Tax Court (Lauber) Rejects Bullshit Syndicated Conservation Easement (BSSCE) Valuation Claim (2/19/26)

Today, Judge Lauber called out yet another bullshit syndicated conservation easement (“BSSCE”). North Donald LA Property, LLC v. Commissioner, T.C. Memo. 2026-19 T.C. No. 24703-21, here, at # 476; TN here; and GS here [to come]).The BSSCE claimed a charitable contribution of $115,391,000. The flaw that swung the case against BSSCE was, as Judge Lauber held in the opening (Slip Op. p. 3):

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 March 2016, we find that its “before value” was $2,975 per acre and that its “after value” was $2,300 per acre. The delta between these figures—the reduction in value attributable to the easement—is $675 per acre. The value of the easement—and hence the allowable charitable contribution deduction—is thus $175,824 ($675 × 260.48 = $175,824).

For those who are valuation enthusiasts, I suppose there is a lot to chew on. 

There are some interesting snippets in the opinion. I will list them in my numbered further comments below. The main things I want to write on are (i) the bottom-line valuation and (ii) the rejection of the civil fraud penalty for bullshit valuations. At trial, despite claiming a $115,391,000 value on the return, North Donald’s simultaneous opening brief (pp. 6, 124 & 202) described the valuation as:

5. Whether the value of the Easement Donation, as determined by Petitioner’s expert (Mr. Catlett), is $61,235,000?

* * * * 

824. The value of the Easement Donation is as determined by Petitioner’s expert, Mr. Catlett, $61,235,000. Entire Record.

* * * * 

Because the Catlett Appraisal is the only appraisal before the Court that considered the relevant, available data regarding the quantity and quality of the clay reserves on the NDLA Property, the Court should adopt Mr. Catlett’s determination that the value of the Conservation Easement is at least $61,235,000.

So, after trial, North Donald conceded $54,156,000 of the amount it claimed on the return. More importantly, after trial, North Donald still claimed a value of $61,235,000. Judge Lauber found that the actual value was $175,824, which is 0.29% of the value North Donald claimed at trial. North Donald presented a gross overvaluation at trial by presenting, I guess with a straight trial face on, a valuation methology—described by Judge Lauber as the “Income Approach”—that has repeatedly been rejected by the Tax Court, as Judge Lauder notes (Slip Op. 54-59.)  Some interesting points of Judge Lauber’s analysis of petitioner’s claimed valuation:

1. Judge Lauber said (Slip Op. 55) that the Tax Court had held the claimed metholology was “erroneous as a matter of law,” citing Ranch Springs v. Conmmissioner, 164 T.C. ___, 153 (____). I am on shaky ground any time I quibble with Judge Lauber, but I think the methodology is ludicrous factually. Perhaps it is so outrageous factually that it must fail as a matter of law.

2. From the foregoing, the question I have is why North Donald felt it appropriate to make a plainly outrageous valuation claim at a trial? I can’t answer that question. See Tax Court Rejects a Bullshit Tax Shelter False Valuation Claim with Warning of Sanctions for Taxpayers, their Counsel, and Expert Witness Proffering the Bullshit (Federal Tax Procedure Blog 7/16/25; 9/10/25), here; and Tax Court Warns Counsel in Advance of Trial in Syndicated Conservation Easement Case (Federal Tax Procedure Blog 10/31/25), here. Consider what would have happened in baseball arbitration of the valuation issue where the IRS had claimed $100 value and the taxpayer had claimed $61,235,000. See discussion in the cited “Tax Court Warns Counsel” blog cited and linked above.

For me, the most interesting part of the opinion is Judge Lauber’s rejection of the fraud penalty on the basis that the evidence did not prove fraud by clear and convincing evidence. Back when I was with DOJ Tax Civil Trial Section (then called Refund 2), there were some good trial attorneys who claimed that proving civil fraud by clear and convincing evidence was harder than convicting beyond a reasonable doubt in a criminal case. I handled the final stage of a case that seemed to prove that claim. The taxpayer pled to a tax crime (I think probably 7206(1)), which requires Cheek proof of intent to violate a known legal duty. The IRS asserted civil fraud for as best I recall something like 10 years with the statute open if the Government proved civil fraud, supposedly a significantly lesser burden of proof than beyond a reasonable doubt. The taxpayer paid for 3 years and sued for refund. In the first refund trial for those three years, the jury found that the Government had not proved civil fraud by clear and convincing evidence. When I got to Refund 2, I was assigned the refund case for the remaining 7 years. I figured out the critical mistake in the first trial and let opposing counsel know that I would try the case to victory. (That was my story and I stuck to it.) The taxpayer then settled, in which we did give up some of the fraud penalty (but got the full statute of limitations) because the taxpayer’s lawyer knew I knew and that I knew that I knew.

I wrote previously on the case before when Judge Lauber denied the plaintiff summary judgment. Tax Court Judge Lauber Denies Petitioner Motion for Summary Judgment Rejecting Fraud Penalties in Allegedly Abusive SCE Case; Some Background (4/14/24), here.

Although avoiding the civil fraud penalty (75%), North Donald was given the gross valuation misstatement penalty in § 6662(h) (40%). (Note that if the value North Donald claimed at trial ($61,235,000) had been claimed on the return, North Donald would have still received the gross valuation misstatement penalty.)

 JAT Further Comments:

1. Judge Lauber uses the term “promoter” to describe Sixty West LLC but cautions at p. 5 n. 3:

3 “Promoter” is sometimes viewed as a loaded term in the tax world because of the penalty imposed by section 6700(a) for “promoting abusive tax shelters.” In this Opinion we use the term “promoter” in its ordinary sense, making no determination as to whether the activities of Sixty West or others would subject them to risk of a civil penalty under section 6700(a), a question that is not before us.

Sixty West was a promoter, in my view, although Judge Lauber also talks in terms of sponsor (Slip Op. 7):

Sixty West ultimately sponsored or co-sponsored 13 SCE transactions involving land carved from the Donald Farm. For charitable contribution purposes, the aggregate value that the 13 partnerships placed on that land was $989,105,000—100 times the March 2016 purchase price for the 3,324 acres ($9,888,000).

2. The IRS subpoenaed three potential witness involved in the BSSCE promotion. They did not testify, which Judge Lauber explains (Slip Op. 30):

On October 1, 2024, Mr. Laporte filed a Motion to Quash the trial subpoena that respondent had issued to him. Stephen Holden and Natalie Riley, two principals of Sixty West, concurrently filed a joint Motion to Quash the trial subpoenas that respondent had issued to them. Counsel for the three prospective witnesses represented that their clients, if called to testify, would invoke their Fifth Amendment privilege against self-incrimination and decline to answer any substantive questions about the transactions at issue. Petitioner then withdrew Mr. Laporte’s proposed expert witness report. We granted the Motions, and the Court thus received no fact or expert testimony from these individuals.

I surprised that Judge Lauber did not require the subpoenaed witnesses to appear and properly claim the Fifth on a question-by-question basis. Of course, that would have wasted Judge Lauber’s and everyone else’s time. Still, I suppose, that, had that been a discovery subpoena, the subpoenas would have been enforced to properly claim the Fifth Amendment. See e.g., United States v. Malnik, 489 F.2D 682 (5TH CIR. 1974), here, cert. den. 419 U.S. 826 (1974), a case I lost when with DOJ Tax because the IRS had relieved Malnik of the requirement that he attend and invoke the 5^th Amendment on a question-by-question basis. See On Win-Loss Records on Appeal (with War Stories) (Federal Tax Procedure Blog 5/5/25; 5/6/25), here, discussing Malnik. (Malnik was the only case I ever lost in the court of appeals and the winner nevertheless petitioned for cert; my brief in opp was easy in that case.)

3, The BSSCE ubiquitous bullshit appraiser, Claud Clark III, was involved in the initial valuation and then featured prominently in the opinion. It is not clear to me whether he testified. In any event, as noted above, North Donald abandoned Clark's claimed value. I can’t imagine that anyone would put him on as a witness, so his role recounted ad nauseum in the opinion apparently was from documents and other testimony.