Two Very Different Cases. But Both Parties Make the Same Mistake
Here are two cases. Different courts. Different jurisdictions. Very different people. One is a United States Tax Court case where four sophisticated partnerships are seeking a charitable deduction for a conservation easement of $91 million. The other is a Delaware Superior Court case in which a SNAP recipient contested repaying a benefit overpayment of $2,341.
Green Valley Investors, LLC v. Comm’r, T.C. Mem. 2025-15 is a case that arose from tax returns filed in 2014 claiming charitable deductions. The deductions were based upon appraisals of real estate which could be mined for crushed stone for highway construction. Several experts were retained including geologists, mineral scientists, and commercial real estate appraisers. The report considered the highest and best use of the properties was as an aggregate quarry mine. The owners applied for a mining permit with the state of North Carolina. It was estimated that 20 million tons of usable rock were below the surface.
The reason for the donation is not set out in the case, but based upon the facts found below, one can guess why the owners donated the property to a charitable organization which holds land for preservation purposes.
The tax returns filed claimed $91 million in tax deductions. Which will be filtered down to the individual partners of Green Valley.
The IRS challenged the appraisals and denied the deductions and assessed a penalty against the taxpayers for overstating the deduction. The matter went to tax court which required the IRS to reevaluate the matter under a different standard. In February 2025, after the IRS review and applying the correct standard, the Tax Court held that the value of the is $1.1 million rather than the $91 million and sustained the imposition of substantial penalties. The reason?
The properties were too far away from any processing plants to be economically feasible. The land was used for agricultural and recreational purposes because there was no other real use for it. Since it was not economically feasible to mine, the partnerships gave it away.
The Tax Court found that the valuation overstatement was “gross” and agreed with the IRS 40% gross valuation misstatement penalty. A 20% penalty for underpayment of the tax was also imposed. The Tax Court found that development of all four separate properties for mining purposes at the same time in 2014 and 2015 “remains beyond comprehension.”
In our Delaware case the matter is much more mundane. There are no expert opinions or complex tax laws and regulations in play. The Department of Health and Social Services (“DHSS”) overpaid a Supplemental Nutritional Assistance Program (“SNAP”) beneficiary $2,341 worth of benefits because she did not report her increased income to DHSS. The increased income exceeded the permitted limit.
An audit performed by DHSS found that the beneficiary “failed to submit paystubs to demonstrate her income change as required by SNAP regulations.” This violated both Federal and State regulations.
Under Federal regulation, DHSS must collect any overpayment. Each adult member of the household that received the overpayment is responsible to reimburse the wrongfully paid amount. McCann-Cross v. DHSS, C.A. No.: K24A-10-001 JJC Super. Ct. (4/22/2025)
What is the common issue? Strict compliance with the law is required to receive the benefit that government may offer. If a taxpayer wants the benefit of a charitable deduction, the taxpayer must comply with the regulations. If an individual has a need and wants to obtain a benefit, the individual must comply with the rules. In neither of these cases were the petitioners, either Green Valley or McCann-Cross accused of fraud. But they were both non-compliant. While Green Valley is subject to tens of millions of dollars of penalties, I am sure Ms. McCann-Cross is hurt by having to repay $2,341 of benefits as well.
We do not advise land developers on conservation easements and charitable deductions. Neither do we have many instances of advising on SNAP benefits. But we are experts in recognizing the issues and can guide our clients to stay out of trouble.
Next month we will review what seemed like a simple case for the client, but we were able to pick up the very complex and far-reaching tax implications.