Judge James S. (“Big Jim”) Halpern has not always been on the same side of important issues as Judge Mark V. (“Vittorio Emanuele”) Holmes before now. But today, Judge Big Jim decides Nathaniel A. Carter and Stella C. Carter, T. C. Memo. 2023-133, filed 11/7/23, in line with Judge Holmes’ famous dissent in Oakbrook, for which see my blogpost “They Always Must Be With Us,” 5/12/20.

Nat & Stella were here before; see my blogpost “Swiss Cheese,” 2/3/20. Except 11 Cir sent Judge Big Jim’s opinion on R&R (no, not a holiday; Reversed & Remanded), sustaining whatever chops IRS laid on Nat & Stella because Kroner (Boss Hoss anytime), but whanging Tax Court on “very contestable readings of what it means for an easement to be perpetual.” 154 T. C. 10, at p. 127.

So Judge Big Jim finds he must “…decide whether the documentation that the partnership made available to [501(c)(3)], before the contribution, concerning the condition of the … property satisfied the requirements of Treasury Regulation § 1.170A-15(g)(5)(i). If so, we must go on to decide whether the partnership’s reservation of limited rights to develop the … property violates the requirement of section 170(h)(5)(A) that the conservation purposes of a qualified conservation contribution be ‘protected in perpetuity.’ We will then need to determine the easement’s value. If we conclude that the partnership satisfied the so-called ‘baseline documentation” requirements of Treasury Regulation § 1.170A-14(g)(5)(i) and that its reserved rights do not violate section 170(h)(5)(A), the partnership will be entitled a charitable contribution deduction measured by the easement’s value. And the value of the easement will be relevant for the purpose of determining petitioners’ liability for valuation misstatement penalties regardless of the partnership’s entitlement to a charitable contribution deduction.” T. C. Memo. 2023-133, at p. 23. And good faith reliance is in play to mitigate the chops, maybe.

True, Nat’s & Stella’s baselining were out-of-bounds on strict compliance, but Judge Big Jim, aware of the scanty guidance of the Regs and the fact that neither courts nor IRS have expertise in evaluating sufficiency of baseline documentation (T. C. Memo. 2023-133, at p. 24), finds the five-month lapse between donation and delivery of baselining to 501(c)(3) didn’t prevent the 501(c)(3) from protecting, preserving, defending, etc. And the 501(c)(3)’s expert had thoroughly eyeballed the property before; the delay was just to check out what changed in the spring.

The Swiss Cheesery more particularly bounded and described in my second-above-cited blogpost passes muster with Judge Big Jim’s review of Nat’s & Stella’s expert witnesses. Not enough hurt to cause a foul.

But the appraisal drops Nat’s & Stella’s deduction to $1 million from north of $14 million. Note Nat & Stella were fifty-fifty partners with Ralph, however I’m using the nomenclature Nat & Stella as petitioners. IRS’ expert beats VS & W, appraisers of Dixieland Boondockery whose Tax Court batting average is not so good. IRS wants to toss VS & W altogether, in that they prepared a joint report, but as they both took responsibility for the whole report.

“Any questions about who actually put pen to paper (or, more likely, fingers to keyboard) in the preparation of the report strike us as beside the point. An expert report compliant with Rule 143(g) must state the witness’ conclusions and analysis. Satisfaction of that condition does not require every word in the report to spring from the witness’ brow. Words written by another can accurately express the witness’ views. If the witness is willing to adopt those words as his own and stand behind the conclusions they express and the analysis supporting them, it should be of no moment that the witness was not the initial author.” T. C. Memo. 2023-133, at pp. 38-39.

And Judge Big Jim is actually aware there are firms, where members of the same profession collaborate and share in preparation of work product. Would that he would impart this discovery to his colleagues and the Genius Baristas, that they might devise a form of Entry of Appearance for law firms.

Unfortunately, VS & W’s weak arithmetic scupper their report. IRS’ expert survives scrutiny, and Section 6662(e)(1)(A) and (h)(2)(A) impose the 40% gross valuation misstatement chop, which sinks Nat’s & Stella’s good-faith reliance defense.

To quote Judge Holmes, ““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.” 154 T. C. 10, at p. 126.