*253 Decisions will be entered under Rule 50.
Petitioners, the owners of a commercial lot with a 2-story building thereon located in Tyler, Texas, conveyed, without consideration, to the Foundation, a charitable corporation, the perpetual right to build, own, and maintain 5 additional stories on the existing 2-story building, plus the rights of access and support. In the event of destruction of the 2-story building the petitioners did not obligate themselves to rebuild it, but if they did elect to rebuild, the Foundation would also have the right to rebuild. The petitioners claimed a charitable contribution of $ 70,000 for the rights and interests conveyed and deducted that amount to the extent provided in section 23 (o), I. R. C. 1939. The respondent disallowed the entire deduction on the ground that the rights and interests contributed were not of such a nature as to give rise to a deduction under section 23 (o). Held, that the rights and interests contributed were property with a fair market value of not less than $ 70,000, and such gift was deductible to the extent provided in section 23 (o). Held, further, that respondent's alternative claim, presented by an amendment*254 to the answer, that the basis of the 2-story building retained by the petitioners should be reduced by the amount held to be contributed does not properly present the issue since there is no showing how such adjustment, if made, will bear upon the deficiency or the petitioners' tax liability for the taxable year.
*866 The respondent has determined deficiencies in income tax of R. W. Fair and Mattie Fair (husband and wife) for the fiscal year ended November 30, 1948, as follows:
| Docket No. | Petitioner | Deficiency |
| 49033 | Mattie Fair | $ 11,887.01 |
| 49034 | R. W. Fair | 11,887.01 |
These proceedings have been consolidated.
The petitioners each reported one-half*255 of their community income on separate returns. The Commissioner made several adjustments *867 to the net income as reported. The only adjustment that is in issue is the disallowance of a charitable contribution in the amount of $ 70,000, which was deducted to the extent provided in section 23 (o), Internal Revenue Code of 1939. The petitioners claimed a charitable contribution of that amount, which they contend is the fair market value of a gift to the Fair Foundation, a charitable corporation, of a building site on top of a 2-story building owned by them, in addition to rights of access and support.
The deficiency notices explained the disallowance to each petitioner, as follows:
(b) Contributions deductible under Section 23 (o) have been adjusted as follows:
| Amount claimed | $ 28,856.46 |
| Allowed | 8,886.98 |
| Disallowed | $ 19,969.48 |
It has been determined that you are not entitled to a deduction in any amount for the alleged contribution of $ 70,000.00 made to the Fair Foundation, Tyler, Texas.
By an amended answer the respondent contends, in the alternative, that if the Court should determine that the rights conveyed by the petitioners to the Fair Foundation had any *256 value, then the basis of the 2-story building retained by the petitioners should be reduced by a like amount.
FINDINGS OF FACT.
A stipulation of facts has been filed and is incorporated herein by reference.
The petitioners, R. W. Fair and Mattie Fair, are husband and wife and reside in Tyler, Texas. The petitioners each reported one-half of their community income on separate income tax returns.
The Fair Foundation, hereinafter referred to as the Foundation, is, and was at all times material herein, a charitable and tax-exempt organization within section 101 (6), Internal Revenue Code of 1939. At all times material, contributions made to the Foundation were deductible by donors in arriving at taxable net income to the extent provided by section 23 (o). Mattie Fair and R. W. Fair were, and at all times have been, sole trustees of the Foundation.
Petitioners, on June 16, 1931, purchased for a consideration of $ 25,307.75 a tract of land 100 feet wide and 127 1/2 feet deep and being a part of lots 11 and 12, block 7, city of Tyler, Texas. The tract of land was located in the business district of Tyler, Texas. In 1942, on the tract of land purchased in 1931, and occupying all of same, *257 petitioners built a building (known as the Sears building) consisting of 2 floors and a mezzanine floor, which building was completed in August 1942 at a cost of $ 158,217.72. On September 1, 1942, petitioners *868 leased all of the building except a portion out of the southeast corner, 13 feet 8 inches wide by 42 feet deep, to Sears, Roebuck and Company for a period of 20 years from that date, which lease is still in force and effect according to its original terms. The lease agreement between the petitioners and Sears, Roebuck and Company provides for a monthly payment of $ 833.33, plus an additional yearly payment equal to 2 1/2 per cent of the gross sales of the lessee over $ 400,000. The remainder of the building was rented to the Flower Box, a florist shop, from September 1942 though February 1948, for a monthly rental of $ 65, but which was raised to $ 75 per month on March 1, 1943.
The rentals paid each year from 1942 through 1954 were as follows:
| Year | Sears, Roebuck | Flower Box | Total |
| and Company | |||
| 1942 | $ 3,799.04 | $ 207.75 | $ 4,006.79 |
| 1943 | 13,077.72 | 880.00 | 13,957.72 |
| 1944 | 15,472.50 | 900.00 | 16,372.50 |
| 1945 | 16,047.19 | 900.00 | 16,947.19 |
| 1946 | 25,698.39 | 900.00 | 26,598.39 |
| 1947 | 33,683.97 | 900.00 | 34,583.97 |
| 1948 | 39,901.82 | 150.00 | 40,051.82 |
| 1949 | 39,578.06 | 39,578.06 | |
| 1950 | 43,778.21 | 43,778.21 | |
| 1951 | 40,354.18 | 40,354.18 | |
| 1952 | 39,826.29 | 39,826.29 | |
| 1953 | 40,573.56 | 40,573.56 | |
| 1954 | 39,906.74 | 39,906.74 | |
| Total | $ 391,697.67 | $ 4,837.75 | $ 396,535.42 |
*258 At the time the petitioners constructed the Sears building it was anticipated that additional stories would subsequently be added to the top of that building. In the construction of the Sears building, the foundation was built to support not only 2 floors and a mezzanine, but also at least 5 additional stories on top thereof.
On July 1, 1948, the petitioners executed a document conveying to the Foundation certain rights and interests in the above-described property. The document recited that the petitioners owned certain lots in Tyler, Texas, upon which was located the Sears building. In the conveying instrument the petitioners expressly retained title to these lots and to the Sears building to themselves, their heirs, and assigns, subject, however, to the express terms of the grant made to the Foundation.
Petitioners conveyed to the Foundation the right to enter on the subject premises and construct, maintain, own, and operate 5 additional stories to the Sears building using the existing walls, foundation, and columns. The document also recited that the Foundation could, with the written consent of the petitioners, add 1 or more *869 additional stories if structurally feasible*259 and safe. The petitioners, as grantors, agreed to do nothing to weaken the walls, top, columns, or foundation then existing, but were under no duty to maintain such supporting members.
The instrument granted to the Foundation an easement to and the right to use so much of the Sears building designated as 119 South Broadway, an area 13 feet 8 inches wide and 42 feet long, as might be necessary for a lobby and for the installation and maintenance of elevators and stairways to the additional stories to be erected. The Foundation was given exclusive control over this area. The Foundation was granted the full right to make such openings in the walls or roof of the Sears building as might be necessary and required for the erection of the additional stories, and the installation of pipes, and gas, water, electrical, and sewage lines, as well as all other conduits, required for the proper erection and maintenance of the additional stories. The instrument provided that the petitioners would make the necessary arrangements with the tenant of the Sears building so that the grant might be carried into effect.
The Foundation was granted the full right to use such sufficient space in the basement*260 of the Sears building as might be required for the installation of elevators.
All costs of construction, installation, and maintenance of the additional stories and insurance thereon were to be borne by the Foundation.
The instrument provided that in the event of the destruction of the Sears building, in whole or in part, the option rested with the petitioners, their heirs, and assigns as to the restoration of the same. If the petitioners elected to rebuild, then the Foundation, its successors, and assigns should also have the right to rebuild.
The instrument recited the intention of the petitioners to be the grant to the Foundation of the perpetual right to erect, maintain, own, and use the additional stories to be erected on the Sears building and such other rights as might be necessary to its use and enjoyment. The instrument also recited "but the ownership of the property retained by Grantors and that hereby granted to Grantee shall be several and distinct."
No consideration was paid by the Foundation or its trustees for the above-described conveyance; a gift was intended and made by the petitioners.
The basis of the building in the hands of the petitioners was $ 158,217.72, *261 before adjustment for depreciation; the petitioners sustained depreciation on the building before December 1, 1947, in the amount of $ 16,744.70; and during the year ended November 30, 1948, the petitioners deducted depreciation in the amount of $ 3,164.35. None of this depreciation was disallowed in the deficiency notices.
*870 The rights conveyed to the Foundation were not carried on the petitioners' books as assets separate and apart from the Sears building. There was no adjustment made by petitioners on their books and records to the basis of the Sears building for purposes of Federal taxation after the conveyance to the Foundation.
In 1948 and 1949, the Foundation constructed a 5-story office building known as the Fair Foundation Building, on top of the building owned by petitioners and leased to Sears, Roebuck and Company. The area formerly occupied by the Flower Box was used for the lobby, elevators, and stairway of the Fair Foundation Building. The lease agreement between petitioners and Sears, Roebuck and Company was in no way altered or amended. The Fair Foundation Building was completed in September 1949 at a cost of $ 690,349.21.
The Evaluating Committee of the*262 Tyler (Texas) Real Estate Board, at the request of R. W. Fair, evaluated the property of the petitioners conveyed to the Foundation. Their opinion is included in the following report presented to R. W. Fair and dated January 28, 1953:
We, the undersigned Evaluating Committee of the Tyler Real Estate Board, have today evaluated parts of the Fair Foundation property and parts of the property known as the Sears-Roebuck property, and submit to you the following value, which value is approximately same today as it would have been when the additional building was built over the Sears-Roebuck building:
| $ 15,360.00 -- | Cost of the portion of the building, used for entrance, lobby, |
| elevator, and storage, being 12 x 40 feet in size, fronting 12 | |
| feet on Broadway and extending 40 feet West, being the first | |
| floor, messanine floor, and basement, the 480 feet of the | |
| first floor, including the elevator shafts figured at $ 16.00 | |
| per square foot, and the 480 feet of the mezzanine and the | |
| 480 feet of the basement, each including the elevator shafts | |
| figured at $ 8.00 per square foot. | |
| 9,600.00 -- | Value of the portion of the lot used for building entrance, |
| lobby, elevator, and storage, which portion of lot is 12 x 40 | |
| feet in size. | |
| 18,000.00 -- | The additional cost of the foundation and all reinforcing |
| necessary for the support of the above office space. | |
| 38,466.66 -- | Value of aerial space above Sears-Roebuck Building, with the |
| understanding that this space is a perpetual interest, and not | |
| to be disturbed by any of the lower part of the building | |
| occupied by Sears-Roebuck, which is figured as follows: The | |
| 100 feet fronting South Broadway at a value of $ 1250.00 per | |
| front foot, for a total of $ 125,000.00, less however, the | |
| $ 9600.00 above deducted for the 12 x 40 lot, leaving a | |
| balance of $ 115,400.00 allocated for the remainder of the | |
| lot, and by using a one-third value of the $ 115,400.00, which | |
| is a conservative percentage to use for aerial value, making | |
| a value of $ 38,466.66. | |
| $ 81,426.66 -- | Total |
*263 The above figures may be rather conservative, since the estimate of the lot value at $ 1250.00 per front foot is conservative, and the percentage for evaluation of the aerial space is conservative by using the 33 1/3% of the lot value.
*871 Also, in using the above figures, we are of the conclusion that all of this 12 x 40 space is a permanent grant and all of the aerial space is a permanent grant, otherwise our total would not be correct.
The fair market value of the rights and interests which petitioners conveyed to the Foundation by the instrument dated July 1, 1948, was not less than $ 70,000.
OPINION.
The petitioners, the owners of a commercial lot with a 2-story building thereon, conveyed, without consideration, to the Foundation, a charitable corporation, the perpetual right to build, own, and maintain 5 additional stories on the existing 2-story building, plus the right to the exclusive use of a portion of the existing 2-story building to be used as an entrance, lobby, stairway, and elevator shafts. The petitioners agreed to do nothing to weaken the support of the upper 5 stories. In the event of destruction of the 2-story building, the petitioners did not obligate *264 themselves to rebuild it but, if they did elect to rebuild, the Foundation would also have the right to rebuild.
The petitioners claimed a charitable contribution of $ 70,000 for the rights and interests conveyed to the Foundation and deducted that amount to the extent provided in section 23 (o), 1 Internal Revenue Code of 1939, and the regulations 2 thereunder. It is agreed that gifts to the Foundation are deductible to the extent provided in section 23 (o). The Commissioner has disallowed the entire claim, stating in his deficiency notices that "[it] has been determined that you are not entitled to a deduction in any amount for the alleged contribution of $ 70,000.00 made to the Fair Foundation, Tyler, Texas." The *872 respondent contends in the alternative, by an amended answer, that if the Court should find that the rights and interests conveyed had a fair market value, and that the fair market value is deductible as a contribution under section 23 (o) of the 1939 Code, the basis of the 2-story building retained by the petitioners should be reduced by the amount found to have been contributed.
The respondent's position in his notices of deficiency is that the rights and interests contributed to the Foundation are not of such a nature as to give rise to a deduction under section 23 (o). Section 23 (o) allows a deduction for gifts; the regulations contemplate gifts of money or property. Regs. 111, sec. 29.23 (o)-1. Apparently, it is the respondent's position that the rights and interests conveyed do not constitute property. We cannot agree. Property is the sum of rights and powers incident to ownership. Nashville, C. & St. L. Ry. v. Wallace, 288 U.S. 249">288 U.S. 249, 268 (1933).*266 The right to use the air space superjacent to the ground is one of the rights in land. These air rights are frequently the most valuable rights connected with the ownership of land since the value of commercial property consists almost exclusively of the right of the owner to erect business and industrial structures thereon. Cf. Piper v. Ekern, 180 Wis. 586">180 Wis. 586, 194 N. W. 159, 161 (1923). The sale or lease of superjacent air space is not at all uncommon in large cities. 3 Attempts to subdivide the superjacent air space into horizontal strata or air lots poses difficult questions. 4 But there does not seem to be any policy of the law prohibiting these transactions and their validity has been recognized. 5*268 We have found no Texas authority on the subject. 6 However, in view of the foregoing and the fact that the rights and interests conveyed gave the Foundation a present irrevocable interest in the property, cf. Priscilla M. Sullivan, 16 T. C. 228 (1951), we hold that the conveyance of the rights and interests named in the written instrument was a gift within the contemplation of section 23 (o) of *267 the 1939 Code.
*873 The respondent's position is that the petitioners have not proved any values for the rights and interests contributed. The Evaluating Committee of the Tyler Real Estate Board, at the request of the petitioner, R. W. Fair, valued the property in question and the valuation reached was $ 81,426.66. The evaluation report was submitted in evidence. Two of the three members of the committee were witnesses at the hearing and both testified that the opinion of value contained in the evaluation report represented the unanimous opinion of the committee. The two real estate men who testified were experienced real estate men and were familiar with*269 real property values in Tyler and with the property in question.
The respondent did not offer any countervailing testimony; however, he contends that the appraisal is of little use in determining the fair market value of the property contributed because the appraisal is based on an erroneous premise, viz, that a fee interest was granted. The respondent's position is that the rights and interests conveyed could only be and were only a license, or at most, an easement, since no interest in the ground was conveyed.
The significant thing in a valuation of this type, we think, is that the evaluators understand what property is to be valued regardless of the characterization placed upon the property to be valued by the different parties. One of the real estate men who valued the property testified that he was determining "aerial value" and that "aerial value was the right to use an upper story base * * * the right to build over a building." The other witness who evaluated the property testified to the same effect. The air rights that they evaluated were clearly the rights and interests that were described in the conveying instrument as the property contributed.
The Foundation was given*270 the perpetual right to build above the Sears building. It is true, if the Sears building was destroyed the petitioners did not obligate themselves to rebuild. The Foundation rights would cease at that time if the petitioners did not elect to rebuild. It appears that the appraisers understood this since they testified that they were valuing the right to build above the Sears building.
The appraisers based their opinion of the value of the air rights on ground values. As we noted earlier, the value of commercial property principally consists of the value of the right to build thereon. They determined these air rights to be worth one-third of the total ground value, less, however, $ 9,600 deducted for 12 x 40 feet of the original lot. Considering the facts that the site was located in a business district, that the Sears building was only 6 years old, that additional stories were contemplated and provided for when the Sears building was erected, that the Sears building was only 2 stories high *874 and that the rights of access and support were given, we cannot say that the basis of the air right valuation was not reasonable and fair. The gift of a building site on top of an*271 existing building would undoubtedly be valueless in some instances. But this is not the case of a person giving away a building site, on which it is not feasible or practical to build, and contending that the property had value. All of the evidence in the record points to the fact that the aerial space above the Sears building which was contributed had very substantial value. Also, the 5 additional stories that were contemplated were actually built by the Foundation at a cost of almost $ 700,000.
We have no reason to question the $ 38,466.66 value given by the appraisal committee to the aerial space above the Sears building. This valuation, we think, was well supported by the two members of the committee who testified at the hearing.
Also the three other items of evaluation contained in the report of the committee, namely, $ 15,360, $ 9,600, and $ 18,000, were well supported by petitioners' two expert witnesses who testified at the hearing. These three items need not be separately enumerated here -- they are fully described in the valuation report set out in our Findings of Fact.
As shown in that report, the total valuation reached by the committee was $ 81,426.66. Petitioners, *272 however, in their returns only claimed a value for the gift of $ 70,000, and deducted on their returns that amount to the extent permitted by section 23 (o), Internal Revenue Code of 1939. In their brief they request that we make a finding of fact that "the fair market value of the property conveyed by petitioners to the Fair Foundation was not less than $ 70,000.00." We think the evidence fully supports such a finding of fact and our Findings of Fact are to that effect. It is this valuation of $ 70,000 which should be used in a recomputation under Rule 50. Respondent's determination as to the gift is reversed.
Alternative Issue.
Having found that the gift had a fair market value, it becomes necessary to consider the respondent's alternative contention.
At the hearing, counsel for the respondent amended his answer by adding the following language prior to the prayer:
If the Court should determine that the right conveyed by the petitioner to the Fair Foundation had any value, then the basis of the two story building owned by the petitioner should be reduced by an amount equal to such value.
We do not think the issue has been presented in such a manner as to require us to rule*273 upon it. Respondent has not asked for any additional *875 deficiency on account of this proposed adjustment and has not asserted that any deficiency will result from the adjustment, if made. There is nothing in the deficiency notices relating to this issue. He is, in effect, asking for affirmative relief. See Rule 32, Tax Court Rules of Practice.Rule 14 (b) of the Rules of Practice provides that the answer shall contain "a statement of any facts upon which the Commissioner relies for defense or for affirmative relief." He has not stated any facts regarding this new issue. He did not offer any evidence regarding the issue. From the state of the record, we do not know why he wants the basis of the Sears building reduced, i. e., we do not know whether a deficiency will result therefrom and how, or if it will affect the petitioners' tax liability for the year before us.
The Sears building was not disposed of during the year in question; therefore, the only thing that we could assume from the record is that the respondent wishes to reduce the amount of depreciation that was taken during the year in question for the period from the time of the conveyance to the end of the*274 taxable year. The amount of depreciation taken in prior years and in the taxable year has been stipulated, but there has been no evidence to show that this depreciation was unreasonable and there has been no argument relating to it.
For the taxable year which we have before us, the fiscal year ending November 30, 1948, it has been stipulated, "during the year ended November 30, 1948, the petitioners deducted depreciation in the amount of $ 3,164.35." The Commissioner in his deficiency notices did not disallow any part of this claimed depreciation. In his amended answer he does not allege that he erred in allowing the petitioners the amount of depreciation which they claimed on their respective returns.
Our purpose is to redetermine the deficiency. In doing so we decide questions which bear on the deficiency or tax liability. As we said, from the record we do not know how the issue sought to be raised by the respondent bears on the deficiency. We, therefore, hold the issue is not properly before us at this time.
We, of course, are not deciding in this proceeding what effect, if any, the conveyance by petitioners in 1948 to the Foundation will have on the basis for gain or loss*275 if and when the property may be disposed of at some future time. Nor are we deciding what effect, if any, the conveyance will have on petitioners' basis for depreciation in years subsequent to the taxable year which we have before us. We do not have these questions for decision in this proceeding and, therefore, we make no effort to decide them.
Decisions will be entered under Rule 50.
Footnotes
1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
* * * *
(o) Charitable and Other Contributions. -- In the case of an individual, contributions or gifts payment of which is made within the taxable year to or for the use of:
* * * *
(2) a corporation, trust, or community chest, fund, or foundation, created or organized in the United States or in any possession thereof or under the law of the United States or of any State or Territory or of any possession of the United States, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, * * *
* * * *
to an amount which in all the above cases combined does not exceed 15 per centum of the taxpayer's adjusted gross income. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner, with the approval of the Secretary.↩
2. Regulations 111.
Sec. 29.23 (o)-1. Contributions or Gifts By Individuals. -- A deduction is allowable under section 23 (o) only with respect to contributions or gifts which are actually paid during the taxable year, regardless of when pledged and regardless of the method of accounting employed by the taxpayer in keeping his books and records. * * *
* * * *
If the contribution or gift is other than money, the basis for calculation of the amount thereof shall be the fair market value of the property at the time of the contribution or gift.↩
3. Some notable examples of air right developments include The New York Central Terminal Air Rights Development in New York City; The Cleveland Union Terminal Development in Cleveland; and The Merchandise Mart, The Chicago Daily News Building, and The Prudential Building in Chicago. Also see Hall, et al., "Approaches to the Valuation of Air Rights," The Appraisal Journal, July 1956, p. 325.↩
4. See Ball, "Division into Horizontal Strata of the Landspace above the Surface," 39 Yale L. J. 616 (1930); Ball, "Air Rights," 23 Ill. L. Rev. 250 (1928); 2 Tiffany, Real Property 503 (3d ed. 1939); but see Cleveland v. City of Detroit, 322 Mich. 172">322 Mich. 172, 33 N. W. 2d 747, 750↩ (1948), and Note, 24 N. Y. U. L. Q. 443 (1949).
5. See Pearson v. Matheson, 102 S. C. 377, 86 S. E. 1063↩ (1915). The State of Illinois has passed a statute specifically allowing railroads to subdivide, improve, and sell the superjacent air space. Ill. Rev. Stat., c. 114, sec. 174 (a) (1953). Also the subdivision of buildings for purposes of separate ownership has long been recognized.
6. The subdivision of subjacent land into horizontal strata for purposes of separate ownership is analogous to the situation here involved. Such subdivision is recognized in Texas and elsewhere. See Humphreys-Mexia Co. v. Gammon, 113 Tex. 247">113 Tex. 247, 254 S. W. 296, 301-302 (1923), and Kidwell v. General Petroleum Corporation, 212 Cal. 720">212 Cal. 720, 300 Pac. 1, 4↩ (1931).