Epco, Inc. and Subsidiaries - Page 11




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               Both parties agree that the comparable sales method of                 
          valuation is not applicable to the valuation of the sewer line in           
          question because there are no sales of sewer lines to which we              
          can compare it.  Two generally accepted methods of valuation                
          remain:  (1) The capitalization of income method; and (2) the               
          cost method.                                                                
          Respondent’s Position                                                       
               Respondent contends that the sewer line should be valued by            
          using the cost method of valuation.  The total cost of the sewer            
          line and treatment facility upgrade was $540,000.  Included in              
          this amount was the $350,000 cost of the sewer line itself,                 
          $200,000 of which was financed by the deposit in escrow.                    
          Imperial paid the total $190,000 cost of upgrading the treatment            
          facility.  Therefore, if we accept respondent’s cost valuation              
          approach, since the fair market value of the sewer line and                 
          treatment facility upgrade is the cost, in this case, $540,000,             
          and Imperial contributed only $340,000 towards its construction             
          and upgrade, all of the $200,000 expended from escrow would be              
          includable in petitioner’s income.                                          
          Petitioner’s Position                                                       
               Petitioner contends that the capitalization of income method           
          of valuation is the only fair and accurate method for determining           
          the fair market value of income-producing property like a sewer             
          line.  The capitalization of income method determines fair market           





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