ready and sold only

when the buyer needed it to satisfy an existing tenant’s requirements.

Thus, it was not remotely comparable to the Seabrook property, and

Mr. Barber did not err in excluding it. Nor did he err in overlooking the

other supposed comparables Manager invokes.

41 Similarly, a separate table Manager compiled to show “parcels that sold for

residential development in the Savannah-Hinesville-Statesboro Combined Statistical

Area (‘CSA’), the same CSA where the Devendorf [p]roperty is located,” includes 14

total properties. Pet’r’s Op. Br. 163–65. Ten of the properties are in Savannah proper,

three are in Pooler, a suburb adjacent to Savannah, and one is the Sunbury Road

property discussed directly below. None of the properties is larger than 55 acres and

11 of them are smaller than 25 acres. In other words, they are not comparable to the

Seabrook property and tell us nothing about its value.

42 For example, one of the two Liberty County sales involved a relatively small

(15.91-acre), shovel-ready commercial lot on Highway 84 that was used to develop a

shopping plaza. Similarly, the other Liberty County sale involved a shovel-ready

industrial lot (the Sunbury Road sale) that we discuss in more detail shortly.

[*57] We observe in closing that all three of the adjusted comparable

prices are fairly close to the price per acre that Ms. Belford received in

her transaction with InvestCo. We reconcile the prices and determine a

final “before value” for the Seabrook property in Opinion Part III.C.3

below, after we discuss Mr. Eidson’s analysis under the income approach

and Ms. Belford’s transaction.

Income Approach

The income method values a property by computing the present

value of projected future income from the property. 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); see also J L

Minerals, LLC, T.C. Memo. 2024-93, at *60; Excelsior Aggregates, T.C.

Memo. 2024-60, at *33; Savannah Shoals, T.C. Memo. 2024-35, at *36.

“The theory behind an income approach is that an investor would be

willing to pay no more than the present value of a property’s anticipated

future net income.” Savannah Shoals, T.C. Memo. 2024-35, at *36

(citing Trout Ranch, LLC v. Commissioner, T.C. Memo. 2010-283, aff’d,

493 F. App’x 944 (10th Cir. 2012)); see also Excelsior Aggregates, T.C.

Memo. 2024-60, at *33.

“The income capitalization [approach] is most reliable when used

to determine the value of an existing business with a track record of

income, expenses, profits, and growth rates. A historical track record

provides real-world inputs that supply a plausible basis for projecting

future revenue.” Excelsior Aggregates, T.C. Memo. 2024-60, at *43–44

(citing Whitehouse III, 139 T.C. at 325 (noting that the income approach

“has been judged an unsatisfactory valuation method for property that

does not have a track record of earnings”)); see also J L Minerals, LLC,

T.C. Memo. 2024-93, at *61.

“Income valuation methods are not favored when valuing vacant

land with no income-producing history because they are inherently

speculative and unreliable.” Savannah Shoals, T.C. Memo. 2024-35,

at *36; see also Whitehouse Hotel III, 139 T.C. at 324–25; Ambassador

Apartments, Inc. v. Commissioner, 50 T.C. 236, 243–44 (1968), aff’d per

curiam, 406 F.2d 288 (2d Cir. 1969); Excelsior Aggregates, T.C. Memo.

2024-60, at *33. “The income approach is rarely appropriate when

seeking to determine the value of undeveloped property with no existing

cashflow.” Corning Place, T.C. Memo. 2024-72, at *37; see Excelsior

Aggregates, T.C. Memo. 2024-60, at *44 (“[C]ourts have often noted ‘the

folly of trying to estimate the value of undeveloped property by looking

[*58] to its anticipated earnings.’” (quoting Pittsburgh Terminal Corp v.

Commissioner, 60 T.C. 80, 89 (1973), aff’d, 500 F.2d 1400 (3d Cir. 1974)

(unpublished table decision))); see also Chapman Glen, Ltd., 140 T.C.

at 327; Whitehouse Hotel III, 139 T.C. at 324–25; Ambassador

Apartments, 50 T.C. at 243–44; Savannah Shoals, T.C. Memo. 2024-35,

at *36. “Absent a financial track record, every input into the DCF

analysis necessarily involves speculation.” Excelsior Aggregates, T.C.

Memo. 2024-60, at *44; see also Winooski Hydroelectric Co. v. Five Acres

of Land, 769 F.2d 79, 82 (2d Cir. 1985) (“On the most basic level, the

future income calculations were too speculative, since Green Mountain

had not operated any business at Montpelier # 4 for over a decade.”);

Corning Place, T.C. Memo. 2024-72, at *37 (“Lacking reliable data, the

appraiser would have to rely on a lengthy series of assumptions,

estimates, and guesstimates.”). Accordingly, “[w]hile the use of the

income method . . . is not a priori unacceptable for any valuation

purpose,” it is appropriate to reject it in a particular case if we find it

“prone to error and based on too many unverifiable assumptions.”

Whitehouse Hotel, Ltd. v. Commissioner, 755 F.3d at 246–47.

“When the income approach is used, the Court must examine the

plausibility of the critical assumptions made by the appraiser.”

Excelsior Aggregates, T.C. Memo. 2024-60, at *44 (citing Kiva Dunes

Conservation, LLC v. Commissioner, T.C. Memo. 2009-145, 97 T.C.M.

(CCH) 1818, 1820). “Each assumption, whether large or small, carries

with it ‘some risk of error.’” Id. (quoting Whitehouse III, 139 T.C. at 323).

“As interdependent assumptions multiply, the risk of error can increase

exponentially.” Id.; see also J L Minerals, LLC, T.C. Memo. 2024-93,

at *62.

Mr. Eidson’s Report

Mr. Barber disavowed his income analysis at trial, ceding the field

to Mr. Eidson. Essentially, Mr. Eidson’s analysis proceeds as follows.

First, Mr. Eidson largely adopts the site plan prepared by

Mr. Pate and the market analysis prepared by Ms. Sward. Based on

Mr. Pate’s plan, which proposed 816 residential lots and various

amenities on the Seabrook property, Mr. Eidson estimates the total cost

of developing and building out the property in accordance with the plan

(about $33.3 million). Next, based on his own research and Ms. Sward’s

analysis, Mr. Eidson sets pricing for each type of lot contemplated by

Mr. Pate’s plan (e.g., $600,000 for marsh view lots, $400,000 for

premium lots, etc.). Using these prices and the number of each type of

[*59] lot proposed by the Pate plan, he estimates the total gross retail

value of the lots over the term of the development (about $197 million).

Relying on Ms. Sward’s analysis, Mr. Eidson assumes that the lots

would sell out over an 11-year period with sales starting in year 2. He

estimates a marketing budget of $1.5 million, bringing total costs to

approximately $34.8 million. Accounting for selling costs and applying

a discount rate of 30%, Mr. Eidson calculates a residual value of

$34.84 million and equates this value with the fair market value of the

Seabrook property.

ii.

Analysis

Considering the record before us, we simply do not believe that a

developer or anyone else would have paid almost $35 million (about

$95,000 per upland acre) for the Seabrook property in 2017. That

Mr. Eidson was able to arrive at such a value reflects numerous

problems with the specific inputs Mr. Eidson relied on in his analysis,

as well as inherent problems with the DCF method as applied to the

vacant land here. We discuss each in turn.

Number of Lots

Mr. Eidson bases his analysis on the land plan provided by

Mr. Pate, which contemplated that the Seabrook development would

include 816 lots of various types and sizes. The lots included marsh view

lots, premium lots, custom lots, village lots, farm lots, cottage lots,

townhouse units, and loft units. According to the land plan, the

Seabrook development would also offer a village with a commercial

retail building, a farm stand and vegetable garden, an amenity center

with a fitness center and swimming pool, tennis and pickleball courts,

bike and nature trails, and a community dock with a kayak launch on

Dickinson Creek. All of this, the land plan concluded, would be

constructed on the Seabrook property’s 370 upland acres. Mr. Eidson

conducted no independent evaluation of the feasibility of the plan and

incorporated it in full into his analysis.

At trial, it became clear that Mr. Pate’s land plan suffered from

various problems. Mr. Pate, who did not visit the Seabrook property

before preparing the plan, testified that it was really just a concept plan,

and that he did not check into local requirements to determine whether

the plan was feasible. The plan, for example, could not have been built

under the current zoning of the Seabrook property, which would have

allowed a maximum of one lot per buildable acre. Further, local

[*60] subdivision rules would have required a second road to be built to

access the property. The plan also assumed that the Seabrook property

had access to public water and sewer, which it did not. At trial, Mr. Pate

admitted that the development would likely require a sewage treatment

plant and water wells, which were not included in his plan. He

speculated that there would be ample room to build them in the open

natural area that he had set aside for biking and hiking trails. This

might be so, but we question the viability of building a sewage treatment

plant within a natural amenity—one of a small number of features

intended to draw high-end buyers to the Seabrook community. 43

In short, the record establishes that Mr. Pate’s land plan could

not have been built as envisioned, even if Seabrook had obtained

approval for rezoning to PUD. Accordingly, Mr. Eidson’s reliance on the

number and type of lots reflected in the plan undercuts his DCF

analysis.

Lot Prices

Even more problematic are the prices Mr. Eidson sets for the lots.

Mr. Eidson relies heavily on Ms. Sward’s data for this part of his

analysis, as well as his own analysis of the Palmetto Bluff community

in Bluffton, South Carolina.

In her report, Ms. Sward collects pricing data from masterplanned communities up and down the southeast coast. According to

Ms. Sward, she focuses on communities with offerings (and therefore

target buyers) similar to those she envisions for the Seabrook

community. Ms. Sward analyzes lot and home prices for each

community, overall prices, prices by amenity, and prices for nature lots,

marsh lots, and deep-water lots. In each category, she selects a target

price range for Seabrook lots. At her report’s conclusion, Ms. Sward

recommends a price for each type of lot Seabrook would offer.

Mr. Eidson adopts these prices in his report with some minor

adjustments, saying that they are confirmed by his independent

analysis of Palmetto Bluff.

This approach might seem reasonable enough at a high level, but

a closer look reveals it to be anything but. The core problem is that the

communities Ms. Sward and Mr. Eidson focus on are in no way

43 Recall that the much smaller and lower density Yellow Bluff community

needed the 40 acres it purchased from Ms. Devendorf in 2006 for a sewage drainage

field.

[*61] comparable to the proposed Seabrook community. In general, they

are much larger, with desirable locations and luxury amenities to

attract buyers.

The proposed Seabrook community lacks these

attributes.

By way of illustration, Mr. Eidson and Ms. Sward both invoke

Palmetto Bluff as a potentially comparable community. Palmetto Bluff

is in Bluffton, a city just north of Savannah and adjacent to Hilton Head.

Palmetto Bluff is a 20,000-acre development with 4,000 units and 32

miles of waterfront along the May River. Its amenities include, by

Ms. Sward’s own description, a Jack Nicklaus Signature golf course, a

five-star quality resort and spa, boating, canoeing, dining, equestrian

facilities, target shooting, trails, pools, fitness facilities, gathering

spaces, fishing, tennis, pickleball, and bocce ball. One witness described

it as “20,000 acres of the most beautiful piece of property I’ve ever seen

or anybody else has seen.” Tr. 1053. And it is closer geographically to

both Savannah and Hilton Head than Seabrook is to Savannah.

Mr. Eidson and Ms. Sward both acknowledge that Palmetto Bluff

has more amenities and would command higher prices than the

Seabrook development. But they still invoke it as a comparable

property. Moreover, Mr. Eidson, after initially saying that Seabrook lots

should be priced 20% lower than Palmetto Bluff lots, appears to discount

Palmetto Bluff prices by only 15% when calculating Seabrook

projections. And when one looks at the final prices Mr. Eidson uses in

his DCF analysis, one sees that the average price of all Seabrook lots

between .21 acres (about 9,000 square feet) and .3 acres (about 13,000

square feet) is $317,678 per lot, significantly higher than the Palmetto

Bluff average price Mr. Eidson indicates for lots of the same size

($237,423 per lot). More than half of Seabrook’s lots (478 of 816) fit into

this size category.

Manager might respond that the price difference is due to the

Seabrook lots’ being marsh front lots or otherwise “premium,” while

equally sized Palmetto Bluff lots do not have those attributes. (Perhaps

because marsh front lots in Palmetto Bluff are larger than .3 acres.)

Nevertheless, even excluding marsh front lots and so-called premium

lots, Mr. Eidson prices Seabrook’s 301 custom lots, which are 9,600

square feet (or .22 acres) and situated away from the marsh and river,

at $250,000 per lot. This too is above the Palmetto Bluff average

Mr. Eidson lists for lots between .21 and .3 acres. Given the differences

between the two communities, higher prices at Seabrook cannot be

justified.

[*62] As a second example, Ms. Sward frequently invokes Kiawah

River. When Ms. Sward sets target price ranges for Seabrook’s overall

lots, marsh lots, nature lots, and deep-water lots, Kiawah River is in

each case one of the three or four comparables she relies on. But like

Palmetto Bluff, Kiawah River is not comparable to the development

proposed for Seabrook.

Kiawah River is a community in South Carolina about 30 minutes

south of Charleston. The underlying property is 2,003 acres with

1,168 units planned in two primary villages. The property includes a

five-star luxury boutique inn with rooms, branded residences, and

amenities. The property is situated on the Kiawah River with river and

marsh views, live oak trees, and a 100-acre working farm. The farm

includes a goatery that produces goat cheese and milk. There also are

nature trails and walking and biking paths throughout the property, a

9,000-square-foot community house with a fitness facility, an outdoor

pool complex with a junior Olympic-sized family pool and an adult pool,

a full-service kitchen and a shaded bar with poolside dining, a hot tub,

pickleball courts, bocce ball, event space, parks, a kayak launch, viewing

areas, and a planned commercial village. Kiawah River hosts events

featuring nature, recreation, food, and art.

Notably, Kiawah River, which started in 2017, is just up the road

from Kiawah Island, which was built out in the 1990s. Kiawah Island

is a beachfront country club community with 3,800 homes on 10,000

acres. It has at least three golf courses and has hosted multiple Ryder

Cup PGA Championships. Its development brought grocery stores,

restaurants, and other amenities to the area long before Kiawah River

began. When asked whether Kiawah River benefited from its proximity

to Kiawah Island, Ms. Sward said “Actually, no.” Tr. 731. She

elaborated that Kiawah Island is on the beach and Kiawah River has no

beach access, just river access, “and it’s three minutes from Kiawah

Island.” 44 Tr. 731. But she acknowledged that Kiawah River is “not that

far” from the ocean and that you can get to the ocean from Kiawah River

on a boat. Tr. 754.

To summarize, both Palmetto Bluff and Kiawah River are near

well-known and desirable vacation areas. They are large developments

with relatively low overall density (less than one residential unit per

44 Ms. Sward later testified that Kiawah River is about 20 minutes from

Kiawah Island. The Court takes judicial notice that Kiawah River is approximately

eight miles from Kiawah Island and approximately five miles from public beaches.

[*63] acre), river access, miles of waterfront, and numerous amenities

including five-star luxury hotels. High-end restaurants, grocery stores,

and golf courses are easily accessible nearby.

No such vacation areas or amenities existed near the Seabrook

property in 2017, nor do they exist today. As Ms. Sward said herself,

there are no nearby beaches, country clubs, golf courses, or high-end

hotels or restaurants to draw people to the location. (When asked at

trial how many visitors come to Liberty County, Ms. Sward replied: “I

would say very few, because there’s nothing to offer them to come there.”

Tr. 779.)

Manager accepts that such vacation areas and amenities do not

currently exist near the Seabrook property, or indeed anywhere in

Liberty County. But Manager suggests that the Seabrook property itself

could become such an amenity, and therefore attract the same kind of

buyer that would buy at Kiawah Island or another of Ms. Sward’s

communities. We are not persuaded.

The Seabrook property has only 370 buildable acres. Because of

the property’s long, narrow shape, only a modest portion of that area is

marsh front, and an even smaller portion has direct creek access.

Indeed, a significant percentage of the marshland on the property (about

213 acres, or 80% of the total marshland) is on the east side of Dickinson

Creek and would be generally inaccessible to residents of the

hypothetical Seabrook development. There is no beach or river frontage,

and Ms. Sward testified that residents likely could not even navigate

from Dickinson creek to a river at low tide.

Seabrook’s conceptual plan for the property squeezes 816 units

and all its amenities into its small buildable area. Marsh front and

premium nature lots generally are smaller than those at communities

Ms. Sward viewed as comparable, and other lots are smaller still. As a

result, the Seabrook property has far higher density than Kiawah River,

Palmetto Bluff, and most other communities on which Ms. Sward

focuses. 45 Given the limited water access on the property, the proposed

45 According to Ms. Sward, for example, Ford Field & River has 400 units on

lots that range in size from .5 to 5 acres, while the Landings has 4,085 units on 6,300

acres.

Manager might protest that we are comparing apples to oranges, since for the

Seabrook property we focus on the buildable area whereas Ms. Sward focuses on the

total acreage of other developments. But our density point would hold even if we

[*64] density would appear to require more than an estimated 2,200

people to share a single dock. Additionally, while the other amenities

proposed for the Seabrook development might enhance its appeal

(walking trails, fitness center, pool, vegetable patch, coffee shop, etc.),

they would not put it on the map as a high-end destination for

vacationers and second home buyers.

In short, while a development along the lines Ms. Sward envisions

may or may not have been possible on the Seabrook property, it would

not have been another Palmetto Bluff or Kiawah River. 46 Thus, we find

the prices Mr. Eidson relies on for his DCF analysis to be wholly

unreliable.

Absorption Rate

Also critical to Mr. Eidson’s analysis is his conclusion that the

proposed Seabrook development would sell out within 11 years, with

sales starting in year 2 of the project. This conclusion assumes that,

after the first year, the Seabrook development would sell approximately

80 lots per year. Mr. Eidson again bases his conclusion largely on

Ms. Sward’s analysis, noting that her conclusions align with his own

primary research and market experience.

Ms. Sward estimates the demand for Seabrook’s lots by

considering three primary sources of residential demand for vacation

and second homes: (1) visitors to the area, (2) second home buyers in the

region who move, and (3) households moving to the area that buy a

vacation or second home. Ms. Sward uses various publicly available

statistics to calculate the number of annual sales Seabrook could make

to each group. But calculations mean nothing if the underlying

assumptions are faulty. And, at trial, Ms. Sward admitted that she

made numerous problematic assumptions.

looked at the Seabrook property’s overall acreage. And Manager has presented no

evidence that any of the other properties have similar layouts to the Seabrook property,

where a large continuous area of the property is undevelopable and inaccessible to the

rest of the property.

46 We focus on these two examples, but the same issues exist with the other

communities the experts discuss. Ms. Sward said, for example, that East Beach is on

the beach in St. Simons Island, a high-end vacation community, and also has marsh

access. She admitted that Ford Field & River is much closer to Savannah in Richmond

Hill and has golf, marsh, and river access. Similarly, she confirmed that the Landings

is on Skidaway Island in Savannah and has a golf course, river access, and ocean

access. And so on.

[*65] Take, for example, Ms. Sward’s calculation of demand from

visitors to the area. Essentially, Ms. Sward took the number of annual

home sales in Savannah for 2016 to 2017 and divided that number by

the number of visitors to the Savannah area for 2015 to calculate a

“conversion ratio.” This, Ms. Sward says, shows the percentage of

visitors to Savannah that can be expected to buy a new home each year.

But she offers no support for this assumption, nor does she attempt to

establish any correlation between the two numbers. When pressed at

trial, Ms. Sward eventually admitted that she just came up with a ratio

because she needed one, and that there might not be any correlation at

all. This fault alone would be fatal to Ms. Sward’s analysis. But it is far

from the only one.

As another example, take the very next step in Ms. Sward’s

computations. She applies her conversion ratio calculated at the

previous step to a projected 3% annual increase in visitors to the

Savannah area to determine that there will be 187 new home sales to

such visitors each year going forward. She then assumes, without

providing support, that Seabrook would capture 15% to 20% of those

sales each year. Such an assumption would strain credulity even if

Seabrook were in Savannah.

Given Seabrook’s actual location

45 minutes away in an undeveloped area, it enters the realm of fantasy.

We find similar issues with Ms. Sward’s calculation of the

remaining two sources of residential demand, but we do not detail them

here. We note in closing, however, that data from Liberty County

provides a reality check on Ms. Sward’s calculations. Specifically, the

closest two developments to the Seabrook property are Yellow Bluff and

Hampton Island. Both are east of I–95 and both have water access;

Yellow Bluff has its own marina, and Hampton Island consists of a

series of salt marsh islands connected to the mainland by a bridge. Both

started development before the recession, with Hampton Island

targeting a higher price point than the Seabrook development and

Yellow Bluff targeting a lower price point. While active, both sold about

10 lots per year, a far cry from the 80 lots per year predicted for the

Seabrook property. Yellow Bluff was still selling lots in 2017. And

Hampton Island failed and went dormant in 2007.

To summarize, we find the absorption estimates that Ms. Sward

prepared and Mr. Eidson relies on to be wholly unreliable. We reject

Mr. Eidson’s DCF analysis on this basis as well.

[*66]

Costs

As a final point, the Commissioner has highlighted various costs

that Mr. Eidson does not factor in when conducting his DCF analysis.

For example, Ms. Sward testified that marketing the Seabrook

development would require $1 million per year for six years. Mr. Eidson,

however, assumes marketing costs of only $1.5 million total. He

acknowledged at trial that Ms. Sward was the authority on marketing

budgets.

Neither does Mr. Eidson’s report account for the cost of the second

road that would be required under local subdivision regulations.

Moreover, while he obtained estimates for the costs of installing water

and sewer systems on the property, he did not follow up on various

issues raised by the estimates. For example, the estimate Mr. Eidson

obtained for a sewer system said it was conditioned on the property’s

being 1,400 feet above sea level. No part of the Seabrook property is

more than 100 feet above sea level, and parts of it are at sea level. No

soil analysis was provided in the course of generating the estimate, and

the estimate does not account for any indemnity insurance that would

be required. Similarly, with regard to water, Mr. Eidson obtained an

estimate for the cost of installing a well, but did no research to see

whether the water table on the Seabrook property would support a well

for the anticipated number of people. Nor did he research required

approvals or consider water quality in the area. As another example,

Mr. Eidson’s analysis budgets only $100,040 for erosion control, but

Mr. Eidson admitted at trial that the property is ecologically sensitive

and that in developing it there would be “huge potential for runoff into

Dickinson Creek.” Tr. 963.

In short, the record leaves ample room to doubt the costs in

Mr. Eidson’s DCF analysis.

iii.

Conclusion

Our Court has recently discussed the difficulties of applying the

income method to value vacant land. See, e.g., J L Minerals, LLC, T.C.

Memo. 2024-93, at *61–65. We fully agree with that discussion, in which

the Court explained that a DCF analysis geared to what a business can

earn is of limited utility in determining what a property is worth. Id. at

*63. Moreover, even assuming that the income method can be usefully

applied to vacant land with quality inputs, cf. Whitehouse Hotel, Ltd. v.

Commissioner, 755 F.3d at 246–47, we explained that a DCF analysis

[*67] loses its utility when such inputs are lacking, see J L Minerals,

LLC, T.C. Memo. 2024-93, at *64–65 (“Use of the discounted cashflow

method with so few reliable inputs and so many variables and unknowns

is simply an exercise in imagination.”). As the discussion above shows,

reliable inputs clearly were lacking here. We therefore give no weight

to Mr. Eidson’s DCF analysis.

Actual Transactions Involving the Seabrook

Property

In November 2017, just one month before Seabrook contributed

its conservation easement, Ms. Belford contributed the Seabrook

property to Seabrook in exchange for a 99% interest in Seabrook. One

month later and just a few days before the easement was contributed,

Ms. Belford sold a 97% interest in Seabrook to InvestCo for

$4.74 million. This transaction between unrelated parties valued the

Seabrook property at $7,670 per acre, or $13,204 per upland acre. 47 We

find this value relevant, consistent with past holdings of both the

Eleventh Circuit and our Court. See, e.g., TOT Prop. Holdings, LLC v.

Commissioner, 1 F.4th at 1371 (describing an arm’s-length sale of

property just 17 days before a conservation easement was placed on the

property as an “overwhelmingly significant fact” in determining its

before use value); Buckelew Farm, T.C. Memo. 2024-52, at *56.

Manager acknowledges the relevant authorities, but challenges

the arm’s-length nature of Ms. Belford’s sale to InvestCo. Specifically,

Manager says, Ms. Belford was willing to accept a below-market price

for her interest in Seabrook because she wanted to increase the chances

that the Seabrook property would be conserved rather than developed.

Manager alleges that the price to InvestCo was set by Mr. Kiene, not

negotiated by Ms. Belford, and that it did not reflect the fair market

value of the property. According to Manager, every witness who had

first-hand knowledge of the sale testified that it was not at arm’s length.

We are not convinced. We accept that such factors may have

modestly decreased the price Ms. Belford was willing to accept for her

47 We compute these values by adjusting the $4.74 million that Ms. Belford

received for a 97% interest in Seabrook up to $4,886,598, approximating what would

have been paid for a 100% interest in Seabrook ($4.74 million / .97% = $4,886,598). We

then subtract $1,000 to eliminate the value attributable to the receivable from

Manager and divide the resulting amount ($4,885,598) by the respective acreages

(637 total acres and 370 acres of upland). For simplicity, the upland calculation

attributes no value to the marsh.

[*68] interest in Seabrook. As we will discuss, however, we are not

persuaded that the amount Ms. Belford received was significantly less

than the fair market value of her proportionate interest in the

underlying property. And it certainly was not seven times less, as

Manager would have us believe.

Ms. Belford’s Testimony

Financial Circumstances

To be sure, Ms. Belford credibly testified at trial that her ultimate

goal was always conservation and that she viewed $4

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