Tax Court (Lauber) Rejects Bullshit Syndicated Conservation Easement (BSSCE) Valuation Claim (2/19/26; 5/21/26)

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.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:

Does the Preparer's Fraud Invoke the Unlimited Statute of Limitations? (8/5/12)

In Allen v. Commissioner, 128 T.C. 37 (2007), here, the Tax Court (Judge Kroupa) held that Section 6501(c)(1) imposes an unlimited statute of limitations for the preparer's fraud in preparing the tax return.  This blog asserts that that holding is incorrect.  I should note that the opinion has only sporadically been referred to and there are no authoritative decisions other than Allen to test the validity of its analysis or my arguments for that analysis being incorrect.

The background is straightforward and known to most readers of this blog.  Section 6501(a), here, creates a general rule that the statute of limitations is three years from the date of filing the return.  Section 6501(c) creates certain exceptions, the pertinent of which is:

(1) False return.  In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.

The other significant civil consequence of fraud is the 75% civil fraud penalty in 6663(a), here.  That statute is:

(a) Imposition of penalty.  If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

The Allen Court read Section 6501(c)(1) according to what it claimed was a "plain meaning analysis."  The statute does not limit the fraud to the taxpayer's fraud.  If the return is fraudulent, the unlimited statute applies regardless of whose fraud is involved.  The preparer's fraud suffices.

In my view, the Allen Court is wrong.  First, one consequence of reading this statute literally, would logically mean that the fraud penalty applies when the preparer's rather than the taxpayer's fraud was involved.  The IRS did not assert the fraud penalty in Allen, so the Tax Court did not have to come to grips with this issue.  However, there is nothing in the bare text of the civil fraud penalty that limits the term "fraud" on the return to the taxpayer's fraud.  Of course, the taxpayer's own fraud has always been required for the civil fraud penalty.  (Cf. Section 6663(c) ("In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse.").)  Still, so far as we can tell, Allen was the first time the IRS urged that a nontaxpayer's fraud with respect to a return can open the statute of limitations under Section 6501(c)(1), so it is not inconceivable that the same analysis might apply to the civil fraud penalty.  In this regard, the IRS wisely did not assert the civil fraud penalty.  I say wisely because such heavy handedness might have caused it to lose the statute of limitations issue.  Still, as I shall note, given the correlation of the two consequences of fraud, it seems to me illogical to treat the two consequences differently.  I think that given the choice of both to apply or neither, the only logical one from a tax policy standpoint is that neither should apply.