Powel v. Commissioner

*166 This is a proceeding for the redetermination of a deficiency in estate tax of $3,524.92, resulting from the respondent's determination that certain parcels of real estate had a greater value at the date of the death of Hope Ives Powel than was reported in the estate-tax return.

FINDINGS OF FACT.

Hope Ives Powel died on March 10, 1922, and prior to her death was an inhabitant of Rhode Island. T. I. Hare Powel and Samuel Powel are the executors of the estate, and during 1922 were also inhabitants of Rhode Island.

At the time of her death, Mrs. Powel in addition to owning other lands was the owner of the following farm lands, which were reported by the executors for Federal estate-tax purposes as having on the date of the decedent's death the values indicated and which lands in the determination of the deficiency herein involved were valued by the respondent at the amounts shown below:

*4183 *167 The above lands were acquired by Mrs. Powel about 1888 and she continued to own them until her death.

The executors made a return for the purpose of the Nebraska inheritance tax in which they reported the lands situated in that State at the same values that they reported them in the return involved in this proceeding. The appraiser appointed by the County Count of Cedar County, Nebraska, appraised the lands situated in that State as having a market value on November 6, 1922, of the same amounts as determined by the respondent. This resulted in an additional inheritance tax being assessed under the laws of Nebraska. Protest was made against the increased valuations, but without results. The tax was paid under protest. Claim for recovery for the additional tax was not filed, inasmuch as the expense involved would be disproportionate to the amount of the tax. The following are the valuations on which the property taxes levied by the respective States of Iowa and Nebraska were computed:

*4184 The valuation of the lands located in Iowa was considered as four times the amounts on which the property tax was computed, while the valuation for property-tax purposes of the lands located in Nebraska was considered as being five times the amounts on which the property tax was computed. With reference to the lands in Iowa, the amounts shown above are the result of the assessment made of the land as of January 1, 1921, while the amounts relating to the land in Nebraska result from the assessment of the land as of January 1, 1920.

The principal products of these farms are corn and hogs and the sale price of these was much lower on March 10, 1922, than in the early part of 1920. As a result of depressed conditions and low prices of the farm products, the value of the lands involved in these proceedings was much lower on March 10, 1922, than in 1920. About March 10, 1922, there were practically no sales of land being made in the sections where these lands were located, as it was difficult to sell land at any price at that time. The executors since within a few weeks after the death of Mrs. Powel have continuously attempted to sell the lands at the amounts at which they were returned*4185 for the purpose of the Federal estate tax, but have not succeeded in doing so. At the date of Mrs. Powel's death accrued and unpaid rents on these lands amounted to $2,500 on account of the farmers being unable to *168 pay their rents. Afterwards the amounts increased to $4,500, a large portion of which was written off as uncollectible.

The total amount of rents received in 1922 from the lands involved herein, together with that received from another tract containing about 80 acres and not involved in this proceeding, amounted to $4,504. As the commissions of the collecting agent amounted to $450.49, and the Iowa and Nebraska state and county taxes amounted to $1,477.51, the net amount of rent received for 1922 was $2,576.

Tract No. 27, consisting of 80 acres, is located about 1 1/2 miles from the town of Berkley. There is a road along the south end of the land. A large pond covers from 25 to 30 acres of the south 40 acres of the tract and greatly detracts from its value. The land is of good quality so far as the grade of soil is concerned, but it is wet. There are no improvements on this land. In December, 1919, this land was leased for an annual rental of $480*4186 which was subsequently reduced to $360.

Tract No. 73-A lies about 4 1/2 miles north and east of the town of Cumberland. It is a detached 40 acres on a corner with a road on the south side of it. The land is rolling but of fairly good quality. There are no improvements on this land. Because of the small acreage the tract is not as valuable per acre as if the acreage were greater. In September, 1919, this tract was leased for an annual rental of $240 per year but subsequently the tenant refused to pay this rental and the amount was reduced to $160 per annum.

Tract No. 147-B, consisting of 70 acres, is situated about 2 miles east of the town of Doon, Iowa. It is level and of good quality. However, there are no buildings on it belonging to its owners. It is cultivated in connection with the other 90 acres composing the quarter section and which belong to another party. In May, 1919, this tract was leased for an annual rental of $500.

Tract No. 165 lies north of Onawa, and is a detached 40 acres. This land, which is not of a very good quality, is flat and wet. There are no buildings on the land. A road touches the northeast corner of the tract. Under a lease executed*4187 in 1919, this land was rented at $5 per acre.

Tract No. 296, consisting of 156.84 acres, is 2 1/2 miles northwest of the town of Belden, Nebr. The land is rolling, well drained and of a good quality. There are no buildings or improvements on the land. Under a lease executed in 1919 this land was leased at an annual rental of $627.36.

Tract No. 301, comprising 154.9 acres, lies about six miles south of Hartington. The land is rolling but of a good quality. The improvements on the land belong to the tenant. The lease executed in 1919, providing for an annual rental on this land of $852.50, was revised so as to provide for a rental of $619.60.

*169 Tract No. 344, containing 160 acres, lies about 10 miles west of Wausa, Nebr. This land lies well and the soil is rather light, containing more or less sand. This is a tract of good land. The land which is fenced by the tenant has no buildings on it belonging to its owners. The annual rental, under a lease executed in 1919, was $640.

Tract No. 348, consisting of 160 acres, lies about 12 miles west of Wausa and the land is similar to that in Tract No. 344 although not quite so sandy. There are no improvements on*4188 it belonging to the owners of the land.

Tract No. 374, comprising 160 acres, is located about 14 miles south of Randolph, Nebr. It is rolling, well drained and well located. The soil is light. There are no improvements belonging to the owners of the land.

Tracts Nos. 391 and 392-B, containing 80 acres, are situated about 6 miles south and 1 mile east of Pierce, Nebr. This land is rather sandy and without any improvements.

Tract No. 424, consisting of 160 acres, lies about 2 miles north of Osmond, Nebr., on the main road between that town and Wausa. This is a tract of good land with soil that is a little light and well drained. There are no buildings on the land belonging to the owners of it.

All the leases referred to herein were five-year leases. The revisions to provide for lower rentals as indicated above were made during the period immediately following the decline in the price of farm products, which occurred during the latter part of 1920.

OPINION.

TRAMMELL: The only issue involved in this proceeding is the valuation of the properties set out in the findings of fact, for estate-tax purposes, on March 10, 1922, the date of the decedent's death. The executor*4189 contends that the values reported by him were the fair market values on March 10, 1922, while the respondent contends that the values determined by him represent the fair market values at the time of Mrs. Powel's death.

In support of his contention the petitioner introduced the deposition of W. S. Gilman, a resident of Sioux City, Iowa, for 50 years, who, since 1895, has been engaged in the real estate business in that city. In addition to owning 8,000 or 10,000 acres of land in northeastern Nebraska and western Iowa, which are the vicinities in which the lands owned by the decedent at the time of her death are situated, he, immediately prior to March 10, 1922, had owned and handled as agent of his clients about 40,000 acres of land. Since 1893 Gilman has been acquainted with the lands involved in this proceeding and since 1901 has been the agent for these lands. In his capacity as agent he arranged leases, paid the taxes, collected the rents and looked after the lands in the same manner as if they were his own. *170 In his real estate business he has bought and sold many acres of land in the immediate vicinity of the lands involved herein and on March 10, 1922, was familiar*4190 with the market values of lands and farming conditions in these localities. He has seen all of the lands involved herein many times and on or just prior to or just subsequent to March 10, 1922, he saw practically all of them. The Powel lands for which Gilman acts as agent comprise about one-sixteenth of all the lands for which he is agent. Gilman's testimony shows that the values placed by him on the properties were arrived at as a result of his knowledge of and experience with these particular properties, together with his experience as owner of and dealer in similar lands located in the same communities.

In support of his determinations the respondent submitted a copy of the appraisal made by the appraiser appointed by the county court of Cedar County, Nebraska, to appraise for state-inheritance tax purposes the lands located in that State. The values determined by that appraiser are those used by the respondent in so far as the lands in Nebraska are concerned. The evidence does not show what experience or qualifications this person had for performing this kind of service. Neither does it show the factors considered or the method used by him in arriving at his valuation. *4191 The evidence in the case to our mind is sufficient to overcome any presumption of the correctness of the action of the county court in approving the appraisal made by the appraiser.

For the year 1922, the total gross rentals received amounted to $4,504, and the net rentals amounted to $2,576. By using the total valuation, $94,000, placed by the petitioner on the properties involved herein, we find that the net return on the land was about 2.7 per cent, whereas, if the total valuation of $152,748.60 as determined by the respondent is used, the net return is only about 1.6 per cent.

From a consideration of all the evidence in the case, it is our opinion that the valuation placed on the property involved as reported by the petitioner is correct.

Judgment will be entered on 15 days' notice, under Rule 50.