The opinion
T.C. Memo. 2005-217
UNITED STATES TAX COURT
ESTATE OF NORA KOLCZYNSKI, DECEASED, MATTHEW HOFFMEIER, EXECUTOR,
Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22096-03. Filed September 20, 2005.
John T. Catterson and Susan A. Teschner, for petitioner.
Monica E. Koch, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: Respondent determined a Federal estate tax
deficiency of $843,146 against the Estate of Nora Kolczynski (the
estate). After concessions, the issue for decision is the value
of a tract known as Dawn Plantation (DP) which Nora Kolczynski
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held at her death.1 The parties disagree as to the highest and
best use of DP on the valuation date and the method to value DP.
We hold that the highest and best use for DP was a mixed use of
recreation purposes and timber management. We further hold that
the fair market value of DP on the valuation date was $4,829,252.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts is incorporated herein by this
reference.
1
The estate filed a sec. 2032A protective election with its
estate tax return. The estate has indicated its intent to
perfect this protective election by filing an additional notice
of election if we determine the value of DP to be greater than
the amount it asserted at trial. Respondent has indicated his
intent to deny any such attempt. This dispute raises the
question of when the 60-day period begins to run for the estate
to file a notice of election, and turns on the phrase “as finally
determined” in sec. 20.2032A-8(b), Estate Tax Regs.
Specifically, respondent argues that the value finally determined
is his determination in the notice of deficiency, and the estate
argues that it is this Court’s determination of the property’s
value. This issue will be addressed only if the estate files an
additional notice of election and respondent denies the estate’s
filing. An appropriate order will be issued addressing these
contingencies.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect as of the date of decedent’s
death, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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On July 8, 1999, Nora Kolczynski (decedent) died testate as
a resident of the State of New York. The executor had a mailing
address at c/o John T. Catterson, Esq., Hauppauge, New York,
11788, when the petition was filed. The executor’s actual
address is not in the record.
On the date of decedent’s death, she held, among other
things, 100-percent ownership of DP. Decedent’s interest was
reported by the estate on its Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return. The date of death is
the valuation date in this case. The estate reported that the
value of DP on the valuation date was $4,378,013. The estate
also made a protective election on Schedule A-1, Section 2032A
Valuation.
Dawn Plantation
DP is in Greenpond, Colleton County, South Carolina, in an
area known as ACE Basin. ACE is an acronym for the Ashepoo,
Combahee, and Edisto Rivers, and ACE Basin includes about 350,000
acres of land. ACE Basin is part of the South Carolina lowlands,
and the rivers are affected by tidal changes. Because of ACE
Basin’s location, it provides a notable ecosystem, and the ACE
Basin Commission was founded to preserve ACE Basin in its natural
and pristine condition. Colleton County is in southeastern South
Carolina and is approximately 60 to 70 miles northwest from
Hilton Head, a resort and retirement community.
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Colleton County was ranked 21st in population growth in
South Carolina, with an 11.3-percent increase during the period
1990 through 2000. There are neither zoning nor use restrictions
in Colleton County.
The parties stipulate that DP comprises 2,095.12 acres. The
record establishes that the main tract is 1,931.30 acres, and the
five smaller tracts total 133.82 acres.2 DP is north of U.S.
Highway 17 and south of the Ashepoo River and is bisected east to
west by Clover Hill Road. DP features timberlands, open fields,
access to a shallow branch of the Ashepoo River, and 226 acres of
what were historically rice fields. The rice fields have not
functioned as such for decades and no longer have dikes to
regulate water flow from tidal changes. DP is inhabited by an
array of wildlife including deer and migratory water fowl.
Procedural History
On September 30, 2003, respondent issued a notice of
deficiency in which he determined a Federal estate tax deficiency
of $843,146. The deficiency included three increases to the
value of decedent’s taxable estate: (1) A $157,500 increase to
the fair market value of decedent’s residence; (2) a $1,112,979
increase to the fair market value of DP (a total value of
$5,490,992); and (3) a $390,315 increase for the disallowance of
executor’s commissions and attorneys’ fees.
2
The record does not explain the 30-acre discrepancy.
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The estate timely petitioned the Court and challenged each
adjustment respondent made. The estate claims that the value of
DP is overstated on the estate tax return. The estate contends
that the value of DP was $4,238,000 on the valuation date, which
is $140,013 less than it reported on the estate tax return.
The estate has since conceded the $157,500 increase to the
fair market value of decedent’s residence. The parties also
agree that the estate may deduct 5 percent of the value of the
probate assets located in South Carolina as executor’s
commissions, New York executor’s commissions of $23,832, and
$277,750 for attorney’s fees. These deductions require payment
of the corresponding amounts.
OPINION
Section 2001 imposes a Federal tax “on the transfer of the
taxable estate of every decedent who is a citizen or resident of
the United States.” The value of a decedent’s gross estate
includes the fair market value of any interest the decedent held
in property. See secs. 2031(a), 2033; United States v.
Cartwright, 411 U.S. 546, 551 (1973); sec. 20.2031-1(b), Estate
Tax Regs. Fair market value reflects 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.” Sec.
20.2031-1(b), Estate Tax Regs.; United States v. Cartwright,
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supra at 551. Fair market value is an objective test that relies
on a hypothetical buyer and seller. See Estate of Bright v.
United States, 658 F.2d 999, 1005-1006 (5th Cir. 1981); Estate of
Andrews v. Commissioner, 79 T.C. 938, 956 (1982).
A valuation analysis of property must reflect the highest
and best use to which the property could be put on the relevant
valuation date. Symington v. Commissioner, 87 T.C. 892, 896
(1986); Stanley Works & Subs. v. Commissioner, 87 T.C. 389, 400
(1986). The highest and best use is a factual issue, Symington
v. Commissioner, supra at 896; Skripak v. Commissioner, 84 T.C.
285, 320 (1985), in which we consider “‘[t]he realistic,
objective potential uses’”, Symington v. Commissioner, supra at
896-897 (quoting Stanley Works & Subs. v. Commissioner, supra at
400 (citing United States v. Meadow Brook Club, 259 F.2d 41, 45
(2d Cir. 1958))). This determination is not affected by whether
the owner has or intends to put the property to such use.
Symington v. Commissioner, supra at 897. Instead, we focus on
“The highest and most profitable use for which the property is
adaptable and needed or likely to be needed in the reasonably
near future”. Olson v. United States, 292 U.S. 246, 255-256
(1934).
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The parties disagree as to the highest and best use and the
valuation method to be applied. Both parties presented the
testimony of expert witnesses to support their respective
positions.
A. Burden of Proof
The estate argues that respondent’s notice of deficiency was
arbitrary, and the burden of proof should shift to respondent.
We do not find the notice of deficiency arbitrary. In addition,
we decide this case on the preponderance of the evidence, and our
analysis is not affected by the burden of proof. See Blodgett v.
Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C.
Memo. 2003-212.
B. Experts
A witness that qualifies as an expert by knowledge, skill,
experience, training, or education can give opinion testimony if
his special knowledge will assist the Court in understanding the
evidence or determining a fact at issue and if his opinion is
supported by sufficient facts and is based on reliable principles
and methods that were applied reliably to the facts of the case.
See Fed. R. Evid. 702. We are, however, not bound by expert
opinions and may reach a decision based on our own analysis of
all the evidence in the record. Helvering v. Natl. Grocery Co.,
304 U.S. 282, 295 (1938); Silverman v. Commissioner, 538 F.2d
927, 933 (2d Cir. 1976), affg. T.C. Memo. 1974-285; Estate of
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Newhouse v. Commissioner, 94 T.C. 193, 217 (1990). Where experts
offer conflicting estimates of fair market value, we must weigh
each estimate by analyzing the factors they used to arrive at
their conclusions. Silverman v. Commissioner, supra at 933;
Casey v. Commissioner, 38 T.C. 357, 381 (1962); see also Estate
of Davis v. Commissioner, 110 T.C. 530, 538 (1998).
Each party offered expert testimony with respect to the
value of DP. The estate presented the testimony of Charles
Middleton (Mr. Middleton), a South Carolina State-certified
general real estate appraiser. Mr. Middleton’s report was
attached to the estate tax return, which was received into
evidence. Respondent concedes that Mr. Middleton is an expert in
appraising real estate. The Court, however, limited Mr.
Middleton’s testimony to that of a rebuttal witness since the
estate failed to comply with the Court’s standing pretrial order
to identify him in its pretrial memorandum as a witness it
intended to call at trial.
The estate also presented the testimony of Thomas Hartnett
(Mr. Hartnett), a South Carolina general real estate appraiser
and a certified real estate brokerage manager, as an expert in
land valuation. Mr. Hartnett prepared an expert report in
accordance with Rule 143(f), and the estate properly identified
him as a witness in its pretrial memorandum.
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Respondent presented the testimony of Robert O’Rear (Mr.
O’Rear). Mr. O’Rear has a B.S. in forestry and has taken at
least two valuation classes. His 30 years of work experience
include appraising timber, timberland, cropland, and forest
plantations. He prepared an expert report in accordance with
Rule 143(f), and respondent identified Mr. O’Rear as a witness in
his pretrial memorandum. Mr. O’Rear’s professional training and
work experience qualify him as an expert to value DP for estate
tax purposes.
Each party urges us to reject the other party’s expert’s
opinions. We may, however, accept or reject the opinion of an
expert in its entirety, or we may be selective in the use of any
portion thereof. Estate of Davis v. Commissioner, supra at 538;
Parker v. Commissioner, 86 T.C. 547, 562 (1986); Buffalo Tool &
Die Manufacturing Co. v. Commissioner, 74 T.C. 441, 452 (1980).
Stated differently, we decide, as the trier of fact, the weight
afforded any witness’s testimony, and we are not compelled to
accept any testimony even if it is uncontradicted. McGraw v.
Commissioner, 384 F.3d 965, 972 (8th Cir. 2004), affg. Butler v.
Commissioner, T.C. Memo. 2002-314; Paul E. Kummer Realty Co. v.
Commissioner, 511 F.2d 313, 315 (8th Cir. 1975), affg. T.C. Memo.
1974-44.
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C. Valuation Methodology and Highest and Best Use
The parties’ disagreement over DP’s value stems from two
issues. First, what was the highest and best use to which DP
could have been put on the valuation date? Second, what method
should be used to value DP? We note that the valuation method
petitioner urges us to apply and the method J. Richard Cox (Mr.
Cox), an attorney and C.P.A., used to determine the value of DP
that the estate reported on the estate tax return are different.
Given this difference we will analyze the appraisals attached to
the estate tax return in addition to the reports of the experts
who testified.
1. The Estate Tax Return
Mr. Cox’s report was attached to the estate tax return, but
he was deceased at the time of trial. The valuation method Mr.
Cox used aggregated the timber value and the land value. A land
appraisal by Mr. Middleton and a timber appraisal by Scott Pellum
(Mr. Pellum), a registered forester, were also attached to the
estate tax return.
a. Land Appraisal
To determine the highest and best use for DP, Mr. Middleton
considered four factors: (1) Physical possibility, (2) legal
permissibility, (3) financial feasibility, and (4) maximum
productivity (profitability). After considering these factors,
Mr. Middleton concluded that DP’s highest and best use was a
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mixed use of agriculture, including timber, cow, and hog farming,
and recreation, including hunting.
To value DP, he used the sales comparison approach (also
referred to as the comparative sales approach). A sales
comparison approach relies on recent sales of comparable
properties to determine the value of the subject property. Mr.
Middleton performed two separate analyses, one with respect to
the main tract and a second with respect to the five smaller
tracts.
In comparing DP’s main tract to other tracts recently sold,
Mr. Middleton subtracted the value of any improvements, such as
the value of a house or other erected structures, and the
merchantable timber on DP. In addition, he made adjustments for
the size, waterfront access, and location and the period between
the sale date and the valuation date. He identified sales of six
comparable properties to value DP’s main tract; however, he
accorded greater weight to three given their geographic
similarities to DP. Mr. Middleton concluded that the value of
DP’s largest tract on the valuation date was $1,275 per acre, for
a total value of $2,500,275 (1,961 acres x $1,275 per acre). He
rounded this to $2.5 million.
To value the five separate small tracts he again identified
sales of six comparable properties. Because each tract was
different in size and had different attributes, such as road
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access, Mr. Middleton grouped similar tracts for valuation
purposes. Using the comparable properties with similar
attributes, he determined the combined value of the smaller
tracts was $226,000 on the valuation date.
Mr. Middleton calculated the total appraised land value of
DP as follows:
Main tract value--1,961.3 acres $2,500,000
Improvement value 100,000
Combined value of the five small tracts 226,000
Total 2,826,000
Rounded to 2,825,000
b. Timber Appraisal
Mr. Pellum determined the value of standing merchantable
timber, and his report was attached to the estate tax return.
Mr. Pellum did not testify at trial. In his report, Mr. Pellum
used stands to identify specific forested acres on DP and
determined the quality (pine sawtimber, chip-n-saw, pine
pulpwood, hardwood sawtimber, and hardwood pulpwood) and volume
of the timber in each stand. Using the Timber Mart-South, South
Carolina Stumpage Prices, 2nd Quarter 1999, which provided per-
ton prices for different timber qualities, he calculated the
value of the merchantable timber on DP’s 1,481 forested acres.
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He determined, on the basis of these calculations, that the value
of the merchantable timber on DP was $2,665,992.3
c. Value Reported on the Estate Tax Return
Mr. Cox valued DP as a business, specifically a sole
proprietorship. Mr. Cox’s valuation of DP relied on, among other
things, Mr. Middleton’s land appraisal and Mr. Pellum’s timber
appraisal. In his report, Mr. Cox stated: “While it is simple
to add the land value to the timber value, such simple addition
would result in a value determination greatly in excess of the
true fair market value of the property.” Mr. Cox opined that
none of the timber acreage tracts with a value of less than
$1,000 per acre should be harvested since cutting the timber in
these areas would “result in tremendous decreases in value of
these and the immediately surrounding acreage.” Accordingly, he
decreased the total timber value by $225,729. This adjustment
resulted in a timber value of $2,440,263.
To determine the land value Mr. Cox referenced three
different methods, one of which was Mr. Middleton’s report.
However, Mr. Cox ultimately accepted a single method for the land
value in his report. The method he used was based on the State
of South Carolina’s assessed land value of DP of $1,470,200. His
report indicates that the State’s assessed value was
approximately 80 percent of the fair market value. He therefore
3
The parties stipulated this was the correct value.
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concluded that the true fair market value of the land was
$1,837,750 ($1,470,200/.80). As a result, Mr. Middleton’s land
value played no role in the amount reported by the estate on the
Estate tax return.
Aggregating the adjusted timber value of $2,440,263, the
adjusted land value of $1,837,750, and the $100,000 value of the
improvements on the land, as determined by Mr. Middleton, Mr. Cox
concluded that the fair market value of DP was $4,378,013.
2. Respondent’s Valuation Method in the Notice of
Deficiency
In his notice of deficiency, respondent stated that the
value of DP was $5,490,992 on the valuation date. This was
determined by aggregating the timber value in Mr. Pellum’s report
and the land value in Mr. Middleton’s report. This method
essentially disregarded any discounts Mr. Cox had applied and
rejected Mr. Cox’s land valuation method.
Mr. O’Rear concluded in his report that the highest and best
use that DP could have been put to on the valuation date was a
mixed use of recreation and agriculture. However, at trial he
opined that DP should be valued as timberland since that was its
only profitable use on the valuation date. Accordingly, he
applied a summation approach to arrive at the value stated in the
notice of deficiency.
3. Mr. Hartnett’s Valuation Method
As stated above, the estate contends that the value of DP is
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less than the amount it reported on the estate tax return. The
estate offered the testimony of Mr. Hartnett to support this
lesser value. In determining the highest and best use he
considered the same four criteria considered by Mr. Middleton:
(1) Physical feasibility, (2) legal permissibility, (3) financial
feasibility, and (4) maximum productivity. Mr. Hartnett
determined that the highest and best use that DP could have been
put to on the valuation date was mixed. He effectively concluded
that recreation was the primary use and timber management was the
means to cover maintenance expenses.
Mr. Hartnett then used a sales comparison approach to
determine the value of DP, which differed from the method Mr. Cox
employed. Mr. Hartnett identified sales of five comparable
properties and made adjustments to the sale price of each for
differences in size, date of sale, physical characteristics,
location, and timber value. He also adjusted for improvements on
the properties. The timber adjustment was determined by
subtracting the per-acre timber value of the property from the
per-acre value of the timber on DP; the difference was then
multiplied by the property’s total acreage. After applying the
improvement and timber adjustments, the adjusted sale price was
determined and broken down to the per-acre sale price. A time
adjustment was next applied to the per-acre price of the
property. The amount of this adjustment depended on the number
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of years between the property’s date of sale and decedent’s date
of death. After applying the time adjustment, the per-acre sale
price was adjusted by the aggregate of the waterfront and size
adjustments. The waterfront adjustment was made by comparing the
water access of the comparable property with that of DP. Mr.
Hartnett made positive and negative adjustments for water access
where he thought appropriate. The size adjustment took into
account a premium paid for smaller parcels. The greater the
difference between the acreage of DP and the comparable property,
the greater the amount of the adjustment.
4. Highest and Best Use Analysis
The estate’s position is that DP’s highest and best use on
the valuation date was mixed--recreation supported by timber
farming. Respondent contends that DP’s highest and best use on
the valuation date was as timberland since timber farming had
been the sole profitable activity of DP until decedent’s death.
We disagree with respondent.
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We begin by noting that Mr. O’Rear’s rebuttal report states:
“The current use is as a timberland/hunting plantation; and this
is the highest and best use of the property.” At trial, Mr.
O’Rear explained that the best way to measure both uses was to
value DP as timberland since, until decedent’s death, that was
its sole profitable activity. Given this apparent discrepancy,
we give little weight to Mr. O’Rear’s testimony on the highest
and best use for DP.
As stated previously, we focus on “The highest and most
profitable use for which the property is adaptable and needed or
likely to be needed in the reasonably near future.” Olson v.
United States, 292 U.S. at 255-256 (emphasis added). Real
property may be adaptable for multiple uses that are profitable
in the reasonably near future. One such use may include leaving
land in its natural and pristine state when considering the
supply and demand for similar land.
ACE Basin is an exceptional ecosystem with many potential
recreational uses, and property in ACE Basin is often purchased
for those purposes. ACE Basin’s attributes include diversified
wildlife, open fields, and standing timber. Decedent used the
land for recreational purposes such as hunting and horseback
riding. DP’s standing timber was cut only to assist in covering
the expenses of maintaining the property. There are no zoning or
use restrictions to limit DP’s uses, but the record is devoid of
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evidence indicating that DP could be used successfully for
commercial or residential development in the reasonably near
future. These facts, taken together, support a finding that the
highest and best use for DP was a mixed use.
The testimony of Lucas Carter (Mr. Carter), the curator of
DP, also indicates the highest and best use for DP was a mixed
use. Mr. Carter credibly testified that clear-cutting the
standing timber on DP would have significant adverse effects, the
most significant being that wildlife would seek refuge elsewhere.
When questioned about the period before such wildlife would
return, Mr. Carter estimated that it would likely take 15 to 20
years for the timberland to regenerate before that would occur.
The loss of wildlife and standing timber would clearly have a
negative effect on the recreational value of DP.
After reviewing the record, we conclude that both the
hypothetical buyer and seller having reasonable knowledge of all
relevant facts would not disregard either the recreational or the
timberland use. Accordingly, DP’s highest and best use on the
valuation date was a mixed use of recreation and timberland, with
selective timber farming supporting the recreational value.
5. Valuation Method Analysis
The estate argues that a comparative sales approach is the
proper method to value DP. Respondent, in contrast, contends
that a summation method should be used. The summation method
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proposed by respondent aggregates the merchantable timber value,
the value of the land without timber and improvements (the bare
land value), and the value of any improvements. The land value
component in the summation method is based on the comparative
sales approach.
Respondent relies on Estate of Sturgis v. Commissioner, T.C.
Memo. 1987-415, to support his position. The facts in Estate of
Sturgis indicate that both parties agreed that the highest and
best use of the Sturgis property was as timberland, and each
expert had valued the Sturgis property by a standard methodology
that aggregated the values of the separate components. The land
valuation analysis relied on by the Court took into consideration
accessibility for cutting the timber, soil data, timber data, and
shape.
We find respondent’s reliance on Estate of Sturgis is
misplaced for three reasons. First, we are unpersuaded that Mr.
Pellum’s timber valuation did not apply a clear-cutting approach.
Mr. Pellum did not testify, and his report does not indicate
whether he considered the negative effects of clear-cutting all
of the standing timber on more than 70 percent of DP’s total
acreage (1,481 forested acres/2,095.12 total acres). Second,
none of the land valuations in this case, including Mr.
Middleton’s, considered timber-related issues such as soil
quality, accessibility, and drainage as did the land valuation
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relied on in Estate of Sturgis. Clear-cutting DP would
negatively affect a subsequent land appraisal since the
recreational uses would be significantly diminished. Third, the
historic use of DP was a mixed use of recreation supported by
timber management. Similarly, the comparable properties
identified by the parties appear to have been sold for this use.
We believe that arm’s-length transactions provide a more accurate
basis to value DP, compared to a summation of components as
proposed by respondent.
D. Valuation
1. Comparable Properties
Mr. Hartnett identified sales of five comparable properties.
Unlike Mr. Middleton, he compared those five properties with the
entire DP acreage. Since Mr. Hartnett gave greater weight to two
of these sales, we shall review those in detail.
The first sale was part of a section 1031 exchange in which
Birchwood Holdings transferred 1,766 acres in Colleton County to
Westvaco Corporation (collectively, the Birchwood sale), on
January 29, 1999. Mr. Hartnett alleged that the total sale price
was $3,620,000 because the purchaser transferred 2,344 acres of
land, with roughly $1,370,000 of merchantable timber, and
$2,250,000 of “boot”.
The second sale involved 447.75 acres in Colleton County,
known as the White House Plantation, on May 1, 1997. This tract
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was contiguous with DP and sold for $1.1 million. Mr. Hartnett
estimated that the values of the improvements and marketable
timber were $150,000 and $425,000, respectively.
On the basis of the two principal sales of comparable
properties, Mr. Hartnett determined a per-acre value of $1,975
for DP, which totaled $4,137,862 (2,095.12 acres x $1,975/acre).
He then added $100,000 for the estimated value of all
improvements to DP and concluded that the estimated market value
of DP was $4,237,862, which he rounded to $4,238,000.
Respondent contests the use of the Birchwood sale on the
basis that it was part of a section 1031 exchange and it was not
in the “prestigious ACE Basin”. Respondent argues that the
public records reveal that the total value of the property
transferred by the buyer was more than the amount Mr. Hartnett
included in his report. We agree.
The facts regarding the Birchwood sale are insufficient for
us to use it as a comparable property because we do not know the
value of the 2,344 acres of land transferred by the purchaser.
Mr. Hartnett could provide only the value of the merchantable
timber thereon. Given this shortcoming, we do not believe that
the Birchwood sale is relevant.
In contrast, we find the White House Plantation sale is
relevant. The White House Plantation is contiguous with DP, and
the sale occurred only about 2 years before decedent’s death.
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The main issue with this property is that it includes
significantly less acreage than DP. While valuation is
inherently imprecise, we should limit this inexactitude by
relying on sales that require the fewest and smallest
adjustments. Accordingly, this is the best available sale of
comparable property.
2. Adjustments to the Sale Price of the White House
Plantation
Mr. Hartnett made five adjustments to the sale price of the
White House Plantation which took into consideration the
distinctive characteristics of DP and the comparable property.
The adjustments he made are summarized in the following table:
White House
Adjustments Plantation
Sale price $1,100,000
Improvement (50,000)
adjustment
1
Timber adjustment 144,625
Adjusted price 1,194,625
Per-acre value 2,668
2
Time adjustment 213
Per-acre value with 2,881
time adjustment
Water front -0-
adjustment
3
Size adjustment (1,008)
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Aggregate water (1,008)
front and size
adjustments
Total adjusted per- 1,873
acre value
1
This adjustment consists of the difference between
the per-acre value of the timber on DP ($1,273) and the
per-acre value of the timber on the White House
Plantation ($950), multiplied by the White Houses
Plantation’s 447.75 acres. Mr. Hartnett rounded to get
this amount.
2
Based on a time adjustment of 8 percent.
3
Based on a 35-percent size adjustment.
After adjustments, Mr. Hartnett determined in his report a per-
acre value of $1,873 for the White House Plantation. We shall
review each adjustment.
a. Improvement Adjustment
Mr. Hartnett decreased the White House Plantation sale price
by the amount its improvements exceeded the improvements on DP.
The White House Plantation had improvements valued at $150,000.
Thus, Mr. Hartnett reduced the sale price by $50,000. We find
this adjustment acceptable.
b. Timber Adjustment
The timber adjustment Mr. Hartnett used increased the per-
acre value of the White House Plantation by the difference
between the per-acre value of the timber on DP and the per-acre
value of the timber on the White House Plantation. Respondent
argues that this method does not account for the total value of
the timber on DP. Respondent contends that the timber adjustment
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should equal the excess of the value of the merchantable timber
on DP over the value of the timber on the White House Plantation.
We disagree with respondent.
We find that Mr. Hartnett’s adjustment adequately accounts
for the greater value of the standing timber on DP. We are
determining DP’s per-acre value using the comparable sales
approach, and adjusting the per-acre value is consistent with
this approach. Thus, we accept the amount of the adjustment in
Mr. Hartnett’s report.
c. Time
The White House Plantation sale occurred about 2-1/3 years
before the valuation date. Mr. Hartnett made a positive 8-
percent adjustment to the per-acre value of the White House
Plantation for this difference. Respondent did not object to
this adjustment, and we have no reason to reject this adjustment.
Thus, we will apply an 8-percent time adjustment.
d. Size Adjustment
Mr. Hartnett made a 35-percent size adjustment to the per-
acre sale price of the White House Plantation since it was about
one-fourth the size of DP. Respondent objects to the size of
this adjustment.
While we agree that some size adjustment is appropriate, we
think that a 35-percent adjustment was unduly large. If the
facts had demonstrated the White House Plantation was purchased
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for residential or commercial development on account of its size,
then Mr. Hartnett’s 35-percent size adjustment might have been
justified. Those facts are, however, not present. We therefore
apply a 20-percent size adjustment.
e. Location Adjustment
Mr. Hartnett did not make a location adjustment for the
White House Plantation. Since the White House Plantation is
contiguous with DP, we find that no adjustment is necessary.
3. The Value of DP
Taking into account the adjustments described above, we find
that the adjusted per-acre value of the White House Plantation is
$2,305, as computed in the following chart:
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White House
Adjustments Plantation
Sale price $1,100,000
Improvement (50,000)
adjustment
Timber adjustment 144,625
Adjusted price 1,194,625
Per-acre value 2,668
Time adjustment 213
Per-acre value with 2,881
time adjustment
Waterfront -0-
adjustment
Size adjustment (576)
Location adjustment -0-
Total adjusted per- 2,305
acre value
Applying this per-acre value using Mr. Harnett’s
methodology, we conclude that the value of DP on the valuation
date was $4,829,252.
To reflect the foregoing,
An appropriate order will
be issued.