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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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