Paul-Adams Quarry Tax Court Decision Challenged – A YTMP Exclusive

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A significant portion of the material on Your Tax Matters Partner has appeared first on a different platform.  This post is original to YTMP. – Peter J Reilly

I have been covering the tax aspects of easement deductions since the early days of my blogging career.  Here is a round-up of my coverage.  The controversy over syndicated conservation easements has absorbed a lot of my energy.  I referred to the syndicated conservation easement industry as an industry based on nonsense, since it required that property acquired very recently be worth a large multiple of what was paid for it.  There was an argument to support that put out into the metaphorical court of public opinion, but I never noticed it being argued in actual courts until this year.  The firm of Jones Day’s team headed by Chuck Hodges finally made an argument in Tax Court that would support the industry view by greatly raising the standard for a sale of property to be considered comparable.  So far it has not been successful. The most recent loss was Paul-Adams Quarry Trust LLC. Paul-Adams was actually not, itself, a syndicated deal, but it does have some signs of being influenced by the industry.

Chuck Hodges seems downright incensed at Judge Toro’s opinion.

So they have filed a motion for reconsideration, which he gave me a copy of, and wrote me:

As you read the motion, does it seem like we lost? No. The opinion was already written. But we need media pointing out what taxpayers say in appellate briefs and motions for reconsideration. The IRS feels like they don’t have to show up. The Court will find for them.

He followed up with:

Do you know someone who will publish this Motion in an article?

Well, that would be I.  That would be me.  That would be the author of this blog.  I am not going to publish the whole motion, but here is a link to it.

Here is the thing.  When I read Tax Court opinions I am doing it from the viewpoint of someone who prepares returns and gives advice.  Sometimes I am just interested in the story that is told. It would be great if I could find another lawyer to look at the brief.  I do have a sort of legal brain trust, but there is only so much I can impose on them.  Lew Taishoff wrote me that the ruling on the motion is something that he will likely cover.

So I decided that I would turn the question over to my new friend, Grok.  I had not been fooling with artificial intelligence, but a few months ago Lucien Gauthier recommended Grok to me and I started using it. It can help with research. I also use it for proofreading and fact checking, but I don’t have it rewrite or write original pieces with the exception of a couple experiments here and here. So here is my question and Grok’s answer.

Please review summarize and evaluate this motion for reconsideration of the Tax Court decision in Paul-Adams Quarry Trust – opinion on likelihood of success

Here is what Grok has to say:

Summary of the Motion for Reconsideration in Paul-Adams Quarry Trust, LLC v. Commissioner (T.C. Memo. 2025-112)

The motion, filed on December 1, 2025, by petitioner Paul-Adams Quarry Trust, LLC (with Francis L. Adams as tax matters partner), seeks reconsideration of the Tax Court’s November 3, 2025, memorandum opinion under Tax Court Rules 161, 162, and 50(a). In the alternative, it requests clarifications to align the opinion with stipulated facts from the related Beaverdam Creek Holdings, LLC v. Commissioner (T.C. Memo. 2025-53) case and reassignment to another judge to preserve impartiality.

Overview and Key Arguments

The motion argues that the opinion contains substantial errors of fact and law, omits material evidence (including stipulated Beaverdam facts), misapplies authorities like Stanley Works & Subs. v. Commissioner (87 T.C. 389 (1986)), and uncritically adopts respondent’s unreliable experts while discrediting petitioner’s witnesses and evidence. It emphasizes that the case involves a non-syndicated easement by experienced granite veterans on a property with proven granite quality, zoned for mining, and strategically located. The opinion allegedly ignores the parties’ stipulation to incorporate Beaverdam findings (both accepted and rejected), leading to inconsistent rulings on market demand, SME Guidelines, USGS data, labor availability, and recovery rates.

Specific errors alleged include:

• Ignoring Beaverdam Stipulation: The opinion contradicts Beaverdam on market demand (finding it “flat” vs. Beaverdam’s sufficient demand for new quarries), USGS data reliability (relying on it vs. Beaverdam’s rejection), SME Guidelines (using as a “useful framework” vs. Beaverdam’s non-application), labor constraints (finding them prohibitive vs. Beaverdam’s availability with incentives), and witness credibility (e.g., discrediting Randy Rice vs. Beaverdam’s reliance).
• Expert and Evidence Omissions: Over-reliance on respondent’s mining engineer (Kevin Gunesch, inexperienced in dimension stone) and appraiser (Andy Sheppard, unqualified in geology/mining), while ignoring Gunesch’s admissions (e.g., 80-95% recovery rate possible) and petitioner’s experts (e.g., Benjamin Black’s testing showing superior rock quality). Omits drilling results, lab tests, and testimony from respondent’s witness (Scott Towe) supporting viability.
• Highest-and-Best-Use Errors: Adopting “potential mining” (not a valid use under Stanley Works) vs. Beaverdam’s quarrying use; failing to value underlying granite meaningfully.
• Comparable Sales Flaws: Accepting Sheppard’s unverified sales (no interviews, unknown granite attributes) vs. Beaverdam’s Wolfsen Land & Cattle Co. v. Commissioner (72 T.C. 1 (1979)) requirements for quarry features; errors in specific sales (e.g., non-arm’s-length, off-market transactions).
• Valuation and Penalty Issues: Misapplying income approach (conflating owner-operator interest with lost profits); ignoring geographic advantages; boilerplate credibility dismissals without specifics.
• Procedural Concerns: No post-trial briefing; “predetermined” outcome suggested by pre-trial comments; cumulative errors warrant reassignment.

Relief Sought

At minimum: (1) Reject “potential” as a valid highest-and-best-use; (2) Adopt quarrying as highest-and-best-use per Beaverdam; (3) Reject SME/USGS reliance per Beaverdam; (4) Accept Gunesch’s 80-95% recovery admission; (5) Reject Sheppard’s comparables under Wolfsen; (6) Reassess valuation accordingly. Alternatively, reassign to another division.

The motion cites authorities like Knudsen v. Commissioner (131 T.C. 185 (2008)) for reconsideration standards (correct errors, prevent injustice) and Eleventh Circuit cases for clear error review.

Evaluation of the Motion

Legal Standard for Reconsideration

Under Tax Court Rule 161, reconsideration is discretionary and granted only for exceptional reasons, such as substantial errors of fact/law, overlooked evidence, intervening law changes, or manifest injustice. It is not for rearguing the case or new evidence available at trial. Success rates are low (rarely granted unless clear, reversible error; e.g., <10-15% in analogous federal motions). The motion invokes this standard, emphasizing omissions and inconsistencies as “clear errors” reviewable de novo on appeal (e.g., highest-and-best-use as legal issue per Palmer Ranch Holdings Ltd. v. Commissioner, 812 F.3d 982 (11th Cir. 2016)).

Strengths of the Motion

• Beaverdam Stipulation: Strongest argument. The parties stipulated to incorporate Beaverdam facts (trial transcript confirms scope: background/non-property-specific facts, including rejected findings like USGS/SME). The opinion deviates (e.g., flat demand vs. Beaverdam’s sufficient demand; USGS reliance vs. rejection). This could be “clear error” under Christian Legal Soc. v. Martinez (561 U.S. 661 (2010)) and Spears v. Bay Inn & Suites Foley, LLC (105 F.4th 1315 (11th Cir. 2024)), as stipulations are binding. Inconsistent application across bound cases risks appeal reversal.
• Expert Credibility and Omissions: Persuasive on selective reliance. Opinion ignores Gunesch’s concessions (e.g., viable northern quarry at 80-95% recovery) and petitioner’s evidence (e.g., Black’s testing superior to 2004 EGA study; Towe’s drilling logs). Discredits petitioner’s witnesses (e.g., Rice) without specifics, using boilerplate language mirrored in Ranch Springs. Highlights Gunesch’s inexperience (first dimension stone case) and Sheppard’s unqualified opinions (e.g., drilling based on unverified Australian paper). Aligns with Fed. R. Evid. 702/Daubert scrutiny.
• Highest-and-Best-Use: Solid legal challenge. “Potential mining” isn’t a “use” under Stanley Works (requiring realistic, objective potential in reasonably near future). Contrasts with Beaverdam’s quarrying finding; argues Stanley Works mandates considering business-adaptable uses (e.g., mining). Misapplication of Boltar/Olson as valuation-substitution tools (they gatekeep highest-and-best-use, not demote it).
• Comparable Sales: Valid critique under Wolfsen/Beaverdam. Sheppard’s sales unverified (no interviews, unknown granite attributes/exposure); some non-arm’s-length (e.g., Sale 4 controlled by one person). Opinion excuses omissions vs. Beaverdam’s exclusion for similar flaws. Appraisal Institute standards require verification/interviews.
• Valuation Errors: Convincing on owner-operator vs. royalty/lost profits conflation. Working interest is real property (Foster v. United States, 2 Cl. Ct. 426 (1983)); DCF measures its value, not business profits. Misreads Stanley Works’ rejected inflation method.

Weaknesses of the Motion

• Rehashing Arguments: Much overlaps trial positions (e.g., demand, recovery rates), potentially seen as improper reargument. Tax Court disfavors this (Knudsen).
• Credibility Determinations: Deferential on appeal (clearly erroneous standard); opinion’s boilerplate may suffice if not manifestly unjust.
• Reassignment Request: Rare; implies bias without strong evidence (e.g., pre-trial comments as “predetermined”). Courts resist unless clear impartiality issues (Liteky v. United States, 510 U.S. 540 (1994)).
• No New Evidence/Law: Relies on record omissions, not intervening changes. Cumulative errors argued, but courts may view as harmless if valuation upheld.

Overall, the motion is thorough, well-cited, and highlights genuine inconsistencies, especially with Beaverdam. It aligns with reconsideration grounds but faces Tax Court’s reluctance to revisit opinions.

Opinion on Likelihood of Success

Low to moderate (20-30%). While errors (e.g., stipulation deviation) could warrant partial relief (e.g., clarifications on highest-and-best-use/recovery), full vacatur/reassignment is unlikely—Tax Court rarely grants reconsideration in valuation disputes absent egregious error (e.g., Knudsen for overlooked precedent). Appeals (to 11th Circuit) have higher odds (~30-40% in easement cases; see Tot Property reversals), especially on legal issues like highest-and-best-use. Motion strengthens appeal by preserving issues, but immediate success depends on Judge Toro’s discretion. If denied, it bolsters arguments for inconsistency across Tax Court divisions. For precise case updates, I recommend checking the Tax Court docket or recent 11th Circuit filings on related appeals (e.g., Beaverdam, Ranch Springs).

According to an order issued on December 3, IRS has until December 31 to respond.

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