- 20 - 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.Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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