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OPINION
Leasehold Improvements
Respondent argues that $134,752.52 in leasehold improvements
made to lot 3 of the Eudora property, which was owned by peti-
tioner and leased to Goshorn, constituted constructive dividend
income to petitioner. For the following reasons, we disagree
with respondent's argument.
Generally, improvements made by a lessee to a leasehold
estate, where fair rent to the lessor of the property is
otherwise provided for, do not result in realization of income by
the lessor in the year of improvement, or upon the termination of
the lease. Sec. 109; sec. 1.109-1, Income Tax Regs; see M.E.
Blatt Co. v. United States, 305 U.S. 267, 277 (1938). Here,
petitioner and Goshorn agreed on an equitable rent of $5,000 per
month for the Eudora property.
Respondent directs our attention to Jaeger Motor Car Co. v.
Commissioner, T.C. Memo. 1958-223, affd. 284 F.2d 127 (7th Cir.
1960), where we decided a taxpayer received dividend income
consisting of improvements made by his wholly owned corporation
to a building that it leased from him. The outcome was predi-
cated, in part, on the year-to-year term of the lease between the
taxpayer and his corporation. Id. Here, petitioner's secretary
selected a sample form with a month-to-month lease term.
Therefore, respondent contends that Goshorn's leasehold improve-
ments resulted in dividend income to petitioner.
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