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issues properly characterized as benefits ensuing from the
investment.
Respondent argues that ERL entered into the lease agreement
with JAD without regard to whether the royalty obligations were
commensurate with the fair market value of the coal that could
reasonably be extracted from the leased property. Petitioners
contend that respondent fails to understand the complexities of
the financial transaction as structured by McIntyre. In light of
the evidence contained in the record, however, we agree with
respondent and conclude that the royalty obligations at issue
substantially exceed the fair market value of ERL’s rights under
its lease with JAD. See Coggin v. Commissioner, supra.
Petitioners have failed to establish that ERL’s purported royalty
obligations of $200 million were reasonably commensurate with the
fair market value of the coal underlying the leased property.
Perhaps the most compelling fact rendering support to this
conclusion is that JAD acquired the land covered by the lease for
$3,750,000 on July 30, 1977, approximately 3 years prior to ERL’s
execution of the lease with JAD for the same property. Id.
Petitioners attempt to address this disparity in two ways.
First, they advance a misguided argument based on the concept of
present valuation analysis. Petitioners also argue that
subsequent to JAD’s acquisition of the subject property, the
infrastructure of the property underwent extensive development.
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