A trial before the United States Tax Court recently determined the value of a conservation easement imposed on a Georgia golf course which was being contested by the Internal Revenue Service.

Relying on the “before and after” method, which is also used to value eminent domain takings, the Tax Court arrived at a market value of slightly less than $8 million.  The lack of an established market for conservation easements required use of this methodology as to which the Court noted both the IRS and the taxpayer seeking recognition of the value of the easement donation agreed. 

More interesting than the Court’s detailed parsing of the appraisers’ income and sales methodologies was its characterization of the appraisers and some of the appraisal testimony.  For example, one appraiser’s “before and after” values were deemed to be so excessive that they were “not even playable, much less close to the pin”.  Another appraiser was deemed not to be “a compelling witness” and had been criticized by the court in other cases.  Nevertheless, his work and testimony received more credence by the Court than it otherwise might have because the IRS “did not offer specific criticisms of his valuation other than those discussed by the Court and relied instead on general statements.” 

The Tax Court also noted that the IRS neither challenged the comparable  sales used by this appraiser nor did it suggest alternatives. 

The appraiser whose testimony carried the most water with the Tax Court had taken specialized courses in conservation easement appraisals, appraised over 200 conservation easements in 15 years preceding the trial of this case and had relied on the “before and after” technique in determining the market value of the easement which the Tax Court validated to the tune of about 73%.

Champions Retreat Golf Founders, LLC, Riverwood Land, LLC, Tax Matters Partners v. Commissioner of Internal Revenue 959 F.3d 1033 (11th Cir. 2020)

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