UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

LAKEWOOD ASSOCIATES, Robert G.
Moore, Tax Matters Partner,
Petitioner-Appellant,
                                                                       No. 98-1499
v.

COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.

Appeal from the United States Tax Court.
(Tax Ct. No. 93-24656)

Argued: October 26, 1998

Decided: December 4, 1998

Before MICHAEL and MOTZ, Circuit Judges, and
BOYLE, Chief United States District Judge for the
Eastern District of North Carolina, sitting by designation.

_________________________________________________________________

Affirmed by unpublished opinion. Chief Judge Boyle wrote the opin-
ion, in which Judge Michael and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Douglas E. Kahle, PENDER & COWARD, P.C., Virginia
Beach, Virginia, for Appellant. Thomas James Sawyer, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee. ON BRIEF: Christopher L. Perkins, PENDER &
COWARD, P.C., Virginia Beach, Virginia, for Appellant. Loretta C.
Argrett, Assistant Attorney General, Teresa E. McLaughlin, Tax Divi-
sion, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

BOYLE, Chief District Judge:

The Internal Revenue Service disallowed a deduction for a loss
claimed by Appellant Lakewood Associates ("Lakewood") on its
1989 tax return. Lakewood filed a petition in the Tax Court for a read-
justment of partnership items. After a trial on January 14, 1997, the
Tax Court entered a decision in favor of Appellee, Commissioner of
Internal Revenue ("Commissioner"), on December 29, 1997. Lake-
wood then brought this appeal. For the reasons discussed below, the
Court affirms the decision of the Tax Court.

I.

Lakewood is a Virginia general partnership, with Robert Moore as
its general partner. Moore has been in the real estate development
business in the Tidewater, Virginia area for over forty years. In 1987,
Lakewood purchased 632 acres of unimproved real estate on Elbow
Road in Chesapeake, Virginia, known as the "Elbow Lake" property,
with the intention of building single-family homes on the land. At that
time, the property was zoned for agricultural use only.

Lakewood had two hurdles to overcome before it could develop the
Elbow Lake property for residential purposes. First, Lakewood had to
obtain a change in the property's zoning from the City of Chesapeake.
Second, a portion of the property contained wetlands, and Lakewood
needed to obtain a permit from the U.S. Army Corps of Engineers
pursuant to the Clean Water Act before developing the property.

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ZONING. On February 8, 1988, Lakewood applied for rezoning of
the property from agricultural to single-family residential. On Sep-
tember 7, 1988, a staff report to the Chesapeake Planning Commis-
sion recommended that the zoning application be rejected for several
reasons. The report cited concerns with increased school and traffic
demands, capital expenditures for road improvements, problems with
the planned sewer system for the property, and inconsistencies with
the city's comprehensive land use plans. Based on this staff recom-
mendation, the Planning Commission rejected Lakewood's re-zoning
application. However, on October 18, 1988, the Chesapeake City
Council approved Lakewood's re-zoning application subject to cer-
tain contingencies, and passed an ordinance to that effect.

According to the Chesapeake City Charter, new zoning cannot take
effect for 30 days in order to allow time for the city residents to object
to the City Council's actions. Residents of Chesapeake organized a
committee and mounted a petition drive to prevent the planned zoning
change. After acquiring the necessary number of petition signatures,
the residents filed the petition with the local court, which ordered a
voter referendum. R.G. Moore Corporation, a partner in Lakewood,
challenged the referendum procedure in state court, but lost.

The referendum was held on March 7, 1989, and the voters
defeated Lakewood's proposed re-zoning by a wide margin. Of the
12,347 ballots, 11,800 (or 96.4 percent) voted against the re-zoning.
R.G. Moore Corporation appealed the lower court decision allowing
a referendum to the Virginia Supreme Court, which, on April 20,
1990, upheld the decision of the lower court.

As of the time of trial in the Tax Court in January 1997, no further
zoning changes had been sought for the Elbow Lake property.

WETLANDS. Under the Clean Water Act, the U.S. Army Corps of
Engineers (the "Corps") is authorized to issue Section 404 permits for
development in wetland areas. In 1987, the Corps adopted its first
Wetland Delineation Manual ("1987 Manual"), which, although not
mandatory, was routinely used by the Norfolk Division of the Corps
in determining jurisdiction and processing permit applications. In Jan-
uary 1989, the Corps adopted a new manual ("1989 Manual"), which
changed the means of applying the three criteria for defining wetlands

                     3
and substantially increased the area of lands over which the Corps
asserted jurisdiction. Also in 1989, the Corps and the Environmental
Protection Agency ("EPA") executed a Memorandum of Agreement
("MOA") which set forth the procedures for the two agencies in the
processing of Section 404 permits. The effective date of the MOA
was February 7, 1990.

On January 28, 1991, Lakewood applied for its Section 404 permit.
Using the 1989 Manual, Lakewood's experts believed that the Elbow
Law property was approximately 74 percent wetlands. The applica-
tion did not contain all the information required to process the appli-
cation, and the Corps requested the additional necessary information
over the next several months. After Lakewood did not respond, the
Corps administratively withdrew the application.

In August 1991, Congress passed legislation which prevented the
use of the 1989 Manual. The Corps reverted to using the 1987 Manual
and allowed applicants who had submitted wetlands delineations
using the 1989 Manual the option of submitting new delineations
using the 1987 Manual. Over the next several years, the Corps and
Lakewood communicated, and Lakewood submitted a new delinea-
tion, paid for by its bank, that followed the 1987 manual. Lakewood
has taken the necessary steps to keep its delineation "active," which
allows the delineation to be used with any later section 404 applica-
tion.

LAKEWOOD'S ATTEMPTED DEDUCTION. On its 1989 tax
return, Lakewood claimed an ordinary loss deduction of just under
$10 million pursuant to sections 165 and 1231 of the Internal Reve-
nue Code. Lakewood argued that the regulations in the 1989 Manual
constituted a taking, which entitled it to a deduction in the year of the
taking. The Internal Revenue Service ("IRS") disallowed the loss,
stating that Lakewood had failed to establish a condemnation, invol-
untary conversion, or disposition based on a closed completed trans-
action.

Lakewood filed a petition in the Tax Court for a readjustment of
partnership items. After it first determined that the inability to obtain
a change in zoning was the cause of the reduction in the value of
Lakewood's property, the Tax Court held that such failure to obtain

                     4
a zoning change was not a loss realization event. Lakewood did not
challenge this latter determination of what constitutes a realization
event. Instead, Lakewood appealed to this Court challenging the
lower court's finding that a zoning change was not probable.

II.

Whether the Tax Court was correct in finding that it was not proba-
ble that Lakewood Associates could obtain a change in the zoning of
its property at the time of the claimed deduction or within a reason-
able period of time thereafter is reviewed under the clearly erroneous
standard. See Ripley v. Commissioner, 103 F.3d 332, 334 (4th Cir.
1996). A decision of the Tax Court "is clearly erroneous if on the
entire evidence the reviewing court is left with the definite and firm
conviction that a mistake has been made." Zfass v. Commissioner, 118
F.3d 184, 188 (4th Cir. 1997) (internal quotations omitted). If "there
are two permissible views of the evidence, the factfinder's choice
between them cannot be clearly erroneous." Id.

Lakewood claims that it presented in the Tax Court"a wealth of
uncontroverted evidence" that re-zoning of the Elbow Lake property
was probable in 1989 or shortly thereafter. Consequently, Lakewood
argues, the Tax Court's finding on that issue is clearly erroneous, and
this Court should overturn the Tax Court's decision that failure to
obtain a zoning change was the cause of the reduction in the proper-
ty's value. In support of this position, Lakewood relies heavily on the
opinions and report of its expert, Bruce Hatfield, who stated that the
chance of re-zoning the Elbow Lake property is good for two reasons:
the successful re-zoning of other properties in the general area, and
his conclusion that the referendum was a fluke of bad timing and mis-
leading representations from the group opposed to re-zoning. Lake-
wood tries to buttress Hatfield's positions by arguing that they are
"expert opinions to which the IRS stipulated prior to trial."

Lakewood's characterization of the impact of Hatfield's opinions
is misleading. The Commissioner did not stipulate to the truth of the
opinions themselves, but to the admissibility of Hatfield's report, the
truth of the facts underlying the opinions, and Hatfield's qualifica-
tions as an expert. The Tax Court, therefore, was not constrained to
accept the opinions without question. Hatfield was qualified as an

                    5
expert only in real estate appraisal, and, as noted by the Tax Court,
he "did not assert any special expertise in zoning issues." Further-
more, a court is not bound to accept the testimony of an expert wit-
ness when no opposing witness is put on the stand. See Lukens v.
Commissioner, 945 F.2d 92 (5th Cir. 1991) (stating that the Tax Court
may reach a determination on the ultimate issue based on its own
findings); Buffalo Tool & Die Mfg. Co. v. Commissioner, 74 T.C. 441
(1980) (stating the Tax Court may accept opinion testimony in part,
in its entirety, or not at all).

While Lakewood points out that the Commissioner had no expert
witnesses of his own and presented no evidence in rebuttal, Lake-
wood ignores the stipulated facts that the Chesapeake Planning Com-
mission initially rejected the re-zoning application and that 96.4
percent of voters in a referendum opposed the re-zoning. Lakewood
tries to neutralize these undisputed facts by arguing that the referen-
dum result was a fluke of bad timing -- Hatfield testified that the ref-
erendum was only successful because it coincided with a general
election -- and a product of "misleading, if not fraudulent, represen-
tations by a small group of no-growth advocates in Chesapeake." This
reasoning is unpersuasive for several reasons. First, the Virginia
Supreme Court found that the group opposing the zoning change
engaged in "puffery," not fraud. Second, the result of the election was
not ambiguous: over 96 percent of those casting ballots voted against
re-zoning.

Based on the evidence and the stipulated facts, it was entirely rea-
sonable for the Tax Court to conclude that Lakewood's failure to
obtain a zoning change in 1989 indicated that such a change was
probably unlikely in the near future. The uncontroverted evidence
supporting the lower court's finding is that the Chesapeake Planning
Commission opposed the re-zoning, as did 96.4 percent of the city's
voters casting ballots in the referendum. Therefore, the Tax Court's
finding, that re-zoning was not probable at the time of the claimed
deduction or within a reasonable time thereafter, was not clearly erro-
neous.

This Court need not address the alternative ground upon which the
Commissioner urges we affirm the lower court. Because we have
determined that the Tax Court's findings regarding zoning were not

                    6
clearly erroneous, it is unnecessary to decide whether, in the circum-
stances of this case, a change in federal wetland regulations resulted
in a tax recognition event.

III.

The Tax Court's finding that a zoning change was improbable in
1989 or shortly thereafter is not clear error given the evidence of the
planning commission's and the voters' rejection of the change. Con-
sequently, the judgment of the Tax Court is

AFFIRMED.

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