- 20 -
However, respondent contends that the 11.5-month period of zero
rent does not qualify as a reasonable rent holiday described in
section 467(b)(5)(C).14
13(...continued)
fully occupied. The problem with petitioner's arguments is
that they attempt to prove a non-tax avoidance motive for
periods and events that occur after the first 11.5 months
of the lease. Petitioner must justify the fact that the
nonpayment of rent during the first 11.5 months of the
lease did not have tax avoidance as its primary motive.
What happens in year 12 and petitioner's expectations for
increases in cash flows from future subleases when the
building is occupied have nothing to do with the forgive-
ness of rent during the first 11.5 months of the lease. At
least, petitioner has not established this relationship.
The key point here is the reasons given by petitioner do
not establish a business purpose or tax-independent motive
for the nonpayment of rent during the critical time period
in dispute. In essence, petitioner's explanation of future
events is just not focused on the period of time and the
issue before the Court.
14 Respondent also makes various assertions in her answering
brief about "several major distortions or unexplained spikes [on
February 1 of each of the 22-annual lease periods following the
11.5-month period of zero rent] in the rental payments over the
long term of the lease" that she alleges are provided in the
rental payment schedule and argues from those assertions that
Schedule E cannot be said to relate to the terms of the
lease agreement because of the unexplained distortions
described above. This is because the lease (Jt. Ex. 9-I,
pp. 17-18, � 4.1) basically provides that annual rent is
equal to the lower of fair market rental or 90% of the
average basic rent. This latter description of rent under
the lease agreement in no way covers, explains, or relates
to the several up-and-down increases in rental payment over
the term of the lease. Therefore, since each of the rental
payments was not allocated according to the actual terms of
the lease agreement, the rent leveling and present value
principles of I.R.C. � 467(b)(2) and � 467(e) apply.
Although it is not altogether clear what respondent intends to
(continued...)
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011