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single-family houses substantially decreased, causing a decline
in the fair market value of unapproved real estate.3 The values
of the Ridge and Minnechaug declined sharply in 1989.
The Ridge Writedown
In 1989, the Federal Deposit Insurance Corporation (FDIC)
required Suffield Bank, Mary Catherine's mortgage lender for the
Ridge, to obtain an appraisal of the value of the Ridge. On
May 1, 1990, Suffield Bank commissioned an appraisal of the Ridge
from Phillip A. Goodsell and Donald R. Brown, who concluded that
the value of the Ridge as of April 11, 1990, was $4,395,000
($2,330,000 for unapproved, unimproved land and $2,065,000 for
approved, unimproved land). Upon receiving the appraisal,
Suffield Bank informed petitioner that it was required to write
down the value of the Ridge for regulatory purposes, and that it
expected Mary Catherine’s financial statements to reflect the
writedown. Under the terms of the mortgage loan from Suffield
Bank to Mary Catherine, the writedown caused Mary Catherine to be
in default, but Suffield Bank did not foreclose.
Petitioner asked his accountants, Bobrow & Bobrow, C.P.A.’s
(Bobrow), of West Hartford, Connecticut, whether he could gain
any tax benefit as a result of having had to write down the Ridge
3 The term “approved” land refers to land for which all
necessary regulatory approvals, such as zoning and wetlands, have
been obtained. “Unapproved” land refers to land for which one or
more regulatory approvals have not been obtained.
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