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Boltar, LLC v. Commissioner

136 T.C. 326 (2011)

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Boltar, LLC v. Commissioner

United States Tax Court

136 T.C. 326 (2011)

Facts

In 1999, Boltar, LLC (plaintiff) obtained two 10-acre parcels of land. The southern parcel was encumbered by a 50-foot-wide utility easement. In December 2003, Boltar donated an easement to a charitable land trust that restricted the use of eight acres of the southern parcel, preventing any use of the property that would significantly impair or interfere with the property’s conservation values. In Boltar’s 2003 federal partnership tax return, Boltar claimed a charitable-contribution deduction of $3,245,000 for the donated easement. Boltar claimed that the easement’s fair market value was $3,270,000 as of December 31, 2003. In support of that valuation, Boltar submitted an appraisal opining that the “highest and best use” of the eased property was residential development. The appraisal calculated the value of the easement as the difference between the foregone opportunity of developing 174 condominiums on the land, estimated at $3,340,000, less the value of the land as vacant, estimated at $68,000. However, the appraisal’s proposed condominium project assumed a 10-acre parcel of property, rather than the eight acres subject to the easement, and also ignored the preexisting utility easement. The appraisal also failed to evaluate whether the property could be annexed and rezoned to allow the condominium development, and it included other factual errors and unrealistic assumptions about the property’s value. The Commissioner of Internal Revenue (the commissioner) (defendant) issued a final partnership administrative adjustment for 2003 that allowed only $42,400 of Boltar’s claimed charitable deduction for the easement. Boltar challenged the commissioner’s determination in the United States Tax Court. The commissioner sought to exclude Boltar’s appraisal as unreliable and presented evidence to the tax court that the highest and best use of the eased property was single-family residential development, not condominiums.

Rule of Law

Issue

Holding and Reasoning (Cohen, J.)

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