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Keywords

willeasement

Related Cases

Strasburg v. C.I.R., T.C. Memo. 2000-94, 2000 WL 288276, 79 T.C.M. (CCH) 1697, T.C.M. (RIA) 2000-094, 2000 RIA TC Memo 2000-094

Facts

The taxpayer owned a 320-acre tract of real property in Montana and granted a conservation easement to the Montana Land Reliance (MLR) in 1993, claiming a fair market value of $1,080,000 for the easement on her tax return. An amendment in 1994 further restricted the property by allowing only one additional residence instead of two. The IRS determined deficiencies in the taxpayer's federal income taxes and accuracy-related penalties based on the claimed values.

Petitioner's property is a spectacular piece of property surrounded by the Gallatin National Forest on three sides. Properties surrounded by nondeeded National Parks are known as inholdings. Petitioner's property is approximately 320 acres in size and is situated on the floor of the Boulder River Valley. It is irregular in shape and ranges from gently to moderately sloping native rangeland and timber-covered land.

Issue

1) Whether the fair market value of the conservation easement was $1,080,000; 2) Whether the fair market value of the amendment to the easement was $290,000; 3) Whether the taxpayer was liable for accuracy-related penalties under section 6662(h).

After concessions, the issues for decision are: (1) Whether $1,080,000 was the fair market value of a conservation easement (the MLR easement) granted by petitioner to the Montana Land Reliance (MLR) in 1993. We hold it was $800,000. (2) Whether $290,000 was the fair market value of an amendment to the MLR easement granted by petitioner in 1994. We hold it was. (3) Whether petitioner is liable for an accuracy-related penalty under section 6662(h) in 1993 or 1994. We hold she is not.

Rule

The fair market value of a charitable contribution is determined by the price at which the property would change hands between a willing buyer and seller, considering all relevant factors. The 'before and after' method is typically used to value conservation easements.

Section 1.170A–1(c)(1), Income Tax Regs., provides, in relevant part, that “If a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution.” Fair market value “is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”

Analysis

The court evaluated expert testimonies and reports to determine the fair market value of the easement and the amendment. It found that the taxpayer's expert provided a more credible analysis of the easement's value, while the IRS's expert's assumptions were flawed. The court concluded that the fair market value of the easement was $800,000 and the amendment was valued at $290,000, rejecting the IRS's lower valuations. Additionally, the court found that the taxpayer was not liable for penalties as the claimed values did not constitute a gross valuation misstatement.

The highest and best use of petitioner's property before the MLR easement was as rural recreational development (RRD) property. RRD is a general property classification consisting of properties with multiple uses, including recreational use. In addition, RRD property can be divided into smaller recreational parcels. RRD property does not have development as its exclusive highest and best use, and the value of RRD property is not predicated on its development potential.

Conclusion

The court held that the fair market value of the conservation easement was $800,000, the amendment was valued at $290,000, and the taxpayer was not liable for accuracy-related penalties.

Decision for taxpayer in part, and for IRS in part.

Who won?

Taxpayer prevailed in part, as the court accepted the higher valuations of the easement and amendment, and ruled against the IRS's penalties.

Decision for taxpayer in part, and for IRS in part.

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