United States Tax Court

United States Tax Court

T.C. Memo. 2023-133

NATHANIEL A. CARTER AND STELLA C. CARTER,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

RALPH G. EVANS,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent 1

—————

Docket Nos. 23621-15, 23647-15.

Filed November 6, 2023.

—————

PS, a partnership, owned property known as DH.

LE, a conservation biologist for N, a “qualified

organization” within the meaning of I.R.C. § 170(h)(3),

visited DH several times in October 2011 to document the

property’s condition. On December 9, 2011, LE provided to

N’s board the documentation he had compiled. On that

date, N’s board approved acceptance of PS’s gift of a

conservation easement on DH. PS conveyed the easement

to N on December 27, 2011. In the easement deed, PS

reserved the right to build up to 11 homes, 9 docks, and

associated roads and driveways on DH at locations to be

chosen by mutual agreement of PS and N. The deed

prohibits N from approving PS’s exercise of any reserved

1 This Opinion supplements our prior opinion Carter v. Commissioner, T.C.

Memo. 2020-21, rev’d and remanded per curiam, Nos. 20-12200, 20-12201, 2022 WL

4232170 (11th Cir. Sept. 14, 2022).

Served 11/06/23

2

[*2]

right that would have a material adverse effect on the

easement’s conservation purposes. In spring 2012, LE

returned to DH and compiled additional documentation.

Most of the documentation in the final package, however,

was compiled from his visits in October 2011. Ps claimed

charitable contribution deductions in respect of PS’s

contribution on the premise that the easement was worth

$14,175,000. At trial, Ps presented the testimony of

appraisers who valued the easement at $10,300,000,

having determined that the easement reduced DH’s value

by 30%.

Held: To satisfy the requirement of Treas. Reg.

§ 1.170A-14(g)(5)(i)(D), a written statement attesting to

the accuracy of the documentation provided to the donee

must be signed by the donor and a representative of the

donee before the date of the gift.

Held,

further,

because

Treas.

Reg.

§ 1.170A-14(g)(5)(i)(D) requires the donor and donee to

jointly certify the accuracy of clearly referenced

documentation, a unilateral representation by a donor to a

donee in an easement deed does not satisfy the

requirement.

Held, further, if a taxpayer’s failures to strictly

comply with a rule do not prevent achievement of the rule’s

purposes, the rule in question is directory rather than

mandatory and the taxpayer’s partial compliance can be

accepted as substantial compliance.

Held, further, because the documentation available

to N as of December 27, 2011, was sufficient to enable N to

fulfill its responsibility of preventing PS from exercising

reserved rights in DH in a manner that would undermine

the easement’s conservation purposes, PS substantially

complied with the documentation requirements of Treas.

Reg. § 1.170A-14(g)(5)(i).

Held, further, because PS’s exercise of its reserved

rights in DH are subject to N’s approval, and N is

prohibited by the easement deed from approving an

exercise of reserved rights that would have a material

3

[*3]

adverse effect on the easement’s conservation purposes,

PS’s reserved rights do not violate the requirement of

I.R.C. § 170(h)(5)(A) that a contribution’s conservation

purpose be protected in perpetuity; the exercise of reserved

rights that would have, at most, an immaterial effect on

conservation purposes would not be inconsistent with those

purposes. See Treas. Reg. § 1.170A-14(g)(1).

Held, further, the testimony of Ps’ expert appraisers

did not reliably establish the easement’s value because

they were unable to explain their determination that the

easement reduced DH’s value by 30%.

Held, further, the easement that PS conveyed to N

was worth $1,000,000 when contributed, as determined by

R’s expert appraiser.

Held, further, because PS reported the easement as

having a value of more than 200% of its actual value, that

reporting effected a gross valuation misstatement, within

the meaning of I.R.C. § 6662(e)(1)(A) and (h)(2)(A) and,

consequently, Ps are subject to 40% gross valuation

misstatement penalties on the portions of their

underpayments attributable to the excess of $14,175,000

over $1,000,000.

—————

Vivian D. Hoard, for petitioners.

Shannon E. Craft, Christopher D. Bradley, and Tamara R. McCray, for

respondent.

SUPPLEMENTAL MEMORANDUM

FINDINGS OF FACT AND OPINION

HALPERN, Judge: These cases are before the Court on remand

from the U.S. Court of Appeals for the Eleventh Circuit. Carter v.

Commissioner, Nos. 20-12200, 20-12201, 2022 WL 4232170 (11th Cir.

Sept. 14, 2022), rev’g and remanding per curiam T.C. Memo. 2020-21.

Our initial opinion in the cases concluded that petitioners were not

entitled to charitable contribution deductions as a result of the

4

[*4] conveyance by Dover Hall Plantation, LLC (usually, the

partnership) to the North American Land Trust (NALT) of an easement

on property known as Dover Hall. In particular, following an analysis

initially adopted by the Court in Pine Mountain Preserve, LLLP v.

Commissioner, 151 T.C. 247 (2018), aff’d in part, vacated in part, rev’d

in part, 978 F.3d 1200 (11th Cir. 2020), we concluded that the easement

was not a “qualified real property interest” within the meaning of section

170(h)(2) 2 because the restrictions it imposed on the partnership’s use

of the property were not “granted in perpetuity.” We also concluded that

petitioners were not subject to gross valuation misstatement penalties

under section 6662(a), (b)(3), (e), and (h) for the years in issue because

respondent had not met his burden of demonstrating compliance with

the supervisory approval requirement of section 6751(b).

We

interpreted precedents of this Court to have established that the written

supervisory approval required by section 6751(b)(1) had to have been

given “before the first communication to the taxpayer that demonstrates

that an initial determination [to assess penalties] has been made.”

Carter, T.C. Memo. 2020-21, at *27. We found that the revenue agent

who made the initial determination had communicated that

determination to petitioners before his supervisor had approved it.

In Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 2022), rev’g

in part T.C. Memo. 2020-73, the Eleventh Circuit rejected this Court’s

interpretation of section 6751(b)(1). On the basis of the statute’s plain

terms, the court concluded that approval of an initial determination to

assess penalties is timely as long as it comes before assessment.

Petitioners and respondent appealed the decisions we entered on

the basis of our prior opinion. Venue for their appeals was the Eleventh

Circuit—the same court that had addressed Pine Mountain. On appeal,

the parties agreed that the partnership’s satisfaction of section 170(h)(2)

was “controlled” by that court’s decision in Pine Mountain, which

required reversal of this Court on the issue. Carter v. Commissioner,

2020 WL 4232170, at *1.

The Eleventh Circuit viewed the timeliness of supervisory

approval of the gross valuation misstatement penalties respondent

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

Code, Title 26 U.S.C., in effect for the years in issue, regulation references are to the

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect for the years in issue, and

Rule references are to the Tax Court Rules of Practice and Procedure.

5

[*5] determined as having been resolved by Kroner. The appellate court

therefore reversed our decisions in regard to section 6751(b)(1).

In light of the Eleventh Circuit’s opinion, we must accept for

purposes of these cases that the easement conveyed by the partnership

to NALT was a qualified real property interest within the meaning of

section 170(h)(2). In our prior proceedings, however, respondent had

raised other issues regarding the qualification of the contribution for a

deduction under section 170. Given our conclusion in regard to section

170(h)(2), we had found it unnecessary to resolve those other issues. On

appeal, petitioners asked the Eleventh Circuit to resolve the remaining

issues concerning the partnership’s entitlement to a deduction. The

court declined to do so. As it had in Pine Mountain, the Eleventh Circuit

viewed remand on those issues as appropriate to give this Court the

opportunity to do the required statutory “heavy lifting.” Carter v.

Commissioner, 2022 WL 4232170, at *1.

FINDINGS OF FACT

Dover Hall

In 2005, Dover Hall Planation, LLC (then owned entirely by

Mr. Carter) purchased the Dover Hall property, a 5,245.06-acre tract of

land in Glynn County, Georgia. The Dover Hall property is bounded on

three of its four sides by waterways, including Green Creek. In April

2009, petitioner Ralph Evans purchased a 50% interest in the

partnership for $29,428,027. In a stipulation executed in April 2017, the

parties agreed that “[t]he 5,145.06 acre tract of land known as Dover

Hall is the only asset owned by Dover Hall Plantation, LLC.” 3

Initial Documentation; Approval of Gift by NALT Board

Stephen Lee Echols, a conservation biologist for NALT, visited

the Dover Hall property in October 2011 “to make sure it qualified for

the conservation purposes and to document the conditions of the

property.” Petitioners’ counsel asked Mr. Echols to “explain for the

Court” what he did “in this case to accomplish” the requirement in the

regulations to document the property’s condition. Mr. Echols responded:

In the year of 2011, I visited the property on October 1,

October 19, and then for a half-day on October 20. I took

3 In May 2006, Dover Hall Plantation, LLC contributed 100 acres of the Dover

Hall property to a community foundation.

6

[*6]

photos. I took notes. I documented the condition of the

property, the important conservation features of the

property, and I provided documentary photographs and

description that support the conservation values that I

researched.

On December 9, 2011, Mr. Echols presented to NALT’s board the

materials he had assembled. At a meeting on that day, NALT’s board

approved acceptance of the easement.

Grant of Easement; Easement Deed

On December 27, 2011, the partnership conveyed to NALT an

easement over 500 acres at the western edge of the Dover Hall property.

The deed of easement restricts the use of the covered property and,

among other things, generally prohibits the construction or occupancy

of any dwellings. The deed lists as the easement’s conservation purposes

(1) the preservation of a relatively natural habitat of fish, wildlife, or

plants or similar ecosystem, and (2) preservation of the covered property

as an open space that will provide a significant public benefit by

(a) providing scenic enjoyment to the general public and (b) advancing a

clearly delineated government conservation policy.

Section 2.3 of the easement deed requires the partnership to

prepare, within 24 months of the easement’s recording, “a plan for

management and growth of forest in the Conservation Area[4] (the

‘Forest Management Plan’).” The partnership had to provide the Forest

Management Plan to NALT and obtain its written approval of the plan.

In Article 3 of the easement deed, the partnership reserved

specified rights. For example, section 3.1 of the deed allows the

partnership to construct one single-family dwelling and accessory

structures within each of 11 “Building Areas” of up to two acres. Section

3.1.1 provides: “The location and dimensions of each of the Building

Areas shall be subjected to the review and approval of Holder [that is,

NALT]. The location of the Building Area must not, in Holder’s

judgment, directly or indirectly result in any material adverse effect on

any of the Conservation Purposes.”

4 The easement deed defines the term “Conservation Area” to mean a specified

500-acre portion of the Dover Hall property.

7

[*7] Section 3.2 allows the partnership to construct roads or driveways

to provide access to the Building Areas. Section 3.1.2 provides:

The location and dimensions of the roads and driveways

described in Section 3.2 shall be subjected to the review

and approval of Holder. The location of the roads and

driveways must not, in Holder’s judgment, directly or

indirectly result in any material adverse effect on any of

the Conservation Purposes or the restoration and

management plan prepared in accordance with this

Section.

Section 3.9 provides:

Owner may construct nine (9) docks, and walkways and

pathways to such docks, for personal, common or shared

use. . . . The location and design of each such dock,

walkway and pathway shall be as approved by Holder prior

to construction. Each dock must be constructed and placed

in a manner and location as will have no material adverse

[e]ffect upon the Conservation Values[5] or the

Conservation Purposes, including sensitive elements of the

ecosystem such as rare species nesting and foraging

habitat, rare plant populations or exemplary natural

communities.

Section 3.21 allows the partnership to “cut and remove trees in

accordance with the Forest Management Plan approved by Holder in

accordance with Section 2.3.”

Section 3.25.2 provides that NALT

must be satisfied, as evidenced by its prior written

approval of [the partnership’s] exercise of a Reserved

Right, that any use or activity done in the exercise of the

Reserved Right will meet the requirements and conditions

for such Reserved Rights and will have no material adverse

effect on the Conservation Purposes or on the significant

5 The easement deed uses the term “Conservation Values” to refer to “the

features of the Conservation Area having ecological and scenic significance.”

8

[*8]

environmental features of the Conservation Area described

in the Baseline Documentation.[6]

Section 6.18 of the deed sets forth warranties by the partnership

(as Owner) to NALT (the Holder). Section 6.18.1 states: “Owner has

received and fully reviewed the Baseline Documentation in its entirety.”

Section 6.18.2 states that the Baseline Documentation includes a

“Naturalist’s Report on the Conservation Area,” an “Environmental

Conditions Map of the Conservation Area,” “Photographs of current site

conditions on the Conservation Area,” a “Narrative description of the

significant ecological and other conservation values and characteristics

of the Conservation Area,” and a “Topographic Map of the Conservation

Area.”

In section 6.18.3, the Owner represents to the Holder: “The

Baseline Documentation is an accurate representation of the condition

of the Conservation Area, subject to supplementation and amendment

by mutual agreement of the Owner and Holder.”

The easement deed was signed by petitioner Nathaniel Carter, as

general manager of the partnership, and by Andrew L. Johnson, NALT’s

president.

Mr. Echols’s “Spring Review” and Final Documentation

Mr. Echols compiled further documentation of the condition of the

Dover Hall property in spring 2012. As he explained:

It was customary at the time of this easement for us to take

the bulk of the information during the year of recording

and then do a follow-up spring survey, because we’re often

visiting the property late in the year, and we want to

provide a full ecological picture of the property. So the

baseline documentation included information from 2011

and 2012, but most of it was taken in 2011.

The record includes a document titled “Baseline Documentation.”

That document includes sections titled “Existing Conditions Report,”

6 The easement deed uses the term “Baseline Documentation” to refer to “the

reports, plans, photographs, documentation, and exhibits assembled by, and retained

in the offices of, [NALT] . . . pursuant to 26 CFR §170A-14(g)(5), which describes

[specified] Conservation Values of the Conservation Area.”

9

[*9] “Photographic Documentation,” and “Supportive Mapping.” The

Existing Conditions Report provides an 8-page textual description of the

Dover Hall property. The “Photographic Documentation” section

includes 23 “photoprints.” The “Supportive Mapping” section includes

6 pages of maps.

Exhibit 51-J also includes an “Owner

Acknowledgement,” in which representatives of the partnership and

NALT attest that the documentation accurately represents “the physical

condition of the Conservation Area.” 7 The Owner Acknowledgement

identifies December 30, 2011, as the “Date Recorded.” 8 It provides no

other dates. In particular, it does not identify the date on which it was

signed.

According to Mr. Echols, “information” about the Dover Hall

property “was available to [NALT’s] board and to the client [presumably,

the partnership] prior to recording,” but the final documentation “wasn’t

assembled until after the spring review of the property.” “[T]he full

baseline in its entirety,” he said, “was not assembled until the spring.”

When asked by petitioners’ counsel whether he had “assemble[d]

the information required by the regulations prior to 2011,” Mr. Echols

responded: “Yes I did.” The information he assembled in 2011

“include[d] photos, a description of the property, and . . . necessary

maps.”

Tax Reporting of Easement Contribution

On its 2011 tax return, the partnership claimed a charitable

contribution deduction of $14,175,000 for the donation of the easement

to NALT. 9 On his 2011 Federal income tax return, Mr. Evans, a resident

of Georgia when he filed his Petition, claimed a charitable contribution

deduction equal to his 50% share of the deduction reported by the

partnership. The Carters, also Georgia residents when they filed their

7 The Owner Acknowledgement was signed on NALT’s behalf by Steven W.

Carter, its Stewardship Coordinator. Mr. Echols explained that “it’s customary for

[him] not to sign” acknowledgments.

8 Mr. Echols confirmed that “Date Recorded” refers to the date on which the

easement deed was recorded.

9 The amount of the contribution reported by the partnership is supported by

an appraisal prepared by Claud Clark III. Respondent agrees that Mr. Clark’s

appraisal was a “qualified appraisal” within the meaning of section 170(f)(11)(E)(i). In

arriving at his estimate of the fair market value of the easement conveyed by the

partnership to NALT, Mr. Clark determined that the Dover Hall property was worth

$48,217,017 before the easement grant.

10

[*10] Petition, reported Mr. Carter’s 50% share of the partnership’s

deduction on line 17 of Schedule A, Itemized Deductions, of their 2011

return, but their deduction was limited by section 170(b)(1)(A). The

Carters reported carryover deductions from 2011 on their 2012 and 2013

returns.

Notices of Deficiency

In notices of deficiency issued on August 18, 2015, respondent

disallowed in full the charitable contribution deduction Mr. Evans

claimed for 2011 and the charitable contribution deductions the Carters

claimed for 2011, 2012, and 2013 as a result of the partnership’s grant

of the easement to NALT. The notices of deficiency also determined

gross valuation misstatement penalties and other accuracy-related

penalties for the taxable years in issue.

Expert Testimony Regarding Impact of Reserved Rights

Petitioners presented testimony from three expert witnesses

concerning the impact on the partnership’s exercise of its reserved

rights: Christopher Wilson, an expert in conservation biology; Stuart

Sligh, a wildlife biologist and environmental consultant; and Mr. Echols,

the conservation biologist from NALT.

Christopher Wilson

In his written report, Mr. Wilson stated:

Clearly there will be a direct impact to habitats on the

conservation area where permanent structures and new

roads are built. However, the total footprint of structures

permitted by the easement appears to be quite low with

respect to the size of the conservation area as a whole.

What is perhaps the most important provision in the

reserved rights is the requirement for NALT approval

regarding the location and dimensions of the building

envelopes, structures, roads, and docks. This allows NALT

biologists the opportunity to gather additional information

regarding the locations of sensitive habitats and rare

species on the property, and avoid impacts sensitive areas

[sic] in order to maximize the outcome for natural habitat

conservation. For example, if during the drafting of the

easement the building areas would have been excluded

from the conservation area, then NALT would have had

11

[*11] much less time to study the property, and no opportunity

to incorporate new knowledge regarding rare species and

habitats locations into the layout of building envelopes and

structures.

Given that: 1) the intent of the document is to protect

natural habitat and wildlife species, particularly those

considered rare or imperiled, or otherwise of conservation

concern, as stated in the conservation purposes and

whereas clauses; 2) the total area impacted by new

permanent structures permitted in the reserved rights is

so low relative to the size of the conservation area as a

whole; and 3) that [sic] NALT has approval over the

location and dimensions of [the] building envelopes,

structures, and roads, it is my opinion that the easement

provides for the protection of the conservation values in

perpetuity.

Mr. Wilson acknowledged that his report does not express an

opinion as to whether the uses of the Dover Hall property retained by

the partnership impaired the easement’s conservation purposes. When

asked by the Court for his opinion on that point, Mr. Wilson responded:

“The reserved rights would have some impact on the . . . conservation

values or purposes.” But Mr. Wilson also agreed with the Court that it

would be appropriate to draw from his report the conclusion that the

easement’s conservation values “are protected in perpetuity by the

easement, not withstanding [sic] the interests retained by the donor,

because the values would not be significantly diminished by the retained

interests.” When, however, the Court asked whether it would be a

“correct assessment of [his] opinion” that “the retention of the right to

develop eleven lots and the docks and put in the various roads will not

significantly diminish the . . . conservation value,” Mr. Wilson responded

that he was not sure. He then stated his belief that “the conservation

priority bird species that [he] mentioned in [his] report would still be

there and still have plenty of valuable habitat, even if the reserved

rights were exercised.” The species would have “slightly less” habitat

but still enough.

Mr. Wilson agreed with the Court that the

partnership’s exercise of its reserved rights would “diminish [the

conservation value] but not significantly.”

Mr. Wilson confirmed that the extent to which the building of

homesites and associated roads would impair the easement’s

conservation values would depend on where they were placed. He said

12

[*12] the docks could have “a minor impact,” depending on their

location. He added that the docks’ level of impact “may be so low that

it’s inconsequential to the use of that habitat by th[e] priority bird

species.”

Mr. Wilson opined that the effect of article 3 of the easement deed

on conservation values was not entirely negative. Instead, he said the

rights reserved in article 3 had a mixed effect, in addition to allowing

the building of homes, docks, and roads, the deed also “allows for

forestry management.” The forestry management allowed “actually

helps maintain and improve habitat for some of those species, and if that

wasn’t there . . . the value of that land would significantly be diminished,

if there was not ongoing maintenance.”

Stuart Sligh

Mr. Sligh testified that he expected NALT, in exercising its

“oversight to locate the homesites,” would “try to site a two-acre

homesite with a few significant trees.” Mr. Sligh also opined that the

addition of nine docks on the shoreline of Green Creek would “slightly

decrease” the conservation benefits of the shoreline. He based that view

on the effect of the docks on the fish habitat, not on the visual aspects of

the shoreline. He also said that, while no docks would be better than

nine, “a few private, single-family docks really has very little negative

impact, in my opinion.”

In his written report, Mr. Sligh used the term “edge effect” to refer

to “the boundary where two habitat types meet and wildlife diversity

increases.” He wrote:

These edges usually support a diversity of plant species

which could include soft-mast species such as berries and

fruits that would not normally survive in a forested

environment, particularly if burned on a regular rotation.

Managing edges can increase wildlife diversity, and in

many cases, wildlife managers prescribe specific edge

management plans for landowners to increase wildlife

populations and diversity. It is my opinion that an

allowance of 11 small home sites with limited clearing

within the CE [conservation easement] area could

potentially increase the edge effect of the overall habitat

without negatively impacting the forest community or

wildlife species diversity.

13

[*13] Mr. Sligh concluded that, in his opinion, “the owner’s retained

rights on the 500-acre CE area will not diminish the overall

Conservation Values.”

Lee Echols

Mr. Echols’s written report states that, “by allowing only a

handful of homes on an environmentally sensitive 500-acre tract that

borders Green Creek,” the easement helps to accomplish goals laid out

in a county development plan. Echoing Mr. Sligh, Mr. Echols wrote that

the retained building rights “would only be allowed in planted pine

stands.” In his trial testimony, Mr. Echols explained that “the pine

plantation is the least natural part of the property, and thus the most

appropriate place to locate those homesites.”

Mr. Echols’ written report states his opinion that

the allowance of only 9 carefully selected and constructed

dock sites along approximately 4 miles of tidal creek would

have [a] negligible effect on the scenic values of the

property.

As compared to conventional waterfront

developments, the number of allowable docks is residual

and of no consequence to either scenic or relatively natural

habitat purposes.

The report concludes as follows:

In this report, I have attempted to substantiate the many

significant conservation attributes of Dover Hall, as well as

provide evidence that the allowable reserved rights do not

adversely affect the perpetuity of the Conservation Area.

The residual allowable home sites and associated

structures are both minimal compared to the overall

acreage of the property, and very minimal when compared

to other developed coastal properties. Additionally, these

reserved rights are highly constrained in their location and

design via the carefully crafted conservation easement

language. This property confers significant public benefit

in the form of protected high quality natural habitats,

intact working forest lands, scenic views, and support of

prominent governmental conservation policies.

In his oral testimony, Mr. Echols opined that the 11 homesites

would impair the easement’s conservation value “to a negligible degree.”

14

[*14] He also said that homesites can be “positive” because they “limit[]

encroachment from people creating ATV trails, from illegal hunting.”

Property owners can “get involved in restoration activities on the

property out of their own interest” and “sometimes will find rare species”

that NALT did not identify.

Mr. Echols expected that NALT would “strive” to meet the goal

that “no portion of any house would be visible from” Green Creek. He

viewed that goal to be “practical” “because the natural vegetation along

the creek forms a barrier.”

Mr. Echols admitted that the docks would impair the scenic view

conservation value, but the effect, he said, would again be “negligible.”

He suggested that nine docks along a four-mile tidal creek would not

stop people from enjoying it. If the docks had existed before the grant of

the easement, he said, NALT “wouldn’t have any problem claiming

scenic.”

Expert Testimony on Valuation

Van Sant and Wingard

Petitioners offered testimony of Martin Van Sant and Thomas

Wingard (Van Sant and Wingard). Although respondent accepted Van

Sant and Wingard as experts in the valuation of real property, he

challenges the admissibility of their report for the reasons explained in

Part V.A.1 below.

Responsibility for Conclusions and Analysis

The written report of Van Sant and Wingard that petitioners

submitted as the appraisers’ direct testimony does not identify specific

opinions with either of its coauthors, but the report includes a

certification by each of them that “[t]he reported analyses, opinions and

conclusions . . . are my personal, impartial and unbiased professional

analyses, opinions and conclusions.”

During Mr. Wingard’s voir dire testimony at trial (without

Mr. Van Sant present), he stated that both he and Mr. Van Sant were

“involved in all the processes” of preparing the report. Therefore, “every

section of the report was done in concert with the other.” “In essence,”

Mr. Wingard said, he and Mr. Van Sant “have coauthored th[e] report.”

Mr. Van Sant agreed that, while one or the other may have typed

different sections, they each took “ownership” of the whole report.

15

[*15] Mr. Wingard acknowledged disagreements between them in the

report’s preparation but testified that they had worked out those

disagreements and arrived at mutually agreeable conclusions.

Van Sant and Wingard’s Preeasement Value

Van Sant and Wingard valued the easement by comparing the

value of the Dover Hall property before the grant of the easement to its

value thereafter. To determine the preeasement value, they employed

the “sales comparison approach,” using sales of six properties they

viewed as generally comparable. They adjusted the sales price in each

of the comparable sales on the basis of their judgments on the effects of

differing circumstances, including the physical characteristics of the

properties in issue, the nature of the sale, and prevailing market

conditions at the time of the sale compared to those of December 30,

2011. 10 In the case of three properties that they admitted had no “water

influence,” their adjustments took that factor into account.

Van Sant and Wingard describe their “Comparable Land Sale

No. 1” as a “forced sale under forbearance by . . . [the seller’s] creditor.”

They explain that they considered the sale a forced sale because of the

seller’s financial condition “and the pressure from” the seller’s creditor.

The adjustments they made to the sales price of Comparable Land Sale

No. 1 thus included a positive 50% adjustment to account for the

conditions of sale (i.e., in the absence of other adjustments, their

adjusted sales price for that property would have been 1.5 times the

actual price at which the property sold).

After making adjustments for the differing circumstances, the

sales prices per acre in the comparable sales ranged from $5,550 to

$13,608. In arriving at a value per acre for the Dover Hall property, Van

Sant and Wingard gave disproportionate weight to two of the six sales

that involved coastal Georgia properties. The adjusted sales prices of

those two properties ($5,550 and $11,404 per acre) had an arithmetic

mean of $8,477. By contrast, the arithmetic mean of the adjusted sales

prices in all six sales was $10,595 per acre. On the basis of those data,

Van Sant and Wingard concluded: “A reasonable and justifiable

correlation among the six sales may suggest $9,000/acre, slightly above

the arithmetic mean displayed by the two Coastal Georgia sales.”

10 Van Sant and Wingard valued the easement as of December 30, 2011, which

was the date on which the easement, granted three days earlier, was filed and

recorded.

16

[*16] Applying that per-acre value to the acreage of the Dover Hall

property (5,145.06), Van Sant and Wingard arrived at a total

preeasement value of $46,305,540 (5,145.06 × $9,000), which they

rounded to $46,300,000.

Van Sant and Wingard’s Posteasement Value

Van Sant and Wingard were unable to find sales of properties

comparable to the Dover Hall property after the grant of the easement

(that is, sales of similar properties subject to similar easements). “After

an extensive search,” they wrote, data regarding sales of comparable

properties were “not . . . available.” Therefore, they simply adjusted

their preeasement value by the easement’s estimated impact. In

arriving at an estimate of the percentage reduction in the value of the

property resulting from the easement, they considered the easement’s

effects on various attributes. They determined that the easement

reduced the number of residential units that could be developed on the

property by 9.52%. They also noted that the easement covered 9.72% of

the total acres of the Dover Hall property. Relying on Mr. Sligh’s report,

they determined that the easement would reduce the number of docks

that could be built on adjacent waterways by 20.25%. “Based on the

percentages of those elements of comparison affected by the

encumbrance,” they wrote, “it was determined a reasonable effect of the

easement . . . may approach 30.0%.” They concluded: “This adjustment

does not in anyway [sic] suggest mathematical exactness, but does

appears [sic] reasonable in light of the quality of this area of the total

property affected by the easement restrictions.”

At trial, Mr. Van Sant and Mr. Wingard each suggested that they

had arrived at their 30% adjustment by summing the percentage

reductions in various attributes and rounding the result. Mr. Van Sant

referred to the percentage of total acreage covered by the easement, the

reduction in allowable residential units, and the percentage reduction

in water footage (16%), noting that their sum was “close to 30 percent”

(9.72%, 9.52%, and 16% sum to 35.25%). By contrast, Mr. Wingard used

the percentage reduction in docks instead of the reduction in water

frontage. He noted that 9.52%, 9.72%, and 20.25% sum to “about 39

percent” and described the 30% adjustment he and Mr. Van Sant made

as “a little bit less than that.”

Neither Mr. Van Sant nor Mr. Wingard explained why they

simply summed the percentage reductions in various attributes, without

taking into account the proportion of the value of those attributes to the

17

[*17] total value of the Dover Hall property. When the Court asked

Mr. Wingard “what on earth would make you combine” the percentages,

his only answer was: “[W]e thought that was a reasonable summation.”

In an apparent test of the reasonableness of their 30%

adjustment, Van Sant and Wingard considered the sales of properties

subject to easements in their entirety. To determine the impact of those

easements on the values of the properties, they had to estimate what

each property would have been worth if it had not been encumbered. On

the basis of those estimates, they determined that the easements

reduced the values of the properties by an average of 83.28%. In light

of that number, they reasoned, “the determination of a 30% adjustment

for the subject property’s loss of certain rights on 500.00 acres appears

reasonable and justifiable.”

Thus, Van Sant and Wingard purported to recompute the

adjusted sales price of each of their six comparable properties by adding

an additional adjustment of negative 30%. As recomputed, the adjusted

sales prices ranged from $4,056 per acre to $9,720 per acre. 11 That range

produced an arithmetic mean of $7,343 per acre. 12 On the basis of those

data, Van Sant and Wingard concluded: “A reasonable and correlated

value for the subject after the placement of a conservation easement on

500.00 acres is $7,000 per acres [sic].”

11 Van Sant and Wingard’s computation for purposes of their “after” analysis

of the adjusted price for their Comparable Land Sale No. 1, which provided the low end

of the range of comparable property values, reflects an arithmetic error. In their

“before” analysis, they made a net adjustment of positive 30% for the physical

characteristics of the property sold in Comparable Land Sale No. 1. Their “after”

analysis made the same adjustments as the “before” analysis with the addition of a

negative 30% adjustment to account for the effects of the easement. Thus, the net

adjustment for the physical characteristics for Comparable Land Sale No. 1 in the

“after” analysis should have been zero. Instead, Van Sant and Wingard made a

negative 5% net adjustment due to an error in adding up the separate adjustments.

Had they made no net adjustment to Comparable Land Sale No. 1 for purposes of the

“after” analysis (with the negative 30% adjustment for the easement offsetting the 30%

positive adjustment for the other factors considered), the adjusted sales price for

Comparable Land Sale No. 1 in Van Sant and Wingard’s “after” analysis would have

been $4,269 per acre (equal to the $5,550 sales price used in the “before” analysis

divided by 1.3).

12 Correcting for the arithmetic error in the computation of the adjusted sales

price for Van Sant and Wingard’s Comparable Land Sale No. 1 would have produced

an arithmetic mean of $7,417. Because the adjusted sales price for Comparable Land

Sale No. 1 was the low end of the range of values, the error in computation had no

effect on the median.

18

[*18] Thus, in their “after” analysis, Van Sant and Wingard gave equal

weight to all six comparable properties, while their “before” analysis

gave disproportionate weight to the two comparable properties on the

Georgia coast. Their report fails to explain that inconsistency.

Using a value of $7,000 per acre, Van Sant and Wingard

determined that, after the easement grant, the Dover Hall property was

worth $36,015,420 ($7,000 × 5,145.06 acres), which they rounded to

$36,000,000. Comparing that amount to their preeasement value of

$46,300,000, they concluded that the easement was worth $10,300,000

on December 30, 2011 ($46,300,000 − $36,000,000).

Zac Ryan

Respondent offered testimony of Zac Ryan, whom petitioners

accepted as an expert appraiser of real property.

Mr. Ryan’s Preeasement Value

Like Van Sant and Wingard, Mr. Ryan valued the Dover Hall

property as a whole before and after the grant of the easement. Also

like Van Sant and Wingard, Mr. Ryan determined Dover Hall’s

preeasement value by reference to sales of generally comparable

properties. He considered four of them, which he classified as either

superior or inferior to the Dover Hall property (taking into account,

among other things, the water features of each property). Each of his

four comparable properties had merchantable timber. For three of

them, he adjusted the sales price per acre at which the property sold by

subtracting an estimate of timber value. (For the other comparable

property, he was unable to obtain an estimate of timber value and left

the sales price unadjusted.) The adjusted sales prices of the properties

he considered inferior to the Dover Hall property ranged from $936 to

$1,201 per acre. The one property he considered superior to Dover Hall

had a sales price of $3,116 per acre. He therefore concluded that the

value of the Dover Hall property “should fall . . . [above] $1,201 per acre

(the highest inferior indicator) but below $3,116 per acre (the lone

superior indicator).” Because of the “overall amenity and aesthetic

features” of the Dover Hall property, Mr. Ryan chose a per-acre value of

$3,000, toward the upper end of the range. He thus valued the Dover

Hall property before the granting of the easement at $15,435,000

($3,000 per acre × 5,145 acres).

In characterizing the “conditions of sale” for each of his four

comparable properties, Mr. Ryan described the transaction as “arm’s

19

[*19] length” but noted that two of the four transactions were sales out

of foreclosure. At trial, Mr. Ryan testified that he knew that the seller

in a third sale had been in bankruptcy. The sellers in the fourth of

Mr. Ryan’s comparable sales were limited liability companies that had

some affiliation with a family that owned another property through an

entity that was in receivership. At trial, Mr. Ryan admitted that he

should have made clear that the sellers in all four of the transactions

were in adverse financial circumstances. Mr. Ryan said that, as part of

his research, he spoke with the parties involved in the transactions and

confirmed “that the properties had received their full exposure to the

market and had achieved prices that were consistent with everything

they could have achieved under prevailing market conditions at that

point in time.”

Mr. Ryan admitted that, on a tour of the Dover Hall property

conducted by a caretaker (and attended by petitioners’ and respondent’s

counsel), “we didn’t really venture into the easement area too terribly

far, because . . . [the caretaker] couldn’t tell us where the easement was

exactly.” Mr. Ryan admitted that he did not remember seeing Green

Creek on that visit. But he came back to the property and observed

Green Creek from a highway that crosses it.

Mr. Ryan’s Posteasement Value

Mr. Ryan was unable to find appropriate comparable properties

to value Dover Hall as a whole after the easement. The only reference

properties he found were subject to easements in their entirety.

Therefore, he used those properties to value the 500 acres of Dover Hall

subject to the easement and used his $3,000-per-acre value from his

before analysis to value the remainder of the Dover Hall property after

the granting of the easement.

Mr. Ryan identified five comparable properties to value the 500

acres of Dover Hall subject to the easement, four of which included

merchantable timber. After adjustment for the timber value as

appropriate, the sales prices for the five comparable properties ranged

from $491 to $1,587 per acre. Again, Mr. Ryan classified each

comparable property as either superior or inferior to the Dover Hall

property, taking into account the property’s water features and other

factors. The adjusted sales prices for the inferior properties ranged from

$491 to $671 per acre. The adjusted sales prices of the superior

properties ranged from $1,517 to $1,587 per acre. Therefore, Mr. Ryan

concluded that “the value of the land in the conservation easement area

20

[*20] should fall above $671 per acre (the highest inferior indication)

but below $1,517 (the lowest superior indication).” In determining a

value within that range, he acknowledged the right of the partnership

to build 11 homes but found that factor offset by what he described as

“extremely limited market demand for those rights as of the effective

date of value.” Mr. Ryan therefore chose a value in the middle of the

range suggested by the sales of his comparable properties: $1,000 per

acre. He thus valued the 500 acres of the Dover Hall property subject to

the easement at $500,000 (500 × $1,000) and valued the property as a

whole after the grant of the easement at $14,435,000 ($500,000 + (5,145

acres – 500 acres) × $3,000 per acre). Comparing his before and after

values, Mr. Ryan determined that the easement was worth $1,000,000

on December 30, 2011 ($15,435,000 − $14,435,000, or 500 acres

multiplied by the $2,000 reduction in value per acre resulting from the

easement).

OPINION

I.

The Applicable Law in General

Section 170(a)(1) allows a deduction for “any charitable

contribution . . . payment of which is made within the taxable year.”

Section 170(c) defines the term “charitable contribution” to mean “a

contribution or gift to or for the use of” a specified organization.

As a general rule, a taxpayer is not allowed a deduction for a

contribution of part of the taxpayer’s interest in a property. See

§ 170(f)(3). That general rule does not apply, however, to “a qualified

conservation contribution.” § 170(f)(3)(B)(iii).

Section 170(h)(1) defines “qualified conservation contribution” to

mean “a contribution—(A) of a qualified real property interest, (B) to a

qualified organization, (C) exclusively for conservation purposes.” 13 The

term “qualified real property interest” includes “a restriction (granted in

perpetuity) on the use which may be made of . . . real property.”

§ 170(h)(2)(C). As pertinent here, section 170(h)(4)(A) defines the term

“conservation purpose” to mean (i) the preservation of land for

recreational or educational uses by the general public, (ii) “the

protection of a relatively natural habitat of fish, wildlife, or plants, or

similar ecosystem,” (iii) “the preservation of open space” that “will yield

13 Respondent does not dispute NALT’s status as a “qualified organization,” as

defined by section 170(h)(3).

21

[*21] a significant public benefit,” or (iv) “the preservation of an

historically important land area or a certified historic structure.”

Section 170(h)(5)(A) provides: “A contribution shall not be treated as

exclusively for conservation purposes unless the conservation purpose is

protected in perpetuity.”

Treasury Regulation § 1.170A-14(g)(5)(i) provides:

In the case of a donation made after February 13, 1986, of

any qualified real property interest when the donor

reserves rights the exercise of which may impair the

conservation interests associated with the property, for a

deduction to be allowable under this section the donor must

make available to the donee, prior to the time the donation

is made, documentation sufficient to establish the

condition of the property at the time of the gift. Such

documentation is designed to protect the conservation

interests associated with the property, which although

protected in perpetuity by the easement, could be adversely

affected by the exercise of the reserved rights. Such

documentation may include:

(A) The appropriate survey maps from the

United States Geological Survey, showing the

property line and other contiguous or nearby

protected areas;

(B) A map of the area drawn to scale showing

all existing man-made improvements or incursions

(such as roads, buildings, fences, or gravel pits),

vegetation and identification of flora and fauna

(including, for example, rare specifies locations,

animal breeding and roosting areas, and migration

routes), land use history (including present uses and

recent past disturbances), and distinct natural

features (such as large trees and aquatic areas);

(C) An aerial photograph of the property at an

appropriate scale taken as close as possible to the

date the donation is made; and

(D) On-site photographs taken at appropriate

locations on the property. If the terms of the

donation contain restrictions with regard to a

particular natural resource to be protected, such as

water quality or air quality, the condition of the

resource at or near the time of the gift must be

22

[*22]

II.

established. The documentation, including the

maps and photographs, must be accompanied by a

statement signed by the donor and a representative

of the donee clearly referencing the documentation

and in substance saying “This natural resources

inventory is an accurate representation of [the

protected property] at the time of the transfer.”.

Identification of Remaining Issues

In an Order issued in January 2023, following the Eleventh

Circuit’s remand of these cases, we directed the parties to “file reports

stating their views as to the actions this Court should take on remand.”

In the Status Report he submitted in response to that Order, respondent

renewed two arguments he had made on brief that, if accepted, would

require disallowance of the partnership’s deduction. First, respondent

argues, “petitioners failed to make available to the donee, prior to the

grant of the easement, documentation sufficient to establish the

condition of the property as required by Treas. Reg. § 1.170A-14(g)(5)(i).”

Respondent refers to testimony by “petitioners’ own witness” to the

effect that “the baseline documentation was not assembled until months

after donation of the easement, making compliance with the

requirement impossible.”

Respondent invokes “[a] second, independent problem with

petitioners’ conservation easement” that, in his view, “also requires

disallowance of the deduction.” “[T]he deed of easement’s reserved

rights,” respondent argues, “allow inconsistent uses which impair the

conservation interests that the easement seeks to protect.” Respondent

alleges that the allowance of inconsistent uses violates Treasury

Again, respondent claims that

Regulation § 1.170A-14(e)(2). 14

testimony of petitioners’ own witnesses supports his argument. He

claims that three expert witnesses called by petitioners “agreed that the

exercise of the reserved rights would impair, injure, and diminish the

conservation interests that the easement sought to protect.”

In his Status Report, respondent asks us to adopt as “reasonable

and well-supported” Mr. Ryan’s conclusion “that the easement was

worth $1,000,000 at the time of the donation.” Respondent also renews

14 Treasury Regulation § 1.170A-14(e)(2) provides as a general rule that “a

deduction will not be allowed if the contribution would accomplish [an] enumerated

conservation purpose[] but would permit destruction of other significant conservation

interests.”

23

[*23] an argument he made on brief that we should exclude Van Sant

and Wingard’s report. Even if we consider Van Sant and Wingard’s

report, respondent argues, we should give it “little, if any, weight

because its conclusions are contradictory and unsupported.” On the

premise that the easement’s “true value” was $1,000,000, respondent

concludes that petitioners “are subject to a forty percent gross valuation

misstatement penalty.”

In their Status Report, petitioners largely agree with

respondent’s list of issues for us to resolve on remand. They ask that we

decide “the remaining issues relating to the validity of the conservation

easement, including whether the conservation easement protects the

conservation purposes in perpetuity under I.R.C. § 170(h)(5)(A) and

whether there was adequate baseline documentation of the property at

the time of the donation.” Petitioners’ nonexclusive list leaves open the

possibility of additional issues, but neither party has identified any

other issues regarding the partnership’s compliance with section 170(h)

and its accompanying regulations. Petitioners also raise the prospect of

a reasonable cause defense to valuation misstatement penalties, which

respondent did not acknowledge in his Status Report.

We view as follows our tasks on remand. First, we have to decide

whether the documentation that the partnership made available to

NALT, before the contribution, concerning the condition of the Dover

Hall property satisfied the requirements of Treasury Regulation

§ 1.170A-15(g)(5)(i). If so, we must go on to decide whether the

partnership’s reservation of limited rights to develop the Dover Hall

property violates the requirement of section 170(h)(5)(A) that the

conservation purposes of a qualified conservation contribution be

“protected in perpetuity.” We will then need to determine the

easement’s value. If we conclude that the partnership satisfied the socalled “baseline documentation” requirements of Treasury Regulation

§ 1.170A-14(g)(5)(i) and that its reserved rights do not violate section

170(h)(5)(A), the partnership will be entitled a charitable contribution

deduction measured by the easement’s value. And the value of the

easement will be relevant for the purpose of determining petitioners’

liability for valuation misstatement penalties regardless of the

partnership’s entitlement to a charitable contribution deduction.

Finally, should we determine that the value the partnership placed on

the easement in reporting its charitable contribution deduction resulted

in a substantial valuation misstatement, within the meaning of section

6662(e)(1), but not a gross valuation misstatement, within the meaning

24

[*24] of section 6662(h)(2), we will need to consider petitioners’

reasonable cause defense to the otherwise applicable penalty.

III.

Baseline Documentation

A.

Failure of Strict Compliance

Although Treasury Regulation § 1.170A-14(g)(5)(i) requires the

donor of a qualified real property interest who reserves rights in the

donated property to make “sufficient” documentation available to the

donee before a gift, the regulation provides little or no guidance on how

to assess the sufficiency of a given quantum of documentation. Treasury

Regulation § 1.170A-14(g)(5)(i)(A) through (D) lists items that “may” be

included in the documentation. As petitioners observe, however, the

listed examples are merely illustrative.

The absence of guidance on the sufficiency of documentation—

and the practical reality that the Internal Revenue Service and the

courts are not particularly competent to assess it—highlight the

importance of the signed written statement requirement provided in

Treasury Regulation § 1.170A-14(g)(5)(i)(D). The parties’ interests in

regard to the quantum of available documentation are not likely to be in

full alignment. (The donee would generally prefer more documentation;

the donor might prefer less, to give it more flexibility in the exercise of

its reserved rights.) Therefore, if the parties jointly agree that the

baseline documentation made available to the donee before the gift

accurately represents the property’s condition at that time, their

agreement can be taken as validation that the documentation is

sufficient to enable the donee to effectively monitor the donor’s exercise

of its reserved rights in the property.

Although the regulation does not explicitly state a deadline for

the signed written statement, it does provide that the required

statement must “accompany” the documentation to which it attests.

And Treasury Regulation § 1.170A-14(g)(5)(i) requires the donor to

make that documentation available to the donee “prior to the time the

donation is made.” Therefore, by implication, the regulation requires

the parties to sign the statement before the date of the gift.

The “Baseline Documentation Acknowledgment” included in the

record does not indicate when it was signed. The only date given on the

acknowledgment is the date of recording of the easement deed. Thus,

the acknowledgment cannot have been signed until on or after the

25

[*25] recording date of December 30, 2011, which, in turn, was after the

date of the gift.

Moreover, the Baseline Documentation Acknowledgment states

only that the that the documentation to which it was attached, which

was not assembled in its final form until spring 2012, accurately

represented the physical condition of the Dover Hall property at some

unspecified time.

It does not evaluate the sufficiency of the

documentation by reference to the property’s condition at the time of the

gift. The acknowledgment therefore does not evidence the mutual

agreement of the partnership and NALT that the documentation made

available to NALT before the date of the gift was sufficient to establish

the condition of the property at that time.

Petitioners argue that the signed written statement requirement

was satisfied by the representations set forth in section 6.18.2 and 6.18.3

of the easement deed, which was signed by Nathaniel Carter, as general

manager of the partnership, and by Andrew L. Johnson, NALT’s

president. Those signatures, petitioners reason,

confirm[ed] that [Messrs. Carter and Johnson] had

reviewed the documentation required by Treas. Reg.

§ 1.170A-14(g)(5)(i)(A)-(D), including on-site photographs

and Mr. Echol’s [sic] naturalist’s report on the conservation

area showing the condition of the property at the time of

the donation and confirming that the documentation was

an accurate representation of the condition of the property

at the time of the donation.

Petitioners interpret the representations as referring “to Mr. Echols [sic]

work-product.” In the representations, they say, Messrs. Carter and

Johnson “warrant[ed] that th[e] documents [Mr. Echols compiled] were

an accurate representation of the condition of the property at the time

of the donation.” Thus, petitioners conclude, those documents, and

Messrs. Carter and Johnson’s warrant of their accuracy, “meet[] the

baseline requirements of the regulations, including the requirement of

a signed statement.”

We do not agree that section 6.18.2 and 6.18.3 of the deed signed

by Nathaniel Carter and Mr. Johnson satisfies the signed written

statement requirement of Treasury Regulation § 1.170A-14(g)(5)(i)(D).

Section 6.18.2 and 6.18.3 sets forth unilateral representations made by

the partnership to NALT. In section 6.18.3, the partnership represents

26

[*26] to NALT that the Baseline Documentation accurately represents

the condition of the Conservation Area. Mr. Johnson’s signature on the

deed that includes that representation does not demonstrate that NALT

agreed that the documentation was accurate. Treasury Regulation

§ 1.170A-14(g)(5)(i)(D) requires the donor and donee to jointly certify the

accuracy of clearly referenced documentation. A unilateral certification

of documentation, even if that certification accompanies and clearly

references the documentation, does not satisfy the signed written

statement requirement of Treasury Regulation § 1.170A-14(g)(5)(i)(D).

In short, Treasury Regulation § 1.170A-14(g)(5)(i)(D) requires a

representative of the donee to join the donor in executing a signed

written statement that attests to the sufficiency of the documentation

made available to the donee before the gift. Neither the Baseline

Documentation Acknowledgment included with the documentation as

supplemented in spring 2012 nor the partnership’s unilateral

representations to NALT in the easement deed demonstrate strict

compliance with the signed written statement requirement of Treasury

Regulation § 1.170A-14(g)(5)(i)(D).

B.

Substantial Compliance

Our conclusion that petitioners have not demonstrated the

partnership’s strict compliance with the baseline documentation rules

does not end our inquiry. As we wrote in the Order in which we

requested supplemental briefs, “[a] taxpayer’s failure to strictly comply

with a rule that is directory rather than mandatory can be excused if the

taxpayer substantially complied with the rule.”

Our caselaw on the substantial compliance doctrine can be read

to suggest a two-step analysis. First, we ask whether the relevant rule

is directory or mandatory. If the rule is mandatory, strict compliance is

required. See, e.g., Taylor v. Commissioner, 67 T.C. 1071, 1077 (1977);

Dunavant v. Commissioner, 63 T.C. 316, 319 (1974). If the rule is

instead directory, a taxpayer’s failure to strictly comply may be excused.

In those cases, we go on to ask whether the taxpayer’s compliance,

though imperfect, was at least substantial. Taylor, 67 T.C. at 1077–78.

Those two questions—whether a rule is directory or mandatory

and whether a taxpayer’s compliance was substantial—are closely

interrelated. Both aim to implement Congress’s intent. In Sperapani v.

Commissioner, 42 T.C. 308, 331 (1964), we suggested that a rule is

mandatory if it “relate[s] to the substance or essence of the statute.” And

27

[*27] in Smith v. Commissioner, T.C. Memo. 2007-368, 2007 WL

4410771, at *19, aff’d, 364 F. App’x 317 (9th Cir. 2009), we suggested

that a taxpayer’s imperfect compliance is nonetheless substantial if it

“adequately serve[s] the purposes intended by Congress.” See also

Durden v. Commissioner, T.C. Memo. 2012-140, 2012 WL 1758655, at *2

(suggesting that a taxpayer’s compliance is substantial if it is sufficient

to “fulfill[] the essential statutory purpose”).

Under a strict, two-step process, if we classified a rule as directory

rather than mandatory, we would then ask whether the taxpayer’s

failures of compliance prevent achievement of the legislative purpose.

But the answer to that second question can influence—and even

determine—the answer to the first. That a taxpayer’s failures of

compliance do not prevent achievement of Congress’s purpose

demonstrates that the rule or rules in question must not go to the

substance or essence of the statute—that is, they are directory and not

mandatory. In Vaughan v. John C. Winston Co., 83 F.2d 370, 372 (10th

Cir. 1936), the Court of Appeals for the Tenth Circuit wrote: “If a

requirement is so essential a part of the plan that the legislative intent

would be frustrated by a noncompliance, then it is mandatory.” The

converse should also be true: If noncompliance does not frustrate

legislative intent, the rule should be classified as directory (and

compliance that is sufficient to fulfill legislative intent should be judged

substantial).

Petitioners have not demonstrated strict compliance with the

baseline documentation rules of Treasury Regulation § 1.170A14(g)(5)(i) because they have not established that the documentation of

the condition of the Dover Hall property made available to NALT before

December 27, 2011, was accompanied by the signed written statement

required by Treasury Regulation § 1.170A-14(g)(5)(i)(D). The purpose of

that requirement, as we understand it, is to ensure that the

documentation of the property’s condition made available to a donee is

sufficient to enable the donee to fulfill its responsibility of preventing

the donor from exercising reserved rights in the donated property in a

manner that would undermine the gift’s conservation purposes. We

therefore ask whether the record provides a basis for concluding that,

notwithstanding the partnership’s failure to have demonstrated strict

compliance with the signed written statement requirement, the

documentation made available to NALT was sufficient to enable it to

fulfill its oversight responsibilities.

28

[*28] The partnership’s failings in regard to baseline documentation

are temporal. The record includes a statement, signed by Nathaniel

Carter on behalf of the partnership and by NALT’s stewardship

coordinator, that attests to the adequacy of the documentation available

to NALT as supplemented by Mr. Echols’s spring review of the property.

But the signed written statement included in the record does not attest

to the adequacy of the documentation available to NALT before the gift.

How significant was the possible delay of four or five months in the

completion of the baseline documentation? More to the point, what is

the risk that, on the basis of the documentation it had, NALT would

have approved the partnership’s exercise of a reserved right that it

would not have approved if it had had complete documentation in

December? Under the circumstances, we do not view that risk to be

significant.

Moreover, NALT had substantial documentation concerning the

condition of the Dover Hall property before its board approved the gift

on December 9, 2011. Mr. Echols visited the property several times in

October 2011. During those visits, he took notes and photos to document

the property’s important conservation features. On the day the board

met to approve the gift, Mr. Echols presented to the board the materials

he had assembled. At that meeting, the board approved acceptance of

the easement. We infer from that chronology that the board wanted to

consider the adequacy of Mr. Echols’s documentation before granting its

approval. And its vote to accept the partnership’s gift indicates that the

NALT board was satisfied with the documentation then available.

It would be inappropriate to infer the adequacy of documentation

of the condition of donated property available to a donee from the donee’s

acceptance of the gift alone. Making that inference from the mere

acceptance of the gift would effectively read the signed written

statement requirement out of the regulations. But the record before us

provides more than NALT’s acceptance of the gift from which to infer

the adequacy of the documentation available to NALT before the gift.

Again, we know that Mr. Echols had assembled substantial

documentation before the gift. According to his testimony, most of the

documentation in the final package came from his visits to the property

in October 2011.

And Mr. Echols provided the then-available

documentation to the NALT board on the day the board approved

acceptance of the partnership’s gift. We thus have stronger grounds for

inferring NALT’s satisfaction with the available documentation than

just the organization’s acceptance of the gift.

29

[*29] Further, we have Mr. Echols’s testimony that, in his judgment,

the documentation he had assembled before the gift was adequate. At

trial, petitioners’ counsel asked Mr. Echols whether he had “assemble[d]

the information required by the regulations prior to 2011.” Mr. Echols

responded that he had. We assume, first, that counsel’s reference to

2011 was a slip of the tongue. Under the circumstances, it seems

obvious that she meant to ask Mr. Echols whether he had assembled the

required information before 2012. But counsel’s formulation of the

question has another problem. Strictly speaking, it calls for a legal

conclusion. Mr. Echols, so far as we know, was not qualified to interpret

Treasury Regulation § 1.170-14(g)(5)(i) and would not have been allowed

to volunteer his views even if he were. Again, it seems obvious that

counsel misspoke. Under the circumstances, we will interpret her

question as seeking Mr. Echols’s judgment not on the legal issue of what

Treasury Regulation § 1.170A-14(g)(5)(i) requires but instead on the

factual question of whether the documentation of the condition of the

Dover Hall property that Mr. Echols had assembled before December 27,

2011, was sufficient to enable NALT to fulfill its responsibilities of

monitoring the partnership’s exercise of its reserved rights in the

property. And we take Mr. Echols’s affirmative answer to mean that, in

his judgment, the then-available documentation was sufficient for

NALT’s purposes.

Because counsel was essentially asking Mr. Echols to evaluate his

own work, his testimony was hardly disinterested. Indeed, Mr. Echols

acknowledged that “it’s customary for [him] not to sign” on NALT’s

behalf the statements required by Treasury Regulation § 1.170A14(g)(5)(i)(D). The statement ultimately prepared and attached to the

baseline documentation in its final form was signed by Steven Carter,

NALT’s stewardship coordinator. We cannot view as a wholly adequate

substitute for a timely signed written statement the testimony of one

who, for understandable reasons, would not customarily sign those

statements. Even so, the testimony of Mr. Echols, whom we found to be

a credible witnesses, provides further grounds for confidence that the

documentation of the condition of the Dover Hall property available to

NALT before the partnership’s conveyance of a conservation easement

on the property was sufficient for NALT to effectively monitor the

partnership’s exercise of its reserved rights in the property.

Contrary to respondent’s argument, Mr. Echols’s return to the

Dover Hall property in the spring to compile additional documentation

does not establish that the documentation available in December had

been inadequate. As Mr. Echols explained, in 2011, “follow-up spring

30

[*30] surveys” were “customary.” Apparently, donors tended to make

their gifts at the end of the year, presumably in the expectation of

obtaining a tax deduction for the year. Therefore, NALT found itself

“often visiting the property late in the year.” The customary spring

surveys allowed NALT to “provide a full ecological picture of the

property.” The condition of a property, in ecological terms, can obviously

change with the seasons. NALT and other donees might well find it

useful to document a property’s ecological conditions in various seasons.

But Treasury Regulation § 1.170A-14(g)(5)(i) does not require yearround documentation. It requires only documentation that establishes

the condition of donated property at the time of the gift, in whatever

season that happens to be.

In sum, several factors support the conclusion that NALT had

sufficient documentation of the condition of the Dover Hall property to

fulfill its responsibility of monitoring the partnership’s exercise of its

reserved rights and thereby ensure the protection in perpetuity of the

gift’s conservation purposes. The baseline documentation assembled in

its final form is accompanied by a written statement signed by

Nathaniel Carter and NALT’s stewardship coordinator attesting to the

adequacy of the documentation. Mr. Echols had assembled most of that

documentation by December and the rest a few months later. NALT’s

board received the then-available documentation on the day it approved

the gift and presumably considered the documentation in granting its

approval. And, as we interpret Mr. Echols’s response to an infelicitously

posed question from petitioners’ counsel, in his judgment, the

documentation he had compiled by December was sufficient for NALT’s

purposes. We do not view any one of those factors as dispositive. Taken

together, however, they convince us that the partnership’s imperfect

compliance with the baseline documentation rules did not prevent them

from achieving their purpose. We are confident that the documentation

available to NALT was sufficient to enable it to effectively monitor the

partnership’s exercise of its reserved rights in the Dover Hall property

and thereby ensure the perpetual protection of the conservation

purposes of the partnership’s gift to NALT. It follows that the baseline

documentation rules are directory rather than mandatory, that

substantial compliance with those rules would be sufficient, and that

the partnership substantially complied.

31

[*31] IV.

A.

Effect of Reserved Rights on Section 170(h)(5)(A)

Applicable Law

Treasury Regulation § 1.170A-14(e)(2) provides as a general rule

that “a deduction will not be allowed if the contribution would

accomplish [an] enumerated conservation purpose[] but would permit

destruction of other significant conservation interests.” The regulations

give the example of an easement to preserve farmland “pursuant to a

State program for flood prevention and control.” Id. The easement

would not serve the purpose of preserving open space “if under the terms

of the contribution a significant naturally occurring ecosystem could be

injured or destroyed by the use of pesticides in the operation of the

farm.” Id. The rule provided in Treasury Regulation § 1.170A-14(e)(2),

however, “is not intended to prohibit uses of the property . . . if, under

the circumstances, those uses do not impair significant conservation

interests.”

Treasury Regulation § 1.170A-14(f) presents two contrasting

examples of scenic easements on property visible from a national park.

In example (3), the grantor retains the right to subdivide the property

into 90-acre parcels and build one single-family home on each parcel.

The example assumes as a fact that “[r]andom building on the property,

even as little as one home for each 90 acres, would destroy the scenic

character of the view.” Treas. Reg. § 1.170A-14(f) (example 3). The

example concludes that “[N]o deduction would be allowable under this

section.” Id.

By contrast, the property at issue in example (4) includes some

areas “generally not visible from the national park.” Treas. Reg.

§ 1.170A-14(f)(4) (example 4). The easement allows for the building of

homes in those areas. The example states: “The donor and the donee

have already identified sites where limited cluster development would

not . . . impair the view.” Id. The example concludes that “the donation

[of the easement] qualifies for a deduction under this section.” Id.

Treasury Regulation § 1.170A-14(g)(1) provides:

In the case of any donation under this section, any interest

in the property retained by the donor . . . must be subject

to legally enforceable restrictions (for example, by

recordation in the land records of the jurisdiction in which

the property is located) that will prevent uses of the

32

[*32] retained interest inconsistent with the conservation

purposes of the donation.

B.

The Parties’ Arguments

1.

Respondent

Respondent emphasizes Mr. Wilson’s acknowledgment that the

partnership’s exercise of its reserved rights to limited development of

the Dover Hall property would “diminish” the easement’s conservation

values. And respondent says that “[p]etitioners’ other expert witnesses”

“largely agreed.” Respondent alleges that “all three” of petitioners’

expert witnesses “agreed that the exercise of the reserved rights would

impair, injure, and diminish the conservation interests that the

easement sought to protect.”

Respondent argues that “the total destruction of a conservation

purpose is not necessary for a use to be inconsistent.” Pointing to the

example of the open space easement on farmland in Treasury

Regulation § 1.170A-14(e)(2), respondent contends that, if a donor’s use

merely “injures a conservation purpose, that would also be inconsistent

with protecting the easement in perpetuity.” That example, again,

concludes that the easement would not perpetually protect open space if

the use of pesticides could injure or destroy a significant, naturally

occurring ecosystem.

Respondent concludes that the partnership’s exercise of its

reserved rights “would . . . fall within the definition of ‘inconsistent uses’

contained in Treas. Reg. § 1.170A-14(e)(2).” Consequently, “the

easement is not exclusively for conservation purposes, as required by

I.R.C. § 170(h)(1)(C) and Treas. Reg. § 1.170A-14(e), and the deduction

claimed should therefore be disallowed.”

2.

Petitioners

Apparently relying on Treasury Regulation § 1.170A-14(f)

(example 4), petitioners contend that “[t]he law allows a Donor to retain

rights in the donated conservation property, including the right to build

on the property.” Petitioners insist that the rights retained by the

partnership under the easement “do not destroy any conservation

interests.” Section 3.25.2 of the easement deed, they reason, “ensures

that the owner’s exercise of any retained right can have no material

adverse effect on the conservation purposes or on the significant

environmental features of the conservation area.” Petitioners describe

33

[*33] the testimony of their experts as having “confirmed that the

exercise or retained rights would have a negligible impact on the

Conservation Purposes.”

Citing Mr. Sligh’s oral testimony, petitioners posit that NALT, in

approving building areas, “would leave some trees and other natural

habitat on the lot to enhance the aesthetic value of that lot.” And citing

Mr. Sligh’s written report, they contend that “[t]he development of

eleven home sites will not affect the species diversity present within the

Conservation Easement.” Referring to Mr. Sligh’s testimony and

Mr. Echols’s report and testimony, petitioners assure us that “[t]he

presence of nine-docks [sic] along Green Creek would have a negligible

effect on the conservation purposes of relatively open space and scenic

views.”

Petitioners claim to have “presented unrebutted evidence that

exercising retained rights would have, at most, a negligible impact on

the conservation purposes.” And, they observe, “[r]espondent presented

no evidence to the contrary.”

C.

Analysis

The question before us, as we see it, is whether the partnership’s

exercise of its reserved rights in the Dover Hall property would be

“inconsistent with the conservation purposes” of the partnership’s

donation of the easement to NALT. Treas. Reg. § 1.170A-14(g)(1).

Respondent’s reliance on Treasury Regulation § 1.170A-14(e)(2) strikes

us as misplaced. Treasury Regulation § 1.170A-14(e)(2) generally

requires denial of a deduction when the contribution of a qualified real

property interest would accomplish its specified conservation purposes

but would also “permit destruction of other significant conservation

interests.” Respondent’s position, as we understand it, is that the

partnership’s reserved rights to limited development of the Dover Hall

property would undermine the very conservation purposes for which the

partnership claims to have conveyed the easement. Therefore, we view

the governing authority as Treasury Regulation § 1.170A-14(g)(1) rather

than Treasury Regulation § 1.170A-14(e)(2). And the relevant question

under Treasury Regulation § 1.170A-14(g)(1) is whether the

partnership’s exercise of its reserved rights would be “inconsistent with

the conservation purposes” of its donation.

The parties emphasize different aspects of the oral and written

testimony of petitioners’ three expert witnesses. All three experts

34

[*34] agreed that the building of docks and homesites could have some

adverse effects on the conservation values of the Dover Hall property.

But they also agreed that any adverse effect would be minimal and that,

overall, the easement—taking into account the reserved rights—would

protect those conservation values.

Mr. Wilson acknowledged that the building of homes and roads

on the Dover Hall property would have “a direct impact to habitats on

the conservation area.” He agreed that the partnership’s exercise of its

reserved rights would “diminish” the property’s conservation values,

“but not significantly.” His written report ultimately concludes that “the

easement provides for the protection of the conservation values in

perpetuity.”

Similarly, Mr. Sligh acknowledged that the addition of nine docks

on the shoreline of Green Creek would “slightly decrease” the

conservation benefits of the shoreline, but they would have “very little

negative impact.” Mr. Sligh ultimately concluded that the partnership’s

reserved rights would “not diminish the overall Conservation Values” of

the Dover Hall property.

Mr. Echols testified that the 11 homesites would impair the

easement’s conservation values “to a negligible degree.” His written

report concludes that “the allowable reserved rights do not affect the

perpetuity of the Conservation Area.”

All three experts emphasized the importance of the requirement

in the easement deed that NALT approve any building sites. Mr. Wilson

made the obvious point that the extent to which the building of

homesites and associated roads would impair the easement’s

conservation values would depend on where they were placed. Thus, in

reaching their conclusions, all three experts seemed to have assumed

that NALT would fulfill its responsibility under the easement deed of

denying approval of any exercise of a reserved right that would have a

material adverse impact on the easement’s conservation values.

Mr. Wilson characterized the requirement for NALT’s approval as

“perhaps the most important provision in the reserved rights.”

Section 170(h) and its accompanying regulations obviously and

necessarily rest on the premise that donees will enforce their rights in

contributed property. Otherwise, no contribution of a qualified real

property interest could qualify for a deduction.

Therefore, in

determining whether the conservation purposes of the partnership’s

35

[*35] contribution to NALT will be protected in perpetuity, we must

assume—as apparently did petitioners’ expert witnesses—that NALT

will not approve the partnership’s exercise of any reserved rights that

would have a material adverse effect on those purposes. 15

Thus, whether the partnership’s contribution satisfies the

protected-in-perpetuity requirement of section 170(h)(5)(A) boils down

to whether the partnership’s use of the property in a manner that would

have an immaterial adverse effect on the contribution’s conservation

purposes would be “inconsistent” with those purposes. Treas. Reg.

§ 1.170A-14(g)(1). The answer, by definition, is “no.” “Immaterial,” in

this context, means “of no substantial consequence.” Immaterial,

www.merriam-webster.com/dictionary/immaterial

(last

updated

Oct. 26, 2023). An effect that is immaterially adverse should be treated

in the same manner as an effect that is not adverse at all. Allowing the

possibility of an immaterial adverse effect to determine the

partnership’s entitlement to a deduction would give the effect

substantial consequence, contrary to the normal meaning of

“immaterial.” We therefore conclude that the partnership’s reserved

rights in the Dover Hall property do not violate the requirement of

section 170(h)(5)(A) that a contribution’s conservation purpose be

protected in perpetuity.

V.

The Easement’s Value

The mandate of the Eleventh Circuit requires us to accept that

the easement the partnership conveyed to NALT was a qualified real

property interest. We have concluded that the partnership complied

with the documentation requirements of Treasury Regulation § 1.170A14(g)(5)(i) and that the rights the partnership retained in the Dover Hall

property do not prevent the contribution’s conservation purposes from

15 Our expectation that NALT would deny any request by the partnership to

exercise a reserved right that would have a material adverse effect on the easement’s

conservation purposes rests on more than a “vague hope.” Cf. Pine Mountain Preserve,

LLLP, 151 T.C. at 317 (Morrison, J., dissenting). The easement deed requires NALT

to deny approval of a request in those circumstances. We merely accept that NALT

will fulfill its responsibilities under the easement deed. In that respect, the facts of

the present cases may be distinguishable from those of Pine Mountain. In the quoted

portion of his dissenting opinion in Pine Mountain, Judge Morrison was addressing an

easement granted in 2006 (one of three easements at issue in that case). Under terms

of the 2006 easement, the donee (also NALT) was apparently allowed, but not required,

to “withhold approval if it believes that the Building Area sites proposed by Pine

Mountain would ‘result in any material adverse effect on any of the Conservation

Values or Conservation Purposes.’” Pine Mountain Preserve, LLLP, 151 T.C. at 259.

36

[*36] being protected in perpetuity, as required by section 170(h)(5)(A).

Respondent raises no other challenges to the partnership’s entitlement

to a charitable contribution deduction under section 170(a)(1).

Therefore, the partnership is entitled to a deduction equal to the fair

market value of the easement at the time of the contribution. See Treas.

Reg. § 1.170A-1(c)(1).

Each side presented expert testimony on the issue of the

easement’s value. Before trial, respondent filed a Motion in Limine to

exclude the report prepared by petitioners’ experts. On the last day of

trial, we issued an Order stating that we would take respondent’s

motion “under advisement.” On the day we entered our initial decisions

in the cases, we denied respondent’s Motion in Limine as moot. In his

postremand Status Report, respondent renewed his claim that the Van

Sant and Wingard report should be excluded. The admissibility of that

report thus presents a threshold issue in determining the value of the

easement. For the reasons explained infra Part V.A.2, we conclude that

the Van Sant and Wingard report is admissible. For the reasons

explained infra Part V.B, however, Van Sant and Wingard’s report does

not persuade us that the easement was worth more than the $1,000,000

value determined by respondent’s expert, Mr. Ryan.

A.

Admissibility of Van Sant and Wingard Report

1.

The Parties’ Arguments

Respondent argues that Van Sant and Wingard’s report does not

comply with Rule 143(g)(1), which requires a party who plans to call an

expert witness to have the expert submit a written report that, among

other things, includes “a complete statement of all opinions the witness

expresses and the basis and reasons for them.” Respondent argues that

the Van Sant and Wingard report fails to identify specific opinions with

either of its coauthors.

That failure, according to respondent,

“significantly impair[ed his] ability to cross-examine the authors, while

also denying [him] the reasonable opportunity to obtain evidence in

rebuttal to the authors’ testimony, because [he] ha[d] no basis upon

which to determine which author wrote which portions of the report.”

Respondent claims that Van Sant and Wingard’s allegedly inconsistent

testimony at trial concerning the portions of the report that each

authored simply confirms his position regarding its admissibility.

In further support for his argument, respondent cites Estate of

Noble v. Commissioner, T.C. Memo. 2005-2, 2005 WL 23303. In that

37

[*37] case, we excluded from evidence a report prepared by the

appraisal firm Shenehon Co. Although the report indicated on its face

that it had been prepared by three individuals—presumably officers or

employees of Shenehon—only one of those individuals was available for

trial. We excluded the report from evidence “on the basis of” our earlier

opinion in Bank One Corp. v. Commissioner, 120 T.C. 174, 278 (2003),

aff’d in part, vacated in part, and remanded sub nom. JPMorgan Chase

& Co. v. Commissioner, 458 F.3d 564 (7th Cir. 2006). Estate of Noble v.

Commissioner, 2005 WL 23303, at *2.

In Bank One, on the

Commissioner’s motion, we had excluded a rebuttal report of one of the

taxpayer’s experts. The Commissioner claimed that the rebuttal report

“was tainted in its preparation by the significant participation of [the

taxpayer’s] counsel.” Bank One, 120 T.C. at 278. In articulating the

basis for our decision to grant the Commissioner’s motion, we noted that

the expert “never explained to our satisfaction that the words, analysis,

and opinions in that report were his own work.” Id.

Petitioners argue that Noble is distinguishable from their cases

because, in Noble, only one of the three authors of the rejected joint

report was able to testify. More generally, petitioners argue that Rule

143(g) does not prohibit joint expert reports and assert that experts who

prepare a joint report need not explain which portions of the report each

wrote. They cite prior cases in which we have accepted joint expert

reports. See Esgar v. Commissioner, T.C. Memo. 2012-35, aff’d, 744 F.3d

648 (10th Cir. 2014); Estate of Ford v. Commissioner, T.C. Memo. 1993580, aff’d, 53 F.3d 924 (8th Cir. 1995); Estate of Dougherty v.

Commissioner, T.C. Memo. 1990-274; Jacobson v. Commissioner, T.C.

Memo. 1989-606. 16

Respondent counters that the cases petitioners rely on are no

longer authoritative because they do not reflect the changes to the

Federal Rules of Evidence (FRE) concerning expert testimony adopted

to reflect the Supreme Court’s opinions in Daubert v. Merrell Dow

16 Petitioners also cite a much earlier opinion, Fogle v. Commissioner, T.C.

Memo. 1966-148, 1966 Tax Ct. Memo LEXIS 134. The findings of fact in that case

include a reference to a submission to “the court” of a “joint appraisal” by two

appraisers. Id. at *3. But that report was received by an Indiana state court in an

action for the partition and sale of jointly owned property. The taxpayer in that case,

one of the joint owners, objected to the sale and refused to accept his share of the

proceeds. We concluded that he was subject to tax on his share of the proceeds under

the constructive receipt doctrine.

38

[*38] Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Kumho Tire Co. v.

Carmichael, 526 U.S. 137 (1999).

Daubert held that the FRE provisions concerning expert

testimony then in effect had superseded prior caselaw under which that

testimony could be admitted only if grounded in principles that had

received general acceptance in the relevant field. See Frye v. United

States, 293 F. 1013 (D.C. Cir. 1923). Although Daubert dealt with

scientific testimony, Kumho Tire extended Daubert’s holding to

testimony based on technical or other specialized knowledge. Daubert

and Kumho Tire did not, however, remove all restrictions on the

admissibility of expert testimony. The cases envision that a trial judge

considering an offer of expert testimony will serve a “gatekeeping”

function, see Kumho Tire, 526 U.S. at 141, admitting only evidence that,

even if not grounded in generally accepted principles, is nonetheless

both reliable and relevant to the case at hand. In 2000, Congress

amended FRE 702 to codify Daubert’s reliability requirement. As

amended, the Rule allows expert testimony only if it is “based on

sufficient facts or data” and “the product of reliable principles and

methods,” and if the expert “has reliably applied the principles and

methods to the facts of the case.” Fed. R. Evid. 702.

2.

Analysis

While petitioners are correct that Rule 143(g) does not flatly

prohibit joint expert reports, respondent’s argument does not rest on

that proposition. As we understand him, respondent argues that a joint

report does not comply with Rule 143(g) unless it identifies the specific

opinions and analysis for which each author takes responsibility.

But we do not regard the appraisal that Van Sant and Wingard

prepared as deficient in that respect.

Their report includes a

certification by each of them taking responsibility for all of the report’s

analysis, opinions, and conclusions. Respondent points to nothing in the

report that would indicate that some opinions and analyses were those

of only one of its two signatories. (While Mr. Wingard acknowledged

occasional disagreements, he testified that he and Mr. Van Sant were

able to resolve them and arrive at mutually acceptable conclusions.)

Any questions about who actually put pen to paper (or, more

likely, fingers to keyboard) in the preparation of the report strike us as

beside the point. An expert report compliant with Rule 143(g) must

state the witness’ conclusions and analysis. Satisfaction of that

39

[*39] condition does not require every word in the report to spring from

the witness’ brow. Words written by another can accurately express the

witness’ views. If the witness is willing to adopt those words as his own

and stand behind the conclusions they express and the analysis

supporting them, it should be of no moment that the witness was not the

initial author.

Requiring every word in an expert report to be identified with an

individual author who is available to testify would greatly hinder our

ability to rely on experts who work in firms. The larger and more

complex the matter, and the more participants needed to prepare a

report, the less likely its admission into evidence would be.

Although petitioners were unable to cite a post-Daubert case in

which we received a joint expert report, 17 we do not view the changes in

standards regarding expert testimony initiated by Daubert as being

particularly germane to the issue of joint reports. Daubert and Kumho

Tire liberalized the standards for admitting expert testimony by

allowing for the admission of opinions based on analysis that had not

received general acceptance in the relevant field. Daubert also

emphasized that expert testimony must nonetheless be assessed as

reliable. But reports whose preparation involved multiple participants

are not inherently less reliable than those of a single author. If

anything, the consideration and synthesis of multiple viewpoints may

enhance reliability.

While we acknowledge some tension between our opinion in

Noble, on which respondent relies, and our earlier opinion in Ford,

which petitioners cite, we do not attribute their possibly divergent

results to intervening Supreme Court precedent. Ford, like Noble,

Although Esgar v. Commissioner, 2012 WL 371809, postdated Daubert,

Kumho Tire, and the 2000 amendment to FRE 702, we do not view Esgar as involving

a joint report. The report at issue in Esgar might be more accurately described as a

“meta-report.” In that case, which addressed the contribution of a conservation

easement, the Commissioner objected to a report prepared by one of the taxpayer’s

experts, a Mr. Emmerling. Mr. Emmerling’s report, as we described it, “summarized,

and in certain situations corrected, the conclusions of [the taxpayers’] other experts.”

Esgar v. Commissioner, 2012 WL 371809, at *11. The Commissioner objected to Mr.

Emmerling’s report because it was based on the opinions and analysis of the taxpayers’

other experts rather than “independent data and information.” Id. at *12. We agreed

with the taxpayers that Mr. Emmerling’s report could “assist the Court” and thus

admitted it. Id. Although Mr. Emmerling’s report reviewed conclusions of other

experts, his analysis of those conclusions was his own. Whatever other issues his

report might have raised, uncertainty of authorship was not one of them.

17

40

[*40] involved an appraisal report prepared by three individuals on

behalf of Shenehon Co., only one of whom testified at trial. We admitted

the Shenehon report and used it as the principal basis for our conclusion

regarding the value of the closely held stock in issue. Our opinion in

Ford gives no indication that the Shenehon report in that case did not

accurately reflect the views of the available witness. By contrast, our

statement in Noble that our opinion in that case was based on Bank One

indicates that we had reason for suspicion about the extent to which the

Shenehon representative who appeared at trial stood behind the report’s

conclusion. If that were the case, however, we did not articulate in our

opinion the basis for any such suspicions. Therefore, we accept that

Ford and Noble might, on their surfaces, be difficult to reconcile. We see

no reason, however, to attribute the different results in those cases to

intervening changes in the rules concerning expert testimony.

We therefore reject respondent’s arguments for excluding Van

Sant and Wingard’s report. Although we have considered that report in

determining the value of the easement, for the reasons explained infra

Part V.B, we do not find the report reliable.

B.

The Van Sant and Wingard Report’s Reliability

Respondent argues that, even if we admit Van Sant and

Wingard’s report into evidence (as we have decided to do), we should

give their conclusions “little, if any, weight.” Respondent points to the

difficulty Van Sant and Wingard had in explaining the 30% adjustment

they made for the effect of the easement on the value of the Dover Hall

property and the inconsistency of their testimony on that point.

By contrast, petitioners suggest that the 30% adjustment Van

Sant and Wingard made for the effects of the easement was too low.

They observe that a 9.7% reduction in units/landmass and a 20%

reduction in docks “produces a reduction of approximately 30% of the ‘on

paper’ attributes.” But reducing Dover Hall’s value by 30% to account

for the easement would have been appropriate, they reason, only “if all

acres were created equal.” On the premise that the easement covers

Dover Hall’s most valuable acres, petitioners suggest that “a 30%

reduction may not be enough.” (Petitioners do not provide any more

explanation than did Van Sant and Wingard of the rationale for simply

summing the percentage reductions in various attributes without

weighting those reductions by the portion of Dover Hall’s total value

accounted for by those attributes.)

41

[*41] We agree with respondent that Van Sant and Wingard’s inability

to explain their determination that the easement reduced by 30% the

value of the Dover Hall property renders their report unreliable. Their

summation of the percentage reductions in various attributes has no

apparent logic. Simply summing up the percentage reductions in

acreage available for development, residential units that can be

developed, or docks that can be built does not take into account the

extent to which those attributes contribute to the property’s total

value. 18 Van Sant and Wingard’s conclusion that the easement was

worth $10,300,000 rests on the proposition that the easement reduced

by 30% the value of the Dover Hall property. Because they failed to

establish the validity of that proposition, we cannot rely on the

conclusion they drew from it.

C.

Mr. Ryan’s Report

By contrast, we found Mr. Ryan’s report credible. By comparing

the value of the Dover Hall property before the grant of the easement to

its value thereafter, having been unable to identify appropriate sales of

easements to use as frames of reference, Mr. Ryan complied with

Treasury Regulation § 1.170A-14(h)(3)(i). That section provides, in

relevant part, that

[i]f there is a substantial record of sales of easements

comparable to the donated easement . . . the fair market

value of the donated easement is based on the sales prices

of such comparable easements. If no substantial record of

market-place sales is available to use as a meaningful or

valid comparison, as a general rule . . . the fair market

value of a perpetual conservation restriction is equal to the

difference between the fair market value of the property it

encumbers before the granting of the restriction and the

fair market value of the encumbered property after the

granting of the restriction. The amount of the deduction in

the case of a charitable contribution of a perpetual

conservation restriction covering a portion of the

contiguous property owned by a donor and the donor’s

family . . . is the difference between the fair market value

of the entire contiguous parcel of property before and after

18 Under Van Sant and Wingard’s logic, a thief who absconded with one of a

car’s four doors (25% of the total), one of its four tires (also 25%), and two of its four

sparkplugs (50%) should congratulate himself on having stolen the entire car.

42

[*42] the granting of the restriction. If the granting of a

perpetual conservation restriction . . . has the effect of

increasing the value of any other property owned by the

donor or a related person, the amount of the deduction . . .

shall be reduced by the amount of the increase in the value

of the other property, whether or not such property is

contiguous.

Petitioners challenge the reliability of Mr. Ryan’s report on

several grounds. None of petitioners’ challenges, however, convinces us

that Mr. Ryan’s analysis was unsound.

Petitioners argue that Mr. Ryan relied on inappropriate reference

transactions for his “before” analysis. Petitioners dismiss those

transactions as “distressed sales of timber tracts with little or no water

influence.” Referring to those properties and the transactions in which

they sold, petitioners claim “one was in receivership, one in bankruptcy,

one in judicial foreclosure and one sold in a bank sale.” 19

Petitioners also suggest that Mr. Ryan did not adequately inspect

the Dover Hall property. In their opening brief, petitioners claimed:

“Mr. Ryan admitted he never saw the full expanse of Green Creek nor

fully understood the boundaries of the Conservation Easement.”

Petitioners’ reply brief escalated that argument: Mr. Ryan, they claim,

“admits not seeing Green Creek or the easement, so he has no basis for

determining value.”

Petitioners challenge the roughly $15 million preeasement value

Mr. Ryan assigned to the Dover Hall property on the ground that it is

inconsistent with the benchmark established by petitioner Evans’s

purchase of a 50% interest in the partnership for $30 million less than

three years before the partnership’s donation of the easement. They

claim that Mr. Evans’s purchase put a value on the Dover Hall property

of “at least $60 million” 20 and profess incredulity that the property could

19 Mr. Ryan’s report acknowledged that two of his comparable sales were out

of foreclosure. At trial, he testified that he knew that the seller in another sale had

been in bankruptcy. While the selling entity in the fourth sale may have been under

common ownership with another entity that was in receivership, the record does not

establish that the seller itself was in receivership.

20 On the premise that the price Mr. Evans paid for his interest in the

partnership would have reflected a discount for lack of control, petitioners argue that

that price implied a “total value” for the Dover Hall property “closer to $75 million or

$80 million.”

43

[*43] lose “75 percent of [its] overall value . . . over the course of two and

a half years.”

Petitioners also insinuate that Mr. Ryan’s determination of

different per-acre values for the portions of the Dover Hall property

within and outside the easement violates the rule of Treasury

Regulation § 1.170A-14(h)(3)(i) that requires the valuation of the entire

contiguous property owned by the donor. They note that Van Sant and

Wingard “prepared their appraisal in accordance with” the requirement

that “they value the entire 5,145 acre tract before the donation and

again after the donation,” and compare that approach favorably to

Mr. Ryan’s use of “small sales of easement properties in his after value

methodology.”

Petitioners’ claims about the adequacy of Mr. Ryan’s inspection of

the Dover Hall property do not, in our judgment, undermine the

reliability of his report. Although Mr. Ryan admitted that he did not

recall seeing Green Creek on his initial visit to the property, he testified

that he had observed the creek on a later visit. To the extent that

Mr. Ryan was unsure of the easement’s precise boundaries, that

uncertainty was not due to a lack of diligence on his part but instead to

the caretaker’s inability to identify the boundaries. And even if

Mr. Ryan could not visually inspect the easement’s exact boundaries, we

accept that his visit to the property gave him an adequate sense of the

nature of the property covered by the easement. To accuse Mr. Ryan of

having failed to see Green Creek or the property subject to the easement

at all (as petitioners do in their reply brief) is an obvious overstatement.

Petitioners’ principal complaint about Mr. Ryan’s report is that

the comparable sales he used to determine the preeasement value of the

Dover Hall property were, in their view, not really comparable; they

were distressed sales of timberland with no water influence. But

Mr. Ryan made adjustments where he could to back out the value of

merchantable timber. 21 And he took the properties’ water features into

account in ranking them as either superior or inferior to the Dover Hall

21 Mr. Ryan’s failure to adjust for the timber value of the one property he

considered superior to the Dover Hall property increased the preeasement value he

assigned to the Dover Hall property, and thus also increased the value he assigned to

the easement.

44

[*44] property. 22 Although Mr. Ryan did not adjust his values (or

otherwise take into account as a negative factor) the conditions of his

comparable sales, he explained at trial the basis for his confidence that

in no case did a seller’s motivation to sell result in the acceptance of a

price that did not reflect the property’s true value.

We do not view Mr. Ryan’s assignment of a differing value to each

acre of Dover Hall within the easement and each acre outside it as

violating the rule of Treasury Regulation § 1.170A-14(h)(3)(i) that

requires the valuation of the entire contiguous parcel owned by the

donor from which the easement is carved out. That requirement allows

for consideration of the extent to which a conservation easement

increases the value of surrounding property owned by the donor or a

related party. Neither the terms of the rule nor its apparent rationale

requires assigning a uniform value to each acre of the property. It

should be expected that the portions of the overall parcel subject to

restriction would be worth less per acre than the portions whose use is

not so limited. Indeed, as respondent points out, Van Sant and

Wingard’s use of uniform per-acre values leads to several

incongruities. 23

We do not find Mr. Evans’s purchase of a 50% interest in the

partnership in April 2009 probative of the value of the easement upon

its donation to NALT in December 2011. To begin with, the record does

not establish the composition of the partnership’s assets when

Mr. Evans purchased his interest. 24 Even if we were to accept that, at

that time, the partnership owned the Dover Hall property as its only

asset, Mr. Evans’s purchase of his partnership interest would at most

establish only that the property was worth around $60 million in April

2009. That datum might have some bearing on Dover Hall’s value 32

months later. But see RERI Holdings I, LLC v. Commissioner, 149 T.C.

1, 41 (2017) (opining that “evidence of [a] property’s value in February

22 If the absence of water features renders a property invalid as a frame of

reference in valuing the Dover Hall property, then three of the comparables Van Sant

and Wingard used would be invalid as well.

For example, as respondent observes, the value Van Sant and Wingard

assigned to the easement ($10,300,000) exceeds the product of the 500 acres covered

by the easement and the $9,000 per-acre value they assigned to the Dover Hall

property before the grant of the easement (500 acres × $9,000 = $4,500,000).

23

24 Because the parties’ Stipulation concerning the partnership’s assets uses the

present tense, it speaks only as of April 2017 and does not establish what the

partnership owned at any earlier time, including when Mr. Evans purchased his

interest in the partnership.

45

[*45] 2002 . . . is of limited worth in assessing the property’s value [when

donated to a charitable organization] in August 2003”), aff’d sub nom.

Blau v. Commissioner, 924 F.3d 1261 (D.C. Cir. 2019). We might also

accept that a 75% decline in the value of property in less than three

years would be relatively unusual. But both Mr. Ryan’s report and that

of Van Sant and Wingard indicate that the Dover Hall property declined

in value during that period (as, indeed, did the qualified appraisal

prepared in connection with the partnership’s return).

And a

diminished value of the Dover Hall property as a whole in December

2011 is only part of the inquiry. Determining that value is only a step

in the ultimate objective of valuing the easement the partnership

conveyed to NALT. At most, the price Mr. Evans paid for his interest in

the partnership might indicate that Mr. Ryan undervalued the

easement to some extent. As explained below, however, petitioners have

not offered us a reliable means of determining a higher value.

D.

Conclusion

We therefore accept Mr. Ryan’s determination that the easement

the partnership conveyed to NALT on December 27, 2011, was worth

$1,000,000 at that time. We found Mr. Ryan’s analysis sound and his

defense of that analysis convincing. In particular, he addressed to our

satisfaction the questions petitioners raised about the comparability of

the properties he used as points of reference in his “before” analysis.

Petitioners have given us no reliable means of determining a

value for the easement, as of December 27, 2011, higher than

$1,000,000. Petitioners ultimately ask us to determine that the

easement was worth $17,656,981—an amount well in excess of both the

amount reported on the partnership’s return and the value determined

by their own experts. Petitioners describe their proposed value for the

easement as “[a] before value of $58,856,605 less [their experts’] 30%

reduction.” Petitioners’ asserted “before” value appears to be based on

the price Mr. Evans paid for his 50% interest in the partnership, but if

that was their intent, they seem to have made an arithmetic error. 25

The $17,656,981 value that petitioners ultimately ask us to

assign to the easement by combining (i) the price Mr. Evans paid for his

interest in the partnership and (ii) Van Sant and Wingard’s 30%

adjustment to reflect the diminution of the value of the Dover Hall

25 Mr. Evans paid $29,428,027 for his interest in the partnership; that amount

divided by 0.5 is $58,856,054.

46

[*46] property caused by the easement is no more reliable than its

constituent parts. Mr. Evans’s purchase in April 2009 is of little or no

relevance in determining the value of the Dover Hall property in

December 2011, and Van Sant and Wingard’s 30% adjustment is either

inexplicable or—to the extent we credit the explanation they offered at

trial—illogical.

VI.

Valuation Misstatement Penalties

Section 6662(a) and (b)(3) imposes an accuracy-related penalty if

any part of an underpayment of tax required to be shown on a return is

due to a substantial valuation misstatement. The penalty is 20% of the

portion of the underpayment of tax to which the section applies.

§ 6662(a). In the case of a gross valuation misstatement, the penalty

rate is increased from 20% to 40%. § 6662(h)(1). The substantial

valuation misstatement penalty applies to any portion of an

underpayment that is attributable to the taxpayer’s claiming on a return

a value or basis that is 150% or more of the correct value or basis.

§ 6662(e)(1). The gross valuation misstatement penalty applies if the

claimed value or basis is 200% or more of the correct amount.

§ 6662(h)(2). The penalty for a valuation misstatement does not apply,

however, unless the portion of the taxpayer’s underpayment for a

taxable year attributable to either a substantial or a gross valuation

misstatement exceeds $5,000 (or, in the case of most corporations,

$10,000). § 6662(e)(2).

Section 6664(c) provides an exception to the accuracy-related (and

fraud) penalties if there was reasonable cause for the portion of the

underpayment subject to the penalty and the taxpayer acted in good

faith with respect to that portion. Section 6664(c)(3), however, limits

the availability of the reasonable cause exception in the case of valuation

misstatements with respect to property other than marketable

securities for which the taxpayer claimed a charitable contribution

deduction. Under that section, the reasonable cause exception does not

apply in the case of a gross valuation misstatement. In addition, the

exception does not apply in the case of a substantial valuation

misstatement unless “(A) the claimed value of the property was based

on a qualified appraisal made by a qualified appraiser, and (B) in

addition to obtaining such appraisal, the taxpayer made a good faith

investigation of the value of the contributed property.”

Although taxpayers generally bear the burden of proof under Rule

142(a), section 7491(c) provides that “the Secretary shall have the

47

[*47] burden of production in any court proceeding with respect to the

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

amount imposed by this title.” In Dynamo Holdings Ltd. Partnership v.

Commissioner, 150 T.C. 224, 226 (2018), we held that “the

Commissioner does not bear the burden of production with respect to

penalties in a partnership-level proceeding.” But the holding of that

opinion and its underlying rationale are limited to partnerships subject

to TEFRA’s unified partnership audit and litigation rules. Although the

present cases involve deductions claimed by a partnership, we concluded

in our prior opinion that that partnership is subject to the small

partnership exception to the TEFRA rules. § 6231(a)(1)(B); Carter, T.C.

Memo. 2020-21, at *3 n.3. Therefore, the cases before us involve “the

liability of . . . individual[s] for . . . penal[ties],” within the meaning of

section 7491(c).

To meet his burden of production under section 7491(c), the

Commissioner must produce evidence regarding the appropriateness of

imposing the penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

If the Commissioner satisfies his burden of production, “the taxpayer

must come forward with evidence sufficient to persuade a Court that the

Commissioner’s determination is incorrect.” Id. at 447. Once the

Commissioner satisfies his burden of production, the taxpayer generally

has the burden of proof with respect to exculpatory factors such as

reasonable cause. See id. at 446–47.

The Commissioner’s burden of production under section 7491(c)

requires him to establish compliance with the supervisory approval

requirements of section 6751(b)(1). Graev v. Commissioner, 149 T.C.

485, 493 (2017), supplementing and overruling in part 147 T.C. 460

(2016); Carter, T.C. Memo. 2020-21, at *27. Section 6751(b)(1) provides:

“No penalty under this title shall be assessed unless the initial

determination of such assessment is personally approved (in writing) by

the immediate supervisor of the individual making such determination

or such higher-level official as the Secretary may designate.”

As noted at the outset, in our initial opinion in these cases, we

concluded that respondent had not met his burden of demonstrating

timely supervisory approval in compliance with section 6751(b)(1). In

light of the Eleventh Circuit’s reversal of our decisions, however, we

must accept that supervisory approval was timely and that respondent

has met that aspect of his burden of production under section 7491(c).

48

[*48] It follows from our conclusion as to the value of the easement the

partnership conveyed to NALT that respondent has met the rest of his

burden under section 7491(c) and has established the appropriateness

of gross valuation misstatement penalties. Because the $14,175,000

value for the easement claimed on the partnership’s return was well

more than 200% of the $1,000,000 we have determined to have been the

easement’s correct value on the relevant date, the partnership’s

reporting effected a gross valuation misstatement, within the meaning

of section 6662(e)(1)(A) and (h)(2)(A). Because of the magnitude of the

partnership’s misstatement, its partners cannot avoid gross valuation

misstatement penalties by availing themselves of the reasonable cause

exception of section 6664(c). Therefore, petitioners are subject to 40%

gross valuation misstatement penalties on the portions of their

underpayments attributable to the excess of the value of the easement

reported on partnership’s return over $1,000,000.

Decisions will be entered under Rule 155.