Maschmeyer's Nursery Inc. - Page 5

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          to increasing demand from speculators and developers in the near            
          future.                                                                     
               In determining a rental rate for the tracts of $140,000,               
          Maschmeyer did not consult a real estate appraiser.  He relied              
          instead upon the expertise that he had developed over nearly                
          20 years of full-time work in the nursery business and upon the             
          advice of a certified public accountant (C.P.A.), Daniel H.                 
          Wagner (Wagner).  Wagner had at least 10 years of experience in             
          tax accounting prior to the years at issue and personally                   
          prepared petitioner’s tax returns for each year beginning in                
          1985.  Maschmeyer and Wagner were not aware of any comparable               
          leases in the Indianapolis area, so they constructed what they              
          believed to be a fair and reasonable rent from, inter alia,                 
          information they had as to prevailing cash rents for lower value            
          crops, productivity of nursery operations, petitioner’s projected           
          cash-flow, the Maschmeyers’ borrowing costs for purchase of the             
          tracts, loss of topsoil through harvesting practices, the                   
          economies expected to result from the use of contiguous acreage,            
          and the prevailing yield on financial assets.  In her notice of             
          deficiency respondent determined that only $23,000 of the annual            
          rental payments was deductible as an ordinary and necessary                 
          business expense.  Subsequently respondent revised her                      
          determination to $65,000 on the basis of a professional real                
          estate appraisal.                                                           






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Last modified: May 25, 2011