                             T.C. Memo. 2015-236



                        UNITED STATES TAX COURT



   JOHN A. ATKINSON AND JUDY B. ATKINSON, ET AL.,1 Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 2683-11, 2693-11,              Filed December 9, 2015.
                  2694-11, 2695-11,
                  2700-11, 18938-12.



      David M. Wooldridge, Ronald A. Levitt, Gregory P. Rhodes, and Michelle

Abroms Levin, for petitioners.

      Christopher D. Bradley and John T. Arthur, for respondent.




      1
      Cases of the following petitioners are consolidated herewith: Kenan C.
Wright and Molly F. Wright, docket No. 2693-11; Warren W. Wills Jr., and
Margaret A. Wright, docket No. 2694-11; H. Edward Wright III and Phyllis C.
Wright, docket No. 2695-11; Dwight C. Hopkins and Martha W. Hopkins, docket
No. 2700-11; and The Reserve Club at St. James Plantation, LLC, Reserve
Development Co., Tax Matters Partner, docket No. 18938-12.
                                         -2-

[*2]         MEMORANDUM FINDINGS OF FACT AND OPINION


      WELLS, Judge: Petitioners contest the following deficiencies and
penalties:

             Petitioner              Period        Deficiency           Penalty
 The Reserve Club                     2005         $2,861,362          $551,886 or
                                                                       1,103,772
 John & Judy B. Atkinson              2003            138,847             27,769
 John & Judy B. Atkinson              2005             85,783             17,157
 H. Edward & Phyllis C. Wright        2003            180,887             36,177
 H. Edward & Phyllis C. Wright        2004            161,403             32,281
 H. Edward & Phyllis C. Wright        2005             31,000               --
 Warren W. Wills, Jr., & M. Wright    2003            234,431             46,886
 Warren W. Wills, Jr., & M. Wright    2004            131,179             26,236
 Dwight C. & Martha W. Hopkins        2003            183,374             36,675
 Dwight C. & Martha W. Hopkins        2004            156,863             31,373
 Dwight C. & Martha W. Hopkins        2005             33,053               --
 Kenan C. & Molly F. Wright           2003            192,244             38,449
 Kenan C. & Molly F. Wright           2004            177,036             35,407
 Kenan C. & Molly F. Wright           2005              4,010               --

       The issues in the instant cases concern petitioners’ entitlement to charitable

contribution deductions and expense deductions for the following two

conservation easements on an operating golf course in North Carolina: (1) a

deduction of $5,223,000 plus expenses for tax year 2003 for a conservation

easement conveyed by The Members Club at St. James Plantation, LLC (Members
                                        -3-

[*3] Club) and (2) a deduction of $2,657,500 plus expenses for tax year 2005 for a

conservation easement conveyed by The Reserve Club at St. James Plantation,

LLC (Reserve Club). The issues we must decide are whether the conservation

easements comply with the “conservation purpose” requirement of section

170(h);2 whether the easements were properly valued for purposes of the

deduction under section 170(a); and, if petitioners are not entitled to deductions

under section 170(a), whether they are liable for accuracy-related penalties.

      We note here that we were presented with similar issues in Kiva Dunes

Conservation, LLC v. Commissioner, T.C. Memo. 2009-145. As in the instant

cases, the taxpayer in Kiva Dunes conveyed a conservation easement over an

operating golf course and claimed a deduction under section 170. However, in

Kiva Dunes we were not required to decide the issue of compliance with the

conservation purpose requirement of section 170(h) because the Commissioner

had conceded that issue on brief, after trial, and we therefore decided only the

remaining valuation issue. In the instant cases, we address the conservation

purpose issue; but because of our holding below, we do not reach the valuation

issues.

      2
       Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended and as in effect for the years in issue, and Rule
references are to the Tax Court Rule of Practice and Procedure.
                                         -4-

[*4]                            FINDINGS OF FACT

       Some of the facts and certain exhibits have been stipulated by the parties.

The facts so stipulated are incorporated in this opinion and are found accordingly.

Petitioner Reserve Development Co., a limited liability company that had an office

in Southport, North Carolina, at the time its petition was filed, is the tax matters

partner for the Reserve Club. The individual petitioners are the 2003 members3 of

the Members Club and their spouses (Members Club petitioners). Petitioners

Warren W. Wills, Jr., and Margaret A. Wright resided in Georgia at the time they

filed the petition in their case, docket No. 2694-11. All remaining individual

petitioners resided in North Carolina at the time their petitions were filed,

including John A. and Judy B. Atkinson, docket No. 2683-11; Dwight C. and

Martha W. Hopkins, docket No. 2700-11; Kenan C. and Molly F. Wright, docket

No. 2693-11; and H. Edward Wright III and Phyllis C. Wright, docket No.

2695-11.4



       3
       Although they are taxed as partners for Federal tax purposes, we refer to
the individual petitioners as “members” and not “partners” because the Members
Club is not a partnership but rather a limited liability company formed under North
Carolina law.
       4
       We sometimes herein use the term “petitioners” to refer to the Members
Club petitioners as well as the combination of the Members Club petitioners and
the Reserve Club tax matters partner.
                                           -5-

[*5] I.         Background

          The contributed easement areas relating to the disputed charitable

contribution deductions are within St. James Plantation, a community development

established in 1991 covering 91% of the Town of St. James, west of Southport,

North Carolina (St. James Plantation). Several entities, such as the Members Club

and the Reserve Club, own portions of St. James Plantation. Over a period of

several years St. James Plantation worked closely with the North American Land

Trust (NALT) to create a system of easements over the development with the goal

of protecting important habitat and a significant geologic area. St. James

Plantation is a development comprising residential areas, recreational facilities

such as golf courses, and undeveloped land. St. James Plantation has gated

entrances with a staffed guardhouse on each of the three roads into and out of the

development. Drivers are obliged to stop at a gated entrance and state the purpose

of their visit to obtain entry. All of the residences, businesses, and amenities in St.

James Plantation, including all property covered by the easements in issue in the

instant cases, can be accessed only via road by passing through a gated entrance.
                                       -6-

[*6] II.     2003 Easement

       A.    Introduction

       In 2001 St. James Plantation added nine holes known as the “Cate 9” to the

Members Club Golf Course. On December 30, 2003, the Members Club conveyed

a conservation easement to NALT over 79.193 acres covering the area in and

around the Cate 9, which was operating as a golf course at the time (2003

easement). The 2003 easement property consists of six noncontiguous tracts,

ranging in size from 4.9 acres to 23.4 acres, which come together in a vaguely

figure-eight shape. The 2003 easement property is bordered by residential lots

except for the center of the figure-eight, where the property directly abuts swamps

and wetlands. The 2003 easement property consists of fairways, greens, teeing

grounds, ranges, rough, ponds, and wetland areas in the following proportions:

                 Area                      Acres                Percentage
   Tees, bunkers, fairways, greens         15.055                   19
   Rough                                   26.952                   34
   Ponds                                   12.504                   15.8
   Other                                   20.72                    26.2
   Wetlands                                  3.962                   5
     Total                                 79.193                   100
                                       -7-

[*7] The foregoing percentages do not include the portion of the 2003 easement

property which is covered by a concrete cart path winding through all six tracts of

the 2003 easement, including areas labeled “wetlands” and “other”.

      Eight months after securing the 2003 easement, NALT obtained the Middle

Swamp easement, a conservation easement over approximately 32.3 acres of

swamps and wetlands abutting the center of the figure-eight-shaped 2003

easement.5 NALT considers the Middle Swamp a “wetland conservation area”.

Photos of the Middle Swamp show tall trees, undisturbed yet open understory, and

a walkway. A 2011 U.S. Fish and Wildlife Service map of the area shows

wetlands classified in the Middle Swamp area. The 2003 easement had been

granted in contemplation of the Middle Swamp easement.

      B.    Terms of the 2003 Easement

      The 2003 easement deed identifies two conservation purposes:

            Preservation of the Conservation Area as a relatively natural
      habitat of fish, wildlife, or plants or similar ecosystem; and
      Preservation of the Conservation Area as open space which, if
      preserved, will advance a clearly delineated Federal, State or local
      governmental conservation policy and will yield a significant public
      benefit.

      5
       We discuss the contributory benefits the 2003 easement may provide to the
Middle Swamp without regard to the fact that there was no guaranty that the
Middle Swamp easement would be issued at the time the 2003 easement was
granted.
                                        -8-

[*8] Pursuant to the terms of the 2003 easement, the owners of the easement area

retain the right to operate a golf course, make alterations, and engage in certain

construction activities. The golf course in the 2003 easement area may be altered

“in such manner as Owner determines to be appropriate” as long as “the best

environmental practices then prevailing in the golf industry” are used and applied.

      Specifically, the 2003 easement allows for digging (filling, excavating,

dredging, or removing topsoil) as necessary for maintaining golf course sand traps

or for the cultivation of sod for use on the golf course. Cart paths may be

relocated as long as the relocation does not substantially increase the surface area

taken up by cart paths. The deed permits the construction of rain shelters, rest

stations, food concession stands, and other structures on the easement property as

long as they do not exceed a total of 2,500 square feet. The owner may

substantially increase the amount of surface area covered by the golf course if it

secures prior consent from the easement holder and there is no material adverse

effect on the conservation purposes.

      The owner may also cut and remove trees that are on the golf course or

within 30 feet of the golf course if the owner determines their removal is

“appropriate for the proper maintenance of the golf course”. Additionally, the
                                         -9-

[*9] owner may cut trees to build a restroom, rain shelter, rest station, or food

concession stand.

      To maintain the Cate 9, St. James Plantation applies fungicides, herbicides,

insecticides, and adjuvants on the tees, fairways, and rough. The 2003 easement

deed does not prohibit the use of pesticides and other chemicals on the 2003

easement property. While the 2003 easement deed prohibits the manufacture of

chemicals of any kind, it allows for the storage and use of chemicals in connection

with activities not prohibited by the easement deed. The 2003 easement deed

provides the owner with “the right to operate and manage” a golf course on the

property and to maintain “turf grass and other vegetation * * * of the Golf Course

in such manner as Owner determines to be appropriate”. Moreover, NALT’s

annual monitoring reports state that the easement areas, including the 2003

easement area, appeared to be in very good condition and in accord with the terms

of the various easement documents. Accordingly, the application of these

chemicals is within the terms of the easement deed.

      C.     Natural Qualities

      The 2003 easement is in Brunswick County, which lies within the Cape Fear

Arch. The region has been identified as a biodiversity hotspot by the Nature

Conservancy, a natural heritage program. According to the Cape Fear Arch
                                        - 10 -

[*10] Conservation Collaborative 2009 Conservation Plan, the Cape Fear Arch has

the highest biological diversity of any area on the Atlantic Coast north of Florida.

It is close to, but not in, the Boiling Springs Lakes Complex.

      On February 24, 2004, Christopher R. Wilson, a conservation biologist with

NALT, inspected the 2003 easement area and produced a baseline report. The

report generally describes the importance of preserving areas and forests described

as “old-growth” which include “woody debris” and “undisturbed soils”. The

report also recognizes the ecological importance of “active forest management

activities”, such as prescribed burns, and encourages landowners to recognize the

“extreme ecological importance of woody debris and undisturbed soils”.

      Mr. Wilson observed several species on the 2003 easement property such as

Fish Crows, Great Blue Herons, and American Kestrel. The golf superintendent

who accompanied Mr. Wilson during the inspection advised him that an

“American Alligator (a State Threatened Species) * * * [was] occasionally

observed on the course’s ponds”. “Threatened” is defined as “a taxon likely to

become an endangered species within the foreseeable future throughout all or a

significant portion of its range”. The report states the property provides wildlife

travel corridors for the Red-Cockaded Woodpecker, a species federally designated

as “endangered”, which is defined as “a taxon in danger of extinction through all
                                       - 11 -

[*11] or part of its range”. The report, however, does not reference any specific

sightings or evidence of migration of the Red-Cockaded Woodpecker on the 2003

easement property.

      The report also includes photos which mostly depict open areas of mowed

grass, ponds surrounded by mowed grass, and a line of trees with dense foliage

surrounding houses. One photo shows a pond surrounded by many bushes and

trees; no houses are visible in that photo. The pond with the densest foliage

surrounding it, where Mr. Wilson heard a Large Southern Leopard Frog Chorus, is

labeled a “Temporary pool habitat”.

      At trial NALT representatives testified that they had seen plants of

particular concern such as Venus Flytraps on the 2003 easement area and located

them with GPS coordinates. The baseline report includes an NC Natural Heritage

Program map identifying where Venus Flytrap plants are located, but none of the

locations are on the 2003 easement area. The Venus Flytrap is designated a

“Federal Species of Concern”, meaning it is more stable than “endangered”, the

highest designation, or “threatened”, the second highest designation. In global

ranks, the Venus Flytrap is a G3, meaning it is “[r]are or uncommon (localized

within range or narrowly endemic to special habitats, generally 20-100
                                       - 12 -

[*12] occurrences)” and falls between G2, “[i]mperiled globally because of rarity”,

and G4, “[a]pparently secure”.

       NALT also issued monitoring reports after inspections conducted in 2006,

2008, 2010, 2011, 2012, and 2013. The reports consist mostly of photos. The

photos of the Cate 9 area show: a stone weir at the bottom of a small pond

surrounded by houses and a few bushes and trees; Plume Grass in a small

landscaped area adjacent to the golf fairway with trees and houses in the

background; an emergency bridge constructed after the easement was granted; and

many images of the fairways which variably include a cart path, a line of trees

dotted with houses, and ponds surrounded mostly by well-manicured grass.

       The text of the monitoring reports describes six easement properties in St.

James Plantation. Although the reports note sightings of animals, they do not

always specify on which of the easement properties they were seen. As mentioned

above, the reports all state that St. James Plantation complied with the terms of the

easement deeds. NALT did not collect or analyze soil or water samples for any of

its reports.

       D.      Notice of Deficiency

       On or about April 15, 2004, the Members Club filed its Form 1065, U.S.

Return of Partnership Income, for the tax year ended 2003. On its 2003 Form
                                        - 13 -

[*13] 1065, the Members Club deducted a charitable contribution of $5,223,000 as

the claimed value of the 2003 easement and attached an appraisal by F. Bruce

Sauter. Attached to the Members Club’s 2003 Form 1065 are Schedules K-1,

Partner’s Share of Current Income, Deductions, Credits, and Other Items, showing

the amount allocated to each of the Members Club petitioners. Those petitioners

then reported the amounts on their individual Forms 1040, U.S. Individual Income

Tax Return. On November 2, 2010, respondent issued a notice of deficiency to

each of the individual petitioners disallowing their portion of the charitable

contribution deduction. On February 1, 2011, each of the Members Club

petitioners timely filed a petition with the Tax Court for redetermination of the

deficiencies determined in the notices of deficiency. On October 14, 2011, the

Court granted respondent’s motion to consolidate for trial, briefing, and opinion.

III.   2005 Easement

       A.    Introduction

       On December 23, 2005, the Reserve Club conveyed a conservation

easement on 90.74 acres within St. James Plantation to NALT (2005 easement).

The 2005 easement encumbers most of the Reserve Club Golf Course, which

opened for play in July 2006. The 2005 easement area consists of 3

noncontiguous tracts, each approximately 30 acres. The 2005 easement area is
                                       - 14 -

[*14] bordered in part by residential lots. As with the 2003 easement, the 2005

easement property’s noncontiguous tracts cover a variety of land types:

                  Area                          Acres             Percentage
   Tees, bunkers, fairways, greens              15.513                17.1
   Rough                                        13.178                14.5
   Ponds                                         9.550                10.5
   Other                                        18.573                20.5
   Wetlands                                     33.930                37.4
    Total                                       90.74                 100

      The 2005 easement area also includes a winding, concrete cart path, the area

of which is not included in the property percentages. Concurrently with the 2005

easement, NALT was granted a second easement over approximately 256.39 acres

by the Reserve Development Co., LLC (Wetlands II easement). The Wetlands II

easement area borders the eastern edge of tract 1 of the 2005 easement area.

      B.     Terms of the 2005 Easement

      The 2005 easement deed is almost identical to the 2003 easement deed. The

deed states the same two conservation purposes and provides for the same

reserved rights. The reserved rights include, among others: the right to operate

and manage a golf course; the right to alter or modify the golf course and cart path

provided their aggregate surface area does not substantially increase without the
                                         - 15 -

[*15] prior consent of the easement holder; the right to construct and maintain

utility facilities within certain limitations; the right to construct and maintain

stands or blinds for hunting or wildlife observation; and the right to cut, remove,

or destroy trees within 30 feet of the golf course. Some of such reserved rights do

not apply to areas designated as wetlands. St. James Plantation applies fungicides,

herbicides, insecticides, and adjuvants on the tees, fairways, and rough, which the

easement deed does not prohibit.

      C.     Natural Qualities

      As with the 2003 easement, the 2005 easement is in Brunswick County and

the Cape Fear Arch. Additionally, portions of the 2005 easement are within the

Boiling Springs Lake Wetland Complex, a section of the Cape Fear Arch

delineated as nationally significant by the North Carolina Natural Heritage

Program and the Nature Conservancy. The 2005 easement is in an area that was

once dominated by longleaf pine forests.

      Peter Smith, a conservation biologist for NALT, inspected the 2005

easement area on November 22, 2005, and September 18, 2006, before producing

a baseline report. The baseline report covers the 2005 easement and the Wetlands

II easement areas together. As with the 2003 easement baseline report, the 2005

easement baseline report describes the desired condition for the easement property
                                        - 16 -

[*16] forests as “old-growth”, containing well-developed soils and an abundance

of woody debris. The report also addresses “Aquatic Features Management” and

discusses streams, stream channels, wetlands, and bogs. The report mentions

ponds in that it says that the introduction of fish to the ponds is discouraged.

      The report also identifies species seen on the 2005 easement area. Two of

the species are recognized on the Federal level as discussed above: the Venus

Flytrap, which is a species of concern, and the American Alligator, which is

threatened. Three species, the Shortleaf Yellow-Eyed Grass, Yellow Pitcher Plant,

and Purple Pitcher Plant, are recognized at the State level as either “significantly

rare - peripheral” or “exploited plants”. The report also identifies species to be

potentially found in the 2005 easement, including the Red-Cockaded Woodpecker.

The report notes that the primary adjacent land use is “residential/golf course

community development”.

      The photos in the report show images of both the 2005 easement area and

the Wetlands II area. The photos specifically marked as being from the Reserve

Club Golf Course, most of which is covered by the 2005 easement, show: a pond

surrounded by mowed grass up to the edge and trees in the distance; undeveloped

wetlands; a concrete bridge over mostly undeveloped wetlands with sparse trees in

the distance; a picture of the golf course, shown ringed by a line of trees; and a
                                       - 17 -

[*17] mowed open field transected by rougher shrubs and grasses and ringed by a

concrete path and trees. Most of the tree coverage appears fairly dense from the

ground to the tree tops.

      NALT included the 2005 easement in the same monitoring reports as the

2003 easement. Only one monitoring report, issued in 2006, notes that NALT

observed good populations of wetland plants, including the Venus Flytrap and

Pitcher Plants, captured in two closeup photos. The Eastern Fox Squirrel,

designated “significantly rare” by North Carolina, was also observed in the 2005

easement area. In describing the habitat factors, Mr. Smith wrote that there were

no noted “denning sites”, i.e., sites where animals build their dens. The photos in

these reports echo the photos of the baseline report, depicting manicured grass,

ponds, trees, cart paths, and some wetlands. One photo shows tall trees with an

open understory.

      D.     Final Partnership Administrative Adjustment

      On April 15, 2006, the Reserve Club filed its Form 1065 for tax year 2005.

The Reserve Club deducted a charitable contribution of $2,657,500 as the claimed

value of the 2005 conservation easement and attached an appraisal by Mr. Sauter.

On May 14, 2012, respondent issued to the tax matters partner of the Reserve Club

a notice of final partnership administrative adjustment (FPAA) proposing to
                                        - 18 -

[*18] disallow the deduction for the conservation easement. On July 25, 2012, the

Reserve Club tax matters partner timely filed a petition with the Tax Court for

readjustment of the adjustments in the FPAA. On November 15, 2012, this Court

ordered the Reserve Club’s case to be consolidated with the Members Club cases.


                                     OPINION

I.    Jurisdiction

      Because one of the petitions was filed in respect of an LLC treated as a

partnership subject to TEFRA, we begin our analysis with a discussion of the

Court’s jurisdiction over a TEFRA proceeding. The Court is a court of limited

jurisdiction, and we may exercise our jurisdiction only to the extent provided by

Congress. See sec. 7442. The Court has authority in a TEFRA partnership-level

proceeding to determine all partnership items for a partnership taxable year to

which the FPAA relates, the proper allocation of partnership items among the

partnership’s partners, and the application of any penalty, addition to tax, or

additional amount that relates to an adjustment to a partnership item. Sec. 6226(f).

Partnership items include, among other items, nondeductible partnership expenses

such as charitable contributions. Sec. 301.6231(a)(3)-1(a)(1)(ii), Proced. &

Admin. Regs. The Court’s jurisdiction over a TEFRA partnership-level
                                         - 19 -

[*19] proceeding is invoked upon the Commissioner’s issuance of a valid FPAA

and the proper filing of a petition for readjustment of partnership items for the year

or years to which the FPAA pertains. See Harbor Cove Marina Partners P’ship v.

Commissioner, 123 T.C. 64, 78 (2004). Petitioner Reserve Development Co.

timely filed a petition challenging the adjustments in the FPAA. We therefore

have jurisdiction to determine whether the charitable contribution deduction in

issue was properly taken by the Reserve Club pursuant to section 170, as well as

the applicability of any related penalty or addition to tax. Sec. 6226(f).

II.   Legal Standard

      Taxpayers may deduct the value of charitable contributions made during the

tax year pursuant to section 170(a)(1). Generally, taxpayers are not entitled to

deduct gifts of property that consist of less than the taxpayers’ entire interest in

that property. Sec. 170(f)(3). However, taxpayers are permitted to deduct the

value of a contribution of a partial interest in property that constitutes a “qualified

conservation contribution” as defined in section 170(h)(1). Sec. 170(f)(3)(B)(iii).

      For a contribution to constitute a qualified conservation contribution, the

contribution must be (1) of a “qualified real property interest”, (2) to a “qualified

organization”, and (3) “exclusively for conservation purposes.” Sec. 170(h)(1). In

the instant cases, the parties agree that the contributions petitioners made were of
                                        - 20 -

[*20] qualified real property interests and that those contributions were made to a

qualified organization. Accordingly, the only issues remaining for us to decide are

whether those contributions were made exclusively for conservation purposes and,

if so, whether petitioners properly valued their contributions.

      A contribution must satisfy one of the purposes set forth in section

170(h)(4) in order to be made exclusively for conservation purposes. Petitioners

contend that the contributions satisfied the requirements of the second and third

conservation purposes set forth in section 170(h)(4)(A), to wit:

             (ii) the protection of a relatively natural habitat of fish, wildlife, or
      plants, or similar ecosystem,

                   *      *      *     *         *   *      *

           (iii) the preservation of open space (including farmland and forest land)
      where such preservation is--

                   (I) for the scenic enjoyment of the general public, or

                   (II) pursuant to a clearly delineated Federal, State, or local
             governmental conservation policy, and will yield a significant
             public benefit * * *


      In the instant cases, respondent and petitioners presented expert testimony

to establish their respective positions as to whether the easement areas serve the

purpose of protecting relatively natural habitat pursuant to section 170(h)(4)(A)(ii)
                                       - 21 -

[*21] (“protecting natural habitat” purpose). Respondent offered the expert

reports of Curtis Richardson, who holds degrees in biology, botany, and ecology

and has been a professor at Duke University for 36 years. Dr. Richardson oversaw

research in the Everglades and was hired by the U.S. State Department to be the

chief ecologist to evaluate marshes in Iraq. Dr. Richardson’s reports are based on

a review of the background materials provided by the parties, an assessment of

relevant literature, criteria for conservation easements, a field survey on November

22, 2013, and lab analysis of collected samples.

      Petitioners offered the expert reports of James Luken, who holds degrees in

zoology, biology, and botany and has been a professor of biology at Coastal

Carolina University since 2001. Dr. Luken has published several papers on Venus

Flytraps and the habitats associated with the Carolina Bays and is a coordinator of

the Coastal Marine and Wetlands Studies Graduate Program. The reports of the

parties’ experts were admitted as the expert testimony of their preparers.

      Neither party presented expert testimony to establish whether the easement

areas serve the purpose of preserving open space pursuant to section 170(h)(4)(A),

either for scenic enjoyment or pursuant to a clearly delineated government

conservation policy (“preservation of open space” purpose).
                                        - 22 -

[*22] III.   Burden of Proof

      As a preliminary matter, we consider petitioners’ contention that the burden

of proof has shifted to respondent pursuant to section 7491(a). Generally, the

Commissioner’s determination of a deficiency is presumed correct, and the

taxpayer has the burden of proving it incorrect. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Section 7491(a)(1) provides an exception that places

the burden of proof on the Commissioner as to any factual issue relevant to a

taxpayer’s liability for tax. The burden of proof shifts with respect to a factual

issue pursuant to section 7491 if the taxpayer introduces credible evidence with

respect to that issue and the taxpayer satisfies certain other conditions, such as

substantiation and cooperation with the Commissioner’s reasonable requests for

witnesses, documents, other information, and meetings. Sec. 7491(a)(2); see also

Rule 142(a)(2). The taxpayer bears the burden of proving that the requirements of

section 7491(a) have been met. Rolfs v. Commissioner, 135 T.C. 471, 483 (2010),

aff’d, 668 F.3d 888 (7th Cir. 2012).

      Respondent contends that petitioners have not introduced credible evidence

with respect to any of the factual issues. For purposes of section 7491(a)(1),

“credible evidence” means “evidence that, ‘after critical analysis, the Court would

find sufficient upon which to base a decision on the issue if no contrary evidence
                                       - 23 -

[*23] were submitted’”. Geiger v. Commissioner, T.C. Memo. 2006-271, 2006

WL 3781098, at *4 (quoting Higbee v. Commissioner, 116 T.C. 438, 442 2001)),

aff’d, 279 F. App’x 834 (11th Cir. 2008).

      We conclude that petitioners produced credible evidence as required by

section 7491(a) with respect to whether their easements satisfied the “protecting

natural habitat” purpose under section 170(h)(4)(A)(ii). Petitioners provided the

testimony of Mr. Branbell, a longtime employee of St. James Plantation, to testify

as to the conservation goals of St. James Plantation as a whole; Mr. Smith and

Andrew Johnson, both of NALT, to testify that the 2003 and 2005 easements

furthered the conservation goals of NALT; and Dr. Luken, to provide expert

testimony over the condition and conservation purposes of the 2003 and 2005

easement areas. On the basis of that testimony, we are satisfied that petitioners

have produced credible evidence as to that purpose under section 170(h)(4)(A)(ii).

      Petitioners also satisfy the other conditions of section 7491(a). Petitioners

substantiated the items in issue and maintained the necessary records, and

respondent conceded in his opening brief that petitioners fully cooperated during

respondent’s examination of their returns. Accordingly, the requirements of

section 7491(a)(2)(B) have been met regarding the issue of the “protecting natural

habitat” purpose. We therefore hold that the burden of proof shifts to respondent
                                         - 24 -

[*24] pursuant to section 7491(a)(1) on the issue of whether the easements satisfy

the “protecting natural habitat” purpose requirements of section 170(h)(4)(A)(ii).

      In contrast, with respect to whether the easements satisfy the “preservation

of open space” purpose under section 170(h)(4)(A)(iii), we conclude that

petitioners did not produce credible evidence as required by section 7491(a).

Petitioners provided no witnesses, expert or otherwise, to testify as to any

government conservation policy furthered by the easements or any scenic

enjoyment provided to the public. We therefore hold that the burden of proof

remains with petitioners with respect to the “preservation of open space” purpose

issue under section 170(h)(4)(A)(iii).

IV.   Relatively Natural Habitat

      To satisfy the “protecting natural habitat” purpose requirements pursuant to

section 170(h)(4)(A)(ii), the regulations require that the donation “protect a

significant relatively natural habitat in which a fish, wildlife, or plant community,

or similar ecosystem, normally lives”. Sec. 1.170A-14(d)(3)(i), Income Tax Regs.

A “habitat” is an “area or environment where an organism or ecological

community normally lives or occurs” or the “place where a person or thing is most

likely to be found.” Glass v. Commissioner, 124 T.C. 258, 281-282 (2005)

(quoting the American Heritage Dictionary of the English Language 786 (4th ed.
                                          - 25 -

[*25] 2000)), aff’d, 471 F.3d 698 (6th Cir. 2006). Additionally, the habitat must

be “significant”. The regulations offer the following guidance with respect to

what constitutes a “significant habitat or ecosystem”:

      Significant habitats and ecosystems include, but are not limited to,
      habitats for rare, endangered, or threatened species of animal, fish, or
      plants; * * * and natural areas which are included in, or which
      contribute to, the ecological viability of a local, state, or national
      park, nature preserve, wildlife refuge, wilderness area, or other
      similar conservation area.

Sec. 1.170A-14(d)(3)(ii), Income Tax Regs. The regulations allow for alteration

of the habitat or environment “to some extent”; human activity will not result in

the denial of a deduction “if the fish, wildlife, or plants continue to exist there in a

relatively natural state”. Id. subdiv. (i).

      Petitioners contend that the 2003 easement and the 2005 easement satisfy

the conservation requirements of the “protecting natural habitat” purpose.

Petitioners contend that each easement has independent conservation significance

but that it is also necessary to assess each respective easement’s role as

contributing to the ecological viability of the surrounding area. Respondent,

focusing on the operation of the golf courses, contends that the rights petitioners

retained under the conservation deeds negate any purported conservation purpose

of the easements. We address in turn each easement’s independent conservation
                                          - 26 -

[*26] significance, its contributory role, and the effect of the retained rights,

keeping in mind that respondent must satisfy his burden of proof regarding the

issue.

         A.    2003 Easement

               1.     Independent Conservation Significance

         Petitioners contend that the 2003 easement protects forests, ponds, and

wetlands which provide a variety of habitats for plants and animals of

environmental concern. Petitioners contend that the location of the 2003 easement

property within the Cape Fear Arch supports a finding that the 2003 easement

property is a significant natural habitat.

         Petitioners’ expert Dr. Luken stated in his report that the most significant of

these ecological features is the forest of longleaf pine at the margins of the

fairways. Such trees are described as remarkable because many have been

otherwise eliminated through logging, damage, or the absence of fire. The

evidence shows, however, that the terms of the 2003 easement do not protect the

longleaf pine from removal and that the longleaf pine currently on the 2003

easement property is not maintained in a relatively natural state.

         The 2003 easement does not protect longleaf pine because the terms of the

easement allow for the removal of a large number of trees currently on the 2003
                                        - 27 -

[*27] easement property. It is unclear how much of the 2003 easement property is

covered in longleaf pine, but Dr. Luken describes the “longleaf remnants” as being

“protected by housing development on one side and fairways on the other”. The

houses to which Dr. Luken refers border the 2003 easement area. Consequently,

the trees exist in a margin around the fairways of the Cate 9 Golf Course. Most of

the photographs submitted into evidence, including one of the photographs in Dr.

Luken’s expert report, confirm the trees’ proximity to the houses and lots that

border almost the entirety of the easement area.

      Under the terms of the 2003 easement deed, any trees within 30 feet of the

fairways are eligible for cutting and removing. Because the trees exist in a thin

line around the margin of the fairway, a significant number of them fall within this

30-foot area. The photographs submitted into evidence show that some of the

trees are so near the bordering houses that they do not even appear to be on the

2003 easement property. Additionally, the terms of the 2003 easement deed allow

trees to be removed for the building of a restroom, rain shelter, rest station, or food

concession stand. Indeed, the monitoring reports show that an “emergency

bridge” has already been constructed on the 2003 easement area. If the 2003

easement property were altered within the terms fully permitted in the 2003

easement deed, the conservation purpose would be significantly undermined. Our
                                         - 28 -

[*28] conclusion is buttressed by Dr. Luken’s own testimony that the longleaf pine

must be protected from development in general and that the habitat of the longleaf

pine does not spill into the fairways.

      The longleaf pine on the 2003 easement property does not currently exist in

a relatively natural state worthy of conservation. Mature longleaf pine forests

once included trees that grew to 100 feet tall and 3 feet in diameter. Longleaf pine

trees of that size are now rare, and there are none on St. James Plantation,

suggesting that none of those trees represent the “old growth” NALT highlighted

as being important.

      There is no management plan, such as prescribed burning, to ensure that the

longleaf pine will reach and maintain a relatively natural state. NALT highlighted

the importance of active forest management such as prescribed burning. Longleaf

pine grows in sandy soil which is generally nutrient poor. Fire is therefore

important to a longleaf pine community because it releases nutrients and clears the

understory. Dr. Luken testified that the longleaf pine has suffered in part because

of the absence of fire. Yet there is no prescribed burning or mention of any plan

for such burning on the 2003 easement property.

      Nor does St. James Plantation have a management plan to ensure that the

cutting of shrubs and bushes mimics prescribed burning. Dr. Luken testified that
                                         - 29 -

[*29] he “suspects” St. James Plantation cuts shrubs growing under longleaf pine

to mimic how fire clears understory in longleaf pine forests. St. James Plantation

does not, however, have a management strategy or program for the longleaf pine

areas. Indeed, many of the photographs of the 2003 easement area in evidence

show trees with dense foliage at their base, a fact to which Dr. Luken alluded in

his testimony when he stated that, in the pictures, “if you look at some of the

pictures in there, you’ll see some of the pine forests that haven’t been cut back,

you’ll see how quickly the shrubs grow back”. Finally, even if there were such a

management plan, the evidence shows that simply cutting bushes does not provide

the important release of nutrients that would occur in a prescribed fire.

      Petitioners contend that the 2003 easement property contains ponds which

replicate the natural habitat found in the shallow ponds of Boiling Springs Lakes

and Big Cypress Bay. Respondent’s expert Dr. Richardson presented evidence

that the 2003 easement property did not contain any ponds before the development

of the Cate 9 Golf Course. Accordingly, respondent contends that the ponds

cannot provide a significant relatively natural habitat, because ponds are not part

of the area’s natural habitat. However, the regulations allow for alteration of the

habitat or the environment so long as fish, wildlife, or plants exist in a relatively

natural state. Sec. 1.170A-14(d)(3)(i), Income Tax Regs. The example found in
                                          - 30 -

[*30] the regulations is a “lake formed by a man-made dam or salt pond” that

would meet the conservation purpose test “if the lake or pond were a natural

feeding area for a wildlife community that included rare, endangered, or

threatened native species.” Id. Consequently, we further analyze whether the

ponds on the 2003 easement allow rare, endangered, or threatened native species

of wildlife or plants to exist in a relatively natural state.

       Petitioners contend that the unmanicured edges of the 2003 easement ponds

create a diverse community of plants and offer transition zones that provide a

relatively natural habitat for amphibians, reptiles and birds. Petitioners contend

that the edges of the ponds in the 2003 easement property are particularly

beneficial because they support rare plants and wildlife feeding areas. However,

the evidence leads us to the opposite conclusion. Very few ponds have a natural

edge. During his survey of the easement area, Dr. Richardson observed that many

ponds had no edge whatsoever. Dr. Luken’s report also shows ponds that have no

edge or only a partial edge, and he testified that, in a more natural setting, the

transition zone would be greater. The best example contained in NALT’s reports

of a pond providing natural habitat was a pond where NALT’s representative

heard a “large Southern Leopard Frog chorus”, but even that pond was identified

as “temporary”.
                                         - 31 -

[*31] Dr. Luken also testified that “[w]hen the edges are not regularly mowed or

sprayed, a diverse community of plants emerges * * * [which] in turn provides

habitat for amphibians, reptiles, and birds”. However, the evidence shows that St.

James Plantation uses pesticides on the Cate 9 Golf Course. The 2003 easement

ponds are found on or adjacent to the Cate 9 Golf Course fairways; therefore,

many of the pond edges are regularly sprayed. While a conservation area need

only be “relatively natural” to satisfy the statute and the regulations, it must

sufficiently mimic nature so that plants and animals would be able to use it.

Consequently, when a pond in this ecosystem has no edge, it does not provide

even a “relatively” natural habitat for amphibians, reptiles and birds.

      Dr. Richardson’s analysis of the pond water samples showed reduced

oxygen, increased salinity, and levels of nitrogen beyond EPA recommendations.

He testified that such conditions can lead to eutrophication, which stimulates plant

growth in bodies of water, thus depleting dissolved oxygen. Dr. Richardson

conceded that the ponds in the 2003 easement area “offer potential habitat for fish

and amphibians” and the quality of the water “would not preclude some of the

native aquatic species from utilizing these ponds”. However, he testified that he

saw no fish or amphibians evident in the 2003 easement ponds. Petitioners’ expert

Dr. Luken testified generally that the various ponds of the 2003 easement provide
                                         - 32 -

[*32] “critical habitat for amphibians, fish, reptiles, and birds”, but he, likewise,

did not actually testify that he observed any specific plants or wildlife in the 2003

easement pond edges.

      Dr. Richardson concluded, as with the ponds, that the land areas of the 2003

easement property provide poor habitat for plants and wildlife. Petitioners

contend that the 2003 easement property, including the rough, fairways, greens,

and tees, provide a relatively natural open space for foraging, migration and

feeding of animals such as the Eastern Fox Squirrel, southern flying squirrels,

owls, coyotes, red foxes, raccoons and opossums. Dr. Richardson, however,

testified that there are no natural fruits and seeds for foraging on the golf course in

the 2003 easement property. It also provides no cover. Dr. Luken testified that

some back yards of nearby houses may provide natural habitat that is as beneficial

to the wildlife as the 2003 easement area. However, animal migration is deterred

by the residential development surrounding each of the noncontiguous tracts, level

of human activity, and the frequent watering. Petitioners’ expert Dr. Luken

testified that he never visited the property at night, and Mr. Smith could not “speak

to specific species” or how they may have used different areas for roosting,

feeding, or breeding.
                                         - 33 -

[*33] In his baseline report on the 2003 easement property, Christopher Wilson of

NALT wrote that “Fish Crows, Great Blue Herons, and American Kestrel were

common”. However there is no indication whether these species are rare,

endangered, or threatened, or whether they depend on the ponds. Mr. Wilson did

not himself see the American Alligator, which in any case is only observed

“occasionally”. As mentioned above, Mr. Wilson wrote that he heard a chorus of

frogs, but these were by the “temporary” pond.

      Petitioners contend that, so long as the easement area provides habitat for

one threatened or endangered species, the easement satisfies the conservation

purpose test. Specifically, petitioners contend that the existence of the Venus

Flytraps and Pitcher Plants on the 2003 easement property are sufficient for us to

conclude that the area is a significant relatively natural habitat.

      Petitioners rely on Glass v. Commissioner, 124 T.C. 258. In Glass, the

property donated was a “famous” roosting spot for bald eagles and the easements

established a proper place for the growth and existence of Lake Huron Tansy and

Pitcher’s Thistle. Id. at 281. Lake Huron Tansy, Pitcher’s Thistle, and Bald

Eagles were all designated “threatened” at the time. The Court found that the

property was in a “natural undeveloped state” and that the land in fact had a

community of Lake Huron Tansy, Pitcher’s Thistle, and roosting Bald Eagles. Id.
                                         - 34 -

[*34] at 282. Thus, in Glass, the Court held that the taxpayers’ land contributed

“to protect a significant relatively natural habitat in which a fish, wildlife, or plant

community, or similar ecosystem, normally lives”. Id. (quoting section 1.170A-

14(d)(3)(1), Income Tax Regs.); see also Butler v. Commissioner, T.C. Memo.

2012-72, 103 T.C.M. (CCH) 1359 (2012) (environmental consultants testified that

one threatened species lived on property in issue and described high-quality

examples of ecosystems where some rare, endangered, or threatened species

normally live).

      However, in the instant cases, the 2003 easement property does not provide

the same level of protection as the habitat in Glass. The property in Glass was

mostly undisturbed land. The 2003 easement property, unlike the property in

Glass, is not in a “natural undeveloped state”. The fairways, tee boxes, and greens

within the 2003 easement area are sodded or planted with 419 Bermuda and

Tidwarf, which are nonnative grasses and consequently do not provide a relatively

natural habitat for the Pitcher Plants and Venus Flytraps. Water and soil samples

taken from the Members Club Golf Course show more intensive management, i.e.

nonnatural, as compared to non-golf-course areas. Respondent’s expert Dr.

Richardson provided photos of soil samples from the fairway on Cate 9 and the

adjacent pine forest next to the fairway. The soil from the pine forest is twice as
                                       - 35 -

[*35] deep, as well as different in color. Mr. Smith of NALT provided

contradictory testimony over whether the Pitcher Plants and Venus Flytraps are

found in the heavily managed fairways. Consequently, the 2003 easement

property is not a proper place for the growth and existence of Venus Flytraps and

Pitcher Plants.

      Although the 2003 easement property is not ideal for the Venus Flytraps,

petitioners provided photos of Venus Flytraps and Pitcher Plants actually found on

the property. Nonetheless, if the plants are found only on the areas excluding the

fairways, tee boxes, and greens, that area constitutes only 24% of the 2003

easement property. Even if the transition areas between the more undisturbed land

and the fairways of the 2003 easement property is the ideal habitat for the Venus

Flytrap, that area represents too insignificant a portion of the 2003 easement to

lead us to conclude that the whole 2003 easement property is a significant natural

habitat. Highlighting this fact, the NC Natural Heritage Program map in the

baseline report did not identify any Venus Flytrap plants on the 2003 easement

property.

      Moreover, the species on the Glass property were threatened or endangered.

Pitcher Plants and Venus Flytraps are rare but not designated threatened or

endangered. The regulations provide that a significant habitat includes habitats
                                        - 36 -

[*36] for rare plants, but we are mindful that petitioners’ own documentation

shows that the species on the 2003 easement property are classified only one step

above “apparently secure” and do not reach the level of “[i]mperiled globally

because of rarity”.

      Respondent contends that the 2003 easement property is not “relatively

natural” because petitioners spray pesticides, insecticides, fungicides, herbicides,

and fertilizers on the fairways, greens, tees, and rough. It is undisputed that the

golf courses use chemicals on roughly 63% of the 2003 easement property in the

operation of the golf course. Section 1.170A-14(e)(2), Income Tax Regs.,

provides the following guidelines regarding the use of pesticides: “[T]he

preservation of * * * [land] would not qualify under paragraph (d)(4) of this

section if under the terms of the contribution a significant naturally occurring

ecosystem could be injured or destroyed by the use of pesticides”. Accordingly,

we consider whether the pesticides could injure or destroy the ecosystem of the

2003 easement property.

      Respondent’s expert Dr. Richardson concluded that the golf courses’ use of

various chemicals injures the ecosystem of the easement property. In preparing

his report, Dr. Richardson reviewed various data about the 2003 easement, some

which he personally collected and others provided by petitioners. As noted in his
                                         - 37 -

[*37] report, the main pesticide used on the 2003 easement property, Oxadiazon,

can run off when applied in porous soils such as the soil in the 2003 easement

property. Dr. Richardson states that Oxadiazon runoff accumulates in bodies of

water, where it is toxic to fish and aquatic invertebrates. Additionally, the main

insecticide in use on the 2003 easement property is Bifenrin, which is a possible

human carcinogen. Bifenrin is generally toxic to mammals and birds, but more

importantly it is toxic to beneficial, nontarget species such as bees. The fungicide

that is used on the 2003 easement property has negative effects on habitat as well.

As mentioned above, water samples from the 2003 easement property showed

reduced oxygen, increased salinity, and levels of nitrogen beyond EPA

recommendations. Also, as noted above, nutrient runoff can lead to

eutrophication, which stimulates plant growth in bodies of water, thus depleting

dissolved oxygen.

      It is clear from the testimony of Dr. Richardson that the chemicals used on

the 2003 easement property promote the maintenance of nonnative flora without

regard for any conservation purpose of the 2003 easement.6 The original

      6
        We note that petitioners’ witness Conrad Broussard, who works on the golf
courses at St. James Plantation, provided further support for the proposition when
he testified that the goal in irrigation and the use of pesticides, fungicides, and
herbicides is to keep the golf course in good condition for playing golf and to try
                                                                          (continued...)
                                        - 38 -

[*38] landscape of the 2003 easement area has been replaced with nonnative

grasses for the golf course. The 2003 easement deed requires the owner of the

property to exercise the best environmental practices “then prevailing in the golf

industry”, not the best environmental practices then prevailing for conservation, as

might be expected if conservation was the purpose of the easement. The 2003

easement deed qualifies the owner’s reserved rights, e.g., allowing the property

owner to modify the golf course “provided that no such activity shall have a

material adverse effect on the Conservation Purpose”. However, the easement

deed allows for the use of chemicals in the maintenance and operation of the golf

course, and the NALT baseline and monitoring reports provide no way of

assessing the possible damage caused by those chemicals. Accordingly, the 2003

easement deed does not in actuality limit the use of pesticides and chemicals that

may destroy the conservation purpose.

      Petitioners’ expert Dr. Luken did not testify that the effects of chemicals

used on the 2003 easement property were benign. Instead, Dr. Luken concluded

only generally that the species he observed on the properties did not appear

affected by the chemicals and that Dr. Richardson showed only that chemicals


      6
       (...continued)
to keep the turf healthy.
                                       - 39 -

[*39] were used, not that they had any deleterious effect on plants or wildlife. We

do not give weight to Dr. Luken’s conclusion, however, because of the basis on

which it is drawn. Dr. Luken determined that soil and water samples were

irrelevant to characterizing natural habitat involving plants and animals. He did

not take any soil or water samples from the 2003 easement property and did not

analyze the samples that Dr. Richardson provided to him. Despite having

published research on the varying effects of herbicides’ application techniques on

target and nontarget species, Dr. Luken did not investigate the types or amounts of

pesticides, fungicides, fertilizer, or herbicides used on the 2003 easement property.

      Moreover, when preparing the baseline report, NALT did not consider the

use of chemicals on the 2003 easement property. Such a lack of investigation and

consideration of chemical usage by petitioners’ experts would make it difficult, if

not impossible, to assess the long-term impact of chemical use on the 2003

easement property. Without any baseline documentation regarding the chemicals’

effect on the 2003 easement area, there would be no way for NALT to monitor

whether there was any change in soil or water conditions. We conclude from Dr.

Richardson’s testimony that the use of pesticides and other chemicals could injure

or destroy the ecosystem and therefore runs counter to the provisions of section

1.170A-14(e)(2), Income Tax Regs.
                                         - 40 -

[*40] On the basis of the foregoing, we conclude that wildlife and plants are not

“most likely” to be found or do not “normally live” on the 2003 easement

property.

             2.     Contributory Role

      Petitioners also contend that the 2003 easement property meets the

requirements of the “relatively natural habitat” purpose and cite section 1.170A-

14(d)(3)(i), Income Tax Regs., which provides that “[s]ignificant habitats and

ecosystems include * * * natural areas which * * * contribute to, the ecological

viability of a local, state, or national park, nature preserve, wildlife refuge,

wilderness area, or other similar conservation area”.

      The 2003 easement was designed in part to contribute to a wider set of

easements that St. James Plantation issued to NALT. Specifically, parts of the

2003 easement property are adjacent to the Middle Swamp easement. For the

2003 easement to qualify as a significant habitat and ecosystem because of its

contributory benefits to the Middle Swamp, therefore, the 2003 easement property

must, in the terms of the regulation, be a “natural area” that “contributes to” the

Middle Swamp, and the Middle Swamp must be a “nature preserve, wildlife

refuge, wilderness area, or other similar conservation area”. Id.
                                        - 41 -

[*41] Petitioners have presented evidence that the Middle Swamp and other

undeveloped areas within the St. James Plantation rise to the level of a “wilderness

area or other similar conservation area”. We cannot conclude, however, that the

2003 easement property is a “natural area” that “contributes to” the Middle Swamp

or surrounding undeveloped areas. We reiterate our analysis above which

explains why the 2003 easement not only does not qualify as a “relatively natural

habitat” but also does not quite qualify as a “natural” habitat. A large portion of

the 2003 easement property is planted with nonnative grass, the ponds do not exist

in a relatively natural state, and the native forests that do remain on the 2003

easement property are at risk of removal pursuant to the terms of the 2003

easement deed.

      Moreover, the 2003 easement property does not act as a “wildlife corridor”

or “sink” for any species as petitioners contend. There are no natural fruits and

seeds for foraging or cover from humans or predators, and there are barriers to

animal migration such as the surrounding homes, human activity, and nightly

watering. Neither petitioners’ expert, Dr. Luken, nor Mr. Smith could identify or

testify as to any specific species that he personally observed using the 2003

easement property for nocturnal migration.
                                         - 42 -

[*42] Petitioners contend that the state of the easement area is irrelevant so long

as it can act as a buffer to a nearby significant habitat. Petitioners rely on section

1.170A-14(f), Example (2), Income Tax Regs., which states in pertinent part as

follows:

      A qualified conservation organization owns Greenacre in fee as a
      nature preserve. Greenacre contains a high quality example of a tall
      grass prairie ecosystem. Farmacre, an operating farm, adjoins
      Greenacre and is a compatible buffer to the nature preserve.
      Conversion of Farmacre to a more intense use, such as a housing
      development, would adversely affect the continued use of Greenacre
      as a nature preserve because of human traffic generated by the
      development. The owner of Farmacre donates an easement
      preventing any future development on Farmacre to the qualified
      conservation organization for conservation purposes. Normal
      agricultural uses will be allowed on Farmacre. Accordingly, the
      donation qualifies for a deduction under this section.

      The 2003 easement in the instant cases and Farmacre in the regulation’s

example, however, are distinguishable. The 2003 easement property is not a

“compatible buffer” to the Middle Swamp or the nearby undeveloped land in the

way that Farmacre is to Greenacre. Most of the 2003 easement property is

surrounded by a row of houses overlooking the golf course. The 2003 easement

property therefore cannot provide a buffer since development already exists

between the easement area and the other natural areas. The one area that is not

separated by houses abuts the Middle Swamp and constitutes roughly one-third of
                                       - 43 -

[*43] the 2003 easement property. However, Dr. Luken’s report does not identify

the Middle Swamp as a beneficiary of the 2003 easement. Instead, his report

identifies Green Swamp Preserve and Boiling Springs, neither of which is on the

2003 easement property or adjacent to it.

      Additionally, respondent’s expert Dr. Richardson identified heavy human

traffic on and around the golf course as one feature of the 2003 easement property

that diminishes the benefits of a “buffer”. Example (2) in the regulation

specifically alludes to the increased human activity in Farmacre, if it were

developed, as a detriment to Greenacre. In the instant cases, as it would be with

Farmacre, the 2003 easement property’s human activity level is a detriment, not a

benefit, to the adjacent property. We conclude from the record that, as a whole,

the 2003 easement property does not “contribute” to any “conservation area”

nearby.

             3.    Retained Rights

      Section 1.170A-14(e)(2), Income Tax Regs., prohibits inconsistent use of

the contributed easement and provides that a deduction will not be allowed if the

contribution would accomplish one of the enumerated conservation purposes but

would permit destruction of other significant conservation interests. Respondent
                                            - 44 -

[*44] contends that operating a golf course is inherently inconsistent with the

conservation purpose of protecting relatively natural habitat.

      However, we do not need to decide in the instant case whether an operating

golf course is inherently inconsistent with conservation purposes under section

170(h). To implicate section 1.170A-14(e)(2), Income Tax Regs., the contributed

easement must, as a threshold, have a qualifying conservation purpose. As we

have concluded above that the 2003 easement property does not preserve a

relatively natural habitat, we need not address the issue of whether an operating

golf course is inherently inconsistent with the conservation purpose of preserving

a significant relatively natural habitat.

      B.     2005 Easement

             1.     Independent Conservation

      The 2005 easement, while it would appear to be a stronger case for

petitioner Reserve Development Co., suffers from the same problems as the 2003

easement. Respondent’s expert Dr. Richardson estimates that 32% of the 2005

easement property comprises “undisturbed woodland”, which is similar to the

stipulated exhibit showing 37.4% of the easement area covered by “wetlands”.

Petitioners’ expert Dr. Luken testified to the presence of longleaf pine remnants on

the 2005 easement, and some of the 2005 easement photographs show lusher
                                       - 45 -

[*45] undisturbed areas. However, those same photographs show the reemergence

of mowed grass a short distance away, highlighting the narrow character of many

of such tree clusters.

      As with the 2003 easement property, many of the trees on the 2005

easement area are at risk of removal because the 2005 easement deed allows for

the removal of any trees within 30 feet of the fairway and for the benefit of

building certain structures. Dr. Luken repeats his assessment that the longleaf

pine remnants are “protected by housing development on one side and fairways on

the other”. NALT categorized the “primary adjacent land” as residential or golf.

At least half of the 2005 easement property’s borders appear to abut residential

lots, and many of the longleaf pines are placed on or at the edge of houses’

backyards.

      We reiterate our analysis above regarding the 2003 easement: Dr. Luken

conceded that longleaf pine should be protected from development in general, and

there is a generous amount of development surrounding the 2005 easement area.

As with the 2003 easement property, Dr. Luken references the management that he

“suspects” goes on to “remove[] woody plants and encourage[] the growth of

grasses and herbs” with the goal of mimicking prescribed burning of the 2005

easement property. NALT also highlighted the benefits of “active forest
                                       - 46 -

[*46] management”. Yet there is no management plan to mimic prescribed

burning or preserve the longleaf pine areas on the 2005 easement property.

      Petitioner contends that the 2005 easement property includes portions of

Polly Creek and an unnamed tributary of Beaver Dam Creek. However, Dr.

Richardson directly refutes that contention, and none of the maps submitted to the

Court identify either of those bodies of water. Additionally, petitioner contends

that the ponds provide the necessary “edge” for many plants to thrive. Such

habitat could be significant because the 2005 easement property is found within

the Boiling Springs Lake Complex. Although Dr. Richardson acknowledged that

the ponds theoretically “offer habitat for native fish and amphibians”, he qualifies

that statement with “none of these species were seen or heard on the site visit”.

Dr. Richardson observed that the 2005 easement ponds have decreased plant

diversity compared to the adjacent Wetlands II easement ponds because they are

isolated in pockets separated by the golf course, houses, and concrete path. Dr.

Richardson included photographs in his report comparing the edges on the 2005

easement property and Wetlands II, and the difference is compelling. One

photograph shows a house built on the edge of one of the ponds, precluding any

potential for a natural transition area. The photographs in the NALT baseline and

compliance reports also show sparse edges.
                                        - 47 -

[*47] As with the ponds on the 2003 easement, eutrophication is a concern

because the same chemicals are used on both easement properties’ golf courses.

We conclude that the lack of an edge and the risk of the chemical use means that

the ponds do not exist in the kind of natural state that would provide a significant

natural habitat for plants and wildlife. Moreover, there is no aquatic features

management plan, which the NALT baseline report recommended.

      Dr. Richardson observed very little wildlife on the 2005 easement property.

The only birds he saw were geese, which St. James Plantation attempts to

“control”, i.e., eliminate from the 2005 easement property, using a border collie.

Squirrels may run through the golf course on the 2005 easement property, but

there is no evidence that the “Southern Fox Squirrels” identified by Dr. Luken and

Dr. Richardson are a species of “concern”. The squirrels may in fact be “Eastern

Fox Squirrels” as NALT’s reports suggest, but even then, there is no indication

that they are threatened or endangered by national standards. Rather, the Eastern

Fox Squirrel is designated “significantly rare” by the State of North Carolina.

NALT does not list the squirrel as a “special status species” on reports assessing

the 2005 easement. The NALT report mentioned the Red-Cockaded Woodpecker

but stated only that the 2005 easement area provided the “potential” for a habitat.

Petitioners contend that animals use the 2005 easement property at night, but
                                        - 48 -

[*48] neither Dr. Luken nor NALT representative Mr. Smith ever observed the

area at night, and Mr. Smith could not testify as to specific species or how they

may have used one area for “roosting or feeding, and another area for breeding”

and saw no denning sites.

      Mr. Smith testified that on his most recent visit he saw a Bald Eagle fly

overhead while he was on the 2005 easement property. In Glass v. Commissioner,

124 T.C. at 281, the testimony established that the property there in issue was

“famous” as a roosting spot for eagles. In the instant cases, however, there is no

evidence that Bald Eagles roost on the 2005 easement property. We do not equate

one sighting of a Bald Eagle flying over the property with a conclusion that the

area is “famous” as a roosting spot for eagles.

      Roughly half of the 2005 easement property supports populations of Venus

Flytraps and Pitcher Plants. While the plants cannot grow on the fairways or

mowed parts of the rough, they can and do grow on the 53% of the 2005 easement

property designated “other” and “wetlands”. Such facts, however, are insufficient

for us to conclude that the 2005 easement property qualifies as a “significant

relatively natural habitat”. As discussed above, this partial provision of a proper

place for growth is insufficient to justify protecting the entire easement area, and
                                        - 49 -

[*49] the status of Venus Flytraps and Pitcher Plants is not sufficiently dire to

qualify as “imperiled”.

      Petitioners presented evidence that an American Alligator, federally

designated threatened, frequents two golf course holes. The NALT reports are

unclear, however, about where the American Alligator has been seen. The reports

cover several golf courses and specify only the holes by which the Alligator has

been seen, not which golf course. Most importantly, in the instant cases,

respondent has shown that the 2005 easement property is not “relatively natural”

because most species cannot use it as a travel corridor, much less a habitat; the soil

quality differs from that of surrounding undeveloped areas; the ponds lack edge;

many of the protected flora are at risk of removal; and the operators of the golf

course apply a variety of chemicals to the area without consideration of their

impact on the environment.

             2.    Contributory Role

      Dr. Luken determined that, “when taken as a whole the * * * [2005

easement property and Wetlands II habitats] represent the full range of ecological

communities typically found in the Carolina bay wetland to upland complex”. We

think that such a statement misses the point of the contributory role qualification.

The 2005 easement property does not provide sufficient contributory benefits to
                                        - 50 -

[*50] qualify as a “significant natural habitat” by virtue of its proximity to the

Wetlands II easement. Of the 2005 Easement property’s three tracts, only one

portion of one tract directly borders Wetlands II. Dr. Richardson explicitly

countered each of the contributory benefits petitioners contend the 2005 easement

property provides to the Wetlands II easement.

      As with the 2003 easement property, petitioners contend that the state of the

easement area is irrelevant so long as it can act as a buffer to a nearby significant

habitat. See sec. 1.170A-14(f), Example (2), Income Tax Regs. The 2005

easement property and Example (2) of Farmacre in the regulations, however, are

distinguishable. While Wetlands II may be a high-quality example of

undeveloped land in the Cape Fear Arch, the 2005 easement property is not a

“compatible buffer” to Wetlands II in the way Farmacre is to Greenacre in the

regulation’s Example (2). Petitioners contend that the 2005 easement property

provides wildlife corridors that benefit Wetlands II and that we should evaluate

the 2005 easement property as a whole to determine how it contributes to the

Carolina Bays ecosystem. However, in that case we would also consider the

houses separating the 2005 easement from the Carolina Bays. The houses isolate

parts of the 2005 easement property (e.g., holes 2, 8 and 7) from Wetlands II and

other undeveloped land. Dr. Richardson testified that the housing lots, daily
                                        - 51 -

[*51] presence of humans, concrete paths, and lack of fruits and seeds for foraging

reduce the 2005 easement property’s contribution as a wildlife corridor.

Additionally, the same chemicals are applied to the 2005 easement property golf

course as to the 2003 easement property golf course, so there are risks of chemical

runoff. On the basis of our analysis above and the record as a whole in the instant

cases, we conclude that the 2005 easement property does not provide a

contributory benefit to the Wetlands II easement.

              3.    Retained Rights

        As with the 2003 easement property, we need not decide with respect to the

2005 easement property whether an operating golf course is inherently

inconsistent with conservation purposes of preserving a relatively natural habitat

under section 170(h). Because we have concluded that the 2005 easement

property is not a relatively natural habitat, petitioners do not meet the threshold

requirement of qualifying for a conservation purpose. We therefore need not

determine whether any inconsistent use on the 2005 easement property negates

any qualification under section 170(h). See sec. 1.170A-14(e)(2), Income Tax

Regs.
                                        - 52 -

[*52] V.     Open Space

      We next address whether either the 2003 or the 2005 easement property

qualifies for the conservation purpose of preserving open space pursuant to section

170(h)(4)(A)(iii)(I) or (II). Pursuant to that section, the easement must either be

pursuant to a clearly delineated Federal, State, or local government conservation

policy, sec. 170(h)(4)(A)(iii)(II), or be for the scenic enjoyment of the general

public, id. subdiv. (I). In either case the preservation of open space must also

yield a significant public benefit. Sec. 170(h)(4)(A)(iii); sec. 1.170A-14(d)(4),

Income Tax Regs. As noted above, we conclude that petitioners did not produce

any credible evidence with respect to whether either of the easements satisfies the

conservation purpose of preserving open space, and therefore the burden of proof

remains with petitioners and does not shift pursuant to section 7491(a).

      Petitioners have failed to establish any clearly delineated governmental

policies that apply to either easement area. The baseline documents for both of the

easements list several North Carolina laws but include no explanation for how the

areas contribute to the purposes stated in those laws. Petitioners do not provide

any analysis, nor do they mention any government policies in their briefs, and so

we deem the clearly delineated conservation policy argument abandoned.
                                        - 53 -

[*53] The preservation of land may be for the scenic enjoyment of the general

public if “development of the property would * * * interfere with a scenic

panorama that can be enjoyed from a park, nature preserve, road, waterbody, trail,

or historic structure or land area, and such area or transportation way is open to, or

utilized by, the public.” Sec. 1.170A-14(d)(4)(ii), Income Tax Regs. Scenic

enjoyment is evaluated by considering all pertinent facts and circumstances

germane to the contribution. Id. While the entire property does not have to be

visible to the public, the benefit from the donation may be insufficient to make a

deduction allowable if only a small portion of the property is visible to the public.

Id. subdiv. (ii)(B).

      In the instant cases, petitioners have failed to establish that either easement

area exists for the scenic enjoyment of the general public or yields a significant

public benefit. See sec. 170(h)(4)(A)(iii). To access any of the golf courses, a

visitor must be a member of St. James Plantation or an invited guest of a member.

A large portion of the 2003 and 2005 easement properties is covered by golf

courses. The public may be able to drive into St. James Plantation, but guards at

the three gate houses control access to the development. Because the parties have

failed to present any evidence regarding the guards’ criteria for allowing people to
                                          - 54 -

[*54] enter, we have no basis on which to conclude that the general public has

access to St. James Plantation roads, which would provide access to the easement

areas.

         Petitioners contend that the regulations require only that the public have

visual access, not physical access. See sec. 1.170A-14 (d)(4)(ii)(B), Income Tax

Regs. However, the record is devoid of any evidence that the public has even

visual access. We are unable to conclude from the record that the easement areas

are visible from public highways or waterways. Petitioners contend that the

general public does have visual access to the easement areas, regardless of the

presence of guards, because the areas are visible from the roads within St. James

Plantation, and most of the population of the Town of St. James lives within St.

James Plantation. We are not persuaded. We do not impute access to St. James

Plantation to the public at large simply because most of the town population lives

within St. James Plantation. Moreover, both easement areas are ringed by houses,

suggesting that even if a visitor gained access to the easement areas, scenic

enjoyment of the easement areas from the St. James Plantation roads would be

limited. These barriers to visual access could be a likely reason that neither the

2003 easement deed nor the 2005 easement deed lists the “scenic enjoyment of the

general public” as a conservation purpose.
                                        - 55 -

[*55] Preservation of land may be for the scenic enjoyment of the general public if

development of the property would interfere with a scenic panorama that can be

enjoyed from the local landscape. Id. subdiv. (ii). However, as we discussed

above regarding the protecting natural habitat purpose, the record establishes that

most of the easement areas do not preserve the scenic character of the local

landscape. While there are patches of native vegetation and wildlife, golf courses

and the homes surrounding much of each easement area interrupt the natural

scenic character. The easement areas are primarily man made and are neither

natural nor historic.

      Petitioners have failed to present any evidence showing that the easements

were made pursuant to a clearly delineated government conservation policy or for

the scenic enjoyment of the general public. Considering all facts and

circumstances, we conclude that petitioners have not met their burden of proving

the 2003 easement and the 2005 easement, or either of them, preserve open space

as defined by section 170(h)(4)(A)(iii).

VI.   Penalties

      Respondent determined that petitioners were liable for 20% accuracy-

related penalties under section 6662(a) and (b)(1), (2), and (3) for underpayments

due to (1) negligence or disregard of rules or regulations, (2) substantial
                                        - 56 -

[*56] understatements of income tax, or (3) substantial valuation overstatements,

and, to the extent that a portion of any underpayment was attributable to a gross

valuation misstatement, an increased penalty of 40% under section 6662(h). In

any court proceeding with respect to the liability of an individual, the

Commissioner bears the burden of production on the applicability of the

accuracy-related penalty in that he must come forward with sufficient evidence

indicating that it is proper to impose the penalty. See sec. 7491(c); see also

Higbee v. Commissioner, 116 T.C. at 446. In the case of a partnership, however, it

is not clear whether the Commissioner bears the burden of production. See

Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11

(discussing the Court’s varied treatment of whether section 7491(c) is inapplicable

where the taxpayer is not an “individual”). However, in the instant cases, even if

respondent has met his burden of production, we conclude that petitioners are not

liable for the penalty because petitioners acted with reasonable cause.

      Petitioners contend that they qualify for the reasonable cause defense of

section 6664(c)(1). Pursuant to that section, accuracy-related penalties under

section 6662 do not apply to any portion of an underpayment for which a taxpayer

establishes that he or she: (1) had reasonable cause and (2) acted in good faith.

Whether taxpayers acted with reasonable cause and in good faith depends on the
                                        - 57 -

[*57] pertinent facts and circumstances, including their efforts to assess their

proper tax liabilities, their knowledge and experience, and the extent to which they

relied on the advice of a tax professional. 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, 888 (1987), aff’d on another issue, 904 F.2d 1011

(5th Cir. 1990), aff’d, 501 U.S. 868 (1991); sec. 1.6664-4(b)(1), Income Tax

Regs.;. Reliance on an adviser is reasonable if (1) the adviser had the expertise to

justify reliance, (2) the taxpayer provided all necessary and accurate information

to the adviser, and (3) the taxpayer actually relied in good faith on the adviser’s

judgment. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43 (2000), aff’d,

299 F.3d 221 (3d Cir. 2002). Advice includes “any communication * * * setting

forth the analysis or conclusion of a person, other than the taxpayer, provided to

(or for the benefit of) the taxpayer and on which the taxpayer relies, directly or

indirectly, with respect to the imposition of the section 6662 accuracy-related

penalty.” Sec. 1.6664-4(c)(2), Income Tax Regs.

      We agree with petitioners that they acted with reasonable cause and in good

faith. Petitioners worked with NALT to formulate a plan for creating the

conservation easements. The NALT employees who inspected the easement areas
                                       - 58 -

[*58] and testified at trial hold degrees in biology and were qualified to make

assessments about preserving the natural attributes of St. James Plantation.

Petitioners provided NALT all the necessary and accurate information by making

the land available for on-site assessments and inspections. We conclude that

petitioners relied in good faith on NALT’s advice and judgment that placing

easements on the areas NALT deemed worthy of protection complied with the

conservation purpose of protecting relatively natural habitat.

      In the case of a substantial or gross valuation overstatement with respect to

property for which a charitable contribution deduction was claimed under section

170, a taxpayer must also show that the claimed value of the property was based

on a “qualified appraisal” by a “qualified appraiser” and that the taxpayer made a

good-faith investigation of the value of the property. Sec. 6664(c)(2).

      The record supports petitioners’ contention that they relied on a “qualified

appraisal” by a “qualified appraiser”. See Dunlap v. Commissioner, T.C. Memo.

2012-126 (reliance on qualified appraisal prepared by qualified appraiser

constituted reasonable cause); 1982 East, LLC v. Commissioner, T.C. Memo.

2011-84 (considering taxpayer’s appraisal as evidence of reasonable cause and

good faith); Evans v. Commissioner, T.C. Memo. 2010-207. Attached to the

Forms 1065 filed by the Members Club and the Reserve Club were appraisals by
                                         - 59 -

[*59] Mr. Sauter. Respondent does not contest that the appraisals were “qualified

appraisals” under section 170(f)(11)(E)(i) which were prepared by a “qualified

appraiser” under section 170(f)(11)(E)(i)-(iii). In attaching the appraisals to their

tax returns, petitioners demonstrated good-faith reliance on the appraisals.

        Furthermore, the testimony of Ms. Wright, who has experience in

commercial real estate and found no inconsistencies in Mr. Sauter’s report,

supports the conclusion that petitioners made a good-faith investigation of the

values of the easements and relied on the appraisals in good faith. We conclude

that petitioners’ reliance on Mr. Sauter, NALT, and other advisers satisfies the

reasonable cause defense requirements of section 6664(c)(1). Consequently, we

hold that petitioners are not liable for the accuracy-related penalties under section

6662.

VII. Conclusion

        Petitioners have not satisfied the requirements of section 170(h) and,

therefore, are not entitled to deductions for qualified conservation contributions.

They are not, however, liable for the accuracy-related penalties or gross valuation

misstatement penalties. We have considered all of the parties’ contentions,

arguments, requests, and statements. To the extent not discussed herein, we

conclude that they are meritless, moot, or irrelevant.
                                  - 60 -

[*60] To reflect the foregoing,


                                                Decisions will be entered under

                                           Rule 155.
