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disagree with Lipscomb’s implicit premise, otherwise unsupported
by the record or common sense, that in determining the fair
market value of the reversion–-either in 2023 or in 1991–-a
hypothetical willing buyer and seller would have adjusted the
price downward to account for the seller’s income tax liability
on the sale. Cf. Estate of Davis v. Commissioner, 110 T.C. 530
(1998).
Dilmore calculates the January 1, 2023, value of the
reversion by projecting lease rental income to be $95,052 in
2023, and then capitalizing it at a rate of 12.6 percent, to
yield an estimated January 1, 2023, value of $754,381. He then
discounts the January 1, 2023, value to 1991 present value.
Dilmore’s method improperly seeks to determine the January 1,
2023, value of the reversion on the basis of the final year’s
lease payments. We are unconvinced that the fair market value of
the land in 2023, when the lease expires, is properly computed
on the basis of the last year’s rent payments under the lease.
Accordingly, we reject Dilmore’s conclusions in this regard.
Respondent’s expert Maloy calculates the value of the
reversion by first establishing a $238 per acre “baseline”
22(...continued)
percent discount based on analysis of sales of other leased
properties, which showed a range of discounts from 30 percent to
“almost 100 percent”. The record does not reveal how Lipscomb
chose the 45-percent discount from this wide range. Moreover,
the data underlying his analysis of these other sales are not
part of the record. Accordingly, we are unable to assess or
accept the appropriateness of the 45-percent discount that
Lipscomb applied.
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