                        T.C. Memo. 1999-213



                      UNITED STATES TAX COURT



  ARBOR TOWERS ASSOCIATES, LTD., JAMES B. MINTZER, TAX MATTERS
                     PARTNER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24594-97.                       Filed June 30, 1999.



     Lois C. Blaesing, for petitioner.

     Brian C. Bernhardt and Trevor Wetherington, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     LARO, Judge:   Respondent issued petitioner a notice of final

partnership administrative adjustment (FPAA) on behalf of Arbor

Towers Associates, Ltd. (Arbor), wherein respondent determined

Arbor was not entitled to its claimed charitable contribution

deduction in the amount of $1.6 million for 1993.    This case
                                 - 2 -


results from petitioner's petition under section 62261 for

readjustment of the partnership items set forth in the FPAA.       The

issues for decision are:

       1.   Whether the presumption of correctness attaches to the

determinations in respondent's FPAA.     We hold it does.

       2.   Whether section 170 entitles Arbor to a charitable

contribution deduction of $1.6 million in 1993.     We hold it does

not.

                           FINDINGS OF FACT

       Some of the facts have been stipulated and are so found.

The stipulations and attached exhibits are incorporated herein by

this reference.     Arbor had its principal place of business in New

York, New York, when the petition was filed.

       Arbor was a New Jersey limited partnership during 1992 and

1993, and James B. Mintzer (Mintzer) was Arbor's general partner

and tax matters partner.     Mintzer had a longstanding business

relationship with attorney Frederick Gordon (Gordon), who served

as the general partner of Wolverine Towers Associates (Wolverine)

from 1972 until its dissolution in 1997.

       In 1974, Wolverine owned a plot of land (the land) located

at 3001 S. State Street in Ann Arbor, Michigan.     In order to


       1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue. Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
                               - 3 -


develop a commercial office tower upon the land, Wolverine

entered into a financing arrangement with the Trustees of the

General Electric Pension Trust (G.E.) wherein G.E. purchased the

land for $850,000, leased the land back to Wolverine for 55 years

(the land lease), and lent Wolverine $7,650,000.   Wolverine built

an 11-story office building on the land which was named the

Wolverine Tower Office Building (Wolverine Tower or the

building).

     By 1979, Wolverine began experiencing financial troubles and

fell behind on the land lease and mortgage payments.   On January

31, 1979, Wolverine entered into a contract for sale and

leaseback (the leaseback contract) with Arbor wherein Wolverine

sold to Arbor both its interest in the land lease and its

interest in Wolverine Tower and contemporaneously leased back

Wolverine Tower and the land from Arbor.   The leaseback contract

called for a purchase price of $12.6 million to be paid with

interest over 5 years.   After execution of the leaseback

contract, Arbor owned Wolverine Tower and, having assumed the

land lease, was the lessee of the land.    Wolverine was the lessee

of the building and the sublessee of the land from Arbor.

Wolverine continued to operate the building and continued to be

the lessor under the various occupancy leases in effect.

     By 1992, Arbor and Wolverine wanted to sell their respective

interests in Wolverine Tower and the land.   On behalf of both
                               - 4 -


parties, Gordon hired a real estate broker and listed the

property for sale. On December 31, 1992, Arbor and Wolverine

entered into a contract (the contract) with the University of

Michigan (U of M) to sell Wolverine Tower and their respective

interests in the land as lessee and sublessee, with a closing

date set for early 1993.2   The contract set the purchase price at

the "fair value" of the interests being sold as determined by an

appraisal to be obtained by Arbor and Wolverine.   The appraisal

obtained by Arbor and Wolverine concluded the "fair value" of the

property was $9 million as of December 31, 1992, and U of M

purchased the property for that price on February 25, 1993.3

Although a "value in use" appraisal was not required by the

contract, Gordon requested that the appraiser determine the

"value in use" of Wolverine Tower specifically to U of M for the

purpose of determining the amount of a charitable contribution

deduction, if any.   The appraisal concluded that the "value in

use" to U of M was $12.2 million.

     To Arbor's 1993 Form 1065, U.S. Partnership Return of

Income, it attached a Form 8283, Noncash Charitable

Contributions, wherein it claimed a charitable contribution to U


     2
      Contemporaneously with the sale of Wolverine Towers, on
Dec. 30, 1992, G.E. sold the land to the University of Michigan
(U of M) for $8 million.
     3
      The $9 million figure was allocable solely to the purchase
of Wolverine Tower and not to the lease interests in the land.
                                 - 5 -


of M in the amount of $1.6 million, 50 percent of the difference

between the sale price of $9 million and the $12.2 million "value

in use".4    Respondent determined Arbor is not entitled to a

charitable contribution deduction and disallowed the deduction in

full.

                                OPINION

     We are once again obliged to delve into the value of

property, sifting through expert testimony and applying our

judgment.     At the outset, we must determine which party bears the

burden of proof.     Petitioner claims respondent does.    We

disagree.

     Petitioner argues that the burden of proof shifts to

respondent because the FPAA disallows the charitable contribution

deduction in full without "determining" the value of Arbor

Towers.     Petitioner contends that, since respondent failed to

offer evidence of value (i.e., an expert report), he has failed

to meet his burden of proof.     Petitioner misconstrues

respondent's determination.     On its 1993 return, Arbor set forth

the $9 million sale price for the building and land, and the

$12.2 million alleged fair market value.     In disallowing the

deduction, respondent asserts that the fair market value of Arbor

Tower was not in excess of the $9 million sale price.



     4
        The record does not indicate why 50 percent was deducted.
                                 - 6 -


Respondent’s failure to produce an expert report does not in

itself allow petitioner to prevail on the issue of valuation.

See Estate of Scanlan v. Commissioner, T.C. Memo. 1996-331, affd.

without published opinion 116 F.3d 1476 (5th Cir. 1997); see also

Brigham v. Commissioner, T.C. Memo. 1992-413 (holding the

determination was not "bare" when respondent relied on sale price

as evidence of the fair market value).    We hold respondent's

determination is presumed correct, and petitioner bears the

burden of proving entitlement to the claimed deduction.    See Rule

142(a); Welch v. Helvering, 290 U.S. 111 (1933).5

     Turning to the primary issue, we note petitioner claimed the

deduction in question under section 170, which provides, subject

to certain limitations not at issue:     “There shall be allowed as

a deduction any charitable contribution * * * payment of which is

made within the taxable year.”    Sec. 170(a).   Respondent advances

three theories supporting his determination that Arbor is not

entitled to the claimed charitable contribution deduction:    (1)

Arbor had no interest in Wolverine Towers to convey to U of M;

(2) the fair market value of the property equaled the sale price

of $9 million; or, alternatively, (3) if the fair market value


     5
      We note also petitioner seeks improperly to apply burden-
shifting principles of unreported income cases to this deduction
case. See Jackson v. Commissioner, 73 T.C. 394, 401 (1979); cf.
Conforte v. Commissioner, 74 T.C. 1160, 1178 (1980), affd. in
part, revd. in part on another issue and remanded 692 F.2d 587
(9th Cir. 1982).
                                - 7 -


exceeded the sale price, the contribution took place in 1992 when

the contract was signed and not 1993.

     Regarding the first theory, we reject respondent's

contention that Arbor did not own an interest in Wolverine Tower

to convey to U of M.   The leaseback contract clearly conveyed to

Arbor both the "improvements" on the land and Wolverine's

interest in the land lease.    Although we are unable to find that

Wolverine executed a deed transferring the building from

Wolverine to Arbor, a deed was not required to transfer ownership

under the facts herein.   The leaseback contract stated that upon

satisfactory completion of the leaseback contract terms and

payments, Wolverine was to deliver to Arbor "a duly executed

warranty bill of sale, * * * of the Improvements, Fixtures and

Equipment, sufficient to transfer to the Purchaser the title to

the Improvements, Fixtures and Equipment".   While petitioner's

case would have been strengthened by evidence that the

contemplated "bill of sale" was ultimately executed, the absence

of this is not controlling.6   Gordon's testimony that Arbor

acquired Wolverine Tower under the leaseback contract is

corroborated by documentary evidence.   On the totality of this




     6
      The record contains no evidence of whether a bill of sale
or other document (in addition to the leaseback contract)
conveying the title to the improvements was executed.
                                 - 8 -


record, we conclude that Arbor acquired Wolverine Tower under the

leaseback contract and owned it until it was sold to U of M.7

     We now turn to whether the sale was a bargain sale resulting

in a charitable contribution.    This will turn on whether Arbor

sold Wolverine Tower to U of M for less than its fair market

value.   We hold it did not.   A sale of property to a section

170(c) organization accompanied by a donative intent on the part

of the vendor gives rise to a deductible charitable contribution

if the sale price is less than the fair market value of the

property sold.   See United States v. American Bar Endowment, 477

U.S. 105 (1986); Stark v. Commissioner, 86 T.C. 243 (1986);

Waller v. Commissioner, 39 T.C. 665 (1963).8    The regulations

under section 170 provide:     "If a charitable contribution is made

in property other than money, the amount of the contribution is

the fair market value of the property at the time of the

contribution".   Sec. 1.170A-1(c)(1), Income Tax Regs.   The

regulations define "fair market value" as "the price at which the

property would change hands between a willing buyer and a willing

seller, neither being under any compulsion to buy or sell and



     7
      To embrace respondent's theory we would have to find U of M
paid the $9 million solely to buy out the interests of Arbor and
Wolverine in the land lease. This makes no sense and is not
supported by the record.
     8
      Respondent does not raise the issue of whether donative
intent was lacking on these facts.
                               - 9 -


both having reasonable knowledge of relevant facts."    Sec.

1.170A-1(c)(2), Income Tax Regs.; see Jarre v. Commissioner, 64

T.C. 183, 187 (1975).

     Fair market value is a question of fact, and the trier of

fact must weigh all relevant evidence of value and draw

appropriate inferences.   See Commissioner v. Scottish Am. Inv.

Co., 323 U.S. 119, 123-125 (1944); Helvering v. National Grocery

Co., 304 U.S. 282, 294 (1938); Symington v. Commissioner, 87 T.C.

892, 896 (1986); Zmuda v. Commissioner, 79 T.C. 714, 726 (1982),

affd. 731 F.2d 1417 (9th Cir. 1984).    Fair market value is

measured on the applicable valuation date, which, in this case,

is the date of the alleged contribution.    See sec. 170(a);

Estate of Proios v. Commissioner, T.C. Memo. 1994-442; Thornton

v. Commissioner, T.C. Memo. 1988-479, affd. without published

opinion 908 F.2d 977 (9th Cir. 1990); see also Estate of Aucker

v. Commissioner, T.C. Memo. 1998-185; Pabst Brewing Co. v.

Commissioner, T.C. Memo. 1996-506.     The willing buyer and the

willing seller are hypothetical persons, instead of specific

individuals or entities, and the characteristics of these

hypothetical persons are not always the same as the personal

characteristics of the actual seller or a particular buyer.    See

Estate of Bright v. United States, 658 F.2d 999, 1005-1006 (5th

Cir. 1981); Estate of Newhouse v. Commissioner, 94 T.C. 193, 218

(1990).   The views of both hypothetical persons are taken into
                               - 10 -


account, and focusing too much on the view of one of these

persons, to the neglect of the view of the other, is contrary to

a determination of fair market value.    See, e.g., Pabst Brewing

Co. v. Commissioner, supra; Estate of Scanlan v. Commissioner,

T.C. Memo. 1996-331; Estate of Cloutier v. Commissioner, T.C.

Memo. 1996-49.    Fair market value reflects the highest and best

use of the property on the valuation date.    Fair market value

takes into account special uses that are realistically available

because of the property's adaptability to a particular business.

See Mitchell v. United States, 267 U.S. 341, 344-345 (1925);

Symington v. Commissioner, supra at 896; Stanley Works & Subs. v.

Commissioner, 87 T.C. 389, 400 (1986).    The reasonable and

objective possibilities for the property control the valuation

thereof.    See United States v. Meadow Brook Club, 259 F.2d 41, 45

(2d Cir. 1958); Stanley Works & Subs. v. Commissioner, supra at

400.

       Respondent contends that the fair market value of Wolverine

Tower on the date of the alleged gift9 was the sale price of $9

million.    Respondent argues Arbor's expert supports this

determination.    Arbor offered the testimony of Donald Wieme




       9
      Respondent contends the date of the gift was Dec. 31, 1992,
the date the contract was signed. Petitioner contends the date
of the gift was Feb. 25, 1993, the date the contract closed.
                               - 11 -


(Wieme),10 whom we recognized as an expert in real estate

valuation.    Wieme determined two values for Wolverine Tower using

a valuation date of December 31, 1992.    First, Wieme determined

that the "market value" was $9 million.    In reaching this value,

Wieme concluded the highest and best use of Wolverine Tower was

"represented by its current use as an 11 story general office

facility with adjacent one story extension."    Wieme employed a

sale comparison method, an income capitalization method, and a

cost method.   Wieme took into account various data on Ann Arbor,

Michigan (Washtenaw County), including its location,

demographics, population, and economy.    Wieme followed an

industry definition of the term "market value", under which the

term meant:

     "Market value" means the most probable price which a
     property should bring in a competitive and open market
     under all conditions requisite to a fair sale, the
     buyer and seller each acting prudently and knowledge-
     ably, and assuming the price is not affected by undue
     stimulus. Implicit in this definition is the
     consummation of a sale as of a specified date and the
     passing of title from seller to buyer under conditions
     whereby:

          1. Buyer and seller are typically motivated;




     10
      Wieme holds a bachelor of arts from Wayne State University
and has been appraising real estate since 1964. He holds several
professional designations, including the MAI designation
(American Institute of Real Estate Appraisers), the SRPA
designation (senior real estate property appraiser), and the SRA
designation (senior residential appraiser).
                                - 12 -


             2. Both parties are well informed or well advised,
                and each acting in what he considers his own
                best interest;

             3. A reasonable time is allowed for exposure in the
                open market;

             4. Payment is made in terms of cash in U.S. dollars
                or in terms of financial arrangements comparable
                thereto; and

             5. The price represents the normal consideration for
                the property sold, unaffected by special or creative
                financing or sale concessions granted by anyone
               associated with the sale.

     Having determined the "market value" was $9 million, Wieme

modified his analysis to determine the "value in use"

specifically to U of M, concluding the "value in use" was $12.2

million.11    In distinguishing between the $9 million figure and

the $12.2 million figure, Wieme testified:

          Within the preceding pages, we have formulated a
     value indication for the subject building based on the
     premise that the subject would be acquired by a
     'typical' purchaser/investor and would continue to be
     utilized as a general office, multi-tenant facility.
     The reality of the situation, however, is that the
     subject building was acquired by the University of
     Michigan.

                  *    *    *    *   *     *    *

          In an effort to identify the Value In Use of the
     subject building specifically to the University of
     Michigan, the appraisers have performed a second
     discounted cash flow analysis. The Value In Use is the


     11
      Wieme modified various assumptions used given that U of M
would be the only occupant of the building. For example, Wieme
lowered the market rental rate and adjusted for a "refit cost" to
conform the building to U of M's needs.
                              - 13 -


     'value a specific property has for a specific use' and
     this value is not necessarily synonymous with market
     value.

     We have wide discretion when it comes to accepting expert

testimony.   Sometimes, an expert will help us decide a case.

See, e.g., Booth v. Commissioner, 108 T.C. 524, 573 (1997); Trans

City Life Ins. Co. v. Commissioner, 106 T.C. 274, 302 (1996); see

also M.I.C. Ltd. v. Commissioner, T.C. Memo. 1997-96; Estate of

Proios v. Commissioner, T.C. Memo. 1994-442.   Other times, he or

she will not.   See, e.g., Estate of Scanlan v. Commissioner,

supra; Mandelbaum v. Commissioner, T.C. Memo. 1995-255, affd.

without published opinion 91 F.3d 124 (3d Cir. 1996).   We weigh

an expert's testimony in light of his or her qualifications and

with proper regard to all other credible evidence in the record.

See Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119.     We

may accept or reject an expert's opinion in toto, or we may pick

and choose the portions of the opinion which we choose to adopt.

See Helvering v. National Grocery Co., 304 U.S. at 294-295;

Silverman v. Commissioner, 538 F.2d 927, 933 (2d Cir. 1976),

affg. T.C. Memo. 1974-285; Parker v. Commissioner, 86 T.C. 547,

562 (1986); Estate of Kaufman v. Commissioner, supra; see also

Pabst Brewing Co. v. Commissioner, T.C. Memo. 1996-506.   The mere

fact that the position of one party may be unsupported by expert

testimony does not necessarily mean that the other party's
                              - 14 -


position that is so supported will prevail.   See Estate of

Scanlan v. Commissioner, supra.

     We decline to rely on Wieme's testimony as to the "value in

use".   As a threshold matter, the conclusion derived by an

expert's analysis must be reached by application of the correct

standard before we will rely on that conclusion.   That was not

done in this case.   The applicable regulations mandate the use of

a "fair market value" standard as defined therein.   See sec.

1.170A-1(c)(1) and (2), Income Tax Regs.   That standard

contemplates a hypothetical seller and buyer and precludes

consideration of the specific characteristics of any particular

seller or buyer.   The $12.2 million figure upon which Arbor

relies was derived not by employing the applicable standard but

by employing an improper standard which took into account the

specific buyer, U of M, and its characteristics.   Even if we were

to agree with Wieme that the "value in use" to U of M was $12.2

million, and we stop short of so doing, this would not aid Arbor

in its quest for a charitable contribution deduction since that

figure does not represent the "fair market value" of Wolverine

Tower on the valuation date within the meaning of the

regulations.

     The standard employed by Wieme to derive the $9 million

"market value" figure resembles much more closely the "fair

market value" standard applicable in this case.    Were we to rely
                                - 15 -


on this figure, this too would leave unsubstantiated Arbor's

claim to a charitable contribution deduction since the $9 million

was the sale price.    While we have other significant concerns

with Wieme's testimony, including that he valued the building 2

months before the valuation date with no analysis of whether the

applicable assumptions remained unchanged, our holding that his

testimony is unreliable because of the application of an improper

standard renders unnecessary further discussion of those

concerns.    Petitioner has failed to prove that the fair market

value of Wolverine Towers was greater than the $9 million sale

price.12    We sustain respondent's determination.

     To reflect the foregoing,


                                          Decision will be entered

                                    for respondent.




     12
      We need not address respondent's last argument that the
gift occurred on Dec. 30, 1992, not on Feb. 25, 1993, upon the
closing.
