Respondent contends that petitioner ignores the following parenthetical language in paragraph (c)(2)(ii): “(or would require an adjustment under section 481(a) if the taxpayer changed to the method of accounting for which relief is requested in a taxable year subsequent to the taxable year the election should have been made)". Respondent contends that the parenthetical language presumes prejudice to the Government because petitioner, hypothetically, could have adopted the mark-to-market method of accounting in a year subsequent to the year he should have adopted the mark-tomarket method and a section 481(a) adjustment might possibly be necessary.

Assuming arguendo that the parenthetical phrase in paragraph (c)(2)(ii) did apply, the interests of the Government are not deemed to be prejudiced if unusual and compelling circumstances are present. Section 301.9100-3(c)(2), Proced. & Admin. Regs., plainly states: "The interests of the Government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting method regulatory election for which relief is requested [is one to which subdivision (i), (ii), (iii), or (iv) applies]". (Emphasis added.) In other words, assuming subdivision (ii) applies, unusual and compelling circumstances defeat the presumption of prejudice. Respondent contends that the circumstances surrounding petitioner's failure to timely file a section 475(f) election were not unusual and compelling and did not actually cause petitioner to fail to timely file the election.

Respondent points out that the collapse of the technology stocks, the liquidation of petitioner's trading accounts, and petitioner's $25 million in losses during the first quarter of taxable year 2000 did not literally prevent petitioner from making the section 475(f) election. Respondent further points out that petitioner failed to timely file the section 475(f) election because his accountant was unaware of the election and that ignorance of the law is no excuse.

We disagree with respondent's contention that unusual and compelling circumstances are not present in the instant

out an adjustment under sec. 481(a)). In 1998, D requests relief under this section to make the election under the regulation. If D were granted an extension of time to make the election, D would pay no less tax than if the election had been timely made. Assume that paragraphs (c)(2)(i), (iii), and (iv) of this sec. do not apply. Under paragraph (c)(2)(ii) of this section, the interests of the Government are not deemed to be prejudiced because the election does not require an adjustment under section 481(a).

case. The Commissioner has not defined, by regulation or otherwise, unusual or compelling circumstances. We note that the preamble to the regulations states: "What are unusual and compelling circumstances must be decided on a case-by-case basis in light of all applicable facts and circumstances." T.D. 8742, 1998-1 C.B. at 390. We briefly recount the facts of the instant case. Petitioner suffered a $25 million loss when his trading accounts were liquidated on April 14, 2000, 3 days before the date prescribed in Rev. Proc. 99-17, supra, for timely filing a section 475(f) election. Mr. Pearce, petitioner's tax adviser who had full knowledge of petitioner's trading activities and losses and over 30 years of experience as an accountant, was unaware of the section 475(f) election for securities traders. Mr. Sellers, another accountant, was also unaware of the availability of the section 475(f) election. As soon as petitioner learned of the existence of the section 475(f) election, he promptly employed Caplin & Drysdale to make the section 475(f) election and file a request for section 9100 relief. Petitioner conducted no further trading activities between the date he should have filed the election and the date he actually filed the election. We find the combination of circumstances in the instant case both unusual and compelling and conclude that the interests of the Government should not be presumed to be prejudiced even if the parenthetical phrase of section 301.91003(c)(2)(ii), Proced. & Admin. Regs., did apply.

In conclusion, under section 301.9100-3(c)(1)(i), Proced. & Admin. Regs., there is no prejudice to the Government in the instant case. Petitioner did not realize any gains or suffer any further losses between the time he should have filed his section 475(f) election and the date he actually filed the election. Petitioner will be entitled to no more than he would have been entitled to had he filed his section 475(f) election by the date prescribed in Rev. Proc. 99-17, supra, which is precisely the purpose of section 9100 relief: to "[permit] taxpayers that are in reasonable compliance with the tax laws to minimize their tax liability by collecting from them only the amount of tax they would have paid if they had been fully informed and well advised." T.D. 8742, 1998-1 C.B. at 389.19 We conclude that petitioner is entitled to an extension

19 See supra note 11, and accompanying text.

of time to file his section 475(f) election pursuant to section 301.9100-3, Proced. & Admin. Regs. Petitioner is entitled to relief because he acted reasonably and in good faith and the interests of the Government will not be prejudiced. Accordingly, we hold that petitioner is entitled to the benefits of a section 475(f) election for the taxable year 2000 as if he had timely filed the election.

To reflect the foregoing,

Decision will be entered under Rule 155.

JAMES D. AND BEVERLY H. TURNER, PETITIONERS
v. COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT

Docket No. 5165-04.

Filed May 16, 2006.

P, a real estate investor, purchased 29.3 acres of unimproved land in a historical overlay district, 15.04 acres of which were located within a designated floodplain. Property development was subject to county regulations that were more stringent for property within a historical overlay district. Among the regulations were zoning and rezoning requirements, as well as limitations on development of designated floodplain areas. Thirty lots were permissible under current zoning. County approval would be required for denser zoning usage. P, claiming that he was entitled to develop up to 62 residences on smaller lots, executed a deed to Fairfax County purporting to limit development of the property to 30 residences. On their 1999 Federal income tax return, Ps claimed a contribution deduction for a qualified conservation easement under sec. 170(h)(1), I.R.C.

1. Held: P did not make a contribution of a qualified conservation easement under sec. 170(h)(1), I.R.C., because the attempted grant did not satisfy the conservation purposes required under sec. 170(h)(4)(A), I.R.C. Specifically, the deed did not preserve open space or a historically important land area or certified historical structure.

2. Held, further, Ps are liable for a 20-percent penalty for negligence under sec. 6662, I.R.C.

J. Carlton Howard, Jr., for petitioners.

John M. Altman and Linda R. Averbeck, for respondent.

GERBER, Chief Judge: Respondent determined a $178,168 income tax deficiency and a $56,537 accuracy-related penalty

under section 66621 for petitioners' 1999 taxable year. After concessions,2 the issues remaining for our consideration are: (1) Whether petitioners made a contribution of a qualified conservation easement under section 170(h)(1); (2) if qualified, we must decide the value of the easement; and (3) in the absence of a qualified contribution or, alternatively if the easement's value was substantially overstated, whether petitioners are liable for the accuracy-related penalty under section 6662.

General Background

FINDINGS OF FACT 3

At the time their petition was filed, petitioners resided in Alexandria, Virginia. Petitioner 4 is an attorney whose practice is concentrated on real estate transactions in the vicinity of Alexandria, Virginia. Part of petitioner's business activity was the conduct of real estate closings through a title insurance company he owned. Petitioner was also an investor in real property. At all relevant times, he was a 60-percent member and general manager of FAC Co., L.C. (FAC), a limited liability company formed for the purpose of acquiring, rezoning, and developing real property. During 1997 and 1998, petitioner, individually or through FAC, embarked on a plan to acquire several contiguous parcels of land located in Woodlawn Heights, Fairfax County, Virginia. The unimproved realty was situated in a historical district in the general area of Mount Vernon, the home of President George Washington, and adjacent to President Washington's Grist Mill (Grist Mill).

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2 The parties settled the portion of respondent's income adjustments or penalties relating to the determination of an increase in the net gain from FAC Co., L.C., and a decrease in a home mortgage interest deduction. The parties agree that the $62,045 home mortgage interest deduction that petitioners claimed, and which respondent determined was $38,670, should be $56,872. The parties also agree that the portion of a $892,578 gain that petitioners reported on their return from FAC Co., L.C., an entity in which petitioners have a 60-percent interest, and which respondent determined was $1,215,027, should be $1,081,578. Finally, respondent concedes the portion of the penalties attributable to the home mortgage interest deduction and the net gain from FAC Co., L.C.

3 The parties' stipulation of facts is incorporated herein by this reference.

4 Petitioners are husband and wife, and they filed a joint return for the year in issue. References to petitioner alone are to petitioner James D. Turner.

Acquisition of the Land for Development

Through several transactions, a 29.3-acre parcel was conglomerated by petitioner and/or FAC. One transaction involved the Future Farmers of America (FFA), which owned five lots within this historical district. One of these lots approximated 5.9 acres and was the situs of the FFA's office building. Although the 5.9 acres was zoned residential (classified as R-2), FFA had a special use exception for its commercial office building. But for the special use, the property was zoned residential. If FFA sold the land and building, the special use would not automatically pass to the new owner. The remaining four lots acquired by petitioner were adjacent to the Grist Mill.

During his negotiations for the purchase of the FFA property, petitioner's written offer included his belief that the highest and best use for the property was for either "commercial or a combined commercial and residential (town homes)". Petitioner expressed the further belief that the highest and best use would require rezoning for increased density, but that "the realities of local politics will not allow the highest and best use." The developer of the acquired property would face several obstacles to development, including compliance with Fairfax County's ordinances and regulations concerning such land development.

On December 12, 1997, and March 27, 1998, FAC acquired the lots from FFA for $2 million. On August 7 and 10, 1998, petitioner, through another entity, purchased, from sellers other than FFA, three additional lots in the Woodlawn Heights historical overlay district for $550,000 and then contributed them to FAC. On August 15, 1999, FAC sold the 5.9-acre parcel, including the FFA building, for $1.6 million. Prior to that sale, Fairfax County Supervisor Gerald Hyland (Hyland) assisted in the rezoning of the 5.9-acre site to a C2 classification that would permit continued use of the commercial building on that property. As of the date of the trial in this case, petitioner continued to own one of the acquired unimproved parcels (lot 10), and the remaining parcels that were conglomerated into a 29.3-acre parcel for development that became known as the Grist Mill Woods

5 The Grist Mill Woods subdivision therefore consisted of parcels 15, 16, 17, 18 (exclusive of the 5.9 acres of parcel 18 that included the FFA building), 25, 26, and 27.