Court Opinion

ID: 4617481
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:36:39.352705+00
Date Added: 2024-06-11T07:55:18.579925
License: Public Domain

J. E. LUMMUS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lummus v. CommissionerDocket No. 31350.United States Board of Tax Appeals21 B.T.A. 79; 1930 BTA LEXIS 1928; October 24, 1930, Promulgated *1928  Fair market value on March 1, 1913, determined.  H. L. Rabbitt, Esq., and R. M. O'Hara, Esq., for the petitioner.  Hartford Allen, Esq., for the respondent.  VAN FOSSAN *79  The petitioner in this proceeding asks the redetermination of a deficiency in income tax for the year 1924 amounting to $11,255.37.  The petitioner alleges that in the computation of the profit derived from the sale of a certain parcel of real property the respondent erred in his determination of the fair market value of the property as of March 1, 1913.  *80  FINDINGS OF FACT.  In the year 1902 the petitioner purchased a plot of land in Miami, Fla., which was situated at the northeasterly corner of streets then known as Avenue C and Thirteenth Street.  This plot, in dimensions, was 120 feet long on Avenue C, by 55 feet in depth on Thirteenth Street.  Avenue C is now called Southeast First Avenue, and Thirteenth Street is known as Southeast First Street.  The petitioner resided on this plot until 1921.  In 1924 the petitioner sold the property for $150,000, reporting the sale in his income-tax return for that year and stating the fair market value of the property*1929  as of March 1, 1913, in the sum of $125,000.  The respondent held that the fair market value as of March 1, 1913, was the sum of $35,000, thus giving rise to the deficiency in question in this proceeding.  In 1913, in addition to the petitioner's residence, there was a second building on the northerly end of his land.  In 1913, Twelfth Street, now called Flagler Street, was the leading business street of Miami.  Avenue C (now Southeast First Avenue) runs in a northerly and southerly direction, and Twelfth Street (nor Flagler Street) intersects it at right angles.  The main business portion of Twelfth or Flagler Street extended east and one block west of Avenue C.  The northerly line of petitioner's land was half a block south of the southeasterly corner of Twelfth Street and Avenue C.  Avenue C in the block in which petitioner's property was located was one of the main thoroughfares of Miami in 1913.  It was the way of entrance to Fort Dallas Park and was used by tourists staying at the Royal Palm Hotel, the principal hotel of Miami, when they went to the business section of the city.  Avenue C, or Southeast First Avenue, was next in importance to Twelfth or Flagler Street in respect*1930  to its possibilities of use as a business street, and because of its proximity to the Royal Palm Hotel the northeasterly corner of Avenue C and Thirteenth Street (nor Southeast First Street), the site of petitioner's land, was a "strategic" point in its relation to the development of retail business.  In 1913, Thirteenth Street, now Southeast First Street, was a high-grade residential street, as was also Avenue C, but Avenue C was developing as a street for business purposes and Thirteenth Street, or Southeast First Street, was not so developed.  There were business concerns located on the west side of Avenue C between Thirteenth and Twelfth Street, noo Flagler Street, and there were stores and offices located on Avenue C immediately north of the northerly line of petitioner's land.  The selection in the year 1909 of the northwesterly corner of Avenue C and Eleventh Street as the location of the United States Post Office had given impetus to a demand for business sites in the block on Avenue C between Eleventh and Twelfth *81  Streets.  In 1913, however, lots in the block on Avenue C between Thirteenth and Twelfth, or Flagler Street, and in the block on Avenue C between Twelfth*1931  or Flagler Street and Eleventh Street were about of equal value.  There were in the year in question no sales of property either in the important business part of Twelfth or Flagler Street, or in the blocks of Avenue C referred to.  The demand for business sites was larger than the supply and the land was in the hands of strong holders who were unwilling to sell it except at their own valuation.  The owners of land on Twelfth or Flagler Street in the block east of Avenue C held their property in 1913 at a valuation of from $1,000 to $1,500 per front foot and in the block west of Avenue C at from $1,500 to $2,000 per front foot.  These valuations were for inside lots and not for corner lots.  In 1912 the plot of land at the southeast corner of Twelfth or Flagler Street and Avenue C, now Southeast First Avenue, was leased for 99 years at a rental of $3,600 per year.  The building on the plot at that time was of no value.  Shortly after the execution of this 99-year lease and before the year 1913 it was transferred, the new lessee paying a bonus of $15,000 and agreeing to pay $5,000 per year rental during the term of the lease.  In 1913 the property leased was used for business purposes*1932  both on its Flagler Street side and also on its avenue frontage on Avenue C.  On the Avenue C front there were stores and offices.  The dimensions of the property so leased were 50 feet on Flagler or Twelfth Street by 120 feet on Avenue C or Southeast First Avenue.  The amount of the rent reserved in the 99-year leases made in the business section of Miami was net to the lessor.  The amount of the annual rental of $5,000 paid by the lessee under the terms of the lease referred to was computed on a basis of 6 per cent of the capital value of the leasehold.  The capital value of the leasehold was, therefore, about $83,000.  It was estimated by a witness at the hearing hearing herein that the sale value of the premises so leased was, at the date of the transfer of the lease, the sum of $125,000.  The premises leased were contiguous to and immediately north of petitioner's land, the value of which is now in question.  Values of real estate situated in the principal business section of Miami herein referred to increased from 1910 to 1913.  From 1914, and especially after the outbreak of the World War, there was a depression in value lasting for several years.  There was a steady increase*1933  in land values toward the end of the World War and a rapid increase between 1920 and 1925.  In August, 1914, a plot situated at the southwest corner of Avenue C and Eleventh Street, being in dimensions 25 feet on Avenue C by 50 feet on Eleventh Street, was sold for $21,000, or at the rate of about $800 per front foot on Avenue C, now Southeast First Avenue.  The building on *82  this plot was of little or no value.  The plot sold was opposite the site of the United States Post Office.  There was not much difference in value for business purposes between land in this part of Avenue C and the petitioner's land situated at the northeast corner of Avenue C, now Southeast First Avenue, and Thirteenth Street, now Southeast First Street.  In March, 1916, a plot of vacant land on Avenue C, or Southeast First Avenue, situated approximately 90 feet north of the northeast corner of Twelfth or Flagler Street and Avenue C, being in dimensions 60 feet front on Avenue C by 50 feet in depth, was sold for $36,000 or at the rate of $600 a front foot on Avenue C.  This plot of land was approximately one block north of petitioner's land on Avenue C.  The fair market value of petitioner's property*1934  as of March 1, 1913, was $600 a front foot measured on Avenue C, now Southeast First Avenue, amounting to the total sum of $72,000.  OPINION.  VAN FOSSAN: The problem confronting us as to the fair market value of petitioner's premises in Miami, Fla., as of March 1, 1913, is solely a question of fact.  We have found as a fact that the fair market value of the premises in question as of March 1, 1913, was $72,000, and we are of the opinion that this finding is justified by the evidence.  The evidence discloses that in the years immediately prior to and after 1913, as well as in that year, the northerly line of the premises in question which were located on Avenue C, now Southeast First Avenue, Miami, Fla., was only half a block distant from that portion of Flagler Street which was the most important business center of Miami; that shops and offices were already located in the block of Avenue C in which petitioner's property was situated and that this block which was south of Flagler or Twelfth Street, together with a block immediately to the north of Flagler or Twelfth Street, was next in importance to Flagler Street with respect to the use of land situated thereon for business*1935  purposes, and that the demand for property on this part of Avenue C exceeded the supply for the reason that owners were unwilling to sell except at their own valuations.  The evidence further shows that petitioner's premises were situated at what the witnesses termed a "strategic" corner, because Avenue C was the way of entrance to Fort Dallas Park and Thirteenth Street, now Southeast First Street, which was on the southerly side of petitioner's premises, led to the Royal Palm Hotel, which was the principal hotel of the city.  It appeared further that tourists, on whom the retail business of Miami was largely dependent *83  for support, passed the corner of Avenue C and Thirteenth Street, now Southeast First Street, on their way to the shops.  While in 1913 there were no sales of property in the business section of Flagler Street, lying immediately in the neighborhood of Avenue C, we think that from the facts relating to the 99-year lease referred to in the findings of fact, together with the opinion expressed by a competent witness with respect to the sale value of the premises leased at the date of such lease, we may fairly infer that prior to March 1, 1913, the fair market*1936  value of the land at the southeast corner of Avenue C and Twelfth or Flagler Street was $125,000.  This land had a frontage of 50 feet on Twelfth or Flagler Street and a frontage of about 120 feet on Avenue C, or Southeast First Avenue.  Both fronts were used for business purposes.  Thepremises leased were immediately north of petitioner's property and contiguous to it and the leased premises, together with petitioner's property occupied the whole block fronting on the easterly side of Avenue C, now Southeast First Avenue, between Twelfth or Flagler Street and Thirteenth Street, now Southeast First Street.  It appears, too, that in 1914 and 1916 practically the same general conditions affected the value of the real property in the two blocks on Avenue C before referred to as affected it in 1913, and that there was no considerable increase in such values in 1914, 1915, and 1916.  On the contrary, the evidence discloses a depression in real estate value in this section during the latter three years.  We are, therefore, of the opinion that the prices received for the two parcels of land sold respectively in August, 1914, and March, 1910, as stated in the findings of fact, are competent*1937  and material evidence as to the fair market value in 1913 of the land in the two blocks on Avenue C hereinbefore referred to.  Each of the parcels sold was five feet less in depth than petitioner's land; both had much less frontage on Avenue C than the frontage of petitioner's premises, and only one of the parcels sold was a corner, the other being a so-called inside lot.  The corner lot which was sold in August, 1914, was sold at approximately $800 a front foot on Avenue C and the inside lot sold in March, 1916, was sold for $600 a front foot on Avenue C.  Moreover, qualified witnesses, who had long been residents of Miami and who were familiar with real estate values in the part of Miami in which petitioner's premises were situated, testified as to their opinion of the value of petitioner's premises as of March 1, 1913.  These opinions of value varied from $500 to $700 per front foot measured on Avenue C, now Southeast First Avenue.  *84  The respondent produced evidence of a few sales of land at a front foot price much less than $500.  These sales were made at about the date in question.  But in our opinion the sales were of property not so situated as to be affected by*1938  the same conditions as those affecting petitioner's land.  They, therefore, do not form a proper basis of comparison by which to determine the value of the premises in question as of March 1, 1913.  For the reasons stated we hold that the fair market value of the petitioner's premises at the northeast corner of Avenue C, now Southeast First Avenue, and Thirteenth Street, or Southeast First Street, as of March 1, 1913, was $600 a front foot measured on Avenue C or Southeast First Avenue, amounting to the total sum of $72,000.  Decision will be entered under Rule 50.