A recent federal appellate ruling confirms that relying solely on land appraisals is no longer a viable defense for partnership-level tax disputes. The 11th Circuit Court of Appeals affirmed a major U.S. Tax Court decision involving Savannah Shoals, a Georgia development. The Savannah Shoals tax ruling upheld a steep reduction in the claimed land value and left the partnership facing 40% gross valuation misstatement penalties.
What the 11th Circuit decided in the Savannah Shoals case
The 11th Circuit Court of Appeals agreed with the Tax Court that the conservation easement deduction was far too high. This decision triggered a gross valuation misstatement penalty reaching 40% of the tax underpayment tied to the overstated value.
The property sits in Georgia, but the lesson does not stop at the state line. As former IRS Office of Chief Counsel attorney Cal Bomar explains:
Around 740 of the over 1,100 conservation easement cases, or about 67%, are in Tax Court. They set their trial in Georgia, but the U.S. Tax Court sits in D.C. … It is essentially failing in Tax Court instead of just in Georgia.
Why appraisal defenses fail at the partnership level
Appraisal defenses fail at the partnership level because the case becomes a contest between competing land valuations that the IRS often wins. Promoters in these syndicated deals frequently claimed values ranging from 10 times to 200 times what the partnership paid for the land. A court weighing those numbers against the purchase price tends to side with the lower figure.
Investors usually learn about this fight late. Once the partnership litigates and the valuation falls, the penalties flow down to every individual partner.
Where individual partners may find relief
The best opportunity for investor relief comes at the individual assessment stage, after the partnership case ends. At that point, under a push-out election, partners must compute and pay tax, interest and penalties attributable to their share of the adjustments. Procedural rules govern that step, and the IRS does not always follow them.
Veteran Atlanta tax litigator Cal Bomar describes three procedural defenses that carry less risk than a valuation trial:
- Kwong interest defense: This challenges interest the IRS assessed during the COVID disaster window, from January 20, 2020, through July 10, 2023, when statutory restrictions may limit what the IRS can charge.
- Defective Form 872 extensions: This challenges IRS extension forms that left out required statutory language about interest and penalties, which can call the extension itself into question.
- Missed statutory deadlines: This targets the IRS failing to mail required notices to the partnership and the partnership representative within the statutory windows.
Each defense turns on dates, forms and statutory text rather than on what the land was worth. This shift in focus means a lost valuation fight does not have to end the case for an individual partner.
The malpractice trap in conservation easement assessments
Conservation easement assessments sit where partnership tax, tax procedure and individual income tax meet, and a mistake in any one area can be costly. A general CPA or advisor without tax litigation training can miss a Form 872 defect or let an appeal deadline pass. Those errors are rarely fixable later.
Investors may want to avoid letting an advisor without tax litigation experience handle an IRS assessment tied to a syndicated easement. Calculating the tax owed is one task; testing whether the IRS assessed it lawfully is a different one.
What investors should take from the ruling
Taxpayers who move beyond the failed appraisal arguments of the promoter level often find stronger standing in procedural challenges. The Savannah Shoals decision shows that valuation disputes carry heavy risk in the 11th Circuit Court of Appeals and in the U.S. Tax Court, which tries these cases across the country. An investor holding a notice from the IRS may want to have a tax litigation attorney review the Form 872, the interest calculation and the notice dates before deciding how to respond.
A warning on malpractice
Conservation easement assessments sit at a highly complex intersection of Partnership Tax, Tax Procedure, and Individual Income Tax law. This unique overlap creates a dangerous “malpractice trap” for taxpayers who allow non-specialist CPAs or unequipped general advisors to handle their IRS responses.
Attempting to navigate these multifaceted assessments without specialized tax litigation counsel frequently leads to costly, unforced errors and missed appeal deadlines that cannot be reversed. When facing the fallout of a syndicated easement, protecting your emaining options often involves trusting the assessment to someone trained to litigate procedural defects before the window to challenge them closes.
