Eleventh Circuit: Conservation easement valuation | KPMG | GLOBAL

Eleventh Circuit: Conservation easement valuation; property’s “highest and best use”

Eleventh Circuit: Conservation easement valuation

The U.S. Court of Appeals for the Eleventh Circuit today affirmed a decision of the U.S. Tax Court with respect a conservation easement donation by the taxpayer. The “highest and best use” of the property subject to the conservation easement was upheld, but the Eleventh Circuit reversed the Tax Court’s re-valuation of the easement and remanded the issue back to the Tax Court.


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The case is: Palmer Ranch Holdings Ltd. v. Commissioner, NO. 14-14167 (11th Cir. February 5, 2016).  Read the Eleventh Circuit’s decision [PDF 236 KB]


The taxpayer corporation owned a parcel of land in Florida, and had intended to sell the property for residential development. However, the land was a “wildlife corridor” that bald eagles used to reach their feeding grounds in Sarasota Bay. Instead of selling the property, the taxpayer made a donation of a conservation easement, and deducted the easement’s value of $25.2 million from its 2006 income tax return. The taxpayer reached this valuation on the basis of the property’s highest and best use as a residential development.

The IRS disallowed the deduction, finding the taxpayer had overvalued the easement’s value. The IRS countered that the property would have been developed for fewer units, and accordingly, determined the valuation would be $7.75 million. 

The taxpayer petitioned the Tax Court, which held in favor of the taxpayer’s highest and best use of the property, but re-valued the easement at just over $21 million instead of $25.2 million.

Today, the Eleventh Circuit affirmed the Tax Court’s determination of the property’s highest and best use, but reversed the valuation of $21 million and remanded the case to the Tax Court for a re-valuation of the easement.

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