- 13 - OPINION Fair Market Rental Value Section 162(a)(3) provides that a taxpayer may deduct all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business, including: rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. Section 162(a)(3) by its terms does not limit deductions for rental payments to a "reasonable" amount, but when the lessor and lessee have a close relationship and no arm's-length dealing between them, an inquiry into what constitutes reasonable rental is necessary to determine whether the sum paid exceeds what the lessee would have been required to pay had he dealt at arm's length with a stranger. Sparks Nugget v. Commissioner, 458 F.2d 631, 635 (9th Cir. 1972), affg. T.C. Memo. 1970-74; Place v. Commissioner, 17 T.C. 199, 203 (1951), affd. per curiam 199 F.2d 373 (6th Cir. 1952). The taxpayer must establish that the sums paid were in fact rentals that he would have been required to pay in an arm's-length deal; to do so, he must show the amounts paid were reasonable. Place v. Commissioner, supra at 204. The fair market value of a property must reflect the highest and best use of the property on the relevant valuation date. Estate of Juden v. Commissioner, 865 F.2d 960, 963 (8th Cir. 1989), affg. T.C. Memo. 1987-302; Stanley Works & Subsidiaries v.Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
Last modified: May 25, 2011