## Facts

- Taxpayers owned a 52.44-acre agricultural tract in Howard County, Maryland.
- In 1990, they conveyed to Howard County a perpetual conservation easement restricting development under the county’s agricultural land preservation program.
- The county agreed to pay $309,000 ($30,000 at closing and the balance in long-term installments with interest).
- The parties treated the transfer as a bargain sale: part sale for consideration and part charitable gift.
- Taxpayers claimed a charitable contribution deduction equal to the difference between their asserted fair market value of the easement and the $309,000 received.
- The IRS asserted the easement’s fair market value was $309,000 (so no gift), or alternatively that any gift component was much smaller, and determined deficiencies for 1990–1993.

## Issues

1. For a bargain sale of a perpetual conservation easement, whether fair market value should be determined by equating value to the county’s program purchase price or by using the “before-and-after” method (value of the property before the restriction minus value after).
2. Using the proper valuation method, what charitable contribution amount (if any) resulted from the 1990 conveyance.

## Decision

- The Tax Court held that the easement’s fair market value must be determined using the before-and-after method.
- The court rejected treating the county’s purchase price (and similar county program prices) as reliable market comparables.
- The court found the conveyance was a bargain sale producing a charitable contribution greater than zero but less than taxpayers claimed.
- The court ordered recomputation of the resulting deficiencies under Rule 155.

## Legal Principles

- A perpetual restriction on the use of real property may qualify for a charitable contribution deduction as a qualified conservation contribution under I.R.C. § 170(h), notwithstanding the partial-interest limitation in § 170(f)(3).
- Fair market value for § 170 purposes is determined under the willing-buyer/willing-seller standard, considering all relevant facts as of the contribution date.
- When there is no substantial record of comparable sales of similar easements, the appropriate valuation method for a conservation easement is generally the before-and-after approach: value of the unencumbered property minus value of the encumbered property, measured at highest and best legal use.
- Prices paid in a government preservation program may be discounted as evidence of fair market value when the program reflects limited demand and non-market policy constraints rather than arm’s-length market pricing.
- In a bargain sale to a qualified donee, the deductible contribution equals the excess of the donated property interest’s fair market value over the consideration received, subject to substantiation and valuation proof.

## Conclusion

The Tax Court required valuation of the perpetual conservation easement by comparing the property’s value before and after the restriction, declined to treat county program prices as conclusive market evidence, and recognized a deductible charitable component in the taxpayers’ bargain sale with the amount determined from the record and recomputed under Rule 155.


Browning v. Commissioner, 109 T.C. 303 (1997)