United States Tax Court

Agency decision

Ask Donna

What actually matters in this document.

Text

T.C. Memo. 2025-112

PAUL-ADAMS QUARRY TRUST, LLC, FRANCIS L. ADAMS, TAX

MATTERS PARTNER,

Petitioner

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 10145-21.

Filed November 3, 2025.

—————

P is the tax matters partner of LLC. In 2007, P and

Q purchased a 207.32-acre property in Elbert County,

Georgia, for $429,875 (about $2,073 per acre). Starting in

late 2010, P and Q quarried granite on the property. They

experienced significant losses and abandoned the effort in

2012. Eventually P and Q contributed the property to LLC.

In December 2017, LLC granted a conservation

easement (constituting a “qualified real property interest”

under I.R.C. § 170(h)(1)(A)) on the property to C, a

“qualified organization” under I.R.C. § 170(h)(1)(B). LLC

claimed on its tax return a charitable contribution

deduction of $10,234,108 (about $49,364 per acre) for a

“qualified conservation contribution” under I.R.C. § 170(h).

It attached to the return an appraisal supporting the

deduction and taking the view that the highest and best

use of the property was granite mining.

R examined LLC’s 2017 return and issued a Notice

of Final Partnership Administrative Adjustment denying

the claimed charitable contribution deduction. R also

determined an accuracy-related penalty under I.R.C.

§ 6662.

Served 11/03/25

[*2]

P challenges R’s adjustments. P maintains that the

burden of proof should be on R. P contends the appraisal

attached to LLC’s 2017 return was a qualified appraisal

and correctly determined the property’s highest and best

use as an active granite mine. P argues the value of the

conservation easement is much greater than that proposed

by R. P claims that no penalties should apply and, if a gross

valuation misstatement penalty is found applicable, the

penalty is unconstitutionally void for vagueness.

R disagrees with P’s views in all respects and

maintains that, if any deduction is allowed, it should be

limited to $612,000 (about $2,952 per acre), the value of the

easement as proposed by R’s expert.

Held: P has the burden of proof.

Held, further, the appraisal attached to LLC’s 2017

return was a qualified appraisal prepared by a qualified

appraiser within the meaning of I.R.C. § 170(f)(11) and the

relevant regulations.

Held, further, the highest and best use of the

property was not as an active granite mine.

Held, further, the value of the easement LLC

granted to C in 2017 was $612,000, as R maintains.

Held, further, the gross valuation misstatement

penalty under I.R.C. § 6662(a) and (h) applies.

Held, further, I.R.C. § 6662(h)

regulations are not void for vagueness.

and

—————

Charles E. Hodges II, Simon P. Hansen, Anthony J. DeRiso III, and

Megan Kirk Garrett, for petitioner.

Dillon T. Haskell, Ryan J. Lonergan, Spencer A. Martin, David Y.

Kamins, and Nina P. Ching, for respondent.

TABLE OF CONTENTS

[*3]

FINDINGS OF FACT .............................................................................. 9

Elberton and Elbert County, Georgia ............................................ 10

II.

Granite Dimension Stone ............................................................... 11

III. Assessing Mineral Deposits ........................................................... 12

IV. Mr. Adams and Mr. Paul................................................................ 14

Mr. Adams ............................................................................... 14

Mr. Paul ................................................................................... 16

The Paul-Adams Property and Property History.......................... 16

VI. The Sterling Gray Quarry .............................................................. 18

History of Sterling Gray Quarry ............................................ 19

Mr. Adams’s Purchase of the Sterling Gray Quarry ............. 20

Characteristics and Performance of the Sterling Gray

Quarry ..................................................................................... 21

VII. Vacant Land Sales in Elbert County ............................................. 22

VIII. Origins of the Easement Transaction .......................................... 23

IX. Formation of Paul-Adams and Granting of Easement ................. 24

Facilitating Work and Appraisal ................................................... 25

Drilling Report ........................................................................ 25

Geology Report ........................................................................ 26

Appraisal Report ..................................................................... 26

XI. Tax Returns and IRS Examination ............................................... 27

XII. Trial ............................................................................................... 28

Petitioner’s Experts................................................................. 28

[*4]

Dr. Schroeder ................................................................... 28

Nick Proctor ..................................................................... 29

Mr. Fletcher ..................................................................... 30

Benjamin Black ............................................................... 31

The Commissioner’s Expert, Andy Sheppard ........................ 32

Rebuttal Experts ..................................................................... 32

OPINION ............................................................................................... 33

Burden of Proof ............................................................................... 33

II.

Substantiation of the Charitable Contribution Deduction ........... 35

III. Amount of the Deduction ............................................................... 38

General Principles................................................................... 38

Highest and Best Use ............................................................. 40

Legal Principles ............................................................... 40

Highest and Best Use of the Property Before the

Easement Was Granted .................................................. 43

Actual Use in December 2017 ................................. 43

Reasonably Probable Future Use ............................ 44

Petitioner’s Proposed Highest and Best Use .......... 44

Mr. Adams’s and Mr. Paul’s Own Actions ....... 45

ii.

Implausible

Economic

Analysis

Petitioner’s Experts .......................................... 47

Unrealistic Sale Volumes and Market

Share Forecasts ......................................... 48

Unrealistic Quarry Efficiency ................... 57

Unproven Quality of Granite .................... 58

[*5]

Unrealistic Projected Prices ..................... 61

Unrealistic Labor Assumptions ................ 63

Unrealistic

Assumptions

About

Available Granite Deposits ....................... 63

The Commissioner’s Proposed Highest and Best

Use ............................................................................ 66

The Court’s Conclusion on Highest and Best Use

Before the Easement Was Granted ......................... 66

Highest and Best Use of the Property After the

Easement Was Granted .................................................. 68

Valuation of the Paul-Adams Property Before the

Easement Was Granted .......................................................... 68

Legal Principles ............................................................... 68

Comparable Sales Approach ........................................... 69

Proposed Comparable Sales .................................... 70

Analysis .................................................................... 72

Sale 1 ................................................................. 72

ii.

Sale 2 ................................................................. 72

iii. Sale 3 ................................................................. 76

iv. Sale 4 ................................................................. 77

Mr. Sheppard’s Conclusion .............................. 78

vi. Petitioner’s Arguments..................................... 79

“Market Participants” Argument ............. 79

Timing of Sales .......................................... 82

Purported Failure to Verify ...................... 86

Highest and Best Use ............................... 86

vii. The Court’s Conclusion as to “Before”

Comparable Property Sales.............................. 88

[*6]

Actual Transactions Approach ........................................ 88

Income Approach ............................................................. 90

Petitioner’s Hybrid Method ............................................. 98

The Proposed Royalty Method ................................. 98

The Proposed Comparable Sales Method.............. 100

Valuation of the Paul-Adams Property After the

Easement Was Granted ........................................................ 102

Valuation Conclusion ............................................................ 102

IV. Penalties ....................................................................................... 103

General Principles and Application ..................................... 103

Constitutional Challenge ...................................................... 104

MEMORANDUM FINDINGS OF FACT AND OPINION

TORO, Judge:

This case concerns the contribution of a

conservation easement by Paul-Adams Quarry Trust, LLC (PaulAdams), in 2017. Petitioner is Francis L. (Rusty) Adams, Paul-Adams’s

tax matters partner. 1

Petitioner’s heightened rhetoric aside, this is not a difficult case.

The principal question before the Court is the value of the easement

Paul-Adams granted to the Oconee River Land Trust (Oconee Trust) in

December 2017 over approximately 207 acres in Elberton, Georgia

(Paul-Adams property). The easement restricted what Paul-Adams

1 Throughout the Opinion, we refer to Mr. Adams both as petitioner and as

Mr. Adams. We generally refer to “petitioner” when Mr. Adams’s position as the tax

matters partner of Paul-Adams is of particular import to the discussion or when we

wish to address arguments made by counsel on his behalf. We generally refer to

“Mr. Adams” when the principal focus of the discussion is on either Mr. Adams’s

actions outside of these proceedings or his testimony in this case.

[*7] could do in the future with those 207 acres. Paul-Adams claimed in

its return that the restriction reduced the value of the Paul-Adams

property by $10,234,108. This claim has no basis in reality, and we

therefore reject it.

An original partner in Paul-Adams, Robert Elliot Paul, Sr., first

purchased the Paul-Adams property in 1997 for $199,000 and then sold

it in 2000 for $327,000. In 2007, Mr. Paul, together with Mr. Adams,

repurchased the Paul-Adams property for $429,875. They proceeded to

quarry granite dimension stone on the property starting in 2010 and

continuing for two more years at a loss. They then closed the quarry in

2012, even though Mr. Adams was at the time actively searching for a

granite quarry to meet his granite fabrication business’s needs.

In 2014, Mr. Adams leased another inactive quarry in the same

area to supply his granite fabrication business. The lease covered about

159 acres and required modest lease payments. Under the terms of the

arrangement, Mr. Adams had an option to acquire the 159 acres by 2019

for $1.4 million (net of any payments made under the lease).

Yet, when the easement was granted over the Paul-Adams

property in 2017, Paul-Adams claimed the property was worth

$10,545,088, relying on its supposed value as an operating granite

quarry. In petitioner’s view, the dormant Paul-Adams property could,

within four years of being revived, produce a material percentage of the

total granite dimension stone produced annually in the entire State of

Georgia.

Petitioner has provided no credible evidence of how this would be

achieved or why, if these claims were true, the property had not already

been used for this purpose. The claimed value of the parcel in 2017

represented a more than 2,400% increase over its prior sale price in

2007. And its purported value was more than 750% of the value of the

property Mr. Adams was leasing at the time, which included a larger

quarry with a much better track record, and with respect to which he

had an option to buy.

In view of the entire record in this case, we find petitioner’s claim

utterly unsupportable. In brief, the history of the parcel at issue, the

state of the relevant industry in 2017, market transactions in the area

(some of which involved Mr. Adams himself), and credible expert

testimony all tell us that the value of the conservation easement was

nowhere near the amount claimed. Paul-Adams’s return position was

[*8] based on a misreading of one expert’s report and a thoroughly

unreliable second expert report. The actions of Paul-Adams’s own

partners belied the position, as did the history of quarrying activities on

the land on which the restriction was placed and Mr. Adams’s leasing of

a superior property instead of quarrying the Paul-Adams property.

When resolving questions of value with respect to natural

resources, the law requires courts to take into account only things that

are reasonably probable. This is so because, as the Supreme Court put

it long ago, “[e]lements affecting value that depend upon events or

combinations of occurrences which, while within the realm of possibility,

are not fairly shown to be reasonably probable, should be excluded from

consideration.” Olson v. United States, 292 U.S. 246, 257 (1934). To do

otherwise “would be to allow mere speculation and conjecture to become

a guide for the ascertainment of value—a thing to be condemned in

business transactions as well as in judicial ascertainment of truth.” Id.

On the record here, we have no doubt that, contrary to petitioner’s

assertions, as of December 2017, extraction of the natural resource at

issue as granite dimension stone was not economically feasible in the

near future. Therefore, the highest and best use of the property as of

that time was not an active operating quarry. And, in any event, the

value of what Paul-Adams gave up by contributing the easement was

nowhere close to what was reflected in its tax return or what petitioner

maintains.

After concessions by the parties, the remaining issues for decision

are as follows:

(1)

Which party has the burden of proof;

(2)

Whether the appraisal attached to Paul-Adams’s

Form 1065, U.S. Return of Partnership Income, for 2017 was a qualified

appraisal prepared by a qualified appraiser under section 170(f)(11) 2

and Treasury Regulation § 1.170A-13(c);

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

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all

relevant times, and Rule references are to the Tax Court Rules of Practice and

Procedure. Monetary amounts are shown in U.S. dollars and generally are rounded to

the nearest dollar.

[*9]

(3)

The value of the easement Paul-Adams donated;

(4)

Whether any accuracy-related penalty applies under

section 6662; and

(5)

If the gross valuation misstatement penalty under

section 6662(a) and (h) applies, whether section 6662(h) and related

regulations are void for vagueness.

For the reasons below, we find that the burden of proof is on

petitioner and that the appraisal attached to Paul-Adams’s 2017 return

was a qualified appraisal prepared by a qualified appraiser. We further

find that the value of the easement was $612,000, the amount proposed

by the Commissioner’s expert, and that, as a result, the gross valuation

misstatement penalty applies. Finally, we conclude that section 6662(h)

and related regulations are not void for vagueness. 3

FINDINGS OF FACT

The following facts are derived from the pleadings, Stipulations

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

fact and expert witnesses admitted into evidence at trial. Paul-Adams

is a Georgia limited liability company that was classified as a

partnership under the Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, for its

taxable year ending December 31, 2017. 4 When the Petition was timely

filed, Paul-Adams maintained its principal place of business in Georgia,

and petitioner resided in Georgia.

Several of the fact witnesses petitioner called were themselves

participants in the transaction at issue, with significant money at stake,

or else acquaintances or business associates of those individuals. Some

witnesses had invested in or advised on similar conservation easement

deals and thus had a direct or indirect stake in the outcome of this case.

While generally showing good recall of many facts from the relevant

3 As we said at the start, this is not a difficult case.

The length of the Opinion

should not obscure this fact. The Opinion is long and addresses in detail many of the

arguments pressed by petitioner in part because parties in several other cases have

agreed to be bound by the outcome of this case and the Court believes the parties here

and in those cases should know that their arguments were considered carefully and

why their positions did not prevail.

4 Before its repeal, TEFRA governed the tax treatment and audit procedures

for many partnerships, including Paul-Adams.

[*10] period, they sometimes expressed inability to recall certain facts

about matters that might be regarded as unhelpful to petitioner’s

position. Their testimony also sometimes conflicted with the testimony

of others, their own prior or subsequent testimony, and documents in

the record. Because of this inconsistent testimony and some of the

witnesses’ selective inability to recall pertinent facts, the Court has been

required to make credibility determinations.

Elberton and Elbert County, Georgia

The Paul-Adams property is near the city of Elberton, in Elbert

County, Georgia. Elbert County borders Oglethorpe County and

Madison County, both in Georgia. Elberton is the largest city within

Elbert County and serves as the county seat.

Of particular relevance here, Elberton advertises itself as the

“Granite Capital of the World.” That is because Elberton is located on

the Elberton granite deposit, which is over 35 miles long, 6 miles wide,

and 2 to 3 miles deep, and produces a lot of granite.

Elbert, Oglethorpe, and Madison counties all contain portions of

the Elberton granite deposit. 5 Because of the deposit, numerous granite

quarries and granite fabrication plants are based in the area. Indeed,

many properties in Elbert County contain visible granite deposits,

including properties used for farming and residences. But the quality of

granite varies at different locations across the Elberton granite deposit,

and the deposit does not cover all of Elbert County.

The type of granite produced from the Elberton granite deposit is

sometimes referred to as “Georgia Gray” granite. Georgia Gray granite

is found throughout the three counties and is known for being

homogenous with a relatively fine grain size. It is gray colored and

medium-fine grained, which makes it distinct from other granites.

Georgia Gray is especially suitable for fabricating memorials because of

its color, hardness, and uniformity, and has been certified by the U.S.

Bureau of Mines as a Class One Monumental Stone.

Elberton opened its first commercial granite quarry 136 years ago

(in 1889). But quarrying is a risky business. Even on the Elberton

granite deposit, success is by no means guaranteed. Some quarries fail,

even those with long histories of successful operations. As a result, there

5 Granite-producing areas within these counties are collectively known as the

Elberton granite area.

[*11] are a number of abandoned quarries in Elbert County and

surrounding counties.

Granite that has been fabricated into finished products—

including, but not limited to, headstones, monuments, and curbing

slabs—can be shipped from Elberton throughout the United States. 6

Because of the Georgia Gray granite, many fabrication plants in the

Elberton area focus on the memorial industry.

II.

Granite Dimension Stone

In the U.S. granite industry, miners quarry both aggregate and

dimension stone. The aggregate industry encompasses the use of hard

rock materials for a variety of products that are primarily used in

construction. Crushed stone and sand and gravel make up most

aggregate production and are primarily used for asphalt and concrete

pavement.

Granite dimension stone (i.e., a solid block of larger size) is used

for, among other things, building stone blocks; landscaping and curbing;

cobblestone; flooring and countertops; and monuments, mausoleums,

and statues. For these purposes, dimension stone must be not only

durable, but also visually aesthetic and consistent in color and grainsize.

In 2017, Georgia was the top producer of granite dimension stone in the

United States, producing nearly 25% of all granite dimension stone. In

Georgia, surface mine permits are not required for a dimension stone

quarry.

There are different grades of granite dimension stone, from

higher to lower quality and price. The highest grade is mausoleum

stone, and the second highest is die stock. These grades are essentially

the same quality, but because mausoleum stone must be pulled out in

larger blocks, it has a higher price. Next is base stock, followed by

quarry run, coping, and curbing. Quarry run is a combination of base

and die stock and is priced similarly to base stock.

In the years leading up to 2017, the market for granite dimension

stone in Elberton was relatively flat. This situation did not materially

change until 2021, when end-users from the northeastern United States

6 At various times, the parties and various witnesses used the terms

“fabrication,” “finishing,” and “manufacturing” to describe the process of converting

raw granite into finished products. To avoid confusion, we will consistently use the

terms “fabrication” and “fabrication plant” here.

[*12] determined that it was less expensive to quarry granite curbing

stone in Georgia and ship it to the northeast than to quarry the stone

locally. 7 Curbing stone is in high demand in the northeast because

granite, unlike concrete, does not degrade when exposed to extreme

weather and salted streets. These new market entrants caused an

increase in demand for Elberton granite, particularly curbing stone, as

well as higher prices.

III.

Assessing Mineral Deposits

The presence or absence of mineral deposits on real property, as

well as the location, quantity, and quality of those deposits, can affect

the fair market value of the property. The level of certainty with respect

to such characteristics is also important. For example, all else being

equal, a parcel with large, high-quality mineral deposits that have been

confirmed will be more valuable than a parcel where such deposits are

merely suspected.

The Society for Mining, Metallurgy, and Exploration, Inc. (SME),

has formalized these and other principles in a guide that recommends

reporting standards for mineral resources and reserves. The guide is

known as the SME Guide for Reporting Exploration Information,

Mineral Resources, and Mineral Reserves (SME Guide). In 2017, the

applicable standard for engineering studies of mining operations in the

United States, the Securities and Exchange Commission Industry

Guide 7, was based on the SME Guide for 2017.

The SME Guide for 2017 sets out two categories of mineral

estimating, mineral resources and mineral reserves. Mineral resources

reflect simply the content below ground, while mineral reserves reflect

the below-ground mineral content that can be used, considering

economic, legal, environmental, and other factors.

Within those macro-categories, increasing levels of geological

confidence separate categories along another dimension. Mineral

resources can be inferred, indicated, or measured—increasing in

confidence, respectively. Mineral reserves can be probable or proven.

And, before one even enters the world of mineral resources and reserves,

7 Around this time, Williams Stone Company, a major end-user of granite,

began operating in Elberton and ultimately purchased dimension stone quarries there,

facilitating the sale of granite curbing stone from Elberton to the northeast. One such

quarry was a 126.81-acre property with existing pits, which Williams Stone purchased

in December 2021 for $2 million.

[*13] the “exploration results” category describes the least certain

category.

The SME Guide for 2017 includes a chart explaining these

concepts, reflected below.

Individuals considering the prospect of mining a given property

use different types of studies to move between the categories: scoping,

prefeasibility, and feasibility.

A scoping study (also known as

preliminary economic assessment) is used to determine whether a

prefeasibility study is warranted. It determines whether there are

reasonable prospects for eventual economic extraction of a mineral

resource, but does not demonstrate that economic extraction is viable.

Prefeasibility studies permit the conversion of a mineral resource into a

mineral reserve by demonstrating economic viability. Feasibility

studies do the same, but provide a higher level of rigor, increasing the

confidence in the resulting mineral reserve.

We will return to these concepts, which public companies apply

in their decision-making, when we consider the value of the granite

deposit on the Paul-Adams property. For now, having offered some

general background on Elbert County and the related granite industry,

we turn to the individuals, property, and transactions before us.

[*14] IV.

Mr. Adams and Mr. Paul

The transactions relevant to this case generally were undertaken

by Mr. Adams and his business partner, Mr. Paul. Both Mr. Adams and

Mr. Paul are seasoned businessmen with, collectively, more than ten

decades of experience in the granite industry. Over the years,

Mr. Adams and Mr. Paul have partnered for certain business ventures.

Mr. Adams

Mr. Adams, whose history is particularly relevant here, has

worked in the granite industry since the late 1960s, when he started

with a large granite memorial fabricator as a salesman. In 1972,

Mr. Adams moved to Star Granite, a smaller memorial fabricator. Soon

after, Mr. Adams bought Star Granite with a group of four partners.

The business prospered, and over the years Mr. Adams bought out his

partners. By 1990, Mr. Adams owned Star Granite outright.

As Star Granite grew, Mr. Adams and his partners purchased the

Pink Pearl Quarry in 1980. The Pink Pearl Quarry is a drive-in quarry

that produces a kind of granite that is sold to memorial garden

cemeteries. Typically, this granite is shaped into a four-inch foundation

piece that is affixed with a bronze marker on top, leaving only two inches

of granite visible around the bronze. Almost all the granite mined from

the Pink Pearl Quarry is usable, because less uniformity is required for

these products than for larger products where more granite is visible.

For the other types of granite required by its business, which

produces many kinds of granite memorial stones, among other things,

Star Granite purchased gray granite from other quarries in Elberton

and imported colored granite of different types from suppliers outside

Elberton, including international suppliers.

Around 2011, the demands on Star Granite increased. Three of

Star Granite’s major customers combined in a single multinational

company, which pushed Star Granite to produce more and more varied

products. Mr. Adams knew he would need to buy and operate a gray

granite quarry to supply Star Granite’s needs at some point. As early

as 2011, he was looking for the right quarry to purchase, but he never

found exactly what he needed in terms of the amount of production

required to run Star Granite’s plants.

In late 2013, Mr. Adams and his son, Mark Adams, were

contacted by John McLanahan, Jr. (John Jr.), a successful lawyer and

[*15] banker whose father, John McLanahan Sr. (John Sr.), had

recently died. John Jr. told Mr. Adams that the McLanahan family

intended to sell their granite quarry, the Sterling Gray Quarry, 8 and

asked if Mr. Adams and his son would be interested. Mr. Adams was

interested and agreed to lease the quarry starting in 2014 with an option

to buy. 9 We consider the Sterling Gray Quarry and this transaction in

greater detail below. 10 See infra Findings of Fact Part VI.

By 2015 and 2016, Mr. Adams was seriously considering selling

Star Granite. The eventual buyer, Matthews International Corporation

(Matthews), was not interested in acquiring Mr. Adams’s quarries, so

negotiations proceeded for Star Granite’s fabrication businesses alone.

On February 1, 2018, Mr. Adams sold the relevant divisions of Star

Granite for about $41.2 million. For the year ended December 31, 2017,

those divisions had revenues of about $31.3 million and employed

approximately 200 people. Mr. Adams kept his rights to the Sterling

Gray Quarry and the Pink Pearl Quarry, executing a supply agreement

with Matthews under which Sterling Gray and Pink Pearl would

continue to supply the granite needs of the divisions of Star Granite sold

to Matthews for at least ten years.

Under that supply agreement, Mr. Adams’s company agreed “to

produce and make available for sale to Matthews” at least 80,000 cubic

feet of granite from the Sterling Gray Quarry annually at specified

prices. The agreement referred to this amount together with a specified

amount of granite produced by the Pink Pearl Quarry as the “Minimum

Amounts.”

Matthews was obligated to purchase the Minimum Amounts from

Mr. Adams’s company, with two exceptions. Specifically, Matthews was

8 Different names appear in the record for the Sterling Gray Quarry, for

example, the McLanahan Quarry, the Republic Granite Quarry, and the Highpoint

Quarry Property. For convenience, we use Sterling Gray Quarry, the name Mr. Adams

uses.

9 As we will discuss, Mr. Adams ultimately exercised the option and purchased

the Sterling Gray Quarry in 2019.

10 We note that the lease agreement concerning the Sterling Gray Quarry was

made between Star Granite Company, Inc., an entity owned by Mr. Adams, and

Republic Granite Company, Inc., an entity of which Mr. McLanahan was the president.

Ex. 66-J, p. 1. The option to purchase the Sterling Gray Quarry was exercised by

Sterling Gray Quarries, LLC, another entity Mr. Adams owned. For convenience, and

in line with the testimony at trial, we refer to the lease, and the eventual purchase, as

occurring between Mr. Adams and Mr. McLanahan.

[*16] free to buy fewer than 80,000 cubic feet if it could establish either

(1) that its annual granite needs had decreased as a result of a lack of

demand generated by consumer orders or (2) that Matthews’s annual

purchase orders remained at or above the granite supply needs of the

business Matthews acquired from Mr. Adams in February 2018.

Matthews also had the right (but not the obligation) to buy an additional

10,000 cubic feet of blue granite at a discount from standard prices. And

prices for the Minimum Amounts could not increase by more than 2%

per year during the term of the agreement.

Mr. Paul

Mr. Paul began working in the granite industry in 1962 and first

became an owner of a fabrication plant in 1980. Over the years, Mr. Paul

was quite successful and owned both granite fabrication plants and

granite quarries. He has purchased five or six granite quarries and sold

three or four.

In 2012, Mr. Paul gifted the granite fabrication arm of his

business, which was called Eagle Granite Company, to members of his

family, keeping his quarries for himself. In 2017, Mr. Paul’s family had

one of the three largest granite fabrication operations in Elberton. In

2023, Mr. Paul’s family sold Eagle Granite to Matthews, and again

Mr. Paul retained his quarries. The initial price for the business was

$18.1 million, although the deal included an earn-out provision with a

potential bonus of about $5 million.

Three of the quarries Mr. Paul owned during this time were the

Green County Quarry, the Blue Ridge Quarry, and the Danburg 2

Quarry, which together sat on a little over 200 acres. In 2024, Mr. Paul

leased the quarries to Polycor Georgia Granite Quarries, Inc. (Polycor),

a subsidiary of an international mining company. He leased them on a

royalty basis, with a 10% royalty on gross sales and a minimum royalty

payment of $50,000 per month. Mr. Paul based the minimum royalty

on his sales for the year before he entered the lease, which were about

$6 million, and divided that number by 12.

The Paul-Adams Property and Property History

As we have noted, the Paul-Adams property is in Elbert County,

between Elberton and Bowman, Georgia. The property is 207.32 acres

and about five miles from Elberton.

[*17] The Paul-Adams property is long and somewhat irregularly

shaped, with frontage along the south side of Bowman Highway and the

north side of Nowhere Road. It has areas of open fields, pine stands,

and at least one pond. The property also contains two small residences,

one built in 1955 and one in 1960, as well as a prefab shed.

Granite outcroppings are visible on the property, particularly on

the north end, with schist outcroppings visible on the southern end. 11

In the 1980s, a small granite quarrying operation was attempted on the

northern side of the property, resulting in a small pit. And as we will

discuss, granite quarrying was again attempted on the property from

2010 to 2012, resulting in a larger pit that existed at the time the

easement was granted.

Mr. Paul first purchased the Paul-Adams property in 1997,

paying $199,000 for a slightly larger tract that included the property.

Mr. Paul then sold the 207.32-acre Paul-Adams property to Donnie

Williams and Walter H. McGee in 2000 for $327,000. Mr. Williams and

Mr. McGee were business owners in Lavonia, Georgia, approximately

27 miles from the Paul-Adams property. At the time of the sale,

Mr. Paul was aware of the granite outcroppings and small pit on the

Paul-Adams property.

Seven years later, Mr. Paul and Mr. Adams purchased the PaulAdams property back from Mr. Williams and Mr. McGee. Specifically,

in January 2007, Mr. Paul and an entity owned by Mr. Adams (FLA

Enterprises, LLC) purchased the property for $429,875.

Mr. Paul and Mr. Adams repurchased the Paul-Adams property

because they were interested in mining granite on the property. They

began operating a pit quarry on the property in 2010, allowing

Mr. Adams’s son Mark to run the operation. 12 They used the original

quarry site for their operation and expanded the quarry’s footprint over

11 Schist is a medium- to coarse-grained metamorphic rock that is prone to

flaking and generally is not usable in the Elberton granite industry.

12 Pit quarries are excavation sites where granite is mined by digging

downward. Typically, larger crews and tower cranes are required to extract granite

blocks from a pit quarry. Because of the vertical nature of the excavation, pit quarries

are labor intensive and generally have lower production rates with higher operating

costs. By contrast, drive-in quarries, which are developed by cutting laterally into

hillsides, allow for a more efficient extraction process. For example, wheeled loaders,

rather than cranes, can be used to move blocks out of the quarry. But drive-in quarries

involve higher up-front costs to establish.

[*18] a wider area. They brought in crews from Mr. Adams’s and Mr.

Paul’s other quarries every week as contract labor. But, even though

Mr. Adams was at the time searching for a quarry to supply his

fabrication plants, they abandoned the quarry and sold associated

equipment at the end of 2012.

Some of the stone found at the Paul-Adams property was Georgia

Gray granite. But the quality of the granite varied. For example,

significant amounts of discarded granite from the quarry were dumped

around the pit and in a large refuse pile on the southern portion of the

property. The waste blocks contained imperfections that made them

unsuitable for sale as dimension stone, including veins, discolored

granite, and irregular dimensions. The waste pile also contained blocks

that were part granite and part gneiss, another kind of stone that

Elberton dimension stone miners typically discard.

The entity that operated the quarry reported business losses for

the years that it operated the quarry. Specifically, on its 2010, 2011,

and 2012 Forms 1120, U.S. Corporation Income Tax Return, the entity

reported ordinary business losses of $44, $175,532, and $189,752,

respectively. Although no mining was conducted in 2013, the entity also

filed a final Form 1120 in 2013, on which it reported gross receipts of

$6,534 and net ordinary business income of $3,013.

At the time the easement was granted in 2017, the quarry pit on

the Paul-Adams property was full of water. The Paul-Adams property

was zoned industrial and could have been used (without rezoning or a

special land use permit) as a dimension stone quarry. It could not have

been operated as an aggregate mine, however, without additional

permitting.

The Paul-Adams property had typical public utilities for the area

and was across the highway from a railroad spur. And it had an ample

amount of land area, ample width and depth, ample road frontage, no

prohibitive level of rock outcroppings, and no other hindrances to

development for granite dimension stone quarrying.

VI.

The Sterling Gray Quarry

Less than two years after Mr. Paul and Mr. Adams abandoned

the quarry operation on the Paul-Adams property, Mr. Adams entered

into a five-year lease for a different quarry in Elbert County—the

Sterling Gray Quarry. Before proceeding with our discussion of the

Paul-Adams easement transaction, we pause to discuss the Sterling

[*19] Gray Quarry, including its history, Mr. Adams’s lease, and his

purchase of the quarry in 2019. Comparing characteristics of the

Sterling Gray Quarry to those of the Paul-Adams property, as well as

Mr. Adams’s actions with respect to the two parcels, will be significant

in our analysis.

History of Sterling Gray Quarry

The Sterling Gray Quarry is a pit quarry in Elbert County on

159 acres of land. The quarry was started in the 1930s by John Jr.’s

great-grandfather, to whom Mr. Adams referred as “Mr. John.” Mr.

John had three sons, Clarence, Jules, and James. Clarence was the

father of John Sr. and the grandfather of John Jr.

Mr. John was a successful entrepreneur and, in addition to

running the Sterling Gray Quarry, ran fabrication plants that were used

to turn the quarried granite into finished products. The fabrication

plants purchased all their granite from the Sterling Gray Quarry, so the

quarry prospered.

Mr. John successfully managed the Sterling Gray Quarry until he

passed away around 1970. After Mr. John’s death, Jules (John Jr.’s

great-uncle) took over operating the quarry and fabrication business.

Jules ultimately was less successful than his father. The

fabrication business’s fortunes declined, bringing down the fortunes of

the Sterling Gray Quarry as well. The operations continued until the

1990s when the three McLanahan brothers (Jules, Clarence, and James)

no longer participated in the business. Eventually the fabrication

operations were largely shut down. As a result, after six decades of

operation, the Sterling Gray Quarry also closed.

But the McLanahans were not finished. Around 2004, John Sr.

and his son John Jr. brought in a crew to reopen the Sterling Gray

Quarry. They made some progress breaking into the commercial

construction market by offering granite that could be used in buildings,

plazas, and the like. But the Great Recession hit the construction

industry particularly hard, and in 2008 the McLanahans were forced to

close the quarry once again. So matters stood until 2014, when John Jr.

approached Mr. Adams about the possibility of leasing and buying the

Sterling Gray Quarry.

[*20] B.

Mr. Adams’s Purchase of the Sterling Gray Quarry

Mr. Adams was a natural buyer for the Sterling Gray Quarry. He

had a reputation as a successful businessman in Elberton and ran one

of only three companies in town with sufficient demand for granite

(through his fabrication plants) to support the purchase. 13 In addition,

Mr. Adams’s mother had worked for at least 30 years as bookkeeper for

the McLanahan family, first for Mr. John and later for Jules.

After approaching Mr. Adams, John Jr. named $1.4 million as the

purchase price for the Sterling Gray Quarry. Mr. Adams was interested

and agreed to lease the Sterling Gray Quarry with an option to buy.

Specifically, the lease was for an initial term of five years, and the option

to buy could be exercised during that initial term. Every dollar paid to

lease counted against the ultimate purchase price if the option was

exercised. The lease could also be renewed up to three times. With

respect to gray granite, the lease required a payment of $1 per cubic foot

of product sold, except that for curbing stone the rate was only 33 cents

per cubic foot. 14 The lease also had a $36,000 per year minimum annual

royalty payment.

Mr. Adams and John Jr. entered into the agreement in 2014, and

Mr. Adams eventually exercised his option to purchase the Sterling

Gray Quarry in February 2019. Mr. Adams paid $1,172,367 for the

quarry, equal to the $1.4 million option price less the royalties that he

had paid over the previous five years, which amounted to $227,633 (i.e.,

$1,400,000 − $1,172,367). Ex. 600-R, p. 224. At the same time, he

bought from the McLanahans an additional 46-acre parcel adjacent to

the Sterling Gray Quarry for $120,000. The combined transactions were

reflected in the records of the Elbert County Tax Assessors office as a

sale of 205.473 acres for $1,292,367, with the prior years’ royalties

already netted from the purchase price.

13 Mr. Paul’s family company was another one of the three.

14 In addition to the main quarry with its various grades of gray granite, the

159-acre Sterling Gray property also has an abandoned quarry with pink granite that

Mr. Adams has not quarried to date. Prices for colored granite, including pink granite,

are significantly higher than prices for gray granite. As a result, the royalty rate for

pink granite during the lease term was $3 per cubic foot rather than $1 per cubic foot.

[*21] C.

Characteristics and Performance of the Sterling Gray

Quarry

As we have discussed, the Sterling Gray Quarry had existed for

over 70 years when Mr. Adams began leasing it, although it had not been

quarried for about 6 or 7 years as of that time. The quarry is about

110 feet deep, with exposed walls that reflect past mining activity.

During the lease and since Mr. Adams purchased the quarry,

Sterling Gray has met Star Granite’s production needs and 90% of the

granite it produces has been salable. Further, it has produced high

quality granite that commands higher prices. Specifically, to date, the

Sterling Gray Quarry has produced primarily die, base, and quarry run

stock, including blocks large enough for mausoleum stone. Sterling

Gray Quarry’s annual production of granite, sales of granite blocks, and

net income from 2019 through 2023 are described in the following

table: 15

15 The parties included in their Fourth Stipulation of Facts five years of

financial data for the Sterling Gray Quarry, see Exhibits 86-P, 87-P, 88-P, 89-P, and

90-P, with the Commissioner reserving objections as to relevance and materiality.

Petitioner specifically discussed Exhibit 89-P at trial, and we overruled the

Commissioner’s objections, admitting the exhibit. The remaining exhibits were not

specifically discussed at trial, although petitioner repeatedly referred to the

performance of the Sterling Gray Quarry. The Commissioner’s objections with respect

to the remaining Exhibits are also hereby overruled and they are admitted. See Rule

91(c) (“A stipulation that has been filed need not be offered formally to be considered

in evidence.”); see also Rule 91(a)(1) (“Documents or papers or other exhibits annexed

to or filed with the stipulation will be considered to be part of the stipulation.”).

[*22]

VII.

Sterling Gray Quarry – Summary of Results

Year

Production

(cubic feet)

Income from

Block Sales 16

Gross Income

Net Income

2019

67,468

$854,233

$908,752

$208,585

2020

77,427

1,009,512

1,147,453

364,394

2021

106,915

1,646,456

1,725,439

489,504

2022

164,112

2,908,177

2,976,632

1,300,561

2023

171,726

3,238,107

3,321,007

1,225,579

Vacant Land Sales in Elbert County

As shown in the table below, between 2007 and 2017, there were

108 sales of vacant land of 50 acres or more that the Elbert County

Appraiser’s Office classified as market transactions. The average

per-acre sale price in 2007 was $2,999. By 2017, the average price was

$2,156. Generally, property zoned for industrial use sold for about twice

as much as property zoned for agricultural use.

16 Gross income reflects income from block sales as well as income from other

items, such as cleaning sales and shipping and delivery income.

[*23]

Vacant Land Sales in Elbert County

Year

Number of Sales

Average Sale Price

per Acre

2007

$2,999

2008

2,590

2009

2,225

2010

2,590

2011

1,794

2012

1,974

2013

1,623

2014

1,571

2015

1,792

2016

1,926

2017

2,156

VIII. Origins of the Easement Transaction

Over the years, Mr. Adams engaged in several transactions,

including investing in film tax credits, that his certified public

accountant (CPA) suggested to offset Mr. Adams’s income tax liabilities

for profits from his various businesses, including Star Granite. In 2016,

also on the recommendation of his CPA, Mr. Adams invested $500,000

in the syndicated conservation easement addressed by our Court in

Jackson Crossroads, LLC v. Commissioner, T.C. Memo. 2024-111. He

claimed a deduction of about $2 million associated with the transaction.

That syndicated transaction was organized through Greencone

Investments, LLC (Greencone). Mr. Adams never saw the property

associated with that transaction.

Mr. Adams also participated with Greencone in a conservation

easement transaction known as the Cape Resources transaction. He

[*24] invested about $3.8 million in that transaction and claimed a

deduction of about $16 million, again never visiting the property. And

he had a small interest in a conservation easement transaction known

as the Cedar Creek transaction.

After participating in the Jackson Crossroads easement,

Mr. Adams approached Greencone to discuss the possibility of doing a

private conservation easement transaction with the Paul-Adams

property. Because Greencone organized only syndicated conservation

easements, Greencone referred Mr. Adams to Mooncrest Consulting,

LLC (Mooncrest), although it remained involved in certain aspects of the

transaction.

In early 2017, Mr. Adams and Mr. Paul engaged Mooncrest to

facilitate the easement transaction with respect to the Paul-Adams

property. Mr. Adams provided limited information about the property

to Mooncrest, such as a plat map and acreage. But he did not provide

any information about the mining that had been performed on the

property. Mr. Adams also met with Carlton Walstad, a representative

of Greencone who helped facilitate the easement transaction.

Mr. Walstad toured Mr. Paul’s quarries, and Mr. Adams told

Mr. Walstad that three quarry ledges would be possible on the PaulAdams property. 17

IX.

Formation of Paul-Adams and Granting of Easement

Recall that Mr. Paul and FLA Enterprises, LLC (an entity owned

by Mr. Adams), acquired the Paul-Adams property in 2007. In

October 2014, FLA Enterprises, LLC, transferred its one-half interest in

the Paul-Adams property to Mr. Adams, such that he owned the onehalf interest directly.

In December 2016, Mr. Adams and Mr. Paul formed Paul-Adams

as a member-managed Georgia limited liability company. Shortly

thereafter, Mr. Adams and Mr. Paul transferred ownership of the PaulAdams property to Paul-Adams by executing a warranty deed. Initially,

Mr. Adams and Mr. Paul each owned 50% of Paul-Adams directly, but

on December 14, 2017, Mr. Paul assigned his interest in Paul-Adams to

R.E. Paul Partners, LLC, an entity in which his children and a

grandchild eventually obtained interests.

17 Granite is often extracted in a way that creates “ledges” for groups of workers

to stand on while they extract additional blocks of granite.

[*25] On December 22, 2017, Paul-Adams executed a deed of

conservation easement over the Paul-Adams property in favor of the

Oconee Trust. The deed was recorded with the Elbert County Clerk of

Superior Court the same day. Oconee Trust issued a letter to PaulAdams dated December 28, 2017, acknowledging receipt of the easement

contribution.

Facilitating Work and Appraisal

As part of facilitating the Paul-Adams easement transaction,

Mooncrest and Mr. Walstad arranged for drilling on the Paul-Adams

property and for a geologist to visit the property and prepare a report.

In addition, Greencone engaged an appraiser to appraise the property.

Drilling Report

In May 2017, Scott Towe of Premier Drilling, LLC, was engaged

to bore for granite samples on the Paul-Adams property. Mr. Towe

drilled three boreholes on the property, all on the northern portion. Two

of the boreholes were drilled 100 feet deep on granite outcroppings north

of the abandoned quarry. The third hole was drilled 35 feet deep near

the abandoned quarry. Mr. Towe did not select the locations or the

depths; rather he was instructed as to where and how deep to drill, but

did not recall who provided that instruction. Premier Drilling’s typical

practice would have been to drill to 100 feet deep for each borehole. The

cores from each borehole were collected and photographed, and a portion

of the core from one borehole was tested.

The first borehole, located near the northernmost portion of the

property, showed brown material for the first two feet, gray colored and

solid granite for the next four two-foot sections, and broken sections of

gray and brown materials around 13 feet. Then the sample showed

relatively uniform and solid gray colored granite between 14 feet and

94 feet, with a brief interval of brown at about 43 feet and the last

six feet being broken stone. Thus, the first borehole showed fairly

consistent and larger intervals of gray granite that could be sold as

Georgia Gray.

The second borehole, located near the northeast corner of the

property, was less successful. Its sample showed that brown and broken

granite was present intermittently throughout the entire length of the

borehole including down to the deepest part of the granite at 80 feet.

Deeper than 80 feet, the sample consisted of gneiss.

[*26] The third borehole, located near the abandoned quarry, showed a

large 10- to 12-foot interval of brown granite near the surface and a short

interval of white granite around 20 feet deep. The hole was stopped at

35 feet, as we have noted.

Geology Report

Mr. Walstad also engaged Paul A. Schroeder, a professor in the

Department of Geology at the University of Georgia, to visit the PaulAdams property and prepare a geological assessment of the property.

As we will discuss further, Dr. Schroeder prepared a report dated

August 31, 2017, and entitled “Geology and regional dimension stone

and aggregate industry analysis for the Adams tract, Elbert County,

Georgia” (Geology Report). The Geology Report discussed granite

deposits on the Paul-Adams property and potential uses of those

deposits as aggregate or dimension stone quarries.

The Geology Report concluded that there was “support [for] the

notion that quality granite and gneiss rock suitable for GDOT aggregate

product and possible dimension stone underlies the [property].”

Ex. 402-P, p. 8. The Geology Report recommended further exploration

and study of the property’s northern sector, explaining that the southern

sector likely was not suitable for dimension stone production. The

Geology Report estimated yields from the “inferred reserves” at the

property “[i]f an aggregate quarry was sited [there] and economic

conditions [were] favorable.” Id.

Dr. Schroeder disclaimed instructing Premier Drilling as to the

depth of the third borehole.

Appraisal Report

Also in 2017, Greencone engaged Robert J. Fletcher, a Georgia

certified General Real Estate Appraiser, to appraise the Paul-Adams

property and the easement that Paul-Adams would eventually

contribute. Mr. Walstad met with Mr. Fletcher and provided him with

information regarding the Paul-Adams property. At some point,

Mr. Walstad also provided Mr. Fletcher with an Excel spreadsheet that

Mr. Fletcher later used in working on his appraisal. But the record does

not reflect what information the spreadsheet included.

Ultimately, Mr. Fletcher visited the Paul-Adams property and

prepared an appraisal report. The appraisal was dated April 9, 2018,

and stated that its effective date was December 22, 2017.

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

concluding that the value of the Paul-Adams property before the

donation was $10,545,088, based on a highest and best use as an active

granite dimension stone mine. The appraisal reduced that amount by

the value of the property after the donation, $310,980. This value was

based on a highest and best use of passive recreation, forestry, and

agricultural uses as permitted by the easement. The appraisal

concluded that the value of the conservation easement was $10,234,108.

In the course of preparing the appraisal, Mr. Fletcher was not given

financial records reflecting the mining on the property from 2010 to

2012, and so the appraisal did not account for that information.

XI.

Tax Returns and IRS Examination

Paul-Adams filed a 2017 Form 1065 for the short tax year ending

December 31, 2017 (2017 Form 1065). Two Schedules K–1, Partner’s

Share of Income, Deductions, Credits, etc., were attached to the return,

one for Mr. Adams and one for R.E. Paul Partners, LLC. Each

Schedule K–1 reported that the partner had made a capital contribution

during the year of $265,092, checked a box indicating that the amount

reflects “Tax basis,” and further checked a box indicating that the

partner did not contribute property with built-in gain or loss.

Additionally, Schedule M–2, Analysis of Partners’ Capital Accounts,

reported capital contributions for 2017 of $112,376 in cash and $417,808

in property.

The return also claimed a total charitable contribution deduction

of $10,244,108. Of this total amount, $10,234,108 was attributable to

the conveyance of the conservation easement over the Paul-Adams

property, and the remaining $10,000 reflected a cash contribution to

Oconee Trust.

A Form 8283, Noncash Charitable Contributions, attached to the

2017 Form 1065 reported a fair market value of the conservation

easement of $10,234,108. An attachment to the Form 8283 reported

that the appraised fair market value of the Paul-Adams property before

the donation of the easement was $10,545,088 and the fair market value

after the donation was $310,980. The 2017 Form 1065 included a copy

of Mr. Fletcher’s appraisal dated April 9, 2018.

The IRS examined Paul-Adams’s 2017 Form 1065. On March 19,

2021, the Commissioner issued to petitioner a Notice of Final

Partnership Administrative Adjustment (FPAA) for Paul-Adams’s tax

[*28] year ended December 31, 2017. The FPAA denied $10,234,108 of

Paul-Adam’s charitable contribution deduction (the full amount

attributable to the conservation easement) and also determined a 40%

accuracy-related penalty under section 6662(h) or, in the alternative, a

20% reportable transaction understatement penalty under section

6662A. 18 To the extent neither of those penalties applied, the FPAA

determined a section 6662(a) 20% accuracy-related penalty for an

underpayment due to a substantial understatement of income tax under

section 6662(b)(2) and (d) and for negligence and disregard of rules and

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

Petitioner timely petitioned our Court for review.

XII.

Trial

During an eight-day trial of this case, the parties called various

witnesses to (among other things) establish the value of the easement

that Paul-Adams contributed. 19 Among those witnesses were the

following experts.

Petitioner’s Experts

Dr. Schroeder

Petitioner offered expert testimony from Dr. Schroeder, whom the

Court recognized as an expert in geology and the Elberton granite

deposit. Dr. Schroeder reviewed sources from the U.S. Geological

Survey (USGS), an agency within the Department of the Interior,

concerning the geology of the Paul-Adams property and performed a site

visit to observe and collect samples. He also reviewed the results of core

samples drilled and tested by Premier Drilling.

Dr. Schroeder testified as to the presence of granite beneath the

Paul-Adams property. He determined that granite was present beneath

the surface of the northeast sector. Given the results of tests run on

three bore samples taken from the property, he opined that the granite

beneath the property would be suitable for use as aggregate stone. He

18 The Commissioner has conceded the penalty under section 6662A, and we

do not discuss it further.

19 In lieu of calling one witness, Randy Rice, the parties agreed to submit for

the record Mr. Rice’s testimony in a prior trial in this Court.

[*29] also opined that the Paul-Adams property holds granite dimension

stone.

Dr. Schroeder estimated the volume of granite available below the

Paul-Adams property. He stated that additional drilling and rock

testing would be necessary to determine the actual volume of granite,

but suggested that a 30-acre pit quarry on the property would hold

10.7 million tons of potential aggregate. Further, he stated that, based

on the average price of aggregate, the gross value of the quarry would

be $140 million and that it could yield a gross yearly revenue of

$6.5 million.

And Dr. Schroeder discussed the markets for aggregate stone and

dimension stone in Elbert County. He noted that demand for aggregate

products has been modestly increasing, writing that “[a]s demand for

aggregate products improves, the prospects of opening a quarrying

business on the property may become more attractive.” Ex. 402-P, p. 27.

With respect to dimension stone, he reported that prices have been static

for roughly 25 years, owing in part to local and foreign competition, and

that market conditions prevented raising prices. He also specified, while

discussing an ongoing quarry operation in Elberton, that “[p]roduction

could be increased, but the amount they have orders for limits their

yield.” Ex. 402-P, p. 34.

Nick Proctor

Petitioner offered expert testimony from Nick Proctor, director of

evaluations and engineering at Burgex Mining Consultants.

Mr. Proctor was recognized as an expert in mineral economics and

granite market studies. He offered an opinion regarding the value of

granite that could be mined at the Paul-Adams property. For this

purpose, Mr. Proctor used a discounted cashflow income approach.

We explained in Ranch Springs, LLC v. Commissioner,

No. 11794-21, 164 T.C., slip op. at 54–62 (Mar. 31, 2025), that the income

approach comes in more than one flavor, including (as relevant here)

what we called “the owner-operator method” and the “royalty income

method.” Mr. Proctor’s Report used both versions of the income

approach.

Under the owner-operator method, Mr. Proctor modeled the PaulAdams property as an expanding drive-in quarry that would ramp up,

over its initial years, from one crew to two and from zero active

quarrying ledges to two. Mr. Proctor located his proposed drive-in

[*30] quarry at the site of the abandoned pit quarry. Drawing from

Dr. Schroeder’s Geology Report, Mr. Proctor accepted an estimate that

a 30-acre quarry would contain approximately 130.7 million cubic feet

of granite (representing the 10.7 million tons of potential aggregate that

Dr. Schroeder had projected, converted to cubic feet, which is how

dimension stone production is measured). Mr. Proctor assumed that the

granite mined from the Paul-Adams property would be dimension stone

and that 80% of the stone obtained from the property could be sold. He

also applied a 9% discount rate in his analysis. Mr. Proctor valued the

hypothetical quarry operation at $12,157,000.

Using the royalty income method, Mr. Proctor prepared a

valuation for the prospect of leasing the Paul-Adams property in

exchange for a royalty on quarrying activities. Under this approach,

Mr. Proctor concluded that the royalty stream would have a net present

value of $5,349,000.

Mr. Fletcher

Petitioner further offered expert testimony from Mr. Fletcher.

Mr. Fletcher conducted the 2017 appraisal of the Paul-Adams property

that Paul-Adams attached to its return. We recognized Mr. Fletcher as

an expert in real estate appraisals. 20 During his testimony, Mr. Fletcher

opined on the value of the Paul-Adams property.

Mr. Fletcher concluded that “mineral extraction, specifically

either dimension stone or aggregate stone production[]” was the highest

and best use for the Paul-Adams property in 2017. Ex. 403-P, p. 28. He

then modeled a hypothetical dimension stone quarry on the property

using the owner-operator method of the income approach.

Mr. Fletcher assumed that the quarry would produce 100,000

cubic feet annually in the early years, growing to 350,000 cubic feet later

on and that 75% of the quarry’s mined granite would be salable. And he

set an average price of $13.10 per cubic foot of granite, increasing by 3%

annually.

Based on his assumed and estimated values, Mr. Fletcher

calculated the cashflow of a hypothetical quarry over a 15-year period.

20 We reserved ruling on whether Mr. Fletcher was a qualified appraiser with

respect to the Paul-Adams property. For further discussion of the qualified appraiser

issue, see Opinion Part II below.

[*31] Applying a 12% discount rate, he determined that the net present

value of a dimension stone quarry was $10,545,088.

To estimate the value of the Paul-Adams property after the

easement, Mr. Fletcher used the comparable sales method. He

examined the sales of ten eased properties in Georgia. Mr. Fletcher took

a closer look at three such sales, choosing a $1,500-per-acre price for the

Paul-Adams property. Applied to the Paul-Adams property, that price

yielded an “after” value of $310,980. Thus, Mr. Fletcher valued the

easement at $10,234,108 (i.e., $10,545,088 less $310,980).

Benjamin Black

Petitioner also offered expert testimony from Benjamin Black, the

owner and Principal Geological Engineer of GeoLogic, LLC, and a

Registered Professional Geologist in Georgia. We recognized him as an

expert in geologic testing, geologic investigation, mineral resource

evaluation, and suitability of property for stone development.

Mr. Black conducted a site inspection and reviewed geological

maps of the property, Dr. Schroeder’s Geology Report, and the rock core

samples taken from the property. GeoLogic also performed additional

testing on the rock core samples taken from the Paul-Adams property.

After reviewing the samples, the property, and Dr. Schroeder’s Geology

Report, Mr. Black determined that he could estimate an “indicated

mineral resource” beneath the property. 21

To estimate the resource, Mr. Black designed a dimension stone

quarry model and an aggregate stone quarry model. His dimension

stone quarry model had a four-acre surface footprint, and Mr. Black

An indicated mineral resource is a category of classification of minerals

reflected in the SME Guide. The SME Guide for 2017 defines an indicated mineral

resource as follows:

[T]hat part of a Mineral Resource for which quantity, grade or quality,

densities, shape, and physical characteristics are estimated with

sufficient confidence to allow the application of Modifying Factors in

sufficient detail to support mine planning and evaluation of the

economic viability of the deposit. Geological evidence is derived from

adequately detailed and reliable exploration, sampling, and testing

and is sufficient to assume geological and grade or quality continuity

between points of observation. An Indicated Mineral Resource has a

lower level of confidence than that applying to a Measured Mineral

Resource and may only be converted to a Probable Mineral Reserve.

Ex. 400-P, p. 22.

[*32] estimated that 15.6 million cubic feet of stone could be extracted

from the quarry. Mr. Black’s hypothetical quarry was placed in a

location on the property different from Mr. Proctor’s hypothetical

quarry. Mr. Black also developed a model for an aggregate stone pit

quarry with a 31.4-acre surface footprint.

The Commissioner’s Expert, Andy Sheppard

The Commissioner offered expert testimony from Andy Sheppard,

a Georgia certified general real property appraiser from Pritchett, Ball,

& Wise, Inc. We recognized Mr. Sheppard as an expert in real estate

appraisal and the appraisal of conservation easements. Mr. Sheppard

conducted a retrospective appraisal of the Paul-Adams property and

opined on the value of the easement. Mr. Sheppard used the comparable

sales method, rather than the income method, to determine the value of

the Paul-Adams property before and after the grant of the easement.

To appraise the Paul-Adams property before the grant of the

easement, Mr. Sheppard began by examining a large sample of sales

from Elbert County and neighboring counties in the years since 2000.

He looked for transactions regarding property on the Elberton granite

deposit, and involving mineral-named entities, to find transactions in

the granite quarry or potential quarry market. Ultimately, he narrowed

his sample to four properties sold in 2018 and 2019. After adjusting

their per-acre prices based on some dissimilarities to the Paul-Adams

property, he estimated a fair market value price of $4,750 per acre.

Based on that price, he determined a rounded “before” value of $985,000.

Mr. Sheppard also used the comparable sales method to value the

property after the granting of the easement. He examined every

conservation easement property in Georgia from 2000 through 2022,

determining that 92 of them sold between 2010 and 2022. As with the

“before” valuation, he selected four comparable properties and

determined a per-acre price of $1,800 for the Paul-Adams property. At

that price, the property would be worth $373,000. Taken together, his

numbers yield an easement value of $612,000 (i.e., $985,000 less

$373,000).

Rebuttal Experts

Petitioner offered expert testimony from Doug Kenny of Kenny &

Associates to rebut the testimony of Mr. Sheppard. We recognized

Mr. Kenny as an expert in real estate appraisal and appraisal review.

Mr. Kenny testified that Mr. Sheppard had not verified the sales that

[*33] he relied upon, rendering his appraisal unreliable. He provided

additional information regarding those sales. Mr. Kenny also pointed

out the absence of a royalty analysis from Mr. Sheppard’s Report,

stating that an income method analysis of a royalty arrangement would

have made Mr. Sheppard’s Report more accurate.

The Commissioner offered expert testimony from Kevin Gunesch,

a mining engineer and licensed professional engineer in Georgia who

provides independent consulting services as a Principal Consultant –

Mining Engineer with SRK Consulting, Inc.

We recognized

Mr. Gunesch as an expert in mining engineering and mineral resource

and reserve evaluation. Mr. Gunesch opined on petitioner’s expert

Reports by Mr. Black, Mr. Proctor, and Dr. Schroeder.

Mr. Gunesch disagreed with the Reports of Dr. Schroeder and

Mr. Black, petitioner’s geological experts. Specifically, Mr. Gunesch

noted that Dr. Schroeder’s Geology Report did “not provide a quarry pit

design and [did] not present a dimension stone operation considering

revenue, capital costs, and operational costs.” Ex. 601-R, p. 18. He also

disagreed with the findings of Mr. Black’s Report because the Report

provided only conceptual designs without also discussing proposed

quarry operations on the site. Mr. Gunesch opined that concluding

reasonable prospects exist for economic extraction of minerals, without

considering costs and revenues, meant no category of mineral resource

could be stated. And he disagreed with Mr. Black regarding the color

continuity of the granite samples taken from the Paul-Adams property.

Mr. Gunesch also took issue with the valuation analyses provided

by Mr. Proctor. He opined that the conceptual designs for a dimension

stone quarry provided by Mr. Proctor were inherently flawed and that

Mr. Proctor used a financial analysis that grossly overstated the likely

quarry recovery. Specifically, Mr. Gunesch believed that Mr. Proctor’s

hypothetical quarry would extract more gneiss than granite and

overstated possible granite production generally.

Additionally,

Mr. Gunesch opined that the prices used in Mr. Proctor’s analysis were

overstated.

OPINION

Burden of Proof

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

the petitioner, except as otherwise provided by statute or determined by

the Court.” Generally, the Commissioner’s adjustments in an FPAA are

[*34] presumed to be correct, and petitioner bears the burden of proving

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

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

bears the burden of proving entitlement to any deduction claimed.

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

petitioner claiming a deduction on a federal income tax return must

demonstrate that the deduction is provided for by statute and must

maintain records sufficient to enable the Commissioner to determine the

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

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

Treas. Reg. § 1.6001-1(a).

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

Commissioner “shall have the burden of production in any court

proceeding with respect to the liability of any individual for any penalty,

addition to tax, or additional amount.” However, section 7491(c) does

not apply to TEFRA partnership-level proceedings (such as this case).

See Dynamo Holdings Ltd. P’ship v. Commissioner, 150 T.C. 224, 234

(2018). Consequently, as a general rule, in a TEFRA partnership case,

the petitioner has not only the burden of proof, but also the burden of

production, even as to any penalty.

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

evidence with respect to any factual issue relevant to ascertaining the

liability at issue and meets certain other requirements, the burden of

proof shifts to the Commissioner as to that issue. I.R.C. § 7491(a)(1) and

(2).

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

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

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

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

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

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

preponderance of the evidence. See, e.g., Esgar Corp. v. Commissioner,

744 F.3d 648, 653–54 (10th Cir. 2014), aff’g T.C. Memo. 2012-35, 2012

WL 371809.

We note that, in his Pretrial Memorandum, petitioner argued

that the Commissioner should bear the burden of proof because, in

petitioner’s view, (1) the FPAA was erroneous, excessive, and

unreasonable, as well as arbitrary and capricious, and (2) petitioner

would satisfy the requirements of section 7491(a)(1) and (2). Petitioner

[*35] has not satisfied the requirements of section 7491(a)(1) and (2).

And in Beaverdam Creek Holdings, LLC v. Commissioner, T.C. Memo.

2025-53, at *22–36, we recently rejected arguments similar to those

offered by petitioner. We do so now as well, although, as already noted,

we perceive no evidentiary tie, so the burden of proof has no real

significance here. See, e.g., Esgar Corp. v. Commissioner, 744 F.3d

at 653–54.

II.

Substantiation of the Charitable Contribution Deduction

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

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

the use of a charity. By stipulation and concession, the parties have

resolved most of the issues concerning the formal requirements of

section 170. But section 170(f)(11) disallows a deduction for certain

noncash charitable contributions unless specified substantiation and

documentation requirements are met.

In the case of a contribution of property valued in excess of

$500,000, the taxpayer must obtain and attach to his return “a qualified

appraisal of such property.” I.R.C. § 170(f)(11)(D). An appraisal is

“qualified” only if it is “conducted by a qualified appraiser in accordance

with generally accepted appraisal standards” and meets requirements

set forth in “regulations or other guidance prescribed by the Secretary.”

I.R.C. § 170(f)(11)(E)(i). In the case of a partnership or an S corporation,

the qualified appraisal requirements “shall be applied at the entity

level.” I.R.C. § 170(f)(11)(G).

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

appraisal as a document that, among other things, is prepared, signed,

and dated by a qualified appraiser. Here Paul-Adams obtained an

appraisal of the easement from Mr. Fletcher and attached that appraisal

to its 2017 return. Nevertheless, the Commissioner argues that PaulAdams failed to meet the “qualified appraisal” requirement because, in

his view, Mr. Fletcher was not a “qualified appraiser” under Treasury

Regulation § 1.170A-13(c)(3)(i)(B) and (5). Petitioner disagrees. As we

explain below, we agree with petitioner that Mr. Fletcher was a qualified

appraiser, if only barely. Thus, we conclude that Paul-Adams’s

deduction has been sufficiently substantiated.

The Commissioner seeks to reject Mr. Fletcher as a qualified

appraiser under the theory that he runs afoul of subdivision (ii) of

Treasury Regulation § 1.170A-13(c)(5), the so-called knowledge

[*36] regulation. Treasury Regulation § 1.170A-13(c)(5)(ii) provides

that an appraiser is not qualified if “the donor [here, Paul-Adams] had

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

appraiser [here, Mr. Fletcher] falsely to overstate the value of the

donated property.” In gauging a partnership’s “knowledge,” we look to

the knowledge of the person(s) with ultimate authority to manage the

partnership, here, Mr. Adams and Mr. Paul. See, e.g., Ranch Springs,

164 T.C., slip op. at 32–33; Jackson Crossroads, T.C. Memo. 2024-111,

at *25 (collecting authorities).

A partnership cannot avoid the

application of the regulation merely by communicating with an

appraiser through its agent or its manager’s agent (here, Mr. Walstad).

See, e.g., Oconee Landing Prop., LLC v. Commissioner, T.C. Memo.

2024-25, at *44 (holding that, for purposes of assessing whether there

was collusion between an appraiser and a partnership,

“[c]ommunication can occur directly or can be accomplished indirectly

through agents and intermediaries”), supplemented by T.C. Memo.

2024-73.

Reading the relevant regulation closely, we observe that it is not

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

We further observe that the appraiser does not become disqualified

simply because (1) the appraiser incompetently or carelessly overstated

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

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

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

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

to falsely overstate the value.

Mill Road 36 Henry, LLC v.

Commissioner, T.C. Memo. 2023-129, at *42. Such facts ordinarily will

be facts about the appraiser, and the resulting expectation is not just an

incorrect overstated value but a “falsely” overstated value. Id.

Thus, Treasury Regulation § 1.170A-13(c)(5)(ii) provides the

following illustration: “[T]he donor and the appraiser make an

agreement concerning the amount at which the property will be valued

and the donor knows that such amount exceeds the fair market value of

the property.” See also Ranch Springs, 164 T.C., slip op. at 32. Of

course, such an agreement would be a fact about the appraiser that is

known to the donor; and a valuation known to be in excess of fair market

value but agreed to nonetheless would be not just an incorrect amount

but a culpably “false[]” overstatement of value. Mill Road 36 Henry,

LLC, T.C. Memo. 2023-129, at *42.

[*37] The Commissioner has shown that Mr. Adams participated in

multiple conservation easement transactions and that Mr. Fletcher

appraised the conservation easements in at least some of those

transactions. And, the Commissioner argues, Mr. Adams knew that the

values determined by Mr. Fletcher with respect to those conservation

easements were inflated.

Further, the Commissioner argues that Paul-Adams, through

Mr. Walstad, provided discounted cashflow projections directly to

Mr. Fletcher to influence his appraisal. In support of that view, the

Commissioner demonstrated that Mr. Fletcher’s work file contained a

spreadsheet, the metadata for which listed Mr. Walstad as its author.

That spreadsheet contained, at the time of trial, a discounted cashflow

model that appears to be the same as the model included in

Mr. Fletcher’s appraisal for Paul-Adams.

Taken together, the Commissioner’s argument is that Mr. Adams

(and thereby Paul-Adams) knew that Mr. Fletcher could be relied upon

to produce an inflated appraisal. To ensure an overvaluation, the

argument continues, Mr. Walstad provided a model to Mr. Fletcher to

indicate a desired value or assumptions. Mr. Fletcher then used the

model to develop his own discounted cashflow appraisal, deviating only

somewhat from provided values.

Although there is considerable force to the Commissioner’s

argument, we ultimately are unable to conclude that Paul-Adams had

the requisite knowledge to trigger Treasury Regulation § 1.170A13(c)(5)(ii). The record as a whole does not reflect that Mr. Adams or

Mr. Walstad communicated an interest in an inflated appraisal to

Mr. Fletcher or came to an agreement with Mr. Fletcher regarding the

value of Paul-Adams’s easement.

As for the spreadsheet created by Mr. Walstad and found in

Mr. Fletcher’s work file, the record does not establish that Mr. Walstad

was the author of the discounted cashflow analysis included in the

Fletcher report or that he colluded with Mr. Fletcher to inflate the

result.

All told, Mr. Adams and Mr. Walstad may have had knowledge

permitting an expectation that Mr. Fletcher would reach a high value

for the Paul-Adams easement. And they may have sought Mr. Fletcher

out based on that knowledge. Nevertheless, the record as a whole does

not establish that their knowledge led to an expectation that

[*38] Mr. Fletcher would falsely overvalue the Paul-Adams easement.

See, e.g., Mill Road 36 Henry, LLC, T.C. Memo. 2023-129, at *42.

The Commissioner urges us to apply the relevant authorities

more broadly, but, as in prior cases, we decline to do so. See, e.g., Ranch

Springs, 164 T.C., slip op. at 32–33; Seabrook Prop., LLC v.

Commissioner, T.C. Memo. 2025-6, at *32–35; J L Mins., LLC v.

Commissioner, T.C. Memo. 2024-93, at *38–39; Mill Road 36 Henry,

LLC, T.C. Memo. 2023-129, at *42–43. The Code elsewhere imposes

consequences for overstated value (e.g., disallowance of the overstated

deduction) and even for grossly overstated value (e.g., the 40% penalty

we discuss below). See Seabrook, T.C. Memo. 2025-6, at *32–35. The

regulatory text we construe here is manifestly focused on something

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

Id. The evidence in the record here does not show that type of

knowledge.

We therefore hold that Mr. Fletcher was a “qualified appraiser”

under Treasury Regulation § 1.170A-13(c)(5) with respect to the PaulAdams easement. But make no mistake: This is a close call. We are

troubled that Mr. Adams or Mr. Walstad may have fed bad information

to Mr. Fletcher in order to obtain a high valuation. The presence of

Mr. Walstad’s digital fingerprints in documents within Mr. Fletcher’s

work file raises eyebrows further. While we conclude that Mr. Fletcher

was a “qualified appraiser” with respect to the Paul-Adams property,

conduct not far removed from that alleged here could very well violate

the knowledge regulation.

III.

Amount of the Deduction

General Principles

Generally, the amount of a charitable contribution deduction

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

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

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

Commissioner, 1 F.4th 1354, 1369 (11th Cir. 2021). 22 Treasury

Regulation § 1.170A-1(c)(2) defines fair market value to be “the price at

which the property would change hands between a willing buyer and a

willing seller, neither being under any compulsion to buy or sell and both

22 Absent stipulation to the contrary, see I.R.C. § 7482(b)(2), appeal of this case

would lie to the U.S. Court of Appeals for the Eleventh Circuit, see I.R.C. § 7482(b)(1).

[*39] having reasonable knowledge of relevant facts.” See also Anselmo

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

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

1972, is universally acknowledged by professional appraisers when

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

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

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

taxation” as the “price that would probably be paid therefor after fair

negotiations between willing seller and buyer”); Interagency Land

Acquisition Conference, Uniform Appraisal Standards for Federal Land

Acquisitions 3 (1971) (defining fair market value as “the amount in cash,

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

the property would be sold by a knowledgeable owner willing but not

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

obligated to buy”).

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

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

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

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

1 F.4th at 1369 (“A determination of fair market value is a mixed

question of fact and law: the factual premises are subject to a clearly

erroneous standard while the legal conclusions are subject to de novo

review.” (quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812

F.3d 982, 994 (11th Cir. 2016), aff’g in part, rev’g in part and remanding

T.C. Memo. 2014-79)). “Valuation is not an exact science and each case

necessarily turns on its own particular facts.” Estate of Spruill v.

Commissioner, 88 T.C. 1197, 1228 (1987); see also Estate of Giovacchini

v. Commissioner, T.C. Memo. 2013-27, at *33 (“Fair market value is a

question of judgment rather than mathematics.” (citing Hamm v.

Commissioner, 325 F.2d 934, 940 (8th Cir. 1963), aff’g T.C. Memo. 1961347)). As the Supreme Court observed long ago, “[a]t best, evidence of

value is largely a matter of opinion, especially as to real estate.”

Montana Ry. v. Warren, 137 U.S. 348, 353 (1890).

The parties have retained experts to assist our inquiry. We

evaluate their opinions in light of each expert’s qualifications and the

evidence in the record, and we may accept an “opinion in toto or accept

aspects . . . that we find reliable.” Oconee Landing, T.C. Memo. 2024-25,

at *58; see also Savannah Shoals, LLC v. Commissioner, T.C. Memo.

2024-35, at *35. We also “may determine fair market value on the basis

of our own examination of the evidence in the record.” Savannah

Shoals, T.C. Memo. 2024-35, at *35; see also Beaverdam, T.C. Memo.

[*40] 2025-53, at *56; Seabrook, T.C. Memo. 2025-6, at *44; Jackson

Crossroads, T.C. Memo. 2024-111, at *35; Buckelew Farm, LLC v.

Commissioner, T.C. Memo. 2024-52, at *51, aff’d, No. 24-13268, 2025

WL 2502669 (11th Cir. Sept. 2, 2025).

In this case we do not have a substantial record of sales of

easements comparable to the donated easement. The parties therefore

agree that the easement should be valued by calculating the fair market

value of the easement property before and after Paul-Adams granted the

easement. See, e.g., TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th

at 1369 (“‘[I]f no substantial record of market-place sales is available to

use as a meaningful or valid comparison,’ the ‘before-and-after’

valuation method is used.” (quoting Treas. Reg. § 1.170A-14(h)(3)(i)));

Esgar Corp. v. Commissioner, 2012 WL 371809, at *7.

In deciding the “before value,” we must take into account not only

the actual use of the easement property when the easement was granted

in December 2017, but also its highest and best use. See TOT Prop.

Holdings, LLC v. Commissioner, 1 F.4th at 1369–70; Stanley Works &

Subs. v. Commissioner, 87 T.C. 389, 400 (1986); see also Treas. Reg.

§ 1.170A-14(h)(3)(ii) (“If before and after valuation is used, the fair

market value of the property before contribution of the conservation

restriction must take into account not only the current use of the

property but also an objective assessment of how immediate or remote

the likelihood is that the property, absent the restriction, would in fact

be developed, as well as any effect from zoning, conservation, or historic

preservation laws that already restrict the property’s potential highest

and best use.”).

Although this “concept ‘is an element in the

determination of fair market value, . . . it does not eliminate the

requirement that a hypothetical willing buyer would purchase the

subject property for the indicated value.’” Excelsior Aggregates, LLC v.

Commissioner, T.C. Memo. 2024-60, at *47 (quoting Boltar, L.L.C. v.

Commissioner, 136 T.C. 326, 336 (2011)); see also Corning Place, T.C.

Memo. 2024-72, at *41.

Highest and Best Use

Legal Principles

“To determine a property’s highest and best reasonably probable

use, the court focuses on ‘[t]he highest and most profitable use for which

the property is adaptable and needed or likely to be needed in the

reasonably near future.’” Palmer Ranch Holdings Ltd. v. Commissioner,

[*41] 812 F.3d at 996 (quoting Symington v. Commissioner, 87 T.C. 892,

897 (1986)); 23 accord Olson, 292 U.S. at 255. We have said that “[a]ny

realistically available special use of property due to its adaptability to a

particular business is an element that must be considered in

determining the fair market value thereof.” Stanley Works, 87 T.C.

at 400. At the same time, “[b]efore an additional element of value may

be attributed to potential use of property for the [alleged special use],

the taxpayer must establish that there existed a reasonable probability

the land would be so used in the reasonably near future.” Id. at 401

(citing Olson, 292 U.S. at 257).

We have defined highest and best use as “[t]he reasonably

probable and legal use of vacant land or an improved property that is

physically possible, appropriately supported, and financially feasible

and that results in the highest value.” Oconee Landing, T.C. Memo.

2024-25, at *59 (quoting Whitehouse Hotel Ltd. P’ship v. Commissioner

(Whitehouse III), 139 T.C. 304, 331 (2012), aff’d in part, vacated in part,

and remanded, 755 F.3d 236 (5th Cir. 2014)); see also TOT Prop.

Holdings, LLC v. Commissioner, 1 F.4th at 1369–70; Ranch Springs, 164

T.C., slip op. at 41; Savannah Shoals, T.C. Memo. 2024-35, at *37. “The

highest and best use inquiry is one of objective probabilities.” Esgar

Corp. v. Commissioner, 744 F.3d at 657.

“While highest and best use can be any realistic, objective

potential use of the property, it is presumed to be the use to which the

land is currently being put absent proof to the contrary.” Esgar Corp. v.

Commissioner, 2012 WL 371809, at *7; see also United States v. Buhler,

305 F.2d 319, 328 (5th Cir. 1962) (“Ordinarily, the highest and best use

for property sought to be condemned is the use to which it is subjected

23 In a recent unpublished decision affirming an opinion of this Court, Buckelew

Farm, LLC v. Commissioner, 2025 WL 2502669, at *6, the Eleventh Circuit observed:

In applying the highest-and-best-use standard, courts account for

several factors, including (1) the current use of the property, (2) the

likelihood that the property would be developed absent the easement,

(3) how the property would be developed, and (4) “any effect from

zoning, conservation, or historic preservation laws that already restrict

the property’s potential highest and best use.” TOT Prop. Holdings,

1 F.4th at 1369 (quoting 26 C.F.R. § 1.170A-14(h)(3)(ii)).

Eleventh Circuit Rule 36-2 provides, in relevant part, that “[u]npublished

opinions are not considered binding precedent, but they may be cited as persuasive

authority.” We cite the Buckelew Farm opinion for that purpose.

[*42] at the time of the taking.”); 24 United States v. L.E. Cooke Co., 991

F.2d 336, 341 (6th Cir. 1993) (“In the absence of proof to the contrary,

the current use is presumed to be the best use.” (citing United States v.

69.1 Acres of Land, 942 F.2d 290, 292 (4th Cir. 1991))). This is so

“[b]ecause property owners have an economic incentive to put their land

to its most productive use.” Ranch Springs, 164 T.C., slip op. at 41

(collecting authorities); see also Buhler, 305 F.2d at 328 (grounding the

presumption on the fact that “economic demands normally result in an

owner’s putting his land to the most advantageous use”).

Where “an asserted highest and best use differs from current use,

the use must be reasonably probable and have real market value.”

Esgar Corp. v. Commissioner, 2012 WL 371809, at *7 (citing 69.1 Acres

of Land, 942 F.2d at 292). Or, as we put it in another case, a proposed

highest and best use different from the current use requires both

“closeness in time” and “reasonable probability.”

Hilborn v.

Commissioner, 85 T.C. 677, 689 (1985); see also Ranch Springs, 164 T.C.,

slip op. at 34; Excelsior Aggregates, T.C. Memo. 2024-60, at *30;

Savannah Shoals, T.C. Memo. 2024-35, at *37; Oconee Landing, T.C.

Memo. 2024-25, at *65.

“Where, as here, the parties proposed different uses, we consider

‘[i]f there is too high a chance that the property will not achieve the

proposed use in the near future,’ in which case ‘the use is too risky to

qualify.’” TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369

(quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d at

1000). “The principle can also be articulated in terms of willingness to

pay. If a proposed use is too risky for ‘a hypothetical willing buyer [to]

consider [the use] in deciding how much to pay for the property,’ then

the use should not be deemed the highest and best available.’’ Palmer

Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 1000 n.14 (quoting

Whitehouse Hotel Ltd. P’ship v. Commissioner (Whitehouse II), 615 F.3d

321, 335 (5th Cir. 2010), vacating and remanding 131 T.C. 112 (2008)).

The Supreme Court’s decision in Olson aptly illustrates how the

analysis works. We quote here from our opinion in Stanley Works, 87

T.C. at 401 (footnote omitted):

24 Decisions from the U.S. Court of Appeals for the Fifth Circuit issued before

October 1, 1981, are binding precedent in the Eleventh Circuit. See Bonner v. City of

Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

[*43]

In Olson v. United States, the United States

instituted a condemnation proceeding to acquire water

drainage easements over certain property in Minnesota

adjacent to a lake which straddles the U.S.-Canadian

border. The property owner argued that his property, if

joined with several adjacent properties, could have been

used for construction of a power plant, and that the fair

market value of damages to the property as a result of the

easements the Government obtained should reflect that

potential use of the property. The Supreme Court held

that, in spite of the suitability of the property in question

for construction of a power plant, there was no reasonable

probability the property would be acquired for that purpose

in the reasonably foreseeable future. The Court held,

therefore, that no element of the property’s value

legitimately could be attributed to the suitability of the

property for construction of a power plant. The Supreme

Court stated in Olson—

Elements affecting value that depend upon

events or combinations of occurrences which,

while within the realm of possibility, are not

fairly shown to be reasonably probable,

should be excluded from consideration, for

that would be to allow mere speculation and

conjecture to become a guide for the

ascertainment of value—a thing to be

condemned in business transactions as well

as in judicial ascertainment of truth. * * * [292

U.S. at 257.]

With these principles in mind, we turn to consider the highest and

best use of the Paul-Adams property.

Highest and Best Use of the Property Before the

Easement Was Granted

Actual Use in December 2017

We start by considering how the Paul-Adams property was being

used in December 2017. The property was then being held vacant,

purportedly with an eye for potential future quarrying should Mr. Paul’s

and Mr. Adams’s businesses need it. No actual quarrying operations

[*44] had taken place on the property for about five years. The existing

pit was full of water and inactive. And the abandoned quarry was a

small pit quarry; there was no drive-in quarry.

Thus, as of December 2017, two successful businessmen with,

collectively, more than ten decades in the granite dimension stone

industry were not using the property for quarrying, but were simply

holding it for the future. Under the authorities cited above, the starting

assumption is that this was the highest and best use of the property and

that its value should not include the value of an operating quarry or the

value of granite that might be extracted by a hypothetical quarry.

Reasonably Probable Future Use

That is the beginning of the analysis, but not the end. As we have

already noted, and as the Eleventh Circuit has observed, in determining

the highest and best reasonably probable use of the property, we must

consider “[t]he highest and most profitable use for which the property is

adaptable and needed or likely to be needed in the reasonably near

future.” Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 996.

Or, as the Court colorfully put in Stanley Works, paraphrasing a 1913

case from the Georgia Supreme Court, the landowner may have used a

valuable corner of property for a stable or for a pigsty, but he is not

obliged to have it priced on that basis. Stanley Works, 87 T.C. at 400.

But note carefully the timeframe for this inquiry. It focuses on

the reasonably near future.

Palmer Ranch Holdings Ltd. v.

Commissioner, 812 F.3d at 996; Stanley Works, 87 T.C. at 401. Treasury

Regulation § 1.170A-14(h)(3)(ii) echoes this requirement by calling for

“an objective assessment of how immediate or remote the likelihood is

that the property, absent the restriction, would in fact be developed.”

Petitioner’s Proposed Highest and Best Use

Petitioner contends that the highest and best use of the PaulAdams property as of December 2017 was as an active quarry. The

parties have stipulated that active quarrying was physically possible

and legally permissible on the Paul-Adams property. But we conclude

the record does not support a finding that quarrying on the property was

financially feasible. See, e.g., Oconee Landing, T.C. Memo. 2024-25,

at *59. Accordingly, we find as a factual matter that the record does not

support petitioner’s proposed highest and best use.

[*45]

Mr. Adams’s and Mr. Paul’s Own

Actions

Take first Mr. Adams’s and Mr. Paul’s own actions. As

businessmen experienced in the dimension stone business in Elberton,

they quarried the property between 2010 and 2012. They brought in

crews from their other operations and put Mr. Adams’s son Mark

(himself an experienced quarryman) in charge of the operation. They

attempted to get salable product out of the property. And eventually

they closed up shop. The tax returns in which the results of these

activities were reported show losses of $358,794.

A fair inference from these facts (which we make as a factual

finding) is that the quarrying operations on the property were not

successful. Put another way, this is not a case where the property

owners were using a valuable corner of property for a stable or for a

pigsty and should not be stuck with that use for valuation purposes. The

property owners attempted to use the property for the very use now

pressed on us. And, based on all we can tell from the record (aside from

testimony that we do not credit because we do not find it believable),

they could not make a profitable go of it. Hypothetical willing buyers

would not ignore this data and simply assume without any evidence that

they would do better than Mr. Adams and Mr. Paul.

Mr. Adams and Mr. Paul maintain that their operations in

2010–12 were simply exploratory. They claim their efforts were

designed to find out whether the property had suitable granite

dimension stone, but were not intended to result in full blown quarry

operations at the property because their needs for such granite were

already being met. Put another way, they say they simply attempted to

find out whether good granite existed on the property, found out that it

did, and decided to stop further quarrying because the mission was

accomplished. As we show below, we find as a fact that this claim is not

credible. See Diaz v. Commissioner, 58 T.C. 560, 564 (1972) (“[T]he

distillation of truth from falsehood . . . is the daily grist of judicial life.”);

Mazotti v. Commissioner, T.C. Memo. 2024-75, at *8–9 (“As a trier of

fact, it is our duty to listen to the testimony, observe the demeanor of

the witnesses, weigh the evidence, and determine what we believe.”

(quoting Kropp v. Commissioner, T.C. Memo. 2000-148, 2000 WL

472840, at *3)). And in view of that fact, we believe hypothetical willing

buyers would not credit the proffered explanations when assessing

whether the Paul-Adams property’s highest and best use was as an

active quarry.

[*46] We return briefly to Mr. Adams’s activities with Star Granite, the

fabrication business he owned. Around 2011, the demands on Star

Granite increased. Three of Star Granite’s major customers combined

into a single multinational company. That required Star Granite to

produce more and more varied products. And, at that time, Mr. Adams

knew he would need to buy and operate a quarry to supply Star

Granite’s needs at some point. As early as 2011, he was looking for the

right quarry to purchase. In short, by 2011 and 2012, Mr. Adams needed

a quarry to supply Star Granite.

If, as Mr. Adams and Mr. Paul maintain, the exploratory

activities at the Paul-Adams property were successful, it would make no

business sense for them to close down those operations in 2012, when

Mr. Adams had no source of Georgia Gray granite in hand to supply the

needs of Star Granite.

Nor can Mr. Adams rely on the subsequent leasing and then

purchase of the Sterling Gray Quarry for his claim that his granite needs

were fully met. As of the end of 2012, the Sterling Gray Quarry was in

the hands of the McLanahan family; John Sr. was alive; and Mr. Adams

had no way of knowing that the McLanahan family would wish to lease

or sell the Sterling Gray Quarry. John Jr. did not contact Mr. Adams

and his son until December 2013, a full year after Mr. Adams and

Mr. Paul had already made the decision to stop quarrying at the PaulAdams property.

Likewise, we do not credit Mr. Adams’s proffered explanation that

he did not rely on the Paul-Adams property to meet the demands for

Star Granite because getting the production up to speed would take too

long. As of 2012, Mr. Adams had no inkling that the Sterling Gray

Quarry would become available for him to lease or acquire. Thus, it is

unclear why Mr. Adams would give up the proverbial bird in hand (and

an excellent bird at that, according to his testimony) for some potential

but unidentified birds in the bush.

His proffered explanation is in further tension with his testimony

that the granite in the Paul-Adams property was of such high quality

and so plentiful for dimension work that he could put ten quarries there.

He also testified that, based on his own air drilling tests, he could place

a quarry virtually anywhere on the property, including the southern

portion. If the property (which was larger than the Sterling Gray

Quarry) was big enough and granite rich enough to support ten quarries

virtually anywhere, one would have expected Mr. Adams and Mr. Paul

[*47] to have developed it to meet Mr. Adams’s known needs at Star

Granite. That they did not speaks loudly to the unsuitability of the PaulAdams property as an operating dimension quarry, especially in the

reasonably near future. Hypothetical willing buyers would not close

their eyes to these realities.

Mr. Adams’s testimony that his air-rotary drilling of the property

showed that good stone existed throughout the property, including the

southern portion, also runs counter to that of Dr. Schroeder, petitioner’s

own expert in geology. Dr. Schroeder found that the southern portion of

the property contained schist, not granite. Perhaps the inconsistency

may be explained by the less precise nature of air-rotary drilling. 25 But

if that is so, then the air-rotary drilling Mr. Adams undertook tells us

(and hypothetical willing buyers) precious little about what we (and

they) need to know to reach a decision on the value of property, seriously

diminishing any probative value of Mr. Adams’s testimony.

Finally, the amount of the losses incurred—nearly $360,000—

seems to us inconsistent with a simple exploratory effort. One of

petitioner’s experts, Mr. Fletcher, claimed that the development and

capital cost of establishing a fully operational quarry was just around

$520,000 incurred over a three-year period. The losses incurred by PaulAdams represent nearly 70% of that total. Why experienced people

would simply close up shop in those circumstances is unexplained. This

is particularly puzzling when they tell us similar costs would need to be

incurred all over again if operations resumed in the future.

ii.

Implausible Economic

Petitioner’s Experts

Analysis

We consider next the utterly implausible economic analyses

offered by petitioner’s experts Mr. Fletcher and Mr. Proctor. Even

though actual quarrying operations at the Paul-Adams property

As we have explained before, “air-rotary drilling causes small chips of

subsurface material to be blown up and out of the drill hole, enabling the chips to be

collected for examination. Air-rotary drilling is considered preliminary, because the

chips collected are not necessarily representative of the subsurface material because

of the potential for sample mixing and contamination.” Ranch Springs, 164 T.C., slip

op. at 11–12.

By contrast, “diamond core drilling” (the type of drilling undertaken by

Premier Drilling) “is a more reliable (and expensive) exploratory technique. It enables

the exploration team to recover a solid cylinder of subsurface material from the top to

the bottom of the drillhole.” Id. at 12.

[*48] resulted in losses in 2010, 2011, and 2012, both experts concluded

that a quarry on the property would be wildly successful.

Both experts assumed that the market could absorb the

dimension stone extracted at the newly opened hypothetical quarry and

that the new quarry would capture significant market share in

practically no time. They further assumed that the new quarry would

run at a level of efficiency achieved at the best quarries in the area,

would quarry high-quality granite, and would have no trouble finding a

qualified work force even though labor constraints have been a constant

source of problems for other quarriers in the area. We do not share the

experts’ enthusiasm and, making factual determinations, consider their

analyses unrealistic, unreliable, and unhelpful. We catalog here only a

few of the many failings of petitioner’s experts, which hypothetical

willing buyers would not have ignored.

Unrealistic Sale Volumes and

Market Share Forecasts

We start with Mr. Fletcher’s and Mr. Proctor’s assertions that a

quarry on the property would swiftly capture large portions of the

market for dimension stone. It is well established that, “[w]here a

proffered highest and best use is extraction of some sort of mineral, the

landowner must show not only the presence of the mineral in

commercially exploitable amounts, but also that a market exists for the

mineral that would justify its extraction in the reasonably foreseeable

future.” 69.1 Acres of Land, 942 F.2d at 292 (first citing United States

v. Whitehurst, 337 F.2d 765, 771–72 (4th Cir. 1964); and then citing St.

Genevieve Gas Co. v. TVA, 747 F.2d 1411, 1413 n.4 (11th Cir. 1984)); see

also Whitehurst, 337 F.2d at 771–72 (“[L]and having a sand or gravel

content may not be valued on the basis of conjectural future demand for

it. There must be some objective support for the future demand,

including volume and duration. Mere physical adaptability to a use does

not establish a market.” (Footnote omitted.)); Green Valley Invs., LLC v.

Commissioner, T.C. Memo. 2025-15, at *22–23.

This rule applies in the Eleventh Circuit. See Cameron Dev. Co.

v. United States, 145 F.2d 209, 210 (5th Cir. 1944) (“The mere physical

adaptability of the property to use as a source of supply of shell marl, in

the absence of a market for its commercial production, did not effect an

increase in its market value.”); see also St. Joe Paper Co. v. United

States, 155 F.2d 93, 97 (5th Cir. 1946) (“[B]efore the owner of the

condemned land could show adaptability to a use he must show a market

[*49] existed or was reasonably likely to exist in the near future.” (citing

Cameron Dev. Co., 145 F.2d 209)).

The USGS collects and reports, among other things, data about

the production of stone in the United States. A USGS Minerals

Yearbook for 2015 reported that producers in Georgia produced

140,000 metric tons of dimension stone granite that year. The 2017

Minerals Yearbook, which was released in 2020 before Mr. Proctor

drafted his report, reported that Georgia produced 128,000 metric tons

of dimension stone granite in 2016 and 121,000 metric tons in 2017. Put

simply, according to the USGS, production in Georgia declined between

2015 and 2017.

To maintain unit consistency, we convert those measurements

from metric tons of granite into cubic feet in the table below. 26

Production of Dimension Stone Granite in Georgia According to USGS

Year

In Metric Tons

In Cubic Feet

2015

140,000

1,871,800

2016

128,000

1,711,360

2017

121,000

1,617,770

Mr. Fletcher and Mr. Proctor were aware of the USGS reports

that had been published at the times of their appraisals. Mr. Fletcher

provided the 2015 production statistic in his report. Mr. Proctor

included the 2016 and 2017 numbers in his Table 8–1, and helpfully

(albeit inaccurately) converted them into cubic feet in his Table 8–2.

But Mr. Fletcher and Mr. Proctor assumed that their theoretical

quarries would produce granite volumes out of proportion to these

statewide volumes. Mr. Fletcher assumed that the quarry would

produce 187,500 cubic feet of salable product as early as year 2 and

wrote that “[b]ased on the Schroeder projections a stabilized salable

26 One metric ton contains 1,000 kilograms.

And a kilogram weighs

approximately 2.206 pounds.

One metric ton, then, weighs approximately

2,206 pounds. According to Dr. Schroeder’s Geology Report, one cubic foot of granite

contains approximately 165 pounds of granite. Thus, dividing by 165 pounds, one

metric ton of granite occupies approximately 13.37 cubic feet.

[*50] product is estimated to be approximately 262,500 cubic feet.”

Ex. 403-P, p. 32. Mr. Fletcher projected that the quarry would reach

this stabilized level of production by year 10. Mr. Proctor, for his part,

assumed that a theoretical quarry could produce 358,400 salable cubic

feet of granite by its fourth year of operation. By choosing such

substantial production numbers, Mr. Fletcher and Mr. Proctor implicitly

concluded that a quarry on the Paul-Adams property could seize

substantial market share in its early of years of operation, even

exceeding 20% of the statewide market.

Projections of Salable Granite Volume from a Hypothetical Quarry at the PaulAdams Property, as Percentage of Statewide Production

Year

Georgia

Production

(according

to USGS)

Mr. Fletcher

Mr. Proctor

2015

1,871,800

10% (187,500 27 / 1,871,800)

19% (358,400 28 / 1,871,800)

2016

1,711,360

11% (187,500 / 1,711,360)

21% (358,400 / 1,711,360)

2017

1,617,770

12% (187,500 / 1,617,770)

22% (358,400 / 1,617,700)

It defies credibility that a new operation in the Georgia granite

industry would seize one-fifth of the statewide dimension stone market

in just a few years. This is especially so given the market descriptions

that Mr. Fletcher and Mr. Proctor relied upon.

In particular,

Dr. Schroeder’s Geology Report acknowledged that granite dimension

stone prices were depressed, writing that “[a]ll quarriers would like to

raise their prices, but it has been difficult to do because of market

conditions.” Ex. 402-P, pp. 29–30. The same Report, discussing an

interview with a quarry operator, notes demand as a limiting factor:

“Production could be increased, but the amount they have orders for

limits their yield.” Ex. 402-P, p. 34. It is difficult to accept that a new

market entrant operating an undifferentiated quarry could seize 10% to

27 Mr. Fletcher assumed the hypothetical quarry at the Paul-Adams property

would produce 187,500 cubic feet of salable dimension stone by its second year of

operation, so by 2019.

28 Mr. Proctor assumed the hypothetical quarry at the Paul-Adams property

would produce 358,400 cubic feet of salable dimension stone by its fourth year of

operation, so by 2021.

[*51] 20% of market share with little to no excess demand and limited

room for price competition.

And one would expect existing granite operations to respond to a

fast-growing competitor. Even Mr. Adams admitted during trial that,

should a new entrant find early success in the granite market, he might

respond by selling more of the granite produced in his other quarry so

as not to allow the competition a benefit. And if a new entrant were to

compete on price and sell only to competitors of Mr. Adams’s fabrication

operations (and those of Mr. Paul’s family), those competitors might be

able to lower their prices to their ultimate customers, pressuring

Mr. Adams’s (and Mr. Paul’s family’s) fabrication businesses. One

would expect Mr. Adams and Mr. Paul’s family (as well as other existing

producers) to fight back, rather than to sit passively in view of this

competition. See Jackson Stone South, LLC v. Commissioner, T.C.

Memo. 2025-96, at *125 (“We do not think that it is reasonable to assume

that Vulcan and Martin Marietta, which are both large publicly traded

companies, would simply cede their local market sales to an upstart

mine rather than lower their prices to compete and retain market

share.”); see also, e.g., Whitehurst, 337 F.2d at 774 (evaluating demand

for materials from a borrow pit 29 by “having in mind the competition

from other pits and other material sources,” including an existing pit

owned by the same landowner on land which was not taken “which

would compete with the land taken”).

It is no answer to point to Williams Stone (as petitioner does),

which entered the Georgia quarrying industry after developing in the

New England granite industry and succeeded at operating two existing

quarries. That business entered Georgia with an established fabrication

plant and access to the New England market. No credible evidence

suggests that an operation on the Paul-Adams property would have

shared those attributes in December 2017.

Also, pursuing price competition as a strategy for capturing

market share would, at least in the short-term, reduce the projected

revenues of Mr. Fletcher’s and Mr. Proctor’s theoretical quarries. Each

of their models assumes fixed starting sale prices that increase by some

small percentage annually.

To beat out established operations,

29 A borrow pit is “an area where material (usually soil, gravel or sand) is dug

for use at another location. The term is literal—meaning a pit from where material is

borrowed.” J L Mins., T.C. Memo. 2024-93, at *35 n.14 (quoting Mactec, Inc. v. Bechtel

Jacobs Co., LLC, 346 F. App’x 59, 69 (6th Cir. 2009)).

[*52] however, a new quarry might have to reduce its prices for some

number of years, sacrificing revenue in those years in exchange for

production growth. In other words, competition reduces profit. A

nascent quarry would not command high, fixed prices while beating out

other producers absent some other indicia of differentiation, such as

extremely high-quality stone or technological advancement.

Petitioner’s efforts to cast aspersions on the quality of the data of

the USGS Mineral Yearbooks are unpersuasive. 30 Those reports are

widely relied upon by industry members. Even petitioner’s own experts

used USGS data to develop estimates in their reports. And, even if the

Mineral Yearbooks were found to understate production levels by a

substantial degree—even 100%—the production values assumed by

Mr. Fletcher and Mr. Proctor would remain incredible.

As the analysis above shows, the volume forecasts petitioner’s

experts proffered are inconsistent with general market data and

economic theory. Hypothetical willing buyers would not ignore the

obvious points highlighted above.

But we need not rely only on general market data and economic

theory to set aside the volume forecasts petitioner’s experts offered.

Mr. Adams’s own experience at the Sterling Gray Quarry provides one

of the strongest indications that Mr. Fletcher’s and Mr. Proctor’s

projections were a work of fiction.

Recall that Mr. Adams began leasing the Sterling Gray Quarry in

2014. Recall further that under the lease he was required to pay $1 per

cubic foot of most of the granite quarried 31 and that any royalties paid

would reduce the price paid to exercise the purchase option. When the

30 For example, petitioner points to Mr. Rice’s testimony in Beaverdam.

In that

case, Mr. Rice said that his quarry produced 700,000 to 800,000 cubic feet of curbing

stone per year. He further testified that his quarry had $16.5 to $17 million in annual

revenue. These numbers would suggest a price between $21 and $24 per cubic foot.

This is far in excess of any price for curbing stone we have been given by any expert in

this case, even for later years after prices for curbing stone increased. So Mr. Rice’s

numbers do not add up. Additionally, Mr. Rice’s testimony related to later years when,

again, the market demand and pricing for curbing had increased. We therefore do not

credit Mr. Rice’s testimony that the figures he provided apply to 2017.

31 For curbing granite, the royalty rate was 33 cents per cubic foot, but

Mr. Adams testified that the Sterling Gray Quarry did not have much curbing stone,

and records for subsequent years confirm this assertion. Therefore, royalties on

curbing granite do not have a material impact on our analysis, and we will not discuss

them further.

[*53] option was exercised in 2019, Mr. Adams paid $1,172,367 for the

159 acres covered by the option. This means that he paid about $227,633

in royalties between 2014 and 2019 ($1.4 million contract option price

less $1,172,367 actually paid implies $227,633 was paid in royalties).

The record does not contain production information for the

Sterling Gray Quarry between 2014 and 2018. The first year for which

production data is in the record is 2019. But we can draw some

reasonable inferences from the data that we have.

First, Mr. Adams testified that it took between one and two years

to start up operations at the Sterling Gray Quarry. During any period

for which there was no production, Mr. Adams would have been required

to pay the minimum royalty of $36,000 per year, rather than the volumebased royalty. Assuming (in petitioner’s favor) that operations took only

one year to start up, of the $227,633 royalty payment, $191,633

represented royalties based on volume ($227,633 in total royalties for

2014 through 2018 less $36,000 in minimum royalties for 2014). That

means that between January 2015 and December 2018, the Sterling

Gray Quarry would have produced a total of approximately 191,633

cubic feet of granite. That translates into an average of 47,908 cubic feet

of granite for each of those four years (191,633 / 4 = 47,908.25).

This estimate is not unreasonable in view of the production

information we do have. In 2019, the Sterling Gray Quarry produced

67,468 cubic feet of granite (of which only 297 cubic feet, or less than

half a percent, was curbing). The following year production rose to

77,427 cubic feet. And the year after to 106,915 cubic feet.

Recall that, with respect to Georgia Gray, these amounts were

sufficient to satisfy all the requirements of Star Granite, one of the

largest fabrication operations in the area. Then compare these numbers

with the sales volumes Mr. Fletcher and Mr. Proctor included in their

models.

[*54] Year

Actual Production

in Cubic Feet at

Sterling Gray

Quarry

Mr. Fletcher’s

Projected

Production in

Cubic Feet at

Paul-Adams

Property

Mr. Proctor’s

Projected

Production in

Cubic Feet at

Paul-Adams

Property

2019

67,468

187,500

179,200

2020

77,427

187,500

268,800

2021

106,915

187,500

358,400

2022

164,112

187,500

358,400

2023

171,726

225,000

358,400

How a newly opened Paul-Adams quarry would produce that

much granite and where it would sell this type of volume are

unexplained. 32 Throughout the trial, petitioner’s counsel repeatedly

asked witnesses whether outsiders to the Elberton market or people

with 80 to 100 years of experience in that market were better suited to

make market predictions about Georgia Gray granite. And the

witnesses dutifully responded that people with market experience were

more likely to know what market demand might be.

Those answers make sense in the ordinary case in which an

appraiser is asked to use, in a valuation prepared for litigation, sales

projections independently prepared for business purposes before the

litigation arose. Such projections generally have credibility because

they have not been developed for litigation and because business

32 Petitioner attempts to justify his expert’s estimates of higher production,

reduced costs, and greater margins in part by arguing that the quarry on the PaulAdams property would be a drive-in quarry rather than a pit quarry. (Once

established, drive-in quarries typically are more efficient than pit quarries because no

crane is required.) But as Mr. Proctor helpfully explained: “Drive-in quarries . . . are

developed by cutting laterally into hillsides, allowing for more accessible and

streamlined extraction processes.” Ex. 401-P, p. 40. Petitioner has presented no

evidence of a suitable hillside on the Paul-Adams property. And notably, when

Mr. Adams and Mr. Paul quarried the property, they opted to expand the existing pit

rather than developing a drive-in quarry. Mr. Adams candidly testified that the

existing pit was not big enough for a drive-in quarry and that converting it to a drivein quarry would have cost approximately $1 million because granite would need to be

moved and multiple switchbacks would need to be cut. Tr. 1136–38.

[*55] decisions turn on them. For example, when a business must hire

extra people and acquire additional supplies to produce inventory in

anticipation of projected sales, the business has every incentive to get

the projections as close to right as it can. Otherwise, a projection error

would result in unnecessary losses if the projected sales were to fail to

materialize. Hypothetical willing buyers would be keenly aware of these

stubborn economic facts.

Circumstances are remarkably different when projections are not

constrained by business realities. A businessman projecting how much

dimension stone can be produced and sold in a given year by a

hypothetical quarry that will never be built has no outside forces

tempering his optimism. Rosy projections do not hurt his bottom line.

He will not have sunk costs that might never be recovered or unsold

inventory to write down (a luxury hypothetical willing buyers would not

enjoy). Indeed, in a case like this one, where higher projected sales

result in higher charitable contribution amounts, rosy projections

simply serve to increase the potential benefits flowing from the fisc in

the form of reduced income tax liabilities.

To the extent Mr. Adams and Mr. Paul provided the projections

used by petitioner’s experts, those projections were rosy indeed, as the

table above illustrates. Mr. Adams’s recollection also seems to have

been clouded about the actual performance of the Sterling Gray Quarry

as of 2017. When Mr. Adams was called for rebuttal, the Court asked

him about the volume of granite produced at that quarry in 2017. In

what appeared to be an effort to support the valuation conclusions of his

experts, Mr. Adams responded that the quarry was probably producing

“over 100,000 cubic feet, maybe 120 [or] 125,000 cubes in ’17.” Tr. 1994.

But, as the table above shows, the Sterling Gray Quarry did not

break the 100,000 cubic feet barrier until 2021, several years after 2017.

And even in 2019 (two years after the date relevant here and five years

after Mr. Adams began leasing the property), the Sterling Gray Quarry

was producing only 67,468 cubic feet of granite. If the quarry supplying

Star Granite sold only that much granite in 2019, it beggars belief that

there was plentiful market demand for a brand new quarry to provide

between 179,200 and 187,500 cubic feet to some unidentified,

unaffiliated operations in 2019 alone or to provide more than 358,000

cubic feet two years later (as reflected in the projections of one of

petitioner’s experts).

[*56] In a similar vein, one more objective data point undercuts the rosy

projections for the Paul-Adams property. As we have discussed, in

February 2018, one of Mr. Adams’s companies entered into a supply

agreement with Matthews, the publicly traded company that acquired

some of Mr. Adams’s fabrication operations. Under the supply

agreement, Mr. Adams’s company agreed “to produce and make

available for sale to Matthews” at least 80,000 cubic feet of granite from

the Sterling Gray Quarry at specified prices. The agreement referred to

this amount together with a specified amount of granite produced by the

Pink Pearl Quarry as the “Minimum Amounts.”

Matthews was obligated to purchase the Minimum Amounts from

Mr. Adams’s company. Given this condition in the supply agreement,

one would expect Sterling Gray Quarry’s sales for 2019 to be at least

80,000 cubic feet. But Matthews’s obligation to purchase was subject to

at least two exceptions. Matthews was free to buy fewer than

80,000 cubic feet if it could establish either (1) that its annual granite

needs had decreased as a result of a lack of demand generated by

consumer orders or (2) that Matthews’s annual purchase orders

remained at or above the granite supply needs of the business Matthews

acquired from Mr. Adams in February 2018. Given the amount of

granite the Sterling Gray Quarry actually sold in 2019 (67,468 cubic

feet), one might reasonably conclude that Matthews’s failure to buy

80,000 cubic feet of granite for that year may have been justified by the

fact that its orders remained at or above the level of where production

had been as of February 2018 (i.e., before the acquisition). Of course, it

could also be that lack of customer demand resulted in the lower sales

in 2019, but, either way, the actual results under the supply agreement

do not bode well for Mr. Fletcher’s and Mr. Proctor’s rosy projections.

In short, in view of the foregoing, we conclude that petitioner has

failed to establish “the existence of a market ‘that would justify [the]

extraction [of the granite dimension stone found in the Paul-Adams

property] in the reasonably foreseeable future.’” Esgar Corp. v.

Commissioner, 2012 WL 371809, at *8 (quoting 69.1 Acres of Land, 942

F.2d at 292); see also, e.g., Cameron Dev. Co., 145 F.2d at 209–10

(holding that evidence about the existence of shell marl on the property

was properly excluded when “[n]o evidence was offered to prove that any

market existed, or was reasonably likely to exist in the near future, at

which this shell could be profitably sold,” and when “[n]o showing was

made that any purchaser was willing to pay any more for the land,

because of the shell deposits, than its market value as pasture land”);

Ranch Springs, 164 T.C., slip op. at 47–48 (finding that limestone

[*57] mining was not a property’s highest and best use where existing

suppliers could meet new demand); Excelsior Aggregates, T.C.

Memo. 2024-60, at *35–37 (same with respect to gravel mining).

Unrealistic Quarry Efficiency

Next, we consider the efficiency of the theoretical quarries

proposed by Mr. Fletcher and Mr. Proctor. Here, as with production

volume, petitioner’s valuation experts stretch credibility beyond its

breaking point. Efficiency, in this context, refers to how much of the

granite mined from beneath the property can be sold to actual

customers.

Dr. Schroeder provided some insight into quarry efficiency in his

discussion of the dimension stone market, noting that “[p]ercentages of

usable stone can vary from as low as 5 or 10% to as high as 80 or 90%,

but in the better quarries (those that are operating) it probably averages

at least 50% usable.” Ex. 402-P, p. 30. In other words, while efficiencies

can vary widely, quarries that survive usually retain at least half of

what they mine. This description pairs well with analysis from

Mr. Gunesch, one of the Commissioner’s experts, who concluded that,

under Mr. Proctor’s model, a recovery rate of at least 48% was necessary

for a theoretical quarry to break even.

Mr. Fletcher and Mr. Proctor assumed that their modeled quarry

operations would retain 75% and 80%, respectively, of their mined

granite. These assumptions fall at the high end of the range provided

by Dr. Schroeder. Moreover, they were determined with little to no

analytical support. It is challenging to accept, on its face, that any

quarry operation begun on the Paul-Adams property would reach such

high efficiency.

Multiple witnesses who testified in the Court’s recent Beaverdam

case, which also dealt with granite quarrying operations in the Elberton

Granite area and on which some of petitioner’s experts relied, stated

that their operations recovered 80% of the granite mined for sale. The

lowest estimate was 49%–50% in one quarry’s first year. But it would

not do to rely on that testimony to establish an 80% expected recovery

rate for a quarry on the Paul-Adams property. The witnesses who

testified in Beaverdam about the efficiency of their ongoing quarries had

developed successful quarries—something that is not guaranteed to a

theoretical quarry on the Paul-Adams property and to hypothetical

willing buyers of that property. In other words, survivorship bias

[*58] colored such testimony. And no former operators of failed quarries

were called to testify.

Without such additional evidence, there is no reliable support for

the claim that a quarry on the Paul-Adams property would recover 80%

of its mined granite. There is not even support for a 50% recovery rate—

and to assume a recovery rate reserved for “successful” quarries would

be to discharge the financial feasibility aspect of the highest and best

use analysis on no evidence at all.

Nor is this a theoretical concern. As James Michael Rutherford,

a witness who also quarried granite in the area and was called by

petitioner, explained, quarries have failed in Elberton. He put the

number of failed quarries at 8 to 10 (out of 50 or so).

Unproven Quality of Granite

Furthermore, petitioner’s experts have not credibly demonstrated

the amount of granite beneath the Paul-Adams property that is of a

quality suitable for the dimension stone market. Not all granite can be

sold as dimension stone. Only granite of consistent color, with few or no

veins or streaks, and granite that can be mined in large, whole blocks

can be sold as dimension stone.

Mr. Fletcher and Mr. Proctor each assumed that the granite

beneath the Paul-Adams property was suitable for dimension stone use.

Discussing the highest and best use of the property, Mr. Fletcher wrote

that “it would be reasonable to assume that mineral extraction,

specifically either dimension stone or aggregate stone production could

be a financially feasible use of the Paul-Adams Quarry Trust, LLC

property.” 33 Ex. 403-P, p. 28. And Mr. Proctor noted that “Burgex was

asked to assume that the Property would be used for the extraction and

sale of dimension stone granite.” Ex. 401-P, p. 14.

But Dr. Schroeder, upon whose Geology Report Mr. Fletcher and

Mr. Proctor each relied, made no determination in 2017 that the PaulAdams property contained natural resources suitable for the dimension

stone market. His volumetric estimates applied only to the amount of

aggregate resource available beneath the property. And, although he

noted that “this property could potentially be developed as an aggregate

33 Petitioner has now retreated from pressing aggregate stone production as

the highest and best use of the property. So we need not pursue that possibility

further.

[*59] quarry or dimension stone quarry[,]” that statement was qualified:

It applied only “[w]ith further favorable testing of rock cores from the

Adams tract site.” Ex. 402-P, p. 40.

Dr. Schroeder amended his conclusion to become more bullish

about dimension stone quarrying on the Paul-Adams property, but he

did so in May 2025, in anticipation of trial. We are inclined to credit his

observations from 2017—developed near the grant of the conservation

easement—more readily than conclusions developed eight years later

and after reviewing testimony from the 2024 trial in Beaverdam.

Nor did Mr. Black, Paul-Adams’s second geological expert,

perform analyses essential to determining the suitability of the

property’s granite for sale as dimension stone. Mr. Black did conclude

that “the bedrock at the Site is suitable for use as dimension stone as

well as coarse aggregates.” Ex. 400-P, p. 22. And Mr. Black tested and

closely examined the compressive strength and tensile strength of the

granite beneath the Paul-Adams property. But he did not consider the

color of the granite or its color consistency, nor whether it contained

streaks or veins of other minerals. Nor was he able to make

determinations regarding the entire property’s granite deposit. Indeed,

his analysis assumed “geological and quality continuity between points

of observation (rock borings and outcrops).” Ex. 400-P, p. 23. Here,

there were only three boreholes, which were spaced far from each other,

on a more than 200-acre property. Accordingly, it is quite possible that

the granite between observation points deviates from the characteristics

expected of dimension stone. As Mr. Adams himself testified, core

drilling shows only the stone in a two-and-a-half-inch hole; it does not

show what is five feet away in any direction. Tr. 1272. And

Mr. Rutherford confirmed that you cannot determine the stone’s grade

until you begin quarrying it.

Other analyses offered to the Court cut against the conclusion

that the granite beneath the property would qualify for the high grades

in the dimension stone market. Mr. Gunesch analyzed the color

composition of samples taken from the property, noting that “[c]olor

changes or fractures within the granite preclude using blocks as

dimension stone if the color changes or fractures . . . prevent extracting

solid quarry blocks of consistent color.” Ex. 601-R, p. 67. He developed

a metric to count the percentage of each core sample that could be

removed as a color-consistent gray block. The sample for borehole 1 was

95% color consistent. From borehole 2, 17%. And borehole 3 produced

a 29% color-consistent sample. In short, the potential for extracting

[*60] blocks of consistent gray color—blocks that could be sold as

dimension stone—varied significantly across the northern portion of the

property.

Mr. Gunesch also noted that blocks surrounding the abandoned

quarry on the Paul-Adams property showed signs of contact with gneiss.

If those blocks were taken from the very bottom of the abandoned

quarry, he concluded, the granite on the Paul-Adams property there

might become unusable gneiss at a depth of approximately 40 feet.

Because gneiss cannot be sold as dimension stone, such a transition

would severely curb the volume of dimension stone that could be mined

from the property. Notably, in test drilling, gneiss also appeared in

borehole 2. And, even more notably, someone instructed Mr. Towe to

stop drilling at 35 feet for borehole 3, the borehole next to the quarry,

even though Premier Drilling’s normal practice would be to drill to

100 feet, as Mr. Towe did for holes 1 and 2. No one has claimed

responsibility for this decision or adequately explained it, suggesting

that perhaps drilling was stopped at 35 feet because Mr. Adams or

Mr. Walstad knew they would find gneiss at greater depths. 34

Petitioner also called Steven Scott Gunter. Mr. Gunter works in

the granite business in Elberton. He recalled that in 2010 to 2012 his

business focused on coping stock (recall that coping stock is the fourth

grade of dimension stone, lower than die, base, and quarry run, but

higher than curbing).

He remembered buying between 50 and

100 blocks of coping stock from the Paul-Adams property and paying

between $600 and $800 per block. A block of coping stock generally

measures 10 feet by 4 feet by 3 feet. Although Mr. Gunter recalled

seeing some blocks of other grades at the property when he picked up

his coping stock, he provided no testimony of the volume of that stone.

Mr. Adams and Mr. Paul both testified at various points about

selling the stone they pulled out of the Paul-Adams property. Mr. Paul

said that they sold approximately 70% to 80% of what they recovered,

which, in his words was “[g]ood for a surface quarry.” Tr. 203.

Mr. Adams testified that they sold 90% to 95% of what they quarried,

34 Petitioner argues that drilling was stopped because drilling to 35 feet

confirmed consistency with the rock from the existing quarry. But this makes little

sense. If Paul-Adams was trying seriously to assess the quality of the rock on the

property, why would it place a borehole close to the existing quarry without drilling

any deeper? That choice would seem to provide little information Paul-Adams did not

already possess, whereas drilling deeper would have provided new information.

[*61] and then later testified that “we sold every bit of it.” 35 Tr. 1139.

But that testimony is at odds with the significant number of discarded

blocks on the property, including around the quarry and in the waste

pile on the southern end of the property.

Mr. Adams initially alleged that all the “blocks around the hole

[were] from the original . . . guy that opened it up” and that “really all of

those could have been sold for curbing.” Tr. 1144–45. But Mr. Paul said

that he and Mr. Adams had dumped waste, which he said was about

25% of what they pulled out, right around the quarry itself. Tr. 246.

And both men acknowledged that the waste pile on the southern portion

of the property was made up of stone from the Paul-Adams property,

which, in Mr. Sheppard’s opinion, appeared to contain a significant

percentage of the total granite pulled. Mr. Sheppard noted that “[a]ll

evidence seems to point to the material extracted from the test pit being

of a poorer quality and thus discarded.” 36 Ex. 600-R, p. 47.

Petitioner called no other purchasers of dimension stone quarried

at the Paul-Adams property in 2011 and 2012. Aside from Mr. Adams’s

and Mr. Paul’s testimony, we have no basis to conclude how much stone

was quarried or what type. And, as Mr. Rutherford explained, the type

of stone that can be quarried makes or breaks a business. Sixty-five

percent of the stone his quarry produced was die, and his success in that

quarry was attributable to quarrying that type of stone. According to

Mr. Rutherford, quarry operators with lower levels of high-quality stone

could not be expected to make much money.

Unrealistic Projected Prices

Even if the quality of the stone beneath the Paul-Adams property,

the efficiency of a potential mining operation, and the production volume

35 Note that Mr. Adams so testified in response to an inquiry regarding the

Sterling Gray Quarry, but the context and content of the testimony made it clear that

he misunderstood the question and was referring to the Paul-Adams property, which

he had been discussing in response to the previous question. For example, Mr. Adams

stated that “we’ve done [quarrying] very little” and “we had quite a bit of coping.”

Tr. 1139. Both statements accurately describe the Paul-Adams property and do not

describe Mr. Adams’s discussions of Sterling Gray. Additionally, in response to the

next question, Mr. Adams said “Oh, the Sterling Gray Quarry?” reflecting his

understanding that he had been speaking about the Paul-Adams property.

36 Mr. Sheppard explained that the market for lower quality curbing stone did

not develop until approximately 2021. Other experts noted a market change around

this time as well.

[*62] achievable at such an operation had been presented with sufficient

credibility, petitioner and his experts further failed to credibly estimate

the price the granite leaving the Paul-Adams property would obtain.

Mr. Fletcher chose a price of $13.10 per cubic foot for his modeled

quarry. He purportedly drew that value from Dr. Schroeder’s Geology

Report. But Dr. Schroeder represented only that aggregate stone could

be sold for $13.10 per metric ton. Thus, there are two significant

problems here. First, Dr. Schroeder’s $13.10 figure was not a price

estimate for dimension stone. And, although Dr. Schroeder provided in

his report a table of average prices for different grades of dimension

stone in Elberton, neither his $13.10 aggregate price nor Mr. Fletcher’s

$13.10 dimension stone price appears to be based on that table.

Second, as noted above, Dr. Schroeder reported his price for

aggregate in dollars per metric ton. Converted to dollars per cubic foot—

the unit used by Mr. Fletcher—Dr. Schroeder’s price is roughly $0.98

per cubic foot. 37 This makes sense, given that aggregate stone does not

face the same quality restrictions as dimension stone. By drawing his

price from Dr. Schroeder’s report, Mr. Fletcher chose a wholly

unsubstantiated average price for dimension stone for his modeled

quarry.

Mr. Proctor displayed more sophistication in setting his prices.

He examined witness pricing statements from the Beaverdam litigation

and presented a table of price statements separated by stone grade.

Then, he chose a price for each grade from the ranges available to him.

He also assumed that his modeled operation would produce a set mix of

stone of different grades: 10% die, 20% quarry run, 30% base, 10%

coping, and 30% curbing.

Mr. Gunesch compared Mr. Proctor’s prices to those published

and realized by the Greene County Quarry and Blue Ridge Quarry from

2017 through 2024. As it turns out, the realized prices at those real

quarries were, on average, 12% lower than Mr. Proctor’s, and their

published prices 14% lower. Perhaps some quarries can command

higher prices than their competitors, but it is difficult to believe that a

new entrant to the quarrying market would be able to set significantly

37 As noted above, see supra note 26, one metric ton of granite occupies

approximately 13.37 cubic feet. Thus, if a metric ton of aggregate granite sells for

$13.10, a cubic foot of aggregate granite would sell for about $0.98 (i.e., $13.10 per

metric ton ÷ 13.37 cubic feet in metric ton = $0.98 per cubic foot).

[*63] higher prices than established quarries and compete successfully.

See, e.g., Jackson Stone South, LLC, T.C. Memo. 2025-96, at *125.

Both Mr. Fletcher and Mr. Proctor also assumed that the price of

dimension stone would increase by 3% or 2.5% annually. But there is

reason to believe that stone prices were largely static in the years

leading to 2017. Dr. Schroeder, for example, reported that “[d]espite

inflation, and the rising cost of materials and labor, there has been very

little change in these prices in the last twenty-five years.” 38 Ex. 402-P,

p. 29.

Unrealistic Labor Assumptions

The very real labor constraints that real quarry operators have

experienced also apparently posed no obstacle to the development and

growth of Mr. Fletcher’s and Mr. Proctor’s theoretical quarry operations.

As Mr. Rutherford candidly put it, one of the biggest problems in

running his quarry was labor. Finding a reliable crew and keeping them

were important. He estimated that it would take between three and six

months to train a new employee to be able to work without supervision.

And complications in training and supervising employees was one

reason he did not expand production. Similarly, while Mr. Adams

procured labor to operate Sterling Gray Quarry from around 2015

onward, the initial production and growth at that quarry were much

lower than the production and growth petitioner’s experts project for the

Paul-Adams property. Mr. Fletcher and Mr. Proctor’s computations

brush such problems aside, assuming that ever-increasing production

would be achieved at the Paul-Adams hypothetical quarry.

Unrealistic Assumptions About

Available Granite Deposits

Finally, there are indications that petitioner’s valuation experts

claimed much more certainty about the minerals beneath the PaulAdams property than was due. Multiple experts who testified at trial

relied on the SME Guide for 2017, which sets out a system for

categorizing the extent of exploration and certainty regarding the

mineral content beneath a parcel of real property. As we have already

explained, see supra Findings of Fact Part III, these categories represent

38 We note that, under the supply agreement between Matthews and

Mr. Adams’s company, prices for the Minimum Amount could not increase by more

than 2% per year during the term of the agreement.

[*64] levels of certainty: As one performs additional investigation and

exploration, the uncertainty in their mineral estimates decreases.

To review, the SME Guide sets out two categories of mineral

estimating, mineral resources and mineral reserves. Mineral resources

reflect the content below ground, while mineral reserves reflect the

below-ground mineral content that can be used, considering economic,

legal, environmental, and other factors. Within those macrocategories,

mineral resources can be inferred, indicated, or measured—increasing

in confidence, respectively. Mineral reserves can be probable or proven.

And, before one even enters the world of mineral resources and reserves,

the “exploration results” category describes the least certain category.

See supra Findings of Fact Part III.

Mr. Black, Mr. Sheppard, and Mr. Gunesch used these terms to

develop and state their conclusions. Mr. Black concluded that an

indicated mineral resource existed beneath the Paul-Adams property—

that is, that there was a medium level of confidence regarding the

presence of granite, but that there was little knowledge of economic

viability. Mr. Sheppard came to a different conclusion, writing that

“there appears to be an insufficient amount/spacing of core drilling and

lab testing, which prevents any geologist from providing more than an

inferred resource estimate.” Ex. 600-R, p. 50. And Mr. Gunesch

reported in two places that, based on the information and analyses

available, “the granite cannot be defined as any category of mineral

resource for dimension stone, even the lowest category which is an

Inferred Mineral Resource.” Ex. 601-R, p. 46.

Additionally, Dr. Schroeder, even though he did not use the SME

framework as such, commented repeatedly about the need for further

testing to confirm the quantity and quality of the granite underlying the

Paul-Adams property. At one point, he noted that “[f]or a more accurate

estimate of inferred subsurface rock quality, additional deep subsurface

drilling program and subsequent rock testing are needed.” Ex. 402-P,

p. 26. Later, he commented that the property “could potentially be

developed” as a quarry “[w]ith further favorable testing of rock cores

from the [property].” Ex. 402-P, p. 40. Accordingly, his Geology Report

too underlines the inherent uncertainty of a quarrying venture when

only limited testing has been performed and confirms that firm

conclusions about the Paul-Adams property required additional testing.

All told, although Mr. Black, Mr. Sheppard, and Mr. Gunesch

disagree about the level of confidence attributable to the granite beneath

[*65] the Paul-Adams property, none represented that a highconfidence “measured mineral resource” was present. Nor did Dr.

Schroeder. Further, none of the four represented that mining was

economically viable such that a probable or proven mineral reserve could

be estimated. But both Mr. Fletcher and Mr. Proctor paid little heed to

the tempered conclusions of the geologists on their own side and went

on to assume that the Paul-Adams property contained abundant, quality

dimension granite.

We heard testimony throughout the trial that Elberton granite

miners do not follow the SME Guide in determining when and where to

quarry or estimating how much granite underlies a piece of property.

That may be so, but that Guide offers a useful framework for

understanding how others, including public companies, perform such

assessments. It illustrates how one can move from more to less

uncertainty regarding a mineral deposit, and thus from more to less

risk, when contemplating a mining operation. Of course, miners in

Elberton are not required to perform the kind of testing described in the

guidelines to prove a resource or a reserve, but they should not be

surprised when increased uncertainty from such an approach produces

reduced values for land with merely suspected deposits. Indeed,

perhaps this is why, as we will see, parcels in the Elbert granite area,

including those with open pits, tend to sell for relatively modest prices,

despite the testimony we heard about the high-quality granite deposits

underlying the area and the purported limitless demand for finished

Georgia Gray products. And, in any event, we do not think hypothetical

buyers would disregard the principles reflected in the SME Guide when

making their pricing decisions.

In short, in view of the record as a whole, we find that there was

not “a reasonable probability the land would be . . . used [as an active

granite dimension stone quarry] in the reasonably near future.” Stanley

Works, 87 T.C. at 401; see Hilborn, 85 T.C. at 689 (“Any suggested use

higher than current use requires both ‘closeness in time’ and ‘reasonable

probability.’”). In our view, there is simply “too high a chance that the

property will not achieve the proposed use in the near future.” TOT

Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369 (quoting Palmer

Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 1000). Therefore,

petitioner’s proposed “use is too risky to qualify.” Id.

Putting the same conclusion “in terms of willingness to pay,” we

conclude that petitioner’s “proposed use [as an active quarry] is too risky

for ‘a hypothetical willing buyer [to] consider [the use] in deciding how

[*66] much to pay for the property.’” Palmer Ranch Holdings Ltd. v.

Commissioner, 812 F.3d at 1000 n.14 (quoting Whitehouse II, 615 F.3d

at 335). Therefore, petitioner’s proposed use cannot “be deemed the

highest and best available.” Id.

The Commissioner’s Proposed Highest and

Best Use

The Commissioner maintains that the highest and best use of the

property is for potential mining following more extensive

drilling/testing, the creation of a mine plan, and completion of a market

feasibility study, whether for dimension or aggregate production.

The Commissioner’s proposed highest and best use finds support

in the existing use of the Paul-Adams property. It also finds support in

Dr. Schroeder’s Geology Report, as we have just discussed. See

Ex. 402-P, p. 40 (noting that the property “could potentially be

developed” as a quarry “[w]ith further favorable testing” (emphasis

added)). The Commissioner’s proposed highest and best use recognizes

the inherent value in the granite existing in the Paul-Adams property

and its zoning. It also recognizes that a hypothetical willing buyer

would likely be willing to pay for the possibility to explore further

whether the existing granite deposit could be monetized economically.

In addition, the Commissioner’s proposed use accounts for the fact that

additional work would be needed to determine whether operating an

actual quarry on the Paul-Adams property would be economically

feasible (perhaps, for example, near borehole 1) and, absent more data,

a prospective purchaser would not be willing to pay the existing owner

an amount that assumes the granite underlying the property can in fact

be profitably quarried as dimension stone.

The Court’s Conclusion on Highest and Best

Use Before the Easement Was Granted

To sum up, we find that the highest and best use of the property

before the easement was granted is as the Commissioner proposes—for

potential mining following more extensive drilling/testing, the creation

of a mine plan, and completion of a market feasibility study, whether for

dimension or aggregate production.

We pause briefly to describe the difference between our

conclusion as to highest and best use and petitioner’s proposed use.

Petitioner argues that the highest and best use of the property, before

the easement, was as an active quarry. As discussed above, the record

[*67] does not support the conclusion that one could profitably operate

a quarry on the property in the reasonably near future. See generally

Stanley Works, 87 T.C. at 401 (citing Olson, 292 U.S. at 257).

But neither does the record categorically preclude the conclusion

that profitable quarrying might at some point happen at the property.

Further exploration of the property, for example by collecting additional

core samples at regular intervals near borehole 1, might have revealed

the presence of a marketable granite resource. And better market

analysis might actually show demand for the granite that could be

extracted at the quarry and that such demand might justify the cost of

extraction. Moreover, changes in the granite market, such as the one

that apparently occurred in 2021, or in the costs of operating a quarry

after 2017 might also have changed the financial outlook for quarrying

on the property and might need to be taken into account depending on

the foreseeability and likelihood of their occurrence, something a

hypothetical willing buyer would have to weigh.

Given the possibility that subsequent exploration, additional

market analysis, or market developments might indicate quarrying as a

viable use for the property, it is reasonable to expect that one might have

purchased or leased the property, in 2017, in order to explore or to

speculate on market dynamics. But such a hypothetical willing buyer

would not pay as though profitable quarrying was an immediate

certainty. Instead, one would expect such a buyer to pay a price

reflecting the inherent uncertainty the buyer would face and the

additional exploratory costs and risks that the buyer would assume. 39

Our conclusion as to the highest and best use of the property

reflects these realities. “Potential mining” represents the possibility

that the property might eventually be mined if it is proven that

quarrying would produce sufficient volumes of marketable granite that

could be sold at high enough prices. It also recognizes the possibility

39 Petitioner argues that, through the expert reports it submitted at trial, it

has taken the required steps to reduce uncertainty regarding mineral deposits on the

Paul-Adams property. But, as we have discussed at length, we do not find those

reports credible. And, even if we did find them credible, they did not exist in 2017.

See, e.g., First Nat’l Bank of Kenosha v. United States, 763 F.2d 891, 894 (7th Cir. 1985)

(“[T]he property in the decedent’s estate is evaluated by determining what a willing

buyer would give for it on the date of death. Information that the hypothetical willing

buyer could not have known is obviously irrelevant to this calculation.”). Reducing

uncertainty later (which, again, petitioner has not done) does not change the

uncertainty that existed when the easement was granted. And it is that earlier

uncertainty that is relevant to determining fair market value as of the easement date.

[*68] that someone interested in entering the granite market might

purchase or lease the property, factoring the risk of failure into their

willingness to pay.

Highest and Best Use of the Property After the

Easement Was Granted

Petitioner and the Commissioner generally agree that the highest

and best use of the Paul-Adams property subject to the easement is for

passive use and recreation. The minor differences in how they describe

this proposed use do not affect our value determination, and so we do

not discuss them further.

Valuation of the Paul-Adams Property Before the Easement

Was Granted

Legal Principles

Having determined the highest and best use of the property, we

next turn to determining its value before the grant of the easement.

We typically draw on one or more of three common approaches to

determine the fair market value of a piece of real property: (1) the

market, or comparable sales, approach; (2) the income approach; and

(3) the cost, or an asset-based, approach. See, e.g., Ranch Springs, 164

T.C., slip op. at 40; Excelsior Aggregates, T.C. Memo. 2024-60, at *32; see

also Bank One Corp. v. Commissioner, 120 T.C. 174, 306 (2003), aff’d in

part, vacated in part, and remanded on another issue sub nom.

JPMorgan Chase & Co. v. Commissioner, 458 F.3d 564 (7th Cir. 2006).

Our decision on which approach (or approaches) to use is a question of

law, and the utility of the various approaches can vary based on the type

of property at issue. See Chapman Glen Ltd. v. Commissioner, 140 T.C.

294, 325–26 (2013); see also Corning Place, T.C. Memo. 2024-72,

at *31–32; Savannah Shoals, T.C. Memo. 2024-35, at *35–36.

In addition, and unsurprisingly, “[t]his Court has repeatedly

affirmed that actual arm’s-length sales occurring sufficiently close to the

valuation date are the best evidence of value, and typically dispositive,

over other valuation methods.” Buckelew Farm, T.C. Memo. 2024-52,

at *56; see also J L Mins., T.C. Memo. 2024-93, at *55; Corning Place,

T.C. Memo. 2024-72, at *28; Excelsior Aggregates, T.C. Memo. 2024-60,

at *31 (“The best evidence of a property’s [fair market value] is the price

at which it changed hands in an arm’s-length transaction reasonably

[*69] close in time to the valuation date.”); ES NPA Holding, LLC v.

Commissioner, T.C. Memo. 2023-55, at *14.

The various approaches and the value indicated by previous sales

provide a valuable sanity check for each other. See Ranch Springs, 164

T.C., slip op. at 40; Excelsior Aggregates, T.C. Memo. 2024-60, at *32.

Comparable Sales Approach

The comparable sales approach “values property by comparing it

to similar properties sold in arm’s-length transactions around the

valuation date.” Savannah Shoals, T.C. Memo. 2024-35, at *36; accord

Ranch Springs, 164 T.C., slip op. at 48. This method is usually the most

reliable indicator of value when sufficient information exists about sales

of properties resembling the subject property. See United States v.

320.0 Acres of Land, 605 F.2d 762, 798 (5th Cir. 1979) (“Courts have

consistently recognized that, in general, comparable sales constitute the

best evidence of market value.”); see also Mountain Valley Pipeline, LLC

v. 9.89 Acres of Land, 127 F.4th 437, 441 (4th Cir. 2025) (“Comparable

sales are generally accepted as the best evidence of property value.”

(citing United States v. 269 Acres of Land, 995 F.3d 152, 164 (4th Cir.

2021))); L.E. Cooke Co., 991 F.2d at 342 (“In land condemnation

proceedings, the comparable sales method of valuation is the preferred

approach of establishing the fair market value of property.”); First Nat’l

Bank of Kenosha, 763 F.2d at 896 (“Generally, evidence of sales of

comparable property is persuasive evidence of market value, either as

direct proof or in support of an expert’s opinion.” (quoting United States

v. 1,129.75 Acres of Land, 473 F.2d 996, 998 (8th Cir. 1973)));

Whitehouse III, 139 T.C. at 324–25 (stating that other valuation

methodologies are “not favored if comparable-sales data are available”).

“The comparable sales method is based on the ‘principle of

substitution.’” Ranch Springs, 164 T.C., slip op. at 48. That principle

stands for the proposition that “the value of a property can be estimated

at the cost of acquiring an equally desirable substitute.” Mill Road 36

Henry, LLC, T.C. Memo. 2023-129, at *51; see also Buckelew Farm, LLC

v. Commissioner, 2025 WL 2502669, at *7 (declining to disturb the Tax

Court’s conclusion that “there is little reason to think a willing buyer

would have paid $32,600 per acre for the Property [at issue]. After all,

a buyer could simply purchase substitute properties for exponentially

less: per-acre prices ranging from $1,602 to $4,971.”); Buckelew Farm,

T.C. Memo. 2024-52, at *50 n.25, *55 (“[T]he principle of substitution . . .

stands for the proposition that a hypothetical buyer will not pay more

[*70] for a given property when an alternative property is available for

less.”); Estate of Rabe v. Commissioner, T.C. Memo. 1975-26, 34 T.C.M.

(CCH) 117, 119 (“[A] prudent man will pay no more for a given property

than he would for a similar property.”), aff’d, 566 F.2d 1183 (9th Cir.

1977) (unpublished table decision).

“In the case of vacant, unimproved property . . . the comparable

sales approach is ‘generally the most reliable method of valuation . . . .’”

Oconee Landing, T.C. Memo. 2024-25, at *67 (quoting Estate of Spruill,

88 T.C. at 1229 n.24). “[T]he

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.