1 The Court consolidated the following cases herewith for

trial, briefing, and opinion: Robert M. Driggers, Sr.,

Transferee, docket No. 220-96; and Estate of Ellie B. Williams,

Donor, docket No. 221-96.

T.C. Memo. 1998-59

UNITED STATES TAX COURT

ESTATE OF ELLIE B. WILLIAMS, DECEASED, ROBERT M.

DRIGGERS, SR., PERSONAL REPRESENTATIVE, ET AL.,1 Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 219-96, 220-96, Filed February 12, 1998.

 221-96.

Larry Smith and Frank B. Metcalf, for petitioners. 

Francis Mucciolo, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: Respondent determined that petitioners are

liable for estate and gift tax deficiencies as follows:

Estate of Ellie B. Williams, docket No. 219-96

Deficiency

$157,969.25

Robert M. Driggers, Sr., Transferee, docket No. 220-96

Year Deficiency

1980 $192,556.20

1983 328,518.00

Estate of Ellie B. Williams, Donor, docket No. 221-96

Year Deficiency

1980 $192,556.20

1983 328,518.00

The issues for decision are:

1. Whether transfers by Ellie B. Williams (decedent) in

1980 and 1983 of undivided one-half interests in timberland to

Robert M. Driggers, Sr. (petitioner), were gifts, as respondent

contends, or compensation for services, as petitioners contend. 

We hold that they were gifts.

2. Whether the fair market values of the undivided onehalf interests in timberland decedent gave petitioner in 1980 and
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1983 are $211,000 and $221,000, as petitioners contend; $784,700

and $989,662.50, as respondent contends; or some other amounts. 

We hold that the value of the 1980 gift is $379,960 and the value

of the 1983 gift is $486,150.

3. Whether petitioner is liable as a transferee for

decedent's gift tax deficiencies for 1980 and 1983. We hold that

he is.

4. Whether the fair market value of decedent's undivided

one-half interest in 843.26 acres of timberland when she died was

$143,000, as petitioners contend; $360,500, as respondent

contends; or some other amount. We hold that the value of the

timberland was $177,085.

5. Whether, as respondent contends, the fair market value

of a 1992 Cadillac Brougham was $24,500 at the date of decedent's

death. We hold that it was.

Section references are to the Internal Revenue Code. Rule

references are to the Tax Court Rules of Practice and Procedure.

I. FINDINGS OF FACT

A. Petitioners

1. Ellie B. Williams

Ellie B. Williams (decedent) was born in April 1908. Her

husband was Frank Williams (Williams). They had no children. 

Williams died on September 4, 1962. Decedent inherited about
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8,700 acres of undeveloped, rural timberland and farmland in

Putnam County and Clay County, Florida, from him.

Before he died, Williams leased the timber rights to the

8,700 acres to Hudson Pulp & Paper Co. (Hudson) for 20 years and

gave the company an option to lease it for an additional 20

years. The lease was still in effect in 1979. Under the lease,

Hudson paid Williams $5 per cord of wood harvested from the

property.

2. Robert M. Driggers, Sr.

Robert M. Driggers, Sr. (petitioner), lived in Green Cove

Springs, Florida, when the petitions were filed in these cases. 

He was born in 1927 or 1928. Petitioner's wife was Williams'

niece.

Petitioner has been in the timber business since he dropped

out of school in the seventh grade. He was a business associate

of Williams.

B. The Relationship Between Petitioner and Decedent

1. Business Relationship Between Petitioner and Decedent

Decedent participated very little in Williams' timber

business before Williams died in 1962. After Williams died,

decedent asked petitioner to help her manage the 8,700 acres. 

Decedent hired petitioner and initially paid him $50 a week to

manage the property, fix the fences, sell or otherwise dispose of
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the cattle on the property, protect against the theft of cattle

and timber, and cut timber and haul it to the mill.

Around 1963, decedent and petitioner began an arrangement

under which petitioner furnished the labor to produce turpentine

from the timber on decedent's property. Petitioner and the

workers he hired tapped the pine trees on decedent's property to

produce sap. They took the sap to processing plants where it was

made into turpentine. Decedent received 25 percent of the

turpentine receipts, and petitioner received 75 percent. 

Petitioner paid all of the expenses from his share. Petitioner

and decedent had a profit-sharing arrangement from the early or

mid-1960's until decedent died in 1992. Petitioner and decedent

agreed that petitioner would provide the know-how and labor to

manage and exploit decedent's timberland, and they would split

the profits.

Petitioner had authority to handle a substantial part of

decedent's business affairs. Decedent and petitioner jointly

owned some certificates of deposit and a safe deposit box. They

had signature authority on each other's accounts in which they

deposited money from their business. They each reported their

share of profits on their individual Federal income tax returns.

Petitioner managed most of decedent's assets. However, in

1988, decedent had 15 certificates of deposit, 1 checking
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2 Petitioner testified that decedent owned about 2,300 acres

in Putnam County and about 2,200 acres in Clay County after she

sold property to Georgia-Pacific. The parties agree, however,

that decedent transferred one-half interests in 2,360 acres in

Putnam County and 2,315 acres in Clay County to petitioner.

account, and 1 money market savings account over which petitioner

did not have signature authority at First Union National Bank of

Florida. These accounts totaled $1,102,944.03.

Before 1979, Georgia-Pacific acquired Hudson and assumed the

timber lease on decedent's property. In 1979, Georgia-Pacific

bought 4,200 acres of the property and released the remaining

acres from the lease. Georgia-Pacific paid decedent more than $1

million for the 4,200 acres in 1979. Decedent gave $283,000 to

petitioner from the proceeds of the sale. After the sale,

decedent owned 2,360 acres in Putnam County (the Putnam County

property) and 2,315 acres in Clay County (the Clay County

property).2

Petitioner hired workers to help him harvest timber from the

released 4,675 acres. Petitioner divided the profits equally

with decedent.

2. Personal Relationship Between Petitioner and Decedent

Petitioner and decedent had a very close personal

relationship. Petitioner loved decedent as if she were his

mother and she loved him as if he were her son. He took care of

her personal matters with no expectation of compensation. For
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3 Although the deed states that decedent transferred 2,538.4

acres to petitioner, respondent agreed to value the property

(continued...)

example, he built two homes and bought cars for her, drove her

because she could not drive, drove her to visit her three sisters

when they were sick, supervised the funeral arrangements for each

of her three sisters, gave decedent insulin shots, and cared for

her during her final illness.

Decedent died on July 15, 1992. Petitioner was the only

person with her when she died.

3. The 1980 Transfer From Decedent to Petitioner

Sometime before April 1980, decedent listed 2,283 acres of

her land in Putnam County, Florida, for sale at $700 per acre. 

Petitioner advised decedent to offer the property for sale at

that price.

On April 2, 1980, Terry Pacetti (Pacetti), a real estate

broker and investor from St. Augustine, contracted to buy the

Putnam County property for $700 per acre. Sometime between April

2 and August 1, 1980, Pacetti assigned the contract to Gerald

Thompson & Associates (the Thompson partnership), a partnership

that included partners who had extensive backgrounds in real

estate.

On April 21, 1980, decedent transferred to petitioner an

undivided one-half interest in 2,360 acres3 of the Putnam County
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3(...continued)

transferred using petitioner's figure of 2,360 acres.

property. Decedent owned the other undivided one-half interest

in that property. The deed of transfer signed by decedent states

that the transfer was made in consideration of love and

affection. Petitioner gave decedent no money for the Putnam

County property.

The Thompson partnership signed an addendum to the contract

on August 1, 1980, after Pacetti assigned it to the partnership. 

The addendum stated that, as part of the sale, petitioner agreed

to buy 7,000 cords of timber for $150,000 from the property being

sold to the partnership.

The Thompson partnership bought the 2,283 acres of land on

August 1, 1980, for $700 per acre. Petitioner received no cash

from the downpayment and paid $49,000 of his own money to the

buyers at the closing on the property.

The Thompson partnership sold 4,000 cords of timber from the

Putnam County property to the Lewis Timber Co. after the Thompson

partnership bought the Putnam County property.

The Thompson partnership bought the Putnam County property

for residential development. The Thompson partnership applied

for, but could not get, zoning for residential development except

for the waterfront property released when the partnership bought
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the Putnam County property. In March 1983, the Thompson

partnership defaulted on its mortgage and deeded most of the

Putnam County property back to decedent and petitioner because

the partnership could not get the residential zoning it needed to

develop the property and because the property did not have as

much timber on it as the realtor (Tom Schifanella) had

represented to the buyers. Later that year, petitioner and

decedent resold about 400 acres to Gerald Thompson (Thompson) for

$300-$400 per acre. Thompson sold that land to other developers

at a date not specified in the record for about twice as much as

he paid. Decedent and petitioner sold the remaining Putnam

County property to Marc K. Massar for $450 per acre at a date not

specified in the record.

4. The 1983 Transfer From Decedent to Petitioner

On December 7, 1983, decedent transferred to petitioner an

undivided one-half interest in the Clay County property. The

deed stated that the transfer was made for consideration of $10. 

The deed had affixed to it a $225 documentary stamp tax dated

February 21, 1984. Decedent's use of a $225 documentary stamp

tax was a representation that the interest she transferred to

petitioner was worth $50,000. Petitioner gave decedent no money

for the Clay County property.
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In January 1986, decedent and petitioner sold 329.26 acres

of the Clay County property to National Training, Inc., for

$911.13 per acre. The parcel sold was 95 percent uplands and 5

percent wetlands.

5. Decedent's Gifts of $10,000 to Petitioner in 1987

On February 20, 1987, decedent gave petitioner $10,000. The

memo section of the check said "Bequest". On March 8, 1991,

decedent again gave petitioner $10,000. Decedent wrote

"advancement on inheritance" in the memo section of the check.

6. Decedent's Will

In her will, decedent made small bequests to petitioner's

son and granddaughter and other distant relatives. She left most

of her estate to petitioner.

When decedent died, she owned an undivided one-half interest

in 843 acres of undeveloped, rural land in Clay County (the

estate property), about 79 percent (643 acres) of which was

wetlands, and a 1992 Cadillac Brougham worth $24,500. She

transferred or sold most of the 2,315 acres in Clay County and

2,360 acres in Putnam County before she died.

C. Decedent's Estate and Gift Tax Returns

Decedent did not file gift tax returns or pay gift tax for

her 1980 and 1983 transfers to petitioner. After decedent died,
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petitioner retained a tax attorney to advise him in his work as

personal representative of decedent's estate. The tax attorney

discussed the transfers with petitioner, concluded that the

transfers were gifts, and prepared gift tax returns. Petitioner

and decedent's other personal representative signed both returns

and filed them with the Internal Revenue Service in April 1993.

Decedent's personal representatives reported on decedent's

estate tax return that she had a gross estate of $869,391.85.

II. OPINION

A. Whether Decedent Made Taxable Gifts in 1980 and 1983 When

She Transferred Undivided One-half Interests in Timberland

to Petitioner

1. Background and Contentions of the Parties

Respondent determined and contends that decedent's transfers

of undivided one-half interests in timberland to petitioner in

1980 and 1983 were taxable gifts. Petitioners contend that

decedent made the transfers in the ordinary course of business to

compensate petitioner for his many years of work for her and that

decedent lacked donative intent.

A transfer of property is not a taxable gift if it is made

in the ordinary course of business (i.e., is bona fide, at arm's

length, and without donative intent), even if the transfer is for

less than adequate and full consideration. Estate of Anderson v.
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4 Sec. 25.2512-8, Gift Tax Regs., provides:

SEC. 25.2512-8, Transfers for insufficient consideration.

Transfers reached by the gift tax are not confined to

those only which, being without a valuable consideration,

accord with the common law concept of gifts, but embrace as

well sales, exchanges, and other dispositions of property

for a consideration to the extent that the value of the

property transferred by the donor exceeds the value in money

or money's worth of the consideration given therefor. 

However, a sale, exchange, or other transfer of property

made in the ordinary course of business (a transaction which

is bona fide, at arm's length, and free from any donative

intent), will be considered as made for an adequate and full

consideration in money or money's worth. A consideration

not reducible to a value in money or money's worth, as love

and affection, promise of marriage, etc., is to be wholly

disregarded, and the entire value of the property

transferred constitutes the amount of the gift. * * *

Commissioner, 8 T.C. 706, 720 (1947); sec. 25.2512-8, Gift Tax

Regs.4 Decedent's estate bears the burden of proving that

decedent's transfers to petitioner of undivided interests in

timberland in 1980 and 1983 were not taxable gifts. Rule 142(a).

Petitioners argue that decedent had good business reasons

for making the transfers. Petitioners point out that petitioner

had worked for decedent since the early 1960's without

compensation, except for his share of profits (and $50 per week

in the first year), and that decedent could not have managed her

property without petitioner's help. We disagree that this shows

that the transfers were not gifts.
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2. Love and Affection Between Petitioner and Decedent

Decedent and her husband had no children. After decedent's

husband died in 1962, petitioner, whose wife was Williams' niece,

handled many important personal matters for decedent. Petitioner

testified that he did not expect to be paid for performing these

personal services, and that he loved decedent like a mother and

she loved him like a son. Their close personal relationship

suggests that decedent gave interests in the Putnam County and

Clay County properties to petitioner out of love and affection.

Decedent was clearly inclined to make gifts to petitioner. 

Decedent gave $283,000 to petitioner when she sold 4,200 acres of

timberland in 1979. Decedent gave $10,000 to petitioner in 1987

and another $10,000 in 1991 as advances on his inheritance from

her. Decedent left most of her estate to petitioner. See Cobb

v. Commissioner, T.C. Memo. 1985-208 (in deciding whether

decedent's grant of an option to buy her farm was a gift, Court

considered whether decedent had previously made gifts to the

optionee).

Petitioner received 75 percent of the receipts (less

expenses) from the sale of turpentine and one-half of the profits

from the sale of timber. Petitioners do not contend that
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petitioner's and decedent's business agreement obligated decedent

to transfer land to petitioner.

Petitioners cite Cobb v. Commissioner, supra, in which the

owner of land granted an option to an unrelated person to buy her

farm at less than market value in return for his agreement to

manage the farm for her for as long as she owned it. The owner

died within a year after the agreement was reached, resulting in

a windfall to the option holder. We found that the agreement was

made at arm's length for business purposes and without donative

intent.

Petitioners' reliance on Cobb is misplaced. In Cobb, the

owner gave an option to buy the land as part of a business

agreement. Here, decedent was not obligated to transfer any

interest in the land to petitioner as part of decedent's business

arrangement with petitioner. Also, in contrast to Cobb, decedent

and petitioner had a very close personal relationship (like

mother and son), and decedent left most of her estate to

petitioner.

Petitioners also cite Rev. Rul. 80-196, 1980-2 C.B. 32, and

Hull v. Commissioner, T.C. Memo. 1962-199. Petitioners' reliance

on Rev. Rul. 80-196, supra, and Hull v. Commissioner, supra, is

misplaced. In Rev. Rul. 80-196, the Commissioner ruled that
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transfers of stock by a corporation's two shareholders to three

employees were not gifts because the transfers were made in the

ordinary course of business and were made for adequate and full

consideration. The employees had no special, personal

relationship with the two shareholders. In contrast, decedent

and petitioner had a close personal relationship. In Hull, we

held that the taxpayer's transfer of an interest in mineral

rights to a family-owned corporation in exchange for an annuity

payment of $15,000 per year for life was made in the ordinary

course of business, despite the fact that the beneficiaries of

the transaction were family members. Hull differs from this case

because the issue there was not whether the taxpayer had donative

intent when she transferred property for less than its fair

market value; indeed, the Commissioner stipulated that the

taxpayer believed that she had made a bona fide sale. In

contrast, whether decedent had donative intent in making the 1980

and 1983 transfers is in dispute here.

3. Petitioners' Partnership Theory

Petitioners argue that petitioner and decedent formed a

partnership and that decedent's transfers of property to him were

subject to that partnership. Petitioners point out that a
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partnership is created if persons join together their money,

goods, labor, or skill to carry on a business and there is a

community of interest in the profits and losses. Commissioner v.

Tower, 327 U.S. 280, 286 (1946). Petitioners also point out that

a partnership may exist if there is joint activity, joint

ownership of bank accounts, the sharing of profit and loss, and

relinquishment or delegation of management duties to another

partner or coowner. Bussing v. Commissioner, 89 T.C. 1050, 1060-

1062 (1987); Burde v. Commissioner, 43 T.C. 252, 263, 266 (1964),

affd. 352 F.2d 995 (2d Cir. 1965); Brady v. Commissioner, 25 T.C.

682, 688 (1955). Petitioners also cite the Uniform Partnership

Act, which identifies three requirements necessary to establish a

partnership: (1) The active conduct of a business (2) for profit

(3) by two or more persons as coowners. Fla. Stat. Ann. sec.

620.585 (West 1993).

Petitioners' partnership theory misses the mark. First,

petitioner and decedent did not form a partnership under Florida

law because they did not coown the property used to produce

timber and turpentine and they made no agreement to share losses. 

Second, decedent (and not a partnership) owned the property when

she transferred the undivided interests to petitioner. Third,
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petitioner and decedent agreed that petitioner would supply the

labor to exploit the timber on her property and they would share

the proceeds from the sales of timber and turpentine. Decedent's

transfer of property to petitioner was not done as part of their

business agreement; it was a separate, voluntary act by decedent.

Petitioners point out that petitioner agreed in August 1980

to buy $150,000 worth of timber from the Putnam County property

in order to close the sale of the property to the Thompson

partnership. Petitioners contend that this shows the April 21,

1980, transfer of the undivided interest in the Putnam County

property to petitioner was a business transaction. We disagree;

decedent transferred the property to him 31⁄2 months before he

agreed to buy the timber. It has not been shown that his

agreement to buy timber was foreseeable when decedent transferred

the property interest to him. Thus, we do not think the fact

that petitioner agreed to buy timber from the Putnam County

property supports petitioners' theory that decedent's transfer of

the Putnam County property to him was made in the ordinary course

of business.

4. Decedent's Gift Tax Returns and the Opinions of

Decedent's Lawyers

Petitioners contend that the lawyers who handled the two

transfers did not believe that they were gifts. We disagree. 

First, the lawyer who prepared the 1980 deed testified that he
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did not remember why decedent made the transfer or why the deed

listed "love and affection" as the consideration. Second, the

lawyer who prepared the 1983 deed testified that he put

documentary stamps on it because he thought petitioner had bought

the undivided one-half interest he received in 1983; however,

petitioner testified that he paid no money for the property.

After decedent died in 1992, petitioner retained a tax

attorney to help him in his work as personal representative of

decedent's estate. The tax attorney discussed the transfers with

petitioner, concluded that the transfers were gifts, and prepared

gift tax returns, which petitioner signed and filed with the

Internal Revenue Service. Petitioner's signing of the gift tax

returns is inconsistent with his position here that the transfers

were not gifts.

5. Conclusion

We find that, in light of (a) the fact that decedent did not

agree to transfer property to petitioner as part of their

business relationship, (b) decedent's personal relationship with

petitioner, (c) her history of making gifts to him, and (d)

petitioner's signing of the gift tax returns, decedent's

transfers to petitioner in 1980 and 1983 were gifts. 

B. The Value of the Gifts From Decedent to Petitioner

1. Expert Testimony

Both parties called expert witnesses to give their opinions

about the value of the undivided one-half interests in timberland
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5 Respondent determined in the gift tax notice of deficiency

that the 1980 gift consisted of 2,283 acres instead of 2,360

acres. This reduced the amount of the 1980 taxable gift. 

However, respondent does not now seek an increased deficiency

based on 2,360 acres.

decedent transferred to petitioner in 1980 and 1983. We may

accept or reject expert testimony according to our own judgment,

and we may be selective in deciding what parts of an expert's

opinion, if any, we will accept. Parker v. Commissioner, 86 T.C.

547, 562 (1986).

There were five expert witnesses at the trial. Three were

appraisers: David R. Elmore, Jr. (Elmore), for respondent, and

Dr. C. Donald Wiggins (Wiggins) and Philip J. Moses (Moses) for

petitioner. The opinions of petitioners' and respondent's

appraisers and the positions of the parties5 are as follows:

Ps' Returns/

Petition

Ps' Experts

Moses/Wiggins1

Deficiency

Notices and

Answers

R's Expert

Elmore

Putnam

Co.

property

$263,040

($111.46/

acre)

$211,000

($89.41/acre)

$759,050

($321.63/

acre)

$799,000

($350/acre)

Clay Co.

property

276,000

($119.22/

acre)

221,000

($95.46/acre)

989,662

($427.50/

acre)

1,041,750

($450/acre)

Property

in estate

122,400

($145.15/

acre)

143,000

($169.58/

acre)

360,500

($427.50/

acre)

379,467

($450/acre)

1 Moses valued a fee simple interest in the three parcels of

property. Wiggins applied discounts for fractional interests in

real estate to Moses' values for the three parcels of real

property.

Petitioners' other experts were Frank Scruby, a Florida real

estate attorney, and Donald Pitts, a Florida banker.
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2. Petitioners' Experts

a. Moses

Moses appraised the Putnam County and Clay County land. He

used a combined income and comparable sales (market data)

approach. He inspected the Putnam County property in 1984 to

estimate its volume of timber and all of the properties in

question in 1992 to appraise them for estate tax purposes. He

conducted timber cruises in both years to estimate the amount and

value of timber on the property. He considered 15 sales of what

he said was similar rural land in North Florida to estimate the

value of the property. Moses concluded that the highest and best

use of both properties was agricultural.

Moses did not find any actual sales of undivided or

fractional interests in comparable real property. He concluded

that fractional interests in such property are not marketable.

b. Wiggins

To estimate the fair market value of the three fractional

property interests, Wiggins applied a 44-percent discount to onehalf of the value of the fee simple estimated by Moses. Wiggins

computed a 44-percent discount through seriatim application of

discounts of 30 percent for lack of control and 20 percent for

lack of marketability. He estimated that partition costs would

be $164,400 for the Putnam County property, $172,500 for the Clay
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County property, and $76,500 for the estate property because the

properties are irregularly shaped parcels containing pineland,

swampland, and riverfront acreage.

c. Scruby

Petitioners' expert, Frank Scruby (Scruby), a Florida

attorney with 40 years of real estate experience, estimated that

the costs of partitioning would be $23,500 for the Putnam County

property transferred in 1980, $23,500 for the Clay County

property transferred in 1983, and $17,500 for the real property

in decedent's estate in 1992.

d. Pitts

Donald M. Pitts (Pitts), a Florida banker for 29 years,

testified that banks will not make loans to the owner of a

fractional interest in real property without the consent of the

other coowner.

3. Respondent's Expert--Elmore

Elmore concluded that the highest and best use of both

properties was for timber growth, agriculture, rural residential,

and waterfront development purposes. He used as comparable sales

the August 1980 sale of the Putnam County property and a 1979

sale by River Farms, Inc., to Seminole Electric Cooperative, Inc. 
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He estimated that a fee simple interest in the Putnam County

property was worth $1,598,100 ($700 per acre) in 1980. Elmore

used sales that he said were comparable to estimate that a fee

simple interest in the Clay County property was worth $2,083,500

($900 per acre) in 1983. He divided both of these amounts in

half because decedent gave petitioner an undivided one-half

interest in the two properties. Elmore applied no discount to

take into account the fact that petitioner received undivided

interests in the properties.

4. Value of a Fee Simple Interest in the Land

a. 1980 Transfer--Putnam County Property

Decedent sold the Putnam County property in August 1980 for

$1,598,100 ($700 per acre). Respondent argues that this shows

that a fee simple interest in the property was worth that amount

when decedent transferred a one-half undivided interest in the

Putnam County property to petitioner in April 1980. Petitioners

contend that a fee simple interest in the Putnam County property

was worth $1,096,000 ($464 per acre).

We believe Elmore's use of the August 1980 sale led him to

overestimate the value of the Putnam County property. The $700

per acre price exceeded the fair market value because of what
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Elmore conceded at trial were unusual contract terms, the effect

of which Elmore had not considered. For example, petitioner

bought $150,000 worth of timber and paid almost $50,000 to help

the buyers make the downpayment; the buyers obtained an easement

across the property to the waterfront property; under the release

clauses contained in the owner-financed mortgage, the waterfront

property was released from the mortgage when the buyers made the

downpayment; and the buyers could keep one-half of the proceeds

from all future timber sales (including the mortgaged property)

even if they did not complete the sale. Elmore did not know that

Thompson applied for, but could not get, zoning for a residential

development except for the waterfront property released at

closing; he did not ascertain whether the 7-percent interest

charged in the note was consistent with prevailing interest rates

in 1980; and he did not conduct a timber cruise to estimate the

value of the standing timber.

Elmore also considered as a comparable sale the 1979 sale by

River Farms, Inc., to Seminole Electric Cooperative, Inc. Elmore

stated in his report that the buyer bought this property to use

as an electric power generation facility. However, Elmore did

not consider whether the Putnam County property could be used for
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that purpose. Elmore did not know the requirements of the

Florida Electrical Power Plant Siting Act (Fla. Stat. ch.

403.501-403.518 (1973)) or what criteria must be met before

property can be used for a power plant.

We believe that Elmore relied too greatly on the 1980 sale

to the Thompson partnership and the 1979 sale of the Seminole

property to establish the value of the Putnam County property. 

We think he should have considered the unusual contract terms of

the 1980 sale and whether the Seminole property was comparable to

the Putnam County property.

We believe Moses underestimated the value of the Putnam

County property because he understated the volume of the timber

on it. He subtracted 4 years of growth from the volume of timber

that he estimated was on the property in April 1984 on the

erroneous assumption that no timber had been cut from the

property during those 4 years. Petitioner testified that he

harvested timber from the property until decedent died. Moses

estimated that the Putnam County property had a total of 3,978.55

cords of pine (3,422.82 of pulpwood and 555.73 cords of

sawtimber) in April 1980. However, petitioner bought 7,000 cords

of timber from the Putnam County property in August 1980, and
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Lewis Timber Co. bought an additional 4,000 cords from the Putnam

County property before the Thompson partnership deeded the Putnam

County property back to decedent and petitioner in 1983. 

Respondent argues that Moses' computation of the volume of timber

on the Putnam County property transferred in April 1980 is

understated by at least 7,021.45 cords (11,000 - 3,978.55). 

Using Moses' assumed prices per cord of pulpwood and sawtimber,

the value of the additional timber, at $25 per cord for pulpwood,

is $175,536.25 or $74.38 per acre ($175,536.25/2,360 acres), or

at $45 per cord for sawtimber, is $315,965.25 or $133.88 per acre

($315,965.25/2,360 acres). Thus, respondent contends that Moses'

per acre value for the 1980 property should be increased to

$538.38 ($464 + $74.38), or $597.88 ($464 + $133.88).

We conclude that the value of a fee simple interest in the

Putnam County property was $1,357,000 in 1980 ($575 per acre). 

Decedent gave petitioner an undivided one-half interest in the

Putnam County property. One-half of $1,357,000 is $678,500. We

discuss at paragraph II-B-5, below, to what extent we discount

the value of the Putnam County property because petitioner

received an undivided one-half interest in it.

b. 1983 Transfer--Clay County Property

Respondent argues, based on sales of comparable properties,

that the Clay County property was worth $2,083,500 ($900 per

acre) on the date of the gift in 1983. Petitioners contend that
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the Clay County property was worth $1,150,555 ($497 per acre) on

the date decedent transferred an undivided one-half interest in

it to petitioner.

Elmore stated that the Seminole property sold in 1979 and

the Putnam County property sold in 1980 to the Thompson

partnership were comparable to the Clay County property. For the

reasons stated above at paragraph II-B-4-a, we believe that

Elmore relied too greatly on these two sales to establish the

value of the Clay County property.

Elmore also used as comparable sales decedent's and

petitioner's 1986 sale of 329.26 acres of the Clay County

property for $911 per acre and the 1982 sale of 2,230 acres from

J.P. Hall & Sons, Inc., to Georgia-Pacific for $500 per acre (the

Hall property).

Elmore's report states that the Hall property was primarily

(about 90 percent) wetlands and that Georgia-Pacific bought the

property for its peat deposits, which had an estimated production

value of $1,500 per acre. Elmore did not consider whether the

Clay County property had peat deposits. The Clay County property

was 35 percent wetlands.

Respondent argues that petitioners' suggestion that GeorgiaPacific paid more for the Hall property because it had peat

deposits erroneously assumes that Georgia-Pacific would have no

production costs. We disagree. Elmore's report states that
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6 Both parties' experts used this post-valuation date sale 

as a comparable sale. The parties agree that it is relevant in

valuing the Clay County property in 1983 when decedent

transferred the undivided one-half interest in it to petitioner.

Georgia-Pacific bought the Hall property for its peat deposits

and clearly supports petitioners' contention that the peat

deposits raised the property's sale price.

We believe Moses understated the volume, and thus the value,

of the timber on the Clay County property that decedent

transferred to petitioner in April 1983. He subtracted 9 years'

growth from the volume of the timber on the property in December

1992. He erroneously assumed that no timber had been cut from

the property in those 9 years. Petitioner testified that he

harvested timber from the property from 1983 until decedent died

in July 1992; however, the record does not show how much timber

petitioner harvested during those years.

Both Elmore and Moses used as a comparable sale decedent's

and petitioner's 1986 sale of 329.26 acres of the Clay County

property for $911 per acre.6

We believe that the 1986 sale price received by decedent and

petitioner for the Clay County parcel ($911 per acre) supports

some increase in Moses' estimated per acre value of the Clay

County property. However, the 329 acres of Clay County property

were more valuable per acre than the Clay County property

decedent transferred to petitioner in 1983. The 329-acre parcel
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was 95 percent uplands and 5 percent wetlands and was some of the

best acreage owned by petitioner and decedent; the Clay County

property transferred to petitioner was 21 percent uplands and 79

percent wetlands. The 329-acre parcel sold was virtually

unregulated by the Water Management District and other

governmental agencies, in contrast to the property transferred

which was almost totally regulated by the Water Management

District, the Army Corps of Engineers, the Florida Department of

Environmental Protection, and the Clay County Planning

Department.

We conclude that the value of a fee simple interest in the

Clay County property was $1,736,250 ($750 per acre) in 1983. 

Decedent gave petitioner an undivided one-half interest in the

Clay County property. One-half of $1,736,250 is $868,125. We

discuss at paragraph II-B-5, below, to what extent the Clay

County property should be discounted because petitioner received

an undivided one-half interest in it.

5. Discounts

The applicability and extent of a discount for a fractional

interest is a question of fact to be decided based on the entire

record. Estate of Fawcett v. Commissioner, 64 T.C. 889, 898

(1975); Estate of Campanari v. Commissioner, 5 T.C. 488, 492

(1945). Courts have held that the sum of all fractional

interests can be less than the whole and have used fractional
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interest discounts to value undivided interests. Estate of

Bonner v. United States, 84 F.3d 196, 197 (5th Cir. 1996); Estate

of Bright v. United States, 658 F.2d 999 (5th Cir. 1981); see,

e.g., Estate of Wildman v. Commissioner, T.C. Memo. 1989-667 (40-

percent discount); Estate of van Loben Sels v. Commissioner, T.C.

Memo. 1986-501 (60-percent discount).

Respondent offered no evidence relating to the size of the

discount that should apply, and concedes that a 5-percent

discount should apply. Petitioners' expert, Wiggins, testified

that the value of petitioner's undivided one-half interests in

timberland should be discounted by 44 percent.

a. Whether Petitioners' Property Interests Should Be

Discounted Absent Evidence of Actual Sales of

Fractional Interests in Real Property

Respondent contends that no discount larger than 5 percent

should apply because petitioner offered no evidence of actual

sales of fractional interests in real property. We disagree. 

Pitts credibly testified that banks generally will not lend money

to the owner of a fractional interest in real property without

the consent of the coowner. We believe that Moses' and Pitts'

inability to find sales of fractional interests in comparable

real property in Florida shows that there was no market for

fractional interests in such real property.

Respondent points out that neither Moses nor Elmore applied

a discount for a fractional interest in real estate. We give
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little weight to the fact that Moses did not discount the

property interests at issue here because petitioner retained him

to value the fee simple interests in the properties, not

petitioner's or decedent's undivided one-half interests in the

properties.

b. Whether the Discount Should Be Limited to Scruby's

Estimate of the Cost of Partitioning the Property

Interests

Respondent points out that respondent's 5-percent discount

equals $41,300 (2,360 acres x $350 x .05) for the 1980 gift and

$52,087.50 (2,315 acres x $450 x .05) for the 1983 gift. 

Respondent argues that we should not apply a discount greater

than 5 percent because the 5-percent discount is greater than

petitioners' expert's, Scruby's, estimate of the costs of

partitioning the properties. We disagree. First, Wiggins

estimated that partition costs here would be substantially more

than respondent's 5-percent discount, that is, $164,400 for the

Putnam County property, $172,500 for the Clay County property,

and $76,500 for the estate property. Second, respondent's 5-

percent discount does not give adequate weight to other reasons

for discounting a fractional interest in real property, such as

lack of control and the historic difficulty of selling an

undivided fractional interest in real property, discussed below.
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c. Discounts for Lack of Marketability and Lack of

Control

Petitioners' expert, Wiggins, testified that the fractional

interests at issue here should be discounted by 20 percent due to

lack of marketability and by 30 percent for lack of control and

the necessity of resorting to partition and related costs to

liquidate one's interest, for a total discount of 44 percent. He

concluded that a marketability discount is appropriate because of

the 9-month marketing time and 10-percent real estate commission

cost involved in selling real property in that particular market. 

He said that the holder of a fractional interest in real estate

lacks control because he or she cannot unilaterally decide how to

manage it. Wiggins noted that a partition action can take a

considerable amount of time and expense. He estimated that

partition costs would be $164,400 for the 1980 transfer, $172,500

for the 1983 transfer, and $76,500 for the estate property

because the properties are irregularly shaped parcels and contain

pineland, swampland, and riverfront acreage. Respondent did not

cross-examine Wiggins or offer any evidence to rebut Wiggins'

testimony. Respondent offered no evidence regarding the size of

the discount that should apply here. See Hess v. Commissioner,

24 B.T.A. 475, 478 (1931) (Court adopted the taxpayer's
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contention of value where the Commissioner introduced no evidence

to rebut the taxpayer's expert's testimony).

Respondent argues that Wiggins was not qualified to value

real property because he is a business appraiser and not a real

estate appraiser. Respondent contends that Wiggins provided no

factual basis for his conclusions that a 20-percent discount for

lack of marketability should apply. Respondent points out that

Wiggins included in his report as evidence of the appropriate

amount for marketability discounts a discussion of the

illiquidity of privately held companies and discounts relating to

sales of their stock. Respondent argues that we should give no

weight to Wiggins' opinion because he did not consider the

marketability of real property. Respondent argues that Wiggins'

use of a 30-percent discount for lack of control for the cost of

partitioning the properties was not supported by any verifiable

data in his reports and far exceeds Scruby's estimated costs of

partition.

We disagree that we should disregard Wiggins' report because

he is not a real estate appraiser. Wiggins is an experienced

business appraiser who has given expert opinions in valuing

fractional interests in partnerships, businesses, and real

property. We believe that he correctly considered various
-33-

factors affecting the potential costs of partitioning the

properties in issue. He considered the time and expense of

selling real property in that particular market. Wiggins

appropriately considered all relevant facts and gave a reasonable

explanation for the discount he applied to the property interests

at issue here.

Respondent's expert, Elmore, applied no discount to

petitioner's and decedent's property interests. He admitted,

however, that an undivided one-half interest in real property has

a limited market and that a fractional interest may be

discounted, although he did not quantify the amount of the

discount. This generally supports petitioners' claim that the

Putnam and Clay County properties and the estate property should

be discounted because they are undivided one-half interests.

d. Whether Petitioners' Property Interests Should Be

Discounted Because of the Purported Partnership

Between Decedent and Petitioner

Petitioners argue that we should discount the Putnam and

Clay County properties by more than 44 percent because decedent

transferred them to petitioner subject to the purported

partnership between decedent and petitioner. We disagree. As

discussed at paragraph II-A-3, above, decedent did not contribute

any property to a partnership, or make any of her property
-34-

"subject to" a partnership. Thus, we do not consider the part of

Wiggins' reports in which he valued partnership interests because

they are based on the incorrect assumption that decedent

transferred property interests to petitioner subject to a

partnership. See LeFrak v. Commissioner, T.C. Memo. 1993-526

(Court disregarded expert's report because it was premised on the

faulty assumption that the seller transferred partnership

interests, not interests in real estate).

e. Conclusion

We adopt petitioners' contention that a 44-percent discount

should be applied to value petitioner's undivided one-half

interest in the Putnam County and Clay County properties and

decedent's undivided one-half interest in the estate property.

We conclude that the value of petitioner's undivided onehalf interest in the Putnam County property in 1980 was $379,960,

and in the Clay County property in 1983 was $486,150.

C. Whether Petitioner Is Liable as a Transferee for Gift Tax

Respondent contends that petitioner is liable for the unpaid

gift tax due on decedent's gifts to him in 1980 and 1983. A

donee is personally liable for the payment of gift tax to the

extent of the value of the gift to the donee if the gift tax is

not paid when due. Secs. 6324(b), 6901(a)(1)(A)(iii). 
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Petitioner asserted in his petition that he was not a transferee

of the estate of decedent. Petitioners did not brief this issue. 

We treat this as a concession by petitioners. Rothstein v.

Commissioner, 90 T.C. 488, 497 (1988); Reaves v. Commissioner, 31

T.C. 690, 722 (1958), affd. 295 F.2d 336 (5th Cir. 1961). Thus,

we hold that petitioner is liable as a transferee for decedent's

gift tax relating to decedent's 1980 and 1983 gifts to him.

D. The Value of Decedent's One-half Interest in the Clay

County Property in Her Estate

The gross estate of a decedent includes the value at the

death of the decedent of his or her interest in all property,

real or personal, tangible or intangible, wherever situated. 

Sec. 2031(a). If the interest of the decedent is an undivided

minority interest in real property including timber, the amount

included in the estate is the fair market value of the undivided

interest. See Porter v. Commissioner, 49 T.C. 207, 221 (1967);

Estate of May v. Commissioner, 8 T.C. 1099, 1104 (1947); Estate

of Campanari v. Commissioner, 5 T.C. at 492.

Respondent contends that decedent's interest in the estate

property was worth $758,934 ($900 per acre) when she died. 

Petitioners contend that decedent's interest in the estate

property was worth $510,000 ($604.80 per acre) when she died.
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We believe that Elmore overestimated the value of the estate

property because none of his comparables had as much wetlands as

the 843 acres held by the estate (79 percent). Elmore admitted

it would be difficult to develop property with a significant

amount of wetlands. The six comparables Elmore considered each

had better topography, road frontage, access to utilities, and

zoning than the 843 acres held by the estate. One comparable

sale used by Elmore was petitioner's 1986 sale of the Clay County

property that Elmore and Moses said was superior to the estate

property. The buyers of the comparable properties received

concessions from the owners (and in one case from the Government)

as a condition for paying the purchase price. We think this

shows that the prices paid for these properties were more than

the fair market value of decedent's property.

We conclude that the value of a fee simple interest in the

estate property was $750 per acre in 1992, or $632,445. Decedent

owned an undivided one-half interest in the estate property when

she died. One-half of $632,445 is $316,223. We discussed at

paragraph II-B-5, above, why we apply a 44-percent discount to

the Clay County property. We apply a 44-percent discount here

for the same reasons. We conclude that the value of the estate

property when decedent died was $177,085.
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E. The Value of the Cadillac Brougham

Petitioner offered no evidence that the value of the 1992

Cadillac Brougham when decedent died in July 1992 was not

$24,500, as determined by respondent. The July 1992 Southeastern

edition of the N.A.D.A. Official Used Car Guide reports an

average retail price of $24,475 for a used 1992 Cadillac

Brougham. We sustain respondent's determination on this issue.

Decisions will be entered

under Rule 155.