87 T.C. 389 (1986)
THE STANLEY WORKS AND SUBSIDIARIES, Petitioner
COMMISSIONER OF INTERNAL REVENUE, Respondent
United States Tax Court
August 12, 1986
In 1977, petitioner donated to a charitable donee a conservation easement in land adjacent to the Housatonic River in northwestern Connecticut. Petitioner deducted a charitable contribution with respect to the donation based on a value for the easement of $12,000,000. HELD, the highest and best use of the land before the donation of the easement was for the construction of a hydroelectric power plant. HELD FURTHER, the value of the easement was $4,970,000. HELD FURTHER, petitioner is liable for the increased interest rate on substantial underpayments attributable to tax motivated transactions under sec. 6621(d), I.R.C., 1954.
Walter B. Slocombe and Geoffrey J. Vitt, for the petitioner.
Kendall C. Jones, for the respondent.
In a statutory notice of deficiency dated June 17, 1983, respondent determined deficiencies in petitioner's Federal corporate income tax liabilities as follows:
The primary issue remaining for decision is the amount petitioner is entitled to deduct with respect to a charitable Page 390
contribution of a conservation easement in 668 acres of land located adjacent to the Housatonic River in northwestern Connecticut. Also at issue is whether petitioner, under section 6621(d), 
is liable for the increased rate of interest imposed on substantial underpayments of tax attributable to tax motivated transactions. FINDINGS OF FACT Some of the facts have been stipulated and are found accordingly. The Stanley Works (hereinafter referred to as ‘ petitioner‘ ), is a Connecticut corporation with its principal place of business in New Britain, Connecticut. Petitioner and its wholly owned subsidiaries timely filed Federal consolidated corporate income tax returns for their taxable years ending January 1, 1978, and December 31, 1978. Petitioner is a multi-million dollar corporation that principally is engaged in the manufacture and sale of hand tools and hardware. Between 1906 and 1916, petitioner acquired approximately 2,200 acres of unimproved land located on both sides of the Housatonic River in Litchfield County, Connecticut (hereinafter referred to as the ‘ Stanley Works property‘ ). Petitioner acquired the entire Stanley Works property for $48,582 and originally intended to dam the Housatonic River and to construct a hydroelectric power plant on the property. Petitioner intended to use the electricity generated at the proposed plant in one of its nearby manufacturing plants and to sell any excess electricity to local public utility companies. Between 1918 and 1924, however, petitioner purchased a small Connecticut utility company, rebuilt the hydroelectric power plant owned by that company, and began generating electricity therefrom in 1924 for use in petitioner's Connecticut manufacturing plants. As a result thereof, petitioner did not pursue construction of a power plant on the Stanley Works property, and petitioner has not made any commercial or industrial use of the Stanley Works property since the time it was purchased. All 2,200 acres of the Stanley Works property constitute essentially a wilderness area with only a few old barns located thereon. Page 391
Two hydroelectric power plants were constructed on the Housatonic River in the l920's. One was located on the river above and one was located below the Stanley Works property. In the early l960's, the Connecticut Light and Power Company offered to purchase the Stanley Works property for $500,000. It intended to construct thereon a hydroelectric power plant. Petitioner rejected the offer, but as a result of receiving the offer, petitioner in 1961 conducted a study of the feasibility at that time of constructing a hydroelectric power plant on the property. Petitioner's 1961 study concluded that construction of a conventional hydroelectric power plant on the Stanley Works property would not be economical, but that the property would be suitable for the construction thereon of a particular type of hydroelectric power plant known as a pumped storage plant. A pumped storage plant provides supplemental electrical power during periods of peak energy demand in the following manner. During evenings or weekends when electrical power demand is low, water is pumped from a lower reservoir-such as a river or lake-up to a storage reservoir at a significantly higher elevation than the lower reservoir. When supplemental electrical power is needed during periods of peak energy demand, water is released from the upper reservoir. As water flows back down to the lower reservoir it passes through tunnels wherein it turns hydraulic turbine generators, thereby producing electrical power. The electrical power produced as the water flows through the turbines obviates the need during peak- demand periods to purchase or to produce a similar amount of electrical power by other, more expensive methods. The size of the upper and lower water reservoirs and the difference in their elevations determine the amount of electrical power that can be produced by a pumped storage plant. The construction of pumped storage plants requires a particular site or land topography because the location of the upper reservoir must be at a sufficiently high elevation in relation to the lower reservoir, but not be too distant laterally from the lower reservoir, to permit efficient operation. Pumped storage plants also must be built adjacent to large natural sources of water that readily can supply the water that is pumped to the upper reservoirs. Page 392
A decision of a utility company to construct a pumped storage plant is based, in part, on forecasts of future demand for peak- period electrical power. In planning to meet that demand, a utility company also must consider the 10- to 15-year ‘ lead time‘ it takes to license and construct a power plant. Utility companies in a particular region form ‘ power pools‘ to forecast future energy demand and to coordinate and plan future construction of electrical power plants. Power pools do not have authority to direct member utility companies to construct new plants. The construction of new power plants by utility companies, however, is significantly influenced by the future energy requirements forecasted by the power pools. In the northeastern United States, approximately 250 utility companies are members of the New England Power Pool (‘ NEPOOL‘ ), and in New York approximately 10 utility companies are members of the New York Power Pool (‘ NYPP‘ ). During the l960's and early l970's, the forecasts by NEPOOL and N.Y.PP of the long term demand for peak-period electrical power was an increase of eight percent per year. Pumped storage plants were highly regarded by the utility industry and by Federal regulatory agencies as a viable means of meeting that expected increase in demand for sources of power during peak-demand periods. In 1977, when petitioner donated the easement at issue herein, NEPOOL had forecasted a 5.4-percent annual increase in peak-demand electrical power and a need for 5,500 megawatts of additional electrical generating capacity to be produced from seven or more new pumped storage plants in New England. The first was projected to be finished and operational by 1992. Also in 1977, N.Y.PP had forecasted the need for 2,500 megawatts of additional electrical generating capacity to be produced from pumped storage plants within its region. Neither NEPOOL nor N.Y.PP in 1977 had recommended specific sites for the new pumped storage plants that were forecasted over the subsequent 15 years and it was reasonable to assume that the Stanley Works property could have been selected as such a site. The Stanley Works property was suitable for a mid-sized (800 megawatt) pumped storage plant due primarily to the Page 393
950-foot rise in elevation from the floor of the Housatonic River-where the river would be dammed to provide a lower reservoir-to the area where the upper reservoir most likely would be constructed (referred to as ‘ Pine Swamp‘ ). Pine Swamp was not located within the 2,200-acre Stanley Works property and, therefore, any developer of a pumped storage plant who intended to use the Stanley Works property as the site of a lower reservoir would have been required to purchase Pine Swamp or other nearby land as the site for the upper reservoir. During the l960's, interest increased in constructing a pumped storage plant on the Stanley Works property. In 1963, Connecticut Light and Power Company considered 27 potential pumped storage sites in Connecticut and western Massachusetts. Of the 27 sites considered, 24 sites were eliminated upon initial inspection. The Stanley Works property was one of the remaining three sites that were considered in detail and it was recommended as the superior site of the three sites under final consideration on which a mid-sized pumped storage plant might be constructed. The 1963 study estimated the cost of acquiring the Stanley Works property at that time at $1,500,000. In 1966, Connecticut Light and Power Company merged with Northeast Utilities, the largest public utility company in the NEPOOL region. Sometime thereafter, Northeast Utilities purchased the Pine Swamp property and identified the Stanley Works property on its internal planning maps as the possible site for construction of a pumped storage plant. In 1967, Northeast Utilities considered four potential pumped storage sites, including the Stanley Works property, and concluded that of the four sites considered at that...