FILED
                                                        United States Court of Appeals
                                                                Tenth Circuit

                                                               March 7, 2014
                                   PUBLISH                  Elisabeth A. Shumaker
                                                                Clerk of Court
                   UNITED STATES COURT OF APPEALS

                                TENTH CIRCUIT


 ESGAR CORPORATION; DELMAR
 L. HOLMES; PATRICIA A.
 HOLMES; GEORGE H. TEMPEL;
 GEORGETTA TEMPEL,

       Petitioners - Appellants,

 v.                                                   No. 12-9009

 COMMISSIONER OF INTERNAL
 REVENUE,

       Respondent - Appellee.


           APPEAL FROM THE UNITED STATES TAX COURT
              (T.C. Nos. 1:23676-08; 1:23688-08; 1:23689-08)


James Walker (and Justin D. Cumming of Rothgerber, Johnson & Lyons, L.L.P.,
on the briefs), Denver, Colorado, for Petitioners - Appellants.

Jennifer Rubin (Kenneth L. Greene, Tax Division of Department of Justice, and
Kathryn Keneally, Assistant Attorney General, on the brief), Washington, D.C.,
for Respondent - Appellee.


Before KELLY, GORSUCH, and HOLMES, Circuit Judges.


KELLY, Circuit Judge.


      Petitioners - Appellants Esgar Corporation, George and Georgetta Tempel,
and Delmar and Patricia Holmes (collectively, the “Taxpayers”) appeal from two

decisions of the United States Tax Court. Esgar Corp. v. Comm’r, 103 T.C.M.

(CCH) 1185, 

(T.C. 2012); Tempel v. Comm’r, 

(T.C. 2011). They argue that the Tax Court erred in valuing conservation

easements they claimed as charitable deductions and in determining the holding

period of state tax credits they sold. Our jurisdiction arises under I.R.C. § 7482, 1

and we affirm.



                                    Background

      In 1987, Esgar, the Holmeses, the Tempels, and Kelling Fine Foods, Inc.,

each acquired an undivided, one-fourth interest in roughly 2,200 acres of land in

Prowers County, Colorado. Esgar Corp., 

, at *2. They acquired

and held the land in partnership. Around 1999, the partnership leased 1,470 acres

of the property to Eastern Colorado Aggregates to operate as a gravel mine. 

The mine, known as the Midwestern Farms Pit, is one of the four largest

aggregate 2 mines in Prowers County. 

2004, the partnership transferred approximately 163 of the



      1
        All citations to the Internal Revenue Code (“I.R.C.”) refer to United
States Code, Title 26.
      2
         Aggregate is material “consisting largely of rock, gravel, and sand” used
in construction or as an ingredient in making concrete. Pioneer Gravel Equip.
Mfg. v. Diamond Iron Works, 

, 161 (8th Cir. 1934).

                                        -2-
non-leased acres to the Taxpayers individually. 

When all was said and

done, Esgar and the Tempels each owned 54.34 acres, and the Holmeses owned

54.35 acres of land adjacent to the Midwestern Farms Pit. 

17,

2004, the Taxpayers each donated a conservation easement over their respective

property to the Greenlands Reserve. 

The donations granted a perpetual

easement over the properties, giving Greenlands the right to preserve the natural

condition of the land and protect its biological, ecological, and environmental

characteristics. 

specifically prohibited the mining of sand, gravel,

rock, or any other minerals on the properties. 

claimed charitable deductions on their 2004, 2005, and 2006

tax returns for “qualified conservation contributions” under I.R.C. §

170(f)(3)(B)(iii). 

engaged William Milenski to appraise their

contributions. Mr. Milenski concluded that, had the conservation easements not

been granted, the properties would have realized their greatest potential as a

gravel mining operation. 

the value of that relinquished use, Mr.

Milenski valued Esgar’s donated conservation easement at $570,500, the

Holmeses’ at $867,500, and the Tempels’ at $836,500. 

claimed these amounts as charitable contributions on their respective 2004 tax

returns, deducting what they could and carrying the remainder forward onto their

2005 and 2006 returns. 

a result of their donations, the Taxpayers received transferable tax

                                        -3-
credits from the State of Colorado. Tempel, 

. Between December

22 and 31, 2004—within two weeks of receiving the credits—the Taxpayers sold

portions of their credits to third parties. 

From these sales, Esgar

received net proceeds of $18,000, the Tempels received net proceeds of $82,500,

and the Holmeses received net proceeds of $164,625. Id.; Stip. of Facts at 11

¶¶47-49. On their respective 2004 tax returns, the Taxpayers reported these

proceeds as income, albeit each differently: Esgar reported the income as a long-

term capital gain; the Tempels reported it as a short-term capital gain; and the

Holmeses reported it as ordinary income. Tempel, 

; Stip. of Facts

at 12 ¶54, 15 ¶67, 16 ¶75.

      After an audit of the Taxpayers’ 2004, 2005, and 2006 returns, the

Commissioner determined that the Taxpayers’ conservation easements were in

fact valueless and that the sales proceeds from their state tax credits should be

reported as ordinary income. The Commissioner issued notices of deficiency for

the 2004, 2005, and 2006 tax years. The notices indicated that Esgar, the

Holmeses, and the Tempels had understated their tax liability for those years by

$32,357, $82,296, and $93,681, respectively. Esgar Corp., 

, at

*1. The Taxpayers challenged these notices in the United States Tax Court, and a

three-day trial was held in Denver, Colorado, in November 2009.

      In the Tax Court, the Commissioner did not challenge whether the

conservation easements were deductible “qualified conservation contributions”

                                         -4-
under I.R.C. § 170(h). Rather, the only issue was the easements’ value.

Concerning valuation methodology, the parties agreed that there were no

comparable sales of easements with which to compare the Taxpayers’ donations.

Thus, the parties agreed on “before and after” valuation. 3 The Taxpayers and the

Commissioner agreed that the after value of the Esgar and Tempel properties was

$24,000, and the after value of the Holmes property was $27,000. 

Their disagreement, and thus the trial, centered around the properties’ before

value.

         The Tax Court noted that a property’s “highest and best use” determines its

before value. 

argued that their properties’ highest and best

use before granting the easements was gravel mining; the Commissioner argued

that it was agriculture. 4 

end, both sides introduced reports and

testimony from various experts. 

Taking into account these experts,

the Tax Court sided with the Commissioner’s conclusion that agriculture was the

properties’ highest and best use. 

This conclusion was based in part on

a finding that, although “it would have been physically possible to mine the

         3
         Discussed in more detail below, the before and after method measures a
conservation easement’s value as the difference between the property’s fair
market value before granting the easement and the property’s fair market value
after being so encumbered.
         4
         The properties had historically been used as farmland; however, the
parties stipulated that, absent the conservation easements, it was likely that the
necessary permits to mine gravel could be obtained. Esgar Corp., 

, at *4.

                                         -5-
properties in 2004 (or in the future),” there was no demand for such use “in the

reasonably foreseeable future.” 

The Tax Court then decided the

properties’ before value based on comparable sales of agricultural lots. It

concluded that the before value of the Esgar and Tempel properties was $73,774,

and the before value of the Holmes property was $76,502.50. 

After

subtracting the properties’ after values, the Tax Court valued the Esgar and

Tempel conservation easements at $49,774, and the Holmes conservation

easement at $49,502.50. 

separate decision, the Tax Court held that the Taxpayers’ state tax

credits were capital assets and that their holding periods were insufficient to

qualify for long-term capital gain treatment. Tempel, 

. The

resulting income was thus properly reported as short-term capital gains.

      This appeal followed.



                                     Discussion

      We review the Tax Court’s determination and application of law de novo.

Cox v. Comm’r, 

, 1123 (10th Cir. 2008). However, the Supreme

Court has counseled that, “[w]hile [the Tax Court’s] decisions may not be binding

precedents for courts dealing with similar problems, uniform administration

would be promoted by conforming to them where possible.” Dobson v. Comm’r,

, 502 (1943). Rulings by the Tax Court on matters of tax law are

                                         -6-
therefore persuasive authority, especially if consistently followed.

      On the other hand, we review the Tax Court’s findings of fact for clear

error. 

. The Supreme Court has delineated the nature of

our review:

              The Tax Court has the primary function of finding facts
              in tax disputes, weighing the evidence, and choosing
              from among conflicting factual inferences and
              conclusions those which it considers most reasonable.
              The Circuit Courts of Appeals have no power to change
              or add to those findings of fact or to reweigh the
              evidence.

Comm’r v. Scottish Am. Inv. Co., 

, 123-24 (1944). Our review of

such matters is limited to asking whether the Tax Court’s decision “is supported

by substantial evidence and is not clearly erroneous.” Home Co. v. Comm’r, 

, 639 (10th Cir. 1954).

      The Taxpayers point to three errors by the Tax Court, each of which they

frame as a “misapplication of legal standards and methodologies mandated by the

Internal Revenue Code and Treasury Regulations.” Aplt. Br. 17. They argue

that: (1) the Tax Court erroneously placed on them the burden of proving the

before value of their properties; (2) the Tax Court applied incorrect legal

standards in valuing their conservation easements; and (3) the Tax Court erred in

determining the holding period of their state tax credits. Aplt. Br. 2-3. We

consider each in turn.




                                        -7-
A.    Burden of Proof Allocation and Factual Inferences

      The Taxpayers argue that the Tax Court erred by placing on them the

burden of proving the before value of their properties. They contend that they

satisfied I.R.C. § 7491(a)’s requirement of producing credible evidence on that

issue, thus shifting the burden to the Commissioner. Aplt. Br. 20-30. Because

the burden was not properly allocated, they argue, the Commissioner was allowed

to prevail without presenting any “objective evidence” that agriculture was the

properties’ highest and best use. 

They assert that the Tax Court’s

decision is devoid of “factual evidence presented by the Commissioner” but is

instead supported “through negative presumptions of fact improperly inferred”

against them. 

      1.     Burden of Proof under I.R.C. § 7491

      Generally, deductions are a matter of legislative grace, and a taxpayer bears

the burden of proving entitlement to any claimed deduction. INDOPCO, Inc. v.

Comm’r, 

, 84 (1992); Zell v. Comm’r, 

, 1141 (10th Cir.

1985). Moreover, the Commissioner’s determination of value is normally

presumed correct, and the taxpayer bears the burden of proving that any notice of

deficiency is excessive. Welch v. Helvering, 

, 115 (1933); United

States v. Gosnell, 

, 1520 (10th Cir. 1992). In certain situations,

however, the burden of proof may be shifted to the Commissioner. Section

7491(a) of the I.R.C. shifts the burden of proof to the Commissioner on any

                                        -8-
factual issue that the taxpayer supports with credible evidence. I.R.C. § 7491(a). 5

      The Taxpayers argue that they introduced credible evidence that gravel

mining was their properties’ highest and best use, thus shifting the burden to the

Commissioner to disprove that matter. Aplt. Br. 20-30. For the purpose of their

appeal we will assume—without deciding—that they were entitled to § 7491’s

burden shift. However, like the Tax Court, we conclude that the application of §

7491 is immaterial to the outcome of this case because, on this record, the Tax

Court could hold that the preponderance of the evidence favored the

Commissioner.

      Congress enacted § 7491 to remove a perceived disadvantage experienced

by taxpayers who litigate with the IRS. See S. Rep. No. 105-174, at 44 (1998). It

did so by requiring that if both sides produce evidence and “the court believes

that the evidence is equally balanced, [then] the court shall find that the Secretary

      5
        In addition to introducing “credible evidence” regarding the factual issue,
§ 7491(a) requires that

             (A) the taxpayer has complied with the requirements
             under this title to substantiate any item;

             (B) the taxpayer has maintained all records required
             under this title and has cooperated with reasonable
             requests by the Secretary for witnesses, information,
             documents, meetings, and interviews; and

             (C) in the case of a partnership, corporation, or trust, the
             taxpayer is described in section 7430(c)(4)(A)(ii).

I.R.C. § 7491(a)(2)(A)–(C).

                                         -9-
has not sustained his burden of proof.” 

In applying § 7491, however,

courts have concluded that if the evidence is not “equally balanced,” then there is

no need to rule on whether the burden shifts to the IRS. Trout Ranch, LLC v.

Comm’r, 493 F. App’x 944, 955 (10th Cir. 2012) (unpublished); 6 Whitehouse

Hotel Ltd. P’ship v. Comm’r, 

, 332-33 (5th Cir. 2010); Keating v.

Comm’r, 

, 906 (8th Cir. 2008); Geiger v. Comm’r, 279 F. App’x

834, 835 (11th Cir. 2008) (unpublished); Blodgett v. Comm’r, 

,

1039 (8th Cir. 2005); FRCG Inv., LLC v. Comm’r, 89 F. App’x 656, 656 (9th Cir.

2004) (unpublished); Knudsen v. Comm’r, 

, 189 (T.C. 2008).

      Importantly, the Eighth Circuit has held that:

             In a situation in which both parties have satisfied their
             burden of production by offering some evidence, then
             the party supported by the weight of the evidence will
             prevail regardless of which party bore the burden of
             persuasion, proof or preponderance. Therefore, a shift
             in the burden of preponderance has real significance
             only in the rare event of an evidentiary tie.

(internal citation omitted); see also 

. This court has previously utilized this approach, see Trout Ranch, LLC,

493 F. App’x at 955, and we do so again. 7 Section 7491 does not require an

      6
        We cite this and other unpublished dispositions for their persuasive value
only. 10th Cir. R. 32.1(A).
      7
         The Taxpayers’ reliance on another Eighth Circuit case, Griffin v.
Comm’r, 

(8th Cir. 2003), is unavailing. First, in a subsequent
opinion, the Eighth Circuit expressly abandoned Griffin and adopted the approach
set out above. 

. And second, the Eighth Circuit’s

                                        - 10 -
express burden shift when both parties produce evidence and the preponderance

favors one party over the other.

      2.     Preponderance of the Evidence

      The burden issue aside, it is next logical to ask whether a preponderance of

the evidence did in fact favor the Commissioner. To determine this anew would

require us to reweigh the evidence, something that we are powerless to do.

Scottish Am. Inv. 

. The Tax Court’s finding—that the weight

of the evidence favored agriculture as the properties’ highest and best use—will

therefore stand “if it is supported by substantial evidence and is not clearly

erroneous.” Home 

. The Taxpayers have not expressly

requested such review, instead framing the Tax Court’s error as a misapplication

of law reviewed de novo. See Aplt. Br. 17, 19, 35, 41.

      We will, however, briefly address the Taxpayers’ contention that the

Commissioner produced no “credible,” “reliable,” or “objective” evidence

regarding the highest and best use of the properties. Aplt. Br. 22-24, 31, 34, 35.

We start by noting that the Commissioner need not produce any evidence if other

evidence in the record satisfies his burden for him: “The case law is clear that the


decision in Griffin was based on the fact that the court, on the record before it,
could not determine whether § 7491’s burden shift played a role in determining
the outcome of that case, i.e., whether the evidence was so evenly balanced that
the Commissioner could not be deemed to have met his burden. 

. On the record before us, we do not believe that the Tax Court clearly
erred by concluding that the preponderance of the evidence favored the
Commissioner.

                                        - 11 -
determination whether [the Commissioner’s burden of proof] has been satisfied is

not limited to [the Commissioner’s] affirmative evidence but can be made on the

basis of the whole record.” Anclote Psychiatric Ctr., Inc. v. Comm’r, 76 T.C.M.

(CCH) 175, 

, at *13 (T.C. 1998), aff’d, 

(11th Cir.

1999). See also Silverman v. Comm’r, 

, 933 (2d Cir. 1976); Clark v.

Comm’r, 

, 717 (9th Cir. 1959); cf. Salehpoor v. Shahinpoor, 

, 786 (10th Cir. 2004) (court reviews “record as a whole” to determine

whether moving party is entitled to judgment as a matter of law). In this case, the

Tax Court determined that much of the Taxpayers’ own evidence undermined

their position that gravel mining was their properties’ highest and best use. Esgar

Corp., 

, at *9, *10, *11, *15 n.22, *16-17, *17 n.24, *17-18,

*18, *19. The conclusion that this evidence weighed in the Commissioner’s favor

was not clearly erroneous.

      Additionally, the Taxpayers’ assertion that the Commissioner’s case was

devoid of “factual evidence” is incorrect. Aplt. Br. 34. The Commissioner

offered the expert testimony of Kevin McCarty, a certified general appraiser who

had appraised some 150 conservation easements. Esgar Corp., 

,

at *12-13; Tr. Trans. at 595-706, Esgar Corp., 103 T.C.M (CCH) 1185 (No. 2012-

35). Mr. McCarty opined that the properties’ highest and best use was

agriculture. Esgar Corp., 

, at *12. Whether to accept Mr.

McCarty’s expert opinion was for the Tax Court to decide “in the exercise of [its]

                                       - 12 -
sound judgment.” Hughes v. Comm’r, 

, 

, at *5 (T.C. 2009); see also Helvering v. Nat’l Grocery Co., 

, 295 (1938). Mr. McCarty’s opinion was certainly one way of viewing the

evidence. “Where there are two permissible views of the evidence, the

factfinder’s choice between them cannot be clearly erroneous.” Anderson v. City

of Bessemer, 

, 574 (1985). Moreover, Mr. McCarty’s expert opinion

constitutes substantial evidence on which the Tax Court could base its conclusion

that agriculture was the properties’ highest and best use.

      3.     Missing-Evidence Inference

      Finally, the Taxpayers argue that the Tax Court erred by drawing an

adverse factual inference against them. Aplt. Br. 31-35. In its analysis, the Tax

Court noted Mr. McCarty’s estimate that over 39 million tons of aggregate

remained to be mined in the four existing Prowers County mines, with nearly 24

million tons remaining in the Midwestern Farms Pit itself. Esgar Corp., 

, at *17. Looking for competing evidence from the Taxpayers, the Tax

Court stated:

             Neither [the Taxpayers] nor their experts provided us
             with an estimate of remaining aggregate. [The
             Taxpayers] own the land on which the Midwestern
             Farms Pit is situated and chose not to provide
             information on the amount of aggregate remaining.
             Their failure to introduce evidence “which if true, would
             be favorable to . . . [them], gives rise to the presumption
             that if produced it would be unfavorable.”


                                        - 13 -


third alteration in original) (quoting Wichita Terminal Elevator

Co. v. Comm’r, 

, 1165 (T.C. 1946), aff’d, 

(10th Cir.

1947)). The Taxpayers argue that it was impermissible to use this “missing-

evidence” inference against them, given that the burden of proof rested with the

Commissioner.

      We disagree. It is the function of the Tax Court to “draw appropriate

inferences, and choose between conflicting inferences in finding the facts of a

case.” Powers v. Comm’r, 

, 

, at *7

(T.C. 2013); see Scottish Am. Inv. 

; Nat’l Grocery 

; Home 

. The Tax Court may draw these

inferences from the whole record, including the Commissioner’s evidence on a

given fact and the taxpayer’s lack thereof. See Anclote Psychiatric Ctr., Inc.,

, at *13.

      Inference drawing does not constitute a shift in the burden of proof. The

Seventh Circuit rejected such an argument in Steiner v. Comm’r, 

(7th Cir. 1965). In that case—where the Commissioner held the burden of

proving the taxpayer’s fraud—the court noted that:

             It is contended, by taxpayer, that by drawing adverse
             inferences from his failure to call certain witnesses, the
             Tax Court shifted the burden of proof to him. He
             testified that he told his wife about the [alleged fraud].
             She was not called as a witness by taxpayer and from
             this failure the Tax Court drew the inference that her
             testimony would be unfavorable to him.

                                        - 14 -
             While failure of the taxpayer to present evidence would
             not of itself be sufficient to satisfy the Commissioner’s
             burden of proof as to fraud, where the Commissioner has
             made out a prima facie case, as we think he did here,
             adverse inferences may properly be drawn from the
             taxpayer’s failure to call witnesses who would otherwise
             be expected to be favorable to him.

(internal footnote and citation omitted).

      As discussed above, the Tax Court’s decision is supported by a record of

evidence from both sides. Presented with Mr. McCarty’s estimate, the Tax Court

did not rely solely on the missing-evidence inference to find that existing supply

in Prowers County was sufficient to satisfy future increases in demand. That

inference was just one more factor indicating that gravel mining was not the

properties’ highest and best use.

B.    Conservation Easement Valuation

      Next, the Taxpayers argue that the Tax Court applied erroneous legal

standards to value their conservation easements. They make two arguments: (1)

that the Tax Court erred by adopting the properties’ current use as its highest and

best use rather than taking a “development-based approach,” Aplt. Br. 38; and (2)

that the Tax Court erred by citing eminent domain principles in reaching its

valuation determination. We address both issues.

      1.     Objective Assessment of the Likelihood of Development

      The Taxpayers argue for a development-based approach to valuation, i.e.,

that if future development would result in a higher value than current use, the

                                        - 15 -
court must take that into account and hold future development to be the

properties’ highest and best use. Aplt. Br. 36-38. They apparently argue that

because the Tax Court found the properties’ current use, agriculture, to be its

highest and best use, it necessarily erred in its highest and best use determination.

Aplt. Reply Br. 2-3, 4.

      Although taxpayers are generally not permitted to deduct contributions of

an interest in property less than their entire interest, Congress has permitted such

partial interest contributions where the interest donated is a “qualified

conservation contribution.” I.R.C. § 170(f)(3)(B)(iii). Commonly called

“conservation easements,” the contribution must meet certain statutory

requirements, 

170(h), none of which are at issue here. Often value is the

only contested issue concerning the tax treatment of conservation easements.

      Valuation can prove difficult because “most open-space easements are

granted by deed of gift [so that] there is rarely an established market from which

to derive the fair market value.” Symington v. Comm’r, 

, 895 (T.C.

1986). The IRS addressed this problem through regulations. See Treas. Reg. §

1.170A-14 (as amended in 2009). Treasury Regulation § 1.170A-14 provides that

the value of a conservation easement is “the fair market value of the perpetual

conservation restriction at the time of the contribution.” 

1.170A-

14(h)(3)(i). There are two alternative methods of calculating this value: the

“comparable sales” method and the “before and after” method. 

-
      Under the comparable sales method, the donated easement’s fair market

value may be extrapolated from sales of other easements, “[i]f there is a

substantial record of sales of easements comparable to the donated easement.” 

is often the case that such sales are few and far between, the

regulations provide for an alternative measure—the before and after method:

             If no substantial record of market-place sales is
             available to use as a meaningful or valid comparison, as
             a general rule (but not necessarily in all cases) the fair
             market value of a perpetual conservation restriction is
             equal to the difference between the fair market value of
             the property it encumbers before the granting of the
             restriction and the fair market value of the encumbered
             property after the granting of the restriction.

the before and after method asks “what was the difference, if

any, in the value of the property with and without the easement?” Hilborn v.

Comm’r, 

, 688 (T.C. 1985). A decrease in value is often caused by

the relinquishment of the property’s “highest and best” use:

             If before and after valuation is used, the fair market
             value of the property before contribution of the
             conservation restriction must take into account not only
             the current use of the property but also an objective
             assessment of how immediate or remote the likelihood is
             that the property, absent the restriction, would in fact be
             developed, as well as any effect from zoning,
             conservation, or historic preservation laws that already
             restrict the property’s potential highest and best use.

1.170A-14(h)(3)(ii).

      The highest and best use inquiry is one of objective probabilities. The


                                        - 17 -
“realistic, objective potential uses for property control” its valuation. Symington,

(citing Stanley Works & Subsidiaries v. Comm’r, 

, 400

(T.C. 1986)). Valuation does not depend on “whether the owner actually has put

the property to its highest and best use.” 

Rather, courts must “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.’” 

v. United States, 

, 255 (1934)); 8 see also Whitehouse Hotel Ltd.

. A suggested higher use other than current use “requires

both ‘closeness in time’ and ‘reasonable probability.’” Hilborn, 

.

      The IRS has adopted this objective approach to highest and best use.

Treasury Regulation § 1.170A-14 calls for the court to objectively assess “how

immediate or remote the likelihood is that the property . . . would in fact be

developed.” Treas. Reg. § 1.170A-14(h)(3)(ii). This is the same as asking a

court to determine the reasonable probability that development is “likely to be

needed in the reasonably near future.” Symington, 

.

      We have some difficulty accepting the Taxpayers’ position. First, the

record belies their contention that the Tax Court “failed to identify” the proper

valuation standard. Aplt. Br. 18. The Tax Court stated that the fair market value


      8
        Elsewhere, the Taxpayers attack reliance on eminent domain cases such
as Olson v. United States. But Symington, which the Taxpayers call “a landmark
conservation easement case,” Aplt. Br. 38, cited Olson for the same reasons that
the Taxpayers cite Symington. Symington, 

-97.

                                        - 18 -
of property “must be evaluated considering the property’s highest and best use.”

Esgar Corp., 

, at *7. To that end, it cited § 1.170A-14(h)(3)(ii),

Symington, and other highest and best use cases. 

centered on an

assessment of gravel mining as the highest and best use of the properties. 

       The Taxpayers also argue that the Tax Court erred in its application of the

highest and best use standard. Aplt. Br. 18, 35-41. They do not argue that the

Tax Court erred in its finding that gravel mining was not the properties’ most

reasonably probable use. That conclusion, of course, would be subject to review

for clear error. 

; Home 

. Rather, they

ask us to review de novo whether the Tax Court failed to apply the proper highest

and best use analysis altogether. Aplt. Br. 39. As mentioned above, it clearly did

not.

       The Tax Court was not bound to accept gravel mining as the properties’

highest and best use if that use was not reasonably probable to manifest in the

reasonably near future. See Symington, 

. In other words, after

taking into account the properties’ current use and the fact that the likelihood of

development was remote, the Tax Court certainly could find that the properties’

current use, agriculture, was its highest and best use. See Treas. Reg. § 1.170A-

14(h)(3)(ii). In its objective assessment of the likelihood that the properties

would be developed into a gravel mine, the Tax Court found: (1) as of 2004, there

                                        - 19 -
was no unfulfilled demand for gravel in Prowers County, Esgar Corp., 

, at *16; (2) demand from the Front Range for Prowers County gravel was

not poised to increase in the “reasonably foreseeable future,” 

(3)

supply produced by the four existing Prowers County gravel pits was sufficient to

satisfy any increases in demand, 

and (4) transporting gravel via rail

from Prowers County to the Front Range was not a “reasonably foreseeable

possibility” in 2004, 

9

       The Tax Court applied the correct highest and best use standard, looking

for the use that was most reasonably probable in the reasonably near future, and it

did not clearly err by concluding that use was agriculture.

       2.     Eminent Domain Principles

       The Taxpayers argue that eminent domain principles—standards used to

value property to determine just compensation—are wholly inapplicable when

valuing conservation easements. Aplt. Br. 39-41. We have already held that the

Tax Court applied the proper valuation methodology, i.e., an objective assessment

of the likelihood that the properties would be developed into a gravel mine. We

fail to see how eminent domain principles tainted that assessment.

       The Taxpayers have not satisfied us that we are comparing apples and

oranges when it comes to evaluating highest and best use. Conservation easement

       9
        The Taxpayers argue that contrary conclusions can be drawn from the
record. However, there is ample evidence in the record to support the Tax
Court’s findings.

                                        - 20 -
valuation requires a finding of “highest and best use.” See Treas. Reg. § 1.170A-

14(h)(3)(ii). Just compensation valuation requires an identical finding, i.e., the

“highest and most profitable use” for which the property was suited before the

taking. 

. One of the Taxpayers’ experts called Olson v.

United States, an eminent domain case, “a kind of landmark for the definition of

highest and best use.” Tr. Trans. at 513, Esgar Corp., 103 T.C.M (CCH) 1185

(No. 2012-35). The Taxpayers refer to a four-factor highest and best use test that

finds significant use in eminent domain cases. 10 Aplt. Br. 8.

      The objective assessment that Treas. Reg. § 1.170A-14(h)(3)(ii) requires

does not materially differ from that used to determine the highest and best use of

property for just compensation valuation. Cases valuing conservation easements

cite eminent domain cases without noting any difference between the two

concepts. See, e.g., Whitehouse Hotel Ltd. 

(citing both

Olson and § 1.170A-14(h)(3)(ii) in its discussion of highest and best use);

Hughes, 

, at *3 (same). In fact, the Tax Court has gone so far

as to state, “The principles and legal precedents governing the determination of


      10
         See, e.g., United States v. 1.604 Acres of Land, 

,
679 (E.D. Va. 2011) (analyzing highest and best use for “whether the use is (1)
physically possible; (2) legally permissible; (3) financially feasible; and (4)
maximally productive”) (citing The Appraisal of Real Estate 278-79 (13th ed.
2008)); see also Brace v. United States, 

, 350 (Fed. Cl. 2006);
Bassett, N.M. LLC v. United States, 

, 69 (Fed. Cl. 2002). The Tax
Court has considered these factors when determining the highest and best use of
eased property. See, e.g., Hughes, 

, at *8 (T.C. 2009).

                                        - 21 -
fair market value of property in tax cases are the same as those that control the

valuation of property in condemnation cases.” Stanley Works & Subsidiaries, 

n.8. 11

       We find no material difference between conservation easement valuation

and just compensation valuation in the context of determining a property’s highest

and best use. Section 1.170A-14(h)(3)(ii) does not preclude reference to eminent

domain cases where they inform an objective assessment of the likelihood of

future development.

C.     Holding Period of State Tax Credits

       Finally, the Taxpayers argue that their state tax credits, which they held for

about two weeks, were long-term capital assets. Aplt. Br. 41-43. They argue that

long-term treatment is appropriate because they held the underlying real

properties for longer than one year, they relinquished development rights in those

properties through the donation of conservation easements, and they received

these tax credits because of those donations. Aplt. Br. 43. They cite no authority




       11
         The Taxpayers attempt to discredit Stanley Works by pointing out that it
was decided under prior tax law, i.e., prior to the enactment of I.R.C. § 170(h)
and Treas. Reg. § 1.170A-14(h)(3)(ii). At oral argument, the Taxpayers attacked
Symington for the same reason, after praising it as a “landmark conservation
easement case” in their opening brief. Aplt. Br. 38. Both Stanley Works and
Symington remain persuasive authority because they decided highest and best use
based on an objective assessment of reasonably probable uses, something that §
1.170A-14(h)(3)(ii) does also.

                                        - 22 -
clearly supporting this proposition. 12

      The Tax Court correctly concluded that:

             [The Taxpayers] had no property rights in a conservation
             easement contribution State tax credit until the donation
             was complete and the credits were granted. The credits
             never were, nor did they become, part of the
             [Taxpayers’] real property rights.

             Instead, [the Taxpayers’] holding period in their credits
             began at the time the credits were granted and ended
             when petitioners sold them. Since petitioners sold their
             State tax credits in the same month in which they
             received them, the capital gains from the sale of the
             credits are short term.

Tempel, 

. Moreover, the tax credits did not replace the value of

the donated easements through any type of like-kind exchange, thus no “tacking”

of holding periods is permitted. 13 See I.R.C. § 1223.

      AFFIRMED.




      12
          Neither did the Taxpayers address the Commissioner’s response to this
issue in their reply brief, nor did they address this issue at oral argument.
      13
          If this were a like-kind exchange (conservation easements in exchange
for tax credits), then this would negate the charitable nature of the Taxpayers’
contribution. See United States v. Am. Bar Endowment, 

, 116
(1986) (A donation “generally cannot constitute a charitable contribution if the
contributor expects a substantial benefit in return.”).

                                          - 23 -