Savannah Shoals, LLC v. Commissioner of Internal Revenue, No. 24-12661, (11th Cir. 2026).

Conservation easement deductions remain one of the most heavily litigated areas of federal tax law. For tax professionals, advising clients on these transactions requires not only a deep understanding of the strict statutory and regulatory rules under Internal Revenue Code Section 170, but also a mastery of the evidentiary and valuation principles applied by the courts. The recent decision by the United States Court of Appeals for the Eleventh Circuit in Savannah Shoals, LLC v. Commissioner underscores the high stakes of these disputes and provides critical guidance on how courts determine a property's "highest and best use" and evaluate competing expert testimony.

In this case, the taxpayer claimed a $23 million deduction for a conservation easement based on the theory that the property’s highest and best use was as an aggregate quarry. The Internal Revenue Service rejected the deduction in its entirety and imposed substantial penalties. The Tax Court agreed with the Commissioner, valuing the easement at a fraction of the claimed amount and sustaining a 40% gross valuation misstatement penalty. On appeal, the Eleventh Circuit affirmed the Tax Court’s decision, offering a detailed analysis of the legal and factual standards governing valuation. This article provides a technical breakdown of the case's facts, the taxpayer's arguments, the court's legal analysis, and the critical takeaways for tax practitioners.

Factual Background of the Case

The dispute centers on a 103-acre tract of land (the "Property") located in rural Hart County, Georgia. In 2007, a developer purchased approximately 430 acres of land, which included the Property. Although the developer initially took steps toward residential development, the project was ultimately set aside.

In 2017, a multi-tier transaction was structured to facilitate the donation of a conservation easement. First, the developer agreed to sell its interest in the 103-acre Property to an investment company. Around the same time, engineering contractors obtained subsurface samples on the Property, confirming that the material qualified as crushed rock aggregate. Based on these samples, a mining expert prepared a report utilizing a discounted cashflow (DCF) analysis, concluding that the net present value of mineable aggregate on the Property was $23.1 million.

In October 2017, Savannah Shoals, LLC ("Savannah Shoals") was formed, and the developer contributed the Property to the LLC as its sole asset in exchange for a 95% membership interest. Shortly thereafter, the developer agreed to sell 92% of its membership interest in Savannah Shoals for $515,000 to a separate partnership, Savannah Shoals Investments, LLC. These transactions were completed by December 28, 2017. On that very same day, Savannah Shoals Investments granted a conservation easement over the Property to Southeast Regional Land Conservancy, Inc.. On its 2017 partnership tax return, Savannah Shoals claimed a $23 million charitable contribution deduction for the easement donation.

The Commissioner’s Challenge and Taxpayer's Request for Relief

On December 21, 2021, the IRS issued a Final Partnership Administrative Adjustment (FPAA) to Savannah Shoals. The FPAA asserted that the LLC had failed to establish that the contribution met the statutory requirements for a qualified conservation contribution, and that it had failed to establish the value of the contribution. Additionally, the IRS determined that a 40% penalty for gross valuation misstatement was warranted under Section 6662.

Savannah Shoals filed a petition in the U.S. Tax Court on March 1, 2022, challenging these adjustments. Following a four-day trial involving 13 witnesses, the Tax Court issued a memorandum opinion. The court found that while the contribution did qualify for a deduction, Savannah Shoals had "significantly overstated the value of the easement," which in turn triggered the 40% gross valuation misstatement penalty.

The Tax Court rejected the taxpayer's claim that the highest and best use of the Property was as an aggregate quarry. Instead, it adopted the Commissioner’s proposed highest and best use of low-density residential and recreational uses. Based on this HBU, the Tax Court determined that the Property's pre-easement value was $580,000, and its post-easement value was $100,000, resulting in an easement fair market value of $480,000.

On appeal to the Eleventh Circuit, Savannah Shoals sought relief from this valuation, raising several evidentiary and legal challenges. Specifically, the taxpayer argued that:

The Tax Court abused its discretion by admitting and relying upon the report and testimony of the Commissioner’s real estate expert, Charles Brigden, and by taking judicial notice of certain geological maps;
The Tax Court applied the wrong legal test for determining highest and best use, claiming that the court was required to strictly apply a four-factor appraisal test; and
The Tax Court erred in its factfinding by failing to perform a quantitative analysis of the proposed quarry use and failing to make sufficient written findings of fact and conclusions of law.

The Court's Analysis of the Law

The Eleventh Circuit began its analysis by setting out the standard of review and the applicable statutory and regulatory framework.

Standard of Review

The court emphasized that "We review the tax court’s legal conclusions de novo and its findings of fact for clear error." Palmer Ranch Holdings Ltd. v. Comm’r, 812 F.3d 982, 993 (11th Cir. 2016). It further noted that "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." Id. at 994. Under the highly deferential clear error standard, if the trial court's finding is "plausible in light of the record viewed in its entirety," it will be affirmed even if the appellate court would have weighed the evidence differently. Furthermore, "where there are two permissible views of the evidence, the tax court’s choice between them cannot be clearly erroneous." Curtis Inv. Co., LLC v. Comm'r, 909 F.3d 1339, 1347 (11th Cir. 2018).

Statutory and Regulatory Conservation Easement Framework

The deduction is governed by 26 U.S.C. § 170, which "allows tax deductions for charitable contributions and gifts of interests in real property." Pine Mountain Pres., LLLP v. Comm’r, 978 F.3d 1200, 1203 (11th Cir. 2020). To qualify as a "qualified conservation contribution," the grant must be "(A) of a qualified real property interest, (B) to a qualified organization, and (C) exclusively for conservation purposes." Id. (quoting 26 U.S.C. § 170(h)(1)).

Under the Treasury Regulations, the value of a perpetual conservation restriction is its "fair market value... at the time of the contribution." 26 C.F.R. § 1.170A-14(h)(3)(i). When comparable easement sales are unavailable, the "before-and-after" method is used, calculating fair market value "as the difference between the fair market value of the property pre- and post-encumbrance." TOT Prop. Holdings, LLC v. Comm’r, 1 F.4th 1354, 1369 (11th Cir. 2021).

The Highest and Best Use Standard

Under the before-and-after method, the property's pre-encumbrance value must be based on its "highest and best use." TOT Prop., 1 F.4th at 1369. Treasury Regulation § 1.170A-14(h)(3)(ii) mandates that this analysis:

"must take into account not only the current use of the property but 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."

The Eleventh Circuit explained that the HBU is "one that is a ‘reasonable and probable use that supports the highest present value,’ with a ‘focus on 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., 1 F.4th at 1369 (quoting Palmer Ranch, 812 F.3d at 987). This standard traces back to the Supreme Court's eminent domain jurisprudence in Olson v. United States, 292 U.S. 246, 255 (1934), which warned against allowing "mere speculation and conjecture to become a guide for the ascertainment of value". Consequently, courts must exclude from consideration "elements affecting value that depend on events or combinations of occurrences which, while within the realm of possibility, are not fairly shown to be reasonably probable." Id. at 257.

Rejection of a Mandated Four-Factor HBU Appraisal Test

A central legal argument raised by Savannah Shoals was that the Tax Court committed legal error by failing to strictly apply the four highest-and-best-use criteria commonly used by appraisers: (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive.

The Eleventh Circuit flatly rejected this argument, stating that "neither the relevant statutory and regulatory provisions nor our caselaw requires the use of such a test". While the court acknowledged that these factors are standard within the appraisal profession (such as those under the Appraisal Institute standards) and have been referenced by the Tax Court, they are not legally binding. Citing Estate of Lloyd v. Commissioner, 71 T.C.M. (CCH) 1903, at *11 (1996), the court noted that "While the guidelines may control the profession to which these [expert] witnesses belong, [those] guidelines are not binding on this Court".

Furthermore, the Eleventh Circuit clarified that other circuits, such as the Tenth Circuit in Esgar Corp. v. Commissioner, 744 F.3d 648 (10th Cir. 2014), did not mandate the use of these factors, but merely noted that the Tax Court has historically considered them. Thus, the appellate court held that "We decline to require the tax court to strictly apply these four appraisal factors or to hold any failure to do so per se legal error". Instead, the regulatory focus remains on the "objective assessment of the likelihood that the property would have been put to such use absent the easement".

Application of the Law to the Facts

Having established the correct legal framework, the Eleventh Circuit applied it to the evidentiary disputes and the substantive highest and best use determination.

Resolving the Evidentiary Disputes

Savannah Shoals challenged the admissibility of the Commissioner's expert, Charles Brigden, arguing that as a real estate appraiser, he lacked the "knowledge, skill, experience, training, or education to opine on mining issues" under Federal Rule of Evidence 702. The Eleventh Circuit dismissed this challenge, finding that because Savannah Shoals did not raise a Daubert objection to Brigden’s qualifications or report at trial, it had forfeited the challenge on appeal. In any event, the court pointed out that the Tax Court did not rely on Brigden’s mining opinions to reject the quarry use. Rather, the Tax Court’s rejection of the quarry use was based primarily on the testimony of the mining and valuation experts of both parties.

Similarly, the taxpayer challenged the admission and use of geological maps included in Brigden’s report, claiming they were unadmitted hearsay. The Eleventh Circuit rejected this argument on three grounds:

Savannah Shoals failed to object to the inclusion of the maps at trial, thus failing to preserve the issue.
The maps were official public records from the USDA, USGS, and the Georgia Department of Natural Resources, which are appropriate subjects for judicial notice under Federal Rule of Evidence 201(b)(2) because they are from "sources whose accuracy cannot reasonably be questioned".
The Tax Court relied on the maps "minimally, if at all," and instead grounded its HBU analysis on market demand and competition.

The Qualitative Analysis of Market Demand and Competition

The core of the Tax Court's factual determination lay in whether a commercial aggregate quarry on the Property was "financially feasible". Under Eleventh Circuit precedent, "the highest-and-best-use test requires an inquiry . . . into whether the market will demand the use." Palmer Ranch, 812 F.3d at 998.

The court conducted a qualitative analysis of the market rather than a quantitative one, which the Eleventh Circuit held was entirely within its discretion. The qualitative review surfaced two critical flaws in the taxpayer's valuation:

Limited Market Radius and Low Local Demand: Because transportation costs for heavy aggregate are high, the experts agreed that "the market for aggregate is limited to an area within a 50-mile radius of a quarry". The area surrounding the Hart County Property was "primarily rural," with a "small population" and "minimal growth during the relevant period". The major metropolitan areas of Greenville, Augusta, and Atlanta were too distant to be economically reachable. The court noted that taxpayer expert Greg Gold's demand calculations were fundamentally flawed because he "based his demand calculations on statewide aggregate demand... without accounting for differing demands in rural areas and population centers".
Stiff Competition from Established Quarries: The taxpayer's experts completely failed to account for competition from existing, closer quarries. In contrast, the Commissioner’s mining expert, Kevin Gunesch, "adequately examined the effect that competing quarries would have had on the size of the proposed quarry’s market". Gunesch identified at least seven active quarries near the Greenville metro area and multiple suppliers closer to Athens than the Subject Property. These closer competitors enjoyed a significant "delivered price advantage" over any proposed quarry in Hart County.
Unreasonable Financial Projections: The court highlighted that a quarry operating under Gold's DCF analysis would yield a projected "operating profit margin of 67%," whereas the "average industry profit margin is 24%". This massive disparity strongly indicated that the taxpayer's "production figures are unreasonable".

Based on these facts, the Tax Court properly concluded that the taxpayer's experts "overestimated annual sales of aggregate from the proposed quarry and overstated its potential profitability". Because the quarry use was not financially feasible, the court was justified in adopting the Commissioner's proposed use of low-density residential and recreational development.

The "Overwhelmingly Significant" Arm's-Length Transaction

Once the quarry HBU was rejected, the court valued the Property under its residential and recreational HBU. In establishing the pre-easement value of $580,000, the Tax Court relied heavily on the actual sale of the interest in the Property completed on the very same day the easement was donated. The developer had sold a 92% membership interest in Savannah Shoals for $515,000.

The Eleventh Circuit highly approved of this reliance, noting that a "recent arm’s-length sale" is "‘overwhelmingly significant’ evidence of the value of an easement and support for the tax court’s highest-and-best-use determination leading to its valuation." TOT Prop., 1 F.4th at 1371. Based on this transaction, the pre-easement value of the Property was pinned at $580,000. Factoring in Brigden's post-easement valuation of $100,000, the final fair market value of the easement was determined to be $480,000.

Conclusion

The Eleventh Circuit’s affirmation of the Tax Court’s judgment highlights several immutable realities of conservation easement litigation. First, taxpayers bear the burden of proving their entitlement to and the amount of any claimed charitable deduction. Second, claiming an "exorbitantly high, baseless value for the unencumbered easement property" by projecting speculative commercial uses that lack market demand will not survive judicial scrutiny.

Because Savannah Shoals claimed a $23 million deduction based on a non-viable quarry use for a property whose actual easement value was only $480,000, it exceeded the 200% threshold of actual value by a massive margin. Consequently, the Eleventh Circuit affirmed the Tax Court's imposition of the 40% gross valuation misstatement penalty under Section 6662. For tax practitioners, Savannah Shoals serves as a stern reminder that valuation theories must be firmly grounded in local market demand, transportation logistics, and realistic industry profit margins, rather than theoretical, uncompetitive commercial projections.

Prepared with assistance from NotebookLM.