                   T.C. Memo. 2010-207



                 UNITED STATES TAX COURT



     BILLY L. AND RENETTA J. EVANS, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 8309-08.              Filed September 22, 2010.



     Ps granted two facade easements to a qualified
conservation organization and claimed a $154,350
charitable contribution deduction on their 2004 Federal
income tax return. R determined a deficiency, in part,
on the basis that Ps overstated the amount of their
charitable contribution deduction, and R subsequently
asserted an accuracy-related penalty under sec. 6662,
I.R.C.

     Held:   Ps are liable for the deficiency.

     Held, further, Ps are not liable for that portion
of the accuracy-related penalty under sec. 6662,
I.R.C., that relates to the disallowed charitable
contribution deduction.
                                 - 2 -

     Billy L. Evans, for petitioners.

     Jeffrey S. Luechtefeld and Robert Dillard, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:     In 2004 petitioners granted facade easements

with respect to two properties in the Capitol Hill Historic

District of Washington, D.C.    They claimed a $154,350 charitable

contribution deduction on their 2004 Federal income tax return

for doing so.    Respondent disallowed the deduction and determined

a Federal income tax deficiency of $58,896 for 2004.      This case

is before the Court on a petition for redetermination of that

deficiency.   In addition, respondent affirmatively asserted in

his June 3, 2008, answer that petitioners are also liable for an

$11,779 accuracy-related penalty pursuant to section 6662(a) for

2004.1   The issues for decision are whether petitioners are

liable for (1) the Federal income tax deficiency and (2) the

accuracy-related penalty.2


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and in effect for
the tax year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
     2
      On their 2004 Federal income tax return, petitioners also
claimed a $137,172 nonpassive loss related to a broadcasting
company that they partially own. Respondent determined that the
loss was actually attributable to a passive activity and treated
it as a passive activity loss. Petitioners concede that they did
not materially participate in the broadcasting company in 2004,
                                                   (continued...)
                               - 3 -

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are hereby incorporated by

reference into our findings.   At the time the petition was filed,

petitioner Billy Evans resided in Florida and petitioner Renetta

Evans resided in California.   The parties have stipulated that

the appropriate venue for any review of our decision in this

matter will be the U.S. Court of Appeals for the Eleventh

Circuit.   See sec. 7482(b)(2); Golsen v. Commissioner, 54 T.C.

742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971).

     Petitioner Billy Evans purchased a single-family rowhouse in

Washington, D.C., on December 29, 1995.     Petitioners purchased

another single-family rowhouse in Washington, D.C., on June 7,


     2
      (...continued)
as defined by sec. 1.469-5T(a), Temporary Income Tax Regs., 53
Fed. Reg. 5725 (Feb. 25, 1988). They indicated in their petition
and in the stipulation of facts, however, that they sought to
challenge the validity of the regulation. Despite being reminded
at the end of the trial of the importance of briefing the purely
legal validity issue, petitioners make no mention of it in their
brief or reply brief. Accordingly, and without knowing the
specifics of petitioners’ validity argument, we deem it conceded.
See Levin v. Commissioner, 87 T.C. 698, 722-723 (1986) (citing
Rule 142(a) for the proposition that because “petitioners have
made no argument with respect to * * * deductions claimed * * *
[, they] are deemed to have conceded their nondeductibility”),
affd. 832 F.2d 403 (7th Cir. 1987); Zimmerman v. Commissioner, 67
T.C. 94, 104 n.7 (1976) (noting “that petitioners alleged in
their petition that their use of * * * [a particular] method in
computing the depreciation deductions claimed on their returns
was proper and that respondent erred in” disallowing these
deductions. “However at trial and on brief they made no argument
in this regard and we deem them to have conceded this issue.”).
                                 - 4 -

2004.    Both properties are in the Capitol Hill Historic District

of Washington, D.C.   On December 29, 2004, petitioner Billy Evans

executed two “Conservation Deed of Easement” documents and

petitioner Renetta Evans executed one of the two “Conservation

Deed of Easement” documents.   These documents were intended to

grant facade easements to Capitol Historic Trust, Inc., with

respect to the two properties.

     On their joint 2004 Form 1040, U.S. Individual Income Tax

Return, petitioners claimed a $154,350 charitable contribution

deduction attributable to the facade easements.    Petitioners

attached page 2 of two Forms 8283, Noncash Charitable

Contributions, to their return.3    On January 10, 2008, respondent

issued a notice of deficiency determining, inter alia, that the

claimed $154,350 charitable contribution deduction was not

allowable.   Petitioners filed a timely petition for

redetermination of the deficiency on April 7, 2008.    A trial was

held on January 14, 2009, in Tampa, Florida.    The parties

submitted opening briefs and reply briefs.




     3
      The two Forms 8283 showed appraised fair market values of
$67,100 and $87,230, respectively, for the two facade easements,
for a total of $154,330. However, Item 16, Gifts to Charity,
Other than by cash or check, of Schedule A, Itemized Deductions,
to the Form 1040 showed a total of $154,350. We surmise that the
$20 discrepancy arose from an error in reading the handwritten
figure of $87,230 on the second Form 8283 as $87,250 instead.
                                  - 5 -

                                 OPINION

I.   Applicable Law

      Section 170 allows a deduction for a qualified conservation

contribution that a taxpayer makes during the taxable year.

Sec. 170(c), (f)(3)(B)(iii), (h).      The value of a qualified

conservation contribution “is the fair market value of the

perpetual conservation restriction at the time of the

contribution.”   Sec. 1.170A-14(h)(3)(i), Income Tax Regs.

      Fair market value “is 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.”      Sec. 1.170A-1(c)(2),

Income Tax Regs.      Although the fair market value of a facade

easement would ideally be based on the sale prices of comparable

easements, sec. 1.170A-14(h)(3)(i), Income Tax Regs., such

information is seldom available because conservation easements

are typically granted by deed of gift rather than sold, Symington

v. Commissioner, 87 T.C. 892, 895 (1986).      A common alternative

is the before-and-after approach, which compares the fair market

value of the easement-encumbered property before it is encumbered

by the easement and after.      Stanley Works & Subs. v.

Commissioner, 87 T.C. 389, 399 (1986); sec. 1.170A-14(h)(3)(i)

and (ii), Income Tax Regs.
                               - 6 -

      The parties dispute (1) whether the facade easements were

qualified conservation contributions under section 170(h); (2)

whether petitioners satisfied the substantiation requirement of

section 170(f); and (3) what the fair market values of the facade

easements were at the time of their contribution.

II.   Burden of Proof

      Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving entitlement to any claimed exemptions

or deductions.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992).   Moreover, the Commissioner’s determination of value is

normally presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect.   See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933); Schwab v.

Commissioner, T.C. Memo. 1994-232.

      Under section 7491(a), the burden may shift to the

Commissioner with respect to factual matters if the taxpayer

produces credible evidence and meets several other requirements.

The Commissioner also bears the burden of proof with respect to

any new matter that is not raised in the notice of deficiency but

that either increases the original deficiency or requires the

taxpayer to present different evidence.   See Rule 142(a); Shea v.

Commissioner, 112 T.C. 183, 197 (1999); Wayne Bolt & Nut Co. v.

Commissioner, 93 T.C. 500, 507 (1989); see also sec. 7522.
                                - 7 -

       Petitioners argue that the burden of proving the fair market

values of the facade easements shifts to respondent under section

7491(a) because they presented credible evidence of the fair

market values.    As described below, however, petitioners failed

to present credible evidence of fair market values.     Accordingly,

the burden of proof does not shift under section 7491(a).

       Petitioners also argue that respondent bears the burden of

proof with respect to the fair market values of the facade

easements because respondent failed to raise the issue in the

notice of deficiency.    In the Explanation of Adjustments attached

to the notice of deficiency, respondent stated:     “It is

determined that you did not establish that the amount of

$154,350.00 was (a) a contribution, and (b) paid during taxable

year 2004.”    Although respondent could have phrased his statement

more explicitly, we find that the notice of deficiency adequately

apprised petitioners that the amount of the claimed conservation

contribution deduction was at issue.     The burden of proof with

respect to fair market values therefore remains with petitioners.

III.    Values of the Facade Easements

       Both parties have offered reports and testimony of expert

witnesses to establish the amounts of petitioners’ charitable

contributions.    An expert’s opinions are admissible if they

assist the trier of fact to understand the evidence or to

determine a fact in issue.    Fed. R. Evid. 702.   We evaluate
                               - 8 -

expert opinions in light of each expert’s demonstrated

qualifications and all other evidence in the record.     See Parker

v. Commissioner, 86 T.C. 547, 561 (1986).     Where experts offer

competing estimates of fair market value, we determine how to

weigh those estimates by, inter alia, examining the factors they

considered in reaching their conclusions.     See Casey v.

Commissioner, 38 T.C. 357, 381 (1962).     We are not bound by an

expert’s opinions and may accept or reject an expert opinion in

full or in part in the exercise of sound judgment.     See Helvering

v. Natl. Grocery Co., 304 U.S. 282, 295 (1938); Parker v.

Commissioner, supra at 561-562.   We may also reach a

determination of value based on our own examination of the

evidence in the record.   Silverman v. Commissioner, 538 F.2d 927,

933 (2d Cir. 1976), affg. T.C. Memo. 1974-285.

     Petitioners called two expert witnesses:     Sandy L. Lassere,

who prepared appraisal reports with respect to the facade

easements, and Calvin Mark Lassere, who reviewed the reports.

Mrs. Lassere has a marketing degree from the University of

Washington and is a certified residential appraiser in the

District of Columbia and Virginia.     She testified that she has

been appraising property for almost 10 years and that she has

appraised upwards of 30 easements.     Mr. Lassere has a bachelor of

science degree from Purdue University, is a certified general

appraiser in the District of Columbia, and has other appraisal
                               - 9 -

licenses in Florida, Georgia, New York, North Carolina, Virginia,

and Maryland.   Mr. and Mrs. Lassere are coowners of CML &

Associates, L.L.C., and serve as principal and president of the

firm, respectively.

     Mrs. Lassere claimed to have used both the comparable sales

method and the before-and-after approach to value the facade

easements.4   On cross-examination, she admitted to a variety of


     4
      Sec. 1.170A-14(h)(3)(i), Income Tax Regs., which authorizes
the use of the before-and-after approach, provides in relevant
part that

     If no substantial record of market-place sales is
     available to use as a meaningful or valid comparison,
     as a general rule (but not necessarily in all cases)
     the fair market value of a perpetual conservation
     restriction is equal to the difference between the fair
     market value of the property it encumbers before the
     granting of the restriction and the fair market value
     of the encumbered property after the granting of the
     restriction. * * *

A cursory review of Mrs. Lassere’s appraisal reports reveals that
her so-called before-and-after analysis consisted merely of
applying a percentage discount to the respective property’s
before-donation market value to account for the grant of the
facade easement. We note that such a percentage discount of a
property’s before-donation market value without any analysis
tying the percentage discount to the specific property involved
may not constitute a before-and-after valuation under the
regulations, but in the light of our ultimate holding in this
case we need not pursue this any further. See Scheidelman v.
Commissioner, T.C. Memo. 2010-151 (holding that the taxpayers
“failed to comply with the substantiation requirements under
section 170(f) and section 1.170A-13, Income Tax Regs.” because
the appraisal “report used only estimates based on prior cases
and displayed no independent or reliable methodology applied to
the subject property as the basis for the valuation reached”);
cf. Simmons v. Commissioner, T.C. Memo. 2009-208 (holding that
appraisals that included “discussions of IRS practice and cases
                                                   (continued...)
                              - 10 -

mistakes in her prepared reports, such as incorrectly describing

the restrictions imposed by the easements,5 making improper size

adjustments with respect to sales of several comparable

properties, and committing numerous miscalculations and spelling

and other typographical errors.   Her testimony also cast doubt on

the rigor and validity of her analysis.   For example, she did not

adjust sale prices for amenities or garage parking, had

difficulty explaining and justifying the adjustments she did

make, and did not review the deeds of easement encumbering

comparable properties.   In addition, Mrs. Lassere’s testimony

also implied, explicitly or implicitly, that she may have

prepared the appraisal reports without having personally

inspected the properties;6 relied on an inspection by, at the


     4
      (...continued)
of this Court concerning facade easements” were nonetheless
sufficient to satisfy “the substantiation requirements of section
170” because the appraisals also contained statistics gathered by
the donee organization that the appraiser “took into account in
preparing the appraisals. The appraisals likewise identify the
method of valuation used and the basis for the valuations
reached.”).
     5
      Though her report indicates that the facade easements
prohibit “any extensions of improvements or erections of new or
additional exterior improvements of the property”, on cross-
examination Mrs. Lassere acknowledged that this restriction
applied only to that portion of the houses visible from the
street and would not cover extensions or new improvements to the
rear of the houses.
     6
      Mrs. Lassere and Mr. Lassere apparently personally
inspected the two houses after Dec. 9, 2008, although their
written reports had apparently been prepared by, and were dated
                                                   (continued...)
                                  - 11 -

time the properties were actually inspected, an unsupervised

trainee appraiser; incorrectly indicated in the reports that it

was she who had performed the interior inspection; and claimed in

the reports that the conditions for a qualified conservation

contribution had been satisfied though she failed to check these

conditions.        In fact, Mrs. Lassere’s testimony revealed that

despite her expressed experience she was unfamiliar with the

regulatory requirements that apply to an appraisal report

prepared to support a facade easement donation.        Further, she

used defined terms in her reports despite being unaware of their

technical tax meaning and implications.

       During her cross-examination, Mrs. Lassere was asked by

respondent’s counsel whether she was “familiar with the Internal

Revenue Service’s regulations regarding a qualified appraisal

report”.       She replied by stating:   “I’m not very familiar with

it.”       Respondent’s counsel then pressed her and the following

exchange ensued.

       Q:   If I were to tell you that one of the requirements
       of a qualified appraisal report is that it be made
       within a certain time period of the appraised donation,
       would that change your answer to it being a qualified
       appraisal report?

       A:      Would it change my answer?

       Q:      Yes.



       6
      (...continued)
Dec. 9, 2008.
                                  - 12 -

     A:   Well, this is a retrospective appraisal.

     Q:   Right. To be a qualified appraisal report, it has
     to be made within a certain time period.

     A:   I understand that.

     Q:   Is this appraisal made in the appropriate time
     period to be –

     A:   Yes it is.

     Q:   When was it made?

     A:   It was made as of December 31, 2004.

     Q:   When was the appraisal report made?

     *    *      *          *           *         *         *

     [A:] December 9, 2008.

     Q:   That is almost four years after the date of the
     donation?

     A:   That’s correct.

     Subsequently, during       Mrs. Lassere’s cross-examination,

respondent’s counsel noted that “Your appraisal has the words

‘qualified real property interest’ in quotation marks” and asked

her whether “those words mean something.       I’m asking what your

understanding of that definition is?”       Mrs. Lassere admitted that

her use of the defined term “qualified real property interest” in

her appraisal reports “does not refer to the IRS.       It refers to

the way in which I write or convey information.”

     Q:    Do you know that the words “qualified real
     property interest” is defined by the Internal Revenue
     Code?

     A:   I don’t have that definition here.
                              - 13 -

     Q:    Are you aware that a qualified real property
     interest is a term defined by the Internal Revenue
     Code?

     A:   I was not aware of that, no.

     Q:   So its placement in your report does not mean a
     qualified real property interest within the meaning of
     the Internal Revenue Code?

     A:   Obviously not, or I would have put the definition.

     In the light of her admitted lack of familiarity with the

requirements for a qualified appraisal report, her use of terms

without an understanding of their exact meaning, and the various

conceptual, methodological, and calculation errors that she

acknowledged, we decline to give Mrs. Lassere’s appraisal reports

any probative weight, and we find that her conclusions regarding

the fair market values of the facade easement lack credibility.

Although Mr. Lassere testified at trial, he was not asked any

substantive questions by either party regarding the facade

easements’ fair market values.

     Petitioners also attempt to prove the fair market values of

the easements through two other appraisal reports, each of which

indicates that it was prepared by Douglas K. Wood under the

supervision of John R. Keegan.   The two reports bear signature

dates of January 6 and 7, 2005, respectively, indicating that

both reports had been prepared before petitioners filed their

2004 income tax return.   Petitioners presumably relied on these
                              - 14 -

reports to complete Part III of their Forms 8283 and Mr. Wood has

signed Part III, Declaration of Appraiser, of each Form 8283.7

     Petitioners, however, did not call either Mr. Wood or Mr.

Keegan, the identified authors of these reports, to testify at

trial.   Accordingly, these reports are inadmissible as evidence

of the fair market values of the facade easements.   See Van Der

Aa Invs., Inc. v. Commissioner, 125 T.C. 1, 6-7 (2005)

(indicating that an appraisal report would be inadmissible as

evidence of fair market value if the author did not testify and

make himself available for cross-examination); Droz v.

Commissioner, T.C. Memo. 1996-81 (refusing to accept an appraisal

report attached to a Federal income tax return where the author


     7
      Mr. Wood’s signature on both Forms 8283 bears a date of
of Jan. 5, 2005, a date before either of the two appraisal
reports was signed. Whether or not this fact has any impact on
the validity of the respective Form 8283 as an “appraisal
summary”, as defined in sec. 170A-13(c)(4), Income Tax Regs., is
moot in this case because we hold the appraisal reports
inadmissible for purposes of establishing the fair market value
of the facade easements and sustain respondent’s disallowance of
the entire amount of the claimed charitable contribution
deduction. Further, the fact that the signature date on the
Forms 8283 precedes those of the appraisal reports does not
affect our consideration of whether to accept the latter as a
“qualified appraisal”, as defined in sec. 1.170A-13(c)(3), Income
Tax Regs. As explained infra note 13 and accompanying text, the
appraisal reports were attached as exhibits to the stipulation of
facts for the purpose of determining whether they constituted
qualified appraisals under sec. 1.170A-13(c)(3), Income Tax
Regs., and the parties have stipulated that petitioners obtained
these reports on their respective signature dates, each of which
was before petitioners filed their 2004 income tax return. Also,
respondent has acknowledged that these reports meet the timing
requirement for a qualified appraisal specified in sec. 1.170A-
13(c)(3)(iv)(B), Income Tax Regs.
                                - 15 -

was not called as a witness at trial and was therefore not

available to be cross-examined about his qualifications and

methodology).8

     We note that ordinarily any encumbrance on real property,

howsoever slight, would tend to have some negative effect on that

property’s fair market value.    Even a nominal encumbrance that is

placed by the current owner of the property would, at the very

least, deprive a subsequent owner of the opportunity of placing a

similar encumbrance on that property.    However, petitioners have

failed to provide sufficient credible evidence with respect to

the fair market values of the facade easements to meet their

burden of sustaining their claimed charitable contribution

deduction.

     Respondent disallowed the entire amount of petitioner’s

claimed deduction, and the burden was on petitioners to show that

this disallowance was in error.    See Rule 142(a) (“The burden of

proof shall be upon the petitioner, except as otherwise provided

by statute or determined by the Court”); Welch v. Helvering, 290

U.S. at 115 (the Commissioner’s “ruling has the support of a



     8
      Petitioners also point to (1) an excerpt from an Internal
Revenue Service Topical Tax Brief, entitled “Facade Easement
Contributions” and (2) an excerpt from an Internal Revenue
Service “Market Segment Specialization Program Audit Technique
Guide” related to the rehabilitation tax credit. Even assuming
petitioners could rely on such documents, they do not relate
specifically to petitioners’ facade easements and are therefore
inadequate evidence of fair market value.
                                 - 16 -

presumption of correctness, and the petitioner has the burden of

proving it to be wrong”); see also Anselmo v. Commissioner, 757

F.2d 1208, 1210-1211 (11th Cir. 1985) (taxpayer had the burden of

proving that the valuation of donated property should have been

higher than that stated in the notice of deficiency), affg. 80

T.C. 872 (1983); Philippi v. Commissioner, T.C. Memo. 2003-257

(taxpayer failed to carry his burden of establishing he would be

entitled to disallowed deductions, since his testimony was not

reliable, and no exhibits on which he relied supported his

position with respect to his claimed deductions).   Because

petitioners have failed to meet their burden of proof, they are

not entitled to any deduction.9

IV.   Accuracy-Related Penalty

      Respondent asserted in his June 3, 2008, answer that

petitioners were liable for an $11,779 accuracy-related penalty

under section 6662(a).10   Section 6662(a) imposes an accuracy-


      9
      In the light of this finding, we need not address the other
issues addressed by the parties. We also need not address
respondent’s motion at trial to strike certain pages from Mrs.
Lassere’s appraisal reports on the grounds that she was not the
author of those pages.
      10
      Our discussion below relates only to so much of the
$11,779 accuracy-related penalty as pertains to that portion of
petitioners’ determined deficiency of $58,896 that arises from
the disallowance of the claimed $154,350 charitable contribution
deduction. As discussed supra note 2, we deem petitioners to
have conceded the claimed $137,172 nonpassive loss related to a
broadcasting company that they partially own. Therefore, the
portion of the $58,896 determined deficiency, along with the
                                                   (continued...)
                              - 17 -

related penalty of 20 percent of any underpayment that is

attributable to one of the causes listed in subsection (b).    One

such cause is any substantial understatement of income tax,

defined for individuals as an understatement (with certain

exceptions under section 6662(d)(2)(B) not applicable here) that

exceeds the greater of (1) 10 percent of the tax required to be

shown on the return for the taxable year or (2) $5,000.    Sec.

6662(b)(2), (d)(1)(A).

     A. Burden of Proof

     Under section 7491(c), respondent bears the burden of

production with respect to petitioners’ liability for the section

6662(a) penalty.   Generally, this means that respondent “must

come forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalty.”   Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).   Petitioners’

understatement of income tax for their 2004 tax year is

substantial under section 6662(d)(1)(A) because it exceeds $5,000

and is greater than 10 percent of the amount required to be shown

on their return.   Respondent has therefore satisfied his burden

of production with respect to the section 6662(a) penalty.11


     10
      (...continued)
associated accuracy-related penalty, if any, that is attributable
to the claimed $137,172 nonpassive loss is also deemed conceded.
     11
      The amount of the understatement under sec. 6662(d)(2)(A)
is to be reduced by that portion of the understatement which is
                                                   (continued...)
                               - 18 -

     There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate (1) reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment.   Sec. 6664(c)(1).   Regulations

promulgated under section 6664(c) provide further that the

determination of reasonable cause and good faith “is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances.”   Sec. 1.6664-4(b)(1), Income Tax Regs.   Notably,

pursuant to section 6664(c)(2), there may be reasonable cause and

good faith in the case of any underpayment “attributable to a

substantial or gross valuation over statement * * * with respect


     11
      (...continued)
attributable to (1) “the tax treatment of any item by the
taxpayer if there is or was substantial authority for such
treatment”, sec. 6662(d)(2)(B)(i), or (2) any item if (a) “the
relevant facts affecting the item’s tax treatment are adequately
disclosed in the return or in a statement attached to the
return”, sec. 6662(d)(2)(B)(ii)(I), and (b) “there is a
reasonable basis for the tax treatment of such item by the
taxpayer”, sec. 6662(d)(2)(B)(ii)(II). For purposes of
satisfying his burden of production for the sec. 6662(a)
accuracy-related penalty, the Commissioner is not generally
obligated to show why the penalty should be imposed on the entire
amount of the understatement and why no part of the
understatement should be reduced under sec. 6662(d)(2)(B). See
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). However,
here, since respondent also bears the burden of proof, and
therefore the ultimate burden of persuasion, for the sec. 6662(a)
accuracy-related penalty, it could be argued that respondent is
indeed obligated to establish, by a preponderance of the
evidence, unless a higher evidentiary standard applies, that no
reduction is warranted under sec. 6662(d)(2)(B). But we decline
to pursue this point any further because we hold below that
petitioners have satisfied the requirements of the reasonable
cause and good faith exception of sec. 6664(c) to the sec.
6662(a) penalty.
                              - 19 -

to charitable deduction property   * * * [only if] the claimed

value of the property was based on a qualified appraisal made by

a qualified appraiser,” where the terms “qualified appraisal” and

“qualified appraiser” have the meanings ascribed to them in

section 1.170A-13(c)(3) and (5), Income Tax Regs., respectively.

See also section 1.6664-4(h), Income Tax Regs.

     We note that disallowance of the entire amount of

petitioners’ claimed facade easement charitable contribution

deduction results in a substantial or gross valuation

misstatement under section 6662(e) or (h), respectively, with

respect to charitable deduction property, and consequently

section 6664(c)(2) requires that petitioners have obtained a

qualified appraisal before claiming the deduction in order to be

eligible for the reasonable cause and good faith exception to the

accuracy-related penalty under section 6662(a).

     Since respondent asserted the section 6662(a) penalty in his

answer and not in the notice of deficiency, respondent bears the

burden not only of production but also of proof with respect to

that penalty.   See Rule 142(a)(1) (“The burden of proof shall be

upon the petitioner, except * * * that, in respect of any new

matter * * *, it shall be upon the respondent.”).   We have long

recognized that when the Commissioner does not determine an

addition to tax or penalty in the notice of deficiency but

asserts one in his answer, he “has introduced a ‘new matter’ on
                             - 20 -

which he bears the burden of proof.”     Sanderling, Inc. v.

Commissioner, 66 T.C. 743, 758 (1976) (citing McSpadden v.

Commissioner, 50 T.C. 478 (1968), Papineau v. Commissioner, 28

T.C. 54 (1957), Tauber v. Commissioner, 24 T.C. 179 (1955), and

Estate of Falese v. Commissioner, 58 T.C. 895 (1972)), affd. in

part and revd. in part on other grounds 571 F.2d 174 (3d Cir.

1978); see also Gagliardi v. Commissioner, T.C. Memo. 2008-10;

Bhattacharyya v. Commissioner, T.C. Memo. 2007-19, affd. 357 Fed.

Appx. 934 (9th Cir. 2009); Lenihan v. Commissioner, T.C. Memo.

2006-259, affd. 296 Fed. Appx. 160 (2d Cir. 2008); Snyder v.

Commissioner, T.C. Memo. 2006-92; Paleveda v. Commissioner, T.C.

Memo. 1997-416, affd. without published opinion 178 F.3d 1303

(11th Cir. 1999).

     Examining the record before us, and for the reasons

discussed below, we conclude that petitioners have made a

sufficient showing of reasonable cause and good faith that

respondent has failed to rebut.   Therefore, the exception under

section 6664(c) applies and petitioners are not liable for the

section 6662 accuracy-related penalty.    See sec. 1.6664-4(b)(1),

Income Tax Regs.

     B. Section 6664(c)(2) Qualified Appraisal Requirement

     We begin with the requirement under section 6664(c)(2) of a

qualified appraisal made by a qualified appraiser, as defined by

section 1.170A-13(c)(3) and (5), Income Tax Regs., respectively.
                              - 21 -

This requirement applies to petitioners since our disallowance of

the entire amount of their claimed facade easement charitable

contribution deduction results in a substantial or gross

valuation misstatement under section 6662(e) or (h),

respectively, with respect to charitable deduction property.

Consequently, under section 6664(c)(2), petitioners may not claim

the reasonable cause exception of section 6664(c) to an accuracy-

related penalty under section 6662(a) unless “the claimed value

of the property was based on a qualified appraisal made by a

qualified appraiser”.   Sec. 6664(c)(2).

     Mrs. Lassere’s appraisal reports that were signed December

9, 2008, could not have been “received by the donor before the

due date * * * of the return on which a deduction is first

claimed” and, therefore, pursuant to section 1.170A-

13(c)(3)(iv)(B), Income Tax Regs., cannot constitute a qualified

appraisal.

     As we have noted above, in addition to Mrs. Lassere’s

appraisal reports, petitioners also attempted to prove the fair

market values of the easements through two written appraisal

reports, each prepared by Mr. Wood under the supervision of Mr.

Keegan.   And as we concluded above, petitioners’ failure to call

either of the two signatories of these reports to testify at

trial precludes us from considering these reports as evidence of

the fair market values of the facade easements.   We arrived at
                              - 22 -

this conclusion because petitioners bear the burden of proof for

their claimed deductions and, therefore, for establishing the

fair market values of the facade easements by a preponderance of

the evidence.   Petitioners’ failure to call the two signatories

of these reports to testify at trial prevented them from meeting

this evidentiary standard and satisfying their burden of proof.

However, we do not believe that the lack of trial testimony by

Messrs. Wood and Keegan prevents us from determining whether

their appraisal reports constitute a qualified appraisal under

section 1.170A-13(c)(3), Income Tax Regs.12




     12
      A qualified appraisal under sec. 1.170A-13(c)(3), Income
Tax Regs., is a necessary but not a sufficient condition for
purposes of both satisfying the substantiation requirement of
sec. 170(f) and invoking the reasonable cause and good faith
exception of sec. 6664(c)(2). Had we found Mrs. Lassere’s trial
testimony credible and accepted her appraisal reports as
conclusive evidence of petitioners’ claimed fair market values of
the facade easements, we would have been confronted with deciding
whether to accept Messrs. Wood and Keegan’s appraisal reports as
a qualified appraisal for purposes of satisfying the
substantiation requirement of sec. 170(f) since Mrs. Lassere’s
appraisal reports, which were prepared in anticipation of trial,
could not constitute a qualified appraisal pursuant to sec.
1.170A-13(c)(3)(iv)(B), Income Tax Regs. See also Turner v.
Commissioner, 126 T.C. 299, 321 (2006). In the light of our
finding that Mrs. Lassere’s appraisal reports do not have any
probative weight, we need not, and therefore do not, make the
decision regarding whether Messrs. Wood and Keegan’s appraisal
reports would constitute a qualified appraisal for satisfying the
substantiation requirement of sec. 170(f). We note, however,
that such a decision could have been affected by the fact that
petitioners bear the burden of proof for sustaining their claimed
deduction. Further, we do not believe that the absence of
Messrs. Wood and Keegan’s trial testimony would have precluded us
from making this decision.
                              - 23 -

      We make this determination, in this as in any other case, by

applying the technical requirements of section 1.170A-13(c)(3),

Income Tax Regs., to the written appraisal reports submitted to

us.

      Messrs. Wood and Keegan’s reports were attached as exhibits

to the stipulation of facts “for the purpose of the Court

determining whether the * * * [reports satisfy] the requirements

of a qualified appraisal under Treas. Reg. § 1.170A-13(c)(3)”,

and, by implication and to the extent applicable, under section

1.170A-13(c)(5), Income Tax Regs.   Thus, in making this

determination, we do not confront any issues of admissibility of

evidence.

      The two reports bear signature dates of January 6 and 7,

2005, respectively, and the parties have stipulated that

petitioners obtained these reports on those dates, each of which

was before petitioners filed their 2004 income tax return.

Consequently, it is undisputed that the reports meet the timing

requirement for a qualified appraisal specified in section

1.170A-13(c)(3)(iv)(B), Income Tax Regs.13

      Respondent argues that the reports fail to meet the

requirements of “Treas. Reg. § 1.170A-13(c)(3)(ii)(F) [which]


      13
      Respondent acknowledges as much in his posttrial reply
brief when he states that “Respondent does not contend that the
Wood/Keegan reports were not timely as required by §
1.170A-13(c)(3)(i)(A)”, which, in turn, refers to sec.
1.170A-13(c)(3)(iv)(B), Income Tax Regs.
                              - 24 -

requires that the appraisal include the qualifications of the

qualified appraiser who signs the appraisal, including the

appraiser’s background, experience, education, and membership, if

any, in professional appraisal associations.   This information is

not contained in the Wood/Keegan reports.”   As a result,

“Respondent has no information as to whether the Wood/Keegan

reports were prepared by persons meeting the requirements to be

a ‘qualified appraiser’ under Treas. Reg. § 1.170A-13(c)(5)

because the Wood/Keegan reports do not contain the qualifications

of the appraisers.”   Pointing out that “neither Wood nor Keegan

testified at trial to allow the Court to ascertain their

qualifications”, respondent urges us to draw a negative inference

from this omission.   We decline to do so, at least for accepting

Messrs. Wood and Keegan’s reports as a qualified appraisal for

purposes of section 6664(c)(2).   We point out to respondent that

as the party bearing the burden of proof and the ultimate burden

of persuasion for the section 6662(a) accuracy-related penalty,

respondent was free to call either or both Mr. Wood and Mr.

Keegan as witnesses and question them on the adequacy of their

respective qualifications.   Since respondent chose not to do so,

we cannot grant him the benefit of the doubt on this issue.

     We also disagree with respondent’s argument that “The mere

statement of licensure is not a recitation of the appraisers’

qualifications.”   We take judicial notice of the regulations
                             - 25 -

governing education and experience requirements in order to be

licensed as a residential real estate appraiser in the District

of Columbia promulgated by the Department of Consumer and

Regulatory Affairs of the District of Columbia pursuant to

authority under D.C. Code sec. 47-2853.10(a)(12) (LexisNexis

2007) and Mayor’s Order 2000-70, dated May 2, 2000.14   Their


     14
      A court may take judicial notice of appropriate
adjudicative facts at any stage in a proceeding, whether or not
the notice is requested by the parties. See Fed. R. Evid.
201(c), (f); see also United States v. Harris, 331 F.2d 600, 601
(6th Cir. 1964) (explaining that a court may take judicial notice
sua sponte). In general, the court may take notice of facts that
are capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned. Fed. R.
Evid. 201(b).
     Information posted on the official Web site of a government
agency may be appropriate for judicial notice. See, e.g.,
Marshek v. Eichenlaub, 266 Fed. Appx. 392 (6th Cir. 2008)
(holding that the court is permitted to take judicial notice, sua
sponte and at the appeals stage, of information on the Inmate
Locator, which enables the public to track the location of
Federal inmates and is maintained by the Federal Bureau of
Prisons and is accessed through the agency’s Web site, to
discover that appellant has been released since the filing of his
appeal and conclude that there remains no actual injury which the
court could redress with a favorable decision and, thus, dismiss
the appeal as moot); Denius v. Dunlap, 330 F.3d 919, 926-927 (7th
Cir. 2003) (holding that District Court erred when it refused to
take judicial notice of information on official Web site of a
Federal agency that maintained medical records on retired
military personnel; that fact was appropriate for judicial notice
because it is not subject to reasonable dispute); Protect Lake
Pleasant, LLC v. McDonald, 609 F. Supp. 2d 895, 922 n.13 (D.
Ariz. 2009) (“Plaintiffs place a great deal of credence in * * *
[Federal agency’s] website * * * but they did not request that
the court take judicial notice of that website. In the exercise
of its discretion, however, as Fed. R. Evid. 201(c) allows, the
court will take judicial notice of * * * [that] website”).
     Federal courts have, under the authority of Fed. R. Evid.
201(c), taken sua sponte judicial notice of adjudicative facts by
                                                   (continued...)
                              - 26 -

“reports recite both Wood’s and Keegan’s state license number and

the expiration dates”.   Thus, respondent was put on notice that,

at the very least, Mr. Wood and Mr. Keegan had each satisfied the

applicable prelicensure education and experience requirements

before being licensed as a residential real estate appraiser in

the District of Columbia.15


     14
      (...continued)
accessing information not just on Federal governmental agency Web
sites but also on the Web sites of bar associations and that of
at least one private sector organization, the Financial
Accounting Standards Board (FASB), which describes itself as “the
designated organization in the private sector for establishing
standards of financial accounting that govern the preparation of
financial reports by nongovernmental entities.” See Jeffrey M.
Goldberg & Associates, Ltd. v. Holstein, 299 Bankr. 211, 233 n.26
(Bankr. N.D. Ill. 2003) (the court took sua sponte judicial
notice of the fact that debtor “was admitted to practice law in
Illinois in 1962” by looking up his record on the Attorney
Registration and Disciplinary Commission, an administrative
agency of the Supreme Court of Illinois), affd. per opinion and
order (N.D. Ill., Aug. 27, 2004); In re Charles Schwab Corp. Sec.
Litig., 257 F.R.D. 534, 561 n.18 (N.D. Cal. 2009) (“Surprisingly,
neither side offered the FASB concepts at issue for judicial
notice, but because the concepts are publicly available from the
FASB’s website, this order nevertheless takes judicial notice of
FASB Statement of Financial Accounting Concept No. 1 pursuant to
FRE 201.”).
     15
      The regulations of the Department of Consumer and
Regulatory Affairs of the District of Columbia require applicants
for the Licensed Residential Real Property Appraiser
classification, the classification that each of Messrs. Wood and
Keegan held as of the time they performed the appraisal, to have
completed “one hundred fifty (150) classroom hours in subjects
related to real estate appraisal” and “two thousand (2000) hours
of appraisal experience obtained in no fewer than twelve (12)
months.” And though either or both Messrs. Wood and Keegan might
have obtained their District of Columbia license through
reciprocity by virtue of being “licensed or certified and in good
standing under the laws of another State or U.S. territory”, the
                                                   (continued...)
                              - 27 -

     Further, we note that in Bond v. Commissioner, 100 T.C. 32,

42 (1993), we had, under the doctrine of substantial compliance,

excused the omission “of the excellent qualifications of the

appraiser”.   We did this since “the name, title, and place of

employment of the appraiser * * * appeared on the Form 8283

together with the identification number assigned to his employer

by respondent” and accepted the Form 8283 as evidence of a

qualified appraisal for purposes of the substantiation

requirement for a charitable contribution deduction under section

170(f).   We have, therefore, concluded that the omission of a

narration of qualifications can be excused for purposes of

substantiating the fair market value of a charitable contribution

deduction under section 170(f).   It surely follows that such an

omission can be excused for purposes of determining whether

petitioners qualify for the section 6664(c) reasonable cause and

good faith exception to a section 6662(a) accuracy-related

penalty for which respondent bears the burden of proof.

     Respondent also makes broad attacks against the content,

analysis and conclusions of Messrs. Wood and Keegan’s reports.

Respondent faults the reports for several alleged failures to

conform to the requirements of an appraisal report specified in


     15
      (...continued)
District of Columbia regulations extend such reciprocity only to
jurisdictions “with requirements that are substantially
equivalent to the requirements of this chapter”, which include
the education and experience requirements mentioned above.
                              - 28 -

section 1.170A-13(c)(3), Income Tax Regs., contending, amongst

other things, that these “reports fail to provide an adequate

description of the property contributed”; that they “fail to

identify the method of valuation used to determine the fair

market value of the Easements”; and that they “fail to describe

the specific basis for valuation.”     Our examination of these

reports reveals that the appraisers describe in general terms the

nature of the facade easement contributions, underscore the

preferability of valuing these easements “based on comparable

sales” and note “that data for such a derivation is extremely

limited at this time.”   The reports then undertake an analysis

that resembles on its face the before-and-after approach

authorized by section 1.170A-14(h)(3)(i), Income Tax Regs.

     Respondent, in both his opening and answering posttrial

briefs, argues that neither report contains any meaningful

explanation for the valuation arrived at and each appears to use

an 11-percent discount applied to the before-donation market

value.   Respondent claims that this percentage discount factor is

derived from amounts allowed in other litigated tax cases but is

not directly associated with the properties at issue here.     If

so, then such a percentage discount of the before-donation market

value unaccompanied by “a recognized methodology or specific

basis for the calculated after-donation value * * * [would be]

too significant for us to ignore” for purposes of accepting these
                              - 29 -

reports “as a qualified appraisal complying with the

substantiation requirements of section 170.”    Scheidelman v.

Commissioner, T.C. Memo. 2010-151.

     However, respondent’s claims attacking the reports’

methodology, which he advances in his posttrial briefs, do not

constitute evidence.   See Rule 143(b).   We note again that

respondent could have called Mr. Wood and Mr. Keegan as witnesses

and questioned them on the methodology or specific basis of

valuation that they had employed in their reports.    In

Scheidelman, for example, the testimony of the expert, quoted in

that opinion, confirmed the inference drawn from the written

report about the lack of adequate methodology and analysis

underlying the expert’s conclusion regarding the fair market

value of the claimed charitable contribution deduction.

Alternatively, or in addition to calling the appraisers,

respondent could have introduced other evidence to support his

claims that Messrs. Wood and Keegan’s reports failed to satisfy

specific provisions of section 1.170A-13(c)(3), Income Tax Regs.

     Respondent chose to do neither and has, consequently, failed

to carry his burden of establishing that petitioners’ claimed

charitable contribution deduction was not based on a qualified

appraisal made by a qualified appraiser.    We therefore accept

Messrs. Wood and Keegan’s reports as a qualified appraisal and

hold that petitioners have complied with section 6664(c)(2).
                                - 30 -

     C. Reasonable Cause and Good Faith Under Section 6664(c)(1)

     We now turn to the requirement under section 6664(c)(1)

“that there was a reasonable cause * * * and that the [taxpayers]

acted in good faith” in claiming the charitable contribution

deduction.16    We decide “whether a taxpayer acted with reasonable

cause and in good faith * * * on a case-by-case basis, taking

into account all of the pertinent facts and circumstances.

* * *     Generally, the most important factor is the extent of the

taxpayer’s effort to assess the taxpayer’s proper tax liability.”

Sec. 1.6664-4(b)(1), Income Tax Regs.

     Reliance on professional advice may constitute reasonable

cause and good faith, but “it must be established that the

reliance was reasonable.”     Freytag v. Commissioner, 89 T.C. 849,


     16
      Since the disallowance of the entire amount of
petitioners’ claimed facade easement charitable contribution
deduction results in a substantial or gross valuation
misstatement under sec. 6662(e) or (h), respectively, with
respect to charitable deduction property, sec. 6664(c)(2)(B)
imposes the additional requirement that the taxpayers “have made
a good faith investigation of the value of the contributed
property.” As we hold below, petitioners have satisfied the
general reasonable cause and good faith requirement of sec.
6664(c)(1) by showing that they had reasonably and in good faith
relied on Messrs. Wood and Keegan, whom they had commissioned to
conduct an appraisal of the facade easements. In doing so,
petitioners had axiomatically caused to be made, on their behalf
and in good faith, an investigation of the value of the
contributed property. Thus, in petitioners’ case, the good faith
investigation requirement of sec. 6664(c)(2)(B) is subsumed under
the general reasonable cause and good faith requirement of sec.
6664(c)(1). Consequently, our analysis of petitioners’
satisfaction of the requirements of sec. 6664(c)(1) extends to
and includes the good faith investigation requirement of sec.
6664(c)(2)(B).
                             - 31 -

888 (1987), affd. on another issue 904 F.2d 1011 (5th Cir. 1990),

affd. 501 U.S. 868 (1991); sec. 1.6664-4(b)(1), Income Tax Regs.

     In sum, for a taxpayer to rely reasonably upon advice
     so as possibly to negate a section 6662(a)
     accuracy-related penalty determined by the
     Commissioner, the taxpayer must prove * * * that the
     taxpayer meets each requirement of the following
     three-prong test: (1) The adviser was a competent
     professional who had sufficient expertise to justify
     reliance, (2) the taxpayer provided necessary and
     accurate information to the adviser, and (3) the
     taxpayer actually relied in good faith on the adviser’s
     judgment. * * *

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99,

affd. 299 F.3d 221 (3d Cir. 2002).    Further, “reliance may not be

reasonable or in good faith if the taxpayer knew, or reasonably

should have known, that the advisor lacked knowledge in the

relevant aspects of Federal tax law.”   Sec. 1.6664-4(c)(1),

Income Tax Regs.

     Petitioners claim that their reliance on Messrs. Wood and

Keegan was reasonable and in good faith and constitutes the

requisite showing under section 6664(c)(1), and we agree.

Petitioner Billy Evans testified credibly at trial that upon

request, Capitol Historic Trust, Inc., the donee organization,

furnished him with a list of appraisers and that he selected

Messrs. Wood and Keegan from this list after researching their

qualifications and backgrounds.   “I picked from a list of several

people, and I called and talked to them directly * * * about what

they did and whether or not they did these type of appraisals”.
                              - 32 -

     From the reports that Messrs. Wood and Keegan produced, it

is apparent that they had access to all the relevant details

regarding the properties and the contemplated facade easement

contributions.   Also, petitioner Billy Evans’ trial testimony,

which we find credible and compelling, demonstrated his actual

good faith reliance on these reports.   “I relied upon what I

thought to be good appraisals to claim my deductions, and

everything that I had read and seen at that time gave me no

indication that there was any problem with these.”

     Finally, the reports themselves reveal that Messrs. Wood and

Keegan were conversant with the regulations that authorize the

comparable sales method and the before-and-after approach for

valuing charitable contribution deductions.

     Other than arguments in his posttrial briefs that do not

constitute evidence under Rule 143(b) and that we discount for

lacking an established evidentiary basis for this purpose,

respondent has provided us with no sound grounds for doubting

petitioners’ showing of reasonable cause and good faith.    We hold

that respondent has failed to carry his burden of proof for the

section 6662(a) accuracy-related penalty and that petitioners are

not liable for any portion of the penalty arising from the

disallowed charitable contribution deduction.
                              - 33 -

V.   Conclusion

      The Court has considered all of petitioners’ and

respondent’s contentions, arguments, requests, and statements.

To the extent not discussed herein, we conclude that they are

meritless, moot, or irrelevant.

      To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
