                             T.C. Memo. 2018-193



                       UNITED STATES TAX COURT



 WENDELL FALLS DEVELOPMENT, LLC, GREGORY ALAN FERGUSON,
             TAX MATTERS PARTNER, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent*



      Docket No. 3494-14.                        Filed November 20, 2018.



      David M. Wooldridge, Thomas Allen Worth, and Tucker J. Thoni, for

petitioner.

      Scott Lyons and Johnny Craig Young, for respondent.




      *
      This opinion supplements our previously filed opinion Wendell Falls Dev.,
LLC v. Commissioner, T.C. Memo. 2018-45.
                                        -2-

[*2]             SUPPLEMENTAL MEMORANDUM OPINION


       MORRISON, Judge: We will deny petitioner’s June 5, 2018 motion for

reconsideration of findings or opinion pursuant to Rule 161 and motion to vacate

pursuant to Rule 162.1

       On April 4, 2018, the Court issued its Memorandum Findings of Fact and

Opinion in this case, Wendell Falls Dev., LLC v. Commissioner, T.C. Memo.

2018-45, which we refer to as the opinion.

       On April 16, 2018, the Court entered an order and decision in accordance

with the opinion.

       On June 5, 2018, the petitioner, Gregory Alan Ferguson, filed a motion to

reconsider the opinion. On the same day, he filed a motion to vacate the order and

decision. For the reasons explained below, we deny his motions.

       A motion for reconsideration generally will not be granted unless the

moving party shows unusual circumstances or substantial error. Estate of Quick v.

Commissioner, 110 T.C. 440, 441 (1998). Ferguson complains of three alleged

errors in the opinion. He therefore asks us to reconsider the opinion. Because our




       1
       Unless otherwise indicated, all Rule references are to the Tax Court Rules
of Practice and Procedure.
                                           -3-

[*3] order and decision entered on April 16, 2018, were in accordance with the

opinion, he urges us to vacate the order and decision.

      First, Ferguson contends that the opinion appears to invalidate the fifth

sentence of section 1.170A-14(h)(3)(i), Income Tax Regs. Ferguson’s motion

contends in pertinent part:

      The Opinion appears to hold that enhancement to other property
      owned by Petitioner (but not subject to the Easement) in conjunction
      with its charitable gift to Wake County per se disallows the deduction
      associated with the gift. However, as discussed below, the
      Enhancement Regulation provides that enhancement to the value of
      the other property owned by the donor in conjunction with a
      charitable gift does not result in total disallowance of the donor’s
      charitable deduction, so long as the enhancement value is less than
      the value of the donated easement. Treas. Reg. § 1.170A-14(h)(3)(i)
      (fifth sentence).

The fifth sentence of the regulation is:

      If the granting of a perpetual conservation restriction after January 14,
      1986, has the effect of increasing the value of any other property
      owned by the donor or a related person, the amount of the deduction
      for the conservation contribution shall be reduced by the amount of
      the increase in the value of the other property, whether or not such
      property is contiguous. * * *

      Contrary to Ferguson’s contention, the opinion did not hold that any

enhancement to the value of other property held by the donor results in a total

disallowance. Rather, the Court determined that the value of the easement was

zero because the highest and best use of the 125 acres subject to the easement was
                                        -4-

[*4] as parkland and because the easement did not prevent the land from being put

to its best use. Wendell Falls Dev., LLC v. Commissioner, at *12-*15. The

Court’s holding is not inconsistent with the fifth sentence of the regulation.

      Second, Ferguson contends that the opinion appears to invalidate the sixth

and seventh sentences of section 1.170A-14(h)(3)(i), Income Tax Regs.

Ferguson’s motion contends in pertinent part:

      The Opinion appears to hold that the expectation of receiving a
      substantial financial or economic benefit in conjunction with a
      charitable gift per se disallows the deduction associated with the gift.
      However, as discussed below, the Substantial Benefit Regulation
      provides that taxpayers can receive such substantial financial or
      economic benefits in conjunction with conservation easement
      donations without having their deductions disallowed, so long as the
      value of the substantial benefit received is less than the value of the
      contributed easement. Treas. Reg. § 1.170A-14 (h)(3)(i) (sixth
      sentence).

The sixth and seventh sentences of the regulation are:

      If, as a result of the donation of a perpetual conservation restriction,
      the donor or a related person receives, or can reasonably expect to
      receive, financial or economic benefits that are greater than those that
      will inure to the general public from the transfer, no deduction is
      allowable under this section. However, if the donor or a related
      person receives, or can reasonably expect to receive, a financial or
      economic benefit that is substantial, but it is clearly shown that the
      benefit is less than the amount of the transfer, then a deduction under
      this section is allowable for the excess of the amount transferred over
      the amount of the financial or economic benefit received or
      reasonably expected to be received by the donor or the related person.
      ***
                                         -5-

[*5] The seventh sentence of the regulation suggests that a deduction is not

precluded if the expected benefit to the donor of the easement is demonstrably less

than the amount of the transfer. See sec. 1.170A-14(h)(3)(i), Income Tax Regs.

The sentence requires comparison of two variables: (1) the expected benefit to the

donor of the easement and (2) the amount of the transfer. As relevant to the first

variable, the opinion held that “Wendell Falls donated the easement with the

expectation of receiving a substantial benefit.” Wendell Falls Dev., LLC v.

Commissioner, at *13. That means the expected benefit to the donor of the

easement is high. As relevant to the second variable, the Court held that “the

value of the easement is zero.” Id. at *15. That means the value of the transfer,

i.e., the value of the easement, is zero. It follows that the expected benefit to the

donor is greater than the amount of the transfer. Therefore, the seventh sentence

of the regulation does not require the allowance of a deduction. The opinion is

consistent with the sixth and seventh sentences of the regulation.

      Third, Ferguson contends that in determining the value of the 125 acres

before the easement was granted, the Court erred in determining that the highest

and best use of the 125 acres was parkland. In particular, Ferguson suggests that

the opinion is inconsistent with Symington v. Commissioner, 87 T.C. 892, 896-

897 (1986), in which we stated:
                                         -6-

[*6] In determining the fair market value of property “The realistic,
     objective potential uses for property control the valuation thereof.”
     Stanley Works and Subsidiaries v. Commissioner, * * * [87 T.C. 389,
     400 (1986)]. See also Olson v. United States, 292 U.S. 246, 255-256
     (1934). Thus, in determining the “reasonable and probable use that
     supports the highest present value” (see p. 896 supra), we focus on
     “The highest and most profitable use for which the property is
     adaptable and needed or likely to be needed in the reasonably near
     future.” Olson v. United States, supra at 255. Moreover, “The fair
     market value of property is not affected by whether the owner
     actually has put the property to its highest and best use” (Stanley
     Works and Subsidiaries v. Commissioner, supra at 400; see also
     United States v. Meadow Brook Club, 259 F.2d 41, 45 (2d Cir.
     1958)), nor whether he ever intends to do so (Akers v. Commissioner,
     * * * [T.C. Memo. 1984-490, aff’d, 799 F.2d 243 (6th Cir. 1986)]).
     ***

Ferguson implies that the highest and best use of the 125 acres was some use other

than as parkland and that therefore it should not matter that Wendell Falls intended

to use the 125 acres only as parkland.

      Ferguson’s motion is premised on the theory that the 125 acres would be

more valuable as residential and commercial space. But the 125 acres is part of a

larger 1,280-acre parcel of property which, except for the 125 acres, was zoned for

residential and commercial development. It was objectively reasonable to devote

some of the larger parcel to parkland to serve as an amenity for those who would

live and work in the residential and commercial buildings. By June 7, 2007, the

date the easement was granted, the best place for the parkland was the 125 acres
                                        -7-

[*7] burdened by the easement. In October 2006 the Town of Wendell had

approved the planned unit development under which a master-planned community

would be constructed around the 125 acres. In December 2006 the 125 acres had

been placed under contract to be sold to Wake County for use as parkland. Thus,

to value the 125 acres as parkland as of June 7, 2007, is not merely to defer to the

view of the then owner of the 125 acres, Wendell Falls. Wendell Falls’ plans for

the land were locked into place through legally binding obligations. The objective

best use of the 125 acres was as parkland.

      The easement therefore restricted the use of the 125 acres to what would

have been its most efficient use anyway. Under the before-and-after method

mandated by the regulation in this case, the value of the easement is the amount by

which the easement diminished the value of the land. Sec. 1.170A-14(h)(3)(i),

Income Tax Regs. It is our best judgment that the amount of the diminution was

zero. The value of the easement was therefore zero.
                                  -8-

[*8] To reflect the foregoing,


                                        An order will be issued denying

                                 petitioner’s June 5, 2018 motion for

                                 reconsideration of findings or opinion

                                 pursuant to Rule 161 and petitioner’s June

                                 5, 2018 motion to vacate order and decision

                                 pursuant to Rule 162.
