Esgar v Commissioner (II)

Petitioners - Appellants Esgar Corporation, George and Georgetta Tempel,and Delmar and Patricia Holmes (collectively, the “Taxpayers”) appeal from two decisions of the United States Tax Court.They argue that the Tax Court erred in valuing conservation easements they claimed as charitable deductions and in determining the holding period of state tax credits they sold.

March 2014 Update: On appeal, the Tenth Circuit held as follows:

(1) It assumed – without deciding – that the taxpayers had presented credible evidence on the before value’s highest and best use for commercial gravel extraction, and therefore the burden of proof on this issue shifted to the IRS under I.R.C. § 7491(a). But this burden shift was immaterial because the Tax Court was not clearly erroneous in finding that the preponderance of evidence favored the IRS’ position.

(2) Quoting the appraisal regulations at Treas. Reg. § 1.170A-13(h)(3)(ii), the Tenth Circuit held that the Tax Court’s highest and best use analysis properly assessed “how immediate or remote the likelihood is that the property . . . would in fact be developed” as a commercial gravel operation.

(3) The Tax Court did not err in using eminent domain valuation concepts and case law to determine highest and best use.

Analysis and Notes: George and Georgette Tempel, two of the taxpayers in this case, were also the taxpayers in Tempel v. Commissioner, 136 T.C. 341 (2011), and the appeal to the Tenth Circuit was a consolidated appeal of both cases.