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Commissioner, 87 T.C. 389, 400 (1986). The highest and best use
is the "reasonable and probable use that supports the highest
present value". Symington v. Commissioner, 87 T.C. 892, 897
(1986). The fair market value is not affected by whether the
property is put to its highest and best use; the realistic,
objective potential uses control its valuation. Stanley Works &
Subsidiaries v. Commissioner, supra. If existing zoning
restrictions preclude a more profitable use, ordinarily such use
should not be considered. United States v. Meadow Brook Club,
259 F.2d 41, 45 (2d Cir. 1958). If the possibility of a zoning
reclassification is a reasonable one, however, this is an element
that can be taken into account. Id.; Frazee v. Commissioner, 98
T.C. 554, 564 (1992).
Petitioner's position is that the amounts of $15,500 and
$14,979 deducted as rental expenses on its 1989 and 1990 returns,
respectively, were reasonable.6 Respondent asserts through her
amended answer that the fair market rental value of the property
was $8,300 per year, that petitioner's rental deductions should
be limited to this value, and that respondent is entitled to
increased deficiencies and additions (penalties).7
6 Presumably petitioner concedes the $11,690 in rent
deducted on the return filed as No. 2. See supra notes 1, 3.
7 Petitioner, in its brief, has questioned whether the
Court should have allowed respondent to amend her answer to
conform to the proof after the conclusion of the trial.
Petitioner can claim no surprise or prejudice. The fair market
rental value of the property has always been at issue, respondent
(continued...)
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