Estate of William Busch, Deceased, Mary Dana, Executor - Page 25




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          the city of Pleasanton.  At the time of decedent’s death, other             
          Pleasanton residential developments were in progress.                       
               The record reflects that, at the time of decedent’s death,             
          the climate for residential development in Pleasanton was                   
          weakening, and, to that extent, we agree with petitioner that the           
          price that a willing buyer would offer to a willing seller would            
          be affected.  See, e.g., Estate of Ratcliffe v. Commissioner,               
          T.C. Memo. 1992-305.  Any such price differential, however, would           
          normally have been accounted for in Ponderosa’s offer and the               
          acceptance of same.  Ponderosa’s offer, in effect, was not to pay           
          $150,000 per acre at the time the agreement was made, and it was            
          contingent on acquiring approval to develop from Pleasanton.                
          Ponderosa, aware of the risks, was willing to invest its money              
          and time in pursuing development.  In that regard, Ponderosa                
          expended between $500,000 and $1 million in the form of payments            
          to the sellers and expenses in pursuing the entitlements for                
          residential development.                                                    
               In order to adjust for the passage of time in connection               
          with the difficulties expected in obtaining development approval,           
          we must decide upon an appropriate discount rate to adjust the              
          $150,000-per-acre cash price.  Respondent’s expert used a present           
          value approach to account for the delay in payment.  Respondent’s           
          expert, however, applied the discount to a gross value inflated             
          by attributing an optimum approval of 360 housing units.  Geller            
          started with the $150,000-per-acre contract price and added                 




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Last modified: May 25, 2011