- 43 -
the fair market value of an easement usually will be determined
indirectly by applying a "before-and-after" analysis, thereby
determining the negative effect the easement has on the value of
the total property.15 Thus, the difference between the fair
market value of the total property before the granting of the
easement and the fair market value of the property after the
grant is the fair market value of the easement. Id.
The fair market value of the easement should be based on the
highest and best use for the property on its valuation date,
including potential development. See generally Stanley Works v.
Commissioner, 87 T.C. 389, 400 (1986); Hilborn v. Commissioner,
85 T.C. 677, 688 (1985); sec. 1.170A-14(h)(3)(i) and (ii), Income
Tax Regs.
In determining the before and after highest and best use,
the fair market value of property is not affected by whether the
owner actually has put the property to its highest and best use.
Symington v. Commissioner, supra at 896; Stanley Works v.
Commissioner, supra. Rather, the realistic, objective potential
uses for property control the valuation thereof. Symington v.
Commissioner, supra. Thus, in determining the reasonable and
probable use that supports the highest present value we focus on
15 The before-and-after method of valuing conservation
easements is approved by the IRS. See Rev. Rul. 73-339, 1973-2
C.B. 68, as clarified by Rev. Rul. 76-376, 1976-2 C.B. 53, and
endorsed by Congress in connection with the adoption of the Tax
Treatment Extension Act of 1980, S. Rept. 96-1007 (1980), 1980-2
C.B. 599, 606.
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