Hunt & Sons, Inc. - Page 25




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          related-party lease does not provide reliable information                   
          concerning fair market values.                                              
               However, we do agree with Mr. McIntosh’s and Mr.                       
          Vanderbundt’s testimony that the “capitalization” rate used in              
          determining the fair market rental value of property should                 
          reflect the additional risks incurred by a landlord in leasing              
          land to an independent cardlock operator such as petitioner,                
          rather than a major oil company.  We find that a 13-percent                 
          “capitalization” rate is an accurate assessment of the rate of              
          return that an arm’s-length lessor would have required from                 
          petitioner during 1996 and 1997.  A “capitalization” rate of 13             
          percent is in the range of rates suggested by Mr. McIntosh in his           
          December 8, 1999, letter, and is in the upper range of rates that           
          Mr. McIntosh claims would be derived from the Nella Oil lease,              
          which was entered into in the same general timeframe as                     
          petitioner’s leases and was to a similar independent operator.              
               Mr. Harris credibly testified that a flat 10-percent rate              
          would be appropriate for leases to major oil company tenants.               
          However, the 10-percent rate fails to take into account the                 
          environmental credit risks borne by a landlord when leasing                 
          property to an independent cardlock operator.  A 3-percent risk             
          premium seems appropriate to us, in light of the substantial                
          additional risks a landlord incurs when leasing property to an              
          independent operator of underground storage tanks.  Therefore, we           






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