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The significant divergence in the above estimates and the
parties' positions can be attributed mainly to their disagreement
as to validity of the replacement cost method for judging the
fair market value of the Redwood City Fox on the date it was
transferred to the Players. Before addressing the parties'
contentions regarding the most appropriate valuation methodology,
we note several points on which the parties agree.
First, the experts agreed that the highest and best use of
the Redwood City Fox, as improved on the date of the gift, was
its preservation and continued use as theater and retail/office
space. We agree that the evidence supports preservation of the
property as its highest and best use, and we so find.42
Accordingly, our decision with respect to the fair market value
of the property shall reflect its preservation and continued use
as a theater and retail/office space. See Frazee v.
Commissioner, 98 T.C. 554, 563 (1992); Stanley Works & Subs. v.
Commissioner, 87 T.C. 389, 400 (1986).
Second, the parties agree, and we find that, because the
theater will not be operated for the production of income, the
income capitalization approach is not appropriate to value the
40(...continued)
n.24 (1987); Wolfsen Land & Cattle Co. v. Commissioner, 72 T.C.
1, 19 (1979).
41 See Narver v. Commissioner, 75 T.C. 53, 90 n.17, affd.
per curiam 670 F.2d 855 (9th Cir. 1982).
42 We agree with Reynolds, Jacobs' expert, that the Redwood
City Fox is a property "for which the profit is cultural rather
than monetary."
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