Another Bullshit SCE Case the Shelter’s Experts Not Credible (11/4/26)

In Morgan Run Partners, LLC v. Commissioner, T.C. Memo. 2026-112 (11/3/26), TC 8669-20 at # 274; TN here, and GS here [to come], Judge Lauber calls out another bullshit tax shelter of the syndicated conservation easement (“SCE”) genre. Judge Lauber must again shovel through the same typical bullshit of this type of shelter. Judge Lauber offers a brief description at the beginning (*2):

          Petitioner has not carried its burden of proving that rezoning of the Subject Property to an industrial category was “reasonably probable.” Construction of a 780,000-square-foot distribution facility was therefore not a legally permissible use. Petitioner likewise failed to convince us that construction of a distribution facility was physically possible on the site or that it was financially feasible. For these reasons, the industrial use petitioner posited was not the HBU of the Subject Property.

          We agree with respondent’s expert Ray Kinney that the HBU of the Subject Property, before the granting of the easement, was “investment property held for speculative development of medium to low-density residential lots.” Employing the comparable sales method, he determined a “before value” of $7,000 per acre, or $1.63 million (rounded) for the Subject Property. We find Mr. Kinney’s valuation reasonable, particularly because the prior owners of the Subject Property conveyed it to Morgan Run in November 2016—roughly a month before the easement was granted—for slightly more than $1.2 million. That transaction was an arm’s-length sale that valued the Subject Property at roughly $5,200 per acre.

          Accepting Mr. Kinney’s “before value” of $1.63 million, and subtracting from that figure an “after value” of $465,000, we conclude that the FMV of the conservation easement was $1,165,000. That valuation conclusion dictates that we sustain the imposition of a 40% penalty under section 6662(h)1 for a “gross valuation misstatement,” as determined by the Internal Revenue Service (IRS or respondent).

Those wanting to waste their time reading the whole opinion can certainly do so.

Fun fact: I wasted my time reviewing the opinion (that is different from a close reading). Here are some quick comments I have:

1. Valuation is all about credibility. As I have noted many times in discussing these bullshit SCE shelters, the valuations the shelters offer are often not credible or close to being credible. In this opinion, Judge Lauber calls out the shelter’s experts on several occasions. See e.g., *22 (on proffered expert Douglas Kenny who also testified in other cases, “The Court has never found his testimony about the ‘before value’ of property to be credible.”); *23 (on proffered expert James “Chris” Clanton, “This Court has never found his testimony about the ‘before value’ of property to be credible.”); and (on proffered expert Thomas Spears (*24-*25, *27-*28 and *38-*42 (too much to quote).

2. Using Bullshit "Expert" Testimony. I have noted before that one Tax Court Judge has warned about putting on such non-credible bullshit valuations that waste everyone’s time. 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. But the Tax Court does not seem to be serious in exercising its power to impose penalties for bullshit evidentiary and briefing presentations. Readers might consider that the opinion is the 274th docket filing which means that, among those filings, the IRS and the Court had to deal with more bullshit than they should have. 

3. § 6662(h) Penalty. This shelter in Morgan Run Partners had an overvaluation that easily cleared the 6662(h) penalty requirement but was still not as aggressive (either proportionately or in amount) as others.

4. Baseball Arbitration Analog. I note again that perhaps something like baseball arbitration is at play here so that the judge, having found the shelter’s valuations bullshit, gravitates to the IRS valuations subject to such adjustments as the evidence at trial support.