Nature of the Case
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Facts
P is a Delaware limited liability company (LLC). Joseph Calabria, Jr., is P's tax matters partner. Laura Lake acquired two contiguous parcels of real estate each consisting of approximately 10 acres. Laura Lake paid approximately $10,000 per acre. On October 1, 1999, Laura Lake quitclaimed to P the Northern and Southern Parcels. P received the property from Laura Lake in payment of a note to prevent foreclosure. On November 8, 2002, Shirley Heinze Land Trust, Inc. quitclaimed to P a parcel of real property located immediately east of the Southern Parcel and consisting of approximately 10.3 acres (the Eastern Parcel). The quitclaim deed was never recorded. Beginning in 1955 and as of December 29, 2003, the Southern Parcel was encumbered by a 50-foot-wide pipeline utility easement. As of December 29, 2003, the Northern and Southern Parcels were both encumbered by an access (golf cart) easement in favor of the Gary Works Supervisors Club, Inc., and golf course. Approximately 2.82 acres on the Eased Area, 8.5 acres on the eastern portion of the Northern Parcel, and all of the Eastern Parcel are forested wetlands falling within the jurisdiction of the U.S. Army Corps of Engineers (USACE). The discharge of dredged or fill material in wetlands within Federal jurisdiction is subject to a permitting process through USACE. The discharge of dredged or fill material in wetlands within Federal jurisdiction is subject to a permitting process through USACE. Indiana requires that a party obtain a permit separate from USACE's through the Indiana Department of Environmental Management (IDEM). On December 29, 2003, the Northern and Southern Parcels were zoned R-1, single-family residential. As of December 29, 2003, Lake County did not provide water or sewer services independent of the services provided by municipalities. On December 29, 2003, the Eastern Parcel was zoned as a Planned Unit Development (PUD). On its 2003 Form 1065, P claimed charitable contribution deductions of $3,259,000, of which $3,245,000 related to the donation of the subject easement. P reported a fair market value of $3,270,000 for the subject easement as of December 31, 2003. The fair market value was reduced by $25,000 as a claimed enhancement in value to adjacent parcels owned by Boltar as a result of the donation of the subject easement. An attached Form 8283, Noncash Charitable Contributions, signed by Gary K. DeClark, managing director and principal of Integra Realty Resources in Chicago, Illinois (Integra) was included. An appraisal report (the Integra appraisal) prepared by DeClark and Nancy S. Myers (Myers), senior real estate analyst for Integra was attached as well. The 'highest and best use' of the property was residential development. The appraisal determined the easement value as the difference between the 'Foregone Development Opportunity of 174 Condominiums on Finished Sites, Discounted to December 31, 2003' (Scenario B)--$3,340,000 less the 'Value of Raw, Vacant and Developable Land' (Scenario A)--$68,000. In the final partnership administrative adjustment the fair market value of the subject easement as of December 29, 2003, was determined to be $42,400. The valuation engineer opined that the Integra appraisal failed to determine the value of the Eased Area before and after the grant of the easement. The valuation engineer concluded that the highest and best use was for 'development of single-family detached residential homes, but not until the surrounding properties are developed,' partly because the Eased Parcel was landlocked with no direct access to a public road.
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