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6(...continued)
A: It would depend on the kind of property. I think of
some times when they would be very comparable.
Yet in his December 8, 1999, letter criticizing respondent’s
engineer’s report, Mr. McIntosh stated:
The IRS appraiser appears to feel that the Modesto/
Stockton areas are equal to the Sacramento area. He is
either unaware or does not mention that the former
areas have been economically depressed for some time,
while the Sacramento area has been rebounding. I
regularly appraise stations and mini marts in all of
these cities. I do not consider them equivalent, nor
would I ever attempt to use comparables from areas like
Modesto or Stockton for a property in Sacramento.”
[Emphasis added.]
At trial, Mr. McIntosh also sought to justify the
conclusions reached by Mr. Vanderbundt in his report by stating
that he thought the Vanderbundt report was well prepared and
would meet the requirements for a professional appraisal if Mr.
Vanderbundt were licensed as an appraiser. As discussed in more
detail below, Mr. Vanderbundt used as a “comparable” a single
lease transaction between related parties, not an arm’s-length
transaction. Mr. McIntosh testified that it is appropriate for
an appraiser to use a related-party lease as a comparable if he
could “verify the information, and see that it’s factual, and
that it is pretty much parallel with the rest of the market data
that you’ve got.”
While it may be acceptable to mention a related-party
transaction as additional support for an appraisal, it is clearly
improper for an appraiser to rely solely on a related-party lease
in determining the fair market value of another property. The
purpose of an appraisal is to determine fair market value of the
subject property. Fair market value is the price a willing buyer
would pay to a willing seller in an arm’s-length transaction,
with neither party being under compulsion to buy or sell, and
both having reasonable knowledge of the facts. United States v.
Cartwright, 411 U.S. 546, 551 (1973); Morris v. Commissioner, 70
T.C. 959, 988 (1978). A related-party transaction is, by
definition, not an arm’s-length transaction and thus does not
provide reliable evidence of the fair market value of the
“comparable” property. Mr. McIntosh’s inconsistent positions
(continued...)
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