Corning Place Ohio, LLC v. CIRCorning Place Ohio, LLC v. CIR
RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 25a0301p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
CORNING PLACE OHIO, LLC; CORNING PLACE OHIO
INVESTMENT, LLC; TAX MATTERS PARTNER,
Petitioners-Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
No. 25-1093
No. 12428-20—Albert G. Lauber, Judge.
Argued: October 22, 2025
Decided and Filed: November 5, 2025
Bеfore: SUTTON, Chief Judge; BATCHELDER and LARSEN, Circuit Judges.
COUNSEL
ARGUED: G. Karl Fanter, BAKER & HOSTETLER LLP, Cleveland, Ohio, for Appellants.
Samuel P. Jones, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: G. Karl Fanter, Sam A. Camardo, BAKER & HOSTETLER LLP,
Cleveland, Ohio, for Appellants. Samuel P. Jones, Jennifer M. Rubin, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
OPINION
SUTTON, Chief Judge. In 2016, Corning Place paid $6 million to buy the Garfield
Building, an eleven-floor, nineteenth-century property in downtown Cleveland. Sixteen months
later, it created an “Historic Preservation and Conservation Easement,” which would donate the
right to modify the façade and to increase the Garfield’s height (by 34 floors) to a local charity.
Corning Place claimed a $22 million tax deduction for that donation, nearly four times what it
had paid for the building. The Internal Revenue Service disallowed the deduction and imposed
penalties. It found that Corning Place claimed the deduction for the wrong year, substantially
overvalued its worth, and failed to document key expenses. Corning Place challenged the
disallowance and penalties in Tax Court. The Tax Court agreed with the IRS. We do too and
affirm.
I.
Thе Garfield lies in the heart of downtown Cleveland. Built in 1893 and standing 11-
stories tall, it represents an early example of steel-framed skyscrapers in the Chicago School
architectural style.
In November 2014, Corning Place was formed to purchase and develop the Garfield. It is
a partnership, and its primary partner is Corning Place Investment (Investment).
In January 2015, Corning Place purchased the Garfield for $6 million. An appraiser gave
it the same value two months earlier, and Corning Place described the
length,” and “reasonable.” App’x 39.
Corning Place sought to leverage this investment in two ways. In October 2015, it
redeveloped the Garfield from a bank office to a residential apartment building. It financed the
development through $9 million in state and federal historical preservation credits. To secure the
credits, Corning Place promised that “[n]one of the proposed rooftop construction . . . will be
visible at ground level.” App’x 37 (quotation omitted). The redeveloped Garfield remained 11-
stories tall, and it now holds 123 apartments.
Then, in May 2016, Corning Place donated an “Historic Preservation and Conservation
Easement” for the Garfield to a local charity as a potential tax-saving device. App’x 18.
Although a taxpayer normally may not take a charitable deduction for the donation of a partial
property interest, it may deduct the value of a “qualified conservation contribution.”
the historical character of the building, including its façade. See Hoffman Props. II, LP v.
Comm’r, 956 F.3d 832, 833 (6th Cir. 2020). The taxpayer may then deduct what it gave up,
what amounts to the lost development opportunity created by the conservation easement. See id.
Corning Place hired Sandvick Architects and appraiser Claud Clark to value an easement
that prevented any development of the Garfield that would “materially and adversely affect [its]
façade.” Aрp’x 42–43. They returned with a vision of what the Garfield could become: a 45-
story tower with 547 apartment units. Such a redevelopment, they said, would require adding 34
stories to the century-old Garfield, inserting 40+ steel support pillars throughout the building,
and excavating 130 feet below ground level to buttress the bedrock with cement pads.
The plans valued the Garfield’s lost development potential at $22,601,000. The
feasibility analysis for the foundation relied on a general survey of buildings in downtown
Cleveland rather than the Garfield itself. The timeline assumed instant regulatory approval,
occupancy within eight months of breaking ground, and no delays due to financing or
construction difficulties. Sandvick, which had also drawn up plans for the actual redevelopment,
noted that it “would not be willing to assist” with construction of the 45-story tower because that
would violate the terms of the existing five-year historical preservation credits. Apр’x 506–07.
Corning Place reported a charitable donation deduction for the Garfield easement and a
deduction for its easement-related expenses on its 2016 tax return. The return reflected Corning
Place’s changing partnership structure. All but one of Corning Place’s partners had surrendered
their membership interests as of May 18, 2016, leaving Investment as the sole owner.
Investment remained the sole partner through July 6, 2016, when a new investor bought into
Corning Plaсe. For those seven weeks, Corning Place was not a taxable partnership, as it had
only one partner, Investment. Corning Place’s 2016 taxable year thus began on July 7 and ended
on December 31.
In August 2018, the Commissioner of the Internal Revenue Service told Corning Place
that he was examining its 2016 return. In July 2020, the Commissioner disallowed Corning
Place’s charitable-donation and easement-expense deductions for the 2016 return. The
Commissioner explained that Corning Place clаimed the charitable donation in the wrong tax
year, overstated the deduction’s value, and failed to adequately document its expenses. The
40% penalty for grossly overstating the easement’s value, and a 20% negligence penalty for
inadequate documentation of expenses. All of this generated a total penalty of $8,993,400.
Corning Plаce and Investment challenged the Commissioner’s decision in Tax Court.
The Tax Court conducted a trial and agreed with the Commissioner. It ruled that Corning Place
claimed the deductions for the wrong year, reasoning that Investment was the only relevant
partner at the time of the deductions. It rejected Corning Place’s valuation of the easement,
finding an overstatement of 2400%. It rejected Corning Place’s belated documentation for its
easеment expenses. And it rejected Corning Place’s challenge to the penalties.
II.
A partnership does not pay federal income taxes. United States v. Woods, 571 U.S. 31,
38 (2013). It instead reports its partners’ distributable share of taxable income, gain, loss,
deduction, or credit, what the Tax Code calls “partnership items.”
federal income tax returns.
If the Commissioner disagrees with a partnership’s report, he notifies its partners of any
adjustments to partnership items, including penalties assessed on the partnership.
partners may seek judicial review in a partnership-level proceeding in the Tax Court.
proceeds against the individual partners if they owe more taxes.
At stake in today’s appeal is (1) whether Corning Place may claim a partnership-level
deduction for the Garfield easement, (2) whether Corning Place overstated the easement’s value,
(3) whether Corning Place properly documented its easement-related expenses, and (4) whether
the Commissioner properly imposed underpayment penalties. Corning Place bears the burden of
showing that it deserves a deduction. Kerman v. Comm’r, 713 F.3d 849, 864 (6th Cir. 2013). In
assessing the Tax Court’s decision, we give clear-error review to its factual findings and fresh
review to its legal conclusions. Alioto v. Comm’r, 699 F.3d 948, 952 (6th Cir. 2012).
A.
May Corning Place claim a charitable deduсtion for the Garfield easement in its 2016 tax
return?
A taxpayer may deduct a charitable donation for the taxable year in which it made the
donation.
year in which it has multiple partners.
partnership has only one partner, the partner must claim all partnership items, including
deductions, on its own tax return. Id.; see also
Corning Place donated the Garfield easement on May 25, 2016. But Corning Place’s
taxable year did not begin until July 7, 2016. Investment had become its sole partner on Mаy 15,
2016, and remained its sole partner until July 7. For that roughly seven-week period, Corning
Place did not exist as a taxable partnership. The correct taxpayer with respect to
thus was Investment, not Corning Place.
All of this shows that Corning Place erred in claiming the deduction in its 2016 return.
The return acknowledged that its taxable year began on July 7, the day it sprang back into
existence as a taxable partnership. Yet the tax return still tried to claim a deduction for a
donation made оn May 25. Corning Place does not deny, indeed accepts, this reporting mistake.
Appellant’s Br. 11.
Yet Corning Place nonetheless offers two reasons why we should permit the deduction
anyway. It first argues that the Tax Court should have ignored the mistake as a harmless
administrative error. Corning Place points out that Investment also claimed a 100% share of the
$22 million deduction for the charitable easement on its 2016 tax return. Had all gone as the Tax
Code directed, Investment would have directly claimed the deduction on its 2016 tax return.
What difference does it make, Corning Place asks, when “the same charitable deduction in the
same amount from the same period [was] allocated to the same taxpayer in the same
proportions”? Reply Br. 4.
To restate the question, however, answers the point. The question is whether Corning
Place may claim the deduction for a period of time that its tax year did not cover. That
Investment may be able to claim some deduction for a charitable donation during that seven-
week period speaks to any future partner-level tax proceedings, not to the propriety of Corning
Place’s return. Woods, 571 U.S. at 40–42. The partner-level tax return of Investment, in short,
does not affect what partnership-level deduction Corning Place may claim.
Corning Place worries that this approach places “form over substance.” Reply Br. 4. But
“form” is “substance” when it comes to law. “The words of law (its form) determine сontent (its
substance).” Summa Holdings v. Comm’r, 848 F.3d 779, 782 (6th Cir. 2017). The Tax Code
does not permit taxpayers to take deductions in the wrong year under the wrong category.
Crosley Corp. v. United States, 229 F.2d 376, 379 (6th Cir. 1956). In the last analysis, the Tax
Code does not permit a taxpayer to take a deduction in the wrong year as the wrong entity unless
it files a timely correction.
That leads to Corning Place’s second argument—that Investment cured the error in
September 2020 by submitting an amended return for 2016 that claimed the deduction for itself.
This argument runs into a different problem. A partnership, it is true, may fix a mistaken filing
by submitting a “request for an administrative adjustment.”
correct a filing before the Commissioner notifies its partners of a proposed adjustment.
examination of Corning Place’s 2016 return in August 2018. Even so, Investment did not submit
its corrected return until September 2020, after the Commissioner notified Investment in July
2020 of the proposed adjustment and long after it notified the partnerships about the audit.
Investment thus submitted its corrected return two months too late—and two years after the
Commissioner announced its investigation. As the return was untimely, we need not decide
whether Investment’s submission factually included the correct documents or whether those
documents sufficed to make a proper adjustment.
Because Corning Place improperly claimed a deduction that belonged to another
and no one corrected the mistake in a timely way, the Tax Court legitimately denied the
deduction.
B.
Did Corning Place overstate its easement deduction?
Although Corning Place may not clаim a deduction for its easement donation, the size of
any tax penalty turns on the value of the easement. The Tax Code delegates the choice of how to
value the easement to the Treasury Secretary. See
regulations provide that a taxpayer may deduct the “fair market value” of the donated easement
“at the time” of the donation.
easements exists, the value of the donated easement equals the general market price of those
easements. Id. If a sales record does not exist, as here, the value of the donated easement
“equal[s] . . . the difference between the fair market value of the [encumbered] property . . .
before the granting of the restriction and the fair market value . . . after the granting of the
restriction.” Id. (emphases added).
Before-and-after valuation identifies the delta, if any, between the value of the property
without the easement and with it. In making this assessment, the owner’s estimates of the value
of any conservation easement must be grounded in economic realities, not pies in the sky. In the
words of the relevant regulation, “the fair market value of the property before contribution of the
conservation restriction must take into account not only the current use of the property but also
an objective assessment of how immediate or remote the likelihood is that the property, absent
the restriction, would in fact be developed, as well as аny effect from zoning, conservation, or
historic preservation laws that already restrict the property’s potential highest and best use.”
on the “most profitable use for which [it] is adaptable and needed or likely to be needed in the
reasonably near future” and “exclude[s] from consideration . . . mere speculation and
conjecture.” Olson v. United States, 292 U.S. 246, 255, 257 (1934). We start with the
assumption that the current use amounts to its best use. United States ex rel. Tenn. Valley Auth.
v. 1.72 Acres of Land in Tenn., 821 F.3d 742, 752–53 (6th Cir. 2016); United States v. L.E.
Cooke Co., 991 F.2d 336, 341 (6th Cir. 1993). Because Corning Place proposed a hypothetical
use, it must show that such use rests on a “reasonable probability” rather than “mere possibility.”
1.72 Acres of Land, 821 F.3d at 752.
The Tax Court did not err, let alone clearly err, in rejecting a valuation premised on a 34-
story addition to the Garfield. The Tax Court appropriately asked whether transforming the 11-
story, century-old Garfield into a 45-story apartment tower was “physically possible,
appropriately supported, and financially feasible.” App’x 64 (quotation omitted); see also
Appraisal Inst., The Appraisal оf Real Estate 277–78 (13th ed. 2008) (same). It rejected the
easement proposal for several straightforward reasons.
Corning Place offered exceedingly weak underlying analyses to support the physical
possibility of this proposed construction. Its structural analysis was labeled “not [to] be used for
actual construction,” and a soil survey based on a different building amounted to weak support
for the physical possibility of this proposed building. App’x 613. Making matters worse,
Corning Place was unwilling
All it offered were feasibility analyses that turned on inadmissible hearsay. See Alioto, 699 F.3d
at 954. On this record, any “objective assessment of how immediate or remote the likelihood”
that the property would be developed in this way,
“remote” side of the scale.
The likelihood of regulatory approval for this proposed construction also falls on the
remote side of the line. What government body would approve such an audacious plan without a
sound feasibility analysis? Plus, any legitimate proposаl would have to account for “any effect
from zoning, conservation, or historic preservation laws that already restrict the property’s
potential highest and best use.”
homeowner living in a residentially zoned suburb could not claim a deduction for declining to
build a ten-story office tower, so the owner of an office building may not claim a deduction for
declining to immediately add an addition that was incompatible with an existing five-year
historic-preservation law. See
Corning Place also did not estаblish unmet market demand to support a 34-story addition
to a century-old frame. While it identified several “vertical expansions” in downtown Cleveland,
each of them came atop a foundation recently built with that expansion in mind. App’x 1076,
1936, 3120–21. Far from supporting Corning Place’s plan to transform the Garfield, these
comparisons show what a legitimate request might look like and, at all events, show “no shortage
of alternative development sites” thаt could meet market demand at a far lower cost. App’x 936.
Corning Place also never justified its construction-costs estimate. It tried to prove costs
with a one-page consultant report declaring, without any support, that the 34-story expansion
would require $102 million. But this assessment, which included not only adding 34 stories but
also inserting 40+ steel support pillars throughout a century-old building, was patently
speculative, as the Tax Court fairly concluded. “[S]pеculative and remote possibilities cannot
become a guide for the ascertainment of value, especially when the creation of such a potential
use would require a substantial investment of capital.” 1.72 Acres of Land, 821 F.3d at 749–50
(quotation omitted).
Corning Place resists this conclusion on several grounds. It argues that the Tax Court
failed to recognize that the regulations require an “as complete valuation,” which is to say the
Court should have valued the pre-easement Garfield “as if” it had already been established that
its best use was as a 45-story apartment building. Appellant’s Br. 19–20. But this approach
wipes a critical chess piece off the table. The key initial inquiry over a hypothetical use is
whether it is “speculative” or a “reasonable probability.” 1.72 Acres of Land, 821 F.3d at 749–
50, 752. For the many legitimate reasons articulated by the Tax Court, this easement proposal
failed at step one. Corning Place cannot solve that problem by removing step one from the table.
Corning Place separately makes a surplusage argument. It points out that
discussing easement valuations, elaborates on the meaning of “fair market value” while
Court’s fair market value assessment of this hypothetical easement parallels how the Tax Court
would handle a hypothetical
have gone astray. We do not see the point. The Supreme Court has long applied the same
standard to value a property before an easement to the way it values a fee simple. See Olson,
292 U.S. at 255–56. We thus would expect the regulations of those standards to remain parallel
in looking at “fair market value.” That the Tax Code provides different levels of detail in
different provisions because, say, one provision implicates more zoning, regulatory, and historic-
preservation considerations (an easement) doеs not create surplusage. See Marx v. Gen. Revenue
Corp., 568 U.S. 371, 385–86 (2013). Corning Place, at any rate, never explains why
that meaning and to look at something other than the value of “the property . . . before the
granting of the easement.”
Corning Place separately contests the Tax Court’s rejection of the 45-story tower for the
Garfield as the best use of the pre-easement Garfield. It points to general evidence that demand
for apartments hаs outstripped supply in downtown Cleveland. But, through it all, the
partnership still does not provide any evidence of “demonstrated . . . market demand for the
prospective” 45-story apartment tower. 172 Acres of Land, 821 F.3d at 754 (quotation omitted).
That gap in the record undoes its claim.
Corning Place likewise challenges the Tax Court’s assessment of soft costs, such as
permitting fees and financing costs. But it still never shows why its construction-costs estimate
remains anything other than speculative.
All in all, the Tax Court did not err, clearly or otherwise, in rejecting Corning Place’s $22
million valuation for a charitable easement with respect to a property that it just purchased for $6
million. Corning Place does not otherwise challenge the Tax Court’s before-and-after valuation
of the Garfield, and so it forfeits any objection to the Tax Court’s valuation of the easement at
$900,000. Glennborough Homeowners Ass’n v. U.S. Postal Serv., 21 F.4th 410, 414 (6th Cir.
C.
May Corning Place claim $665,000 in easement-related expenses—Clark’s appraisal
services and Sandvick’s architectural services—on its 2016 tax return?
A taxpayer may deduct “all the ordinary and necessary expenses paid or incurred during
[its] taxable year.”
expense depends on its form of accounting.
Dynamics Corp., 481 U.S. 239, 242 (1987). Corning Place uses accrual-based accounting. It
“incur[s]” an expense when (1) “economic performance has occurred” and (2) “the amount of the
liability can be determined with reasonable accuracy.” Chrysler Corp. v. Comm’r, 436 F.3d 644,
647 (6th Cir. 2006) (quotation omitted);
occurs as the service[] . . . is provided.”
The Tax Court did not err when it found that Corning Place failed to document its
easement-related expenses when it relied on the engagement letters to Clark and Sandvick. The
Clark letter promises appraisal services without promising when those services will occur. The
Sandvick letter omits mention of a date and permits “further adjustment of the fee” until
“completion of the Feasibility Analysis has occurred.” App’x 508. Neither
that the “service . . . provided” occurred during Corning Place’s 2016 tax year. The Sandvick
letter does not specify Corning Place’s “liability . . . with reasonable accuracy.” And no
evidence in the record shows what Corning Place actually paid the two consultants. Corning
Place thus failed to meet its burden of showing it incurred the claimed expenses.
Corning Place resists this conclusion. It argues that it may deduct any “ordinary and
necessary” expenses for the tax year, which may include easement-related expenses.
accrual-basis taxpayer. Even if we assume that a signed engagement letter creates an incurred
expеnse, that does not do the trick by itself. The Clark letter is dated May 16, 2016, and let us
assume for now that Corning Place engaged Sandvick at the same time. That still does not solve
the problem. Recall that Corning Place did not exist as a taxable partnership between May 15
and July 7 of 2016. It thus may not claim any deduction incurred in that window.
D.
Did the Tax Court permissibly impose negligence and overstatement penalties on
Corning Place?
The Tax Code penalizes the underpayment of taxes resulting from negligence
or overvaluation. Losantiville Country Club v. Comm’r, 906 F.3d 468, 475 (6th Cir. 2018);
Kluener v. Comm’r, 154 F.3d 630, 637 (6th Cir. 1998) (quotation omitted). A taxpayer may
defeat a penalty by showing that it had “reasonable cause” for the underpayment and acted in
“good faith.” Mortensen v. Comm’r, 440 F.3d 375, 385 (6th Cir. 2006);
United States v. Boyle, 469 U.S. 241, 251 (1985);
not raise this defense when the understatement arises from a “gross” valuation overstatement of
more than 200% of the correct amount.
overturn the Tax Court’s negligеnce findings on appeal, Corning Place bears the burden of
establishing these findings suffered from clear error. Losantiville, 906 F.3d at 475–76.
Wrongly claiming the easement deduction. Corning Place claimed a charitable deduction
made on May 25, 2016, for a tax return that did not begin until July 7, 2016. Corning Place
purportedly relied on its tax advisors to prepare the deduction, but that does not fix the problem.
“The failure to make a timely filing of a tax return is not excused by the taxpayer’s reliance on
an agent.” Boyle, 469 U.S. at 252. Timeliness, then, is not a mistake а taxpayer may attribute to
an advisor. The Tax Court did not clearly err in finding that Corning Place negligently claimed
the Garfield donation.
Grossly overstating the easement deduction. Corning Place valued the easement at $22.6
million—2500% of the Tax Court’s $900,000 valuation. Because this qualifies as a gross
valuation overstatement (and then some), Corning Place may not defend against the
corresponding penalty based on its reliance on tax advice. The Tax Court did not cleаrly err in
finding that Corning Place grossly overstated its deduction for the Garfield easement.
Inadequately documenting easement-related expenses. Corning Place claimed a
$665,000 business expense deduction
Corning Place to this day has not provided any evidence that it ever paid Clark or Sandvick this
amount. The Tax Code unambiguously requires such proof, and no claimed “reliance” on others
can “function as a substitute for compliance with an unambiguous statute.” Boyle, 469 U.S. at
251. The Tax Court did not clearly err in finding that Corning Place negligently failed to
substantiate its easement-related business deduction.
We affirm.