Tax Court cuts $10.5 million easement claim to $379,000
Mize Farm, LLC v. Commissioner, Docket No. 8979-23 (T.C. bench opinion, Nov. 20, 2025)
The Tax Court held that Mize Farm’s conservation easement was worth $379,000, not the $10.5 million reported, and imposed a 40% gross valuation misstatement penalty.
Holding
The court found the fair market value of Mize Farm's 2017 conservation easement was $379,000 using a before-and-after valuation, allowed a deduction of that amount, disallowed the remaining $10.5 million, and upheld the 40% penalty for gross valuation misstatement under §6662(h) without reasonable cause defense.
Why It Matters
The court again rejected extreme per-acre valuations in a syndicated easement setting where local market data did not support the claimed numbers.
IRS expert valuations that are already generous relative to local data can be treated as concessions that cap the “before” value.
Bench opinions continue to apply recent Tax Court and appellate easement precedents on highest and best use and comparable sales selection.
Once the misstatement crosses the “gross” threshold in a charitable contribution case, the reasonable cause defense is statutorily unavailable.
Timeline
2001 and 2003
Focus on Design, Inc. (Lovell’s S corporation), acquires two parcels in Habersham County, Georgia, totaling approximately 27 acres for about $1.07 million.
2003
The parcels are annexed into the city of Demorest, Georgia.
October 3, 2017
Lovell organizes Mize Farm, LLC, and Mize Farm Partners, LLC (MFP).
December 1, 2017
Focus conveys the subject property to Mize Farm.
December 2017
33 investors subscribe for about 96,000 units in MFP for slightly over $2 million; MFP acquires a 95.5% interest in Mize Farm from Focus for $1.9 million in a non-arm’s length deal.
December 29, 2017
Mize Farm donates a conservation easement over about 30.337 acres to Atlantic Coast Conservancy.
May 19, 2018
Mize Farm files its 2017 Form 1065 claiming a $10.5 million charitable contribution deduction for the easement, supported by an appraisal from W. McRae Greene.
March 27, 2023
The IRS issues a Notice of Final Partnership Administrative Adjustment that disallows the deduction in its entirety and asserts penalties.
June 6, 2023
A petition is filed in the Tax Court.
November 20, 2025
Judge Buch issues a bench opinion at trial in Atlanta. The order is served on December 1, 2025.
Key Facts
Property
Roughly 30.337 acres of vacant land in Demorest, Habersham County, Georgia, bounded by three roads and located about 75 miles northeast of Atlanta.
Steep topography and no direct sewer access. The planned sewer extension under State Route 365 was later abandoned when the subject property was placed under conservation, and the county acquired another key parcel.
Local market conditions
Demorest and Habersham County had slow population growth and an economy focused on agriculture-related services.
Nearby Cornelia already had a stronger retail corridor, including a Super Walmart, and there was no pressing 2017 demand for additional retail development in Demorest.
Entity structure and investors
Focus on Design, Lovell’s wholly owned S corporation.
Mize Farm, LLC held the land.
Mize Farm Partners, LLC was the investor partnership; 33 investors paid a bit over $2 million for membership units and elected to pursue a conservation plan.
Transaction history
MFP agreed to acquire a 95.5% interest in Mize Farm from Focus for $1.9 million; Lovell controlled both entities, and the court treated this as non-arm’s length.
Claimed vs determined values
Return appraisal by Greene: before value about $10.62 million, after value $118,458, easement value $10.5 million.
IRS expert Adamson: before value $425,000 (about $14,000 per acre), after value $76,000, easement value $349,000.
Court: before value $425,000, after value $46,000, easement value $379,000.
Statutory or Regulatory Framework
§170 and Treas. Reg. § § 1.170A-1 and 1.170A-14 govern charitable contribution deductions for property, including conservation easements. The deduction equals fair market value at the time of contribution, defined as the price between a willing buyer and a willing seller, both informed and not compelled to act.
For conservation easements, the regulations require a “before” and after” valuation when direct market data for easements is unavailable, and the easement’s value equals the fair market value of the property before the restriction minus the value after the limitation.
§6662(e) and (h) impose 20% penalties for substantial valuation misstatements and 40% penalties for gross valuation misstatements when the claimed value exceeds 200% of the correct value.
§6664(c)(3), as amended by the Pension Protection Act of 2006, removes the reasonable cause and good faith defense for gross valuation misstatements involving charitable contribution property.
Arguments
Taxpayer argued:
The property’s highest and best use before the easement was immediate commercial development as a community retail center anchored by large-format stores.
Comparable sales data from the Atlanta metro fringe and other higher-value corridors supported a per-acre valuation in the hundreds of thousands of dollars.
The return appraisal’s before-and-after methodology, and the later Singleton report, both produced large easement values consistent with investor pricing.
IRS argued:
The highest and best use in 2017 was to hold the property for future industrial or high-density development, given the weak present demand for new retail in Demorest.
Local comparable sales in similar counties, adjusted for physical and market differences, supported a much lower per-acre value of around $10,000 to $14,000.
The Greene and Singleton appraisals relied on properties of vastly superior quality in the Atlanta corridor, ignored local market realities, and did not comply with accepted appraisal standards or USPAP.
The resulting valuation misstatement on the return was gross under §6662(h), triggering the 40% penalty with no reasonable cause defense.
Court’s Reasoning
The burden of proof remained on the taxpayer because Mize Farm did not meet the requirements of §7491(a) to shift the burden; in any event, the result would be the same under a preponderance standard.
The court applied the before-and-after method under Treas. Reg. §1.170A-14(h)(3), evaluated ’oth sides’ experts, and adopted parts of their analyses that were consistent with the record.
On highest and best use, the court held that petitioners did not show that immediate retail development was reasonably probable in the near term, given slow growth, existing Walmart-anchored retail in nearby Cornelia, and lack of demand in Demorest; at best, the property was suitable for future industrial or higher-density development.
The court found Adamson’s comparable sales selection and adjustments more credible, focusing on properties in similar counties and traffic conditions, and noted that his $14,000 per acre conclusion was already generous compared to comparable sales in the $8,500 to $9,021 per acre range and to Habersham County sales showing median land values around $9,000 per acre.
Prior transfers of the property and entity interests were not reliable indicators of fair market value because they were not shown to be arm’s length and involved common control by Lovell
For the after value, the court focused on one encumbered comparable that both experts used, on Nolan Store Road, and applied a 6% annual market adjustment consisSingleton'singleton’s own time adjustments on his before comparables, yielding $1,517 per acre and a total after value of $46,000.
Using these before and after values, the court set the easement’s value at $379,000 and treated this as the proper amount of the charitable contribution deduction.
Because the claimed $10.5 million deduction exceeded 200 percent of the correct $379,000 value, the misstatement was “gross” under §6662(h)(2)(A)(i). Under §6664(c)(3), reasonable cause and good faith do not apply to gross valuation misstatements of charitable contribution property, so the 40 percent penalty necessarily applied.
Forward-Looking Implications
Easement partnerships that rely on high-value comparables outside the local market, especially in faster-growing metro corridors, face increased risk that courts will disregard those comparables in favor of local data.
IRS experts who anchor valuations to conservative but defendable local-market sales can frame their numbers as upper bounds, which courts may treat as concessions rather than strict IRS positions.
Non-arm’s length transfers inside a syndicated structure will be viewed skeptically as indicators of value unless clearly supported by external market evidence.
The statutory removal of the reasonable cause defense for gross valuation misstatements in charitable contribution cases continues to give the IRS substantial penalty leverage in easement litigation.
Bench opinions like this one add to a growing body of fact patterns where courts reject extreme easement valuations while still allowing a modest deduction based on credible data.
Result
The court allowed Mize Farm a 2017 charitable contribution deduction of $379,000 for the conservation easement, disallowed the remaining $10.5 million deduction, and imposed the 40% gross valuation misstatement penalty under §6662(h), with a decision to be entered under Rule 155.
The Takeaway
For conservation easement partnerships, the fight is now less about crafting the highest and best use narrative and more about whether the numbers align with local sales data.
When claimed values stray far above what nearby land is actually selling for, the deduction gets cut back to a local reality number, and the 40% penalty follows automatically.
List of Citations
I.R.C. §170 and Treas. Reg. §1.170A-14
Framework for valuing conservation easement contributions using the before-and-after method.
I.R.C. §§6662(e), 6662(h), 6664(c)(3)
Penalty provisions for substantial and gross valuation misstatements and the limitation on reasonable cause defenses in charitable contribution cases.