The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a Tax Court decision against Buckelew Farm, LLC, upholding a 40% gross valuation misstatement penalty related to a conservation easement donation. The case, Buckelew Farm, LLC v. Commissioner of Internal Revenue, provides insights into the standards for property valuation, the concept of "highest and best use," and the procedural posture of appellate review. The court’s ruling underscores the importance of substantiating valuations with credible market data and illustrates how an independent basis for a lower court’s decision can insulate it from reversal, even if other aspects of its reasoning are challenged.

Factual Background

Between 1998 and 2006, Buckelew Farm, LLC ("Buckelew"), an entity formed by former Major League Baseball players Ryan Klesko and John Smoltz, acquired approximately 1,562 acres of land in Jones County, Georgia, for about $4 million. The property was intended for timber value and recreational uses. In 2012, Buckelew attempted to sell the property, listing it for $9 million despite appraisals in 2010 and 2012 valuing it at approximately $6.7 million and $4 million, respectively. The property received no offers during a six- to twelve-month period on the market.

Subsequently, Buckelew pursued a conservation easement strategy presented by a Georgia real estate lawyer, James M. Adams, III. Adams drafted a plan to develop an upscale 307-lot hunting and conservation-oriented residential community on the property. An initial appraisal based on this plan valued the property at nearly $60 million before the easement. To support the development plan, Adams and Klesko met with Tim Pitrowski, the Jones County Zoning director, who issued an opinion letter stating it was "’more likely than not’" that the plan would be approved, given the current rules. However, key details, such as the use of gravel roads and community septic systems, were not disclosed to the director.

With this letter, Buckelew hired another appraiser, Daly Hayter, Jr., who valued the property at $50.48 million before the easement and $2.7 million after. Hayter’s appraisal employed a discounted-cash-flow analysis rather than a comparable-sales method, as he was unable to identify similar properties to support his valuation. His analysis was based on lot prices from high-end luxury resorts in different markets, assuming all 307 proposed lots would sell within ten years. Based on this appraisal, Buckelew granted a conservation easement to the Southeast Regional Land Conservancy, Inc., and claimed a charitable contribution deduction of $47,570,000 on its 2013 tax return.

IRS Determinations and Tax Court Proceedings

The IRS disallowed the entire deduction, asserting the easement failed to meet the requirements of I.R.C. § 170. The IRS also determined that Buckelew had grossly misstated the easement’s value and assessed a 40% accuracy-related penalty under 26 U.S.C. § 6662(a), (h), with a 20% penalty for a substantial valuation misstatement as an alternative. Buckelew challenged these determinations in U.S. Tax Court.

The Tax Court ultimately held that while Buckelew was entitled to a charitable deduction, it had grossly overstated the value of the conservation easement. The court adopted the IRS expert’s valuation, allowing a deduction of $4.6 million and upholding the 40% gross valuation misstatement penalty.

The Tax Court provided two independent reasons for rejecting Buckelew’s valuation:

Legal Impermissibility: The court expressed "serious concerns" about whether the proposed development was legally permissible. Director Pitrowski testified at trial that had he known about the planned gravel roads and large-scale community septic system, he would not have issued the favorable opinion letter, citing public safety and regulatory hurdles.
Unpersuasive Valuation Methodology: Even assuming the plan was legally permissible, the Tax Court found the IRS expert’s valuation more persuasive. The court criticized Buckelew’s appraiser, Hayter, for using non-comparable properties from "high-end luxury resorts far from Jones County, with vastly different market conditions". In contrast, the IRS expert, Zac Ryan, used a comparable-sales method based on Georgia properties and a detailed analysis of the local market, including population trends and building permit activity. Ryan concluded that Jones County was still suffering from the 2008 housing market crash and the property was "not ripe for development". The court adopted Ryan’s "before" value of $7,395,000 and "after" value of $2.8 million, resulting in an allowable deduction of approximately $4.6 million. Since the claimed deduction of $47.6 million was more than 200% of the correct amount, the 40% penalty was sustained.

The Eleventh Circuit’s Analysis and Holding

Buckelew petitioned the Eleventh Circuit for review, raising three primary arguments, all of which the appellate court rejected.

Highest and Best Use Valuation

Buckelew’s central argument was that the Tax Court erred in its "highest and best use" analysis by improperly discounting Pitrowski’s opinion letter regarding the legal permissibility of the development plan. The determination of a property’s highest and best use is a critical factor in valuation, defined as the "reasonable and probable use that supports the highest present value" (citing Palmer Ranch Holdings Ltd v. Comm’r, 812 F.3d 982, 987 (11th Cir. 2016)). This analysis considers factors such as zoning restrictions that may limit a property’s potential use (citing 26 C.F.R. § 1.170A-14(h)(3)(ii)).

The Eleventh Circuit found it unnecessary to rule on the merits of this argument. Crucially, the court noted that the Tax Court’s decision rested on a second, independent basis: that Buckelew’s valuation was financially unsupportable regardless of its legality. The Tax Court had explicitly stated that even if the development were legally permissible, it favored the IRS expert’s analysis of financial feasibility and market conditions. Buckelew failed to challenge this independent factual finding on appeal, thereby waiving any argument against it (citing Polelle v. Fla. Sec’y of State, 131 F.4th 1201, 1229 (11th Cir. 2025)).

The court found no clear error in the Tax Court’s factual determination, which was based on viable expert testimony. The Tax Court reasonably concluded that a willing buyer would not pay approximately $32,600 per acre for the property when comparable substitute properties were available for between $1,602 and $4,971 per acre. This rendered the probability of the proposed development at a sale price of over $50 million a "fantasy". The court affirmed that even if a proposed use is determined to be the highest and best use, the "dollar value based on that use" is a separate factual question (citing TOT Prop. Holdings, LLC v. Comm’r, 1 F.4th 1354, 1370 (11th Cir. 2021)).

Procedural and Evidentiary Issues

Buckelew also challenged two procedural rulings by the Tax Court: the admission of Adams’s personal tax return into evidence, allegedly in violation of the privacy protections of 26 U.S.C. § 6103(a), and the court’s decision to allow the IRS to amend its answer to add a fraud claim.

The Eleventh Circuit dismissed both arguments as irrelevant to the valuation issue on appeal. Both the tax return and the amended fraud claim related exclusively to the fraud allegation, on which the Tax Court had ruled in Buckelew’s favor. Therefore, these rulings did not adversely affect Buckelew concerning the valuation penalty. Furthermore, the court noted that Buckelew lacked standing to appeal the amendment allowing the fraud claim because it prevailed on that issue and thus was not aggrieved by the judgment (citing Wolff v. Cash 4 Titles, 351 F.3d 1348, 1354 (11th Cir. 2003)). The court also reiterated its precedent that the exclusionary rule is not a remedy for a § 6103 violation (citing Nowicki v. Comm’r, 262 F.3d 1162, 1163 (11th Cir. 2001)).

Finally, the court rejected Buckelew’s claim that these purported errors amounted to a "structural error" that required reversal. The court explained that structural errors are reserved for fundamental constitutional issues, not the erroneous admission of evidence or improper amendment of pleadings, which are subject to harmless-error review. Since the procedural issues had "zero effect on the tax court’s assessment of the Property’s value," they could not form the basis for reversal.

Conclusion for Tax Professionals

The Eleventh Circuit’s decision in Buckelew Farm reinforces several foundational principles for tax practitioners involved in conservation easement cases and valuation disputes. First, appraisals must be grounded in credible, comparable market data. A discounted-cash-flow analysis based on speculative development plans and non-comparable luxury properties is unlikely to withstand scrutiny, especially when contradicted by local market realities and the availability of cheaper, substitutable properties.

Second, when challenging a Tax Court decision, taxpayers must address all independent grounds for the ruling. Buckelew’s failure to contest the Tax Court’s factual findings regarding the financial infeasibility of its valuation proved fatal to its appeal. This case serves as a stark reminder that an appellate court will not disturb a lower court’s plausible finding of fact that is supported by the record and is not challenged by the appellant.

Prepared with assistance from NotebookLM.