This case (Jackson Crossroads LLC v. Commissioner, CA11, No. 25-10744, No. 25-10745, March 25, 2026) involves two consolidated entities subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA): Jackson Crossroads, LLC and Long Branch Investments, LLC. In late 2015, real estate professionals Russell Bennett and Carlton Walstad, acting through Mor-Ton, LLC, purchased two adjoining parcels of land totaling approximately 925 acres in Walton and Morgan Counties, Georgia, for $5.2 million. A contemporaneous third-party bank appraisal confirmed the collective value of the properties at the $5.2 million purchase price.

In early 2016, Mor-Ton subdivided the land and transferred 228.61 acres to Jackson Crossroads and 307.06 acres to Long Branch. In December 2016, both LLCs granted perpetual conservation easements on their respective parcels to the Oconee River Land Trust. On their short-period partnership tax returns for 2016, Jackson Crossroads claimed a charitable contribution deduction of $23,142,421, while Long Branch claimed a deduction of $13,830,000.

The taxpayers’ appraisers determined the properties’ highest and best uses (HBU) prior to the easements were a commercial aggregate granite quarry for Jackson Crossroads and a large-scale industrial distribution park for Long Branch. The IRS subsequently issued Notices of Final Partnership Administrative Adjustment (FPAAs) disallowing the claimed charitable contribution deductions and assessing penalties.

Taxpayers Request for Relief

The taxpayers filed petitions in the United States Tax Court challenging the IRS’s disallowance of their deductions and the imposition of accuracy-related penalties under I.R.C. § 6662. The Tax Court, in T.C. Memo. 2024-111, ultimately sided with the Commissioner regarding the property valuations. Rejecting the taxpayers’ proposed commercial and industrial highest and best uses as speculative and financially unfeasible, the Tax Court determined the before-easement value of both properties was $7,000 per acre, resulting in allowable charitable deductions of $1,169,797 for Jackson Crossroads and $1,571,226 for Long Branch. The Tax Court consequently sustained the 40% gross valuation misstatement penalties.

The taxpayers subsequently appealed to the United States Court of Appeals for the Eleventh Circuit. On appeal, the taxpayers framed their challenges largely as matters of law, arguing that the Tax Court erred in its burden of proof assignment, its rejection of the proposed highest and best uses, its application of discounted cash flow methodologies, and its selection of comparable properties.

Appeals Court Analysis of the Law

The Eleventh Circuit began its analysis by firmly establishing the standards of review. The court noted that it reviews the Tax Court’s application of the law and selection of legal frameworks de novo, while reviewing factual findings for clear error. Palmer Ranch Holdings Ltd v. Comm’r, 812 F.3d 982, 993 (11th Cir. 2016). Under the clear error standard, the court clarified, "We find clear error only when we have a ’definite and firm conviction that a mistake has been committed.’" Ocmulgee Fields, Inc. v. Comm’r, 613 F.3d 1360, 1364 (11th Cir. 2010).

Addressing the taxpayers’ argument that the Tax Court impermissibly shifted the burden of proof, the Eleventh Circuit noted that an IRS determination "has the support of a presumption of correctness, and the petitioner has the burden of proving it to be wrong." Welch v. Helvering, 290 U.S. 111, 115 (1933). Furthermore, the court emphasized that when resolving a dispute over the correct amount of a deduction, "there is no burden shifting." Palmer Ranch, 812 F.3d at 1002.

In evaluating the substantive tax law surrounding the charitable deduction, the court relied on the Treasury Regulations definition of fair market value as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." 26 C.F.R. § 1.170A-1(c)(2). Because no comparable sales of conservation easements existed, the court affirmed the use of the "before-and-after" valuation method, which first requires identifying the property’s highest and best use.

The court reiterated that the highest and best use is the "highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future." TOT Prop. Holdings, LLC v. Comm’r, 1 F.4th 1354, 1369–70 (11th Cir. 2021). Crucially, the regulations mandate that this determination must include "also an objective assessment of how immediate or remote the likelihood is that the property, absent the restriction, would in fact be developed, as well as any effect from zoning, conservation, or historic preservation laws that already restrict the property’s potential highest and best use." 26 C.F.R. § 1.170A-14(h)(3)(ii).

Application of the Law to the Facts

Applying these standards, the Eleventh Circuit dismantled the taxpayers’ arguments point by point, holding that the disputes were primarily factual rather than legal.

Regarding the highest and best use of Jackson Crossroads as a hypothetical granite mine, the taxpayers argued the Tax Court committed a methodological (and therefore legal) error by adopting the IRS expert’s discounted-cash-flow model, which forecasted heavy upfront capital expenditures resulting in a negative net present value. The Eleventh Circuit disagreed, holding that the IRS expert applied the standard income-valuation method but simply inputted different factual assumptions about upfront startup costs based on extensive market data. The appellate court ruled that "Petitioners fail to show that the Tax Court credited methods that were logically flawed, so the Tax Court did not err as a matter of law.". Because the property lacked mining entitlements and was zoned residential in 2016, the court affirmed the finding that a hypothetical mine was "‘too risky to qualify’ as the property’s highest and best use." Palmer Ranch, 812 F.3d at 1000.

Similarly, for Long Branch, the taxpayers argued that the highest and best use was industrial development, pointing to conceptual architectural plans and local Joint Development Authority activity. The Eleventh Circuit held that the Tax Court did not err by crediting the IRS expert who testified that industrial development was speculative and "well beyond market threshold and what could reasonably be inferred from an objective assessment of the data" due to a lack of transportation access and organic market demand. Because the Tax Court made a reasonable choice between two contradictory sets of expert evidence, its determination "cannot be clearly erroneous." Curtis Inv. Co. v. Comm’r, 909 F.3d 1339, 1347 (11th Cir. 2018).

The Eleventh Circuit also rejected the taxpayers’ argument that the Tax Court erred as a matter of law when it selected comparable sales properties that lacked the "dominant feature" of granite reserves. The appellate court clarified that selecting comparable properties is a purely factual exercise reviewed for clear error. It found the Tax Court acted well within its discretion in prioritizing properties that shared zoning, size, and location characteristics with the subject properties over the taxpayers’ comparables, which were physically distant, smaller, and already zoned for industrial use.

Conclusions of the Court

The Eleventh Circuit ultimately affirmed the Tax Court’s decision in all respects, locking in the substantial reduction of the charitable contribution deductions and sustaining the assessment of accuracy-related penalties.

The court noted that I.R.C. § 6662(h) imposes a 40% penalty for gross valuation misstatements, which applies when the claimed value of property exceeds 200% of the correct amount. Because the original tax returns claimed values of $23.1 million and $13.8 million, while the judicially determined values were merely $1.17 million and $1.57 million respectively, the deductions clearly eclipsed the 200% threshold. Furthermore, the court held that the typical reasonable cause defense found in I.R.C. § 6664(c)(1) is statutorily "unavailable when a taxpayer makes a ‘gross’ valuation overstatement with respect to charitable deduction property." 26 U.S.C. § 6664(c)(3). Consequently, the decision to sustain the 40% penalty was affirmed without clear error.

Prepared with assistance from NotebookLM.