Veribest Vesta LLC et al. v. Commissioner; No. 9158-23

VERIBEST VESTA, LLC, TRUE NORTH RESOURCES, LLC, PARTNERSHIP REPRESENTATIVE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

United States Tax Court

Washington, DC 20217

ORDER

Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is

ORDERED that the Clerk of the Court shall transmit with this order to petitioner and respondent a copy of the pages of the transcript of the trial in this case before Judge Ronald L. Buch at Atlanta, Georgia, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.

In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155.

(Signed) Ronald L. Buch

Judge

Bench Opinion by Judge Ronald L. Buch

July 11, 2025

Veribest Vesta, LLC, True North Resources, LLC,

Partnership Representative v. Commissioner of Internal Revenue

Docket No. 9158023

THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the oral findings of fact and opinion. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, as in effect at all relevant times.

INTRODUCTION

The old Grimes quarry sits on 55 acres of land situated in Oglethorpe County, Georgia, which is near Elberton, Georgia. The city of Elberton is known as the Granite Capital of the World. That nickname is well-earned because it is situated atop a granite belt that is approximately 35 miles long, 6 miles wide, and 2 to 3 miles deep. Mining that granite can be lucrative. To mine granite, one needs to have access to land where the granite is located, an experienced crew and capable leader to extract it, capital to acquire the necessary equipment and to operate the business, and a market into which to sell the granite. Veribest Vesta, LLC, had one piece of that formula, it owned the land on which the old Grimes quarry was situated. In 2018, Veribest Vesta donated a conservation easement on that property.

In determining the amount of a charitable contribution for the donation of a conservation easement, one generally determines the value of the property before donation of the easement and the value of the property after donation. The difference between those two numbers is the value of the charitable contribution.

To determine the value of its charitable contribution, Veribest Vesta calculated the going concern value of an operating granite mine. It used optimistic projections of how much granite could successfully be mined from the old Grimes quarry and sold. It then discounted the cash flow that might be generated by those optimistic projections to determine a before value in excess of $20 million. It determined an after value of less than $100,000. From these numbers, Veribest Vesta claimed the value of its 2018 charitable contribution of the conservation easement was $20,310,000.

But the value of land in the area of the old Grimes quarry was well known. While the precise value of any particular parcel may vary, locals understood quarry properties to be worth about $2,000 per acre. Contemporaneous sales records of properties in the surrounding region generally reflect a value ranging from $1,999 to $2,840 per acre. And the old Grimes quarry sold just two years before the donation for $1,818 per acre.

Evidence offered at trial showed that the old Grimes quarry was worth less than the norm. It had been abandoned decades earlier because it was not perceived as a good mining property. It lacked infrastructure necessary to reopen it as a mine or to get its products to market. The Commissioner's expert nonetheless valued the property at $3,000 per acre at the time Veribest Vesta donated the easement. We will regard that as a concession. The Commissioner's expert likewise valued the property after donation of the easement at $54,000. We will likewise regard that as a concession. These deemed concessions result in a value of the donation of $111,000. As a result of the vast difference between the value claimed by Veribest Vesta and the value found by the Court as a result of the Commissioner's concessions, a gross valuation misstatement penalty applies.

FINDINGS OF FACT

1. The Georgia Granite Industry

Northeastern Georgia, near the city of Elberton, contains a large granite deposit formed over 300 million years ago. The Elberton granite deposit is about 35 miles long, 6 miles wide and 2-3 miles deep. The total amount of granite in the Elberton granite deposit is approximately six trillion tons. For this reason, Elberton is known as the "Granite Capital of the World." The first commercial granite quarry in the Elberton area opened in 1889, and granite remains an important part of the local economy. Largely because of the granite produced in Elberton and the surrounding area, Georgia leads the United States in production and use of granite dimension stone.

Geologically, the Elberton granite deposit has unique characteristics that make it preferable for specific applications. While there are variations in the color and quality of the granite, the Elberton granite generally has a gray hue and goes by a variety of names, mostly commonly Georgia Gray.

Georgia Gray's color comes from a speckled pattern of small black and white flecks. Georgia Gray is among the hardest types of granite available, making it extraordinarily durable. Georgia Gray is used in a variety of products because of its uniformity. Variation in color will affect its value.

From a mining perspective, quarries can produce either dimensional stone or aggregate stone. Aggregate is broken or crushed stone such as gravel. It might be used, for example, for a rail bed. Dimensional stone is natural rock in the form of large blocks or slabs. The primary types of dimensional stone include granite, marble, limestone, sandstone, and slate. Once dimensional stone is removed from a quarry, it may be used for any number of things; buildings, monuments, pavers, furniture, decorative objects, headstones, mausoleums, bridges, countertops, curbing, retaining walls, landscaping, etc. The size of the usable portion of dimensional stone will affect its grade; cracks or veins resulting in smaller useable blocks will result in a lower grade and value.

Stone is graded after it is removed, and sometimes the grade isn't known until the stone is cut. "Die stock" is the highest grade of granite and typically must be free of imperfections. After die stock, in descending order of quality, is "base stock" which has mild waves and sporadic spots. It can be used in horizontal bases for headstones. "Coping" has more defects and may be used for other parts of a burial plot. The last of the commonly recognized categories is "curbing," which has significant patterns or waves and is used to make street curbs where aesthetics are not as important. Different mine operators may classify their stone differently, with some using a numerical system and others having additional categories such as "run of the quarry," but die, base, coping, and curbing are commonly recognized categories of the quality of dimensional granite.

When selling dimensional stone, die stock is where most of the profits are earned. Although prices vary, people involved in the local mining industry recall that, in 2018, die stock sold for $12 to $14 per cubic foot, base sold for $11 to $12, coping sold for $6 to $10, and curbing sold for $1.50 to $5. The cost to remove dimensional stone also varies, but for most operators, die stock and base stock is where most of the profit is made. Coping generally breaks even or turns a small profit, and curbing is sold at a loss to recover as much cost as possible. Waste rock is given away if someone will take it.

1. The Old Grimes Quarry

In 1969, Mrs. Tiller executed a Warranty Deed conveying 30 acres of real property in Oglethorpe County, Georgia in favor Grimes Brothers Granite Company, Inc. We will simply refer to that as-entity as "Grimes Brothers." And in 1970, the Estate of Mrs. Tiller executed a Warranty Deed conveying another 25 acres of real property in Oglethorpe County in favor of Grimes Brothers. In 1977, Grimes Brothers entered into a contract with Erwin Granite Company by which it leased the rights to granite and other mineral deposits in, on, and under the 30-acre tract.

In 1991, Grimes Brothers executed a Warranty Deed conveying both tracts of land, totalling 55 acres, in favor of Bobby Stevens. We will refer to that 55-acre tract as the old Grimes quarry. The following year, Bobby Stevens executed a Warranty Deed conveying three parcels in Oglethorpe County to Georgia-Carolina Quarries, Inc., his family's business. The three parcels consisted of the old Grimes quarry plus an additional 9.47 acres. Georgia — Carolina Quarries also operated other quarries in the area.

Sometime around 1998 or 1999, quarry operations were abandoned at the old Grimes quarry. In 1998 or 1999, Georgia-Carolina Quarries pulled two samples of granite from the old Grimes quarry and discovered imperfections that made it unsuitable for monument grade stone. Mark Stevens, whose family business owned the quarry at the time, understood that the granite in the old Grimes quarry was coping grade.

Mark Stevens worked for the family business, Georgia-Carolina Quarries. The family business included both quarrying and also manufacturing products from granite, and it had bought stone from the Blue Ribbon Quarry. Larry Cook owns Blue Ribbon Quarry, which he bought in 2006.

In 2016, Mark Stevens (through Georgia-Carolina Quarries) sold the old Grimes quarry to Mr. Cook for $100,000 which amounts to $1,818 per acre. The sale included owner financing; Mr. Cook paid $25,000 and financed the $75,000 balance with Georgia-Carolina Quarries. On June 28, 2016, Georgia-Carolina Quarries executed a Warranty Deed conveying the old Grimes quarry to Mr. Cook, which was recorded along with a Security Deed in connection with the owner-financing.

On October 3, 2016, Mr. Cook, with the assistance of Jennifer Grayson, an attorney, organized Veribest Vesta as a Georgia limited liability company. At organization, Veribest Vesta was owned 75% by Mr. Cook and 25% Centrifuge Management, LLC. Centrifuge Management was owned first by Ms. Grayson's then-husband, Mark Lytle, until January 1, 2017, when Ms. Grayson became the sole owner. On December 15, 2016, Mr. Cook executed a Warranty Deed conveying the old Grimes quarry to Veribest Vesta. That deed was recorded a few days later.

In the meantime, specifically, in October 2016, Mr. Cook bought a second abandoned quarry for $2,350 per acre. He reopened that quarry in 2019 as the Briar Patch Quarry.

Since 2016, Ms. Grayson and Mr. Cook helped put together a number of conservation easements in Oglethorpe County. In preparing for the Veribest Vesta conservation easement, Ms. Grayson hired (1) Russ Patterson, who prepared a dimension stone exploration and evaluation report, (2) Criss Capps, who prepared a mineral resource valuation report, and (3) Clayton Weibel and Lucus Von Esh, who prepared a property appraisal.

In March 2017, a 162-foot core sample was collected from the old Grimes quarry and sent for testing. That testing confirmed the presence of Elberton granite. Mr. Patterson then prepared a conceptual mine plan involving a two-acre quarry pit that would produce, in his opinion, "a minimum of 5.23 million cubic feet of dimension stone." Relying on Mr. Patterson's estimate, Dr. Capps estimated a total combined resource valuation of $22.3 million: $15 million in monument-grade dimension stone, $6.2 million in countertop-grade dimension stone, and $1.1 million in recycled waste rock aggregate. This exact resource valuation was used in reports Mr. Capps prepared for at least eight other quarry properties, which Messrs. Weibel and Von Esh also used to appraise the land for conservation easements. Messrs. Weibel and Von Esh reached these conclusions without reliance on comparable sales involving a hypothetical willing buyer and willing seller. Instead, Messrs. Weibel and Von Esh used a discounted cashflow analysis to arrive at a net present value of a hypothetical dimension stone business operating on the old Grimes quarry over the course of twenty-five years.

III. The Donation of a Conservation Easement

In 2018, Corey Ingram and George Agee of Greensouth Land Strategies, LLC introduced Mr. Cook and Ms. Grayson to True North Resources, LLC. True North Resources is a partnership organized under the laws of Florida. At all relevant times, True North Resources was managed by two brothers, Pieter and Philip Van Staden, and owned 50-50 by Andrew Miles and Philip Van Staden. Philip Van Staden has owned multiple broker-dealers, one of which is Green Vista Capital. Green Vista is co-owned by Philip Van Staden and Mr. Miles. Mr. Miles is a Florida attorney specializing in providing tax services for high-net-worth clients. He operates a business called Tax Savings Professionals.

On November 14, 2018, True North Resources organized Millstone Creek, LLC. Shortly thereafter, Millstone Creek entered into a purchase agreement to acquire 97% of Veribest Vesta in exchange for $2 million. Mr. Cook and Centrifuge Management (in other words, Ms. Grayson) each retained 1.5% interests. Philip Van Staden and Mr. Miles, owners of True North Resources, contracted with themselves as principals of Green Vista Capital, the broker-dealer, to sell membership units of MillstoneCreek. "Investors," and we use that term loosely, would receive a $4.50 tax deduction for every $1 they paid to acquire their interests. Meanwhile, Veribest Vesta appointed True North Resources as its manager through a second amended and restated operating agreement.

Shortly thereafter, by deed recorded with the Oglethorpe County Clerk on December 31, 2018, Veribest Vesta granted a conservation easement on the old Grimes quarry in favor of Oconee River Land Trust.

1. The 2018 Form 1065 and Accompanying Appraisal

On March 18, 2019, the Internal Revenue Service received Veribest Vesta's Form 1065, U.S. Return of Partnership Income, for the year ending December 31, 2018. We will refer to that as the original return. Veribest Vesta attached to its original return a copy of an appraisal dated September 28, 2018, and signed by Messrs. Weibel and Von Esh. We will refer to that as the return appraisal. Using a discounted cash flow analysis of an operating dimensional stone granite mine, the return appraisal valued the old Grimes quarry at $20.4 million. It determined a residual value after the granting of the conservation easement of $90,000. From these numbers, it derived a value of the easement of $20,310,000.

But in the interim, True North Resources engaged at least one professional in addition to those hired by Ms. Grayson. It hired Phillip McGinnis, a Georgia appraiser, to conduct a review of the return appraisal. Mr. McGinnis identified dozens of problems with the return appraisal, ultimately concluding: "Due to the inconsistencies in the Income Approach and the Sales Comparison Approach, the value conclusions do not appear credible." After Mr. McGinnis's review of the return appraisal was completed, no changes were made to the ultimate conclusion for the income approach or sales comparison approach in the return appraisal.

1. The Amended Form 1065 and Accompanying Appraisal

On April 10, 2019, the Internal Revenue Service received a Form 1065X, Amended Return or Administrative Adjustment Request for Veribest Vesta for 2018. The amended return stated that its only purpose was to replace the return appraisal with a newer version. The appraisal attached to the amended return was dated February 21, 2019. The differences between the appraisals attached to the original and amended returns are largely insubstantial with both versions concluding the value of the conservation easement was $20,310,000, and with both relying on the same discounted cash flow analysis of an operating granite mine.

1. The Commissioner's Determinations and Veribest Vesta 's Petition

By Notice of Final Partnership Adjustment dated March 22, 2023, the Commissioner determined a partnership-level imputed underpayment of $7,514,700 and penalty of $3,005,880. The imputed underpayment was predicated on a complete disallowance of the $20,310,000 charitable contribution deduction. The penalty was predicated on the Commissioner's determination that the adjustment resulted from a gross valuation misstatement.

On June 8, 2023, True North Resources, as partnership representative, filed a petition challenging the Commissioner's determinations. When True North Resources filed the petition, Veribest Vesta was a Georgia limited liability company with its principal place of business in Florida.

VII. Trial

Trial of this case was held over the span of several weeks, with some witnesses appearing remotely. The parties provided closing arguments on July 10, 2025. The witnesses largely fell into three categories: fact witnesses with information about the old Grimes quarry or the granite industry in the surrounding region; fact witnesses with information about the series of transactions; and expert witnesses regarding the value of the property or the quality of the appraisals. While facts derived from the witnesses' testimony are included above, we briefly highlight facts brought to light through the testimony of each of the witnesses presented at trial.

1. Mining Fact Witnesses

Arnold Jaudon was the first of several fact witnesses who testified about the hard work of mining granite. He started mining granite as a teenager and has been a foreman for 30 years. In his career in the mining industry, he has also owned a quarry. He explained that, to reopen an abandoned quarry, one needs hundreds of thousands of dollars of equipment, a capable crew, and a foreman. A foreman is particularly difficult to find. Among the problems with finding a foreman is that mining typically involves the use of explosives, and to be licensed to use explosives, a foreman must pass a clean background check.

Randy Rice was another witness with experience in mining. He is the president of Blue Sky Quarry and has been in the granite industry for 40 years. In addition to testifying about his success in the mining industry, he also explained the difficulties. He estimated the equipment cost to open a new mine to be $1.5 million. Blue Sky Quarry has two parcels that total 147 acres and that include a rail spur to connect to the CSX rail line. Mr. Rice was once offered $7.9 million for Blue Sky Quarry, which was offered for the operating business, not the merely for the land on which it was situated.

Mark Hill, like Mr. Rice, has been successful in the granite industry. Mr. Hill runs a granite manufacturing business, turning stone into granite products. He also runs Quarries Inc., which has two active quarries. He has tried to open six quarry sites, but four of them failed. He explained that "the good Lord can give you some good stone and he can give you some bad stuff." He explained how one quarry site has been amazingly good, but just 100 yards away, the stone is bad to neutral. Perhaps most notably, he observed that "everybody's quarry is going to be different. There's no two alike." This was made particularly clear in his discussion of royalty rates. Some quarry operators own the land they quarry while others lease it and pay a royalty to the landowner. But royalty rates vary widely, and some landowners and quarry operators closely guard their actual royalty rates.

Mr. Hill also testified about the purchase of mining properties. He knows of at least three sales with per acre prices ranging from $2,100 to $8,900 per acre. The $8,900 per acre outlier was his purchase of a property he had been leasing and actively mining. He thought the price was "awful high" but he wanted to continue to quarry that specific property because of its track record. He was already operating a mine on that site with all of his equipment in place.

Tim Huguley is in the process of selling the only quarry he's owned. When he purchased the quarry in 2013, it was an operating business with all of the necessary equipment and an office building. He paid something in the range of $500,000 to $600,000 for the operating business. He quarried on that property for three years, but he hit bad rock. He sold off a portion of the land in 2018 for $2,000 per acre because "that's the price most of the property was going for." He is in the process of selling the remainder of the property for $600,000, a price that includes the equipment and improvements.

Willie Simmons retired from quarrying after 40 years of working in granite businesses owned by his father. The family had a manufacturing business and a quarry. One of the problems they encountered in running the business was finding people who wanted to work. They sold the quarry in 2016 for $750,000. That sale included the land, a finishing plant, and equipment. In contrast, they sold another property in 2014 that was simply the sale of land. That property sold for roughly $2,500 per acre.

Billy Bryant is the president and co-owner of Gold Eagle Quarries. He's been in the mining industry for nearly 40 years. In 2016, Mr. Bryant paid $750,000 for a 24.5% interest in Gold Eagle Quarries, an operating mining business that also held 150 acres of property for mining granite.

David Giannoni has worked in granite mines for over 50 years. His dad owned Central Granite Company, and Mr. Giannoni began working there during high school. After serving in the Marine Corps and some further education, Mr. Giannoni returned to granite mining. Over the years he owned three quarries and leased one. Notably, he bought a quarry property in 2013 for $1,707 per acre. He started quarrying on the property in late 2014. But in 2018 he stopped because he did not have a good enough crew or foreman. He sold the property, but in his view, if he had had the right people and the right crew, he probably could have made it work.

Mark Stevens has worked in the granite industry for 40 years. He was principally involved on the manufacturing side of the business. His late brother was involved on the mining side, but Mr. Stevens took over mining operations when his brother passed. His family's company, Georgia-Carolina Quarries, acquired the old Grimes quarry from Mr. Grimes, who signed the property over to settle a debt. When Mr. Stevens's family business acquired the old Grimes quarry, it was already an abandoned pit. In the late 1990s, Georgia-Carolina Quarries drained the water from the old Grimes quarry, pulled two samples of granite, and had them sawed and polished. If those samples had indicated die stock, the Stevenses would have reopened the pit. But they were coping or curb grade. In 2016, a former employee connected Mr. Stevens with Larry Cook. Mr. Stevens and Mr. Cook agreed on what Mr. Stevens believed to be a "fair price" for the old Grimes quarry of $1,818 per acre.

1. Transactional Fact Witnesses

We begin the summary of the transactional fact witnesses with Larry Cook, who acquired the old Grimes quarry from Mr. Stevens. Mr. Cook had been a maintenance engineer in an industrial plant. While working at that full time, he bought an interest in an operating quarry, Blue Ribbon Quarries. Initially, his main role was mostly working evenings and weekends upgrading equipment while he continued to work at his full-time job. In 2016, he bought the property that would become the Briar Patch Quarry, which consisted of 114 acres of land with several abandoned pits, for roughly $268,000, which translates to $2,350 per acre. He then spent several hundred thousand dollars to acquire equipment and get the mine up and running 2 to 3 years later. The same year he acquired the Briar Patch Quarry, he acquired the old Grimes quarry for $100,000, or $1,818 per acre. He contributed the old Grimes quarry to Veribest Vesta, which he formed along with Jennifer Grayson.

Jennifer Grayson is the lawyer who formed Veribest Vesta in 2016. On original formation, Veribest Vesta was co-owned by Larry Cook and Mark Lytle, Ms. Grayson's then-husband. Mr. Lytle owned his interest through Centrifuge Management, an entity wholly owned by him. Ms. Grayson became the sole owner of Centrifuge in 2017. She both advised and owned (directly or indirectly) interests in multiple entities that entered into conservation easements.

Devlin Dwyer is a lawyer who was hired to prepare much of the documentation underlying Veribest Vesta's donation of a conservation easement. Although he has worked in a variety of settings, his involvement in conservation easements has been a common thread. He prepared a second restated operating agreement and other organizational documents, a subscription agreement, and at least in theory, a private placement memorandum. We say "in theory" because in his written communications with Ms. Grayson and Peiter Van Staden, it appeared as though he was looking to them to provide a draft private placement memorandum.

Pieter Van Staden is the manager of True North Resources, which in turn is the partnership representative of Veribest Vesta. He made clear that the Veribest Vesta conservation easement donation, along with many similar conservation easement donations, involved the same closeknit group of individuals. For example, True North Resources is owned by Mr. Van Staden's brother, Philip Van Staden and Andrew Miles. Mr. Miles is also an owner of a business called Tax Savings Professionals. Tax Savings Professionals would refer clients to Green Vista Capital, a broker dealer. Green Vista, in turn, is owned by Mr. Miles and Philip Van Staden.

Green Vista provided prospective investors with a private placement memorandum that provided them the opportunity to invest in Veribest Vesta. It purported that three options would be available to the investors: to hold and sell the property at a future date, to actively mine the property, or to place a conservation easement on the property. But the private placement memorandum was not distributed to anyone with an interest or ability to mine the property; it was distributed to "accredited investors." Those are people with a high net worth or high annual income and who would be able to take advantage of tax savings.

Philip Van Staden is Pieter's brother and the co-owner of Green Vista Capital and True North Resources along with Mr. Miles. Most notably, Mr. Philip Van Staden testified about the fees that True North Resources received in connection with the Veribest Vesta series of transactions. It received a termination fee of roughly $500,000, an arrangement fee of $420,000, and two separate annual management fees of $15,000 and $20,000. On top of that, a 7% commission was paid to the registered representative along with a 1.5% marketing fee and a 1.5% due diligence fee to the broker dealer. The registered representative was Mr. Miles, and the broker dealer was Green Vista, which in turn is co-owned by Mr. Miles and Philip Van Staden.

Andrew Miles owned or was otherwise involved in several of the entities involved in the Veribest Vesta transactions, including True North Resources. True North Resources was involved in dozens of conservation easements including the one entered into by Veribest Vesta. Mr. Miles explained how, for each dollar invested, an investor would receive a $4.50 charitable deduction.

Alphonse Provinziano was one of the investors who had hoped to mine a charitable contribution deduction through Veribest Vesta. He and his wife first learned of conservation easements from a video that appeared on Facebook. Mr. Miles was providing a class to small business owners on tax strategies and promoting his business Tax Savings Professionals. Through this initial contact, the Provinzianos bought into several conservation easement transactions.

Clayton Weibel and Lucus Von Esh prepared the return appraisal for the donation of the old Grimes quarry. Mr. Weibel did not testify at trial. In a stipulation of facts, the parties agreed as to what questions the Commissioner intended to ask Mr. Weibel at trial and that Mr. Weibel would refuse to answer by invoking his Fifth Amendment privilege against self-incrimination.

In contrast to Mr. Weibel, Lucus Von Esh testified about his role in preparing the appraisal. He explained that Mr. Weibel prepared the appraisal and that he, Mr. Von Esh, merely filled in the data. Much of that data came from reports of others. The appraisal that bears Mr. Weibel and Mr. Von Esh's signatures, quotes the 14th edition of The Appraisal of Real Estate published by the Appraisal Institute as stating,

Sales comparison is the most common technique for valuing land and it is the preferred method when comparable sales are available. To apply this method, data on sales of similar parcels of land is collected, analyzed, compared, and adjusted to provide a value indication for the land being appraised.

In contrast, Mr. Von Esh testified that comparable sales could be used as a sanity check to see if it matches another approach. He did not appear to apply this sanity check to the value set forth in his and Mr. Weibel's appraisal.

Joseph Davis prepared the Veribest Vesta return, although he has a hard time keeping the various conservation easement returns straight because "all of them are somewhat of a jumble." He had prior experience in preparing partnership returns, and his due diligence typically involves reviewing a general ledger with thousands of transactions. But with Veribest Vesta, there were only eight transactions. Notwithstanding the scant information, Mr. Davis did not verify information, such as opening account balances, with the prior year's return. This resulted in inconsistencies between the 2017 and 2018 returns of Veribest Vesta.

Justin Owens is a certified public accountant who reviewed the Veribest Vesta return before it was filed. He noticed some inconsistencies and called them to Mr. Davis's attention. He did not receive a copy of the filed return until shortly before trial.

Corey Ingram formed Greensouth Land Strategies along with George Agee. Through that entity, they entered into about half a dozen land transactions all of which resulted in placing conservation easements on the property.

Criss Capps is a geologist who prepared a resource statement in which he estimated the quality and quantity of granite at the old Grimes quarry to be valued at $22.3 million. He did this by relying on the exploration and evaluation of other contractors. Although he considers this property to be "unique," he also views "every single location on planet Earth . . . unique." He valued at least nine other supposedly unique dimension stone quarries to have the exact same resource value.

Kemuel Caldwell was not involved in the transactions and is not directly involved in the mining industry. He is the chief appraiser in the Oglethorpe County Tax Assessor's Office. Mr. Caldwell authenticated and explained tax assessment records for the county in which the old Grimes quarry is located. Those records show that most undeveloped properties that were sold in Oglethorpe County in 2018 sold for less than $3,000 per acre. Regarding assessment records, the Oglethorpe County Tax Assessor's Office places a higher value on properties with operating quarries, but that value is not based on the value of the operating business; it is based on the value of the land on which the business is operating.

1. Expert Witnesses
2. Doug Kenny

Petitioner offered expert testimony from Doug Kenny, a real estate appraiser and Certified General Appraiser licensed in Georgia and twenty other states. Mr. Kenny is no stranger to conservation easement valuation and has previously testified as an expert witness before this Court. Mr. Kenny was offered as an expert witness in appraisals, mineral valuation, market analysis, and appraisal review.

Mr. Kenny testified as to the value of the conservation easement. Mr. Kenny opined on the fair market value of the conservation easement by using the income approach and a discounted cash flow analysis to determine the before donation value. Mr. Kenny determined the net present value based on "the projected income and expenses over a 25-year mine schedule." He also testified that the value of the subsurface materials must be incorporated in the value of real property.

Mr. Kenny used a before and after method to value the easement. He opined that before the easement, the property's highest and best use was dimension stone mining and that the property "has the potential to become a dimension stone quarry." He calculated that the before value of the property was $15,460,000. He opined that after granting the easement, the property's highest and best use was agriculture, recreational use, and forestry. He calculated that the after value of the easement was $110,000 $111,000. Accordingly, he determined the fair market value of the easement was $15,350,000.

Mr. Kenny used the sales comparison method to test the reasonableness of his discounted cash flow analysis. Mr. Kenny offered testimony on the principle of substitution, the idea that a buyer would not pay more for one property than what they could pay for an equivalent property. His search for potential substitutes for the old Grimes quarry resulted in 11 potential sales in the Oglethorpe County area with prices per acre ranging from $1,629 to $8,934. He found that these sales did not represent the fair market value of the property and accordingly, were not substitute properties. Most of these sales were private sales between locals in the community. He testified that, because none of these properties were listed for sale, they are not substitutes because the concept of a fair market value presumes an open market. Mr. Kenny conducted his own research of comparable sales and concluded that "property with subsurface minerals has been sold in Georgia [for sales prices] between $27,500,000 and $99,310,000." Most of these sales were in counties over 100 miles from Oglethorpe County and occurred between 2006 and 2023. He concluded that the before value of the conservation easement using the sales comparison approach was $5,310,000 to $21,640,000.

Mr. Kenny also utilized the royalty method as support for his valuation conclusion. He considered comparable royalty agreements and ranges detailed by geologists, engineers and local dimension stone miners, which gave him a range from 2% to 15%. He concluded that a 10% royalty agreement is considered reasonable. He determined a before value of $12,170,000 using the royalty method. Mr. Kenny testified that he looked at the discounted cash flow, royalty rate, and sales comparison methods to reconcile his valuation.

Perhaps unintentionally, Mr. Kenny explained the difference between the going concern value of a business and the fair market value of real property. He explained that when valuing real property, the fair market value of the property and the going concern value are different concepts. He provided the example of valuing real estate where an apartment complex is going to be built but is not yet complete. If the appraiser is asked to determine the property value upon completion of the apartment complex, the discounted cash flow method might be used, but "that discounted cash flow isn't going back to the value of the land."

2. David Dye

Petitioner offered expert testimony from David Dye, a boots on the ground quarryman. Mr. Dye has more than three decades of experience working in, owning, and operating domestic and international dimensional stone quarries. Mr. Dye was offered as an expert in granite quarry production, operations, and distribution.

Mr. Dye testified there are four things needed to operate a successful dimensional stone mine: (1) a permitted reserve of natural resources, (2) an experienced crew and a capable leader, (3) a market for the stone, and (4) capital to operate the mine. Perhaps unintentionally, Mr. Dye provided an example to illustrate the importance of the "experienced crew and a capable leader" element of this formulation. He explained that if your grandmother gave you a safe containing $10 million without the combination, and you don't have the money to pay someone to open it, the safe would not be worth the $10 million inside it. In other words, it is the person who can extract the asset that provides the value.

In 2011, Mr. Dye purchased Echols Mill quarry in Oglethorpe County. Mr. Dye and his partner bought the Echols Mill quarry for $500,000, or roughly $2,500 per acre. Mr. Dye testified that the mineral value of the Echols Mill quarry is close to $20 million. When asked by the Commissioner if he would have paid $20 million for the quarry, Mr. Dye said no. He clarified that if there were $20 million worth of mineral rights, and the seller did not have one of the four things needed to operate a dimensional stone mine to extract those minerals, then he would "buy it at a discount."

Mr. Dye estimated the net present value of the old Grimes quarry. More accurately, as he stated at trial, "When I give you a number, and when I tell you what something is worth, I'm talking about the mineral. I'm not talking about the property." He used a discounted cash flow analysis with different discount rates to calculate the net present value that Veribest Vesta would have expected to receive "had it opened a granite quarry" on the property in 2018. Mr. Dye testified that he used the discounted cash flow method because that is the only way he could value the minerals located in the quarry. He testified that beginning in 2018, Veribest Vesta could have opened and operated a quarry that by year 5 could extract 371,000 cubic feet of marketable stone annually. He concluded that over the course of 25 years, "Veribest could have expected to have generated between $23 to $33.5 million in net present value by operating a granite quarry" on the property. Mr. Dye testified he had used these exact numbers for another valuation he completed for a different property in Oglethorpe County.

Mr. Dye considered numerous factors in completing his discounted cash flow analyses. These factors included the amount of granite Veribest Vesta could have extracted from the property and the associated costs it would have incurred to operate the quarry. Mr. Dye does not remember the last time the old Grimes quarry was in operation, so these factors were estimated based on costs Mr. Dye had incurred in his own granite quarries.

Mr. Dye also expressed his frustration with the outcomes of recent conservation easement cases. To Mr. Dye and his community, the production of granite is a lifestyle and "represents more than just a conservation easement." He perceives the government as undervaluing the granite he and so many others work hard to produce. In expressing that frustration, Mr. Dye mentioned how a capable leader such as himself, aided by an experienced crew, could make $800,000 per year.

3. Patrick Adamson

The Commissioner offered expert testimony of Patrick Adamson, a real property appraiser and a Certified General Appraiser in the state of Georgia. Mr. Adamson was offered as an expert in real property valuation.

Mr. Adamson opined on the fair market value of the conservation easement using a sales comparison approach. His search for comparable sales for the old Grimes quarry resulted in 29 potential sales, which were found using the parameters of location, land size, and date. He then reduced the potential sales to seven based on land coverage, topography, potential long-term use, and location. The price per acre for the seven sales ranged from $1,604 to $3,665. Relying on those comparable sales, he concluded that the before value of the old Grimes quarry was $165,000 or $3,000 per acre. To value the property after the easement, Mr. Adamson encountered a limited pool of sales for properties with easements and had to consider comparable sales in different markets and sales occurring further back in time. The sales, adjusted for appreciation, ranged between $966 and $991 per acre. He concluded that the after-donation value of the old Grimes quarry was $54,000, a bit more than $980 per acre. Accordingly, he determined the fair market value of the easement was $111,000, the net of his before and after donation values. He testified that the highest and best use of the property before easement was agricultural or recreational use with no limits on the ability to mine the property. He determined that after the easement, "the highest and best use of the property is generally unchanged."

4. Raymond Krasinski

The Commissioner offered the expert testimony of Raymond Krasinski, who has been employed by the IRS since 2019 as a Lead, Senior Review Appraiser. He has experience in data analysis, market analysis, appraisal, and valuation. Mr. Krasinski was offered as an expert in the areas of appraisal, appraisal review, Uniform Standards of Professional Appraisal Practice, and market analysis.

Mr. Krasinski quibbles with the appraisals of both of petitioner's experts. He opined that Mr. Dye "relies on speculative assumptions, incomplete data, and subjective judgment." He also opined that Mr. Kenny's appraisal "analysis and assignment result is not credible and should not be relied upon."

DISCUSSION

Shortly before trial, the parties filed a stipulation of settled issues narrowing the issues for the Court to decide. That stipulation provided that the only issues remaining for trial were:

1. Whether the return appraisal is a "qualified appraisal" under section 170(f)(11)(E). The only particular sub-issues on the qualified appraisal question are:

1. Whether the return appraisal was conducted in accordance with generally accepted appraisal standards; and

1. Whether the return appraisal was timely.

2. What is the fair market value of the conservation easement under section 170(a)(1) and Treas. Reg. §1.170A-1(a) & (c).

3. And if the Commissioner prevails as to the tax adjustments, whether petitioner is liable for penalties.

We will address each of these issues in turn.

Rule 142(a)(1) provides that ”[t]he burden of proof shall be upon the petitioner, except as otherwise provided by statute or determined by this Court." Generally, the Commissioner's determinations are presumed to be correct, and a party challenging those determinations bears the burden of proof. Welch v. Helvering, 290 U.S. 111, 115 (1933); Crescent Holdings, LLC v. Commissioner, 141 T.C. 477, 485 (2013).

If the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the burden of proof shifts the Commissioner as to that issue. I.R.C. §7491(a). Credible evidence is the quality of evidence which, after critical analysis, a court would find sufficient on which to base a decision on the issue if no contrary evidence were submitted. Baker v. Commissioner, 122 T.C. 143, 168 (2004), citing Higbee v. Commissioner, 116 T.C. 438, 442 (2001).

In its pretrial memorandum, petitioner asserted that the Commissioner should bear the burden of proof (1) because his determinations were erroneous, excessive, and unreasonable, as well as arbitrary and capricious; and (2) because petitioner has satisfied the requirements under section 7491 to shift the burden to the Commissioner. Petitioner has not established that the burden should shift; the burden remains with petitioner.

VIII. Qualified Appraisal

Section 170(f)(11) disallows a deduction for noncash charitable contributions unless specific substantiation and documentation requirements are met. In the case of a contribution of property valued in excess of $500,000, the taxpayer must obtain and attach to its return "a qualified appraisal of such property." I.R.C. §170(f)(11)(D). An appraisal is "qualified" if it is "conducted by a qualified appraiser in accordance with generally accepted appraisal standards" and meets requirements set forth in "regulations or other guidance prescribed by the Secretary." I.R.C. §170(f)(11)(E)(i). The Commissioner argues that Veribest Vesta's appraisal satisfies neither requirement.

The Commissioner raises several issues with the return appraisal, which the Commissioner characterizes as failing to follow the Uniform Standards of Professional Appraisal Practice. We have recently explained that an appraiser's failure to strictly follow those guidelines does not necessarily render the appraisal as "nonqualified." Rather, it is simply a factor to be considered in assessing the appraisal's persuasiveness. See Ranch Springs, LLC v. Commissioner, 164 T.C., slip op. at 31-33; Seabrook Prop., LLC v. Commissioner, T.C. Memo. 2025-6, at *31-32; J L Mins., LLC v. Commissioner, T.C. Memo. 2024-93, at *36-37; Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52, at *48-49. We reach the same conclusion here. Although the return appraisal does not fully conform to the Uniform Standards, it is not so deficient that it must be disqualified.

The Commissioner also argues that the appraisal is not qualified because the appraisers did not comply with the applicable Treasury regulations. Specifically, the Commissioner asserts that Messrs. Weibel and Von Esh failed to comply with Treas. Reg. §1.170A-13(c)(3)(i)(A), a timing requirement for when an appraisal should be completed in relation to contribution of property. Petitioner argues that the appraisers substantially complied with the regulations at issue. In Bond v. Commissioner, 100 T.C. 32, 41 (1993), we held that some of the requirements in Treas. Reg. §1.170A-13 can be satisfied by substantial rather than by strict compliance. "The doctrine of substantial compliance is designed to avoid hardship in cases where a taxpayer does all that is reasonably possible, but nonetheless fails to comply with the specific requirement of the provision." Durden v. Commissioner, T.C. Memo. 2012-140. Substantial compliance may be shown where the taxpayer "provided most of the information required" or made omissions "solely through inadvertence." Hewitt v. Commissioner, 109 T.C. 258, 265 & n.10 (1997), aff'd without published opinion, 166 F.3d 332 (4th Cir. 1998).

The appraisal strictly complies with twelve of the fourteen criteria and substantially complies with the remainder. We have previously held that an appraisal report dated more than sixty days before the date of a contribution can nonetheless substantially comply with the regulations. In Zarlengo, the Commissioner asserted that a taxpayer's appraisal was not qualified because (i) the date of the appraisal report was more than 60 days before the date of contribution and (ii) the appraisal report failed to state the date, or expected date, of contribution. T.C. Memo. 2014-161, at *39-40. In Zarlengo we held that "the timeliness requirement of [Treas. Reg. §1.170A-13(c)(3)(i)(A)] does not relate to the essence of section 170" and "that a taxpayer may substantially comply with the substantiation requirements notwithstanding the taxpayer's premature appraisal." Zarlengo at *35 (citing Bond, 100 T.C. at 41; Sperapani v. Commissioner, 42 T.C. 308, 331 (1964)). The appraisal's failure to state the date, or anticipated date, of contribution was similarly remedied because Commissioner was "put on notice [of] the date (or expected date) of the contribution" via the taxpayer's Form 8283 filed with its tax return. Id. at *36. We concluded that the taxpayer had "complied or substantially complied" with the substantiation requirements. We reach the same conclusion here.

1. Valuation

Having concluded that Veribest Vesta sufficiently complied with the reporting requirements, we now consider the amount of the charitable contribution deduction that is allowable. For the reasons that follow, we conclude that the value of the old Grimes quarry before donation of the conservation easement was no more than $3,000 per acre, or $165,000, and that the value of the charitable contribution was $111,000.

1. General Principles

Generally, the amount of a charitable contribution deduction under section 170(a) for a donation of property other than money is the fair market value of the property at the time of the donation. Treas. Reg. §1.170A-1(c)(1); see also TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th 1354, 1369 (11th Cir. 2021). Treasury Regulation §1.170A-1(c)(2) defines "fair market value" to be "'the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.'" See also Anselmo v. Commissioner, 757 F.2d 1208, 1213 (11th Cir. 1985), aff'g, 80 T.C. 872 (1983).

The fair market value of a piece of property on a given date is a question of fact to be resolved on the basis of the entire record. McGuire v. Commissioner, 44 T.C. 801, 806-07 (1965); Kaplan v. Commissioner, 43 T.C. 663, 665 (1965); see also TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369 ("A determination of fair market value is a mixed question of fact and law: the factual premises are subject to a clearly erroneous standard while the legal conclusions are subject to de novo review."). We evaluate the opinions of the parties' expert witnesses in the light of each expert's qualifications and the evidence in the record, and we may accept an "opinion in toto or accept aspects . . . that we find reliable." Oconee Landing Invs., LLC v. Commissioner, T.C. Memo. 2024-25, at *58; see also Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, at *35. We also "may determine fair market value on the basis of our own examination of the evidence in the record." Savannah Shoals, T.C. Memo. 2024-35, at *35.

Market prices typically do not exist for conservation easements. See Symington v. Commissioner, 87 T.C. 892, 895 (1986); Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *30. Accordingly, courts usually value such easements indirectly using a "before and after" approach, seeking to determine the reduction in property value attributable to the easement. See Treas. Reg. §1.170A-14(h)(3)(i) and (ii). Under this approach, the value of the easement is deemed to be equal to the fair market value of the property before the easement was granted, less the fair market value of the property as encumbered by the easement. In other words, the before value minus the after value.

In determining the before value of the old Grimes quarry, we must consider not only the actual use of the property before conveyance of the easement in December 2018 but also its highest and best use. See TOT Prop. Holdings, 1 F.4th at 1369-70; Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg. §1.170A-14(h)(3)(ii). Although this "concept 'is an element in the determination of fair market value, . . . it does not eliminate the requirement that a hypothetical willing buyer would purchase the subject property for the indicated value.'" Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60, at *47 (quoting Boltar, L.L.C, v. Commissioner, 136 T.C. 326, 336 (2011)).

1. Highest and Best Use

The Court has defined highest and best use as ”[t]he reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value." Whitehouse Hotel Ltd. P'ship v. Commissioner, 139 T.C. 304, 331 (2012) supplementing 131 T.C. 112 (2008), aff'd in part, vacated in part and remanded, 755 F.3d 236 (5th Cir. 2014) (quoting Appraisal Institute, The Appraisal of Real Estate 277-78 (13th ed. 2008)). In short, to be a property's highest and best use, a proposed use must be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive. See Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52, at *52.

“While highest and best use can be any realistic, objective potential use of the property, it is presumed to be the use to which the land is currently being put absent proof to the contrary." Esgar Corp. v. Commissioner, T.C. Memo. 2012-35 at *7 aff'd 744 F.3d 648 (10th Cir. 2014). Where "an asserted highest and best use differs from current use, the use must be reasonably probable and have real market value." Id. (citing United States v. 69.1 Acres of Land, 942 F.2d 290, 292 (4th Cir. 1991)). If different from the current use, a proposed highest and best use requires both "closeness in time" and "reasonable probability." Hilborn v. Commissioner, 85 T.C. 677, 689 (1985); see also Savannah Shoals, T.C. Memo. 2024-35, at *37.

“Where, as here, the parties proposed different uses, we consider '[i]f there is too high a chance that the property will not achieve the proposed use in the near future,' in which case 'the use is too risky to qualify.'" TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th at 1369 (quoting Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 1000). "The principle can also be articulated in terms of willingness to pay. If a proposed use is too risky for 'a hypothetical willing buyer [to] consider [the use] in deciding how much to pay for the property,' then the use should not be deemed the highest and best available." Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d at 1000 n.14 (quoting Whitehouse Hotel Ltd. P'ship v. Commissioner, 615 F.3d 321, 335 (5th Cir. 2010), vacating 131 T.C. 112 (2008)).

It is unclear what the highest and best use of the old Grimes quarry was before the conveyance of the easement in December 2018. The Commissioner argues that the highest and best use was "agricultural or recreational use with no limitations on long term use as a rock quarry site." Petitioner argues that the highest and best use was dimension stone mining. But Mr. Stevens testified that in the late 1990s he would have reopened the old Grimes quarry if it had stone worth quarrying. Instead, the samples he pulled were coping or curb stock. That is why the old Grimes quarry remained abandoned and was not used for dimension stone mining. It is also a likely reason Mr. Cook was able to purchase the old Grimes quarry for $1,818 per acre around the same time he bought what would become the Briar Patch Quarry for $2,350 per acre; because he could turn that other property into an active quarry, it was worth more. It is unlikely that the highest and best use of the old Grimes quarry was dimensional stone mining.

Even if the old Grimes quarry's highest and best use was dimension stone mining, it would not change the outcome. Testimony from people contemporaneously involved in buying or selling mining properties, and real property tax records described by Mr. Caldwell, all show that vacant land in Oglethorpe County did not sell for more than $3,000 per acre in 2018. The highest and best use analysis "is an element in the determination of fair market value, but it does not eliminate the requirement that a hypothetical willing buyer would purchase the subject property for the indicated value." Boltar, L.L.C., 136 T.C. at 336. Accordingly, whether we find the highest and best use is dimensional stone mining or agriculture or recreational use, our before valuation would not exceed $3,000 per acre.

We need not determine the highest and best use of the old Grimes quarry after the conveyance of the easement because the parties are in agreement. The parties agree that the highest and best use after the conveyance of the easement is agricultural or recreational.

1. Fair Market Value of the Easement

As discussed above, we determine the fair market value of an easement by subtracting the after value of the easement property from the before value of the easement property. Because the Commissioner conceded that the after value of the old Grimes quarry was $54,000, our discussion focuses solely on the before value of the easement property. We refer to the Commissioner's after value as a concession because petitioner argued for a higher after donation value. A higher after donation value results in a lower value for the easement. Thus, by accepting the Commissioner's lower after donation value, we increase the amount of the potential charitable contribution deduction.

We typically draw on one or more of three common approaches to determine the fair market value of real property: (1) the market or comparable sales approach; (2) the income approach; or (3) the cost or asset-based approach. See Excelsior Aggregates, T.C. Memo. 2024-60, at *32. Our decision on which approach (or approaches) to use is a question of law. See Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 325-26 (2013); see also Corning Place, T.C. Memo. 2024-72, at *31-32. Regarding the various approaches, the Eleventh Circuit has stated that fair market value "calculation requires reviewing comparable sales of similar easements or, if no substantial record of such sales exist, gauging the difference between the fair market value of the property pre- and post-encumbrance." Pine Mt. Pres, LLLP v. Commissioner, 978 F.3d 1200, 1211 (11th Cir. 2020) aff'g in part, rev'g in part, vacating and remanding 151 T.C. 247 (2018).

The Commissioner claimed that the before value of the old Grimes quarry was $165,000 or $3,000 per acre, as valued by Mr. Adamson. Petitioner argues that the before value of the old Grimes quarry was between $23 and $33.5 million, as valued by Mr. Dye, or $15,350,000, as valued by Mr. Kenny. For the reasons stated below, we adopt the Commissioner's value.

1. The Comparable Sales Approach

The Commissioner argues that we should use the comparable sales method to determine the before value of the old Grimes quarry. Pointing to the sales data in Mr. Adamson's report, the Commissioner concluded that the before value of the old Grimes quarry was $3,000 per acre. The Commissioner also points to the 2016 sale of the old Grimes quarry for $100,000, or $1,818 per acre, as support for his position.

In the case of vacant, unimproved property, the market approach — often called the "comparable sales" or "sales comparison" method — is "generally the most reliable method of valuation." Estate of Spruill, 88 T.C. 1197, 1229 n.24 (1987) (quoting Estate of Rabe v. Commissioner, T.C. Memo. 1975-26, 119, aff'd, 566 F.2d 1183 (9th Cir. 1977)). The comparable sales approach "values property by comparing it to similar properties sold in arm's-length transactions around the valuation date." Savannah Shoals, T.C. Memo. 2024-35, at *36. Because no two properties are ever identical, the appraiser must adjust the sale prices of the comparable properties to account for differences between them (for example, parcel size, location, and physical features) and the terms of the sales (for example, proximity to valuation date and conditions of the sale). Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C. 1, 19 (1979).

“The best evidence of a property's fair market value is the price at which it changed hands in an arm's-length transaction reasonably close in time to the valuation date." Excelsior Aggregates, T.C. Memo. 2024-60, at *31. For example, in Corning Place Ohio, LLC v. Commissioner, T.C. Memo. 2024-72, at *28-29, we found that the most persuasive evidence of a property's fair market value was its actual sale price 15 months before the contribution. See also Wortmann v. Commissioner, T.C. Memo. 2005-227 (finding that the most persuasive evidence of the property's fair market value was its actual sale price 17 months before the contribution).

Mr. Adamson's report contains reasonable comparable sales. His initial search parameters were limited by location, acreage, and timeframe, and that search resulted in 29 sales. He further reduced the sales based on similarities of the land, including land coverage, topography, potential long-term use, and location. Mr. Adamson's remaining seven sales had a price per acre ranging from $1,604 to $3,665. The Commissioner's before value of $3,000 per acre is at the higher end of that range.

The record in this case shows that the comparable sales are lower than the Commissioner's $3,000 per acre valuation. Mr. Cook purchased the old Grimes quarry in 2016 for $100,000 or $1,818 per acre. There is no evidence of a material change in the old Grimes quarry between the valuation date and the date of purchase. In the same year he bought the old Grimes quarry, Mr. Cook also purchased a second abandoned quarry for $2,350 per acre. Testimony from other quarrymen in the Oglethorpe County shows the industry followed this same pattern. From 2016 through 2018, quarrymen Huguley, Simmons, and Giannoni all sold quarry properties ranging from $1,707 per acre to $2,500 per acre. Mr. Caldwell, the chief appraiser in the Oglethorpe County Tax Assessor's Office, provided records that showed that most properties sold in 2018 sold for less than $3,000 per acre.

Mr. Kenny also utilized the comparable sales approach to support his valuation. His initial search for potential substitutes for the old Grimes quarry resulted in 11 potential sales in the Oglethorpe County area with a price per acre ranging from $1,999 to $8,934. Mr. Kenny found reasons to disregard these sales between the local community members, and as a result, he looked elsewhere. He found sales from 2006 to 2023 in counties over 100 miles away from Oglethorpe County and concluded a before valuation range of $5,310,000 to $21,640,000 or $96,545 to $393,455 per acre. These sales do not align with the price at which property would change hands between a willing buyer and a willing seller in Oglethorpe County and are not comparable.

We conclude that the comparable sales approach provides the most reliable method for determining the before value of the old Grimes quarry. Mr. Adamson chose sales of reasonably comparable properties and determined a before value of $3,000 per acre. The before value determined by Mr. Adamson exceeds the price — $1,818 per acre — that Mr. Cook paid to acquire the 55-acre tract in 2016. Additionally, the before value exceeds the price paid by most buyers of property in Oglethorpe County in 2018. As a result, we conclude that the value of the old Grimes quarry before the granting of the easement was no more than $165,000, and we regard that figure as a concession by the Commissioner.

2. Income Method

Messrs. Dye and Kenny employed the income approach — often called the "income capitalization" method — to determine the before value of the old Grimes quarry. The income method determines fair market value by discounting to present value the expected future cashflows from the property. See Chapman Glen Ltd., 140 T.C. at 327; Marine v. Commissioner, 92 T.C. 958, 983 (1989), aff'd, 921 F.2d 280 (9th Cir. 1991). The income method is a speculative valuation method most often used to value the projected cashflows of a business. See J L Mins., T.C. Memo. 2024-93, at *63 (stating that the income "method is not valuing the property at all, but what a speculative business could do with the property"). The theory behind this approach is that an investor would be willing to pay no more than the present value of a property's anticipated future net income. See Trout Ranch, LLC v. Commissioner, T.C. Memo. 2010-283, aff'd, 493 F. App'x 944 (10th Cir. 2012).

Messrs. Dye and Kenny estimate the net present value as the going concern of a hypothetical granite quarry rather than the value of the raw land. Mr. Dye constructed a discounted cash flow to estimate the net present value of operating a dimension stone mine at the old Grimes quarry for 25 years. Equating the assumed value of the land with the going concern of a mining business conducted on the land, he asserted the property had a net present value of $23 to $33.5 million or $418,182 to $609,091 per acre. Mr. Kenny used a before and after method to value the easement with the assumption that the old Grimes quarry had the potential to become a dimension stone quarry. He calculated the before value of the property as $15,460,000 or $281,091 per acre.

In a recent conservation easement case, we held that use of a discounted cash flow analysis to value property was erroneous because it equated the value of land with the net present value of a hypothetical business conducted on the land. Ranch Springs LLC v. Commissioner, 164 T.C., slip op. at 56-57 (Mar. 31, 2025) (noting that taxpayer's experts "both equated the value of the land with the going concern value of a limestone mining business conducted on the land. That equation defies economic logic and common sense"). We have also stated, "the discounted cash flow method is not valuing the property at all, but what a speculative business could do with the property. But a discounted cashflow method geared to what a business could earn is of limited utility in determining what a property is worth." J L Mins., T.C. Memo. 2024-93, at *63. These statements apply with respect to Veribest Vesta's reliance on discounted cash flow analyses.

Mr. Dye's discounted cash flow analysis values the easement property by assuming the success of a hypothetical dimensional granite quarry operation. But as Mr. Dye testified, there are four requirements to operate a successful dimensional stone mine: (1) a permitted reserve of natural resources, (2) an experienced crew and a capable leader, (3) a market for the stone, and (4) capital to operate the mine. The old Grimes quarry is only one of those four elements, but his discounted cash flow analysis values the combination of all four.

Mr. Dye illustrated this point when testifying on rebuttal. He provided the example of a person receiving a safe from their grandmother with $10 million dollars inside but being unable to access it. Following his own example, the old Grimes quarry is the grandmother's safe. What is underground or in the safe only matters if you can extract it. And for that, as Mr. Dye testified, you need an experienced crew and a capable leader, or a safe cracker in the case of the grandmother's safe. The true value lies in the ability to access the asset.

Similarly, we have states that "no rational businessperson would pay the net present value of a business simply to buy the property." J L Mins., T.C. Memo. 2024-93, at *62; see also Ranch Springs, 164 T.C., slip op. at 58 (explaining that "no rational Similarly, we have stated that businessperson would pay the net present value of a business simply to buy the property." J L Mins., T.C. Memo. 2024-93, at *62; see also Ranch Springs, 164 T.C., slip op. at 58 (explaining that no rational mine operator would pay the entire net present value of a prospective mining business merely to acquire the land); Savannah Shoals, T.C. Memo. 2024-35, at *45 (stating that an operator would not pay a mineral production net present value "for the land as there would be no means for a profit"). Mr. Dye himself testified that he bought a quarry with $20 million worth of mineral rights for $500,000 because the seller did not have one of the four things needed to operate a dimensional stone mine to extract those minerals.

The same logic applies to another valuation method suggested by Mr. Kenny, the royalty income method. This method posits that the landowner would lease the land to a quarry operator. With that assumption, one values the land by calculating the discounted present value of the royalty income the landowner might receive from an operator over time. Royalties are typically paid as a percentage of gross sales or alternatively as a percentage of net profits.

Mr. Kenny utilized the royalty method as support for his valuation conclusion. He concluded that a 10% royalty agreement would be reasonable. He determined the before value of $12,170,000 using the royalty method. Mr. Kenny testified that he looked at the discounted cash flow, royalty rate, and sales comparison methods to reconcile his valuation.

But the royalty method utilized by Mr. Kenny suffers from several flaws. First, as testimony of people directly involved in the mining industry revealed, royalty rates vary widely, starting well below the 5% starting point suggested by Mr. Kenny.

Even if we were to accept his suggested 10% rate, Mr. Kenny's royalty method suffers from the same inherent flaw as his other income approach. First, it assumes both the presence of quality granite and the availability of an experienced crew and capable leader to extract it. And with the multitude of mining properties in the area, the evidence does not support that someone would reopen the old Grimes quarry with its reserve of granite of questionable quality. Moreover, our bottom-line focus is to determine what a willing buyer would pay a willing seller for the land; the income approaches can aid in determining that amount. But no rational land purchaser would pay the entire net present value of a leasing revenue stream merely to acquire the land. Mr. Kenny's before value of $12,170,000 using the royalty method is inherently flawed.

During closing arguments, petitioner's counsel argued that valuing the old Grimes quarry on the basis of a projected mining revenue stream is supported by Whitney Benefits, Inc. v. United States, 18 Cl. Ct. 394 (1989), aff'd, 926 F.2d 1169 (1991). In Whitney Benefits, the Court of Claims determined that a method for valuing real property containing a coal deposit could be a discounted cash flow analysis when no comparable properties existed. Id. at 408. Petitioner's reliance on Whitney Benefits is misplaced because, unlike the property at issue in Whitney Benefits, the record in this case includes many comparable sales from which we can discern the value of the old Grimes quarry.

3. Valuation Conclusion

The most appropriate before value of the old Grimes quarry was no more than $165,000. The Commissioner has conceded that the after value of the easement property was $54,000. Subtracting $54,000 from $165,000, we find that the fair market value of the easement was $111,000. Accordingly, we hold that the amount of petitioner's allowable 2018 noncash charitable contribution deduction is $111,000.

1. Penalties

The Code imposes a 20% penalty on any portion of an underpayment of tax that is attributable to a substantial valuation misstatement. I.R.C. §6662(a), (b)(3). A misstatement is substantial if the value of the property claimed on a return is 150% or more what is determined to be the correct amount. I.R.C. §6662(e)(1)(A). The penalty is increased to 40% in the case of a gross valuation misstatement. I.R.C. §6662(h)(1). A misstatement is "gross" if the value of property claimed on the return exceeds 200% of what is determined to be the correct amount. I.R.C. §6662(h)(2)(A)(i).

Veribest Vesta claimed that the value of the conservation easement on the old Grimes quarry that it donated was $20,310,000. We have determined that the correct value of the easement was $111,000. The value of the property claimed on Veribest Vesta's return exceeds 200% of the correct amount. The valuation misstatement was "gross" per section 6662(h)(2)(A)(i).

Generally, an accuracy-related penalty is not imposed if the taxpayer demonstrates reasonable cause and shows that it acted in good faith. I.R.C. §6664(c)(1). But this defense is not available where there is a gross valuation misstatement. See I.R.C. §6664(c)(3); see also Chandler v. Commissioner, 142 T.C. 279, 293 (2014) ("The [Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat, at 1083] . . . eliminated the reasonable cause exception for gross valuation misstatements of charitable contribution property."). Accordingly, the 40% penalty applies.

1. Section 6673 Sanctions

Section 6673 authorizes the Court to impose sanctions and costs. Section 6673(a)(1) provides in part that, whenever it appears to the Tax Court that proceedings before it have been instituted or maintained by the taxpayer primarily for delay, or that the taxpayer's position in such proceeding is frivolous or groundless, the Court may require the taxpayer to pay a penalty not in excess of $25,000. Section 6673(a)(2) is less familiar to many. It provides that whenever it appears that any attorney admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously, the Court may require the attorney to pay personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.

In this case, petitioner, through counsel, argued for a value of its donation in excess of one hundred times the value determined by the Court. Petitioner reached this value not by valuing the property, but by valuing an operating business — specifically, a granite quarry — hypothetically situated on that property. Petitioner's own expert testified that he was not valuing the property itself, yet petitioner and its counsel relied on and advocated for that value.

Arguing that a piece of property worth $165,000 is worth in excess of $20 million is patently frivolous. We have previously written, "It is not credible to posit that a buyer would pay — for the easement property alone — the entire NPV of a hypothetical business on the property." Beaverdam, T.C. Memo. 2025-53 at *36. We have previously written that valuing land based on the going concern value of a business operating on that land "defies economic logic and common sense." Ranch Springs, 164 T.C., slip op. at 57. And we have observed that a prospective buyer of a mineral property would not pay the net present value of the quarry operation merely for the land because at that price, there would be no means for profit. Savannah Shoals, T.C. Memo. 2024-35 at *45.

Although these cases represent recent trial court opinions, appellate courts have likewise concluded that it is inappropriate to use the going concern value of a hypothetical business to value the underlying property. The Seventh Circuit has explained that valuing land based on a hypothetical use is inappropriate. It characterized such an appraisal as "nonsense on its own terms." Van Zelst v. Commissioner, 100 F.3d 1259, 1262 (7th Cir. 1996). Much like mining properties in Oglethorpe County, the Seventh Circuit observed, "land is not a scarce resource in these mountains; financing and entrepreneurship are the scarce ingredients, so they will capture the economic return of resort development." Van Zelst, 100 F.3d at 1263. The Fourth Circuit, when faced with a situation in which taxpayers attempted to claim a deduction for eight times what they paid for the property just a year earlier observed, "Such a claim simply does not pass any reasonable smell test, much less the tax law's requirements." Brooks v. Commissioner, 109 F.4th 205 (4th Cir. 2024). Yet here, petitioners claim a deduction for the donation of a conservation easement of more than 200 times what was paid for the fee simple interest only two years earlier. If eight times does not pass the smell test, 200 times certainly does not.

Trial took place over the course of two weeks in Atlanta, Georgia, with further remote testimony and closing arguments earlier this week. The Court heard from more than two dozen witnesses. Some of those witnesses were experts hired by the parties. Some of those witnesses were people involved in the donation or tax reporting of the conservation easement. More importantly, many of those witnesses were the good people of the City of Elberton and Oglethorpe County who had nothing to do with this case, other than they happen to be involved in the mining industry in the vicinity of the old Grimes quarry.

Many of the people who sat through this two-week trial were not harmed by doing so. The Court, the attorneys, and the expert witnesses are all paid for being there. Petitioner was there by its own choosing.

But both the unrelated fact witnesses and the tax system in general were harmed by this trial. The witnesses were inconvenienced. They were not involved in the transactions in any way. They missed days of work and had to travel into Atlanta for trial so that petitioner could pursue an argument deemed by courts to be "not credible" and "nonsense." More broadly, taxpayers footed the bill for the resources necessary to conduct this trial.

Mr. Dye, petitioner's paid expert, expressed his misplaced frustration with this process. Holding a cylinder of Georgia Gray granite in his hand, Mr. Dye passionately explained his frustration, saying:

So somebody's got to decide whether this has a value . . . because I'm going to get up from the table today, and I'm going to go home. And I'm going to go back to work. And my 81-year-old father is out there right now today pulling this stone out of the ground for his 62nd summer. Now, if this right here that I have in my hand supports 2,500 people and a $300-million industry in a county that only has 23,000 people, then somebody has to explain to me how it has no value.

Mr. Dye's frustration is misplaced because his client has tried to argue that the value is in the raw land, when in fact, the value lies in the people of the City of Elberton and Oglethorpe County, people like Mr. Dye and his father. Like Arnold Jaudon, Randy Rice, Mark Hill, Tim Huguley, Willie Simmons, Billy Bryant, David Giannoni, and Mark Stevens. The real value lies not in the stone, but in "an experienced crew and capable leader to extract it."

We mention all this because this is one of eleven cases before this Court in which True North Resources is the partnership representative pursuing the litigation. And we provide this warning, that continuing to pursue similarly incredible, nonsensical, and, quite frankly, smelly arguments may result in sanctions on petitioner or its counsel.

CONCLUSION

Veribest Vesta claimed a charitable contribution deduction for the donation of a conservation easement on the old Grimes quarry. In valuing the easement, it began with the value of an operating quarry, not the value of the land. Instead of $20.4 million dollars for the 55 acre tract, the value of the land before the easement was no more than $165,000, the amount determined by the Commissioner's valuation expert and that we will deem to be a concession by the Commissioner. The result is a charitable contribution deduction of $111,000. Of course, these determinations constitute a gross valuation misstatement and result in a gross valuation misstatement penalty. Because the Commissioner's notice disallowed the deduction in full but we are finding a deduction of $111,000, decision will be entered under Rule 155.