Tax Court Rejects Bullshit Syndicated Conservation Easement Shelter for the Usual Reasons (3/31/25)

In Ranch Springs, LLC v. Commissioner, 164 T.C. ___, No. 6 (3/31/25), links below *, the Tax Court rejected another bullshit tax shelter, here of the syndicated conservation easement ilk. The fact pattern for this ilk of bullshit tax shelter may be simply stated: a grossly overvalued property contributed to charity for charitable easement purposes. The holding highly summarized is:

• the real value is determined in an amount grossly less (joining grossly and less may not be good English, but readers will get the concept); and
• the 40% gross valuation misstatement penalty applies because, well, the valuation was grossly misstated.

A more detailed summary is found in the Syllabus and, for those wanting more, in the 66-page opinion (actually 64 excluding the caption and the Syllabus), but that is the guts of the holdings.

These are unexceptional holdings, in my opinion, so I am not sure why the Court designated this a “T.C.” opinion rather than a “T.C. Memo.” opinion. The parts I found interesting (set forth below) are hardly the stuff of which T.C. opinions are usually made. Perhaps the reason is in the third “Held” conclusion in the Syllabus relating to the proffered “before value” found to be erroneous as a matter of law as follows:

Held, further, assuming arguendo that limestone mining was a permissible use, the version of the income method P’s experts used to determine the “before value” of the property is erroneous as a matter of law because it equates the value of raw land with the net present value of a hypothetical limestone business conducted on the land. A knowledgeable willing buyer would not pay, for one of the assets needed to conduct a business, the entire projected value of the business.

. Oh well…..

So, what did I find interesting?

The lack of credibility of the petitioner’s witnesses and the resulting lack of credibility for the case those witnesses were proffered to support. (My notion is that the witnesses lack credibility and thus the case lacks credibility.) Judge Lauber projects this result on Slip Op. 4:

Several of the fact witnesses petitioner called were friends, acquaintances, or business associates of Thomas (Tom) and Robert (Bob) Lewis, the prime movers behind the SCE transaction. Other witnesses had invested in SCE deals and thus had a direct or indirect stake in the outcome of this case. While generally showing good recall of many facts from the 2016 and 2017 period, they sometimes expressed inability to recall certain facts about matters that might be regarded as unhelpful to petitioner’s position. Because of these witnesses’ selective inability to recall pertinent facts, the Court has been required to make credibility determinations. 

Needless to say, those credibility determinations cut against the petitioner.

And the credibility conclusions were teed up by the earlier statement (Slip Op. 3-4):

          We conclude here, as we did in J L Minerals, LLC v. Commissioner, T.C. Memo. 2024-93, at *3, that the valuation of the conservation easement “was an outrageous overstatement,” wholly untethered from reality. Employing the comparable sales method, as backstopped by the price actually paid to acquire the property in December 2016, we find [*4] that its “before value” was $6,550 per acre and that the value of the easement was $335,500. Because the value claimed on Ranch Springs’ return ($25,814,000) exceeded the value of the easement by 7,694%, Ranch Springs is liable for the 40% gross valuation misstatement penalty. See § 6662(a), (h).

I wonder what the petitioner’s litigating strategy was with such credibility issues unaddressed (or not credibly addressed in Judge Lauber’s mind). It is not like petitioner’s counsel, numbering 5 which is more than usual in tax cases; to pick the first off the counsel list whose firm bio here touts his experience in “high-stakes jury and bench trials”). Surely, these counsel advised their client that the case was a high risk of loss for lack of credibility of the case (at least). Yet, the client persisted in presenting a case with lack of credibility.

I should note that there was apparently some acrimony between or among counsel.  See e.g., the IRS Simultaneous Answering Brief at Dkt # 263, 245 pages in length, with various claims that petitioners mischaracterizes and misrepresents. Oh well….

* The Tax Court does not provide permalinks to opinions. The opinion can be accessed through the Tax Court docket entries here at Dkt # 265, TN here [to come], my Google Docs (with Slip Opinion and thus local page cites) here, and Google Scholar here [to come].