Murfam Enterprises, LLC is the privately held company of a multi-generation hog farming family in North Carolina and taxed as a partnership. In 2000, the company obtained a 6,171-acre parcel of land named the “Rose Tract.” Subsequently, the State of North Carolina granted hog-farming certificates that were attached to Rose Tract. The certificates authorized a “feeder-to-finish” facility, but could be converted into authorization for a “farrow-to-wean” facility. In 2007, North Carolina imposed a moratorium on issuing new hog-farming certificates. In 2010, Murfam donated a conservation on the whole of Rose Tract to North American Land Trust. The easement specified that Rose Tract could not be used to hog farm, and claimed a charitable deduction of $5,744,600 for the donation of the easement.

In 2015, the IRS challenged the value of easement. They claimed the value was $446,000. Murfam contested this determination. Prior to the tax court trial, both parties agreed that the value of the easement “is in effect the value of the hog-farming certificates.”

The court utlitized the “highest and best use” method to determine the value of easement. In doing so, it relied heavily on the calculations of Murfam’s expert, who determined that a farrow-to-wean facility was the most profitable use for the property before the easement. The IRS expert only examined the financials of building a feeder-to-finish facility and found that operation to be “financially unfeasible.” 

In calculating the value of the easement, the court first took the value of the hog-farming facility plus the stipulated value of the remaining acreage to determine the initial value of the tract prior to the easement donation. It then subtracted the stipulated value of the land after the donation to determine that the value of the easement was $5,637,207.

Murfam Enterprises, LLC v. IRS, T.C. Memo 2023-73 (June 15, 2023).