Riddle Aggregates: A Limestone Quarry Theory Could Not Support a $45 Million Conservation Easement Deduction

A conservation easement appraised as if the land were a limestone quarry was worth $325,000, not the $44,995,000 claimed, because the partnership did not prove that a quarry was financially feasible or reasonably likely to occur in the near future. In Riddle Aggregates, LLC v. Commissioner, T.C. Memo. 2026-117 (Nov. 10, 2026), Judge Kerrigan valued the easement on 227.95 acres of the 231-acre Riddle Property in Morgan County, Alabama, at that lower figure and sustained a 40% gross valuation misstatement penalty.

This TEFRA partnership-level case was the test case for the eight cases, including this one, involving land Freeman Five, LLC, formerly owned, and the parties in each of the six non-Freeman Five cases stipulated that those cases will be resolved consistently with its outcome.

What was left to decide

Riddle’s 2017 return claimed $44,995,000 for the easement and $355,000 for a later gift of the land itself (the fee simple interest), subject to the easement. The IRS’s August 2021 final partnership administrative adjustment (FPAA) disallowed the whole easement deduction and $10,000 of the fee-simple deduction and asserted penalties.

Three stipulations of settled issues narrowed the case. The parties agreed that both gifts were qualified conservation contributions, substantiated and deductible, without a section 170(e) limit, and the IRS conceded the fraud and reportable-transaction penalties. The third, filed August 26, 2026, fixed the after-easement value at $345,000. Only the easement’s value and the section 6662 penalty remained.

Land sold at about $2,600 an acre was appraised as a quarry

In 2017, Longleaf Ventures, an Ornstein-Schuler affiliate, submitted letters of intent to buy parts of Freeman Five’s 2,744-acre tract at $2,500 per acre. Freeman Five put three tracts totaling 880.56 acres, including the 231.22-acre Riddle Property, into a new entity, and its members sold 98% of that entity to Longleaf for $2,236,175.

Relying in part on two rock cores, a mining consultant estimated 25,596,000 tons of proven reserves and valued a hypothetical mine at $45,412,000; the return appraiser, Weibel & Associates, relied on that report to value the easement at $44,995,000. Investors paid $7,397,000 into the fund that bought 97.99% of Riddle, and the offering memorandum warned that developing a quarry “would probably require significant additional capital.”

At trial, Riddle’s appraiser, Kyle Catlett, valued the land before the easement at $28,030,000, or $121,227 per acre, by modeling the cashflows of an owner-operated quarry; the IRS’s appraiser used comparable sales and reached $670,000.

Why mining was not the highest and best use

Riddle bore the burden of proof; its section 7491 burden-shifting argument failed. The court presumed that the land’s current use was its highest and best use. A mining use required a commercially exploitable deposit and a market that would justify extraction in the reasonably foreseeable future. The IRS’s appraiser accepted that mining was legally permissible with the proper permits and physically possible; the failure was financial feasibility.

• Mine plan: Both core samples lay outside the proposed mining area, and the plan’s four-to-five-acre plant site was about one-third the smallest plant area at six nearby quarries.
• Demand: The IRS’s market expert showed that competing quarries already produced more than double the demand estimate Riddle’s expert cited, and Riddle’s own experts disagreed widely on total demand. Better-located, established competitors raised serious doubts that a new mine could win market share.
• Catlett’s own test: Corrected for a computational error, his six-year feasibility check showed a net present value of −$778,618; he testified that a negative result would suggest mining was not feasible.
• Capital: No credible evidence showed that the syndicators or investors contemplated mining as a legitimate option.

The court adopted the IRS appraiser’s highest and best use: limited residential, agriculture, silviculture and recreation, with potential for future mining.

Comparable sales and the partnership-interest sale set the value

The IRS appraiser’s six Morgan County comparables sold for $1,839 to $2,911 per acre; he concluded $2,898 per acre, or $670,000.

The court also relied on the sale of 98% of the entity holding the three Freeman Five tracts, three months before the gifts. Grossed up to 100%, it implied about $2,591 per acre. It was an arm’s-length deal by a seller who understood the market, not a price set by a syndication’s capital raise. Catlett never reconciled it, and the court noted the Eleventh Circuit’s description of such sales as “overwhelmingly significant” evidence. The court adopted $670,000 as the before value.

The owner-operator cashflow model valued a business, not land

The $28,030,000 value failed first because mining was not the highest and best use. Even if it had been, the model made the error the court’s prior decisions, including Piton Holdings, LLC v. Commissioner, No. 637-23, 167 T.C., slip op. at 34 (July 15, 2026), rejected: equating raw land with the net present value of a hypothetical limestone business. Catlett’s model had sales rising every year, from 152,600 tons in 2019 to 1,486,241 tons in 2046, though the competing quarries’ 2010–17 records did not show that pattern of annual increases.

Market evidence pointed the same way: a 2024 Morgan County riverfront tract bought for mining sold for $8,717 per acre. The court concluded: “A willing buyer would not have paid roughly $121,000 per acre for nonunique land when the price per acre for substitute properties was less than $3,000 per acre.” And: “A knowledgeable buyer would simply not pay the entire projected value of a business for one of the assets needed to conduct the business.” Subtracting the stipulated $345,000 after value from $670,000 left an easement worth $325,000.

A 40% penalty with no reasonable-cause or disclosure defense

The claimed $44,995,000 was far more than 200% of the $325,000 correct value, so the misstatement was gross and the 40% penalty applied. Under section 6664(c)(3), the reasonable cause defense is not available for a gross valuation overstatement of charitable contribution property. Riddle’s adequate-disclosure argument failed because, under the statutory text, the section 6662(d)(2)(B) disclosure exception does not apply to the substantial or gross valuation misstatement penalty. An August 2025 order had already resolved written supervisory approval for the IRS.

Result, status and what the case means

The November 10 opinion directs entry of decision under Rule 155, with computations reflecting the $325,000 easement value and the penalty. Riddle Aggregates is a memorandum opinion; the opinion records the parties’ agreement that an appeal would lie to the Eleventh Circuit.

Our reading: Watson Lake rejected a development theory for lack of probable rezoning and local demand; Riddle applies the same probability test to minerals, where a mine plan and cashflow model did not show a market for the stone.