This case, Green Valley Investors, LLC v. Commissioner, T.C. Memo. 2025-15, involves a consolidated proceeding of four related cases concerning noncash charitable contribution deductions claimed by four partnerships for tax years 2014 and 2015. The partnerships in these cases are Green Valley Investors, LLC (Green Valley), Big Hill Partners, LLC (Big Hill), Tick Creek Holdings, LLC (Tick Creek), and Vista Hill Investments, LLC (Vista Hill). Bobby A. Branch served as the tax matters partner for each of the partnerships. The partnerships had each claimed charitable contribution deductions for the donation of conservation easements totaling approximately $90 million. The Internal Revenue Service (IRS) disallowed the deductions, asserting that the conservation easement deeds did not comply with the requirements of section 170 of the Internal Revenue Code (IRC), and also assessed accuracy-related penalties.

Facts of the Case

In 2011, Bobby A. Branch and his spouse acquired a 607-acre tract of land in Chatham County, North Carolina. This property was later transferred to Bonlee Investment Properties, LLC (Bonlee), an entity controlled by Mr. Branch. Subsequently, portions of this land were conveyed to the four partnerships: Green Valley, Big Hill, Tick Creek, and Vista Hill.

In 2014 and 2015, each of the partnerships granted a conservation easement to Triangle Land Conservancy (TLC). Green Valley, Big Hill, and Tick Creek granted easements in 2014, while Vista Hill granted its easement in 2015. Each partnership then claimed a substantial noncash charitable contribution deduction on their respective tax returns. These deductions ranged from $22,498,000 to $22,626,000 per partnership.

The partnerships had been marketed to investors through a private placement memorandum which outlined a strategy to use a conservation easement to generate large tax deductions. The memorandum offered an example that showed a taxpayer investing $100,000 could receive an estimated allocation via Form 1065 Schedule K-1 of approximately $437,645 in federal and state charitable contributions. The private placement memorandum explained that “significant opportunities exist to effectively mitigate one’s federal and state taxes... while at the same time being able to take part in conservation programs that create and preserve green space for future generations”.

The IRS audited the partnerships and disallowed the claimed deductions. The IRS determined that the conservation easement deeds did not comply with the requirements of section 170, specifically the requirement that the conservation purpose be protected in perpetuity. The IRS also determined that the partnerships had grossly misstated the value of the donated easements and asserted accuracy-related penalties.

Taxpayer’s Arguments

The partnerships, through their tax matters partner, Bobby A. Branch, challenged the IRS’s disallowance of the deductions and the imposition of penalties. The taxpayer made several arguments in favor of relief.

First, the taxpayer argued that the conservation easement deeds did, in fact, comply with the requirements of section 170. Specifically, they argued that the deeds contained language that ensured the conservation purpose would be protected in perpetuity. The taxpayer contended that the language “as required by U.S. Treas. Reg. Section 1.170A-14(g)(6)” in the Easement Deeds’ paragraph on extinguishment proceeds, and the so-called interpretive clause providing that “any ambiguities and questions of validity of specific provisions” are to be resolved to maximize conservation purposes, effectively overrides the straightforward specific language violating the Proceeds Regulation. The taxpayer further argued that if the deeds did not comply with the regulations, they could be reformed under North Carolina law.

Second, the taxpayer argued that the IRS’s valuation of the conservation easements was incorrect. The partnerships offered appraisals from Van Sant & Wingard which valued the conservation easements at approximately $22 million each. These appraisals used a discounted cash flow (DCF) analysis based on the potential for a quarry on the property. The taxpayer argued that the potential for a quarry operation was the highest and best use of the property, and the appraisals adequately reflected that fact. The taxpayer argued that the partnerships were entitled to deductions based on the value established in the Van Sant & Wingard appraisals.

Finally, the taxpayer asserted that the accuracy-related penalties were improper. The taxpayer claimed the IRS had not obtained proper supervisory approval for the penalties and also that they had reasonable cause for the underpayments because they relied on professional advice.

Tax Court’s Analysis of Law and Authorities

The Tax Court considered each of the taxpayer’s arguments and reached its decision based on a number of legal principles.

Compliance with Section 170(h)(5)(A)

The Court found that the conservation easement deeds did not comply with the “protected in perpetuity” requirement of section 170(h)(5)(A). The court, in an earlier order, had determined that the deeds failed to meet the requirements of Treasury Regulation § 1.170A-14(g)(6). This regulation, also known as the “proceeds regulation” requires that in the event a conservation easement is extinguished, the donee organization must receive a proportionate share of the proceeds equal to the value of the easement at the time of the donation. The court stated that the easement deeds provided that the donee’s share of the proceeds would be reduced by the value of any improvements made after the donation of the easement. This language, the court said, violated the proceeds regulation. The court cited numerous cases including PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018) and Coal Prop. Holdings, LLC v. Commissioner, 153 T.C. 126 (2019), which held that the proceeds regulation does not allow for any reduction of the donee’s share for improvements.

The court also rejected the taxpayer’s argument that the general language in the deeds referring to compliance with the regulations or an interpretive clause could override the specific language that violated the proceeds regulation. The court held that the specific language in the deeds controlled and that a general saving clause could not retroactively reform the deeds to comply with the regulations. The court cited Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014), and Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126, to support this conclusion. In Belk, the Fourth Circuit held that the taxpayers’ intent to retain a disqualifying power was clear from the face of the easement such that a condition subsequent savings clause referring to the statute and applicable regulations could not “save” their deduction. The Tax Court, similarly, found that the specific formula in Coal Property Holdings controlled, and a provision which directed the parties to calculate the proceeds based on Section 1.170A-14, Income Tax Regs., could not cure the defect.

Valuation of the Conservation Easements

The Tax Court extensively analyzed the valuation of the conservation easements. It determined that the before-and-after method was the appropriate way to value the easements, which is done by determining the fair market value (FMV) of the property before the granting of the restriction and then determining the FMV of the encumbered property after the restriction.

The court determined that the highest and best use of the property was not as a construction aggregate quarry, as the taxpayer contended. The court found that the development of a quarry was not financially feasible or maximally productive due to competition and high transportation costs. The court reviewed expert testimony on both sides and found the testimony of the IRS experts, particularly Mr. Messmer, to be compelling. The court also noted that Mr. Meister, the taxpayer’s expert, took “some liberties” in reaching his conclusions. The court noted that the market for aggregate would be limited to a 30-mile radius of the property, as suggested by Mr. Messmer, and that many potential customers were further than 20 miles from the property. The court also found that Mr. Meister’s projections were overstated, and the net present value of his projected cash flows decreased to nearly zero after adjustments.

Therefore, the court determined that the highest and best use of the property was its current use as agricultural/residential/recreational land, with the knowledge of minerals on the site and the opportunity to seek entitlements allowing for mining.

The court rejected the taxpayer’s experts’ opinions on value, which were based on a DCF analysis of a hypothetical quarry. The court determined that these opinions were speculative and not well supported. The court also rejected Mr. Brigden’s conclusion of value which it said was too conservative on the basis of his own report and other evidence. The court found Dr. Hamilton’s analysis, which used a sales comparison approach to value and identified a three-price staging system for properties, to be the most relevant. Based on this, the court concluded that a per-acre price ranging from $9,200 to $11,016 was more likely than not. It then arrived at an average of $10,072 per acre as the most likely FMV before the conservation easement, resulting in a before-easement value of approximately $1.37 to $1.43 million.

The court accepted the taxpayer’s stipulated after-easement value of $250,000.

Penalties

The court also addressed the penalties imposed by the IRS. The court determined that the IRS had complied with section 6751(b), which requires supervisory approval of penalties. The court noted that Mr. Phillip, Ms. Bradley’s immediate supervisor, had approved the initial penalties by digital signature on April 4, 2017, and also signed the Letters 1807, which were sent to the taxpayer on or after April 19, 2017.

The court then found that the partnerships were liable for a 40% gross valuation misstatement penalty under section 6662(h), because the claimed value of the easements on the tax returns was well in excess of 200% of the correct value. The court also noted that, because the misstatement was “gross,” the taxpayer was not eligible for a reasonable cause defense.

The court also found that the partnerships were liable for an accuracy-related penalty under section 6662(c) and (d), for the portion of the underpayment not attributable to a valuation misstatement. Although the court recognized that reliance on professional advice could provide a reasonable cause defense, the court found that the taxpayer was not eligible for this exception. The court found Mr. Branch to be sophisticated with respect to real estate and quarry development, and that his actions failed to establish that he exercised ordinary business care and prudence.

Ultimate Findings

The Tax Court ultimately ruled in favor of the IRS. The Court determined that:

The conservation easement deeds did not comply with Treasury Regulation § 1.170A-14(g)(6), because they improperly reduced the donee’s share of proceeds upon extinguishment of the easement for post-donation improvements.
The highest and best use of the property was not as a quarry, but as agricultural/residential/recreational property with knowledge of minerals.
The FMV of the property before the easement was approximately $1.37 to $1.43 million.
The FMV of the property after the easement was $250,000.
The partnerships were liable for a 40% gross valuation misstatement penalty under section 6662(h), for the portion of the underpayment attributable to the misstated value.
The partnerships were liable for a 20% accuracy-related penalty under section 6662(c) and (d), to apply to the “lower tranche” of the underpayment, meaning the portion that was not attributable to the misstatement of value.

Because the conservation easement deeds failed to comply with the requirements of section 170 and the related regulations, the court held that the partnerships were not entitled to any charitable contribution deductions. The court further held that the partnerships were liable for penalties due to their gross overvaluation of the conservation easements and their failure to exercise ordinary business care in claiming the deductions.

Prepared with assistance from NotebookLM.