Federal Tax Day - Current, J.4, Easement Deduction Limited To Residential Value; Penalty Sustained (Savannah Shoals, LLC, CA-11) , (Jul 21, 2026)

A partnership's charitable contribution deduction for donating a conservation easement under Code Sec. 170 was limited after the property's highest and best use was determined to be low-density residential and recreational use rather than the proposed aggregate quarry reflected in the appraisal. The partnership claimed a deduction based on an appraisal that assumed the property could be developed as an aggregate quarry. However, the proposed use was found to be unsupported because market demand, surrounding population, and competition from existing quarries made quarry development unlikely. As a result, the easement was valued based on the property's actual highest and best use.

Further, the gross valuation misstatement penalty under Code Sec. 6662(h) was sustained. It was determined that the reported easement value substantially exceeded its actual value. The partnership's challenges to the highest-and-best-use determination, valuation methodology, and evidentiary rulings were unsuccessful because the valuation appropriately reflected objective market conditions and the property's realistic development potential rather than speculative profitability.

Affirming a tax court decision, Dec. 62,440(M), T.C. Memo. 2024-035.

Savannah Shoals, LLC, CA-11