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Connecticut is home to dozens of land trusts, many of which have substantial holdings and are constantly acquiring new properties via donations and bargain sales. One popular form of donation is the conservation easement under which the donor retains title to the property, frequently reserving rights of passage and perhaps recreational use in some form or fashion. The donation is recorded on the land records and assures that the property can never be developed or, if so, typically to a very limited extent.
Obviously, one of the driving motivations behind these donations is the federal income tax charitable deduction. To support the deduction claim, an appraisal of the market value of the donated property is required. Since appraisal issues and concepts play a major role in Pullman & Comley’s Property Tax and Valuation practice, we looked at a recent United States Tax Court decision in which a claim to a deduction of more than $32 million for an easement grant to the Mountain Recreation & Conservation Authority in the Santa Monica region of Los Angeles was litigated. The Tax Court’s description of the property portrays a beautiful scenic area home to rare species of plants and animals.
The Internal Revenue Service (IRS) disputed the claimed market value of the donation. Interestingly, considering that unimproved real estate was involved here, both the donor and the IRS agreed that the income approach was credible and that the wide valuation gap between the IRS and the donor turned largely on a single issue; “the property’s development potential.”
Easements are usually valued by courts using a before and after approach in which value equals the fair market value of the property immediately before the easement was granted (“before” value) minus the fair market value of the property as encumbered by the easement (“after” value). The income approach develops a fair market value estimate “by discounting the present value of expected future cashflows that the property would generate.” However, decisions in several Connecticut cases have disfavored this approach because it can be highly sensitive to assumptions and projections.
The Tax Court recognized these concerns but nevertheless applied the income approach because both the donor and the IRS did so in determining the value of easement.
The Tax Court found that the value of the easement was $19.7 million or $13 million less than the donor claimed.
Malibu Valley Land v. Commissioner of Internal Revenue U.S. Tax Court (August 17, 2026)
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About Our Property Tax and Valuation Law Blog
Alerts, commentary, and insights from the attorneys of Pullman & Comley’s Property Tax and Valuation practice with timely information for businesses, nonprofits and individuals in commercial property tax appeals and eminent domain matters.