Big charitable deductions are often built on appraisals. Valuation questions turn into tax questions and, ultimately, tax disputes.
When a business or partnership donates land, the tax deduction is only as good as the appraiser’s number. The taxpayer picks the appraiser, pays the appraiser, and attaches the appraisal to the tax return.
Years later, the IRS challenges the deduction and the case goes to trial. The appraiser is called to the witness stand to defend the number. And he refuses to answer questions. He invokes his Fifth Amendment right against self-incrimination.
This raises the question that most taxpayers never think about when they hire an appraiser. Does the appraiser’s silence get held against the taxpayer? Can the court assume the worst about what he would have said, and throw out the entire deduction?
The U.S. Tax Court recently addressed this in Lontrac Enterprises, LLC v. Commissioner, T.C. Memo. 2026-108. The case provides an opportunity to consider what happens to a taxpayer’s deduction when the appraiser behind it pleads the Fifth.
Facts & Procedural History
The case involved a syndicated conservation easement. In 2006, the couple invested in 300 acres of vacant mountain land in Tennessee. They paid $1.3 million for the land.
The land bordered a river and a national forest. A scenic tourist railroad ran through it. After the Great Recession hit, the couple tried to sell the property. They listed it for under $3 million and it sat on the market for about five years with no buyer.
A tax lawyer then helped them turn the land into a conservation easement deal. An investment partnership was formed to raise money from high-income investors. The offering materials promised investors more than three dollars of tax benefits for every dollar invested. The investors put in about $8.8 million. The partnership bought a 99% interest in the land-holding company for about $1 million. And the promoters kept most of the rest as redemptions and fees.
The deal needed an appraisal to work. The promoters asked three appraisers to value the land as a granite mine. All three came back with values over $60 million. The partnership used the highest one. That appraiser concluded the land was worth $75 million before the easement and about $500,000 after. So the easement was worth about $74.5 million–according to him.
The same appraiser had valued the same land for the bank in 2008 and 2010. He came up with about $2 million and then about $1.6 million. And he noted that the rock on the property was not even granite.
The partnership claimed a $74.5 million charitable deduction on its 2014 partnership return and attached the appraisal as required by the IRS filing rules. The IRS selected the return for audit. It disallowed the entire deduction and asserted a 40% gross valuation misstatement penalty. The partnership petitioned the U.S. Tax Court to contest the adjustments.
At trial, the appraiser repeatedly invoked the Fifth Amendment and refused to testify about his appraisal. The IRS then argued that he was not a “qualified appraiser” and asked the court to infer collusion from his silence.
About the Appraisal for Charitable Deductions
Section 170 allows a deduction for charitable contributions. When the donation is property rather than cash, the deduction is generally the fair market value of the property on the date of the gift.
The tax code generally does not allow a deduction for donating less than your entire interest in property. A conservation easement is an exception. The owner keeps the land but gives up development rights to a land trust or other qualified charity. If the easement is a “qualified conservation contribution,” the owner gets a deduction for the value of what was given up. This is a legitimate tax benefit provided by Congress.
But valuation is often the issue. Valuing that is not easy. There is not a market for easements alone that you can get comparable data from. So appraisers usually value the land before the easement, value it after, and the difference is the deduction. This is where most of the fights happens in these tax dispute cases. The before value depends on the land’s “highest and best use,” and the IRS would say that so-called promoters have an incentive to identify the most lucrative one.
Because the numbers can be so large, as Congress intended to encourage these investments, Congress added paperwork requirements. For non-cash donations over $5,000, the taxpayer needs a “qualified appraisal” by a “qualified appraiser.” For donations over $500,000, the appraisal has to be attached to the return. These are not technicalities. If the appraisal does not qualify, the deduction can be denied entirely, absent reasonable cause. We have written before about how strictly the IRS enforces the substantiation rules for charitable contributions.
When Is an Appraiser Not “Qualified”?
The tax regulations list several things that make someone a qualified appraiser, such as credentials and experience. They also include an exception.
An appraiser is not qualified if the donor knew facts that would cause a reasonable person to expect the appraiser to falsely overstate the value of the property. The regulation gives an example. The donor and appraiser agree on a value in advance, and the donor knows that value is more than the property is worth.
This is the argument the IRS made in this case. If it worked, the partnership would not just lose the inflated part of its deduction. It would lose the entire tax deduction, including the part that was for what the land was actually worth.
The bar is high, though. The court has read the phrase “falsely to overstate” in prior cases to mean something like collusion and deception. It is not enough that the appraiser was careless or incompetent. It is not enough that the donor knew the value was too high. It is not even enough that the donor knew facts about the property that made the value too high. The focus is on what the donor knew about the appraiser and whether the two were in on it together.
For a partnership, the “donor’s” knowledge is the knowledge of the people who run it. In the present case, that meant the lawyer who organized the deal and the original landowner.
Can the Court Hold the Appraiser’s Silence Against the Taxpayer?
This gets to the question in this case. Can the appraiser’s Constituinally protected silence be used against the taxpayer?
The IRS’s evidence of collusion leaned heavily on the appraiser’s refusal to testify. We should stop and compare this to a criminal case. In a criminal case, a jury cannot draw any inference from a defendant’s choice not to testify. Civil cases are different. A court may draw an adverse inference against a party who refuses to answer questions on Fifth Amendment grounds. We have discussed how the Fifth Amendment plays out when there is a criminal investigation running alongside a civil tax case.
But the appraiser was not a party to this civil case. He was a hired witness. So the question was whether a non-party’s silence can be held against the taxpayer in a civil case.
The court applied a four-factor test that the Eleventh Circuit has adopted for this question. The court looked at the nature of the relationship between the taxpayer and the witness, how much control the taxpayer had over the witness, whether their interests in the outcome lined up, and what role the witness played in the litigation. The overarching question is whether the inference would be trustworthy under the circumstances. And the decision is left to the trial court’s discretion.
The court declined to draw the inference. It acknowledged that, back in 2014, the appraiser and the partnership both wanted the high number to hold up. But that alignment was long gone. By the time of trial, the partnership clearly wanted the appraiser to defend his work. He just wanted to stay quiet. The court thought he was protecting himself from possible future prosecution. He did not think he was protecting the partnership.
The court also found no special bond of loyalty between them. The appraiser was “strictly a hired hand.” The partnership did not control him. And he was not a central figure in the case. The value of the easement would be fought out by the trial experts on both sides. It would not be fought by the original appraiser. He only became important because the IRS raised the qualified appraiser argument well after it issued its adjustments. The court suggested the IRS may have been trying to take advantage of the expected Fifth Amendment invocation.
That is a fair point. If silence by a hired appraiser could be attributed to the taxpayer, the IRS could gain a lot just by putting a nervous appraiser on the stand. Why should the taxpayer lose the whole deduction because of a witness it cannot control?
What Did the Rest of the Record Show?
Without the adverse inference, the IRS needed other evidence of collusion. The court found plenty of evidence that the appraisal was overstated.
The promoters settled on mining as a way to boost the value. They handed the appraisers mining reports and the offering memorandum. This sketched out a $60-70 million figure. And the appraiser ignored obvious red flags in the reports.
But that was not the same as knowing the appraiser would lie. Mining was not an absurd idea on its face. There were quarries within 50 miles. Asking appraisers to value the land as a mine was not suspicious in itself, according to the court. The appraisers could have come back with low numbers. And this appraiser had twice before valued the land at a small fraction of what he later found. A hope for a high number, plus an appraiser who relied on shaky reports, was not enough to show the partnership expected a false overstatement.
So the appraiser was not disqualified. The partnership kept its right to a deduction.
Silence Still Has a Cost
The right to fight isn’t necessarily a win. The court refused to hold the appraiser’s silence against the partnership on the qualified appraiser issue. But it also gave his appraisal no weight at all on valuation. The court noted that the privilege does not excuse a taxpayer from meeting its normal burden of proof. A party who relies on someone who will not testify bears the consequences of the missing evidence.
That left the partnership relying on its trial experts. Those experts built their opinions on the same mining reports that the court questioned. The court rejected mining as the land’s highest and best use and valued the easement at $500,000. That is less than one percent of the $74.5 million claimed.
So the partnership won the battle over the appraiser’s silence. It still lost almost all of the deduction and picked up the maximum penalty.
The Takeaway
Charitable deductions for property depend on the appraisal and the person who prepared it. This case shows that a court will not automatically punish a taxpayer when a hired appraiser invokes the Fifth Amendment. The appraiser’s silence alone did not disqualify him, and the IRS had to prove the taxpayer expected a false overstatement. That is a high bar. But an appraiser who will not testify cannot defend the number either, and the court gave that appraisal no weight. If you are relying on an appraisal for a large deduction, pick an appraiser who will stand behind the work years later, and make sure the value can be defended without him.
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