In Uncategorized on 06/08/2020 at 18:50

Judge Mark V Holmes’ title is vindicated again.

Read Judge Pugh’s careful analysis of battling valuers in Theron E. Johnson, 2020 T. C. Memo. 79, filed 6/8/20, and see if you don’t agree with the following tête de cuvée Holmes dissent in Oakbrook.

“Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.

“Congress, however, enacted these sections of the Code and presumably wanted reasonably valued conservation easements to be allowed.” 154 T. C. 10, at pp.126-127

Theron, an ink-pan magnate, bought the ranch and did a cut-out conservation easement. There was a couple endangered leopard frogs around (hi, Judge Holmes), his farming was just haymaking, and he left room for a large hacienda on his Delta County CO spread.

Everyone agrees on highest-and-best use, farming and residence. Judge Pugh likes the quantitative approach of Theron’s expert. He took comparables, first adjusted by time between those sale and when Theron put on his easement. Then took location (nearness to towns) and size (over or under). Then he factored in irrigation, topography and improvements. That gave him before-easement. After is tougher; too few comparables.

IRS’ valuer took the qualitative approach. “He compared several characteristics for each comparable, including market conditions at the time of sale, location/access, size, aesthetic appeal, zoning, and available utilities, to evaluate the relative superiority, inferiority, or similarity of each comparable to the ranch. He then evaluated the overall comparability of each property to the ranch.” 2020 T. C. Memo.79, at p. 27.

Judge Pugh doesn’t like that so well. IRS’ valuer ignored quantitative factors, and just juggled Theron’s expert’s numbers.

She does tweak Theron’s expert’s numbers at p. 32, to account for some valid hits IRS’ experts scored.

To get the after-the-easement number requires some fancy sand-dancing.

“Both experts’ postencumbrance direct comparable sales analyses suffer from a lack of suitable comparables. Specifically, all of Mr. [IRS’] comparables and all but one of [Theron’s expert’s] encumbered comparables were in different markets throughout Colorado far from the ranch. All of the comparables for each expert, including [Theronls expert]’s local comparable in Delta County, required significant adjustments. Where the comparables are relatively few in number, we look for a greater similarity between comparables and the subject property. We do not find any of these to be suitable comparables for the ranch. We therefore reject both experts’ postencumbrance direct comparable sales analyses.” 2020 T. C. Memo. 79, at p. 38 (Footnotes and citations omitted).

But Judge Pugh is resourceful.

“The experts’ diminution in value analyses were similar in that each expert used four comparables that included a significant outlier.” 2020 T. C. Memo. 79, at p. 39. So toss the outlier from each, and they’re only 2% apart.

Like her much more exalted juridical predecessor when called to decide a maternity case, she cuts the baby in half.

Judge Pugh splits the 2% difference and applies the result to the before-the-easement number she tweaked, and lo and behold, she has the worth of the easement.

Valuation law is reasonably well-known, and it works.


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