The Eleventh Circuit recently affirmed a U.S. Tax Court decision that a $23 million deduction claimed for a conservation easement donation should only have been $480,000. The court also upheld the imposition of a 40% penalty for gross valuation misstatement. Savannah Shoals, LLC v. Commissioner, 2026 WL 2056291 (July 16, 2026).
The case arose from the donation of 103 acres in Hart County, Georgia for a conservation easement. An expert valued the property at $23.1 million, finding its highest and best use to be as a potential granite aggregate quarry. The taxpayer acquired the property, donated it to a land conservancy, and claimed a $23 million charitable donation deduction. The Internal Revenue Service rejected that valuation and sought to impose a 40% penalty for gross valuation misstatement. The taxpayer petitioned the U.S. Tax Court to challenge the IRS’s determination. After a trial featuring competing expert testimony, the tax court concluded that that the taxpayer was entitled to a deduction for the value of the property, which the court found to be only $480,000 at the time of the donation. The taxpayer appealed to the Eleventh Circuit.
The Eleventh Circuit began its analysis by setting the standard of review: “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.”
The court noted that the applicable U.S. Treasury regulations offer two alternative methods of valuing a conservation easement. First, if evidence of comparable easement sales is available, the fair market value of the donated easement is based on the sales prices of such comparable easements. But where (as here) such evidence is not available, the “before-and-after” method is used. “The before-and-after method calculates the fair market value as the difference between the fair market value of the property pre- and post-encumbrance.” The property is valued at its highest and best use, a term of real-estate appraisal art.
The taxpayer argued that the tax court erred in determining the highest and best use, which skewed the valuation conclusion. The taxpayer made three specific arguments in support of this point. In her opinion for the court, Judge Lisa Branch rejected all three arguments.
First, the taxpayer argued that the tax court improperly admitted and relied on expert testimony and hearsay evidence regarding the property’s possible use as a quarry. The Eleventh Circuit found no abuse of discretion in the tax court’s evidentiary rulings. In particular, the court rejected the taxpayer’s arguments that the IRS’s expert, a real estate appraiser, should not have been permitted to testify concerning aggregate mining issues or to rely on geological maps.
Second, the taxpayer argued that the court applied the wrong legal test for highest and best use. The taxpayer contended that the tax court should have used a four-part test for determining the highest and best use, an approach commonly followed by real estate appraisers. That test requires that the proposed use be “(1) physically possible; (2) legally permissible; (3) financially feasible; and (4) maximally productive.” Although commonly used in tax court decisions, this test is not required, according to the Eleventh Circuit, which held that the tax court followed precedent and applied the correct standard for determining the highest and best use. Low density residential and recreational were the highest and best uses of the property in the tax court’s view, and the Eleventh Circuit affirmed.
Third, the taxpayer contended that the tax court erred in its factfinding and failed to make written findings of fact and conclusions of law regarding the property’s highest and best use. The Eleventh Circuit rejected this contention, detecting no clear error in the tax court’s findings of fact.