Tax Court values claimed $74.5 million conservation easement at $500,000

The U.S. Tax Court ruled against Georgia-based Lontrac Enterprises, LLC over a $74.5 million tax deduction tied to Tennessee land. Chief Judge David Urda found that the claimed value lacked economic reality and upheld a mandatory 40 percent IRS penalty for a gross valuation misstatement.

In December 2014, Lontrac donated a perpetual conservation easement covering about 288.8 acres to the Foothills Land Conservancy. The partnership claimed a $74.5 million charitable contribution deduction on its federal tax returns, valuing the land on the premise that its most profitable use was a commercial limestone mine.

The court found no factual basis for the proposed mining business. The partnership lacked required zoning approvals and proper engineering studies, and supplied no market evidence that a commercial quarry was feasible or even planned.

Conservation easement deals place restrictions on land development. To value this easement, the court rejected the partnership's cash-flow appraisals and used the IRS experts' comparisons with local land sales, reaching no more than $500,000. The opinion applied federal provisions under which gross valuation misstatements on charitable deductions cannot be excused by reasonable cause or good faith, even when taxpayers relied on a professional appraiser.