# United States Tax Court > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Af9f672c7068c7ff1 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text United States Tax Court T.C. Memo. 2025-112 PAUL-ADAMS QUARRY TRUST, LLC, FRANCIS L. ADAMS, TAX MATTERS PARTNER, Petitioner v. 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 [*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 related ————— 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. 3 TABLE OF CONTENTS [*3] FINDINGS OF FACT .............................................................................. 9 I. Elberton and Elbert County, Georgia ............................................ 10 II. Granite Dimension Stone ............................................................... 11 III. Assessing Mineral Deposits ........................................................... 12 IV. Mr. Adams and Mr. Paul................................................................ 14 V. A. Mr. Adams ............................................................................... 14 B. Mr. Paul ................................................................................... 16 The Paul-Adams Property and Property History.......................... 16 VI. The Sterling Gray Quarry .............................................................. 18 A. History of Sterling Gray Quarry ............................................ 19 B. Mr. Adams’s Purchase of the Sterling Gray Quarry ............. 20 C. 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 X. Facilitating Work and Appraisal ................................................... 25 A. Drilling Report ........................................................................ 25 B. Geology Report ........................................................................ 26 C. Appraisal Report ..................................................................... 26 XI. Tax Returns and IRS Examination ............................................... 27 XII. Trial ............................................................................................... 28 A. Petitioner’s Experts................................................................. 28 4 [*4] 1. Dr. Schroeder ................................................................... 28 2. Nick Proctor ..................................................................... 29 3. Mr. Fletcher ..................................................................... 30 4. Benjamin Black ............................................................... 31 B. The Commissioner’s Expert, Andy Sheppard ........................ 32 C. Rebuttal Experts ..................................................................... 32 OPINION ............................................................................................... 33 I. Burden of Proof ............................................................................... 33 II. Substantiation of the Charitable Contribution Deduction ........... 35 III. Amount of the Deduction ............................................................... 38 A. General Principles................................................................... 38 B. Highest and Best Use ............................................................. 40 1. Legal Principles ............................................................... 40 2. Highest and Best Use of the Property Before the Easement Was Granted .................................................. 43 a. Actual Use in December 2017 ................................. 43 b. Reasonably Probable Future Use ............................ 44 c. Petitioner’s Proposed Highest and Best Use .......... 44 i. Mr. Adams’s and Mr. Paul’s Own Actions ....... 45 ii. Implausible Economic Analysis by Petitioner’s Experts .......................................... 47 a) Unrealistic Sale Volumes and Market Share Forecasts ......................................... 48 b) Unrealistic Quarry Efficiency ................... 57 c) Unproven Quality of Granite .................... 58 5 [*5] 3. C. d) Unrealistic Projected Prices ..................... 61 e) Unrealistic Labor Assumptions ................ 63 f) Unrealistic Assumptions About Available Granite Deposits ....................... 63 d. The Commissioner’s Proposed Highest and Best Use ............................................................................ 66 e. 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 1. Legal Principles ............................................................... 68 2. Comparable Sales Approach ........................................... 69 a. Proposed Comparable Sales .................................... 70 b. Analysis .................................................................... 72 i. Sale 1 ................................................................. 72 ii. Sale 2 ................................................................. 72 iii. Sale 3 ................................................................. 76 iv. Sale 4 ................................................................. 77 v. Mr. Sheppard’s Conclusion .............................. 78 vi. Petitioner’s Arguments..................................... 79 a) “Market Participants” Argument ............. 79 b) Timing of Sales .......................................... 82 c) Purported Failure to Verify ...................... 86 d) Highest and Best Use ............................... 86 6 vii. The Court’s Conclusion as to “Before” Comparable Property Sales.............................. 88 [*6] 3. Actual Transactions Approach ........................................ 88 4. Income Approach ............................................................. 90 5. Petitioner’s Hybrid Method ............................................. 98 a. The Proposed Royalty Method ................................. 98 b. The Proposed Comparable Sales Method.............. 100 D. Valuation of the Paul-Adams Property After the Easement Was Granted ........................................................ 102 E. Valuation Conclusion ............................................................ 102 IV. Penalties ....................................................................................... 103 A. General Principles and Application ..................................... 103 B. 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 [*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 [*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 [*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 [*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. I. 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 [*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 [*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 [*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 [*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. A. 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 [*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 [*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. B. 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. V. 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 [*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 [*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 [*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. A. 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 [*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 [*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 [*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 [*23] Vacant Land Sales in Elbert County Year Number of Sales Average Sale Price per Acre 2007 12 $2,999 2008 3 2,590 2009 2 2,225 2010 6 2,590 2011 5 1,794 2012 9 1,974 2013 11 1,623 2014 10 1,571 2015 16 1,792 2016 17 1,926 2017 17 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 [*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 [*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. X. 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. A. 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 [*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. B. 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. C. 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 [*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 [*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. A. Petitioner’s Experts 1. 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 [*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. 2. 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 [*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. 3. 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 [*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). 4. 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: 21 [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 [*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. B. 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). C. 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 [*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 I. 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 [*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 [*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 [*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 [*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 [*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 A. 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 [*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 [*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. B. Highest and Best Use 1. 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 [*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 [*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 [*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. 2. Highest and Best Use of the Property Before the Easement Was Granted a. 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 [*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. b. 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.” c. 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 [*45] i. 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 [*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 [*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 by 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. 25 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 [*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. a) 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 [*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 [*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 [*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 [*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 [*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 [*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 P [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3Af9f672c7068c7ff1. Public record. Not legal advice.