# United States Tax Court

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URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A6312683a98296cfa

## Record

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

## Text

United States Tax Court
T.C. Memo. 2026-19
NORTH DONALD LA PROPERTY, LLC, NORTH DONALD LA
INVESTORS, LLC, TAX MATTERS PARTNER,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
__________
Docket No. 24703-21.

Filed February 19, 2026.
__________

Byung Hyuk Min, Sarah L. Ray, Kristin Martin Centeno, Ronald A.
Levitt, Brian E. Derdowski, Frank Agostino, Olla F. Jaraysi, Gregory P.
Rhodes, Michelle A. Levin, Sarah E. Green, Sidney W. Jackson IV, and
Emily C. Ellis, for petitioner.
Richard L. Wooldridge, Richard J. Hassebrock, Andrew Yamanaka
Belter, Peter N. Tran, Gary R. Shuler, Allison N. Kruschke, Lynn M. Barrett, Daniel T. Gaffney, Alexandra E. Nicholaides, and Kerrington A.
Hall, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION
LAUBER, Judge: This is a syndicated conservation easement
(SCE) case with a fact pattern that will sound familiar. North Donald
LA Property, LLC (North Donald), donated an easement over farmland
in rural Louisiana (North Donald Tract). The property was acquired in
March 2016 for $2,975 per acre. That approximated the going rate for
similar property in the neighborhood during 2015–2020.
On its Federal income tax return for 2017, North Donald claimed
for this donation a charitable contribution deduction of $115,391,000. It
asserted that the “before value” of the farmland—its value before being

Served 02/19/26

2
[*2] encumbered by the easement—was $439,492 per acre. It thus took
the position that the land had appreciated by more than 14,000% in 21
months.
The appraisal accompanying the return asserted that the “highest and best use” (HBU) of the farmland was development as a clay mine
or “borrow pit.” To determine the “before value” of the land, the appraiser hypothesized—and discounted to present value—the stream of
royalty income that supposedly could be derived from leasing the land
to a mine operator for 12 years.
The property’s zoning classification permitted only agricultural
use. Petitioner failed to establish a reasonable probability that the land
could be rezoned to permit use for clay mining. Because mining was not
a legally permissible use, it was not the property’s HBU. Assuming arguendo that rezoning approval could have been secured, petitioner failed
to prove that a clay borrow pit would have been financially feasible,
given the high transportation costs to levee construction sites and the
high cost of securing wetland “mitigation credits.” We find that the
property’s HBU was continued use for agricultural purposes.
We conclude here, as we did in J L Minerals, LLC v. Commissioner, T.C. Memo. 2024-93, at *3, that the valuation of the conservation
easement “was an outrageous overstatement,” wholly untethered from
reality. Employing the comparable sales method, as backstopped by the
price actually paid to acquire the property in March 2016, we find that
its “before value” was $2,975 per acre and that its “after value” was
$2,300 per acre. The delta between these figures—the reduction in
value attributable to the easement—is $675 per acre. The value of the
easement—and hence the allowable charitable contribution deduction—
is thus $175,824 ($675 × 260.48 = $175,824).
North Donald claimed $1,157,469 of “other deductions” on its
2017 return. This sum included a $1,055,000 “consulting fee” paid to
the promoter that marketed the conservation easement to investors and
$50,000 paid to a law firm that served as a “material advisor” to the SCE
transaction. We find that these expenses constituted nondeductible syndication costs and that the rest of the “other deductions” must also be
disallowed.
Notwithstanding North Donald’s explicit disclosure of the SCE
transaction on its return, respondent has asserted the section 6663 civil

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[*3] fraud penalty. 1 We agree that the conduct in which some of the
principals engaged was disreputable and often suspect. But given the
unambiguous disclosure on the face of the return, we find that respondent has not carried his heavy burden of proving, by clear and convincing
evidence, that the underpayment of tax required to be shown on the return was attributable to fraud. However, because the value claimed on
the return ($115,391,000) grotesquely exceeded the value of the easement ($175,824), North Donald is liable for the 40% gross valuation misstatement penalty. See § 6662(a), (h). We hold that it is also liable for
a 20% penalty on the portion of the underpayment attributable to the
disallowed “other deductions.”
FINDINGS OF FACT
The following facts are derived from the pleadings, five Stipulations of Facts with attached Exhibits, numerous Trial Exhibits, and the
testimony of fact and expert witnesses admitted into evidence at trial.
North Donald is a Missouri limited liability company (LLC) classified as
a TEFRA partnership for its taxable year ending December 31, 2017. 2
Petitioner North Donald LA Investors, LLC (North Donald Investors),
is its tax matters partner (TMP). North Donald had its principal place
of business in Missouri when the Petition was timely filed. Absent stipulation to the contrary, appeal of this case would appear to lie to the
U.S. Court of Appeals for the Eighth Circuit. See § 7482(b)(1)(A).
I.

The Donald Farm

Jefferson Davis Parish (Parish) is in southwest Louisiana not far
from the Texas border. The Parish had a population of about 32,000 in
2020. Jennings, the parish seat, had roughly 11,000 residents. Welsh,
the next-largest town, had about 2,300 residents. Both are about 140
miles from New Orleans.
Beginning in the 1950s the Donald family began acquiring farmland about six miles south of Welsh. Their property eventually
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and Rule references are to the Tax Court Rules of Practice and Procedure. We round
most monetary amounts to the nearest dollar.
2 Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, governed the tax treatment and audit process for many partnerships, including North Donald.

4
[*4] encompassed 3,324 acres and became known as the Donald Farm.
The property is typical of coastal Louisiana, consisting of low-lying fields
and wetlands. The highest point on the property is five feet above sea
level.
For decades, the acreage constituting the Donald Farm has been
used for farming soybeans, crawfish, and rice. From 1973 through 2016
the Donald family farmed the land in what amounted to a joint venture
with the family of Roger Benoit. The Donald family owned the land, the
Benoit family supplied the agricultural labor, and each family contributed a portion of the required materials (such as seeds and fertilizer).
In recent years David Donald managed the farm for his family.
As the farm manager David knew that a great deal of clay underlay their property and nearby agricultural land. The family’s original
plan was to try growing soybeans and rice. They found that soybeans
fared poorly because the clay was close to the surface and hindered the
development of root systems. But the heavy base of clay was useful for
rice farming because it helped keep the paddies full of water. The families would alternate growing rice with farming crawfish, which would
feed on the stubble after the rice had been harvested. Again the clay
soil was useful because the crawfish needed surface water.
Growing rice and farming crawfish required that the property be
seasonally flooded. To keep the land flooded, the Benoits used clay from
the property to build canals through which water could be pumped from
the adjoining wetlands. Other landowners in the area, when needing
clay for agricultural purposes, likewise used clay from their own land.
David knew of no commercial source for clay anywhere in the Parish.
He did not find that surprising, because he thought there was no market
for it: Most people who needed clay already had it.
The Donalds were a prominent family in the Parish, and David
and his brother Dan were sophisticated businessmen. Apart from their
landholdings, they served on the board of a local bank and owned a car
dealership in Jennings. Had they believed the Donald Farm could be
economically exploited as a clay mine, they had the financial resources
to commission exploratory drilling, as they had previously done for oil
and gas on the property. When asked at trial why they did not explore
for clay, David Donald said, in effect, “We knew we had plenty of clay.”
Mr. Benoit echoed his observation: “Everybody knows there’s clay in
that part of the country . . . You don’t have to go far to find clay.”

5
[*5] II.

Enter Sixty West

Sixty West, LLC (Sixty West), is an entity headquartered in Dexter, Missouri. Describing its business as “helping our clients reduce
their tax liability,” it specialized in transactions that offered tax credits
and other tax benefits to investors. Its corporate slogan was “[i]nvesting
in your own tax liability is good business.”
Sixty West began offering SCE transactions in 2016, discharging
functions commonly regarded as being performed by a “promoter.” 3 The
principals responsible for its SCE business were Matt Mills and Steve
Holden; Mr. Mills appears to have been the chief decisionmaker. Sixty
West conducted its SCE business through a subsidiary called Legacy
Land Holdings, LLC. For simplicity, we will sometimes use the term
“Sixty West” to refer to the parent company and its subsidiaries.
Sheryl Manuel is a real estate broker in Jennings. She has been
a licensed real estate agent since 2009, concentrating her practice in the
Parish. In early 2016 she informed David Donald that Sixty West was
interested in buying the Donald Farm. She introduced the Donald
brothers to Steve Lacy, who worked for Sixty West. Mr. Lacy functioned
as Sixty West’s principal “boots on the ground” in the Parish.
On behalf of Sixty West, Mr. Lacy offered to buy the Donald Farm
for $2,975 per acre. Ms. Manuel said she was “pretty impressed” with
this offer. She explained that the price for agricultural property in the
Parish was quite stable from 2015 through 2020, climbing only “a little
bit” during that period. She listed a dozen factors that affect the prices
paid for land in the Parish. The factors she listed did not include the
presence of clay.
The Donalds asked an appraiser to pull together a market study
of sale prices for land in the Parish. Those prices ranged from $2,200 to
$2,700 per acre. Concluding that the offering price of $2,975 per acre
was generous, the Donald family decided to consummate the sale, retaining subsurface oil and gas rights. On March 23, 2016, they sold the
3,324-acre farm to the Reserve at Welsh, LLC (Reserve at Welsh), an

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

6
[*6] entity controlled by Sixty West, for roughly $9,888,000, or $2,975
per acre.
Reserve at Welsh financed its purchase of the Donald Farm with
a loan from Sterling Bank. Steve Holden, one of Sixty West’s principals,
was a cofounder of Sterling Bank. In connection with this loan the bank
secured a fair market value (FMV) appraisal from Aaron Bunting.
Mr. Bunting’s assignment was to determine the price a willing
buyer would pay a willing seller for the property, both having reasonable
knowledge of relevant facts and neither being under any compulsion to
buy or sell. Concluding that the property’s HBU was agricultural, Mr.
Bunting determined, using comparable sales, that the FMV of the 3,324acre tract was $10,294,428, or roughly $3,097 per acre. When asked at
trial why he believed that agricultural use was the property’s HBU, he
said that he “didn’t see any influences around it . . . to be other than ag
land.”
Reserve at Welsh later refinanced a portion of the Sterling Bank
loan with a mortgage loan from First Guaranty Bank. In connection
with this loan, that bank secured an appraisal from T. Scott Davis, an
appraiser from Southern Skies Appraisal Service. Mr. Davis had decades of experience valuing real property in Louisiana, typically performing 10 to 15 property appraisals in the Parish annually.
Mr. Davis’s appraisal, dated July 25, 2017, covered 2,378 acres
(or 72%) of the Donald Farm. He concluded that the HBU of this acreage
was agricultural and determined its FMV using comparable sales of agricultural land. On that basis he concluded a value of $6,658,500, or
$2,800 per acre, for the 2,378-acre parcel.
Working through Mr. Lacy, entities affiliated with Sixty West acquired during 2016 two other farms in the Parish—the Houssier Farm
and the Theriot Farm (sometimes called the Watkins Farm). Sixty West
paid $3,000 per acre for the Houssier Farm, which comprised roughly
2,000 acres adjacent to the Donald Farm. Sixty West paid $2,850 per
acre for the Theriot Farm, an 800-acre tract that Ms. Manuel described
as being “a little bit further up the road” from the Donald Farm.
III.

Reimagining Clay

Sixty West planned to use the acreage within the Donald Farm,
the Houssier Farm, and the Theriot Farm for SCE transactions. For
each transaction Sixty West would allege that the HBU of the property

7
[*7] before placement of the easement was clay mining. Sixty West ultimately sponsored or co-sponsored 13 SCE transactions involving land
carved from the Donald Farm. For charitable contribution purposes, the
aggregate value that the 13 partnerships placed on that land was
$989,105,000—100 times the March 2016 purchase price for the 3,324
acres ($9,888,000). The configuration of the 13 parcels carved from the
Donald Farm is shown below:

For the initial SCE transaction, Sixty West intended to use a
1,019-acre parcel carved from the Donald Farm. In March 2017—before
any exploratory drilling had been done—Scott Moore, a consultant to
Sixty West, estimated that a conservation easement on the 1,019-acre
parcel could be valued at $233 million, or roughly $233,000 per acre. He
presupposed that the land would be appraised using the “royalty income
method.” This appraisal method hypothesizes that the landowner would
lease the land to a mine operator and determines its “before value” by
calculating the discounted present value of the royalty income the

8
[*8] landowner might receive from the operator. Mr. Moore assumed
that the landowner would receive a royalty of $10 per ton for the clay. 4
Addressing the capital to be raised from investors, Mr. Moore assumed a “4.5:1 ratio.” In other words, he assumed that investors in the
SCE transaction would be offered a charitable contribution tax deduction of $4.50 for every dollar invested. He indicated that the offering
could thus raise “+/−$52 million” from investors ($233 million ÷ 4.5 =
$51.8 million). After Mr. Mills indicated that “[w]e have to go way
smaller on these [capital] raises,” Mr. Moore reduced his value estimate
for the 1,019-acre parcel to $100.3 million.
As of March 2017 Mr. Mills had decided that the royalty income
method would be used to determine the “before value” of the parcels on
which conservation easements would be placed. Mr. Mills regarded this
method as attractive because it had few moving parts. In his view there
were just three main variables—the price per ton, how many tons would
be purchased, and how quickly those tons would be purchased.
In an email to Mr. Moore in March 2017 Mr. Mills stated: “If we
have a royalty deal we don’t have hardly any work to do because the
royalty contract will outline the amount they’ll buy per year. Royalty is
a very clean way to go from a CE [conservation easement] standpoint.”
Mr. Moore replied: “I like the idea of using the royalty value for this
deal.” While agreeing that “the royalty value will be more than sufficient,” Mr. Moore noted that “we will need documentation from the
group willing to pay the royalties regarding their process and timing.”
In May 2017 Mr. Mills told Messrs. Moore and Holden: “We need to do
Royalty even if we have to leave money on the table.”
IV.

Exploratory Drilling on the Donald Farm

Reserve at Welsh retained Diversified Enviro Products and Services (DEPS) to do exploratory drilling on the Donald Farm. DEPS initially took soil borings to a depth of 10 feet. On the basis of these borings—and nothing else—Mr. Moore in May 2017 predicted that a

4 The expert and fact witnesses who testified at trial sometimes quoted prices
for clay per cubic yard, sometimes per ton. The exact relationship between the two
forms of pricing will depend on the water content of the clay and on whether it is “loose”
or “compressed.” As a rule of thumb, industry participants generally regard a cubic
yard of compressed clay as weighing about one ton. In this Opinion we will treat the
price per ton and the price per cubic yard as being roughly equivalent.

9
[*9] conservation easement on an 800-acre parcel carved from the Donald Farm could be valued at $38.4 million.
Mr. Moore explained to Messrs. Holden and Mills that they would
“be into the water table at 12’ to 15’, so any soil removal below that point
will become problematic.” In April 2017 Mr. Moore asked DEPS to drill
soil borings down to 50 feet. DEPS then solicited a bid from TolunayWong Engineers (TWE) to perform a soil evaluation study.
TWE was informed that the property was being considered for
development as a 200-acre “clay borrow pit.” A “borrow pit” refers to
any form of mining in which earthen material (e.g., clay, dirt, sand, or
gravel) is taken (“borrowed”) from one location for use at another location.
TWE was told that the clay from the hypothetical borrow pit was
proposed for use in levee construction projects undertaken by the U.S.
Army Corps of Engineers (USACE) to enhance hurricane flood protection along the Louisiana coast. TWE was initially informed that the
borrow pit was expected to be 45 feet deep and that bore drillings up to
50 feet would be required. It was asked to assess whether the clay on
the property would meet USACE standards for use in levee projects.
In its final report dated June 17, 2017, TWE noted that the sediments in the Parish and surrounding areas were deposited largely during the Pleistocene Epoch, a period that included the last ice age and
ended about 11,700 years ago. Sediments in “Pleistocene terraces,”
TWE explained, are encountered at or near the ground surface and “are
similar in depositional composition in that they were deposited by systems of coalescing fluvial and deltaic systems.” The soils in Pleistocene
terraces are typically “light gray to light brown clay, sandy clay, silt,
sand and some gravel.” This type of soil is pervasive in the Parish and
elsewhere in coastal Louisiana.
TWE drilled 23 soil borings to assess the “subsurface soil and
groundwater conditions” on the 1,019-acre parcel. Seven of these borings were on land within the North Donald Tract. TWE drilled 9 borings
to a 30-foot depth and 14 borings to a 50-foot depth.
At Sixty West’s request, 5 of the 50-foot borings were later extended to a 100-foot depth, “with limited sample analysis to control cost.”
As DEPS explained in an August 2017 email, the decision to drill borings
down to 100 feet was made to “give more credence for Edmundo
[Laporte] . . . to support the projected valuations.” Mr. Laporte had been

10
[*10] retained to perform mining feasibility studies for hypothetical clay
borrow pit operations on properties carved from the Donald Farm.
After performing a laboratory analysis of the borehole samples,
TWE concluded that “average soil properties within the upper 80-ft
depth appear to conform to USACE Clay Specification requirements” for
plasticity, sand content, organic content, and soil salinity. TWE also
analyzed the groundwater content of the soil. During its investigation
TWE encountered groundwater at depths ranging from 0.0 feet (the surface level) to 17.8 feet. “[The] in-situ moisture content of the soil samples ranged from 12.0% to 57.3%, with an average of 27.6%.” TWE accordingly recommended that “borrow source considerations such as existing groundwater levels, in-situ soil moisture contents, [and] moisturedensity relationships . . . within a proposed borrow depth should be evaluated.” Patrick Kenney, a co-author of the TWE report, stated that
Sixty West never followed up on this recommendation.
V.

Enter EvrSource

Matthew Campbell began promoting SCE transactions in 2010 or
earlier. He initially used EvrGreen Management, EvrGreen Capital,
and related entities for this purpose. Mr. Campbell and his entities had
sponsored roughly 50 SCE deals as of 2016.
The EvrGreen entities were eventually replaced by EvrSource
Capital, LLC (EvrSource). Mr. Campbell and Mark Pickett were its
original owners, but in 2016 they brought in Eugene “Chip” Pearson as
a 1% member. During the ensuing three years Messrs. Campbell and
Pickett gradually transitioned ownership of EvrSource to Mr. Pearson.
In early 2017 EvrSource commenced plans for an SCE transaction
involving a tract of land (Diaz property) in St. Bernard’s Parish, near
New Orleans. They intended that this would be a “clay deal,” i.e., that
the property’s alleged HBU before placement of the easement would be
as a clay borrow pit. The Diaz property was “right next to” the levees
that were being repaired by USACE after Hurricane Katrina, which had
devastated New Orleans 12 years previously.
EvrSource engaged Atlantic Coast Conservancy (ACC) to serve as
the land trust and Sequence Financial (Sequence) to serve as the managing broker-dealer for an SCE offering on the Diaz property. It engaged
Claud Clark III to do the appraisal and Edmundo Laporte to perform a
mining feasibility study. In due course Mr. Laporte prepared a feasibility study that valued the Diaz property at $163 million to $212

11
[*11] million, assuming as its HBU a hypothetical clay borrow pit operation.
A problem arose with the Diaz transaction when EvrSource discovered an outstanding judgment lien against that property. Facing a
likely gap in its 2017 syndication schedule, EvrSource looked for a replacement transaction. Mr. Campbell had met Mr. Mills earlier in 2017
and knew that the latter was considering a clay deal for the Donald
Farm property. Mr. Campbell contacted him and said that EvrSource
had a “clay team” ready to go—viz., Mr. Laporte, Mr. Clark, and ACC.
Mr. Campbell suggested that they collaborate on an SCE transaction,
and Mr. Mills agreed to this plan.
On June 7, 2017, Mr. Mills forwarded to EvrSource Mr. Moore’s
$100.3 million value estimate for the 1,019-acre tract proposed to be
carved from the Donald Farm. See supra p. 8. Mr. Mills described this
estimate as “[c]onservative numbers for Louisiana.” In response Mr.
Campbell introduced Mr. Mills to Mr. Laporte, recommending him as a
plausible candidate for preparing the mining feasibility study.
Six days later Mr. Moore informed Mr. Laporte: “We are confident that the testing will show that we have clay on the property that is
capable of being certified to [meet] USACE standards for levee construction in Louisiana.” One week later, before receiving any technical information about the Donald Farm, Mr. Laporte indicated during a meeting
with Sixty West that “we should be able to get the valuation up to $150M
and possibly better.”
Sixty West engaged Mr. Laporte on June 23, 2017. In executing
the engagement letter Mr. Laporte indicated that he would analyze the
Donald Farm property and “demonstrate that it is suitable for the development of a clay mining operation.” He indicated that “[i]t will be the
same type of detailed document that we have prepared for Matt Campbell in the past.” That statement referred to the mining feasibility study
Mr. Laporte had prepared earlier in 2017 for the Diaz property, which
he valued as high as $212 million as a hypothetical clay borrow pit.
Shortly after engaging Mr. Laporte, Sixty West approached Mr.
Clark about preparing appraisals for the conservation easements proposed for the Donald Farm acreage. By email dated August 4, 2017, Mr.
Clark informed Mr. Mills: “I am charging the guys on the other clay project [viz., the Diaz property] $100,000 for a royalty method [appraisal].”

12
[*12] By letter dated September 19, 2017, Mr. Clark was engaged by
Sixty West for a fixed appraisal fee of $100,000.
VI.

Carving Off the North Donald Tract

Sixty West initially hired Mr. Laporte to perform a feasibility
study for a clay borrow pit on a 1,019-acre parcel proposed to be carved
from the Donald Farm. But on July 12, 2017, Mr. Mills asked Mr.
Laporte to recommend a way to “split [this] tract into 3 separate clay
pits.” Mr. Laporte replied that doing this would “reduce the total volume
of clay to be extracted.” Mr. Mills expressed no concern on that front,
explaining that he “need[ed] to look at it from a total [capital] raise
standpoint.” This explanation appears to mean that Mr. Mills believed
it would be easier to raise money from investors in several smaller SCE
offerings than in one large SCE offering.
Mr. Laporte initially advised against planning multiple clay
mines on multiple tracts in the same vicinity “because we would cause
a market saturation.” But he later changed his mind. “We build a firewall between each one of these projects,” he explained, “as if we were
looking at each one of them with fresh eyes.”
Six days later, on July 18, 2017, Mr. Laporte sent Mr. Mills “rough
estimates” of values for the 1,019-acre parcel, which was now proposed
to be divided into 4 tracts, each with a supposed HBU as a clay borrow
pit. Mr. Laporte observed that a 4-tract scenario “would give more palatable project sizes.” He determined an aggregate value of $588.4 million for the four tracts, with individual tract values ranging from $142.7
million to $151.1 million.
Tract #4, comprising 260.48 acres, would become the North Donald Tract. Mr. Laporte’s initial “rough estimate” was that the North
Donald Tract could be valued at $142.8 million, or $536,842 an acre, if
used as a clay borrow pit. Messrs. Campbell and Mills agreed to collaborate on an SCE transaction using this tract, with Sixty West (via Reserve at Welsh) serving as the landowner and EvrSource as the “sponsor.”
VII.

Zoning Matters

A “police jury” serves as the zoning board for the Parish. A landowner desiring to change the zoning classification of his property must
submit an application to the police jury, which would hold a public hearing. To notify the public, Parish staff would post signs on the property

13
[*13] and advertisements in the Jennings newspaper. At the hearing
the applicant would present evidence in support of rezoning, and members of the public could express their support or opposition. The police
jury would vote to approve or disapprove the rezoning application; in the
latter case the applicant had a right of judicial appeal.
The North Donald Tract, like the rest of the 3,324-acre Donald
Farm, was zoned A–1 Agricultural. To be used as a clay borrow pit, the
land would need to be rezoned to an Industrial classification. Sixty West
did not submit a rezoning application to the Parish, and it took no steps
toward commencing the rezoning process. Rather, its efforts in this direction consisted of soliciting two letters.
By letter dated September 13, 2017, David Bruchhaus, the general counsel to the police jury, replied to a question about rezoning posed
by a Sixty West representative. His letter indicated that, “if your clients
are going to create a bar-pit or extract dirt and/or clay to sell or transfer
commercially, then they will be required to rezone to I–2 through the
normal process.” At the time, Mr. Bruchhaus knew that Sixty West had
not submitted a rezoning application. At trial he explained that, in
drafting his letter, he was “just detailing what the procedure was.”
Mr. Bruchhaus’s letter noted that “recently dirt pits have been
properly rezoned . . . and approved by the zoning commission,” observing
that these were applications “without opposition.” At trial he noted that
the other borrow pits ranged from “several acres to many acres,” but
that they were mostly being exploited on a “dig as you go basis.”
Mr. Bruchhaus’s letter did not address the possibility of rezoning
the North Donald Tract specifically. Indeed, when drafting his letter,
he did not know what acreage Sixty West had in mind, only that it was
agricultural land. His letter concluded: “Of course all applications are
judged on their own merits.” Mr. Bruchhaus included this sentence in
his letter to ensure that its recipient understood “that this was not just
going to be an application that was automatically done.”
In September 2017 Sixty West was represented by Morris, Manning, & Martin, LLP (Morris firm), an Atlanta law firm that handled
many SCE deals. The Morris firm evidently expressed some concern
that the Bruchhaus letter, by itself, did not establish that rezoning of
the North Donald Tract was “reasonably probable.” Despite “numerous
conversations” initiated by Sixty West, Mr. Bruchhaus was unwilling to
include the word “probable” in his letter.

14
[*14] Mr. Holden, one of Sixty West’s managers, accordingly solicited a
letter from Kevin Millican, its local attorney in the Parish. Mr. Holden
asked Mr. Campbell: “[I]f I have [Mr.] Millican add the zoning on his
letterhead should it say likely, more likely than not, or something else?”
Mr. Campbell replied: “Any or all really.” Mr. Millican later invested
$40,000 in the North Donald SCE transaction and was allocated a charitable contribution tax deduction of $600,000.
By letter dated October 12, 2017, Mr. Millican stated that he had
“been asked to expand on the letter previously provided by David Bruchhaus, as to the requirements for a dirt or bar pit here in Jefferson Davis
Parish.” “Based on my experience as a local practitioner,” he said, “zoning requests of this nature are commonly granted, especially when there
is no opposition from adjacent property owners.” Because the rest of the
Donald Farm was owned by Reserve at Welsh, Mr. Millican surmised
that “there will be no opposition from adjacent property owners.”
Mr. Millican concluded his letter by stating: “[I]t is my professional opinion that should an application for re-zoning be submitted . . .
for the subject property, it is more probable than not that the request
would be granted.” Mr. Millican adduced no evidence or analysis to support his opinion. Mr. Bruchhaus credibly testified at trial that “Mr. Millican had nothing to do with the Police Jury.”
Sixty West supplied the Bruchhaus and Millican letters to Mr.
Laporte (for use in his mining feasibility study) and to Mr. Clark (for use
in his appraisal). These two letters were the only evidence cited by
Messrs. Laporte and Clark to support their conclusions that operation
of a clay mine on the North Donald Tract would be legally permissible.
At trial petitioner offered no testimony from any member of the
police jury (or other Parish official) about the likelihood that the North
Donald Tract, which consisted mostly of wetlands, would be approved
for rezoning to industrial use. Petitioner presented no testimony from
any local residents on this subject. The only member of the community
to address this point—Mr. Benoit, whose family farmed the North Donald property—credibly testified that he would have opposed rezoning of
the farm to permit its use as a clay borrow pit.
Bradley Drouant, who has worked for USACE in New Orleans for
almost 20 years, testified very credibly at trial. In his experience, it was
“not uncommon” for local communities to oppose the creation of clay borrow pits. As he explained: “Sometimes they don’t want to have an empty

15
[*15] hole that fills up with water left over after material was removed.
They don’t want the traffic that can be associated with 50 or more trucks
[coming] out of a borrow pit every day,” which can “release debris” and
leave “clay on the roads.” “A lot of times,” he said, “they’ll engage their
local government representatives and try to stop pits from getting the
proper permits or zoning that are required to operate.”
VIII. Wetlands and Permitting
As early as April 2017 Reserve at Welsh had been informed that
converting the Donald Farm into 13 clay borrow pits could be complicated because “the entire tract can, for the most part, be considered wetlands.” DEPS advised that “site activities would be subject to the full
guidelines, responsibilities and parameters” specified in the Clean Water Act and “the appropriate [USACE] Construction Permitting Process.”
In July 2017 Reserve at Welsh submitted to USACE a request for
a “wetlands jurisdictional determination” for roughly 1,200 acres of the
Donald Farm, including the North Donald Tract. A “jurisdictional determination” is a determination by USACE as to whether “waters of the
United States” (actual or potential) lie on the property. If so, a prospective operator must apply to USACE for a permit before commencing any
work that might affect the property’s aquatic resources.
In evaluating permit applications USACE generally seeks to determine the alternative that is the “least environmentally damaging,”
i.e., the least disruptive to aquatic resources. If there are unavoidable
adverse impacts on wetlands, a prospective mine operator would need
to purchase “mitigation credits” from a wetlands mitigation bank. Mitigation credits could cost anywhere from $15,000 to $270,000 an acre.
As Mr. Drouant from USACE explained, the New Orleans District
generally avoids sourcing clay from wetlands, both because of the adverse environmental impact and because the cost of purchasing mitigation credits makes the borrow pit uneconomical. Given the ready availability of clay all along the Louisiana coast, he explained that “[i]t’s easier to find somewhere else nearby that’s not wetlands.” Although
USACE has occasionally granted permits for borrow pits in wetlands,
“the large majority” are in non-wetlands areas because USACE seeks to
“utilize non-wetlands as much as possible whenever [it is] evaluating
any project, let alone a borrow [pit] project.”

16
[*16] USACE did not issue a final “jurisdictional determination” until
July 2018. In that document it identified nearly all of the North Donald
Tract as wetlands subject to USACE jurisdiction.
IX.

USACE Levee Projects

On its website USACE publishes lists of projects that need clay
for levee construction. A prospective supplier must file a “technical submittal” that includes a wetlands jurisdictional determination, any required mitigation plan, and a demonstration that the borrow site has
clay suitable for levee construction.
Given the high cost of transporting clay, most borrow pits that
supply clay for USACE levee projects are within 10 to 20 miles of the
project site. Thirty feet is the typical depth of borrow pits that supply
clay for USACE projects. Digging deeper intensifies water infiltration,
which increases costs and may render the clay unsuitable for levee construction.
In the wake of Hurricane Katrina, most USACE levee construction occurred fairly close to New Orleans, 140 miles from the Parish.
Finding clay that meets USACE standards for levee construction clay
“is not exceedingly difficult,” as Mr. Drouant testified at trial. That is
especially so in rural parishes near New Orleans that have “more undeveloped property.”
X.

Draft Mining Feasibility Study

On August 9, 2017, Mr. Mills informed Mr. Laporte that
EvrSource would “be taking over this [SCE] deal as the sponsor.” On
August 18 Mr. Laporte circulated the first draft of his feasibility study.
As previously agreed with Sixty West, he evaluated the feasibility of clay
mining on the North Donald Tract using the royalty income method.
Employing that method, Mr. Laporte valued the North Donald
Tract at $151.23 million. Mr. Mills’s reaction to that figure was “151 mil
wow.” Or as he put it in an email to the other promoters: “I kinda feel
like Jed Clampett on this clay ground.” (Jed Clampett was a character
in The Beverly Hillbillies, a 1960s situation comedy about a family that
struck oil on their backwoods farm.)
Mr. Laporte noted that “several areas that are considered wetlands were identified within the property” and that a wetlands delineation was then being considered by USACE. Mr. Laporte assumed that

17
[*17] North Donald would be able to purchase “wetlands compensatory
mitigation credits” to allow a clay borrow pit on the North Donald Tract.
His valuation assumed that the cost of purchasing such credits would be
$17.95 million.
Mr. Laporte appears to have had no information about prevailing
prices for clay in Jefferson Davis Parish and the surrounding area. In
his first draft he used the same “tonnage price comps” he had used earlier that year in his clay feasibility study for the Diaz property near New
Orleans. Mr. Campbell informed Sixty West that Mr. Laporte “would
like to see more local or at least some local comps used.”
To fill this gap Sixty West tapped Chris Nobles, who worked with
Mr. Lacy as a second pair of “boots on the ground” in Louisiana. Mr.
Nobles agreed to solicit, from two truckers he knew, letters purporting
to express interest in purchasing clay from Reserve at Welsh. The letters were drafted by Steve Holden (or another person affiliated with
Sixty West). The letters were delivered to Mr. Nobles by Ryan Holden
(Steve Holden’s son) together with a check for $30,000, to be used as
needed to secure the desired signatures.
The first letter was prepared for signature by C.J. Lejeune, who
owned a small trucking company. Mr. Lejeune was Mr. Nobles’s fatherin-law. The letter is undated and is addressed to “Steve Holden c/o The
Reserve at Welsh.” It states the “intent of Lejeune Trucking LLC to
purchase [USACE] suitable borrow clay for levee repair and construction in Southwest Louisiana.” “The agreed upon price” was said to be
“$5.15 [per ton] for depths 0–20 feet, $4.65 [per ton] for depths 20-50
[feet], and $3.75 [per ton] for clay deeper than 50 feet.”
Mr. Nobles took this letter to Mr. Lejeune and asked him to sign
it. He signed it, and Mr. Nobles later gave him $10,000 for doing so. At
trial Mr. Lejeune testified that he had only two trucks and only one other
driver. He admitted that he “wouldn’t tackle something like” the tonnage volumes Mr. Laporte projected for the hypothetical North Donald
borrow pit.
The second letter was prepared for signature by Samuel Papillion,
a good friend of Mr. Nobles, who also owned a small trucking company.
This letter is dated September 1, 2017, and is addressed to “The Reserve
at Welsh, LLC c/o Steve Holden.” It states that “Papillion Trucking Co.
is interested in purchasing [USACE] suitable borrow clay for levee construction in Southwest Louisiana.” While stating that “[t]his letter is

18
[*18] not a guarantee to purchase clay from The Reserve at Welsh,” it
recites that “[w]e will pay you $4.72 per ton of suitable clay.”
Mr. Nobles took this letter to Mr. Papillion and asked him to sign
it, which he did. Mr. Papillion credibly testified that he owned six dump
trucks at most, that he employed only two drivers, that he did not know
who Mr. Holden was, that he knew nothing about Reserve at Welsh, and
that he had engaged in no negotiation over the purchase price for clay.
He credibly testified that he had signed the letter as a favor to Mr. Nobles and that he was not paid anything for doing so. Mr. Nobles had
originally anticipated paying Mr. Papillion for signing the letter, but he
could find no banking records evidencing such a payment.
On September 13, 2017, Mr. Laporte circulated a revised draft of
his feasibility study that relied on “the 2 letters of intent we got for this
specific project.” In this version he presented a range of results in table
form, assuming royalty rates for clay between $4.00 and $5.00 per ton
and discount rates between 5.5% and 7.5% (to be used in discounting
estimated future royalties to present value). He generated values between $105 million and $153 million for the North Donald Tract, depending on the royalty and discount rates used. Employing an “average
royalty rate of $4.67/ton” and Sixty West’s preferred discount rate of
6.5%, he informed Messrs. Campbell and Mills that “we are talking
about $131.63 million,” which meant “we are in good shape.”
Sixty West forwarded Mr. Laporte’s revised draft to Mr. Clark,
who was traveling in Italy. He directed two of his analysts to cut and
paste relevant portions of the Laporte study into an appraisal template.
Mr. Clark had previously received a copy of the Bunting appraisal, and
he copied maps from the Bunting appraisal into his own. In determining
the “after value” of the North Donald Tract, Mr. Clark’s appraisal cited
the same comparable sales Mr. Bunting had used. But he ignored Mr.
Bunting’s conclusion, based on comparable sales, that the “before value”
of the property was only $3,097 per acre. See supra p. 6.
On September 27, 2017, Mr. Clark’s analysts produced a draft appraisal valuing a conservation easement on the North Donald Tract at
$115,391,000. Mr. Clark finalized that appraisal in March 2018. See
infra p. 26. Mr. Noble approached Mr. Clark to prepare similar appraisals for conservation easements on other properties carved from the

19
[*19] Donald Farm, each of which was assumed to have as its HBU the
operation of a clay borrow pit. 5
XI.

The Coastal King Clay Mine

In mid-2016 an entity owned by Mr. Lacy—Sixty West’s principal
“boots on the ground” in the Parish—acquired 235 acres for development
as a commercial borrow pit called Coastal King Clay. This property was
located several miles from the Donald Farm. In theory at least, this
property was better suited than the North Donald Tract for use as a clay
borrow pit because, according to a DEPS employee, it was “better situated, dry, and more cost effective.” The purchase price was $5,250 per
acre.
Sixty West acquired this property for two reasons. First, as Mr.
Mills explained, “it would sure be awesome to have an operating mine
in [our] portfolio for IRS purposes.” In other words, he thought it might
be useful to have a “show mine” in the neighborhood to lend support to
Sixty West’s position that clay mining in the Parish was commercially
feasible. Second, he believed that a nearby mine might help convince
skittish investors that Sixty West’s easement valuations were plausible.
Sixty West hired Mitch Mertens to run the Coastal King Clay
mine. Mr. Mertens credibly testified that the mine consistently lost
money. Although he “scoured” USACE’s listings, he found no USACE
levee projects on which to bid. There were only a few small levee projects
in the immediate area, and the necessary clay could be sourced on site.
Mr. Benoit, who farmed the North Donald Tract, saw “very few” trucks
leave the Coastal King Clay site, commenting that “it didn’t look like
much clay left the pit.” Sixty West dug the pit only to a 20-foot depth—
the reach of the excavator—whereas the putative mine on the North
Donald Tract was supposedly going to be 100 feet deep. Sixty West
never made a profit on the mine; by 2022, sales appear to have stopped
because of lack of demand.
5 SCE cases involving at least seven adjoining properties have been docketed
in this Court; some had appraisals completed by Mr. Clark. See The Reserve at Welsh,
LLC v. Commissioner, No. 16443-23 (T.C. filed Oct. 18, 2023); Olivian Holdings, LLC
v. Commissioner, 17137-23 (T.C. filed Oct. 30, 2023); Abili Props., LLC v. Commissioner, No. 17241-23 (T.C. filed Nov. 1, 2023); TYZ Props., LLC v. Commissioner, No.
17490-23 (T.C. filed Nov. 6, 2023); Barlan Props., LLC v. Commissioner, No. 19227-23
(T.C. filed Dec. 6, 2023); Niblett Farms, LLC v. Commissioner, No. 5998-24 (T.C. filed
Apr. 16, 2024); Norcave Props., LLC v. Commissioner, No. 4753-25 (T.C. filed Apr. 14,
2025).

20
[*20] XII.

Structuring the SCE Transaction

The promoters recommended an ownership structure common to
many SCE transactions. A property company or PropCo would be
formed, and Reserve at Welsh would transfer the North Donald Tract to
the PropCo in exchange for partnership units in it. An investment company or InvestCo would be formed to raise funds from investors and use
that money to purchase the PropCo units held by Reserve at Welsh.
PropCo, now owned largely by InvestCo, would place a conservation
easement on the property. The investors would then receive, through
InvestCo, pro rata shares of the tax deduction that PropCo claimed for
the easement.
North Donald was organized as the PropCo in August 2017 to hold
the North Donald Tract. When initially organized it was owned 99% by
Reserve at Welsh and 1% by a Sixty West affiliate. On August 17, 2017,
EvrSource organized North Donald Investors to serve as the InvestCo.
Its role was to “raise the capital to buy a majority interest in the property.” North Donald Investors was initially owned 100% by EvrSource
and its principals, and EvrSource was its original manager and TMP.
At the outset, the “minimum capital raise” for North Donald Investors was intended to be between $19.4 and $20.3 million, depending
on whether a 4.7 or a 4.5 deduction-to-investment ratio was offered to
investors. This presupposed that investors would put up enough cash
to acquire 79.2% of North Donald. Assuming that a 4.5 ratio was offered,
the minimum capital raise was calculated by taking Mr. Clark’s valuation of the easement ($115,391,000), multiplying by 0.792, and dividing
by 4.5. That is: $115,391,000 × 0.792 ÷ 4.5 = $20.3 million.
EvrSource assembled a “subscription booklet” for distribution to
investors. As in many SCE deals, this document posited three possible
scenarios for the North Donald Tract: (1) the development option (convert the property into clay mining operation); (2) the investment option
(hold the land for future disposition); and (3) the conservation option
(put a conservation easement on the property). If the development option were chosen, investors were informed that “the rights associated
with clay mining will be leased to an operator and PropCo will receive a
royalty stream of income from such lease.” Investors were advised that
“significant additional funding” above the initial capital raise would be
required to implement the development option.

21
[*21] The promoters retained the Morris firm to provide a tax opinion
for the North Donald SCE deal. That document, dated October 16, 2017,
offered no opinion as to the appropriateness of Mr. Clark’s valuation
methodology or conclusions. Rather, the firm’s review was limited to
technical compliance, i.e., “mak[ing] sure [the appraisal] has all the requisite statements and information that are required by the Code.”
The promoters retained Mick Law, P.C. (Mick Law), to provide
what they described as a “due diligence” opinion for the North Donald
transaction. Sixty West had retained Mick Law to prepare similar documents for 9 other SCE transactions it promoted. Mick Law did not
opine on valuation and did not review Mr. Clark’s valuation conclusions.
Mick Law observed that Mr. Laporte’s feasibility study “does not
provide information as to how much clay is already being supplied by
present operations within the [relevant local] market.” Mr. Laporte’s
study likewise identified no “clay operator prospects”—that is, companies that might agree to pay a royalty to mine the property—and stated
that North Donald’s “ability to procure such prospects is unknown.” The
opinion acknowledged that $17.95 million of “development capital”
would be needed to pursue the development option, owing to the need to
purchase wetlands mitigation credits. It characterized the source of the
needed capital as “not certain.”
EvrSource hired Sequence—the broker-dealer it had planned to
use for the Diaz SCE offering—to sell the deal to investors. Sequence
had handled many SCE deals previously. According to its managing
directors, deduction-to-investment ratios between 4:1 and 5:1 were typical for such offerings. The ratio “was everything” to an SCE deal because it set the investors’ return on their investment. EvrSource ultimately marketed the North Donald offering as a “clay royalty deal in
Louisiana at 4.7,” i.e., a deal in which investors would be allocated a
charitable contribution tax deduction of $4.70 for every $1.00 invested.
The promoters informed prospective investors that the North
Donald deal would include an “audit insurance option.” If investors selected this option, the partnership would purchase a tax liability insurance policy. This insurance would be “put in place to protect investors
in case the IRS audited and won in tax court. If [the IRS] disallowed or
lowered the valuation to a certain level that investors lost their principal[,] the insurance kicks in.” Evidently referring to the 3-year period
of limitations specified by section 6501(a), the insurance agent

22
[*22] recommended this policy so the managers could “sleep for the next
three years.” Sixty West made the arrangements to acquire the policy.
XIII. Closing the Deal
Dozens of other SCE deals were closing at year-end 2017. Hoping
to enable the North Donald deal to achieve its targeted capital raise of
$20.3 million, EvrSource switched investors into that deal from other
transactions. In December 2017 EvrSource was also selling a deal called
Crestlawn, involving property whose pre-easement HBU was allegedly
as a cemetery. When the Crestlawn deal became “fully subscribed,”
EvrSource on December 17 moved seven Crestlawn investors into the
North Donald deal, telling them that “the ratio is better at 4.7.” When
a deal called Kelso failed to make its minimum capital raise, EvrSource
switched dozens of Kelso investors into the North Donald deal, explaining that its 4.7:1 ratio was “slightly better” than Kelso’s.
North Donald Investors was able to raise only $10,341,950 in the
offering, well short of its target. The promoters accordingly decided that
it would acquire only 58% of North Donald, rather than 79.2% as originally planned. To acquire that 58% interest, North Donald Investors
paid $5,998,716 to Reserve at Welsh.
At that point, Reserve at Welsh’s basis in the North Donald Tract
(its only asset) was $804,232, yielding a basis of $466,455 in a 58% interest. Sixty West, which owned Reserve at Welsh, thus realized a profit
of $5,532,261, or more than 1,000%, on this transaction. The other participants in the offering also profited handsomely. EvrSource received
a $1.05 million “consulting fee,” which was described in the subscription
booklet as a fee “for services provided to PropCo related to the property.”
In fact it was a syndication fee for marketing the deal to investors.
Owing to the shortfall in the capital raise, Sixty West was left
owning (through Reserve at Welsh) a much larger share of North Donald
than it had planned. And it could not use the gigantic charitable contribution deduction that would be allocated to it as the owner of a 42%
interest. Sixty West therefore organized Welsh Land Investors, LLC
(Welsh Land), to make a secondary offering of interests in North Donald.
Welsh Land was a “friends and family” deal offered exclusively to
Sixty West insiders. They were promised charitable contribution tax
deductions of $15.00 for every $1.00 invested. Welsh Land raised
$1.9 million from these individuals and used $1.43 million of that sum

23
[*23] to purchase a 36% interest in North Donald. The remaining 6% of
North Donald continued to be held by Sixty West and an affiliate.
In response to a “call to vote” that expired on December 28, 2017,
investors holding 99% of the interests in North Donald voted to pursue
the conservation option. The only investor who voted to pursue the development option was Mr. Campbell, the co-owner of EvrSource. At trial
he testified that he voted this way because he wanted to open a clay
mine in the North Donald Tract.
We did not find that testimony credible. As of year-end 2016 Mr.
Campbell and his entities had sponsored and invested in more than 50
SCE transactions. In each of these deals investors voted unanimously
(or near unanimously) to pursue the conservation option. The North
Donald offering had raised only $10.3 million, and Mick Law had advised that another $17.95 million would be needed to pursue the “development option.” We find in this case, as we have found in previous cases,
that the development option was not a viable economic proposition, but
was window dressing designed to obscure the tax shelter nature of the
transaction. See Corning Place Ohio, LLC v. Commissioner, T.C. Memo.
2024-72, at *38–39, aff’d, 158 F.4th 715 (6th Cir. 2025); Oconee Landing
Prop., LLC v. Commissioner, T.C. Memo. 2024-25, at *28, supplemented
by T.C. Memo. 2024-73. We find that Mr. Campbell voted for the development option, knowing that his vote would make no difference, seeking
to foster the appearance that pursuit of the conservation option was not
a foregone conclusion.
In response to the “call to vote,” the investors also voted in favor
of the “insurance option.” North Donald accordingly purchased an “Investor 170(h) Liability Insurance” policy underwritten by a syndicate at
Lloyd’s of London. In exchange for a premium of $653,333, the policy
would reimburse investors up for up to $14 million of lost “tax savings”
attributable to disallowance of the deduction claimed for donation of the
easement. For the policy to pay out, the disallowance would have to be
attributable to a “wrongful act” carried out by a third party, such as an
appraiser or other person involved in the “due diligence” for the transaction. The funds to purchase the insurance policy were derived from
the capital raised in the investor offering.
On December 28, 2017, North Donald executed a deed of servitude
granting a conservation easement in favor of ACC, a “qualified organization” within the meaning of section 170(h)(1)(B). The deed was

24
[*24] recorded the following day. In 2021 the North Donald Tract was
sold for $2,500 per acre, subject to the easement and for agricultural use.
XIV. Final Mining Feasibility Study
Mr. Laporte’s feasibility study is dated September 2017. At the
outset he stated that “the objective of this report is to determine the
feasibility of establishing a commercial clay mining operation at the
[North Donald] property.” He explained that his analysis “was carried
out to determine the financial feasibility of a conceptual mine plan for
extracting and marketing the clay reserves.”
Mr. Laporte stated that he would “quantify the resources contained within [the property], design a conceptual mining operation . . . ,
and test the technical and financial feasibility of the project.” He estimated that the property contained 47.07 million tons of clay; assuming
a recovery rate of 95%, this translated to salable product of 44.72 million
tons. He then created a “pro forma model” to estimate the “Net Present
Value (NPV) of the conceptual mine as of September 2017.”
Mr. Laporte assumed that “the clay reserves . . . can last 12
years,” so that the annual average production of salable clay would be
roughly 3.725 million tons (44,720,000 tons ÷ 12 = 3,726,667 tons). Assuming that the clay could be sold for $10 per ton, he calculated the NPV
of the hypothetical mining business as follows:
Item

Annual Average

Total tons produced

3,725,000

$/ton

Total revenues

$37,250,000

$10.00

Controllable expenses

12,419,000

3.33

Transportation, taxes & royalties

17,396,000

4.67

G&A expense

208,000

0.06

Total cash cost

30,023,000

8.06

Income before noncash costs

7,227,000

1.94

Depreciation & other noncash costs

3,080,000

0.83

25
[*25]

Taxable income

4,147,000

1.11

Taxes payable

1,452,000

0.39

Net after-tax income

2,696,000

0.72

Operating cashflow

5,776,000

1.55

Net cashflow

2,870,000

0.77

12-year rate of return
Business NPV as of September
2017

18%
$9,444,000

In this portion of his study, Mr. Laporte was not evaluating the
feasibility of clay mining on the North Donald Tract “using the royalty
income method,” as he had previously agreed with Sixty West. See supra pp. 11–12. Rather, he was estimating the NPV of a clay mining
business constructed on the property, treating royalties as one of the
expenses incurred in generating the business income (as shown in line
4 of the table above). On that approach, he determined the total NPV of
the mining business to be $9,444,000.
In the last two pages of his study, Mr. Laporte abruptly shifted
gears to focus on “the prevailing royalty rate price that the mineral
owner would receive from a prudent mine operator.” He created “a cash
flow model of the royalty revenue stream” that North Donald, as the
landowner, could supposedly expect to receive during the life of the
mine. He presented his results in table form, assuming royalty rates
from $4.30 to $5.00 per ton and discount rates ranging from 5.5% to
7.5%.
Mr. Laporte cited three pieces of evidence for his range of royalty
rates: the Lejeune and Papillion letters, see supra pp. 17–18, and a marketing brochure for the “Big Shake” clay borrow pit near New Orleans.
None of these documents supplied credible support for the royalty rates
he assumed. As explained more fully below, the Lejeune and Papillion
letters, which were solicited by Sixty West, are wholly unreliable. See
infra p. 40. In any event, the dollar amounts appearing in those truckers’ letters were not royalty rates but purported sale prices for finished
clay purchased free on board (f.o.b.) mine. The Big Shake sales brochure—which was a marketing tool, not evidence of actual contract

26
[*26] prices—asserted that the company could sell clay for $4 to $6 per
ton. The company noted that it had “an obligation to reimburse the
landowner . . . $1.50 per ton of material sales.” This suggests that the
royalty rate was $1.50 per ton.
Mr. Laporte’s discount rate analysis likewise had no evidentiary
support. He acknowledged that the average discount rate derived from
a survey of 21 established mining companies was 11.16%. He acknowledged that discount rates derived from “the sale of operating quarries”
ranged from 10% to 15.5%. But he decided that the appropriate range
of discount rates for North Donald—owned by investors who knew nothing about mining and were simply purchasing tax deductions—would be
5.5% to 7.5%.
Adopting the assumptions discussed above, Mr. Laporte “opine[d]
that the pretax FMV of the subject property is between $110.39 million
and $146.68 million, with a most-likely value range between $121.33
million and $135.87 million, based on the average royalty rate of
$4.67/ton.” He did not explain how this opinion tallied with his earlier
opinion that the NPV of a mining business conducted on the North Donald Tract would be only $9.44 million. His calculations assume that the
mining operator would receive only $1 of NPV from the mining business
for every $14 the landowner received as royalties.
XV.

Mr. Clark’s Final Appraisal

Mr. Clark’s final appraisal was dated March 22, 2018. He made
two “extraordinary assumptions” in this document: (1) he assumed “that
all necessary mining permits and zoning permits would be obtained to
operate a mine on the property” and (2) he “relied on the geologist report
written by [Mr. Laporte].”
Mr. Clark acknowledged that the North Donald Tract had been
purchased less than two years previously for $2,975 per acre. But he
declined to use that sale, or any other property sales data from the Parish, in determining the “before value” of the property. “The sales comparison approach,” he said, “is most reliable when sufficient market data
[are] available.” But he allegedly found no such data.
When asked at trial what he would have considered comparable
sales data, Mr. Clark replied: “Sales of mines. Blue clay mines, specifically.” He had attached to his appraisal the letter from Mr. Bruchhaus
noting that several properties in the Parish had been rezoned for use as
“dirt pits.” See supra p. 13. When asked whether he had “investigate[d]

27
[*27] those to see what kind of prices they were bought or sold for,” Mr.
Clark answered, “No.” A thorough search for recent property sales
would have revealed that Sixty West purchased the Coastal King Clay
property—a few miles from the North Donald Tract—for $5,250 an acre
in mid-2016 for use as a clay borrow pit. If Mr. Clark discovered that
sale, he neglected to mention it in his appraisal.
Rejecting the sales comparison method, Mr. Clark determined the
“before value” of the North Donald Tract under the income method, using a discounted cashflow (DCF) approach. In the case of mineral property, he noted that there are two versions of the DCF method. One version, the “owner-operator” or “production income” approach, discounts
to present value “the projected income of a landowner that operates a
mine.” The other version, the “royalty income” approach, discounts to
present value “the projected income that a non-operator would receive
through royalty payments.” According to Mr. Clark, “[c]alculating the
present value of the projected income using the Royalty Income [method]
would result in a substantially lower [FMV] for a given property, perhaps 1/10th or less of the value obtained from the Production Income
approach.” (Emphasis added.)
Mr. Clark opined that “the Royalty Method [was the] appropriate
method” to determine the before value of the North Donald Tract because the partnership and its investors “[did] not possess the knowledge
or ability to operate the mine.” He acknowledged that the royalties collected by North Donald would be “substantially less than the income of
an owner that operates the mine themselves [sic].”
In determining the “before value” of the North Donald Tract using
the royalty income method, Mr. Clark adopted Mr. Laporte’s assumptions with a few small tweaks. He assumed that 4 million tons of clay
would be sold annually, including in the year production commenced.
He assumed a royalty rate of $4.50 per ton, toward the lower end of Mr.
Laporte’s range. He acknowledged at trial that he did not independently
investigate or verify the royalty rates assumed by Mr. Laporte. He assumed that the $17.95 million required to purchase wetlands mitigation
credits would be paid out of the year 1 cashflow. He assumed a discount
rate of 7.5%, at the top of Mr. Laporte’s range. Discounting the supposed
cashflows from years 2 through 11, he calculated that the NPV of the
future royalty stream—and thus the FMV of the North Donald Tract
before granting the easement—was $116,302,501.

28
[*28] Although Mr. Clark largely rubber-stamped Mr. Laporte’s conclusions, his analysis differs radically from Mr. Laporte’s in a critical respect. Mr. Laporte’s calculations assume that the landowner would receive via royalties more than 90% of the total NPV of the mining operation. See supra pp. 24–26. Mr. Clark, by contrast, posited that use of
the royalty method “would result in a substantially lower [FMV] for a
given property, perhaps 1/10th or less of the value obtained from the
Production Income approach.” He posited, in other words, that the mine
operator would typically receive more than 90% of the total NPV of the
mining operation.
If the NPV of the royalties flowing to the landowner were $116
million, the NPV accruing to the mine operator (according to Mr. Clark)
should be about $1 billion. But Mr. Laporte had calculated the NPV of
the entire mining business as only $9.4 million. This incongruity illustrates the absurdity of the valuation on which petitioner relied.
XVI. Tax Return and IRS Examination
North Donald timely filed Form 1065, U.S. Return of Partnership
Income, for the year ending December 31, 2017. On that return it
claimed a charitable contribution deduction of $115,391,000 for the easement. It also claimed “other deductions” of $1,157,469, which the return
characterized as “investment expenses.” The latter deductions, which
did not include any deduction for the tax loss insurance premium, were
claimed for the following items:
Item
“Consulting fee” paid to EvrSource

Amount
$1,055,000

Legal fees paid to Morris firm

50,000

Legal fees paid to Landrum & Landrum

2,500

Title insurance and deed recording costs

49,909

Wire fees

60

TOTAL

$1,157,469

North Donald attached to its return the appraisal by Mr. Clark
dated March 22, 2018, which valued the easement as of the contribution

29
[*29] date. Subtracting from the property’s assumed “before value” of
$116,303,000 its assumed “after value” of $912,000, Mr. Clark determined a value of $115,391,000 for the easement.
North Donald included with its return Form 8283, Noncash Charitable Contributions. This form listed the “donor’s cost or adjusted basis” in the North Donald Tract as $804,232 and the “appraised fair market value” of the easement as $115,391,000. An attachment to the Form
8283 explained that the property had been acquired on March 23, 2016,
by Reserve at Welsh, which contributed it to North Donald on October
6, 2017.
North Donald also included with its return Form 8886, Reportable Transaction Disclosure Statement. It enclosed this Form pursuant
to I.R.S. Notice 2017-10, 2017-4 I.R.B. 544, which required that reportable or “listed” transactions—including specified SCE transactions—be
timely disclosed to the IRS. The Form 8886 informed the IRS of facts
relating to North Donald’s reporting of the transaction.
The Morris firm served as a “material advisor” to North Donald
with respect to the SCE transaction. The Morris firm timely filed Form
8918, Material Advisor Disclosure Statement, with the Office of Tax
Shelter Analysis. This Form provided to the IRS essentially the same
information as the Form 8886 enclosed with North Donald’s 2017 tax
return.
On August 26, 2021, the IRS issued petitioner a Notice of Final
Partnership Administrative Adjustment (FPAA) disallowing in its entirety the deduction claimed for the conservation easement. The FPAA
determined that North Donald had not established that it made a contribution or gift in 2017 and had otherwise failed to show that it had
satisfied all the requirements of section 170. The FPAA alternatively
determined that, if North Donald had complied with applicable regulatory requirements, it had failed to establish that the value of the easement exceeded zero. With respect to this adjustment the IRS asserted
a 75% civil fraud penalty under section 6663(a), a 40% penalty for a
gross valuation misstatement under section 6662(h), and (in the alternative) a 20% accuracy-related penalty under other provisions of section
6662.
The FPAA also disallowed in their entirety the $1,157,469 of deductions claimed for “other expenses.” The IRS determined that North
Donald had failed to establish that it had paid or incurred these

30
[*30] expenses during 2017, that they were ordinary and necessary, or
that they were deductible expenses rather than capital expenditures.
With respect to this adjustment the IRS asserted a 75% civil fraud penalty under section 6663(a) and (in the alternative) a 20% penalty for
negligence or a substantial understatement of income tax.
By Opinion served April 18, 2023, we held that the IRS had secured timely supervisory approval, as required by section 6751(b)(1), for
all penalties determined in the FPAA. See North Donald LA Prop., LLC
v. Commissioner, T.C. Memo. 2023-50.
XVII. Tax Court Trial
On October 1, 2024, Mr. Laporte filed a Motion to Quash the trial
subpoena that respondent had issued to him. Stephen Holden and Natalie Riley, two principals of Sixty West, concurrently filed a joint Motion
to Quash the trial subpoenas that respondent had issued to them. Counsel for the three prospective witnesses represented that their clients, if
called to testify, would invoke their Fifth Amendment privilege against
self-incrimination and decline to answer any substantive questions
about the transactions at issue. Petitioner then withdrew Mr. Laporte’s
proposed expert witness report. We granted the Motions, and the Court
thus received no fact or expert testimony from these individuals.
A.

Respondent’s Experts
1.

Craig Benson

Respondent offered, and the Court recognized, Craig Benson as
an expert in geological and geotechnical engineering, including the feasibility of exploiting clay borrow resources. Dr. Benson holds a Ph.D. in
civil engineering from the University of Texas and is a member of the
National Academy of Engineering, the highest professional recognition
an engineer can receive in the United States. He has a long career in
academia, including an endowed chair at the University of Virginia,
where he served as Dean of the School of Engineering. While at the
University of Texas he studied Beaumont clay, a highly plastic clay prevalent along the Louisiana/Texas coast. His professional career has included work with borrow pits and levee construction in Louisiana. We
found him to be a credible witness.
Acknowledging that the North Donald Tract contains clays suitable for levee construction, Dr. Benson explained that “[s]imilar soils exist throughout the [property’s] undeveloped rural environs.” That being

31
[*31] so, he believed a mine operator would choose a location with a
deeper groundwater table to minimize cost. Excavating the North Donald Tract below the water table, he said, would “never be economically
viable.”
Dr. Benson noted that there was little commercial demand for
clay in the Parish and opined that the cost of transporting clay to locations beyond the immediate vicinity would be “excessive.” Although
there was considerable demand for clay near New Orleans when USACE
was repairing levees after Hurricane Katrina in 2005, that demand had
subsided by 2017. In any event, he opined that the North Donald Tract
was “too far from the levee construction sites to be relevant or economically viable given the extensive clay deposits in southern Louisiana that
could be developed as clay borrow sources.” In short, he concluded that
use of the property as a profitable borrow pit was “highly unlikely and
impractical.”
2.

Neal Rigby

Dr. Rigby is a mining engineer with 50 years of experience in the
international minerals industry. He is employed by SRK Consulting,
Inc. (SRK), which has expertise in a wide range of mineral resource and
engineering disciplines, with offices in 20 countries on 6 continents. He
was a founding partner of SRK’s U.K. division and is a member of several professional societies. We recognized him as an expert in mining
and mining economics and found him to be a credible witness.
Respondent retained Dr. Rigby to review and critique the mining
feasibility study prepared by Mr. Laporte. Dr. Rigby discerned numerous technical flaws in that study. For example, Mr. Laporte supplied
“little to no detail” about his mine plan and failed to consider water management, an important consideration because of the high groundwater
table on the North Donald Tract. He found no support for Mr. Laporte’s
assumption that clay mined from the Tract would sell for $10 per ton.
He concluded that Mr. Laporte overstated the demand for that clay by
including potential projects more than 100 miles away, far beyond the
20–30 mile radius in which trucking costs would be affordable. And he
concluded that no mine operator would operate a mine for 12 years for
an NPV of $9,444,000 while paying the landowner royalties in excess of
$130 million. See supra pp. 24–26. “This glaring disconnect,” Dr. Rigby
stated, “would make it impossible to source/find an experienced contractor prepared to develop and operate a clay mining operation” on the
North Donald Tract.

32
[*32]

3.

Peter McEnery

Respondent offered, and the Court recognized, Peter McEnery as
an expert in real estate appraisal. Mr. McEnery, a certified real estate
appraiser in Louisiana, has decades of experience in valuing land and
counseling real estate investors. He holds the Member of the Appraisal
Institute (MAI) designation from the Appraisal Institute.
Mr. McEnery noted that the Parish is “heavily tied to the agricultural industry, which is the predominant economic base in this regional
market.” The most likely purchaser of the North Donald Tract, he concluded, would be an agricultural investor or a farmer. He considered
other possible uses for the property, including subdivision development,
recreation/hunting, and clay mining. Subdivision development, he concluded, was not feasible due to lack of demand and a stagnant population, and recreational use would produce essentially the same value as
agricultural use. He rejected use as a clay borrow pit because it was not
a legally permissible use and because his “conversations with local market participants indicated that there was little demand for dirt/borrow
pit operations in this regional market.”
Concluding that the pre-easement HBU of the North Donald
Tract was agricultural, Mr. McEnery employed the comparable sales
method to determine its “before value.” He identified 9 comparable sales
within 19 months of the valuation date, with per-acre prices ranging
from $2,313 to $3,609 per acre. The average price was $2,806 per acre.
Mr. McEnery’s comparable #4 sold in January 2017 for $3,208 per
acre. He discussed this transaction with Trent Gary, the owner, who
indicated that the land was initially acquired both for agricultural use
and for “some potential clay/sand mining use in two pits located on the
property.” Mr. Gary indicated that “almost all sand, clay, and topsoil
[were] sold locally,” that these materials “typically sell at $5.00 per cubic
yard,” and that clay and sand were generally used “for residential home
development” as opposed to “industrial projects or infrastructure projects.” Mr. Gary indicated that the clay borrow pit operation “was not a
highly lucrative business.”
At trial the Court asked Mr. McEnery whether, if there was goodquality clay on the property, it would justify an “uptick by way of adjustment as a possible ancillary use.” He replied: “Not really, because it’s
already baked into the cake, so to speak. All the land has a plausible
uptick, because there’s clay everywhere.” He said he would come to the

33
[*33] same basic conclusion even if a property had the “world’s best clay”
because “[t]he world’s best clay is next door as well. The world’s best
clay is across the street.”
After making qualitative adjustments to his comparable sales,
Mr. McEnery concluded that the “before value” of the North Donald
Tract was $755,392, or $2,900 per acre. This figure approximated the
price, $2,975 per acre, that Sixty West had paid to acquire the Donald
Farm in March 2016. Employing a “paired sales” analysis, he estimated
that the conservation easement decreased the property’s value by 10%,
to $679,853. Subtracting this “after value” from the “before value,” he
calculated a value of $75,539 for the easement.
4.

Robert Reilly

Respondent offered, and the Court recognized, Robert Reilly as an
expert in finance, economics, and real property valuation. Mr. Reilly
has decades of experience as a certified public accountant, certified business appraiser, and chartered financial analyst. Roughly half his work
has involved business valuation, with emphasis on valuation of utility
and mining enterprises. As part of his work for utility and railway companies he has valued thousands of easements. He has valued between
12 and 24 conservation easements going back as far as 1984.
Mr. Reilly evaluated the economics of the North Donald transaction from the perspective of a rational investor. He assumed arguendo
that a borrow pit could be established on the Tract and yield the volumes
of clay posited by Mr. Laporte. But he concluded that Mr. Clark had
adopted unsupported inputs for numerous key variables in his valuation, including the royalty rate, the discount rate, the time delay before
production could begin, and the application of income tax effects. For
example, he noted that the information Messrs. Laporte and Clark cited
to support their royalty rate consisted, not of license agreements, but of
a marketing brochure and putative letters of intent to purchase clay.
And he found Mr. Clark’s royalty rate to be “inconsistent with a reasonable profit split between a property licensor and a property licensee.”
Mr. Reilly constructed a sensitivity analysis to show how Mr.
Clark’s bottom line would change if more plausible inputs were used for
these four variables. He believed that a reasonable royalty rate would
range from $1 to $2 per ton, that a reasonable discount rate would range
between 16% and 18%, that 6 to 18 months would pass before production
could begin, and that the royalty cashflow would be subject to income

34
[*34] tax rates between 22% and 32%. In Mr. Reilly’s “mid-case scenario,” the cumulative effect of these adjustments was to reduce the
NPV of the hypothetical future royalty stream to $4.5 million, as opposed to the $116.3 million supposed by Mr. Clark.
B.

Petitioner’s Experts
1.

Peter Cali

Peter Cali holds a Ph.D. in civil and environmental engineering
from Tulane University and has been a professional engineer in Louisiana for 50 years. He is the former director of the New Orleans Branch
of the American Society of Civil Engineers, and his professional career
has included work with the USACE Hurricane Protection Office. The
Court recognized Dr. Cali as an expert in borrow pit clay mining and
levee construction.
Petitioner retained Dr. Cali to “offer recommendations for maximum development of [a] borrow pit” on the North Donald Tract. Dr. Cali
believed that the Tract contained a large deposit of clay, while recognizing that similar clay was pervasive on the Pleistocene terrace that underlies the entire region. He stated that he was not “opin[ing] on the
commercial viability of the site development,” on whether a borrow pit
would be profitable, or on whether there would be “enough uses for the
material” in the local market.
Dr. Cali identified three levee projects as potential customers for
clay from the North Donald Tract. Those projects were in Port Arthur
(119 miles away), Orange County (72 miles away), and Abbeville (62
miles away). All three projects are currently operational, but none had
been announced as of December 2017. He conceded that these projects
could obtain clay from sources much closer than the North Donald Tract.
2.

Stephen Cali

Stephen Cali, the brother of Dr. Cali, is a civil and structural engineer with 42 years of experience. He maintains an active engineer’s
license in Louisiana and is a member of several professional societies.
The Court recognized Mr. Cali as an expert in borrow pit clay mining
design, permitting, and operation.
Petitioner asked Mr. Cali to address the approval and permitting
requirements for a clay borrow pit and “provide operational input on the
processes and costs of operating [it].” He estimated that 12 million cubic

35
[*35] yards of clay could be recovered from the North Donald Tract (as
opposed to the 44 million figure assumed by Mr. Laporte). He estimated
the cost of constructing a mine operation based on cost data prepared
for the Big Shake borrow pit near New Orleans.
3.

John H. Brooks

John H. Brooks is a wetlands delineator with 27 years of experience. He is licensed as a professional wetlands delineator in Virginia.
The Court recognized him as an expert in the design, planning, and permitting of mines.
Petitioner retained Mr. Brooks “to conduct a resource evaluation
of the proposed North Donald borrow material source area.” He concluded that the North Donald Tract contained 54.31 million tons of clay,
assuming that a 219-acre pit could be mined to a depth of 100 feet. As
a possible market for the clay he identified eight USACE levee projects
within a 75-mile radius of the property. The nearest site was approximately 50 miles away.
4.

Kyle A. Catlett

Petitioner offered, and the Court recognized, Kyle A. Catlett as
an expert in real estate valuation. Mr. Catlett, a certified real estate
appraiser in Louisiana, has a decade of experience in valuing land. He
holds the MAI designation from the Appraisal Institute.
Concluding that the HBU of the North Donald Tract was clay
mining, Mr. Catlett used the owner-operator version of the income
method to determine its “before value,” positing a clay mine with a 12year life. He assumed that the mine would sell roughly 2 million cubic
yards of clay in year 1, ramping up to 2,825,000 cubic yards in years 2
through 9. He projected that the clay would sell for $9.98 per cubic yard
in year 1, with 5% annual price increases thereafter. Using a 10.5%
discount rate, he calculated $63,835,000 as the NPV of the hypothetical
mining business, which he equated to the “before value” of the land.
Alternatively, using the royalty income method and applying a
7.5% discount rate, he determined a “before value” of $41,105,000 for the
North Donald Tract. Analyzing sales he deemed comparable, he estimated that the easement decreased the property’s value to $325,000, or
$1,250 per acre. Subtracting this “after value” from the “before value,”
he calculated a value of $40,780,000 for the easement.

36
OPINION

[*36]
I.

Burden of Proof

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

Charitable Contribution Deduction
A.

Conservation Purpose

As a rule, a taxpayer may not claim a charitable contribution deduction for a gift of property consisting of less than his entire interest in
the property. § 170(f)(3)(A). However, a deduction is available if the
partial interest constitutes a “qualified conservation contribution.”
§ 170(f)(3)(B)(iii). A “qualified conservation contribution” must be made
“exclusively for conservation purposes.” § 170(h)(1)(C). The Deed of
Easement posits, as one of two conservation purposes, the protection of
the North Donald Tract as a relatively natural habitat, identified as an
agricultural wetland.
Respondent agrees that preservation of wetlands constitutes a
valid conservation purpose. But he contends that, under certain hypothetical scenarios, ACC might be unable to prevent the North Donald
Tract from “reverting to its original prairie habitat,” in which case it
would no longer include wetlands. We reject this argument and conclude that the easement contribution satisfied section 170(h)(1)(C).

37
[*37] B.

Application of Section 170(e)(1)

Section 170(e)(1)(A) provides that the deduction otherwise allowable shall be reduced by “the amount of gain which would not have been
long-term capital gain . . . if the property contributed had been sold by
the taxpayer at its fair market value (determined at the time of such
contribution).” Property whose sale would generate short-term capital
gain is sometimes called “ordinary income property.” A deduction for a
contribution of “ordinary income property” is typically limited to the donor’s cost or adjusted basis in the property. See Jones v. Commissioner,
560 F.3d 1196, 1199 (10th Cir. 2009), aff’g 129 T.C. 146 (2007).
Inventory held primarily for sale to customers in the regular
course of a trade or business is one type of “ordinary income property.”
We have previously held that section 170(e)(1) operated to limit the
charitable contribution deduction to the donor’s basis where (for example) the easement-encumbered property had been contributed to the
PropCo by a real estate developer, which held the land for sale to customers. See, e.g., Oconee Landing, T.C. Memo. 2024-25, at *47–56; Mill
Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129, at *56;
Glade Creek Partners, LLC v. Commissioner, T.C. Memo. 2023-82,
at *26–27, supplementing T.C. Memo. 2020-148, aff’d, No. 23-14039,
2025 WL 1603497 (11th Cir. June 6, 2025). Respondent does not advance (and could not plausibly advance) that argument here. Neither
the Donald family nor Reserve at Welsh, which purchased the Donald
Farm, held the property for sale to customers.
Rather, respondent urges that North Donald was not a valid partnership when Reserve at Welsh contributed the North Donald Tract to
it. At that moment, North Donald’s partners were Reserve at Welsh and
Legacy West. In respondent’s view, Legacy West was a mere “accommodation party” and should be ignored as a partner because it held “a nominal 1% interest in North Donald.” If North Donald, having only one
genuine member, were not a “partnership,” it could not tack onto Reserve at Welsh’s holding period for the North Donald Tract. North Donald would then be deemed to have held the property for less than one
year, converting it to short-term capital gain property and triggering the
application of section 170(e)(1).
A partnership exists when two or more “parties in good faith and
acting with a business purpose intended to join together in the present
conduct of the enterprise.” Commissioner v. Culbertson, 337 U.S. 733,
742 (1949). In Luna v. Commissioner, 42 T.C. 1067, 1077–78 (1964), we

38
[*38] identified eight factors to be considered in assessing the business
purpose of the parties to a purported partnership.
We need not tread through these factors here. Even if we were to
assign a basis limitation under section 170(e)(1)(A), it would make no
difference in the outcome. As explained in greater detail below, we find
that the FMV of the conservation easement is $175,842. See infra p. 60.
North Donald’s basis in the North Donald Tract, as reported on its Form
1065, was $804,232. Because the allowable deduction is less than the
partnership’s basis, a limitation to basis would have no effect.
C.

Qualified Appraisal

Section 170(f)(11) disallows a deduction for certain noncash contributions unless specified substantiation and documentation requirements are met. In the case of a contribution of property valued in excess
of $500,000, the taxpayer must obtain and attach to his return “a qualified appraisal of such property.” § 170(f)(11)(D). An appraisal is “qualified” if it is “conducted by a qualified appraiser in accordance with generally accepted appraisal standards” and meets requirements set forth
in “regulations or other guidance prescribed by the Secretary.”
§ 170(f)(11)(E)(i).
Respondent agrees that Mr. Clark met most of the statutory and
regulatory requirements at the time he prepared the appraisal attached
to North Donald’s 2017 return. 6 For two reasons, however, respondent
urges that the appraisal was not a “qualified appraisal” prepared by a
“qualified appraiser.”
First, respondent urges that Mr. Clark neglected to follow the
Uniform Standards of Professional Appraisal Practice (USPAP) when
preparing his appraisal. But we recently held that an appraiser’s failure
6 On December 18, 2018, the United States filed a complaint against Mr. Clark
and other defendants seeking an order enjoining them from organizing, promoting, or
selling abusive SCE transactions. The complaint alleged that Mr. Clark, in preparing
appraisals from 2009 onwards, relied on inappropriate assumptions and methodologies
to inflate the value of the conservation easements he appraised, resulting in his customers’ claiming improper and outsized charitable contribution tax deductions. See
Complaint at 37, United States v. EcoVest Cap. Inc., No. 18-cv-05774 (N.D. Ga. Dec.
18, 2018), ECF No. 1. On March 20, 2023, Mr. Clark consented to the entry of an
injunction barring him from preparing or assisting in the preparation of any appraisal
intended to be a “qualified appraisal” within the meaning of section 170(f)(11)(E). See
Final Judgment of Permanent Injunction Against Defendant Claud Clark III at 2–3,
EcoVest Cap. Inc., No. 18-cv-05774 (N.D. Ga. Mar. 20, 2023), ECF No. 419.

39
[*39] to strictly follow USPAP does not render his appraisal per se “nonqualified.” Rather, it is simply a factor to be considered in assessing its
persuasiveness. See Lake Jordan Holdings, LLC v. Commissioner, T.C.
Memo. 2025-123, at *29; Jackson Stone South, LLC v. Commissioner,
T.C. Memo. 2025-96, at *100–01; Seabrook Prop., LLC v. Commissioner,
T.C. Memo. 2025-6, at *31–32; J L Mins., T.C. Memo. 2024-93, at *36–
37; Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52, at *48–
49, aff’d, No. 24-13268, 2025 WL 2502669 (11th Cir. Sept. 2, 2025); Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, at *27 n.25.
We reach the same conclusion here. Accepting the Commissioner’s argument that Mr. Clark’s appraisal does not demonstrate full
compliance with USPAP, we find that these failures go to the credibility
and weight of the appraisal. See, e.g., Jackson Crossroads, LLC v. Commissioner, T.C. Memo. 2024-111, at *29. Because Mr. Clark adopted
unreasonable assumptions in preparing his appraisal, we find its credibility and weight to be zero. But the appraisal was not so technically
deficient that it lies outside the bounds of accepted appraisal standards.
Second, respondent contends that Mr. Clark was not a “qualified
appraiser” by virtue of the “Exception” set forth in Treasury Regulation
§ 1.170A-13(c)(5)(ii). It provides that an individual is not a qualified
appraiser with respect to a particular donation “if the donor had
knowledge of facts that would cause a reasonable person to expect the
appraiser falsely to overstate the value of the donated property.” This
will be true, for example, if “the donor and the appraiser make an agreement concerning the amount at which the property will be valued and
the donor knows that such amount exceeds the [FMV] of the property.”
Ibid.; see Oconee Landing, T.C. Memo. 2024-25, at *39–45 (finding that
an appraiser was not “qualified” by virtue of this regulation).
The donor in this case was North Donald, a partnership. In gauging its “knowledge,” we look to the knowledge of the persons with ultimate authority to manage the partnership. See, e.g., Ranch Springs,
LLC v. Commissioner, 164 T.C. 93, 127 (2025); Jackson Crossroads, T.C.
Memo. 2024-111, at *25 (collecting authorities). Those individuals were
Messrs. Campbell and Pearson, the principals of EvrSource.
The record could support a finding that individuals associated
with Sixty West, including Messrs. Mills, Holden, and Nobles, engaged
in conduct indicating knowledge that Mr. Clark was likely to overstate
the value of the North Donald Tract. Mr. Mills remarked that he felt
“like Jed Clampett on this clay ground” upon receiving Mr. Laporte’s

40
[*40] mining feasibility study. Mr. Laporte’s emails strongly suggest
that Sixty West gave him a target value for the conservation easement.
To gin up support for Mr. Laporte’s outlandish valuation, upon which
Mr. Clark relied, Messrs. Holden and Nobles convinced two small trucking operators to sign letters purportedly agreeing to purchase clay from
North Donald. Mr. Holden authorized the payment of up to $30,000 to
the nominal signatories of those letters. The principals of Sixty West
knew that these letters were not worth the paper they were printed on.
While it appears that Sixty West had knowledge of facts suggesting that Mr. Clark would “falsely . . . overstate” the value of the easement, we are unable to make the same finding about Messrs. Campbell
and Pearson, the principals of EvrSource. EvrSource had originally
planned to market a different SCE deal using the Diaz property. See
supra pp. 10–11. EvrSource did not emerge as the “sponsor” of the North
Donald transaction until August 2017, after the Diaz deal fell apart.
This postdated the preparation of Mr. Laporte’s feasibility study and Mr.
Clark’s engagement as the appraiser. Although Mr. Campbell later
asked that “local clay comps” be secured to bolster the appraisal, there
is no evidence that he knew Sixty West would gin up fabricated letters
from the two truckers.
It is indisputable that Mr. Clark wildly overvalued the North
Donald Tract and that his methodology was deficient in many respects.
But we are not convinced that North Donald’s principals were aware of
facts suggesting that Mr. Clark would “falsely . . . overstate” the value
of the easement, which requires a showing of deception or collusion. See
Oconee Landing, T.C. Memo. 2024-25, at *44–45. EvrSource, not Sixty
West, controlled the affairs of North Donald, the donor. The record does
not convince us that EvrSource colluded to produce the inflated appraisal prepared by Mr. Clark.
The Commissioner urges us to apply the relevant authorities
more broadly, but we decline to do so. See, e.g., Ranch Springs, 164 T.C.
at 127; Paul-Adams Quarry Tr., LLC v. Commissioner, T.C. Memo.
2025-112, at *38; Seabrook, T.C. Memo. 2025-6, at *32–35; J L Mins.,
T.C. Memo. 2024-93, at *38–39; Mill Road, T.C. Memo. 2023-129,
at *42–43. The Code elsewhere imposes hefty consequences, in the form
of a 40% penalty, for grotesque overvaluations of the sort involved here.
See infra p. 64. The regulation on which respondent relies focuses on
something beyond that—a taxpayer-donor’s knowledge that the appraiser would falsely overstate the value of the easement. The record
does not support a finding that the principals of EvrSource, who

41
[*41] controlled North Donald, possessed such knowledge. We thus conclude that Mr. Clark, for purposes of this case, was a “qualified appraiser” and that the appraisal attached to North Donald’s 2017 return
was a “qualified appraisal.”
III.

Valuation

Section 170(a)(1) allows a deduction for any charitable contribution made within the taxable year. If the taxpayer makes a gift of property other than money, the amount of the contribution is generally equal
to the FMV of the property at the time of the gift. See Treas. Reg.
§ 1.170A-1(a), (c)(1). The regulations have provided, for a very long time,
that the FMV of property for charitable contribution purposes is “the
price at which the property would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of relevant facts.” Id. para.
(c)(2). This definition, a fixture in the Treasury regulations since 1972,
is universally acknowledged by professional appraisers when valuing
charitable contributions of property. J L Mins., T.C. Memo. 2024-93,
at *39.
The FMV of real property should reflect its HBU on the valuation
date. See Mitchell v. United States, 267 U.S. 341, 344–45 (1925); Stanley
Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg.
§ 1.170A-14(h)(3)(i) and (ii). A property’s HBU is the most profitable,
legally permissible, use for which the property is adaptable and needed,
or likely to be needed in the reasonably near future. Olson v. United
States, 292 U.S. 246, 255 (1934); Symington v. Commissioner, 87 T.C.
892, 897 (1986). If different from the current use, a proposed HBU thus
requires both “closeness in time” and “reasonable probability.” Hilborn
v. Commissioner, 85 T.C. 677, 689 (1985).
To support their positions regarding valuation the parties retained experts who testified at trial. We assess an expert’s opinion in
the light of his or her qualifications and the evidence in the record. See
Parker v. Commissioner, 86 T.C. 547, 561 (1986). When experts offer
competing opinions, we weigh them by examining the factors the experts
considered in reaching their conclusions. See Casey v. Commissioner, 38
T.C. 357, 381 (1962).
We are not bound by an expert opinion that we find contrary to
our judgment. Parker, 86 T.C. at 561. We may accept an expert’s opinion in toto or accept aspects of his or her testimony that we find reliable.

42
[*42] See Helvering v. Nat’l Grocery Co., 304 U.S. 282, 295 (1938); Boltar, L.L.C. v. Commissioner, 136 T.C. 326, 333–40 (2011) (rejecting expert opinion that disregards relevant facts). And we may determine
FMV from our own examination of the record evidence. See Silverman
v. Commissioner, 538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C. Memo.
1974-285.
“Market prices” typically do not exist for conservation easements.
See Symington, 87 T.C. at 895; Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *30. For that reason, courts usually
value easements indirectly using a “before and after” approach, seeking
to determine the reduction in property value attributable to the easement. See Treas. Reg. § 1.170A-14(h)(3)(i); cf. Browning v. Commissioner, 109 T.C. 303, 320–24 (1997). Under that approach, the value of
the easement is deemed equal to the FMV of the real estate before the
easement was granted (“before value”), minus the FMV of the real estate
as encumbered by the easement (“after value”).
A.

“Before Value” of the North Donald Tract
1.

Prior Transactions Involving the Property

“The best evidence of a property’s FMV is the price at which it
changed hands in an arm’s-length transaction reasonably close in time
to the valuation date.” Excelsior Aggregates, T.C. Memo. 2024-60,
at *31; see Estate of Spruill v. Commissioner, 88 T.C. 1197, 1233 (1987)
(“[T]he price set by a freely negotiated agreement made reasonably close
to the valuation date is persuasive evidence of fair market value . . . .”
(citing Ambassador Apartments, Inc. v. Commissioner, 50 T.C. 236, 244
(1968), aff’d per curiam, 406 F.2d 288 (2d Cir. 1969))); Estate of Newberger v. Commissioner, T.C. Memo. 2015-246, 110 T.C.M. (CCH) 615,
616–17 (observing that no evidence is more probative of a donated property’s FMV than its direct sale price). For example, in Corning Place,
T.C. Memo. 2024-72, at *28–29, we found that the most persuasive evidence of a property’s FMV was its actual sale price 15 months before the
contribution. Accord, e.g., Ranch Springs, 164 T.C. at 134; Wortmann v.
Commissioner, T.C. Memo. 2005-227, 90 T.C.M. (CCH) 336, 339–40
(finding that the most persuasive evidence of the property’s FMV was
its actual sale price 17 months before the contribution).
The record here includes persuasive evidence of this sort. The
260-acre North Donald Tract was carved from the Donald Farm, the

43
[*43] 3,324-acre parcel Reserve at Welsh purchased in March 2016. The
purchase price was $9,888,000, or $2,975 per acre.
Petitioner does not dispute that the Donalds and Reserve at
Welsh were unrelated parties dealing at arm’s length. But Mr. Catlett,
one of petitioner’s experts, asserted at trial that the March 2016 transaction was not “a truly arm’s length sale” because the Donalds were not
“fully knowledgeable” sellers. That was so, in his view, because they
allegedly did not know “the amount of the [clay] material in the ground.”
Opining on the depth of the Donalds’ knowledge was outside the scope
of Mr. Catlett’s expertise. In any event, we find no plausible support for
his assertion.
Dan Donald and his brother David testified very credibly at trial.
A local realtor informed them that Reserve at Welsh was interested in
buying the family farm. The Donalds commissioned an appraisal from
a professional who worked with the family’s bank. The appraiser identified six comparable sales, ranging in price from $2,200 to $2,700 per
acre. Concluding that the offering price of $2,975 per acre was generous,
the Donalds accepted the offer.
David Donald knew that the farm had “plenty of clay.” He noted
that the clay was “at the surface” and thus in plain view. Indeed, the
crops the Donalds and the Benoits had chosen to raise were acutely affected by the presence of clay: The clay impeded the farming of soybeans, but it was advantageous for the farming of crawfish and rice. See
supra p. 4. The clay reserves on the property were used to construct the
canals and levees that kept the land saturated, as the farming of rice
and crawfish required.
Although the Donald brothers were keenly aware that clay was
omnipresent, they were equally aware that there was no commercial
market for it. David credibly testified that clay was useful only for building agricultural canals and that local property owners needing clay had
abundant supplies on their own land. A lifelong resident of the area, he
knew of no commercial borrow pits nearby.
While believing their clay to have little commercial value, the
Donald brothers were sophisticated businessmen interested in the geological properties of their land. They had previously commissioned drilling on the farm to search for oil and gas. Although that drilling generated dry holes, the Donalds retained subsurface oil and gas rights when
selling the property to Reserve at Welsh. In short, the Donalds were

44
[*44] clearly knowledgeable about the features of their land that could
plausibly generate revenue.
For all these reasons, we conclude that the March 2016 sale was
a transaction between “a willing buyer and a willing seller, neither being
under any compulsion to buy or sell and both having reasonable
knowledge of relevant facts.” Treas. Reg. § 1.170A-1(c)(2). The transaction occurred reasonably close in time to the valuation date—specifically, one year and 9 months before the easement was granted. We accordingly find that the price at which the 3,324 acres changed hands in
March 2016—$2,975 per acre—provides very strong evidence as to the
FMV of the North Donald Tract on the valuation date.
2.

Other Valuation Methods

In the absence of actual transactions involving the subject property, courts typically consider one or more of three approaches to determine the property’s FMV: (1) the market approach, (2) the income approach, and (3) an asset-based approach. See Bank One Corp. v. Commissioner, 120 T.C. 174, 306 (2003), aff’d in part, vacated in part, and
remanded on another issue sub nom. JPMorgan Chase & Co. v. Commissioner, 458 F.3d 564 (7th Cir. 2006). We consider these methods as
providing a check on (or confirmation of) the $2,975 per-acre value indicated by the price North Donald paid to acquire the 3,324-acre parcel.
Cf. Corning Place, T.C. Memo. 2024-72, at *30–31.
In the case of vacant, unimproved property, the market approach—often called the “comparable sales” or “sales comparison”
method—is “generally the most reliable method of valuation.” Estate of
Spruill, 88 T.C. at 1229 n.24 (quoting Estate of Rabe v. Commissioner,
T.C. Memo. 1975-26, 34 T.C.M. (CCH) 117, 119, aff’d, 566 F.2d 1183 (9th
Cir. 1977) (unpublished table decision)). The comparable sales method
determines FMV by considering the sale prices realized for similar properties sold in arm’s-length transactions near in time to the valuation
date. See ibid.; Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1,
19 (1979). Because no two properties are ever identical, the appraiser
must make adjustments to account for differences between the properties (e.g., parcel size and location) and terms of the respective transactions (e.g., proximity to valuation date and conditions of sale). Wolfsen
Land & Cattle Co., 72 T.C. at 19.
The income method determines FMV by discounting to present
value the expected future cashflows from the property. See, e.g.,

45
[*45] Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 327 (2013);
Marine v. Commissioner, 92 T.C. 958, 983 (1989), aff’d, 921 F.2d 280
(9th Cir. 1991) (unpublished table decision). Income-based methods are
generally disfavored when valuing vacant land that has no income-producing history. See, e.g., Whitehouse Hotel Ltd. P’ship v. Commissioner,
139 T.C. 304, 324–25 (2012), supplementing 131 T.C. 112 (2008), aff’d in
part, vacated in part and remanded, 755 F.3d 236 (5th Cir. 2014). That
is so because the absence of a financial track record makes an incomebased method inherently speculative and unreliable.
3.

Highest and Best Use

The choice of valuation method is influenced in part by the HBU
of the subject property. We have defined HBU as “[t]he reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that
results in the highest value.” Id. at 331 (quoting Appraisal Institute,
The Appraisal of Real Estate 277–78 (13th ed. 2008)). In short, to be a
property’s HBU, a proposed use must be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive.
See Buckelew Farm, T.C. Memo. 2024-52, at *52.
Because property owners have an economic incentive to put their
land to its most productive use, a property’s HBU is presumed to be its
current use absent proof to the contrary. United States v. Buhler, 305
F.2d 319, 328 (5th Cir. 1962); Mountanos v. Commissioner, T.C. Memo.
2013-138, 105 T.C.M. (CCH) 1818, 1819, supplemented by T.C. Memo.
2014-38, aff’d, 651 F. App’x 592 (9th Cir. 2016). To establish an HBU
different from the current use, a taxpayer must demonstrate both the
“closeness in time” and the “reasonable probability” of the proposed use.
Hilborn, 85 T.C. at 689. In a case such as this, our inquiry entails “an
objective assessment of how immediate or remote the likelihood is that
the property, absent the [conservation] restriction, would in fact be developed, as well as any effect from zoning . . . laws that already restrict
the property’s potential highest and best use.” Treas. Reg. § 1.170A14(h)(3)(ii).
The HBU concept “is an element in the determination of fair market value.” Boltar, 136 T.C. at 336. But it is simply one element. It
does not supersede or eliminate the most important prerequisite in determining FMV, namely, that “a hypothetical willing buyer would purchase the subject property for the indicated value.” Ibid.; see Corning
Place, T.C. Memo. 2024-72, at *41; Treas. Reg. § 1.170A-1(c)(2).

46
[*46]

a.

Legally Permissible

The North Donald Tract is in a rural area, surrounded by agricultural land along a bayou and a river. It was zoned A–1 Agricultural, a
zoning classification that permitted only farming, recreational use (such
as hunting and fishing), and low-density residences (homes on one-acre
lots). The property consisted of rice fields and crawfish ponds when
North Donald purchased it. The property’s presumptive HBU in December 2017 was thus its current use—for agricultural, light residential,
and recreational purposes.
Respondent’s expert Mr. McEnery considered other possible uses,
all of which would have required rezoning. These included higher density residential development, commercial or light industrial use, and use
as a clay mining operation. After considering market factors and obstacles to rezoning, Mr. McEnery concluded that the HBU of the North Donald Tract was a continuation of its existing use.
Petitioner contends that the property’s HBU in December 2017
was conversion to a clay mining operation. We reject that contention.
Because the property was zoned A–1 Agricultural, clay mining was not
a legally permissible use. Petitioner submitted no credible evidence to
establish a “reasonable probability” that the police jury for the Parish
would approve rezoning of the North Donald Tract to permit its use for
mining.
North Donald owned the North Donald Tract for 21 months before
granting the easement. But it did not submit a rezoning application,
secure an occupational license, or take any other step toward securing
the zoning change that would be required to conduct mining on the land.
We find that Sixty West neglected to take these seemingly obvious steps
because (1) it feared that a rezoning application would encounter opposition and (2) it believed these steps would be a waste of money because
it had no intention of ever operating a clay mine on the North Donald
Tract.
In urging that rezoning was “reasonably probable,” petitioner relies—as did Messrs. Clark and Laporte—on two documents. The first is
the September 2017 letter from Mr. Bruchhaus. But that letter did not
offer an opinion that rezoning to permit clay mining was “reasonably
probable.” In fact, Mr. Bruchhaus refused to include the word “probable”
in his letter despite persistent pressure from Mr. Holden. Rather, Mr.
Bruchhaus stated that “all applications are judged on their own merits.”

47
[*47] At trial he explained that he included this sentence to ensure that
the letter’s recipient understood “that this was not just going to be an
application that was automatically done.” 7
After Mr. Bruchhaus refused to say that rezoning of the North
Donald Tract was “probable,” Sixty West secured the October 2017 letter
from Mr. Millican. Mr. Millican represented Sixty West in the real estate closing on the North Donald Tract. He later participated in the SCE
transaction as a “friends and family” investor, receiving a tax deduction
of 15 times his investment.
We find that this letter has no probative value in determining
whether rezoning of the North Donald Tract was “reasonably probable.”
Mr. Millican did not testify at trial. He had had no experience in zoning
matters and (as Mr. Bruchhaus credibly testified) “had nothing to do
with the Police Jury.” We find that Mr. Millican had a personal interest,
as Sixty West’s lawyer and as a prospective investor, in suggesting that
the North Donald Tract could have been rezoned to permit clay mining.
Neither Sixty West nor its agents did any outreach to local residents during 2017 to gauge the level of community support for (or opposition to) a clay mine. Petitioner presented no testimony at trial from
any neighborhood representatives. And it presented no testimony from
any current or former member of the police jury for the Parish.
The evidence at trial established that neighborhood opposition
would likely have materialized. Mr. Benoit, a lifelong resident of the
Parish, stated that he would have opposed rezoning of the North Donald
Tract. Mr. Drouant, who has worked for USACE in New Orleans for
almost 20 years, credibly testified that it was “not uncommon” for local
communities to oppose the operation of clay borrow pits in their neighborhoods. As he explained: “Sometimes they don’t want to have an
empty hole that fills up with water left over after material was removed.
They don’t want the traffic that can be associated with 50 or more trucks
[coming] out of a borrow pit every day,” which can “release debris” and
leave “clay on the roads.” “A lot of times,” he said, “they’ll engage their
7 This letter seems even less helpful to petitioner given that Mr. Bruchhaus, at
Sixty West’s request, signed 10 similar letters regarding other properties near the
North Donald Tract. Assuming arguendo that neighbors could have been persuaded
to support one mine in the neighborhood, it seems unlikely—for economic feasibility
and other reasons—that they would have rallied behind 10 mines so near the first. See
Mill Road, T.C. Memo. 2023-129, at *49 (noting that approval of rezoning of other
properties for the same use might impede such approval for the subject property).

48
[*48] local government representatives and try to stop pits from getting
the proper permits or zoning that are required to operate.”
For these reasons, we find that petitioner has failed to carry its
burden of proving that rezoning of the North Donald Tract to permit
mining was “reasonably probable.” Because mining was not a legally
permissible use of the property in December 2017, the operation of a clay
borrow pit cannot have been the property’s HBU.
b.

Financially Feasible

Even if North Donald could have secured rezoning approval, we
find that use of the property as a clay mine was not financially feasible.
As we explain more fully below, the royalty and income projections made
by Messrs. Laporte, Clark, and Catlett were wildly optimistic and untethered from reality. See infra pp. 54–59. Their most significant error,
however, was their unsupported assumption that the local market could
absorb additional supply of clay in the range of 2.8 million cubic yards
annually. Assuming arguendo that this volume of salable clay existed
on the property, petitioner has failed to establish “the existence of a market ‘that would justify its extraction in the reasonably foreseeable future.’” Esgar Corp. v. Commissioner, T.C. Memo. 2012-35, 103 T.C.M.
(CCH) 1185, 1190 (quoting United States v. 69.1 Acres of Land, 942 F.2d
290, 292 (4th Cir. 1991)), aff’d, 744 F.3d 648 (10th Cir. 2014).
The trial evidence established that there was no commercial market for clay in the Parish. Property owners needing clay could almost
invariably source the material from their own properties. In hypothesizing future demand for clay from the North Donald Tract, petitioner’s
experts thus identified as the putative source USACE levee-rebuilding
projects elsewhere in Louisiana.
This hypothesis was unreasonable. First, USACE’s demand for
clay, which peaked after Hurricane Katrina in 2005, had waned considerably by 2017. Mr. Mertens, whom Sixty West recruited to run the
Coastal King Clay “show mine,” credibly testified that he “scoured”
USACE’s listings but found no USACE levee projects on which to bid.
There were only a few small levee projects in the immediate area, and
the clay needed for those projects could be sourced on-site.
Second, given the high cost of transporting clay—one cubic yard
weighs a ton—most borrow pits that supply clay for USACE projects are
within 10 to 20 miles of the project site. Petitioner’s experts repeatedly
ignored this fact. Mr. Laporte’s study assumed that the North Donald

49
[*49] Tract would supply clay for projects near New Orleans, which was
140 miles away. Mr. Brooks relied on 8 USACE levee projects within a
75-mile radius of the North Donald property, the nearest of which was
50 miles away. Dr. Cali identified 3 levee projects as potential customers for clay from the North Donald Tract. Those projects were in Port
Arthur (119 miles away), Orange County (72 miles away), and Abbeville
(62 miles away). All three projects are currently operational, but none
had been announced as of December 2017. Dr. Cali conceded that these
projects could obtain clay from sources much closer than the North Donald Tract.
Third, as USACE determined in July 2018, the North Donald
Tract consisted almost entirely of wetlands subject to USACE jurisdiction. As Mr. Drouant from USACE explained, the New Orleans District
generally avoided sourcing clay from wetlands, both because of the adverse environmental impact and because of the cost of purchasing mitigation credits, which made the borrow pit uneconomical. Given the
ready availability of clay all along the Louisiana coast, he explained that
“[i]t’s easier to find somewhere else nearby that’s not wetlands.” And
whereas petitioner’s experts hypothesized a borrow pit up to 100 feet
deep, 30 feet is the typical depth of borrow pits that supply clay for
USACE projects. Digging deeper intensifies water infiltration, which
increases costs and may render the clay unsuitable for levee construction.
In short, petitioner’s assumptions about the potential market for
clay from the North Donald Tract are unsupportable given the laws of
supply and demand. Contractors who bid on levee projects naturally
select a source for clay closest to the project site. Witnesses at trial,
including USACE officers, agreed that it is not difficult to source clay for
levee construction in Louisiana. Contrary to the assertions of petitioner’s experts, no rational contractor would source clay from a wetlands borrow pit 50 to 140 miles away when clay was abundantly available in the immediate neighborhood.
Wholly apart from USACE requirements, the wetlands affected
the financial feasibility of a borrow pit in another way. In performing
its soil analysis of the North Donald Tract, TWE encountered groundwater at depths ranging from 0.0 feet (the surface level) to 17.8 feet,
with the “moisture content of the soil samples rang[ing] from 12.0% to
57.3%.” It accordingly advised Sixty West of the need for further analysis of “borrow source considerations such as existing groundwater levels,

50
[*50] in-situ soil moisture contents, [and] moisture-density relationships.” Sixty West ignored that advice.
As Dr. Rigby, one of respondent’s geological experts, noted, Mr.
Laporte failed to consider water management and the increased costs it
would impose in terms of equipment and manpower. “With the proposed
Clay Mining operation to a depth of 100 feet,” Dr. Rigby explained, “the
management of in-pit water will be a critical issue.” Sixty West’s own
people acknowledged that a mine would “be into the water table at 12’
to 15’, so any soil removal below that point will become problematic.”
Mr. Benson, respondent’s other geological expert, opined that a rational
mine operator would choose a location with a deeper groundwater table
to minimize cost. Excavating the Tract below the water table, he said,
would “never be economically viable.”
After considering market factors and obstacles to rezoning, Mr.
McEnery (respondent’s expert) concluded that the HBU of the North
Donald Tract was a continuation of its existing use as currently zoned.
Petitioner has submitted no plausible evidence to controvert that conclusion. We accordingly accept Mr. McEnery’s opinion that the HBU of
the North Donald Tract in December 2017 was agricultural, low-density
residential, and recreational use.
4.

Comparable Sales Approach

The comparable sales approach “values property by comparing it
to similar properties sold in arm’s-length transactions around the valuation date.” Savannah Shoals, T.C. Memo. 2024-35, at *36. This
method is usually the most reliable indicator of value when sufficient
information exists about sales of properties resembling the subject property. See United States v. 320.0 Acres of Land, 605 F.2d 762, 798 (5th
Cir. 1979) (“Courts have consistently recognized that, in general, comparable sales constitute the best evidence of market value.”); Whitehouse
Hotel, 139 T.C. at 324–25 (stating that other valuation methodologies
are “not favored if comparable-sales data are available”).
The comparable sales method is based on the “principle of substitution.” It stands for the proposition that “the value of a property can
be estimated at the cost of acquiring an equally desirable substitute.”
Mill Road, T.C. Memo. 2023-129, at *51; see Buckelew Farm, T.C. Memo.
2024-52, at *50 n.25, *55 (“[T]he principle of substitution . . . stands for
the proposition that a hypothetical buyer will not pay more for a given
property when an alternative property is available for less.”); Estate of

51
[*51] Rabe, 34 T.C.M. (CCH) at 119 (“[A] prudent man will pay no more
for a given property than he would for a similar property.”).
“In the case of vacant, unimproved property . . . the comparable
sales approach is ‘generally the most reliable method of valuation . . . .’”
Oconee Landing, T.C. Memo. 2024-25, at *67 (quoting Estate of Spruill,
88 T.C. at 1229 n.24). That

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A6312683a98296cfa. Public record. Not legal advice.