Murphy Hollow, LLC, Piedmont Private Equity Manager, LLC, Tax Matters Partner

United States Tax Court T.C. Memo. 2026-115 MURPHY HOLLOW, LLC, PIEDMONT PRIVATE EQUITY MANAGER, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent HALES GAP, LLC, PIEDMONT PRIVATE EQUITY MANAGER, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent __________ Docket Nos. 9620-21, 13346-21. 1 Filed November 5, 2026. __________ Anson H. Asbury, Robert B. Gardner III, Ethan J. Vernon, and Lauren H. White, for petitioner. Kaitlyn N. Griffith, Dillon T. Haskell, Alison K. Stump, Charles F. Rioux, Kiran F. Ahmad, and Abigail F. Dunnigan, for respondent in Docket No. 9620-21. Kaitlyn N. Griffith, Dillon T. Haskell, Alison K. Stump, Charles F. Rioux, Kiran F. Ahmad, and Katelynn M. Sponseller, for respondent in Docket No. 13346-21. 1 These cases have been consolidated for purposes of trial, briefing, and opinion. Served 11/05/26  2 [*2] MEMORANDUM FINDINGS OF FACT AND OPINION URDA, Chief Judge: Murphy Hollow, LLC (Murphy Hollow), and Hales Gap, LLC (Hales Gap), are two entities formed in 2016 for the purpose of buying adjacent tracts of rural, mountainous land in Tennessee. Both purchases reflected an approximate price of $1,350 per acre, with Murphy Hollow paying $1,803,789 for about 1,336 acres and Hales Gap paying $1,048,586 for approximately 777 acres. The next year they donated the two tracts to a charitable organization, claiming deductions of $26,725,000 (Murphy Hollow) and $19,420,000 (Hales Gap). Murphy Hollow and Hales Gap borrow the shameless approach oft seen in the conservation easement oeuvre, i.e., dream up a lucrative, wholly fanciful, highest-and-best use for a property, hire a friendly appraiser willing to check his integrity at the door to provide palpably outlandish values, and entice tax-motivated investors to put money into the scheme to reap tax deductions. It does not take x-ray vision to see through this gossamer-thin stratagem. We conclude that deductions for both donations must be denied in their entirety because neither Murphy Hollow nor Hales Gap obtained a qualified appraisal. The evidence establishes that each retained the services of an appraiser knowing full well that he would falsely overstate the property values. We hold that penalties for gross valuation misstatement are appropriate in both instances. We further hold that the 20% accuracy-related penalty applies to the portion of the underpayment resulting from our conclusion that Murphy Hollow is not entitled to its deduction. 2 FINDINGS OF FACT The following facts are derived from the pleadings, stipulations of facts with attached exhibits, and the evidence admitted at trial. Murphy Hollow and Hales Gap are Georgia limited liability companies (LLCs) classified as TEFRA 3 partnerships at all relevant times. Petitioner in both cases, Piedmont Private Equity Manager, LLC (Piedmont 2 The Commissioner has conceded the 20% accuracy-related penalty with respect to Hales Gap. 3 Before its repeal, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401–407, 96 Stat. 324, 648–71, governed the tax treatment and audit procedures for many partnerships, including Murphy Hollow and Hales Gap.  3 [*3] Manager), is the tax matters partner and manager of both Murphy Hollow and Hales Gap. Murphy Hollow and Hales Gap had their principal places of business in Georgia when the petitions were timely filed. I. Background A. Messrs. Sofge and Hall Mark Sofge and Walter Hall met in the early 2000s while working in Wachovia Bank’s wealth management division. Mr. Sofge, a certified financial planner and registered investment advisor, was Wachovia’s senior vice president and partner in the wealth management and financial planning departments. Mr. Hall managed tax planning units and had previously held certifications in trust and financial advisory services and as a real property appraiser. Tax planning was at the core of their work, which also involved banking, real estate development, and asset management. So things stood until 2008, when, as Mr. Hall put it, the banking industry went into “freefall” with a “nuclear winter” of real estate problems. More personally, the financial crisis also cost Messrs. Sofge and Hall their jobs. Fueled by Starbucks coffee and a can-do spirit, Messrs. Sofge and Hall pivoted to form Yukon Property Consultants, LLC (Yukon), a consulting business that advised banks on how to rid their books of distressed real estate assets. Messrs. Sofge and Hall understood that many banks had acquired real estate assets (through forfeiture or other mechanisms) that could not be moved given the state of the market but nonetheless incurred ongoing carrying costs (maintenance, security, taxes, and periodic write-downs). Yukon devised exit strategies for banks holding such property, including by means of charitable donations, which in their experience could produce a better after-tax result than an outright sale in a turbulent market. From this start, it was but a hop, skip, and a jump to raising private equity from wealthy investors interested in federal and state tax incentives in order to buy banks’ distressed real estate assets at cut-rate prices, then donating the property to a charitable organization to qualify for, inter alia, the charitable contribution deduction enshrined in  4 [*4] section 170. 4 This strategy offered a more straightforward solution for banks, allowed high-income investors to unlock tax credits and deductions, and brought sizable fees into the coffers of Messrs. Sofge and Hall. B. The Playbook In 2012 Messrs. Sofge and Hall formed Piedmont Private Equity, LLC (Piedmont 5), which served as the nerve center for these endeavors. In 2015 Tim Monks, an accountant, was added as a minority owner. By the end of 2017 Piedmont had engaged in over 60 similarly structured transactions (including the two at issue here), which entailed the creation, management, and control of approximately 100–150 distinct entities. These transactions followed a general pattern. Piedmont would offer for sale to accredited investors membership interests in a Piedmont-affiliated LLC (FundCo), which in turn would purchase up to a 97% interest in a specific Piedmont-affiliated LLC (LandCo) that had acquired a parcel of vacant land for donation. This structure allowed the investors in the FundCo to receive pro rata shares in the deduction generated by the LandCo’s subsequent donation of the property to a charitable organization, with a standard return of $3.50 in deductions for every dollar invested. Although the offering memorandum suggested that investors were free to choose to hold the property for development, this option was window-dressing; every Piedmont transaction resulted in a donation. To obtain the money to buy the property destined for donation, Piedmont routinely used a separate capital raise employing an annual investment fund denominated the Cumulus Fund, starting with Cumulus Fund I in 2012 up through Cumulus Fund V in 2016. As most relevant here, the Cumulus Fund V confidential offering memorandum promised investors a return of 30%. The funds could realize this strong 4 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. 5 By way of shorthand, we will refer to Piedmont as the vehicle used by Messrs. Sofge and Hall in their charitable-contribution business, while recognizing that they employed numerous affiliated entities, such as Yukon and Piedmont Manager, in these deals. We will refer to specific affiliated entities to the extent necessary.  5 [*5] return because Piedmont-controlled entities were on both sides of the deal. Specifically, each Cumulus Fund held the majority of the interests in the LandCos used to acquire the specific tracts of property for that year’s transactions. A Cumulus Fund would derive its profit from the difference between the price the LandCo paid for the vacant property and the sale of the Cumulus Fund’s interests in the LandCo. 6 To facilitate the land purchases, the Cumulus Funds entered into revolving loan agreements with Atlantic Capital Bank (Bank) using the underlying land as collateral. These contortions would be for naught unless Piedmont secured properties that could deliver returns sufficient to fuel its tax scheme. Before buying a parcel of property, Piedmont thus needed assurance that it would be appraised for a sufficiently high value that could fulfill the rate of return touted to the assorted investors. By 2015 that assurance was being supplied by an appraiser named Clayton Weibel and his firm, Weibel & Associates. Mr. Weibel’s work with Piedmont proceeded in stages. Piedmont would first request a “restricted use appraisal,” instructing Mr. Weibel to “consider the property’s current highest and best use, typically to be for real estate development.” Mr. Weibel had no wiggle room to disregard the purported highest and best use as real estate development. Before Piedmont would pay the $750 fee Mr. Weibel charged for a restricted use appraisal, it required him to provide a “preview number,” i.e., an estimate of the value that would appear in the report. Mr. Weibel would supply this preview number “in a short period of time” (in Mr. Hall’s words), which could be as little as 15–20 minutes. If the preview number was too low to serve its purposes, Piedmont would not proceed with the restricted use appraisal report or purchase the property. If the preview number was satisfactory for Piedmont’s ends, Mr. Weibel would prepare the restricted use appraisal, and later, a final appraisal report to support the fair market value of the subsequent donation on the particular LandCo’s tax return. These appraisals were financial boons for Mr. Weibel, who charged approximately 6 Another Piedmont affiliate owned approximately 20% of the respective Cumulus Fund’s interests and was entitled to all charitable contribution deductions.  6 [*6] $10,000–$20,000 more for a donation appraisal than for a typical bank appraisal. Mr. Weibel prepared five donation appraisals for Piedmont projects in 2016 and ten in 2017, with six of the ten issued on November 6, 2017. Mr. Weibel routinely appraised the properties around ten times the price the LandCo paid for the parcel of property, i.e., if a LandCo paid $2.3 million, Mr. Weibel appraised the property in the ballpark of $23 million. Mr. Weibel did not generate the only appraisal numbers available to Piedmont. In support of the Bank’s revolving loan agreements, CBRE, a national brokerage and appraisal firm, also performed appraisals of the various pieces of property that Piedmont planned to buy. Mr. Sofge knew that there was a wide discrepancy between the numbers produced by Mr. Weibel and CBRE’s appraisals. Piedmont kept a detailed spreadsheet that illustrated this stark contrast, tracking, inter alia, the acquisition price per acre, the restricted use appraisal valuation, and the bank appraisal value. 7 As part of its overall strategy, Piedmont requested that the charity that was to receive a property contribution agree to a three-year holding period during which it would not sell the property. This request stemmed from concern that a sale for less than the deduction amount claimed on the LandCo’s tax return would require the charity to file Form 8282, Donee Information Return, which would flag the discrepancy for the IRS. II. Murphy Hollow and Hales Gap A. The Properties and Their Environs The Murphy Hollow and Hales Gap properties sit side-by-side on the Tennessee-Georgia state line in the southeastern part of unincorporated Marion County, Tennessee. 7 Although Mr. Sofge testified at trial that he was not skeptical of the Weibel appraisal numbers despite the persistent chasm between those numbers and the bank appraisals (on the ground that CBRE purportedly disregarded the properties’ highest and best use), we find this testimony not credible, especially in light of Mr. Sofge’s long real estate experience. Our credibility finding is further underscored by the fact that Cumulus Fund V itself advised its investors not to construe the appraised values as the “current, realizable value of the property.”  7 [*7] Murphy Hollow property: Hales Gap Property: The properties are approximately 12 miles west of Chattanooga, Tennessee, near the Tennessee River and Lake Nickajack on a landform  8 [*8] called the Cumberland Plateau. According to the National Park Service, the Cumberland Plateau is a large, flat-topped tableland that rises over 1,000 feet above the region around it and runs from north- central Alabama to the western New York border with Pennsylvania. See Nat’l Park Serv., Geology and History of the Cumberland Plateau 1, www.nps.gov/biso/planyourvisit/upload/webgeo.pdf (last visited Oct. 29, 2026). The National Park Service further states that the Cumberland Plateau “has often acted as a barrier to man and nature’s attempts to overcome it,” characterized by “rugged terrain” and “typically thin and infertile” soils. Id. The properties themselves resemble this description, with each featuring a steep and hilly terrain ranging approximately 800 feet between highest and lowest points. The properties lack any public utilities aside from electricity. And the U.S. Department of Agriculture Custom Soils Resource Report for the properties shows the soils to be “very limited” on most parts of the properties, including for use in connection with septic tank absorption fields (as would be necessary given the lack of public water or sewer system). Although a few paved and gravel roads provide access to the properties, the properties themselves do not contain any effective road frontage. As the appraiser for the then owner described the properties in 2016, a “series of woods roads provides access to most portions . . . however, these roads are in fair to poor condition and may not be passable in the future without repair and maintenance.” He further noted that “[a]reas of high degree slope have limited access.” Consistent with the challenging topography of the Cumberland Plateau, Marion County featured primarily rural residential uses with some sparsely situated commercial development. Most land was used for agricultural purposes and timber production. Although property in unincorporated Marion County was not subject to zoning restrictions, any subdivision development required approval by the Marion County Regional Planning Commission and compliance with the Marion County Subdivision Regulations. Marion County experienced little population growth between 2010 and 2017, with the population essentially holding steady around 28,500 people. This trend tracked numbers seen in most surrounding counties on the Cumberland Plateau.  9 [*9] The one neighboring county to buck this trend, Hamilton County, lies mostly outside the Cumberland Plateau and includes Chattanooga, the fourth largest city in Tennessee. Chattanooga sits primarily within the valley on the east side of the Tennessee River. Between 2010 and 2017 Hamilton County saw population growth exceeding 5%, ostensibly driven by new factories built in the northeastern part of Chattanooga and accompanying investment in infrastructure. The western part of Hamilton County, which sits on the Cumberland Plateau and features terrain more similar to that seen on the Hales Gap and Murphy Hollow properties, tells a different tale. For example, the population of the Town of Lookout Mountain, which sits between the properties and Chattanooga, declined by approximately 100 people between 2000 and 2017. B. Sequatchie Pointe The Murphy Hollow and Hales Gap properties were carved out of 3,448.44 acres that had been assembled by J.J. Detweiler Enterprises, Inc. (Detweiler), for a planned development known as Sequatchie Pointe. Most of this land sat in Marion County, Tennessee, except for 332.83 acres just over the state line in Dade County, Georgia. Detweiler paid approximately $7.05 million for the Sequatchie Pointe property, or $2,045 per acre. Detweiler planned to build a substantial residential development straddling Tennessee and Georgia, with amenities including a  10 [*10] clubhouse, a pool, and an equestrian center. Although Detweiler planned to provide public water to the lots in Georgia, public water was not available for the lots in Tennessee, which required private wells. Road access to the Sequatchie Pointe property was limited, so Detweiler attempted to build out a road called Teladuchee Trail (west of the Hales Gap property) as the main entrance to the site, as well as another road that was to lead to a cul-de-sac. Teladuchee Trail was built on a steep slope with a sharp bend, and its construction resulted in a blowout leading to erosion and pollution that killed aquatic life in a nearby stream. Given the chance of “catastrophic failure” and the failure of Detweiler to stabilize the roads and install adequate protections, Tennessee sued Detweiler for a violation of the Tennessee Water Quality Control Act. The Chancery Court of the State of Tennessee granted summary judgment to Tennessee and ordered Detweiler (or any successor) to reconstruct the road according to the appropriate standards. The road was never repaired and remained closed during all times pertinent to this case. C. Foreclosure On October 5, 2011, ArborOne ACA (ArborOne), which had financed Detweiler’s undertaking, foreclosed on the Sequatchie Pointe  11 [*11] property. ArborOne thereafter transferred the property to a holding company it created, A-1 Sequatchie Pointe, LLC (A-1 Sequatchie), for sale. Nearly four years passed before the property could be listed because of litigation with Tennessee and Detweiler and negotiation with individuals who had purchased Sequatchie Pointe lots. On July 20, 2015, A-1 Sequatchie listed for sale 2,588.31 acres of the Sequatchie Pointe property for $5 million, or $1,932 per acre. This offering encompassed 2,392.24 undeveloped acres and 196.07 acres in development, comprising 2 finished lots and 94 platted lots with no infrastructure. With no takers, A-1 Sequatchie dropped its price to $3.5 million, or $1,352 per acre on April 5, 2016. III. The Acquisition A. Terms, Funding, and Vehicles The Sequatchie Pointe listing came to the attention of Messrs. Sofge and Hall. On September 8, 2016, Cumulus Acquisitions, LLC (Cumulus Acquisitions), submitted a term sheet, offering to purchase 2,135 undeveloped acres of the Sequatchie Pointe property for $2,882,250, or $1,350 per acre. Later that month, Cumulus Fund V entered into a revolving loan agreement with the Bank. The agreement provided for a maximum credit of $6 million, to be used for the acquisition of real properties subject to the Bank’s prior approval. The agreement conditioned all loans on, inter alia, an updated appraisal of the property at the Bank’s request. Messrs. Sofge and Hall, as well as various Piedmont-affiliated entities, were guarantors of the loan. On September 30, 2016, Cumulus Acquisitions entered into a purchase and sale agreement with A-1 Sequatchie to purchase the 2,135 acres of land including the Murphy Hollow and Hales Gap properties for $2,882,250, or $1,350 an acre. The agreement provided for a 60-day due diligence period (during which the agreement could be canceled without any repercussions). Cumulus Acquisitions subsequently assigned its rights under the purchase and sale agreement to Murphy Hollow and Hales Gap, two LandCos that had been formed by Cumulus Fund V and Piedmont Manager. According to the operating agreements of both Murphy Hollow and Hales Gap, Piedmont Manager was responsible for  12 [*12] determining whether to pursue an investment or donation strategy with respect to the real property owned by the LLC, which the members thereafter would endorse or reject. B. Appraisals and Purchase 1. The Bank’s CBRE Appraisals Consistent with the loan agreements, the Bank hired CBRE to appraise the properties. As of November 23, 2016, CBRE valued the 1336.14-acre Murphy Hollow property at $1.85 million and the 776.73- acre Hales Gap property at $1.05 million. CBRE described the strengths of both properties as their location near the Tennessee River and Lake Nickajack, as well as the access from I-24. It saw the properties’ common weaknesses to be the hilly topography, the fact that only electricity was available, and that “the area may not support large scale residential development due to the small population and lack of existing development.” As to the last of these points, CBRE noted that the subject neighborhood featured “primarily rural residential uses with some sparsely situated commercial development,” with the immediate area showing “single-family residential homes and vacant land.” CBRE further opined that the “population is expected to experience slight growth over the next several years, which is generally consistent with the historical trend.” In determining the fair market values of the properties, CBRE considered their highest and best use. Noting that any development would be governed by county building codes and that the properties’ “hilly topography may hinder any future development,” CBRE concluded that “new development is not financially feasible at this time.” Specifically, it stated that “there is risk in the residential market and most investors would not move forward with new construction . . . on a speculative basis.” “Therefore, the highest and best use of the site, as vacant, would be to hold for future residential development as economic conditions improve and the neighborhood experiences growth.” CBRE then determined the properties’ respective fair market values looking at similar tracts of land in the neighborhood.  13 [*13] 2. ArborOne Appraisal ArborOne also commissioned a contemporaneous appraisal as of December 2016 from Piedmont Appraisers, Inc., a local firm (ArborOne Appraisal). The ArborOne Appraisal analyzed the full 2,392 undeveloped acres (of which both properties at issue here were a part) and concluded that the fair market value (FMV) was $2 million, or $836 per acre. The ArborOne Appraisal determined the highest and best use of the property was for timber production, recreation, and some form of future development. As to the latter point, the appraisal noted that the subject property “contains an appreciable amount of premium ‘Brow’ line area offering panoramic views of Lake Nickajack, the Tennessee River corridor, and other landmarks that have been proven to be of exceptional appeal to the market.” The ArborOne Appraisal further explained that Chattanooga “has an increasing population, expanding commercial and industrial employment base and a cost of living superior to many competing areas.” The property’s attractive elements were only half the story, as the ArborOne Appraisal made clear. “The subject property is located further from Chattanooga than potentially competing developments of ‘Brow Line’ properties” and demand for such properties “will not be sufficient to support development until more of those competing developments approach total liquidation with demand shifting to the subject neighborhood.” The ArborOne Appraisal further explained that “[c]urrent national economic trends, persistent high unemployment, and restrictive lending standards have produced low sales volume and stable to declining neighborhood property values.” The ArborOne Appraisal reflected a belief that “anticipated property values will increase once national economic trends stabilize and area population growth produce increasing demands for residential, commercial, and industrial property.” When considering the property’s highest and best use, the ArborOne Appraisal noted that it would be physically possible to continue to use the property for timberland or recreation, or to develop it for residential, commercial, or industrial use. The appraisal pointed out, however, that areas considered environmentally sensitive and areas of high-degree slope “limit all of the aforementioned uses.” The ArborOne Appraisal concluded that development at that time would not be financially feasible “[d]ue to the location of the subject property, the  14 [*14] amount of similar vacant and developed land in the subject neighborhood, [and] the physical limitations of the property.” Accordingly, the appraisal concluded that the highest and best use was in transition from its current use for timber production and recreation to some form of development. 3. Mr. Weibel’s Restricted Use Appraisals On October 27, 2016, Mr. Weibel was engaged to provide restricted use appraisals for the Murphy Hollow and Hales Gap properties (having previously supplied acceptable preview numbers). Mr. Weibel hired an independent contractor—an appraiser named Lucus Von Esh—to perform the bulk of the leg work. Under this arrangement, Mr. Weibel provided the highest and best use and comparable sales and determined the final values of the property. Mr. Weibel’s restricted use appraisals determined a fair market value of $27,810,000 for 1,390.52 acres, which included both the 1336.14-acre Murphy Hollow property and an adjacent 54.38-acre tract, and $19,420,000 for the 776.73 acre Hales Gap property as of December 10, 2016. The appraisal reports explicitly advised that they “present[] no discussion of the reasoning and analyses that were used in the appraisal process to develop the opinion of value.” Mr. Weibel asserted that the highest and best use for both properties was “residential development or a similar use.” The appraisals did not remark upon the sites’ hilly terrain, the lack of on- property roads, or the paucity of utilities in assessing physical possibility, but noted accessibility to major traffic arteries, the presence of single-family residences, and “adequate” utilities. As to financial feasibility, the appraisals stated that there were “a number of homes . . . within the neighborhood” and “[p]opulation and housing in the surrounding area and Southeast United States is projected to increase, thus creating demand for new housing, construction projects, road improvements, and supporting uses.” The appraisals concluded that the sole legally permissible and physically possible use of the properties that produced positive cashflow would be a “rural residential development close to commercial areas that provides recreational area amenities to the home owners.” Relying on this highest and best use, the appraisals focused on waterfront homes despite the fact that neither property actually had water frontage. According to the appraisals, houses with water frontage  15 [*15] are “worth more than double of the value of homes overall.” After considering, but not using, sales of waterfront properties in Florida, Texas, and Georgia, the appraisal reports looked to “comparable sales that include frontage along bodies of water in the subject area” including one sale from Hamilton County and one near Knoxville. The four remaining comparables were drawn from Atlanta, North Carolina, and two from York County, South Carolina. The prices per acre of the purported comparable sales ranged from $13,910 to $76,389, with an average of $25,860. The appraisal reports ultimately assigned a price per acre of $25,000 for the Hales Gap property and $20,000 for the Murphy Hollow property. C. Sale The restricted use appraisal numbers sufficed for Piedmont to greenlight both projects. On December 21, 2016, A-1 Sequatchie sold the properties to Murphy Hollow and Hales Gap for $1,803,789 and $1,048,586, respectively, which works out to $1,350 per acre for each. IV. Donation A. Refining Numbers After the acquisition of the properties, Messrs. Weibel and Von Esh polished their restricted use appraisals into final versions. In engagement letters of April 17, 2017, they were instructed to consider (1) the respective property’s current highest and best use, “typically to be for real estate development” and (2) “the property as a donation of the fee interest in the real estate to a not for profit land trust or municipality.” Messrs. Weibel and Von Esh thereafter submitted draft appraisals for the Murphy Hollow and Hales Gap properties, which were sent to Raymond Veal, a certified appraiser with Integra Realty Resources, on May 26, 2017, for his review. A few days later, on May 30, 2017, Mr. Veal sent an email to Messrs. Weibel and Sofge (who forwarded the email to Mr. Hall), criticizing multiple aspects of the reports, including the reliance on outdated regional data and the failure to account for the specific difficulties inherent in the sale of large tracts. Mr. Veal questioned the focus on waterfront lot values, noting that the property “does not have lake frontage” and that existence of “some [l]ake views” does not explain “the reason for such a significant [l]ake influence on the value.” He also leveled criticisms at the comparables selected, finding the age, size, and locations to be problematic. In particular, he  16 [*16] expressed disappointment that “of the six sales [that] were selected only one sale was actually in Tennessee and none . . . in the Chattanooga area. It’s hard to believe that no sales of development land in the vicinity of Chattanooga were used.” Messrs. Weibel and Von Esh revised their appraisal reports in light of these comments. In addition to updating information, they offered additional explanation regarding the “influence” of Lake Nickajack (despite lack of “direct frontage”), removed two inapposite sales, and added a Tennessee sale. On June 23, 2017, Messrs. Weibel and Von Esh transmitted revised appraisal reports, which determined fair market values of $26,725,000 for the Murphy Hollow property and $19,420,000 for the Hales Gap property. A few days later, Mr. Veal completed his review of both appraisals, giving high marks to both. B. Recruiting Investors As the appraisals rounded into shape, Messrs. Sofge and Hall took the next steps in their highly choreographed dance. In May 2017 specific FundCos associated with each property were formed to raise capital from accredited investors. Confidential offering memoranda for each went out in July, with Hales Gap seeking $4,858,000, and Murphy Hollow aiming for $6,684,000. The confidential offering memoranda explained that the respective FundCo would purchase a 97% interest in the associated LandCo (which held the property), with management pursuing either an investment strategy or a charitable donation strategy, subject to investor approval. The former strategy contemplated “short-term investment holding for future residential development,” with an eye to selling each property for the appraised values. The donation strategy emphasized members’ rights “to receive allocated tax benefits” in the same amounts, which as of 2017 could “offset up to 30% of an individual partner’s adjusted gross income.” The memoranda also discussed risks inherent in both strategies, spending on the investment strategy a small fraction (two paragraphs) of the space dedicated to the donation strategy (seven pages). In recruiting investors for these and other 2017 transactions, the Piedmont team looked for high-income individuals interested in harvesting the tax deductions seeded in the donation strategy. The investor communications focused almost exclusively on the potential tax deductions, bearing pithy subject lines such as “Effective tax planning  17 [*17] strategy,” “Income Tax Strategy,” or “Implementing the tax planning strategy.” As Mr. Hall explained to clients, “we are all tax guys . . . We’ve grown from a consulting business to a private equity backed operation with a legacy of creating very high quality tax planning opportunities for individuals in high, marginal tax brackets.” Specifically, Piedmont “offer[s] high quality, income tax mitigation opportunities to public accounting firms . . . If you’d like to . . . bring[ ] your effective tax rate down without taking undue tax risk, I’m happy to show you how.” In another typical email, Mr. Hall stated: “Mike tells me that you’re having another great year and might have a need to hear about one of our projects designed to mitigate the tax liability that comes with such success.” The response betrayed no illusions about the nature of the investment: “Thank you . . . but we don’t need to meet . . . Vince will still invest in the fee simple tax scheme.” Of course, some investors needed reassurance. Mr. Hall informed one potential client that “[w]e are diligent in exposing our clients to as little risk as is possible while making a meaningful difference in their tax planning,” while telling another that “[g]iven all the business risks that you’ve taken in your professional life, this investment pales by comparison.” Other investors needed no hand-holding: “Ok, did a quick read. Assuming max marginal tax rate, to shelter $3MM of [adjusted gross income] . . . does that translate to 65 [membership] units to purchase?” For both the Murphy Hollow and Hales Gap FundCos, Piedmont touted a return of $3.80 in tax deductions for every dollar invested, which represented a premium over the normal Piedmont ratio of $3.50 in deductions for every dollar. To facilitate the pitch, the Piedmont team generated tax calculators that illustrated state and federal tax savings that could accompany charitable donations. C. Final Steps As the end of year approached, Piedmont prepared to complete the transactions. Messrs. Weibel and Von Esh finalized the appraisals, which determined fair market values of $26,725,000 for the Murphy Hollow property and $19,420,000 for the Hales Gap property as of November 6, 2017. The changes to the comparable properties in response to Mr. Veal’s critiques reduced the average per acre of the comparables from $25,860 in the restricted use appraisals for both  18 [*18] properties to $18,871 for the Murphy Hollow property and $20,163 for the Hales Gap property. The appraisals nonetheless deployed the same per-acre value as in the restricted use appraisals, i.e., $20,000 for Murphy Hollow and $25,000 for Hales Gap. 8 Mr. Veal again did his part, providing additional appraisal reviews giving the final appraisals clean bills of health. The FundCos had raised $6,684,000 of capital in the case of Murphy Hollow and $4,858,000 relating to Hales Gap. On November 17, 2017, they paid Cumulus Fund V $5,531,000 for a 97% interest in Murphy Hollow and $3,855,000 for the same interest in Hales Gap. On December 26, 2017, Murphy Hollow and Hales Gap donated the Murphy Hollow and Hales Gap properties to Southern Conservation Trust (Southern), a section 501(c)(3) organization. At Piedmont’s request, Southern agreed not to sell the properties for at least three years. On its 2017 federal return, Southern reported values of $1,372,600 and $849,600 for the Murphy Hollow property and the Hales Gap property, respectively, with each amount including a $20,000 cash donation to Southern. Southern respected the three-year holding period, demurring when an interested buyer (John Meeks) approached. In 2021, after the expiration of the three-year holding period, Southern informed Mr. Meeks that a potential sale of the properties for $2.4 million had fallen through. Southern thereafter sold the Murphy Hollow and Hales Gap properties to Mr. Meeks for $1.2 million in total. Mr. Meeks used the property to sell timber. D. The Payout Piedmont derived considerable financial gains from its charitable donation business in 2017. A Piedmont affiliate wholly owned by Messrs. Sofge and Hall held a 20% interest in Cumulus Fund V, which netted a payment of $3,975,000. As explained in its confidential offering memorandum, Cumulus Fund V further paid Piedmont (1) a $300,000 consulting fee, (2) 1% of Mr. Weibel’s appraised values (from all 2017 donation projects) as a real estate consulting fee, and (3) an additional 1% of Mr. Weibel’s values as an asset management fee. 8 The sole difference between the restricted use appraisal value and the final appraisal value stemmed from the final appraisal’s use of the Murphy Hollow property’s correct acreage.  19 [*19] The individual projects themselves also brought healthy remuneration. As relevant here, Murphy Hollow and Hales Gap each agreed to pay Piedmont a consulting fee made up of an upfront payment of $60,000, followed by a payment upon closing of $380,000 for Murphy Hollow and $280,000 for Hales Gap. Piedmont also received an annual management fee of $10,000 from both Murphy Hollow and Hales Gap. For its part, Yukon received $278,100 and $194,200 in consulting fees relating to Murphy Hollow and Hales Gap, respectively. V. Tax Filing and Examination In March 2018 Murphy Hollow timely filed its 2017 federal partnership return, claiming a $26,725,000 noncash charitable contribution deduction related to its donation of 1,336.14 acres of the Murphy Hollow property. Hales Gap likewise timely filed its 2017 partnership return, on which it claimed a $19,420,000 noncash charitable contribution deduction related to its donation of 776.73 acres of the Hales Gap property. These values were supported by the final appraisal reports of Messrs. Weibel and Von Esh, which were attached to the returns. By the time of the filing of the returns, Piedmont had the benefit of multiple prior appraisals from Weibel & Associates, which routinely determined property values many times the purchase price: Appraisal Date Project Name Purchase Price Appraised Value 11/1/2016 Organic Farms, LLC $700,000 $6,370,000 11/2/16 Firefly Run, LLC 672,129 5,970,000 11/2/16 West Point Lake, LLC 1,000,000 7,940