Morgan Run Partners, LLC, Overflow Marketing, LLC, Tax Matters Partner

United States Tax Court T.C. Memo. 2026-112 MORGAN RUN PARTNERS, LLC, OVERFLOW MARKETING, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent __________ Docket No. 8669-20. Filed November 3, 2026. __________ Robert B. Gardner III, Ethan J. Vernon, and Maggie-Machre K. Garrett, for petitioner. Thomas D. Yang, Sarah R. Bolen, Hilary E. March, Laura A. Price, and Roger Kang, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION LAUBER, Judge: This is a syndicated conservation easement (SCE) case. In April 2026 we held a trial session limited to a single issue: determination of the fair market value (FMV) of an easement granted in 2016 by Morgan Run Partners, LLC (Morgan Run), over prop- erty in Jefferson County, Alabama (Subject Property). From the time Morgan Run filed its 2016 tax return until shortly before trial, it main- tained that the highest and best use (HBU) of the Subject Property, be- fore the granting of the easement, was development as a mixed-use res- idential subdivision. Six weeks before trial petitioner, Overflow Mar- keting, LLC (Overflow Marketing), Morgan Run’s tax matters partner, submitted an expert report opining that the Subject Property’s HBU was construction of a 780,000-square-foot distribution facility. This would have required that the Subject Property, which was then zoned Served 11/03/26  2 [*2] residential, be rezoned industrial. Petitioner submitted no evi- dence at trial to support its original “residential development” theory. Petitioner has not carried its burden of proving that rezoning of the Subject Property to an industrial category was “reasonably proba- ble.” Construction of a 780,000-square-foot distribution facility was therefore not a legally permissible use. Petitioner likewise failed to con- vince us that construction of a distribution facility was physically possi- ble on the site or that it was financially feasible. For these reasons, the industrial use petitioner posited was not the HBU of the Subject Prop- erty. We agree with respondent’s expert Ray Kinney that the HBU of the Subject Property, before the granting of the easement, was “invest- ment property held for speculative development of medium to low-den- sity residential lots.” Employing the comparable sales method, he de- termined a “before value” of $7,000 per acre, or $1.63 million (rounded) for the Subject Property. We find Mr. Kinney’s valuation reasonable, particularly because the prior owners of the Subject Property conveyed it to Morgan Run in November 2016—roughly a month before the ease- ment was granted—for slightly more than $1.2 million. That transac- tion was an arm’s-length sale that valued the Subject Property at roughly $5,200 per acre. Accepting Mr. Kinney’s “before value” of $1.63 million, and sub- tracting from that figure an “after value” of $465,000, we conclude that the FMV of the conservation easement was $1,165,000. That valuation conclusion dictates that we sustain the imposition of a 40% penalty un- der section 6662(h) 1 for a “gross valuation misstatement,” as determined by the Internal Revenue Service (IRS or respondent). FINDINGS OF FACT The following facts are derived from the Pleadings, two Stipula- tions of Facts with attached Exhibits, several trial Exhibits, and the tes- timony of fact and expert witnesses admitted into evidence at trial. 1 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (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. We round monetary amounts to the nearest dollar, and we round land parcel sizes to the nearest acre.  3 [*3] Morgan Run is an Alabama limited liability company classified as a TEFRA partnership for its taxable year ending December 31, 2016. 2 Morgan Run had its principal place of business in Alabama when its Petition was timely filed. Overflow Marketing, its tax matters partner and the petitioner in this case, likewise had its principal place of busi- ness in Alabama. Absent stipulation to the contrary, see § 7482(b)(2), appeal of this case would lie to the U.S. Court of Appeals for the Elev- enth Circuit, see § 7482(b)(1)(E). We thus follow its precedent. See Gol- sen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). Several fact witnesses called by petitioner were business associ- ates or agents of the principal actors in the SCE transaction. While gen- erally showing good recall of many facts from the 2015 through 2016 period, they sometimes expressed inability to recall certain facts about matters that might be regarded as unhelpful to petitioner’s position. Be- cause of some witnesses’ selective inability to recall pertinent facts, the Court has been required to make credibility determinations. I. The Parent Tract In January 2005 the Estate of Nancy Bruno (Estate) owned a 299- acre tract in Jefferson County, Alabama (Parent Tract). It lies about 15 miles southwest of Birmingham, near the town of Bessemer. The land consists of mixed forest, with rolling to steep topography. The middle of the Parent Tract includes a small wetland area, and several creek beds run through it. The Parent Tract is surrounded by a mix of residential properties, forested acreage, and scattered estate lots to the north. To the southeast it is bordered by the Bessemer Municipal Airport, a single- runway facility used primarily by private aircraft. Apart from the air- port, the immediate vicinity consists mainly of residential and agricul- tural land. On February 7, 2005, the Estate sold roughly 257 acres of the Parent Tract to Greenwood Partners, LLC (Greenwood). The purchase price was $2,179,820, or $8,482 per acre. Greenwood financed the pur- chase with a $1,961,843 mortgage from Peoples Bank & Trust Co. (Peo- ples Bank). That same day, the Estate sold the remaining 42 acres of the Parent Tract to Morgan Run Development Corp. (MRDC). That 2 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 treat- ment and audit process for many partnerships, including Morgan Run.  4 [*4] purchase price was $320,180, or $7,623 per acre. As explained be- low, Greenwood and MRDC were controlled by the same investors. Greenwood and MRDC initially intended to subdivide the entire Parent Tract into lots for development as single-family homes. Because part of the Parent Tract was zoned Agricultural, they sought approval from the Jefferson County Planning and Zoning Commission (Zoning Commission) to rezone the entire Parent Tract as E-2 (Single Family Estate, with a maximum of two dwellings per acre). On September 14, 2005, the Zoning Commission approved a preliminary plat for a residen- tial subdivision on the Parent Tract called Morgans Run, which was to be developed in phases. One week later the Zoning Commission ap- proved the rezoning request. The plat for the Parent Tract, as approved by the Zoning Com- mission, envisioned 439 single-family lots. The 42-acre tract initially acquired by MRDC was to be developed as Morgans Run Subdivision Sector 1, with 46 lots. On January 25, 2007, Greenwood sold to MRDC a portion of its 257-acre tract, consisting of about 25 acres, for $388,695, or $15,548 per acre. MRDC planned to develop those 25 acres as Mor- gans Run Subdivision Sector 2, with 33 lots. Greenwood continued to own the remainder of the Parent Tract, i.e., the Subject Property, consisting of roughly 232 acres. That acreage, envisioned in February 2005 as being subdivided into 360 lots, was even- tually encumbered, 11 years later, by the conservation easement. The map below provides an aerial view of the Subject Property, with the Mor- gans Run Subdivision adjoining it to the west and the Bessemer Munic- ipal Airport to the southeast:  5 [*5] II. Efforts to Market the Morgans Run Subdivision Donald and Alicia Huey, a married couple, were real estate pro- fessionals in Jefferson County. Donald was a developer and the presi- dent of a title company. Alicia was a developer and the president of AGH Homes, Inc., a custom home builder that she founded in 2000. She served for 15 years as a board member of the National Association of Home Builders. In 2023 she became its board chair. Mr. and Mrs. Huey owned major stakes in Greenwood (of which they were members) and MRDC (of which they were shareholders). A blog maintained by Mrs. Huey in 2006 showed the “development team” for the Morgans Run Subdivision as consisting of the Hueys and four other partners. The Hueys were also makers and/or guarantors on the mortgage loans that Greenwood and MRDC had executed when pur- chasing their respective portions of the Parent Tract.  6 [*6] MRDC recorded the final plat for Morgans Run Subdivision Sec- tor 1 in June 2006. It recorded the final plat for Morgans Run Subdivi- sion Sector 2 in October 2007. MRDC began selling lots, and construc- tion of the first ten homes began by mid-2006. But lot sales ground to a halt during 2008 as the financial crisis took a brutal toll on the South- east United States. During the Great Recession Mr. Huey continued to make contri- butions to Greenwood and MRDC, but his fellow partners and share- holders were unable to do so. Greenwood and MRDC became indebted to Mr. Huey, who assumed payment obligations on the Peoples Bank loans. Beginning in 2008 Mr. Huey and his affiliates began purchasing lots in the Subdivision when his fellow partners and shareholders started selling or losing theirs. By the end of 2012 the bankruptcies and defaults of his fellow investors left Mr. Huey and his wife the sole mem- bers of Greenwood and the sole shareholders of MRDC. A tax return filed by Greenwood for 2013 showed Mr. Huey holding a 71% interest in the partnership and Mrs. Huey holding a 29% interest. During 2011 Mrs. Huey, as agent for MRDC, sought zoning vari- ances to make certain lots in the Subdivision more appealing and easier to build out. Some of these requests were granted; others were denied because of problems related to topography, drainage, storm water run- off, and flooding on neighboring lots. By 2012 MRDC and its affiliates continued to own about half of the 79 lots in the Subdivision. In late 2012 Mrs. Huey signed a “Lot Purchase Agreement” with D.R. Horton Co. (Horton), a national homebuilder. Horton thereby agreed to purchase the 39 lots remaining in MRDC’s (or the Hueys’) in- ventory in multiple takedowns, with a purchase price of $25,000 per lot. Horton purchased five lots in March 2013 for $25,000 each. But after doing soil test borings across the Subdivision, it declined to buy any more lots. The Lot Purchase Agreement was accordingly terminated in May 2014. The Hueys were unable to sell any more lots after March 2013. As of December 2016, roughly half of the lots in the Morgans Run Sub- division remained unsold and were still owned by MRDC, the Hueys, or their affiliates. No homes had been built on any of these lots. Large single-family homes had been built on 38 of the lots owned by unrelated parties (shown in yellow in the diagram below):  7 [*7] III. Efforts to Sell the Subject Property Greenwood continued to own the Subject Property, the 232-acre portion of the Parent Tract that lay directly east of the Morgans Run Subdivision. The Birmingham housing market remained soft through 2013, and the existing supply of unsold lots in the Subdivision was an obstacle to additional development nearby. Greenwood made no serious efforts to sell or develop the Subject Property between 2008 and 2013. By mid-2013 the Hueys owned 100% of Greenwood. In 2013 Mr. Huey began working with Steve Mordecai, an experienced and success- ful local broker, to market the Subject Property. But the only expression of interest Mr. Mordecai received (in July 2013) came from a prospective buyer who wanted to use the Subject Property as part of an SCE trans- action, apparently promoted by an entity called Canoe Creek Develop- ment, LLC.  8 [*8] The prospective buyer told Mr. Mordecai that any offer it might make for the 232 acres would be less than the balance on the outstand- ing mortgage, which was $1,764,000. Mr. Huey asked Trustmark Na- tional Bank (Trustmark), which had acquired the mortgage from Peo- ples Bank, to reduce the loan balance to $1.2 million and approve a “short sale” in that amount. Trustmark declined that request, but it offered to reduce the balance to $1.5 million if the closing occurred before year-end 2013. After meeting with a loan officer, Mr. Huey declined Trustmark’s proposal. He kept working with Mr. Mordecai to seek an- other buyer for the Subject Property, but no other offers materialized during 2013–2015. On October 4, 2016, the Hueys and Mr. Mordecai executed an Ex- clusive Listing Agreement authorizing Mr. Mordecai to sell the Subject Property for $1,703,096. That offering price roughly equaled the out- standing mortgage balance at that time. Mr. Mordecai listed the Subject Property, placed signs at strategic locations, and showed it on several occasions. Mr. Mordecai had received no offers as of November 16, 2016, at which point roughly half the lots in the Morgans Run Subdivision still remained unsold. Mr. Mordecai was authorized to sell those lots for $25,000 to $32,000 per lot. The record contains no evidence that he sold any of them during 2016. IV. Switching into Conservation Easement Mode Sensing little interest from developers or residential buyers, Mr. Mordecai brought the Subject Property to the attention of Jeff Smith and Joe Brady, who were promoters of SCE transactions. 3 They re- garded the Subject Property as a suitable candidate for this treatment, and they recommended an ownership structure that is common to many SCE transactions. A property company or PropCo would be formed, and the Subject Property would be transferred to the PropCo in exchange for membership units in it. An investment company or InvestCo would be formed to raise funds from investors and use that money to purchase membership units in PropCo. PropCo, now owned largely by InvestCo, would donate a conservation easement on the property. The investors 3 “Promoter” is sometimes viewed as a loaded term in the tax world because of the penalty imposed by section 6700(a) for “[p]romoting abusive tax shelters.” In this Opinion we use the term “promoter” in its ordinary sense, making no determination as to whether the activities of Messrs. Brady and Smith (or their affiliates) would subject them to a civil penalty under section 6700(a), a question that is not before us.  9 [*9] would then receive, through InvestCo, pro rata shares of the tax deduction that PropCo claimed for the easement. In May 2016 Mr. Brady formed Morgan Run as the PropCo. He was initially its sole member and manager. On November 17, 2016, CEC Manager, LLC (CEC Manager), of which Mr. Brady was the sole mem- ber, became Morgan Run’s sole member and manager. The promoters formed Overflow Marketing—petitioner in this case—as the InvestCo. The promoters began marketing the SCE deal to prospective in- vestors as early as August 2016. Although the promoters had not yet commissioned an appraisal of the Subject Property—indeed, no ap- praiser had yet been hired—Mr. Smith told prospective investors that the “tax value” of a Morgan Run SCE transaction would be $21.6 million, with at least $20.78 million of charitable contribution tax deductions available for purchase. The promoters maintained spreadsheets listing the “Deduction Expectation” of each potential investor. Beginning in October 2016 Morgan Run began collecting cash deposits from investors based on their “Deduction Expectation.” Morgan Run approached the Hueys to arrange purchase of the Subject Property from Greenwood. John Clark IV, an attorney, worked on behalf of Morgan Run to consummate this transaction. Mr. Huey promptly reopened negotiations with Trustmark about reducing the mortgage balance on the Subject Property. Trustmark had secured ap- praisals in July 2013 and October 2014 when renewing Greenwood’s mortgage loan. Those appraisals, prepared by Wm. Scruggs & Assoc. (Scruggs), valued the 232 acres at $900,000 and $920,000, respectively. Trustmark secured another appraisal (also from Scruggs) in December 2015 that valued the Subject Property at $990,000, or $4,267 per acre. Trustmark accepted that value when renewing Greenwood’s mortgage in May 2016. All three appraisals concluded that the HBU of the Subject Property was single-family residential or agricultural. In October 2016, following further negotiations with Mr. Huey, Trustmark agreed to reduce the outstanding mortgage on the Subject Property by 28%, to $1,226,229. With that reduction achieved, Green- wood agreed to sell the Subject Property to Morgan Run for roughly $1.2 million, with the understanding that the proceeds would be used to pay Greenwood’s outstanding mortgage balance to Trustmark. On November 2, 2016, Mr. Brady communicated to investors an increased “tax value” of $24.5 million for the Morgan Run SCE deal. He  10 [*10] now advised that $23,127,000 in deductions would be available for purchase for $3.7 million. At that point, therefore, the deal was being advertised at a 6.25 “deduction to investment” ratio ($23,127,000 ÷ $3,700,000 = 6.25). In other words, investors were being offered (on av- erage) a charitable contribution deduction of $6.25 for every dollar in- vested. The deduction-to-investment ratio ultimately enjoyed by the in- vestors differed from the 6.25 ratio thus advertised. It appears that some prospective investors had been slated to participate in other SCE deals that would not close until 2017. Mr. Clark offered them participa- tion in the Morgan Run deal instead, “on the same terms and for the same benefits.” A spreadsheet prepared on October 13, 2016, listed an investor with a “Deduction Expectation” of $1.2 million, for which he was to pay a “Purchase Price” of $180,000. This would appear to reflect a deduction-to-investment ratio of 6.67. The spreadsheet showed other investors with a “Deduction Expectation” of $600,000, for which they were to pay a “Purchase Price” of $66,000. This would appear to reflect a deduction-to-investment ratio of 9.09. Morgan Run set a “funding deadline” of November 17, 2016, by which investors were required to make full payment for their partner- ship interests. The total proceeds of the investor offering were $3,279,550. The investors thereby acquired a 93.837% interest in Mor- gan Run, and they were informed that Morgan Run would claim a $26 million charitable contribution deduction for the easement. The inves- tors’ share of this deduction would be $24,397,620 ($26,000,000 × .93837 = $24,397,620). Ultimately, therefore, they enjoyed (on average) a de- duction-to-investment ratio of 7.44 ($24,397,620 ÷ $3,279,550 = 7.44). On November 17, 2016, Greenwood contributed the Subject Prop- erty to Morgan Run in exchange for a 94.837% membership interest in Morgan Run. That same day, Greenwood sold its 94.837% membership interest in Morgan Run to assignees of CEC Manager for $1.2 million. At that point, Morgan Run had no assets apart from the Subject Prop- erty. Grossing up the $1.2 million figure, these transactions valued the Subject Property at $1,265,329 ($1.2 million ÷ .94837 = $1,265,329). The real property paperwork did not follow the form of the trans- action as outlined above. On November 21, 2016, Greenwood conveyed the Subject Property to Morgan Run by warranty deed stating consider- ation of $1.265 million (plus a 1% interest in Morgan Run). Mr. Morde- cai’s listing agreement with Greenwood stated that he would be paid a  11 [*11] commission of 10%. He was paid a commission of $120,000 at the closing. Greenwood’s conveyance of the Subject Property to Morgan Run was an arm’s-length sale. Treating $1.2 million as the purchase price and considering only the cash portion of the consideration, that sale val- ued the Subject Property at roughly $5,172 per acre. The bulk of the proceeds was paid to Trustmark. Because of various fees and charges, $42,821 remained outstanding on the mortgage after Trustmark re- ceived the net proceeds. Greenwood paid that sum to Trustmark in cash. On November 29, 2016, Trustmark filed documents evidencing its release of the mortgage lien. On December 20, 2016, Morgan Run do- nated a conservation easement over the Subject Property to National Farmer’s Trust, a “qualified organization” under section 170(h). Four half-acre parcels were carved out for possible future development as sin- gle-family homesites. The easement thus encumbered only 230.37 acres of the Subject Property. V. Petitioner’s Valuation of the Easement Morgan Run hired Conservation Easement Consultants, LLC (CEC), to handle the creation and valuation of the easement. CEC was an affiliate of CEC Manager, the original manager of Morgan Run. Mr. Brady, one of the promoters, was a member of CEC and acted on its behalf. In mid-November 2016—well after Morgan Run’s promoters had communicated to potential investors predetermined values as high as $24.5 million for the Subject Property—Mr. Brady began his search for appraisers. The record reflects no communication from Mr. Brady to any appraiser before November 15, 2016. That was two days before the “funding deadline,” by which investors were required to make full pay- ment for their membership interests in the InvestCo. Through CEC, Morgan Run hired three appraisers to supply val- uations for the easement: Robert Wombwell, Jim Clower, and Ronald Foster. The appraisal that Morgan Run attached to its 2016 tax return was prepared by Mr. Foster. But Messrs. Wombwell and Clower were  12 [*12] asked to provide (and did provide) comments and suggestions on Mr. Foster’s evolving work product. 4 In determining the “before value” of the Subject Property, Mr. Foster assumed that its HBU was as a high-density mixed-use develop- ment including single-family homes, townhouse apartments, senior liv- ing facilities, and a commercial center. He worked from a “conceptual master plan” prepared by David Giddens, who had been recommended by CEC. CEC had supplied Mr. Giddens with a memorandum dated Octo- ber 18, 2016, that specified the number of acres for each component (sin- gle-family homes, apartments, etc.) and indicated that the development should result in an “Easement Value” of at least $24,635,000. That fig- ure exceeded the $21.6 million “tax value” Mr. Smith had communicated to investors in August 2016, but it approximated the $24.5 million “tax value” Mr. Brady communicated to them on November 2, 2016. Two weeks later, on November 15, Mr. Brady informed Messrs. Wombwell and Clower that “the value we need to get from Morgan’s Run” had risen to $25,930,000. On November 22, 2016, Mr. Giddens emailed to Mr. Brady a “Con- ceptual Master Plan as we discussed.” Mr. Brady forwarded it to Messrs. Wombwell and Clower, stating: “Yield plan looks good.” On Jan- uary 18, 2017, Mr. Brady emailed Mr. Giddens with “changes to the Morgan Run yield plan,” asking him to “increase the number of Single Family lots” and stating that “we need 28 acres for Sr Living and multi family” and “about 6 acres of commercial.” When Mr. Giddens expressed uncertainty about the number of lots Mr. Brady wanted, Mr. Brady re- plied: “As many single family as you can get . . . (max out).” Five days later Mr. Giddens sent Mr. Brady a revised plan and asked: “Does this Preliminary Plan get you what you are looking for?” 4 Mr. Foster has prepared appraisals in a number of SCE cases; in each case decided so far, this Court has found that he grossly overvalued the conservation ease- ment. See Rock Cliff Reserve, LLC v. Commissioner, T.C. Memo. 2025-73, at *23–29; Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, at *12–13, *43, aff’d, 182 F.4th 1314 (11th Cir. 2026); Mill Rd. 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129, at *50–51, aff’d, No. 24-11334, 2026 WL 2443948 (11th Cir. Aug. 20, 2026). In Rock Cliff Reserve, T.C. Memo. 2025-73, at *23–29, we found that he reached an agreement with the SCE promoter to arrive at a predetermined value for the easement. See also Staff of S. Comm. on Finance, 116th Cong., Syndicated Conservation-Ease- ment Transactions, S. Prt. 116-44, at 92–96 (Comm. Print 2020) (describing an inflated appraisal prepared by Mr. Foster).  13 [*13] On January 27, 2017, Mr. Brady emailed Mr. Giddens’s revised plan to Mr. Wombwell, stating that “[h]e was able to reach $26,000,000 with this design” and suggesting that Mr. Wombwell “call Jim Clower to discuss.” As revised on January 27, 2017, the Conceptual Master Plan envisioned 328 single-family lots (each a quarter acre), 120 townhomes, 336 senior living units on 28 acres, and 6 acres of commercial develop- ment on the Subject Property. Mr. Foster used this version of the Con- ceptual Master Plan as the basis for his appraisal of the conservation easement. He acknowledged that implementation of this plan would re- quire rezoning the Subject Property from E-2 (Single Family Estate) to a mixed-use category. He assumed as a “hypothetical condition” that rezoning could be achieved and that the mixed-use plan would be ap- proved by the Zoning Commission. Mr. Foster assumed that the 328 single-family lots would sell for a net value of $77,500 apiece over a four-year period (i.e., 7 lots per month). Discounting those future cashflows to present value at 10%, he calculated a value of $17,362,190 for the single-family portion of the de- velopment. Using a sales comparison approach, he determined that the land underlying the 120 townhomes and 336 senior living units would sell for $15,000 per unit, for a total of $6.84 million. And he calculated that the six acres of commercial space could be sold for $350,000 per acre, or a total of $2.1 million. Summing these figures, he generated a “before value” of $26,302,190 for the Subject Property as a whole. Mr. Foster assumed that the four carved-out parcels (each a half acre) would sell for $15,000 apiece. He did not attempt to reconcile that assumption with his conclusion that the 328 single-family lots (each a quarter acre) would sell for $77,500 apiece. He concluded that the “after value” of the Subject Property was $230,070. Adding $60,000 for the carved-out parcels, subtracting the total from $26,302,190, and round- ing, he determined a value of $26 million for the easement. VI. Bessemer Municipal Airport From 2016 until shortly before trial, petitioner maintained that the Subject Property’s HBU was development as a mixed-use residential subdivision. On February 13, 2026, petitioner submitted an expert re- port by Thomas Spears which opined that the Subject Property’s HBU was for construction of a 780,000-square-foot distribution center, which would have required the Subject Property to be rezoned to I-1 (light in- dustrial). Mr. Spears believed it “reasonably probable that the [Subject] Property would be rezoned to light industrial by Jefferson County or  14 [*14] annexed into the City of Bessemer and rezoned light industrial.” At trial petitioner urged that the City of Bessemer, which owned the airport, might have initiated an annexation procedure to permit the air- port to expand its operations northward into the Subject Property. The airport, known in 2016 as the Bessemer Municipal Airport, is owned by the City of Bessemer. It was a general aviation airport that offered no regular commercial flights. It was classified as a “reliever airport” because it relieved the Birmingham International Airport of the burden of handling general aviation traffic. The airport is supervised by a board (airport authority) whose members are appointed by the mayor and approved by the City Council. Day-to-day operations are managed by a professional staff. As of 2016 the Bessemer Municipal Airport had a single 6,000- foot runway that accommodated propeller planes and small jets (six- seaters and the like). Roughly 70 aircraft—a mix of corporate jets and planes owned by families and hobbyists—were based there in 2016. At that time the airport had roughly 75 “operations”—i.e., takeoffs, land- ings, or other movements of aircraft—per day. Apart from general aviation the Bessemer Municipal Airport han- dled a small volume of air freight. As of 2016 the air freight consisted almost entirely of spare parts being shipped to or from a Mercedes Benz plant nearby. These flights were sporadic, occurring perhaps once a month. In the years leading up to 2016 the airport hired consultants who drafted multiyear “master plans” for the facility. These plans included proposals—some seemed to be in the nature of a wish list—aimed at making the airport more financially self-sufficient and attractive to air- craft owners. Some proposals were essentially maintenance (like repav- ing the runway and enhancing equipment), and others were capital im- provements. Among the capital improvement projects, proposed in mas- ter plans during 2014 and 2015, was the creation of a “tech center” that could complement the airport’s mission of training pilots and aircraft technicians. The master plans envisioned this “tech center” as being on airport property south of the runway. At various times the airport envisioned the possibility of a more ambitious expansion plan, tentatively called “Aeroplex.” The Court re- ceived in evidence a two-page, computer-generated, conceptual design sketch portraying a multibuilding complex situated north of the runway,  15 [*15] inside the Subject Property. The buildings are shown as boxes, with no identification of their purpose. The sketch is undated and was not accompanied by any report or explanation. We will assume that this sketch was created in mid-to-late 2016. The Aeroplex concept remained just that—a concept. On the ba- sis of a conversation with the airport’s executive director, respondent’s appraisal expert expressed his understanding that Aeroplex was a “rab- bit hole” the airport “ran down for years,” but that it “was not a tangible thing that had any real legs” at year-end 2016. The airport drafted no formal expansion plans and secured no funding for the Aeroplex project. It remained on the back burner until 2020, when the airport asked a new consultant to revisit the concept. In 2021 the airport discovered that a conservation easement had been placed on the Subject Property in 2016, rendering any northward expansion impossible. VII. Procedures for Rezoning and Annexation To assist the Court in evaluating Mr. Spears’s opinion that the Subject Property “would be rezoned to light industrial . . . or annexed into the City of Bessemer,” we heard testimony about the relevant pro- cedures. The Subject Property consisted of unincorporated land in Jef- ferson County, so any rezoning application would be filed with the county. Its zoning procedures were fairly standard. Upon receiving a rezoning application the county’s transportation and environmental services departments prepared comments address- ing the feasibility of the proposed rezoning. Those comments would be included in the report provided to the Zoning Commission. The Com- mission would provide public notice in the local newspaper and by post- ing signs on the property. It would then hold a hearing at which com- munity members could express support for or opposition to rezoning. After the hearing the Zoning Commission forwarded its recommenda- tion to the county, which held a second public hearing before issuing its decision, which would be subject to judicial review. An annexation procedure would be handled by the City of Besse- mer, and the county would have no direct role in that. Annexation is typically accomplished in one of two ways (a third procedure, requiring action by the State Legislature, was rarely employed). Under the first and most commonly used procedure, landowners wishing to have their property annexed could file a petition seeking that relief. Upon receiv- ing the petition the city would notify the public and hold a hearing;  16 [*16] absent major complications this process could be completed in as little as 120 days. The second procedure would be followed if the city itself wished to initiate an annexation. In that event, the City Council would call an election in which affected property owners would be enti- tled to vote. Annexation would not occur unless 60% of the votes were in favor. If property were annexed under this second procedure, it would retain its existing zoning classification for the time being. Any request to rezone the annexed property would have to go through the usual re- zoning process. VIII. Tax Return and IRS Examination Morgan Run was required to include with its 2016 tax return Form 8283, Noncash Charitable Contributions. Its agents prepared at least three different versions of this form. On March 30, 2017, its ac- counting firm forwarded to Mr. Clark (Morgan Run’s attorney) a Form 8283 that had been signed by Mr. Foster on March 12 and by Mr. Brady on March 16. On this form the box captioned “donor’s cost or adjusted basis” was left blank. On April 11, 2017, the accounting firm emailed Mr. Clark a dif- ferent version of Form 8283, which had been signed by Mr. Foster on April 4 and Mr. Brady on April 6. On this form the “donor’s cost or ad- justed basis” was shown as $1.2 million. This figure corresponds to the amount Morgan Run paid for the Subject Property, as stated in the war- ranty deed. On April 12, 2017, the accounting firm emailed Mr. Clark a third version of Form 8283. This version appears to have the same signatures that Messrs. Foster and Brady affixed on April 4 and 6. But the “donor’s cost or adjusted basis” was now shown as $4,915,630. A member of the accounting firm told Mr. Clark that he “would explain when we get a chance to talk [because] it could be an important issue down the road.” The accounting firm appears to have derived the $4,915,630 basis figure by assuming that Morgan Run had a basis of $1,636,080 in the “land and improvements” acquired from Greenwood and by adding to that figure the $3,279,550 in cash received from investors in the SCE offering. Morgan Run acquired the Subject Property from Greenwood for $1.2 million on November 21, 2016. Petitioner offered no evidence to show that Morgan Run had made $436,080 of “improvements” to the land during the ensuing month. And petitioner offered no legal theory to support the notion that the cash paid by investors to acquire  17 [*17] membership interests in Overflow Marketing (the InvestCo) could be added to the basis that Morgan Run (the PropCo) had in the Subject Property. On April 18, 2017, Morgan Run timely filed Form 1065, U.S. Re- turn of Partnership Income, for 2016. On this return it claimed a char- itable contribution deduction of $26 million for the easement. It en- closed two versions of Form 8283—one reporting its basis in the Subject Property as $4,915,630 and the other (appearing in an attachment) re- porting its basis as $1.2 million. The IRS selected Morgan Run’s return for examination. On Jan- uary 10, 2020, it issued petitioner a Notice of Final Partnership Admin- istrative Adjustment (FPAA) disallowing the charitable contribution de- duction in its entirety. The FPAA determined that Morgan Run had not established that it had made a contribution or gift in 2016 and had oth- erwise failed to show that it had satisfied all the requirements of section 170. Alternatively, if it were determined that Morgan Run was entitled to a deduction, the FPAA determined that the FMV of the easement was at most $989,357. The FPAA determined a 40% penalty for gross valu- ation overstatement under section 6662(b) and (h) and (in the alterna- tive) 20% penalties under section 6662(c)–(e) and section 6662A. (Re- spondent has since conceded the latter penalty.) IX. Tax Court Trial Petitioner filed a timely petition for readjustment of these part- nership items. In April 2026 we held a three-day trial in Atlanta, Geor- gia, limited to a single issue, valuation of the conservation easement. At trial petitioner abandoned the position reflected in the appraisal at- tached to Morgan Run’s tax return, that the HBU of the Subject Prop- erty was mixed-use residential development. Instead, petitioner con- tended that the Property’s HBU was construction of a 780,000-square- foot distribution facility, as urged by Mr. Spears in his expert report. Respondent moved to exclude Mr. Spears’s report in its entirety, urging that he was prejudiced by petitioner’s change of position six weeks before trial. Respondent’s experts necessarily prepared their opening reports on the assumption that petitioner was urging mixed-use development as the property’s HBU. Discovery closed on January 16, 2026, a month before petitioner lodged the Spears report. Respondent urged that petitioner’s new theory “requires respondent to develop evi- dence on matters that were entirely outside the scope of the case as  18 [*18] framed by the pleadings” and that his fact-gathering ability had been unfairly compromised by petitioner’s change of position after dis- covery had closed. Although we found that “respondent’s allegation of prejudice has some force,” we denied his motion by Order served April 1, 2026. We noted that “such a change in position before trial (albeit not as drastic) is not unprecedented.” Order at 2 (citing Champions Retreat Golf Founders, LLC v. Commissioner, T.C. Memo. 2022-106, 124 T.C.M. (CCH) 267, 269 (allowing an appraiser to change his HBU determina- tion from residential subdivision to a golf course with partial residential use), supplementing T.C. Memo. 2018-146). And we were “reluctant to exclude the Spears report altogether on this ground,” because it would effectively prevent petitioner from presenting at trial the case it wished to present. X. Opening Expert Reports A. Respondent’s Experts Respondent submitted opening expert reports from Bruce Landis and Ray Kinney. Because their opening reports were submitted concur- rently with Mr. Spears’s opening report, they were unaware of peti- tioner’s new position regarding the HBU of the Subject Property. Their reports thus focused on the position