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Commissioner, 88 T.C. 38, 52 (1987). Any capitalization of
income valuation analysis must take into account the events which
the parties expected at the time of valuation and not whether
those events were, or were not, ultimately realized several years
later.
Mr. Fribis was the president of Imperial, EPCO, and Fribis-
Wiley. Mr. Fribis knew that petitioner had built the sewer line
to bisect Pine View and that Pine View was planning further
developments in addition to those already approved by the DNR.
That knowledge not only affected the decision of whether or not
to construct the sewer line, but also affected petitioner's
profit expectations at the time the sewer line was constructed.
Because we are concerned with the valuation of the sewer
line when it was completed around April 1989, we cannot assign a
fair market value to the sewer line based on a method of
valuation having so little relation to the facts as they existed.
The capitalization of income method of valuation is practical
only when income attributable to the property can be adequately
estimated on the date of construction.
Mr. Jones' report values the sewer line without regard to
the knowledge held by Mr. Fribis, and by extension petitioner,
and without regard to the profit expectations such knowledge
surely created on the date of valuation. It is clear that
petitioner, as a willing seller not being under any compulsion to
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