Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 13

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            been able to build single-family residences on the Elbow Lake                             
            property even in the absence of the stricter Federal wetlands                             
            regulations contained in the 1989 Manual and MOA.  We agree with                          
            respondent's first argument to the extent that, in substantial                            
            part, it was the zoning limitation that restricted the intended                           
            use of the property.  In that regard, the 1989 Manual and the MOA                         
            would have had a relatively small effect, if any, on the property                         
            when used for agricultural purposes.  In any event, petitioner                            
            has not advanced an alternative theory or provided us with a                              
            factual predicate for a finding that the 1989 Manual and the MOA                          
            caused a reduction in value for agricultural purposes.                                    
                  Lakewood faced two obstacles to its residential development                         
            project:  (1) Local zoning law, and (2) Federal wetland                                   
            regulations.  The Elbow Lakes property was zoned as an                                    
            agricultural district at the time Lakewood acquired it.  In 1988,                         
            Lakewood applied for rezoning of the property from agricultural                           
            to residential.  After the City Council initially approved the                            
            rezoning, the rezoning was overwhelmingly defeated in a voter                             
            referendum in 1989, the year that Lakewood claimed the loss                               
            deduction on the property.  Lakewood has not applied for rezoning                         
            of the property to residential since this unsuccessful attempt,                           
            and the Elbow Lake property had retained its agricultural zoning                          
            up to the time of trial.                                                                  

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