Opinion ID: 154166
Heading Depth: 2
Heading Rank: 4

Heading: Valuation Issues

Text: 44 First, Petitioners contend that the Tax Court erred in precluding Petitioners from introducing evidence at trial that Respondent erroneously determined the taxable value of the portions of parcels 2, 3, and 4 subject to the additional tax under Section(s) 2032A(c). Petitioners argue that they planned to show that Respondent's calculations were so erroneous as to be arbitrary and capricious and that Respondent should have had the burden of proving the proper taxable value. 45 At trial, Petitioners questioned the IRS's estate tax attorney about his calculation of the additional estate taxes. The Tax Court interrupted the questioning, considering the exact calculation of the amount of the additional taxes to be irrelevant to the issue of Petitioners' liability for the additional taxes. The Tax Court stated that Petitioners could present evidence relevant to the tax calculation in any proceedings under Tax Court Rule 155. 6 The Tax Court subsequently afforded the parties an opportunity to schedule an evidentiary hearing in connection with the Rule 155 proceedings, and neither party did so. We see no reversible error in the Tax Court's actions. 46 Second, Petitioners contend that the Tax Court erred in finding that no evidence on the record supported a lesser fair market value for the 110 acres of pasture land in parcel 2 which were subject to additional taxes. We accept the Tax Court's valuation of the 110 acres unless they are clearly erroneous. Holl v. Commissioner, 54 F.3d 648, 650 (10th Cir. 1995). 47 Parcel 2 consists of the 110 acres of pasture land and 50 acres of cultivated land. The Tax Court accepted Respondent's calculations of the fair market value for the 110 acres. Respondent calculated the fair market value of the 110 acres as $102,437.50. Most importantly, Respondent used the average per acre market value figure of $931.25 per acre derived from the total number of acres on parcel 2. 7 48 Petitioners contend that the Tax Court erred in accepting Respondent's calculation because pasture land is worth less than cultivated land. Petitioners argue that the fair market value calculation of the pasture land should be reduced to reflect this fact. 49 The Tax Court properly rejected Petitioners' contention because the fair market value of the parcel for the purpose of the additional estate tax under Section(s) 2032A(c) reflects the property's highest and best use. 26 U.S.C. Section(s) 2032A(c), 2031(a); Brockman, 903 F.2d at 519. In contrast, the special use valuation reflects the value of the property as farmland. 26 U.S.C. Section(s) 2032A(e)(7). The fact that the most feasible farming use for the 110 acres is apparently as pasture land is not relevant to its valuation at its highest and best use in this case. In the estate tax return, Petitioners' appraiser stated that the highest and best use for parcel 2 was its use as a subdivision. Petitioners have not shown that the Tax Court clearly erred in basing its valuation on the average per acre fair market value of the total acres in parcel 2.