Case Name: Appeal of WINGOOD REALTY COMPANY
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-09-25
Citations: 4 B.T.A. 1052
Docket Number: Docket No. 6576
Parties: Appeal of WINGOOD REALTY COMPANY.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 4
Pages: 1052–1054

Head Matter:
Appeal of WINGOOD REALTY COMPANY.
Docket No. 6576.
Decided September 25, 1926.
Benjamin Mahler, Esq., for the petitioner.
J. Arthur Adams, Esq., for the Commissioner.

Opinion:
OPINION.
Phillips :
The taxpayer was incorporated in February or March, 1914, and upon its incorporation entered into three leases previously negotiated by its incorporators and took by assignment two leases which had been entered into by these incorporators shortly prior to the date of the assignment. No consideration was paid t.o the lessors other than an undertaking to pay the monthly rental. It was shown that the amounts of rent which should be received from the property exceeded the rent to be paid and the estimated expenses, and upon that basis opinion evidence of two qualified witnesses was introduced in an attempt to establish a substantial cash value for each of such leases for the purpose of invested capital and exhaustion deductions. On the other hand, Smith testified:
At that time it was very easy to obtain leases. There were a lot of them around and the owners were very glad to unload their property where you would guarantee them income and I had a chance to pick up dozens of leases I had to be very careful.
The statute provides for the inclusion in invested capital of the " actual cash value " of property paid in for stock. In the absence of unusual circumstances, the price at which property is sold ordinarily establishes its value. There has been no showing here that the lessors were defrauded or that they did not know the full rental value of their property. There has been no showing that any greater rental could have been obtained by them under similar leases from any other source. Presumably the lessors secured as great a return as possible.
The testimony establishes that realty was dormant in 1914, that landlords feared losses from the operation of their property and were very willing to enter into leases securing them a certain return. The story of such transactions is not invariably one of profit to the lessee and while the incorporators may have used good judgment and the leases did prove to be profitable, this does not in our opinion establish any cash value at the time of acquisition in excess of the value established by negotiations between lessor and lessee. We are not willing in such cases, with no showing of any unusua] circumstances surrounding the transaction, to substitute opinion evidence of values for those established by an actual transaction.
The Commissioner computed the deficiency under section 802 of the Bevenue Act of 1918. Neither party introduced any evidence as to what, if any, invested capital the taxpayer had. The determination of the Commissioner must be approved.
The deficiency is redetermined to he $12,-616.01. Order will he entered accordingly.