- 16 -
the mortgage interest deductions claimed on the Maschmeyers’
individual tax returns for the years at issue was not
satisfactorily explained. The average of the amounts claimed on
the returns is $20,584. To this we add the annual allowance for
soil depletion that Maschmeyer carefully calculated and used in
his computation; viz., $9,125. These are the lessors’ costs. We
can also include in the arm’s-length price the $25,000 location
premium that Maschmeyer calculated based on the savings to the
corporation in labor and fuel costs. It is an elementary fact of
real estate markets that land is not fungible, and locational
differences can account for significant price differences within
a competitive market. Because contiguous acreage is more
valuable to petitioner than otherwise identical property situated
at a distance, even if the land owner were an unrelated party
negotiating at arm’s length he would be in a position to capture
at least some of the premium value that the land would generate
in petitioner’s operations.
Maschmeyer included in the rent an additional amount
representing a 10-percent return on investment ($46,592). In
support of this item he noted that the return per acre for a
nursery operation is approximately 25 times that from typical
farming operations. We think this item is unwarranted for three
reasons. First, the return per acre is a function not only of
land but also of labor and capital inputs. Maschmeyer apparently
made no attempt to quantify the relative contribution of each of
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011