*3461 Value of real estate determined.
*781 This is a proceeding for the redetermination of a deficiency in income tax of $8,459.01 for 1921. The only issue is the amount of profit, if any, upon a sale of certain tracts of land in 1921.
FINDINGS OF FACT.
In 1921 the petitioner, a resident of Springfield, Ill., sold to the Utilities Company three tracts of land, all of which the petitioner owned on March 1, 1913, designated as Tracts 1, 2 and 3, for $109,740.50. The respondent arrived at the deficiency involved by determining that the March 1, 1913, value of the property was $39,522.63, that $1,477.77 had been expended thereon before sale, and that the taxable profit was $68,740.10.
The March 1, 1913, value of the petitioner's fee title in the tracts of land sold in 1921 was greater than the cost thereof, and was at least $85,000.
Tract 1 had been leased on May 16, 1907, for a 20-year term, renewable for four successive periods of 20 years at an annual rental of $400 per year for the first 20 years, the lessee paying taxes, thereafter at an annual rental of 3 per*3462 cent of the appraised value, and limited as to the first renewal period to not more than $2,400.
Tract No. 2 was similarly leased on May 16, 1907, for $400 annually for the first 20 years. Tract No. 3 was leased on July 22, 1907, for a 40-year term, the rental for the first 20 years being $600 per year, for the second 20 years at 4 per cent of the appraised value, and an option given to the lessee to renew for three additional 20-year terms, the annual rental to be 3 per cent of the appraised value. The lessee covenanted to pay all taxes.
On June 17, 1913, the lease agreement of May 16, 1907, as to tract No. 2 was modified to provide for a $500 annual rental, and the same option of renewal for four 20-year terms was given by the petitioner to the lessee.
In 1913 steps were taken by the lessees of the properties looking toward purchase of the fee title, a reorganization and merger having been effected and the property was appraised. As the result of the appraisal the officers of the lessees authorized an offer to the petitioner of $100,000. Such an offer was made in 1914 and was refused by the petitioner.
*782 OPINION.
SIEFKIN: The respondent's valuation of*3463 the three tracts of real estate in question is based upon a theory that the annual rental receivable on such real estate, encumbered by long-term leases, fixes the value. On March 1, 1913, the petitioner, under the terms of the leases, was receiving $1,400 a year and the respondent suggests that that amount be considered as the equivalent of interest upon the investment. Such a method leaves out of consideration several factors which are applicable in this proceeding. The petitioner was making a long-term investment for his three daughters and was satisfied that nothing compared with long-term leases to public utilities which guaranteed a certain return and paid all taxes. The provision for valuation at the end of 20 years gave promise of revision of rental upward only. The attitude of the petitioner is 1914 in refusing $100,000 for the same property, while not conclusive, shows his attitude at about the basic date and also indicates the belief of the lessees as to the value of the fee title owned by the petitioner. Taken in connection with the testimony of a large number of qualified witnesses as to values, the evidence abundantly supports the value for the petitioner's interest*3464 which we have found.
Judgment will be entered under Rule 50.