Not All Easements Have Value

Mountanos owned “ Blue Lakes Ranch”, an 882 acre Ranch in Lake County, California. He was granted an access easement from the federal government that allowed single-family use. Additionally, the Williamson Act limited the use of the land. The act restricted the use of the land for ranching and hunting purposes. Mountanos eventually transferred a conservation easement to a nonprofit corporation. The taxpayer reported a $4,691,500 charitable deduction. The IRS audited the returns found huge tax deduction deficiency. Although the taxpayer obtained the “before and after” valuation as required by statute, the appraiser did not have the correct qualifications. As a result, the valuation of the land was misstated.

In Michael S. Mountanos v. Commissioner, the Tax Court held that the taxpayer claimed that his land was worth more than it was. Because there was no real evidence that the easement changed the worth, there was no difference in value. Moreover, the court imposed a penalty of 40% for each of the years at issue of the gross valuation misstatement. The court decided that the good faith exception did not apply because the expert who appraised the land did not have the proper credentials. 

See Zero Value on Ranch Conservation Easment, University of California Santa Cruz, Jun. 20, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.