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shopping, and services, and thus would command higher rents than
those in Pleasant Garden. Adjusting for location, size, and
condition, Barker calculated the comparables' annual rents to be
$7,521, $7,950, $8,280, and $8,280.
To corroborate this method, Barker also used the cost
approach of valuation. Using the mid-range of the sales prices
of four lots facing Neelley Road ($22,500) and valuing the
improvements to the property according to the Marshall & Swift
Residential Cost Handbook ($57,798), Barker determined a total
property value of $80,298. To this value, Barker applied a
discount rate of 10 percent, which he derived from listings of
lease-to-own residential properties, to reach a rent of $8,030.
This value was within the range of rents calculated under the
market comparison approach. Using the comparable rents as the
most reliable indicator of fair market rental, Barker appraised
the annual rental value of the property at $8,300.5
5 After trial, respondent filed a motion for leave of court
to file amendment, which the Court granted. Respondent's amended
answer to the petition asserted $8,300 as the yearly fair market
rental value of the property and increased petitioner's
deficiencies in income tax to $13,621 and $23,014, for FYE 7-31-
89 and FYE 7-31-90, respectively, the addition for taxable year
1989 to $681, and the penalty for taxable year 1990 to $4,603.
Given that the original notice of deficiency allowed rents of
$8,400 and $8,979 for the taxable years 1989 and 1990,
respectively, the disproportionate increases in the deficiencies
($1,258 and 1,443) indicate that respondent may not have used
$8,300 in recalculating petitioner's taxable income, or may have
relied on her contention that respondent had allowed rents of
$12,000 each year. See supra note 3. The proper deficiency
amounts can be calculated in the Rule 155 proceedings.
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