The $645,000 of Georgia Land That Became a $19.2 Million Deduction

Two Georgia businessmen bought 333 acres of rural land for $645,000. Then they claimed $19.2 million in charitable deductions for conservation easements on it, and investors were promised $4.50 in deductions for every $1 they put in. The Tax Court allowed $323,800 of it, about 1.7 cents on the dollar, and sustained a 40% penalty. This is Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106.

The one idea to carry out of this story: you cannot turn $645,000 of land into a $19.2 million deduction with a spreadsheet. A deduction has to rest on what the land is actually worth, and the court will check the price you paid, the neighbors, the building permits, and the appraiser's math. If someone is selling you a tax deduction that is four and a half times your investment, this is your case.

The deal in one paragraph

In December 2015, Watson Lake Investments bought 144 acres in Emanuel County, Georgia, for $325,000, or $2,257 an acre. In April 2016, Meadow Lake Investments bought 189 acres two miles away for $320,000, or $1,693 an acre. The two partnerships then granted conservation easements over the land to the Atlantic Coast Conservancy and claimed charitable contribution deductions of $8,109,000 and $11,116,000, a combined $19,225,000. The court held the land was worth $331,000 and $435,000 before the easements, and the easements themselves were worth $115,300 and $208,500. The rest, $18,901,200, was disallowed.

Who were Heath and Goolsby?

Terry Heath got into real estate development in 2006. Arthur Goolsby, originally trained as a geologist, was an experienced real estate investor and developer who had worked on projects across the Southeast and in Montana. They had known each other a long time and first became business partners in 2010 or 2011. Goolsby had done his first syndicated conservation easement deal in 2013 or 2014, using property in Tennessee, and he introduced Heath to conservation easements and to Forever Forests, the company that had run that Tennessee deal. In 2015, Heath contacted Forever Forests to say he wanted similar transactions. The two men then went looking for cheap land in Georgia that could be used for easement deals. Land in Emanuel County fit the bill.

The land: a prison, an airstrip, and ten new homes in six years

Emanuel County sits in southeastern Georgia, halfway between Macon and Savannah. Its population was 22,598 in 2010 and 22,768 in 2020, growth of 170 people in a decade, under 0.1% a year. The county seat, Swainsboro, had 7,425 people in 2020. Median household income in the county and its neighbors was roughly $33,000, against $49,000 for Georgia as a whole. Between 2010 and 2016, only 167 new single-family homes were built in Emanuel County and the seven counties around it, and only 10 of those were in Emanuel County itself, at an average sale price of about $68,800. The county issued about three single-family building permits a year. According to the county assessor, no parcel of 50 to 250 acres sold for more than $1 million anywhere in the county between 2015 and 2018.

The Watson Lake tract was on the west side of Swainsboro, roughly half of it inside the city limits. A single-runway airstrip lay directly across a local road to the south. A state prison lay about 500 yards to the north, and a low-income housing project less than a mile to the east. The tract included a lake and a flood plain, and roughly 25% of it was occasionally or frequently flooded. About 30% of it was wetlands. The Meadow Lake tract, on the east side of Swainsboro, also included a lake and a flood plain. Its seller, JJM Developments, had bought it in 2006 for $483,200 planning a residential subdivision, then watched the 2008 financial crisis kill that plan. By 2016 JJM had listed it for $375,000 and sold it for $320,000, a price one of its principals, both successful lawyers, called a fair price.

The $150,000 turn-key machine

Forever Forests, owned by Nancy Zak, sold what the court called turn-key service. For a flat fee of $150,000 per deal, it would handle every step of syndicating a conservation easement: drafting the legal documents and marketing materials, talking to the land trust that would receive the easement, arranging for an appraiser to place a very high value on it, and recruiting investors. Its affiliate, Green Earth Reserve, acted as sponsor for the Watson Lake deal, preparing the offering statement and finding investors. For Meadow Lake, a company called Red Oak Reserve, owned by project manager Brian Sullivan, took the sponsor role. After each offering closed, Forever Forests worked with the partnership and its accountants to prepare the tax documents so the investors got the deductions they had paid for.

The structure was standard for these deals. Each partnership was the property company holding the land. A separate investment company raised money from investors and used it to buy out most of Heath and Goolsby's interest in the property company. The investors then received, through the investment company, pro rata shares of the easement deduction. Zak herself later consented, in March 2021, to a permanent injunction barring her from organizing, promoting, selling, or participating in any deal involving a conservation contribution deduction, after the United States sued her and others in 2018 over abusive easement transactions.

The appraisal: Heath's numbers, in a spreadsheet

In February 2016, Heath and Goolsby hired appraiser Dennis Benson to value the easement they planned to place on the Watson Lake land. Goolsby had known Benson for more than 30 years. Benson's appraisals rested on development plans that Heath dictated and a land surveyor, Philip Chivers, drew up. The plans were conceptual site plans created solely for use in Benson's appraisals. Nobody ever took a step to build them: no grading, no roads, no utilities, no soil studies, no flood studies, no market studies, and no wetlands remediation studies.

The Watson Lake plan imagined 66 single-family lots, 525 units of senior and multifamily housing on 45 acres, and numerous commercial and office lots. The Meadow Lake plan imagined 69 single-family lots, senior and multifamily housing on 35 acres, and numerous commercial lots. Heath told Benson exactly what to put in the valuation. In a February 2016 email he asked Benson to put his numbers in a spreadsheet: multifamily land at $70,000 an acre, senior apartments at $75,000 an acre, office lots at $185,000 each, commercial corner lots at $163,000 an acre, waterfront house lots at $85,000 an acre, interior lots at $65,000 an acre, a three-year sellout, and $1.5 million in development costs. The next day Benson sent back a discounted cash flow spreadsheet built on those numbers, valuing the hypothetical development at $6,658,000.

Heath then changed the plan, twice. In May 2016 he revised the commercial lots, and Benson's spreadsheet jumped to $8,286,000, a figure $1,628,000 higher than the February version. Later that month Heath added two more one-acre lots and split two corner lots. In an appraisal dated January 16, 2017, Benson set the Watson Lake before value at $8,371,000, or $58,132 an acre. In December 2017 he used the same method to value Meadow Lake at $11,456,000, or $60,614 an acre. At trial Benson admitted that no property in Emanuel County had ever sold for anything approaching $58,132 an acre. He said he ignored local sales of similar parcels because none was comparable, and called each tract unique, for precisely the same reasons, even though the two tracts were two miles apart on opposite sides of the same town.

Benson also assumed the lots would sell like those in gated communities near Macon and Savannah, at an average of $84,697 a lot for Watson Lake and $75,000 a lot for Meadow Lake, and that all the commercial lots would sell within two years. The evidence showed only three commercial lots sold in Swainsboro from 2013 through 2017, one a year in 2013, 2014, and 2015, and none in 2016 or 2017. He never analyzed demand for multifamily or senior housing in Emanuel County at all.

The offering: $4.50 in deductions for every $1 in

Both deals were marketed on a deduction-to-investment ratio of 4.5 to 1. As one financial planner told a client, for every dollar invested you get $4.50 in deductions. Another planner told a client that if he paid $465,000 for his interest, he would receive a $2,092,500 deduction.

The Watson Lake offering closed on November 29, 2016, with 12 investors paying $1,768,258 for a 97% interest. Of that money, $1,028,835 went to buy out Heath and Goolsby's interest: $665,064 in cash to them, $299,341 to pay off their mortgage on the property, and $64,430 to reimburse their expenses. The investors then voted unanimously to place the easement, and on December 26, 2016, Watson Lake recorded an easement over the tract in favor of the Atlantic Coast Conservancy. The Meadow Lake offering closed on November 10, 2017, with 29 investors paying $2,276,976. Of that money, $1,378,288 bought out Heath and Goolsby's interest: $1,035,307 in cash, $288,968 to pay off their mortgage, and $54,013 in expense reimbursements. On December 20, 2017, Meadow Lake recorded its easement with the same conservancy. The conservancy charged $57,923 in fees, $11,590 to prepare the easement documents and a recommended $46,333 in stewardship fees to monitor and defend the easement forever.

Altogether, 41 investors put in $4,045,234, and Heath and Goolsby received $1,700,371 of it in cash. The partnerships then filed short-period returns claiming the easement deductions: Watson Lake claimed $8,109,000 for 2016, and Meadow Lake claimed $11,116,000 for 2017.

The forged letter

Both tracts would have needed rezoning for mixed-use development, and the rezoning evidence was the weakest part of the case. For Watson Lake, the only step taken was a letter from Bruce Kirby, the director of Swainsboro's Building, Planning, and Zoning Department. Heath drafted the letter himself and persuaded Kirby to sign it. Dated May 18, 2016, it said the planning and zoning commission would look very favorably on rezoning the roughly 52.5% of the tract inside the city limits. Kirby testified credibly at trial that he makes no recommendation on rezoning, one way or the other, and that no application to rezone the Watson Lake property was ever submitted to his office. The court noted that if Watson Lake had been serious about rezoning, it would have been simple to submit an application and see what happened.

For Meadow Lake it was worse. In May 2017, Heath sent Benson and Sullivan a draft zoning letter he had written for Kirby's signature, undated and unsigned. He later supplied Benson with what purported to be a letter signed by Kirby on May 19, 2017. The court found it was a forgery. The letterhead was not the department's letterhead, the phone number was not the department's number, and the signature was not Kirby's. A visual comparison with an authentic 2016 letter confirmed it. That forged letter was the sole evidence Benson relied on for his conclusion that rezoning the Meadow Lake tract was reasonably probable, and apart from it the partnerships produced no evidence at all about the likelihood of rezoning. The court's line: a forged document has no probative value.

The returns, and the FPAAs

On August 21, 2020, the IRS issued a Notice of Final Partnership Administrative Adjustment for Watson Lake denying the $8,109,000 deduction in full, on the ground that the partnership had not shown it met the requirements for a noncash charitable contribution, or alternatively that the value of any deductible contribution did not exceed zero. On September 16, 2022, the IRS issued the same determination for Meadow Lake, denying the $11,116,000 deduction in full. Each notice determined a 40% penalty for a gross valuation misstatement under section 6662(h), with a 20% penalty in the alternative. Heath petitioned the Tax Court in both cases. The cases were consolidated for trial in Atlanta beginning October 6, 2025, and after concessions by both sides, the only issues left were the value of the easements and the penalties.

The IRS expert: $2,300 an acre

The IRS called Leslie P. Sellers, a certified appraiser with almost 50 years of experience in Georgia and the Southern states, a former national president of the Appraisal Institute. Sellers concluded the highest and best use of each tract, the most valuable legally allowed use of the land, was its current use, rural low-density single-family home sites, with agriculture, recreation, and timber as complementary uses. He used the comparable sales method, looking at actual sales in the Emanuel County area. His report listed 13 sales of larger parcels in the county from 2016 to 2018, 76 to 307 acres, all bought for residential or agricultural use, at $2,000 to $2,822 an acre, and 13 sales of smaller parcels at $2,003 to $3,476 an acre. He set the before value of each tract at $2,300 an acre: $331,000 for Watson Lake and $435,000 for Meadow Lake. The Watson Lake figure was roughly the price the partnership itself had paid a year earlier. For the after values, the value of the land with the easement on it, he used sales of encumbered properties and arrived at $215,700 and $226,500.

Two other IRS experts backed him up. Laura J. Smith, an expert in market demand and feasibility, found the site plans reflected assumptions that were overly optimistic and unlikely to be realized within a timeframe that would be justified as market feasible. Zac Ryan, a certified appraiser with 40 years of experience, concluded mixed-use development on the scale Benson imagined was not the highest and best use of either tract, and he pointed to the local record: the Deer Creek subdivision, 51 lots around an 18-hole golf course begun in 1997, had sold only 24 lots by December 2016, about 1.3 a year. The Oaks subdivision, four miles from the Watson Lake tract, had sold 5 lots between 2007 and 2016, half a lot a year.

The court did its own arithmetic on absorption. Between 2010 and 2016, only 10 new homes were built in Emanuel County, about 1.5 a year. The partnerships' experts assumed the market would absorb new lots 28 to 60 times faster than that. The court called those assumptions wholly untethered from reality, and said the price points Benson imagined for his houses blinked at reality.

The partnerships' second expert fared no better. Larry Singleton, a licensed Georgia appraiser, built a subdivision analysis for Meadow Lake that forgot to subtract expenses from revenues, an error he agreed was a fatal error on the appraisal. Corrected, his method produced a negative value for the Meadow Lake tract, minus $82,539. He also calculated the identical value, $1,887,900, for both tracts, evidently from careless cutting and pasting. And his Watson Lake analysis assumed 90 single-family lots, 30 acres of multifamily housing, 2 acres of commercial property, and 28 acres of industrial property could all be absorbed in a single year, which the court called nothing short of preposterous. The court assigned no credibility to his testimony.

The court's answer

The court held that the highest and best use of each tract was its current use, low-density single-family residences with agriculture, recreation, and timber as complementary uses. The mixed-use schemes were back-of-the-envelope development schemes that were wholly unrealistic in a rural county with a total population of roughly 22,000. Sellers had done the comparable sales analysis properly, and his results matched both the county's sales history and the prices the partnerships themselves had paid. The court adopted his before values of $331,000 and $435,000, and his after values of $215,700 and $226,500. The allowed deductions were $115,300 and $208,500.

Then came the penalty. A valuation misstatement is substantial if the claimed value is 150% or more of the correct amount, and gross, meaning the claimed value was more than double the real value, if it exceeds 200%. The partnerships claimed easement values of $8,109,000 and $11,116,000 against correct values of $115,300 and $208,500. The claimed values exceeded the correct values by more than 2,000%, so the misstatements were gross, and the 40% penalty under section 6662(h) applies in each case. The opinion states the penalty as a percentage only. No dollar penalty figure appears in it. The dollar amounts, tax and penalty alike, are left to be computed under Tax Court Rule 155, which means the court decides the values and the IRS then computes the dollar bill.

The reasonable-cause defense was not even available. The law excuses a penalty if the taxpayer shows reasonable cause and good faith, but that defense is barred by statute where the overstatement is gross, and these overstatements were more than ten times the gross threshold. The court also rejected three constitutional arguments: that the Tax Court lacks jurisdiction to determine penalties under the Seventh and Eighth Amendments, an argument courts have repeatedly rejected; and that sustaining the disallowance was a taking without just compensation under the Fifth Amendment and unequal treatment under the Equal Protection Clause, arguments the court called incoherent, wholly without judicial support, and frivolous. It added that although the petitioner pretends to be the victim, the real victims in cases like these are the U.S. Treasury and the countless honest taxpayers who voluntarily pay the tax due on their hard-earned income.

The courtroom comedy: Ohupi Match Club

The trial had a comic subplot that says as much about the case as the numbers do. Petitioner's counsel, S. F. Little, a lawyer with four decades of criminal defense and personal injury experience who told the court this was his second Tax Court trial in his entire life, repeatedly tried on cross-examination to ask the IRS experts about a development supposedly called Ohupi Match Club, about 30 miles away, as a comparable sale. The record contained no evidence, in any expert report or otherwise, that this development even existed. The court barred the questions as assuming facts not in evidence, and told counsel he could not inject facts into the record, saying, you are not a witness. Counsel answered by renewing a motion for mistrial, based on his personal and reasonable fear of personal risk and retaliation, and then rested. He moved for a mistrial at least three times. Each was overruled.

The same pattern repeated when counsel asked another expert about an intermodal system that was allegedly part of the governor's plan, created in 2014 and implemented over the last ten years. The court replied that these were facts not in evidence, and asked where he was getting this information. The court later wrote that counsel's repeated attempts to inject facts into the record were improper. It also recorded that when it denied an ill-founded objection, counsel accused the court of exceeding its authority under the ethical standards, and the court noted he was acting extremely unprofessionally. No sanctions were imposed.

The checklist: what Watson Lake teaches

• A deduction is worth what the property is worth, not what the spreadsheet says. The court used the price the partnerships themselves paid, $2,257 and $1,693 an acre, as the best evidence of value. Land does not gain 2,000% in a year because a plan says so.
• A 4.5 to 1 ratio is the pitch, not the law. Getting $4.50 in deductions for every $1 invested is a marketing line. The deduction still has to survive an appraisal the court believes.
• Your appraiser works for the facts, not for you. When the taxpayer dictates the numbers and the appraiser types them into the spreadsheet, the court notices. Benson's values rose $1,628,000 in one revision at Heath's direction.
• Highest and best use has to be real. It must be legally permissible and financially feasible. A gated community with 525 senior apartments in a county that built 10 homes in six years is neither.
• Comparable sales mean comparable places. Gated communities near Macon and Savannah do not value wetland- and flood-plain land in Emanuel County. The court called that kind of cherry-picking an error it encounters regularly in these cases.
• A forged document has no probative value. The Meadow Lake rezoning case rested on one letter, and the letter was a forgery. The Watson Lake letter was drafted by the taxpayer himself, and no rezoning application was ever filed.
• A gross overvaluation kills the reasonable-cause defense. Once the claimed value exceeds 200% of the correct value, the statute bars the defense outright. These claims exceeded 2,000%.
• The 40% penalty is a percentage, and it is real. It applies to the underpayment caused by the overvaluation. The opinion leaves the dollars to a Rule 155 computation, which is how these cases end: the court decides the values, and the bill is computed after.
• Counsel cannot invent facts at trial. A comparable sale that exists only in a cross-examination question is not evidence. The court will stop the question, and the mistrial motion will not save it.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems, back taxes, liens, levies, garnishments, and audits, for individuals and businesses in all 50 states and around the world.