The Tax Court Rejects Another Bullshit SCE's Valuation Claim and Imposes Gross Valuation Misstatement Penalty (10/22/26; 10/24/26)

Today, the Tax Court (Chief Judge Urda) decided another Syndicated Conservation Easement (“SCE”) of the bullshit genre rejecting the gross overvaluation claim and applying the gross overvaluation penalty. Lontrac Enterprises, LLC v. Commissioner, T.C. Memo. 2026-108 (T.C. No. 272-18 at # 343; GS here. The Court sums the case up in the introduction which I copy and paste (Slip Op. 1-2; omitting the footnote; bold face supplied by JAT):

In a situation resembling the movie Groundhog Day, we once again consider a syndicated conservation easement transaction featuring the same old moves: Investors paid into a partnership for the promise of tax benefits exceeding three times each dollar invested; the partnership granted a conservation easement to a land trust and claimed a cartoonish charitable contribution deduction under section 170;1 and the promoters of the easement strategy pocketed millions of dollars in fees. This case stands apart only for the sheer audacity of the numbers involved—the partnership here claimed a deduction of $74.5 million for an easement (i.e., a restriction on use) on property that had been sitting on the market for years, failing to find a buyer willing to pay $2.9 million. The stratospheric number was based on the claim that the property was suddenly very valuable as a mine although the rocks underlying the purported mining strategy were visible to the naked eye and the area was well mapped by the U.S. Geological Survey (USGS). Of course, the idea of mining was chimerical, simply a way to get at a wholly unmerited tax deduction.

          The Internal Revenue Service (IRS) disallowed the deduction and asserted a 40% penalty for gross valuation misstatement under section 6662(h). For the reasons explained below, we find that the value of the easement was $500,000, and the deduction is limited to that amount. We further find that the value of the easement was grossly overstated such that the 40% penalty applies.

That is pretty much the broad overview of the opinion with details ad nauseum supporting these conclusions. Here are a few more points from the opinion that I thought worthy of calling to readers attention; in the discussion below, I refer to the plaintiff as the "Shelter"):

1. The Shelter raised the standard burden of proof arguments under § 7491 hoping to impose the burden of persuasion on the IRS and prevail as to any fact issue in which the Court is in equipoise under the preponderance of the evidence standard. The Court gave (Slip Op. 14-15) a standard (but not the only possible response) that the Court was not in equipoise (evidentiary tie) and therefore decided the relevant facts by a preponderance of the evidence. (See, however, ¶ 4 below.)

The Golsen Rule and Parties' Ability to Stipulate Appellate Venue from Tax Court Decisions (5/21/24; 5/24/24)

Readers of this blog are (or should be) familiar with the Tax Court’s Golsen rule requiring the Tax Court to apply directly in point precedent of the Circuit to which an appeal may be taken in the case. See On the Tax Court's Golsen Rule (Federal Tax Procedure Blog 12/3/23; 12/5/23), here; for an interesting discussion of the Golsen this rule with respect to a Tax Court precedent which had been reversed by one Court of Appeals so that the Tax Court precedent would not apply to appeals to that Circuit but remained as Tax Court precedent for application in other Circuits that had not yet addressed the issue, see Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (Federal Tax Procedure Blog 1/25/24; 2/5/24), here.

Section 7482(b) here, titled “Courts of Review,” prescribes venue for appeals. For individuals, under § 7482(b)(1), the default venue is in the Court of Appeals with jurisdiction over the “legal residence of the taxpayer.” For example, if A resides in Houston, TX, appeal venue is in the Fifth Circuit Court of Appeals. Under § 7482(b)(2), the parties may stipulate venue in another Circuit (including, of course, the Circuit in which the taxpayer resides, even though the stipulation is meaningless).

These rules are why the Tax Court is careful to note the residence of the individual taxpayer early in the findings of fact and, if the parties have stipulated to a different appellate venue, state the stipulation. (In most cases, there is no stipulation, so the Tax Court usually does not state that there is no stipulation, and addresses the issue in the opinion only if there is a stipulation.) Not only does the finding get the facts into the opinion as to appellate venue, it assists the Court in applying its Golsen rule.

In Anderson v. Commissioner, 2024 U.S. App. LEXIS 11966  (10th Cir. 5/17/24) (Nonprecedential), CA10 here and GS [to come], an opinion otherwise not noteworthy for this blog, the Court said (slip op. 6 n. 2) that “The parties stipulated to review in the Tenth Circuit. See 26 U.S.C. § 7482(b)(2).” That was a repeat of the same finding in the Tax Court. Anderson v. Commissioner, 2023 TC Memo 42, *2. (“The parties have stipulated that venue for any appeal in this case is the U.S. Court of Appeals for the Tenth Circuit. See § 7482(b)(2).”) Today’s blog is about the § 7482(b)(2) provision for stipulating appellate venue.

On the Tax Court's Golsen Rule (12/3/23; 10/24/26)

In Kraske v. Commissioner, 161 T.C 104(2023), GS here, the Court provides a good application of its Golsen rule. Golsen v. Commissioner, 54 T.C. 742, 756-58 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971), cert. denied, 404 U.S. 940 (1971). The Golsen rule, in brief, is that, in the case before it, the Tax Court will adopt a square prior holding of the court of appeals to which the case is appealable even if the Tax Court believes that Circuit's prior holding is wrong. Kraske gives me an opportunity to expound briefly on Golsen. 

Short statements about the Golsen Rule.

• The rule prior to Golsen was called the Lawrence rule. Lawrence v. Commissioner, 27 T.C. 713, 718 (1957), rev’d, 258 F.2d 562 (9th Cir. 1958). The Lawrence rule was that the Tax Court should apply the interpretation it felt best regardless of appeal to a Circuit which, through prior precedent, was likely to reverse. Golsen is a rule of judicial expedience.
• In determining whether there is such a conflict between the Tax Court’s best interpretation and the relevant Circuit Court’s holding, the Tax Court should determine whether the court of appeals decision at issue “is so clearly on point that it would be futile” to issue a decision contrary to it. See Sanders v. Commissioner, 161 T.C. ___ No. 8, *6-*7 (2023) here (reviewed opinion on the jurisdictional issue). I analogize this review to the much-ballyhooed Chevron Footnote 9 rigorous statutory interpretation to eliminate ambiguity at Chevron Step One. If by vigorous review of the Circuit’s case authority, the Tax Court finds that the authority is not squarely on point (meaning, I think, that the authority can be meaningfully distinguished or otherwise not applicable), the Tax Court can then apply its own best interpretation.
• Professor Camp says that the Golsen rule requires that the Tax Court “basically decide the likelihood that the Circuit Court of Appeals would reverse the Tax Court in the case at hand.” Bryan Camp, Lesson From The Tax Court: The Rules For Penalty Approval Depend On Geography (Tax Prof Blog 10/30/23), here, discussing Kraske. That raises the question whether a trial court such as the Tax Court can reasonably predict that a higher court would reverse; after all, the Circuit could reconsider and reverse its prior holding. That’s a judgment call which I don't think factors in that possibility. If the Tax Court makes the wrong judgment, I’m sure the Circuit Court will let it know.
• Where the Circuit’s interpretation is not squarely in point, concerns for “uniformity in interpretation” throughout the country require that the Tax Court apply its own best interpretation. Lardas v. Commissioner, 99 T.C. 490, 494-5 (1992).