Court Opinion

ID: 4330733
Source: CourtListenerOpinion
Date Created: 2018-11-13 23:48:17.76558+00
Date Added: 2024-06-11T14:19:51.007581
License: Public Domain

T.C. Memo. 1996-395

                        UNITED STATES TAX COURT

ESTATE OF JAMES BARUDIN, DECEASED, MURIEL B. CLARKE, EXECUTRIX,
   Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 7156-94.                        Filed August 26, 1996.

     Jeffrey M. Novick, Richard S. Kestenbaum, and Bernard S.

Mark, for petitioner.

     Dante D. Lucas and Pamela L. Cohen, for respondent.

              MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:   Respondent determined a deficiency of

$163,751 in the Federal estate tax of the Estate of James Barudin

(decedent).
                                 - 2 -

     Unless otherwise indicated, all section references are to

the Internal Revenue Code as of December 31, 1989, the date of

decedent's death.

     After settlement of some issues, the only issue for decision

is the proper date-of-death value of decedent's ownership unit in

a partnership that owned real property in New York City.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     At the time the petition was filed, petitioner's legal

residence was in New York, New York.

The 225 Fourth Co. Partnership

     In 1954, a group of investors including decedent organized a

general partnership under the laws of the State of New York by

the name of The 225 Fourth Co. Partnership (the FC Partnership)

for the purpose of purchasing two commercial office buildings and

land located at 225 and 233 Park Avenue South, Manhattan,

New York (the Partnership Properties).

     The Partnership Properties occupy the entire block on the

east side of Park Avenue South between East 18th Street and East

19th Street.   The Partnership Properties are located in a

neighborhood of Manhattan referred to as Midtown South.

Generally, office space that is located in Midtown South and that

is available for lease is regarded as secondary, as opposed to

primary, office space.
                                 - 3 -

      The only significant assets of the FC Partnership consist

of the Partnership Properties.

     As of 1981, investors owned a total of 48 general

partnership units (ownership units) in the FC Partnership.

Decedent owned one ownership unit in the FC Partnership.

     Under the terms of the partnership agreement, ownership

units could not be sold or transferred without consent of a

majority of the partners.   In order to sell or mortgage the

Partnership Properties, consent of two-thirds of the partners was

required.

     Loans or mortgages obtained on the Partnership Properties

were to be nonrecourse as to the general partners.   The general

partners, however, could be required to contribute to the FC

Partnership additional capital for any purpose approved by a

majority of the partners.

     Since organization of the FC Partnership in 1954 until the

date of trial, the FC Partnership and the Partnership Properties

have been managed by Orda Management Corp. (Orda Management).

Orda Management was responsible for making improvements to and

repairs on the Partnership Properties, for negotiating leases of

the Partnership Properties, for hiring brokers, attorneys, and

accountants, for obtaining casualty and liability insurance on

the properties, and for managing the general business affairs of

the FC Partnership.
                               - 4 -

     From approximately 1979 until the date of trial, Morton

Silver (Mr. Silver) has owned and functioned as president of Orda

Management.   Apparently, from its organization in 1954,

Mr. Silver also has owned ownership units in the FC Partnership.

     From at least 1954 through 1981, space in the Partnership

Properties was generally leased out for light manufacturing and

industrial purposes.

      By 1981, the two buildings located on the Partnership

Properties were old and in poor condition, and they did not

command lease rates as high as other typical secondary office

space in Midtown South.   In 1981, the FC Partnership realized net

income of approximately $300,000 from rental of the Partnership

Properties.

     In 1981, the City University of New York (CUNY) agreed to

lease four floors of the Partnership Properties consisting of

approximately 88,000 square feet for office and classroom space.

CUNY's lease, for a term of 10 years, was to begin in the summer

of 1982 and was due to expire in the spring of 1992.   As part of

the lease agreement with CUNY, the FC Partnership agreed to

renovate the lobbies of the two buildings and the four floors to

be leased by CUNY and recouped portions of these capital

expenditures through the annual lease charges to CUNY.

     In January of 1982, a capital contribution of $4,895,833 was

made to the FC Partnership by Silver-Park Co. (Silver Park), a

New York limited partnership of which Mr. Silver was the general
                               - 5 -

partner.   This $4,895,833 capital contribution was made to fund

necessary repairs and renovations to upgrade the Partnership

Properties.

     As a result of Silver Park's $4,895,833 capital contribution

in 1982, Silver Park became a general partner in the FC

Partnership, and the FC Partnership's ownership structure was

changed in 1982 to consist of 95 ownership units, of which the

original general partners owned 48 units, or 50.53 percent, and

Silver Park owned 47 units, or 49.47 percent.

     As a result of the change in ownership of the FC

Partnership, decedent's one-forty-eighth interest in the FC

partnership was converted to a one-ninety-fifth interest.

     As sole general partner of Silver Park, Mr. Silver was able

to vote on FC Partnership matters on behalf of 47 of the 95

ownership units.   As of 1986, Mr. Silver controlled an additional

seven ownership units, giving him control of 54 of the total 95

ownership units.   By controlling a majority of the ownership

units in the FC Partnership, Mr. Silver alone had authority to

determine to whom partners could transfer ownership units, and he

could make most decisions affecting management and operation of

the FC Partnership.

     By 1984, the FC Partnership had executed two additional lease

agreements with CUNY.   The leases with CUNY involved approximately

40 percent of the total office space available in the Partnership

Properties.
                               - 6 -

     The leases with CUNY were due to expire in 1992, 1993, and

1994.   CUNY, however, could terminate the leases in 1990 provided

CUNY gave 12 months' advance notice.   Further, if, for any year,

CUNY's budget was not approved, CUNY's leases with the FC

Partnership would automatically terminate on the last day of

CUNY's current fiscal year.

     In addition to CUNY, other tenants of office space in the

Partnership Properties included Manufacturers Hanover Trust Co.,

Crown Books Corp., American Skandia Life Assurance Corp., STV

Seellye Stevenson Value & Knecht, and Guardian Life Insurance Co.

of America.   During 1988, of the 555,015 square feet in the

Partnership Properties, 535,635 square feet (or 97 percent) were

leased.

     From 1982 through 1988, lease income from the Partnership

Properties increased each year.

     In 1989, total lease income of $16,058,359 was received from

the Partnership Properties.   Of this amount, $2,091,410

represented payments the tenants as a whole were charged with

respect to capital expenditures the partnership had made on

renovating the Partnership Properties.

     Cash distributions to each partner of the FC Partnership

increased from approximately $10,000 per ownership unit in 1982

to approximately $40,000 per ownership unit in 1986.

     In each of the succeeding 3 years (namely, 1987, 1988, and

1989), regular cash distributions to each of the partners of the
                               - 7 -

FC Partnership remained at $40,000 for each ownership unit.

     In July 1988, when the New York City real estate market was

thriving, the FC Partnership refinanced its mortgage on the

Partnership Properties.   As a result of additional funds that

were available to the FC Partnership from this refinancing, the

FC Partnership made a special cash distribution of $140,000 to

each general partner with respect to each ownership unit in the

partnership.

     In 1988, for purposes of refinancing its mortgage, the FC

Partnership obtained from Cushman & Wakefield, Inc. (C&W), an

appraisal of the Partnership Properties (1988 C&W report).    Using

for its methodology comparable sales and income capitalization

and assuming that economic conditions and the New York City

commercial real estate market would continue to improve, the 1988

C&W report concluded that, as of May 9, 1988, the estimated fair

market value of the underlying Partnership Properties equaled

$110 million.   The 1988 C&W report did not attempt to value the

FC Partnership, nor an ownership unit in the FC Partnership.

     In the spring of 1989, Mr. Silver was informed that CUNY had

decided to build its own campus and that when the new campus was

completed in 1994, CUNY would terminate a large portion of its

lease of the Partnership Properties.

     During the early and mid-1980's, real estate leasing

activity in midtown Manhattan increased each year.
                               - 8 -

     In 1987 and 1988, although lease rates for prime office

space in midtown Manhattan rose slightly each year, lease rates

remained relatively the same for secondary office space.

During these same years, vacancy rates for both primary and

secondary office space in midtown Manhattan increased.

     By 1989, real estate leasing activity in midtown Manhattan

declined.   By the end of 1989, New York City's economy was

experiencing a recession.

Decedent's Assignment of Ownership Unit

     In January of 1986, decedent assigned to his daughter,

Muriel Clarke, a remainder interest in his one ownership unit in

the FC Partnership, retaining for the remainder of his life all

income, dividends, and distributions received in connection with

this ownership unit.

     On April 15, 1986, decedent filed a Federal gift tax return

with respect to the assignment to his daughter of a remainder

interest in his one ownership unit in the FC Partnership.     Using

a liquidation value for the FC partnership of $19,953,778 and a

20-percent minority interest discount, and computing the value of

the remainder interest assigned to his daughter at 82 percent of

the $168,421 value computed for the ownership unit, the remainder

interest in the ownership unit that decedent assigned to his

daughter in 1986 was valued on decedent's 1986 Federal gift tax

return at $146,302.
                               - 9 -

Estate Tax Return and Respondent's Audit

     As indicated, decedent died on December 31, 1989.

     In spite of decedent's April 1986 assignment to his daughter

of a remainder interest in his ownership unit in the FC

Partnership, petitioner agrees that, for Federal estate tax

purposes and pursuant to section 2036(a)(1), the date-of-death

value of decedent's ownership unit in the FC Partnership is

includable in decedent's gross estate.   Accordingly, on

petitioner's Federal estate tax return, the ownership unit was

included in decedent's gross estate at a December 31, 1989, date-

of-death value of $280,000.   The record does not reflect how the

$280,000 date-of-death value was calculated.

     On audit of petitioner's Federal estate tax return,

respondent determined that decedent's ownership unit in the FC

Partnership should be included in decedent's gross estate at a

December 31, 1989, date-of-death value of $721,960.

     Prior to trial, both petitioner and respondent revised their

respective assertions for the December 31, 1989, date-of-death

value of decedent's ownership unit in the FC Partnership.

Petitioner now asserts that the date-of-death value of decedent's

ownership unit equaled $200,000, and respondent asserts that the

date-of-death value of decedent's ownership unit equaled

$596,000.
                                - 10 -

                               OPINION

     Generally, the fair market value of property transferred by

a decedent with respect to which the decedent retains for life

the right to income from the property is includable in the gross

estate.   Sec. 2036(a)(1).   Fair market value is defined generally

as "the price at which the property would change hands between a

willing buyer and a willing seller, neither being under any

compulsion to buy or to sell and both having reasonable knowledge

of relevant facts."   United States v. Cartwright, 411 U.S. 546,

551 (1973); sec. 20.2031-1(b), Estate Tax Regs.

     In determining the fair market value of property includable

in a decedent's gross estate, we are to consider all relevant

facts and circumstances.     Cartwright v. United States, 457 F.2d

567, 571 (2d Cir. 1972), affd. 411 U.S. 546 (1973); Estate of

Andrews v. Commissioner, 79 T.C. 938, 940 (1982); sec. 20.2031-

1(b), Estate Tax Regs.

     In determining the fair market value of decedent's ownership

unit in the FC Partnership, petitioner's and respondent's expert

witnesses agree that discounts are appropriate to reflect the

minority status and the lack of marketability of decedent's one

ownership unit.   See Richardson v. Commissioner, 151 F.2d 102,

105 (2d Cir. 1945), affg. a Memorandum Opinion of this Court

dated Nov. 30, 1943; Estate of Newhouse v. Commissioner, 94 T.C.

193, 249 (1990); Harwood v. Commissioner, 82 T.C. 239, 267-268
                              - 11 -

(1984), affd. without published opinion 786 F.2d 1174 (9th Cir.

1986); Mandelbaum v. Commissioner, T.C. Memo. 1995-255, affd.

without published opinion 91 F.3d 124 (3d Cir. 1996); Moore v.

Commissioner, T.C. Memo. 1991-546.

     Petitioner's and respondent's experts use similar basic

steps to value decedent's ownership unit in the FC Partnership.

The experts:   (1) Estimate the December 31, 1989, fair market

value of the underlying Partnership Properties; (2) convert that

value into a partnership liquidation value; (3) divide the

partnership liquidation value by 95 to calculate the liquidation

value of decedent’s one ownership unit; and (4) apply their

respective combined minority-interest and lack-of-marketability

discounts to the liquidation value of decedent's one ownership

unit.

     The major points of disagreement between petitioner's and

respondent's experts relate to the fair market value of the

underlying Partnership Properties and to the amount of the

discounts to apply that would approximately reflect the minority

status and lack of marketability of decedent's ownership unit.

     The schedule below summarizes each of the experts'

valuations of the underlying Partnership Properties as of

December 31, 1989, the discounts they apply, and their respective

ultimate date-of-death valuations of decedent's ownership unit in

the FC Partnership:
                                    - 12 -

Valuation of Partnership                     Petitioner's    Respondent's
  Properties Before Discounts:                  Expert          Expert

    Estimated Gross Annual Lease Income       $15,082,200     $16,345,491
    Contingency Loss Reserve                       5%              1%
    Operating Expenses                         $6,650,193      $6,920,501
    Estimated Annual Lease Income              $8,432,007      $9,424,990
    Capitalization Rate                            8.5%            7.9%
    FMV of Partnership Properties            $100,000,000    $120,000,000
    Less Partnership Liabilities              $41,595,787     $41,595,787
    FC Partnership Net Liquidation Value      $58,404,213     $78,404,213
    Per-Unit Liquidation Value                   $614,781        $825,307

Discounts For:

    Minority Interest                            --                 15%
    Lack of Marketability                        --                 15%
    Combined Discount                            67.5%              28%

FMV of Decedent's Ownership Unit:               $200,000           $594,221

     In estimating gross annual lease income of $15,082,200,

petitioner's expert takes into account lease income received from

comparable properties in Midtown South and leases executed by the

FC Partnership proximate in time to December 31, 1989.        In

estimating operating expenses of $6,650,193, petitioner's expert

considers operating expenses in prior years, operating expenses

of comparable buildings, and various market studies.        Taking into

account a 5-percent contingency loss for vacancies and

noncollection of rent and the above-estimated operating expenses,

petitioner's expert estimates annual net lease income from the

properties of $8,432,007.

     Petitioner's expert then capitalizes estimated annual net

lease income by an 8.5-percent capitalization rate, which

provides a fair market value for the Partnership Properties of
                              - 13 -

$100 million ($8,432,007 divided by 8.5 percent equals

$99,200,082, rounded to $100 million).   Petitioner's expert

chooses the 8.5-percent capitalization rate from the 5.9- to 9.2-

percent capitalization range reflected in the 1988 C&W report.

In his opinion, use of a high capitalization rate (namely, 8.5

percent) is particularly appropriate because of the economic

recession and poor commercial real estate environment that

existed in New York City in December of 1989.

     From the $100 million estimated fair market value of the

Partnership Properties, petitioner's expert then subtracts

FC Partnership liabilities of $41,595,787 and calculates a net

liquidation value for the FC Partnership of $58,404,213 and a

pre-discount net liquidation value for each ownership unit in the

FC Partnership of $614,781 (1/95 of $58,404,213 equals $614,781).

     In determining his combined minority and lack-of-

marketability discounts of 67.5 percent, petitioner's expert

relies primarily on a July 1989 sale to Mr. Silver for $125,000

of a fractional 62.5-percent interest in a single ownership unit

in the FC Partnership.   Petitioner's expert calculates that the

$125,000 sale price for a 62.5-percent interest in a single

ownership unit reflected a 67.5-percent discount from the

$614,781 liquidation value of a single ownership unit.1

1
     In December of 1985, two individuals inherited ownership of
fractional interests in a single ownership unit in the FC
                                                   (continued...)
                              - 14 -

Petitioner's expert also relies on certain market studies that

would indicate combined discounts for minority interests and lack

of marketability of between 30 and 60 percent.

     Respondent's expert concludes that looking ahead from the

December 31, 1989, date-of-death valuation date to the years

following 1989, lease income from the Partnership Properties

would likely increase and the Partnership Properties would likely

increase in value.   Respondent's expert estimates gross lease

income for the first year of $16,345,491 and increases this

figure by 5 percent per year over a projected 12-year period,

with a 1-percent contingency loss reserve to reflect vacancies

and collection losses.   Respondent's expert also estimates that

operating expenses in the first year of his analysis would equal

$6,920,501, and respondent's expert increases estimated operating

expenses by 5 percent per year in his cash-flow analysis.

     Respondent's expert then capitalizes his 12-year cash-flow

projection using a capitalization rate of approximately 7.9

1
 (...continued)
Partnership -- one individual inherited 62.5 percent of the unit
and the other inherited 37.5 percent. In July of 1989, for
reasons not made clear in the record, the first individual sold
to Mr. Silver his 62.5-percent interest in the ownership unit for
$125,000.   The record is incomplete with regard to significant
aspects of this transaction.
                               - 15 -

percent reflecting his assumption that leasing activity and

market rental rates would increase, and respondent's expert

concludes that the December 31, 1989, fair market value of the

Partnership Properties equals $120 million (respondent's expert's

estimated annual lease income of $9,424,990 divided by 7.9

percent equals $119,303,671, rounded to $120 million).

     Using $120 million as the December 31, 1989, value of the

underlying Partnership Properties, respondent's expert subtracts

FC Partnership liabilities of $41,595,787 and calculates that the

1989 liquidation value of the FC Partnership was $78,404,213 and

that the pre-discount liquidation value of each ownership unit in

the FC Partnership equals $825,307 (1/95 of $78,404,213 equals

$825,307).

     Respondent's expert acknowledges that, as of the end of

1989, New York City was in the midst of a recession and banks had

become considerably more conservative in their real estate

lending practices, and it was anticipated that the New York City

commercial real estate market would have difficulty recovering

from the economic recession.   Respondent's expert, however, fails

to adequately take these factors into account in his

computations.

     In our opinion, petitioner's expert more accurately takes

into account the above factors, and petitioner's expert properly

concludes that the value of the Partnership Properties declined
                              - 16 -

from their May 1988 value of $110 million as set forth in the

1988 C&W report.   The $110 million valuation reflected in the

1988 C&W report was based on rapid economic growth experienced in

prior years, the assumption that such rapid economic growth would

continue, and an anticipated steady improvement in the market for

leased office space.   Those assumptions were no longer accurate

as of December 31, 1989.

     In light of the recession in New York City's economy and the

poor condition of the New York City commercial real estate market

at the end of 1989, we believe respondent's expert errs in using

estimates for lease income from the Partnership Properties that

reflect increases of 5 percent per year.

     With respect to the vacancy and noncollection of rent, by

the end of 1989, CUNY, which leased 40 percent of the office

space in the Partnership Properties, had notified the partnership

that it would not likely renew any significant portion of its

leases of office space in the Partnership Properties upon the

scheduled expiration of its leases in 1992, 1993, and 1994.    In

light of the decline in economic conditions that was apparent at

the end of 1989, and in light of CUNY's likely nonrenewal of its

leases, we conclude that a 5-percent contingency loss for vacancy

and noncollection of rent is appropriate.

     With regard to the estimate of operating expenses, because

petitioner's expert used the lower figure of $6,650,193 to
                             - 17 -

estimate operating expenses, as opposed to the $6,920,501

estimate respondent's expert used, we use petitioner's expert's

figure.

     With respect to the appropriate capitalization rate to be

used in determining the 1989 value of the Partnership Properties,

based on New York City's economic condition as of December 31,

1989, and the evidence indicating that lease rates for commercial

office space would not likely increase for a number of years, we

believe that application of an 8.5-percent capitalization rate

more accurately reflects the December 31, 1989, New York City

real estate investment environment.

      At trial, respondent's expert acknowledged that with regard

to comparable sales (used in his report for corroboration of his

calculation of fair market value), adjustments for date of sale,

size, condition, and use of the buildings would be appropriate.

Respondent's expert, however, does not make any such adjustments

in his calculations.

     Respondent's expert considers three properties sold

approximately 3 years prior to December of 1989, two properties

sold approximately 1 year prior to December of 1989, and one

property sold 5 months after December 1989.   These properties

were located in different neighborhoods throughout New York City.

Each was substantially smaller than the Partnership Properties

and sold for significantly less than respondent's expert's
                              - 18 -

estimated $120 million valuation of the Partnership Properties.

Because respondent's expert does not make any adjustments for

date of sale, location, condition, or size of the property, we do

not find his comparable sales analysis persuasive.

     After considering all relevant facts and circumstances and

taking into account the expert opinions submitted to us, we

conclude that the date-of-death value of the underlying

Partnership Properties equaled $100 million, as reflected in

petitioner's expert witness report.    This value, as of

December 31, 1989, is particularly supported by the economic

recession that New York City was experiencing, by the weak

commercial real estate market, and by CUNY's notification of the

likely termination in the early 1990's of a major portion of its

lease of office space in the Partnership Properties.

     As indicated above, with respect to discounts for minority

interest and lack of marketability, petitioner's expert applies a

combined discount rate of 67.5 percent to his $614,781 per-unit

liquidation value for each ownership unit in the FC Partnership,

relying primarily on the July 1989 sale to Mr. Silver of a

fractional 62.5-percent interest in a single ownership unit in

the FC Partnership.

     Respondent's expert relies on various market studies that

indicate a discount of approximately 19 percent for minority

interests.   Respondent's expert believes that an owner of a unit

in the FC Partnership could effectively participate in management
                              - 19 -

of the FC Partnership, and respondent's expert concludes that the

appropriate minority interest discount of only 15 percent

applies.

     With respect to the discount for lack of marketability,

respondent's expert also relies on various market studies which

indicate appropriate discounts of between 25.8 and 45 percent for

lack of marketability.   Because the FC Partnership appeared to

have been well managed, made regular cash distributions, and had

quality tenants, respondent's expert concludes that a 15-percent

discount for lack of marketability is appropriate.   Combining the

two discounts, respondent's expert uses a 28-percent discount to

calculate the December 31, 1989, fair market value of decedent's

ownership unit.   Applying this 28-percent discount to the

$825,307 per-unit liquidation value that respondent's expert

calculates for each ownership unit, respondent's expert concludes

that the date-of-death value of decedent's ownership unit equals

$594,221.

     In our opinion, with regard to the appropriate minority

interest discount to apply, respondent's expert erroneously

assumes that an owner of each general partnership unit could

participate meaningfully in management of the FC Partnership.

Since Mr. Silver controlled a majority of the FC Partnership

units, he had practical control over management and operation of

the FC Partnership, and holders of minority interests in the FC

Partnership would have only limited veto power over the few
                                - 20 -

partnership matters for which a two-thirds vote was required and

then only if the minority partners voted as a block against

Mr. Silver.

     Although, under New York State law, any general partner of

the FC Partnership arguably had the legal authority to dissolve

the partnership, see N.Y. Partnership Law sec. 62(1)(b) (McKinney

1988); see also Estate of Bischoff v. Commissioner, 69 T.C. 32,

49 (1977), we believe that such authority would have little

impact on Mr. Silver's effective control of the FC Partnership.

We note that neither expert considered this arguable authority in

determining a minority interest discount.

     The various market studies presented in the experts' reports

indicate that purchasers of business interests whose principal

assets consist of real property typically apply a discount of

approximately 19 percent where they are purchasing minority

interests in the businesses and would have little voice in

management of the businesses.    As indicated above, an owner of a

single unit in the FC Partnership effectively would have no voice

in management of the FC Partnership.

     We conclude that in this case it is appropriate to apply a

minority interest discount of 19 percent to decedent's ownership

unit in the FC Partnership.

     With regard to the discount for lack of marketability, it is

clear that a single ownership unit in the FC Partnership was not

readily marketable and that any hypothetical purchaser would
                              - 21 -

demand a significant discount to account for that fact.   Market

studies admitted into evidence indicate that appropriate lack-of-

marketability discounts often fall in a range of 25.8 to 45

percent.   Certainly, the consistent history of significant cash

distributions and the history of quality management of the FC

Partnership would make the partnership an attractive investment.

There still existed, however, no public market in which to sell

ownership units in the FC Partnership, and transfer of a unit

would be subject to the approval of Mr. Silver, as owner of the

controlling units of the FC Partnership.

      Because the FC Partnership was well managed and made

consistent and significant annual cash distributions, we conclude

that the appropriate discount to use in this case to reflect lack

of marketability of decedent's ownership unit in the FC

Partnership equals 26 percent.

     We disagree with petitioner's expert's conclusion that a

67.5-percent combined discount rate should apply.   The record

does not contain sufficient facts with regard to the July 1989

sale to Mr. Silver of a fractional interest in one ownership unit

in the FC Partnership to justify petitioner's expert's reliance

thereon.

      After considering all of the facts and circumstances and

the evidence presented at trial, we conclude that the appropriate

combined discount rate to use in this case for minority interest

and lack of marketability equals 45 percent (19-percent discount
                              - 22 -

for minority interest and 26-percent discount for lack of

marketability).

     Applying this 45-percent combined discount to the per-unit

partnership liquidation value that we have found provides a date-

of-death fair market value of $338,130 for decedent's ownership

unit in the FC Partnership.

     The schedule below reflects our conclusions with regard to

each element of the relevant computation of fair market value:

Valuation of Partnership
  Properties Before Discounts:

     Estimated Gross Annual Lease Income               $15,082,200
     Contingency Loss Reserve                              5%
     Operating Expenses                                 $6,650,193
     Estimated Annual Lease Income                      $8,432,007
     Capitalization Rate                                   8.5%
     FMV of Partnership Properties                    $100,000,000
     Less Partnership Liabilities                      $41,595,787
     FC Partnership Net Liquidation Value              $58,404,213
     Per-Unit Liquidation Value                           $614,781

Discounts For:

     Minority Interest                                    19%
     Lack of Marketability                                26%
     Combined Discount                                    45%

FMV of Decedent's Ownership Unit:                         $338,130

     To reflect the foregoing,

                                      Decision will be entered

                                 under Rule 155.