Another Bullshit SCE Case Fails for the Usual Reasons, but Court also Rejects the Jarkesy Claim (7/16/26)

In Piton Holdings, LLC v. Commissioner, 167 T.C. ___, No. 4 (2026), TC Dkt 637-23, here, at # 237 and GS here [to come], the Court (Judge Kerrigan) gave the IRS the victory in yet another syndicated conservation easement (“SCE”) case. The Court

• rejected the usual bullshit about the before contribution valuation from which the after valuation is deducted. The before contribution value claimed was $42,200,000; the Court found the before contribution value was $1,440,000. Since the parties stipulated that the after contribution value of the property subject to the easement was $640,000, the contribution value was reduced from $41,635,000 to $800,000. Hence, the value of the “contribution” was greatly, should I say grossly, reduced based on a gross overvaluation of the value of the easement. I address this in my comments below.
• found that the partnership improperly allocated the resulting deductions among the partners. This holding applies in the “varying interests” rule in partnership tax law. The allocation made by the partnership failed the requirements of that rule. It is a bit esoteric, so I do not discuss it further. (See Slip Op. 36-44.)
• found, applying simple math (and as usual with SCE bullshit valuation claims that are litigated), the gross valuation misstatement penalty in § 6662(h) applies (Slip Op. 44-45.)
• rejected the claim that § 6662 penalties are not assessable as a matter of law because of the application of U.S. Const. amend. VII, raising the Jarkesy case. (Slip Op. 45-I briefly discuss this in my comments below.

JAT Comments:

1. At the outset, I am amazed that the Tax Court has not found some way to better manage these SCE cases where, it seems on the anecdotal cases I have read, the partnership proffers grossly excessive valuations and requires enormous judicial and other resources to call the partnerships out on the bullshit valuation claims. I thought Judge Buch was trying to do that in a case about which I blogged earlier. 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. Perhaps Judge Buch’s warnings have been effective in some cases which have settled. But Piton Holdings illustrates that the message has not been respected by some. So, for example, why did Judge Kerrigan not consider the penalties Judge Buch indicated were possible?

2. The Court’s findings of fact and conclusions regarding the valuation issue are standard for SCE cases. The key valuation always in dispute is the “before contribution” value of the property for which an easement was contributed. Remember that the valuation of the easement because there is no market for such easements, is derived by the “before contribution” value less the after contribution value of the property subject to the easement contributed. (That simple subtraction produces the contribution value, but I suggest (without further explanation) that even that method may overvalue the easement for contribution purposes.

3. On the before valuation issue, the Court at some points finds the valuation a finite number-- $1,440,000. E.g., Slip Op. 1, 4. The rounded number, often used in approximations, may not suggest a finite number, but the Court usually presents it as a finite number. I have suggested that rarely, if ever, can finite number valuations be achieved. Valuations, particularly of real property where there is no active market for similar property, is usually presented as a range of values, with confidence levels determining the spread in the range; within that range the Court (or other factfinder) is in equipoise as to value. John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020). Although the Court presents the number as finite, at one point the Court suggests that the $1,440,000 is the top of the range number. The Court says (Slip Op. 33, bold-face supplied by JAT):

Natural Aggregates’ purchase of DESE Properties’ partnership interests supports Mr. Ball’s determination that the Property was worth (at most) $1,440,000. We therefore adopt Mr. Ball’s valuation of $1,440,000 as the before value of the Property. [JAT Note: see "(at most) and consider my range analysis.]

In my article, I posit that, when the burden of persuasion is on a party (here, the taxpayer) to prove the valuation issue for a benefit offered by a higher valuation, that party has met its burden only at the bottom of the appropriate range. Yet, with the quote with bold-face above, the Court suggests that the valuation it found was at the top of the appropriate range. Of course, the IRS may not have been contending for any number lower than $1,440,000. But, if for example, the IRS had argued for a $1,300,000 valuation and the Court had found a valuation range of $1,400,000 and $1,480,000, the Court should find the value to be $1,400,000 (the bottom of the range).

4. On the Jarkesy issue, well there is little to be said that might further enlighten readers on that issue in a tax context. That latest potentially relevant case is United States v. Sagoo, 2025 U.S. Dist. LEXIS 184336, 2025 WL 2689912 (N.D. Tex 9/23/25), pending appeal in the Fifth Circuit. See District Court Holds the FBAR Willful Penalty Requires Opportunity for Pre-Assessment Jury Trial (Federal Tax Procedure Blog 9/24/25; 6/7/26), here. I expect Sagoo to be reversed on that issue, although the Supreme Court may have to do the reversal (because the Fifth Circuit is such a wild card).

5 The Court elevated the case to a T.C. opinion, probably because of the Jarkesy analysis which is not surprising (the Jarkesy holding as opposed to elevation to T.C.). The rest of the opinion seems to be fairly routine holdings for the typical bullshit SCE case.