In Uncategorized on 10/31/2016 at 16:06

Howard Bruce Coates echoes Meredith Willson’s 1957 Best Broadway Musical words in Howard Bruce Coates and Tandi A. Coates, 2016 T. C. Memo. 197, filed 10/31/16, that send Judge Morrison into algebraic contortions.

Howard and Tandi are fighting over their casualty loss when “the wind came sweeping down the plain” in Seminole County, Oklahoma, leveling homestead, standing timber and happy hunting grounds. It was a tornado, and a bad one.

Howard has a problem with basis in one parcel, and gets a zero, as the deed stamps show no consideration, intrafamily, presumably gift. I never knew OK has a transfer tax of 1.5%; makes our Empire State 0.4% look cheap (but wait until you see the NYC taxes).

But his numbers trump his appraiser’s numbers. And IRS’s skepticism. Judge Morrison buys Howard’s numbers on Parcel A.

“As the IRS recognizes, it is permissible for the Court to consider the opinion of the landowner as to the value of land.  Harmon v. Commissioner, 13 T.C. 373, 385 (1949).  The owner has unique knowledge of the land.  Id.  Although the relevant fair market values before and after a casualty must generally be ascertained by a competent appraisal, sec. 1.165-7(a)(2)(i), Income Tax Regs., this does not mean that the appraisal must be done by a professional appraiser.  It is therefore permissible for the before-and-after values in a casualty-loss situation to be determined by a court on the basis of the landowner’s opinion of these values.

“Here we give Coates’s views special weight.  He owned property A before and after the tornado.  Furthermore, he has substantial experience working with timberland, farmland, and pastureland.  For 30 years, Coates has been handling various tasks on the ranch.  Coates has also bought and sold various properties in Seminole County.  Some of the land Coates bought had been damaged by fire or was overgrown.  In those instances, he had to restore the land to workable farmland or grazing land before reselling it.  In our view, Coates was credible and knowledgeable about the before-and-after values of property A.” 2016 T. C. Memo. 197, at p. 15. (Footnote omitted).

And Howard’s numbers work for Parcel B.

“As for the value of property B after the tornado, we find that the evidence supports Coates’s claim that the value was $440,000.  First, Coates testified that the best use of property B after the tornado was to convert it to grazing land.  His views are credible because he is experienced in converting land from one use to another to make it more valuable.  Furthermore, he has already partially converted property B to grazing land, thus proving by expenditure of his own money the genuineness of his view that property B is most valuable as grazing land.” 2016 T. C. Memo. 197, at p. 23.

Even better, here’s Judge Morrison’s ascent to “such rarefied heights of pure mathematics that it is said that there was no man in the scientific press capable of criticizing it,” as the “best and wisest man” John H. Watson ever knew put it.

“Let V be the value of the land after the tornado.  Let Vg be the value of the land after conversion to grazing land.  Let C be the cost of converting the land from tornado-damaged land to grazing land.  The three propositions can be expressed as: (1)  Vt = Vg – C  (2 ) Vg < 528,000 (3) C >88,000 Rearranging the first proposition (Vt = Vg = C) yields Vg = Vt + C. Combining this with the second proposition (V < 528,000), it follows that Vt + C < 528,000. This equation becomes 528,000 – Vt > C.  Combining this equation with the third proposition (C >88,000), it follows that:  528,000 – Vt > C.  And 528,000 – Vt > 88,000. Rearranged, this equation is 440,000 >  Vt. So the value of property B after the tornado is $440,000 or less.” 2016 T. C. Memo. 197, at p. 25, footnote 9.

Judge, I’ll take your word for it. I could’a had a V8.


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