
USCA1 Opinion

	




          February 9, 1993                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 92-1513                          HOMER F. AND DOROTHY L. MCMURRAY,                               Petitioners, Appellants,                                          v.                          COMMISSIONER OF INTERNAL REVENUE,                                Respondent, Appellee.                                _____________________                       APPEAL FROM THE UNITED STATES TAX COURT            [Hon. Theodore Tannenwald, Jr., United States Tax Court Judge]                                _____________________        No. 92-1628                           HOMER F. AND DOROTHY L. MCMURRAY                               Petitioners, Appellants,                                          v.                          COMMISSIONER OF INTERNAL REVENUE,                                Respondent, Appellee.                                 ____________________                       APPEAL FROM THE UNITED STATES TAX COURT                [Hon. Stephen J. Swift, United States Tax Court Judge]                                 ____________________                                        Before                               Torruella, Circuit Judge,                                          _____________                          Bownes, Senior Circuit Judge, and                                  ____________________                                Stahl, Circuit Judge.                                       _____________                                 ___________________            Aline H. Lotter for appellants.            _______________            Gary  R.  Allen  with  whom  James  A.  Bruton,  Acting  Assistant            _______________              _________________        Attorney  General,  Tax  Division,  Department of  Justice,  Bruce  R.                                                                     _________        Ellisen, and  William J. Patton  and Abraham N.M. Shashy,  Jr. were on        _______       _________________      _________________________        brief for appellee.      ____________________                                   February 9, 1993                                 ____________________                      STAHL,   Circuit  Judge.    In  these  consolidated                               ______________            appeals,  Dorothy L.  McMurray  and Homer  F. McMurray  ("the            McMurrays"),  challenge decisions  of  the United  States Tax            Court which upheld determinations made by the Commissioner of            Internal Revenue  ("the Commissioner") that the McMurrays are            jointly liable  for income tax deficiencies  for 1984 through            1988, as well as  penalties stemming from those deficiencies.            The deficiencies are  based on the Commissioner's  conclusion            that the McMurrays overstated the value of certain charitable            land donations.  For  the reasons that follow, we  affirm the            deficiency determinations,  but  reverse  a  portion  of  the            penalty assessments.                                          I.                                          I.                                          __                                      Background                                      Background                                      __________                      The central  issue in this  case is  the amount  of            charitable deduction to which the McMurrays are entitled as a            result  of donating property  known as  the Ponemah  Bog,1 in            Amherst, New Hampshire ("the Bog"), to the Audubon Society of            New Hampshire  ("Audubon").   The McMurrays, who  are husband                                            ____________________            1.  Ponemah is a  "kettle hole" bog, formed by  glaciers over            12,000 years ago.   As the   climate warmed and the  glaciers            receded, vegetation grew on the edges of a pond formed by the            melting blocks of ice.   Although the  pond was too deep  and            steep-sided to  support the  growth  of many  types of  marsh            plants, some, such as sphagnum (peat) moss, were able to grow            out  over the  edge of  the pond  and float  on the  surface.            Eventually, a peat  mat formed on  the surface, which  became            thick enough to support  shrubs and stunted trees.   Over the            course  of thousands of years, the pond gradually filled with            peat and the remains of dead vegetation.                                         -2-                                          2            and wife, in 1954 acquired the  approximately 72-acre Bog and            other contiguous parcels of land.                      In  February  1978,   Audubon  solicited  from  the            McMurrays2  a donation  of the  Bog, in  order to  ensure its            perpetual preservation.   The McMurrays agreed,  and in 1979,            1982  and 1985  conveyed their  interests in  the Bog  and an            abutting  residential  lot to  the  Audubon  Society in  four            separate  transactions.  Only the  value of the  1982 and two            1985 conveyances are at issue in this case.                      In 1979,  the McMurrays conveyed  the eastern  24.6            acres of  the Bog to Audubon.   In April 1982,  the McMurrays            conveyed a 65  percent interest in the  remaining 47.57 acres            of the  Bog.   On  their joint federal income  tax return for            1982, the  McMurrays claimed  that the  fair market  value of            their contribution to Audubon was $780,000.  They  based this            valuation on a "letter of opinion" from appraiser Patricia J.            Donovon, who  concluded  that the  fair market  value of  the            property was $25,000 to $27,000 per acre, or between $750,000            and $800,000.  The McMurrays took a $118,981 deduction on the            1982 return,  and calculated  that $349,019 would  be carried            over to future years.                                             ____________________            2.  The  record  indicates that  Homer  F.  McMurray was  the            principal  actor in all  Bog-related transactions.   However,            because  their joint-taxpayer  status  places both  McMurrays            before us, we refer  to all actions as though  they were done            jointly.                                         -3-                                          3                      In September 1985,  after carrying over  deductions            of  $122,458 and  $117,721, respectively,  on their  1983 and            1984 returns, the McMurrays conveyed to Audubon the remaining            35  percent  interest in  the Bog.    In December  1985, they            transferred  a one acre residential lot abutting the Bog.  In            March 1986, Donovon provided  the McMurrays with an appraisal            for  the two 1985 donations.  Donovon increased the price per            acre to $35,000, and concluded  that the 35 percent  interest            in  the  Bog  had  a  value  of  $580,000.   She  valued  the            residential lot at $55,000  to $60,000, resulting in  a total            1985 charitable conveyance value of $635,000 to $640,000.                      On their 1985 return, the McMurrays claimed a value            of  $637,500  for  the  donated  property.    They  used  the            remaining  $123,200 carryover  from  the  1982 donation,  and            claimed $10,636 from the 1985 transfers on their 1985 return,            leaving   a  $371,864  carryover.     The  McMurrays  claimed            deductions of $170,597 in 1986, $135,115 in 1987, and $76,788            in 1988.                 Upon conducting an examination of the McMurrays' returns            for 1984, 1985 and 1986, the Commissioner determined that the            fair market value of the  1982 conveyance was $23,200, rather            than $780,000,  as the  McMurrays claimed.   Accordingly, the            Commissioner ruled that  there was no carryover  from 1982 to            either  1983 or  1984,  and thus  no deduction  allowable for            1984.  The Commissioner also ruled that the fair market value                                         -4-                                          4            of  the 1985  Bog  transfer was  $6,250,  as opposed  to  the            $580,000 the  McMurrays claimed;  and that the  value of  the            residential lot transferred the  same year was $35,000 rather            than  $57,500, as claimed by  the McMurrays.   Based on these            figures, the  Commissioner determined that the McMurrays were            entitled  to  a  1985  deduction  of  $24,750,  and  that  no            carryovers  were  available  for  future years.    Thus,  the            Commissioner found deficiencies for 1984, 1985 and 1986.  The            Commissioner also  asserted additions  to tax under  I.R.C.              6653 for  negligence and  intentional disregard of  rules and            regulations,  and under I.R.C.   6659 for underpayment of tax            attributable to  a charitable  valuation overstatement.   The            Commissioner  subsequently  determined  tax deficiencies  for            1987 and 1988,  as well  as additions to  tax under  sections            6653 and 6659.3                                            ____________________            3.  The deficiencies  and additions to tax  determined by the            Commissioner and upheld by the Tax Court are as follows:                                                                  Sec.     Sec.      Sec.       Sec.                              Sec.     Sec.      Sec.       Sec.                              6653     6653      6653       6653      Sec.                              6653     6653      6653       6653      Sec.             Year    Def.    (a)(1)   (a)(2)  (a)(1)(A)   (a)(1)(B)   6659              Year    Def.    (a)(1)   (a)(2)  (a)(1)(A)   (a)(1)(B)   6659              ____    ____    ______   ______  _________   _________   ____             1984  $65,327   $3,266      *        -           -      $19,598             1985  $53,552   $2,676      *        -           -      $16,058             1986  $85,176      -        -      $4,259        *      $25,553             1987  $50,539      -        -      $2,527        *      $15,162             1988  $22,981      -        -      $1,149        *      $ 6,894                 *  penalty assessed is 50 percent of the interest due on            the deficiency.                                         -5-                                          5                      In March  1990, the  McMurrays filed a  petition in            the  tax court seeking  a redetermination of  the 1984, 1985,            and  1986 deficiencies.   On  March 19,  1992, the  tax court            ruled against the McMurrays (Appeal No. 92-1513).  Meanwhile,            in March  1991, the  McMurrays had sought  redetermination of            their  1987 and 1988 deficiencies.   The Commissioner filed a            motion for summary judgment  in the 1991-filed case, claiming            that the McMurrays were collaterally estopped by the decision            in the  1990 case  from relitigating the  1985 contributions.            On April 23, 1992,  the tax court granted  the Commissioner's            motion  for summary  judgment  (Appeal No.  92-1628).   These            appeals followed.4                                         II.                                         II.                                         ___                                      Discussion                                      Discussion                                      __________            A.  The Deficiencies            A.  The Deficiencies            ____________________                      Section 170  of  the Internal  Revenue  Code  ("the            Code")  allows taxpayers  to deduct  charitable contributions            subject to percentage-of-income  limitations and to carryover            excess contributions.   If a charitable  contribution is made            of  property other than money, the amount of the contribution            is the fair  market value of the property at  the time of the            contribution.   Treas.  Reg.    1.170A-1(c)(1).   Fair market            value  is "the price at which the property would change hands                                            ____________________            4.  In  their  reply  brief,  the  McMurrays  indicate  their            abandonment  of the  collateral  estoppel issue.   Thus,  our            decision here will apply to both cases.                                         -6-                                          6            between a willing buyer  and a willing seller,  neither being            under  any compulsion  to  buy or  sell,  and both  having  a            reasonable  knowledge  of relevant  facts."    Treas. Reg.               1.170A-1(c)(2).  The Commissioner's determination of the fair            market value  of donated  property is presumptively  correct,            and the taxpayer has the burden of proving the Commissioner's            determination to be  erroneous.  Welch v. Helvering, 290 U.S.                                             _____    _________            111, 115  (1933); Pescosolido v. Commissioner,  883 F.2d 187,                              ___________    ____________            189 (1st Cir. 1989).  The  fair market value of property is a            reflection of the "highest  and best use" of the  property on            the  date of valuation.   Symington v.  Commissioner, 87 T.C.                                      _________     ____________            892, 896 (1986); Stanley Works  v. Commissioner, 87 T.C. 389,                             _____________     ____________            400  (1986).   The tax  court's ruling  with respect  to fair            market  value is a factual finding that we must affirm unless            it  is clearly erroneous.  Sammons  v. Commissioner, 838 F.2d                                       _______     ____________            330, 333  (9th Cir.  1988); Ebben  v. Commissioner, 783  F.2d                                        _____     ____________            906, 909 (9th Cir. 1986).                       Here, both  sides agree the highest and best use of            the  Bog is as a  natural preserve.   The McMurrays, however,            believe the commercial value of the peat contained in the Bog            should be taken into  account in any valuation.5   In support            of  their theory,  the McMurrays submitted  to the  tax court            appraisals  by  Boston  College  Coastal  Research  Institute                                            ____________________            5.  According  to record evidence, peat can be used as a fuel            source for electric power generation.                                         -7-                                          7            Professor  Dr. Benno  Brenninkmeyer, Richard  Kasevich, chief            financial  officer  of  a  Maine  peat-mining operation,  and            botany professor  Ian Worley.6   Brenninkmeyer estimated  the            value  of the  peat in  the Bog,  as a  fuel resource,  to be            greater  than  $35  million;  Worley  calculated  the  profit            potential  of harvesting  the peat;  Kasevich compiled  a pro                                                                      ___            forma income  statement demonstrating the profitability  of a            _____            hypothetical harvesting operation on the Bog.                      Before  the  tax  court,  the  Commissioner  relied            exclusively for the valuation of the gift on the appraisal of            Joseph  G. Fremeau.  After giving much weight to the presence            of state and local zoning restrictions on the use of the Bog,            and interviewing several people  involved in the variance and            permitting  process, Fremeau  opined that  any request  for a            permit to harvest the peat or otherwise develop the Bog would            have met  substantial  opposition during  the  relevant  time            period  and   would  have  had  little   chance  of  success.            Accordingly,  Fremeau's valuation  focused on sale  prices of            eight other supposedly comparable wetland properties suitable            for  conservation  purposes  and  which had  sold  at  prices                                            ____________________            6.  Although the Tax Court considered the Donovon  appraisals            accompanying the McMurrays' tax returns  as part of the  peat            valuation theory,  it is  evident  from the  record that  the            McMurrays  essentially abandoned  reliance on  Donovon before            the  Tax Court  and included  her appraisal  only as  part of            their  argument  against penalties,  see  infra.   Thus,  for                                                 ___  _____            purposes of  our examination of the  peat valuation evidence,            we  discuss  neither  Donovon's  work, nor  the  Tax  Court's            criticism thereof.                                         -8-                                          8            between $200 and $800  per acre.  Fremeau concluded  that the            Bog had a value of $400 per  acre, for a total of $12,500 for            the  1982 transfer, and $6,700  for the 1985  transfer.  With            respect  to  the   residential  lot,  Fremeau   evaluated  20            comparable sales and  found a  range in the  Amherst area  of            $22,533 to $58,000.   As the lot in question is  smaller than            many other Amherst house  lots and is encumbered by  a right-            of-way easement owned by Audubon, Fremeau's $35,000 valuation            fell toward the lower end of the scale.                      In  the end,  the  tax court  found the  McMurrays'            evidence  inadequate because,  unlike Fremeau, none  of their            experts took into account  the restrictions on harvesting the            peat or the costs  associated with such an operation.   Thus,            the court concluded that the  McMurrays failed to carry their            burden  of proving  that the  value of  the Bog  exceeded the            Commissioner's  determination.    Based  on  our   review  of            pertinent  case law, we cannot say the tax court's ruling was            clearly erroneous.                      It  is well  settled  that  legal  restrictions  on            development or other encumbrances  diminish a property's fair            market value.   For example, in Great  Northern Nekoosa Corp.                                            _____________________________            v.  United States, 711 F.2d  473 (1st Cir.  1983), a taxpayer                _____________            donated a parcel of land  to the State of Maine for  which he            claimed  a fair  market  value of  $1  million based  on  his            expert's   valuation  of  the  property   as  a  site  for  a                                         -9-                                          9            hydroelectric power  plant.  Prior to  the donation, however,            the National Wild and Scenic Rivers Act, 82 Stat. 906 (1968),            was  enacted,  which  could  have barred,  inter  alia,  such                                                       _____  ____            construction,   a  fact  not  considered  by  the  taxpayer's            appraisal.  We concluded  that the taxpayer's valuation could            not be  the  fair  market  value "inasmuch  as  any  rational            prospective purchase would necessarily  take into account the            potential  realization of  that  encumbrance."   Id. at  475.                                                             ___            Therefore--despite our  less than complete  satisfaction with            the  Commissioner's expert  appraisal--we concluded  that the            taxpayer failed  to bear  its burden of  proving a  valuation            higher than that of the Commissioner.                      Here, too, we have  a taxpayer appraisal that fails            to consider  potential legal obstacles toward  fulfilling the            property's  full  monetary  potential.     Moreover,  as  the            Commissioner  points out, the  McMurrays' experts also failed            to  consider many other aspects of a peat mining operation in            arriving at their conclusion.7   Thus, given the shortcomings                                            ____________________            7.  For   example,  Brenninkmeyer  reached  his  $35  million            conclusion by multiplying the  Bog's estimated volume by $145            per ton, which was the average  retail price of coal in 1989.            He  failed, however, to assess the market for peat during the            relevant  time period,  or  the costs  and  feasibility of  a            complete peat  extraction.   Kasevich's income  statement was            based on the 1990 peat harvesting figures of his own company,            but did  not include any  potential overhead costs.   Worley,            relying  on  Kasevich's  income  statement,  assumed, without            factual  support,  that  all  equipment  could  be  purchased            outright,  and   thus  did  not  consider   financing  costs.            Significantly, both  Kasevich and Worley alluded  to the fact            that successes in  the peat harvesting business were few, and                                         -10-                                          10            of  the  McMurrays'   experts'  reports,   the  tax   court's            conclusion that  the McMurrays  failed to carry  their burden            was not clearly erroneous.                      In the  alternative, the  McMurrays  argue that  if            state and  local regulatory  constraints deprive them  of the            Bog's  economic potential,  then  they are  entitled to  just            compensation under  the United States Constitution  in return            for a regulatory taking.  See Lucas v. South Carolina Coastal                                      ___ _____    ______________________            Council,     U.S.    , 112 S. Ct. 2886 (1992).  Even assuming            _______  ___      ___            that Lucas would  turn the regulations  involved here into  a                 _____            "taking,"  the  short  answer  is  that  the  McMurrays  have            overlooked the fact  that any such "taking"  was performed by            state  and local authorities, and as such gives them no right            to seek  compensation--via  tax deductions--from  the  United            States, an  entirely different  sovereign.  Moreover,  to the            extent that the McMurrays argue for including the value of an            inverse condemnation suit against  the State of New Hampshire            in the  Bog valuation, the tax court correctly concluded that            the success of such a suit is not as assured as the McMurrays            declare, and  that  the record  is  "devoid of  any  evidence                                            ____________________            that  most of  the peat harvesting  operations of  which they            were aware had failed.   While Kasevich's Down East  Peat Co.            was an  apparent exception,  we cannot  quarrel with  the Tax            Court's conclusion  that  reliance on  Down East's  financial            performance to  estimate the McMurray's potential  success is            "like saying  that anybody  opens a hamburger  chain and  you            estimate the profit potential by what McDonald's does."                                           -11-                                          11            directed  toward valuing any such  claim."  Thus  we find the            tax court did not err in rejecting this argument.                      Finally, the  McMurrays argue that  the tax court's            reliance on  Fremeau's use of comparative sales  to value the            Bog was inappropriate due to  the Bog's uniqueness.  Instead,            the McMurrays,  relying on Estate of  Palmer v. Commissioner,                                       _________________    ____________            839  F.2d  420   (8th  Cir.  1988),  assert  that  the  Bog's            replacement cost would be a better method.  We disagree.  The            McMurrays, unlike  the taxpayers in Palmer,  have provided no                                                ______            evidence  of replacement cost and thus we find no clear error            in the tax court's  reliance on Fremeau's evaluation method.8             Accordingly, we  affirm the  tax court's decision  to uphold            the Commissioner's deficiency determinations.9                                            ____________________            8.  While it  is true  that Fremeau's  comparative properties            were not identical to the Bog in some respects, the Tax Court            found that  they were  the most comparable  for the  relevant            time and  place.   See  Symington,  87 T.C.  at  900 (in  the                               ___  _________            absence  of  identical  properties, comparable  sales  method            takes  into  account  differences,  and  through  appropriate            adjustment, arrives at a value for the subject property).  As            the  record demonstrates  that the  compared properties  were            also non-developable  wetlands, and that state  Fish and Game            and Forest Protection Society personnel held  at least two of            the properties in  the same high esteem  as the Bog,  we find            the   Tax  Court's   endorsement  of   Fremeau's  methodology            eminently supportable.  See Anselmo v. Commissioner, 757 F.2d                                    ___ _______    ____________            1208,  1213 (11th  Cir. 1985)  (Tax Court's  determination of            proper  comparable market is  a question  of fact  subject to            reversal only if clearly erroneous).             9.  The McMurrays have not  addressed any appellate  argument            to the valuation of the residential  lot transferred in 1985.            Therefore, we deem the argument abandoned.  See, e.g., United                                                        ___  ____  ______            States  v. Slade, No. 92-1176,  slip op. at  6, n.3 (1st Cir.            ______     _____            Nov. 24, 1992).                                         -12-                                          12            B.  Additions to Tax and Penalties            B.  Additions to Tax and Penalties            __________________________________                 1.  Negligence                 1.  Negligence                 ______________                      Section  6653(a)(1) of  the  1954 Code  and Section            6653(a)(1)(A) of the 1986  Code impose an addition to  tax of            five  percent of an income tax underpayment where any part of            the  underpayment   is  due  to  negligence   or  intentional            disregard of rules or regulations.  Section 6653(a)(2) of the            1954  Code and Section 6653 (a)(1)(B) of the 1986 Code impose            a penalty of 50 percent of the interest due on the portion of            any  underpayment attributable  to negligence.10   Negligence            in this context is a lack of due care or failure to do what a            reasonable and  ordinarily prudent person would  do under the            circumstances.  Allen v. Commissioner, 925 F.2d 348, 353 (9th                            _____    ____________            Cir. 1991).   The  Commissioner's imposition of  a negligence            addition is presumptively correct, leaving the McMurrays with            the  burden of proving that their underpayment was not due to            negligent  or  intentional  rules  violations.    Leuhsler v.                                                              ________            Commissioner, 963 F.2d 907, 910 (6th Cir. 1992).              ____________                      The McMurrays argue, as  they did below, that their            good faith  reliance on  Donovon--a professional  real estate            appraiser--for the  valuations stated on their  1982 and 1985            returns justifies reversal of the extra assessment.  The  tax                                            ____________________            10.  The relevant statutes were renumbered for  taxable years            in  which a  return is due  after December  31, 1986.   Their            substance  remained the same, however.  See Tax Reform Act of                                                    ___            1986, Pub. L. No. 99-514,   1503(a), 100 Stat. 2085.                                         -13-                                          13            court, however, found that the McMurrays did not sufficiently            establish   that   they   reasonably   relied   on  Donovon's            appraisals, "beyond the bare fact that the [] appraisals were            attached  to the [] returns."   The court  then combined four            factors--its  disparaging  view  of  Donovon's   report,  the            McMurrays'  failure to  testify as  to their  reliance, their            abandonment  of her appraisals at  trial, and evidence of the            McMurrays'  knowledge  of  real  estate  development  in  the            Amherst area--to conclude that they had failed to demonstrate            their reasonable reliance.  We disagree.11                      Reasonable reliance on expert opinion,  asserted in            good  faith,  can  shield  a taxpayer  from  section  6653(a)            penalties.  United States v. Boyle, 469 U.S. 241, 250 (1985);                        _____________    _____            Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988);            _______    ____________            Betson v.  Commissioner, 802 F.2d  365, 372 (9th  Cir. 1986).            ______     ____________            The record  reflects that after being  approached by Audubon,            the  McMurrays sought  professional  advice from  lawyers and            accountants, as well as an appraiser.  In our view, the "bare            fact"  that the  McMurrays attached  Donovon's  appraisals to            support  their 1982  and 1985  returns  is evidence  of their                                                    __            reliance  on the appraisals.   In other words,  why else were            they  submitted with the returns,  but for the  fact that the                                            ____________________            11.  It  is unclear from the record whether the Tax Court was            questioning  the McMurrays'  actual reliance  on Donovon,  or            whether any such reliance was reasonable.  With that in mind,            we will delve into both areas.                                         -14-                                          14            McMurrays  were relying on them?  Furthermore, we fail to see            how  any of  the other  factors cited  by  the tax  court are            probative of the McMurrays' reliance.  For instance, the fact            that the McMurrays pursued a different legal tack at trial in            1991  has  little  bearing  on the  reasonableness  of  their            actions in 1982 and 1985.  Also, while the McMurrays may have            some knowledge  as to  "real estate development,"  the record            evidence of such knowledge falls far short  of requiring them            to  second-guess a  licensed appraiser--especially  one whose            1979 appraisal apparently passed muster with the Commissioner            as  support for the deductions taken for the 1979 conveyance.            Finally, we note that the minimal probative value assigned by            the  tax  court to  the  McMurrays' expert  opinion  does not            mandate a finding of bad faith or unreasonable reliance.  See                                                                      ___            Sammons,  838  F.2d   at  337  (although  taxpayer's   expert            _______            appraisal  was  not  entitled  to  any  probative  weight  in            determining   the  fair   market   value  of   a   charitable            contribution, imposing a negligence penalty was inappropriate            because taxpayers  had no  reason to question  their expert's            ability) (citing  Biagiotti v. Commissioner, 52  T.C.M. (CCH)                      ______  _________    ____________            588, 595  (1986)).  We  conclude, therefore, that  the record            lacks  sufficient evidence  of bad faith  to support  the tax            court's negligence ruling, and instead compels a finding that            the McMurrays met their burden of proof on this issue.                 2.  Valuation Overstatement                 2.  Valuation Overstatement                 ___________________________                                         -15-                                          15                      Section 6659 of the Code imposes an addition to tax            if  the amount  of  any underpayment  of  $1,000 or  more  is            attributable  to  a  valuation  overstatement  of  charitable            deduction  property.12    For  purposes of  this  section,  a            valuation overstatement exists where the claimed value is 150            percent  or more  of  the amount  determined  to be  correct.            I.R.C.   6659(c)(1).   Here, the McMurrays claimed a donation            value  of $803,933 in 1982, and a  value of $637,500 in 1985.            The tax  court, however, ruled  that the values  were $12,500            and  $41,700,   respectively.    These   figures  place   the            McMurrays'  overstatement beyond the 150 percent threshold of            section 6659.                        The  McMurrays seek  relief under  section 6659(e),            which allows for a waiver of "all or any part of the addition            to tax provided by this section on a showing by  the taxpayer            that there  was  a  reasonable basis  for  the  valuation  or            adjusted  basis claimed on the return and that such claim was            made  in good faith."   While we have  already concluded that            the  McMurrays acted  in reasonable  reliance on  the Donovon            appraisal, the  inquiry does  not end there,  because section            6659(f)(2)  prohibits a  penalty waiver  unless "the  claimed            value of the property was based on a qualified appraisal made            by  a qualified  appraiser," and,  "in addition  to obtaining                                         ___                                            ____________________            12.  The assessed  penalty is 30 percent  of the underpayment            attributable to the valuation overstatement.                                         -16-                                          16            such   an  appraisal,   the  taxpayer   made  a   good  faith            investigation  of the value of the contributed property."  On            appeal, the McMurrays do  not address section 6659(f)(2), nor            does  our  review  of  the  record  indicate  any  additional            investigation  by  the  McMurrays   into  the  value  of  the            property.  Thus, we affirm the imposition of  penalties under            section 6659.                                         III.                                         III.                                         ____                                      Conclusion                                      Conclusion                                      __________                      The  tax  court's  decision  with  respect  to  the            Commissioner's deficiency determination and additions  to tax            under I.R.C.   6659  is affirmed.  The decision  with respect                                    affirmed                                    ________            to  the  negligence  penalties  under  I.R.C.     6653(a)  is            reversed.   This  case  is remanded  to  the Tax  Court  with            reversed            ________    _________________________________________________            instructions to enter a decision in accordance herewith.            _______________________________________________________                                         -17-                                          17
