                         T.C. Memo. 2000-133



                       UNITED STATES TAX COURT



   ESTATE OF CAROLYN J. ROGERS, DECEASED, JOHN A. ROGERS, III,
    EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
                            Respondent



     Docket No. 2796-97.                       Filed April 12, 2000.



     David D. Aughtry and Howard W. Neiswender, for petitioner.

     Robert W. West, for respondent.


                         MEMORANDUM OPINION



     HAMBLEN, Judge:    Respondent determined a deficiency of

$305,997 in the Federal estate tax of the Estate of Carolyn J.

Rogers (decedent).   After concessions by the parties,1 the issue


     1
      The parties made the following concessions:    Petitioner did
                                                     (continued...)
                               - 2 -


remaining for decision is the valuation of decedent's qualified

and elected real property under section 2032A.   There are two

questions for determination:

     (1)   Whether petitioner can value the real property under

the provisions of section 2032A(e)(7) or must value the property

under section 2032A(e)(8), which requires a determination of

whether the leases submitted by petitioner, entered into in 1968

and 1969, are leases of comparable land for the 5 most recent

calendar years ending before the date of decedent's death.




     1
      (...continued)
not elect special use valuation for the Morgan tract. The fair
market value of the Morgan tract on decedent’s date of death was
$148,000.

     In 1990, decedent's son made distributions totaling $50,000
of decedent's funds to her grandchildren. Of the amount
distributed, $25,000 constituted gifts by decedent to three
grandchildren of less than $10,000 to each grandchild. These
gifts qualify for the annual gift tax exclusion and are not
includable in decedent's gross estate. The remaining $25,000
distribution was not an effective gift, and the amount is
includable in decedent's gross estate.

     In 1991, decedent's son made distributions totaling $27,000
of decedent's funds to her grandchildren. Of the amount
distributed, $13,500 constituted gifts by the decedent to three
grandchildren in an amount of less than $10,000 to each
grandchild. These gifts qualify for the annual gift tax
exclusion and are not includable in decedent's gross estate. The
remaining $13,500 distribution was not an effective gift, and the
amount is includable in decedent's gross estate.

     Petitioner reserves the right to deduct additional eligible
administrative expenses on the estate tax return for Federal
estate tax purposes.
                                - 3 -


     (2)   If petitioner can value one or more tracts of the

property under section 2032A(e)(7), which of the following

valuation procedures applies:

     (A)   Can petitioner value all of the tracts as section

2032A(e)(7) property, including timberland, standing timber, and

pastureland, using the leases submitted by petitioner; or

     (B)   can petitioner value the timberland and standing timber

as section 2032A(e)(7) property, but not the pastureland, using

the leases submitted by petitioner; or

     (C)   can petitioner value only the timberland as section

2032A(e)(7) property, and not the standing timber and

pastureland, using the leases submitted by petitioner?

The second question requires a determination of whether the

leases submitted by petitioner established a rental value:     (1)

For timberland, standing timber, and pastureland, (2) for

timberland and standing timber only, or (3) for timberland only.

     The parties have stipulated the following values for the

preceding issues (values include both elected property specially

valued under section 2032A and nonelected property at fair market

value):

     (1)   If the Court finds that petitioner must use section

2032A(e)(8), the parties agree that the values of decedent’s real

estate are as follows:
                               - 4 -


                Egypt               $112,350
                Lanford A            709,488
                Lanford B            194,952
                Morgan               148,000
                Woodward              67,640
                Patterson            195,581
                                   1,428,011

    (2)(A)   If the Court finds that petitioner may use section

2032A(e)(7) to value all of the tracts elected as section 2032A

property, including the timberland, standing timber and

pastureland, with reference to the leases submitted by

petitioner, the parties agree that the values of decedent’s real

estate are as follows:

                Egypt                  $17,977
                Lanford A              295,055
                Lanford B              186,071
                Morgan                 148,000
                Woodward                17,317
                Patterson              164,294
                                       828,714

     (B)   If the Court finds that petitioner may use section

2032A(e)(7) to value the timberland and standing timber elected

as section 2032A(e)(7) property, but not the pastureland, with

reference to the leases submitted by petitioner, the parties

agree that the values of decedent’s real estate are as follows:

                Egypt                  $17,977
                Lanford A              312,495
                Landford B             195,045
                Morgan                 148,000
                Woodward                43,955
                Patterson              181,609
                                       899,081
                                - 5 -


           (C)   If the Court finds that petitioner may use section

     2032A(e)(7) to value the timberland elected as section 2032A

     property, but not the standing timber and pastureland, with

     reference to the leases submitted by petitioner, the parties

     agree that the valuations of decedent’s real estate are as

     follows:

                 Egypt               $104,797
                 Lanford A            662,264
                 Lanford B            195,045
                 Morgan               148,000
                 Woodward              77,305
                 Patterson            181,609
                                    1,369,020

     (3)   In the event that the pastureland does not qualify for

section 2032A(e)(7) valuation, the value of the pastureland for

purposes of section 2032A(e)(8) is $350 per acre (less a 15-

percent discount for pasture in the Lanford A and Lanford B

tracts).

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect as of the date of decedent’s

death, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

                             Background

     This case was submitted fully stipulated without trial

pursuant to Rule 122.   The stipulation of facts and the

accompanying exhibits are incorporated herein by this reference

and are found accordingly.
                                - 6 -


       Decedent died on August 19, 1992, at the age of 83.

Petitioner filed a Federal estate tax return on November 17,

1993.    At the date of her death, decedent was a resident of

Gainesville, Alabama, which is located in Sumter County.     She had

resided in Gainesville for 67 years.

       Decedent left a Last Will and Testament dated February 18,

1983.    Decedent’s son, John A. Rogers III, was nominated in

decedent’s will to be the executor of her estate and was

appointed executor by the Probate Court of Sumter County in

Letters Testamentary dated August 26, 1992.

       Decedent was the widow of Barnes A. Rogers, who died on

December 26, 1981, a resident of Gainesville, Alabama.    They were

married for 48 years.    Mr. Rogers left a last Will and Testament

dated April 27, 1981.    Mr. Rogers’ will designated that certain

farmland and timberland be held in trust for the benefit of

decedent (the marital trust).    Mr. Rogers’ will also provided

that decedent would have a general testamentary power of

appointment over the corpus of the marital trust.    Decedent

exercised that power of appointment by appointing all of the

property in the marital trust to her only son, John A. Rogers

III.    The property in the marital trust was properly includable

in decedent’s gross estate for Federal estate tax purposes.

       Petitioner properly elected to value five tracts of the real

estate included on the Federal estate tax return under the
                                   - 7 -


provisions of section 2032A.       These five tracts of specially

valued estate property are collectively referred to as the five

estate tracts.   The five estate tracts, located in Sumter County,

Alabama, are as follows:

           Tract                     Valuation Elected

          Egypt              215   acres   -   land and   timber
          Lanford A           90   acres   -   land and   timber
                             435   acres   -   land (no   timber election)
                             190   acres   -   land (no   timber election)
                             805   acres   -   land and   timber
                             150   acres   -   pasture
          Lanford B          125   acres   -   pasture
          Woodward            40   acres   -   land and   timber
                             100   acres   -   pasture
          Patterson           65   acres   -   pasture

     On the estate tax return, petitioner timely elected and

qualified for a "qualified woodland" election pursuant to section

2032A(e)(13) for the following properties:

           Tract              "Qualified Woodland" Election

          Egypt                215   acres       -   land and   timber
          Lanford A             90   acres       -   land and   timber
                               805   acres       -   land and   timber
          Woodward              40   acres       -   land and   timber
                               100   acres       -   pasture

     On the estate tax return, petitioner elected to value the

land under section 2032A(e)(8).       Respondent valued the property

at a higher value under section 2032A(e)(8) and ultimately issued

a notice of deficiency determining the value of the property at

the higher value.    Petitioner now seeks to value the property

under section 2032A(e)(7).    Petitioner may change the valuation
                               - 8 -


method and value the property under section 2032A(e)(7) if it

establishes the annual gross cash rental of comparable land for

the 5 calendar years ending before the date of decedent’s death

within the meaning of section 2032A(e)(7).

     In order to satisfy the comparable land requirement under

section 2032A(e)(7), on August 31, 1998, petitioner identified

seven tracts of land which it asserted were comparable to

decedent’s lands which are specially valued.    In addition, the

record contains a copy of a lease on clear land in Sumter County.

Petitioner engaged Dr. Harry L. Haney to determine the

comparability of the seven tracts of land with the five estate

tracts of specially valued land.    The record contains detailed

descriptions of the seven tracts of land that petitioner asserts

are comparable to the five estate tracts in the leases and in Dr.

Haney's reports.

     Dr. Haney provided both an original and a supplemental

report.   The parties agree that these reports are accepted as if

the author had testified to their contents.    Dr. Haney based his

opinion on his experience as a forest economist, professor of

forest management-economics at the Virginia Polytechnic Institute

and State University in Blacksburg, Virginia, and owner of

Alabama timberland.   Dr. Haney has lectured, taught, and written

extensively on the subjects of forestry and is a Registered

Forester in the State of Alabama.    His graduate degrees include a
                               - 9 -


master’s in forestry economics from Yale University and a

doctorate in forestry economics from Yale University.    He is

frequently asked to advise those in the timber industry in

Alabama and across the South in making timber decisions and has

been asked to testify as an expert witness in courts and advise

governmental agencies, including the U.S. Department of Justice,

Tax Division.

     Dr. Haney is a native of Choctaw County, Alabama, where he

worked in a family timber business.    During and after his

forestry studies at Auburn University, Dr. Haney worked for

several lumber companies in Alabama and Mississippi, where his

responsibilities included timber procurement, logging, and

evaluation of timberland for purchase in several counties

including Sumter County and Pickens County, Alabama.    In 1965, he

accepted a forest management job with St. Regis Paper Co. (now

Champion International) where approximately 92 percent of the

land he managed was under long-term leases.

     Petitioner gave respondent copies of timber leases relating

to the seven tracts of land which it asserted were comparable to

the five estate tracts.   The tracts and the timber leases

relating to each of the tracts are as follows:

                           Date of
      Tract                 Lease          Acres    County

Barnes Rogers, et al.     Mar. 1968        2,432    Sumter
Barnes Rogers, et al.     Apr. 1968        1,056    Sumter
                                - 10 -


Richardson                 Sept. 1968         261   Pickens
Clarence Rogers            Sept. 1969         559   Sumter
Clarence Rogers            Sept. 1969         489   Sumter
Irwin                      Sept. 1968          80   Pickens
Hurst                      Dec. 1969          642   Fayette

The 2,432 acres owned by Barnes Rogers, et al., were owned by

Barnes Rogers, decedent, Clarence Rogers, Janie Rogers Allen,

Elizabeth Rogers Sledge, and the C.M.A. Rogers estate.   The 1,056

acres owned by Barnes Rogers, et al., were owned by Barnes

Rogers, decedent, and Clarence Rogers.

     Sumter County, Alabama, is located in western Alabama along

the Mississippi/Alabama line.   It is bordered on the north by

Pickens County, Alabama.   In turn, Pickens County is bordered on

the north by Fayette County, Alabama.

     In analyzing the comparability of the seven leased tracts

and the Five estate tracts, Dr. Haney first excluded the Hurst

tract in Fayette County, Alabama, because of the distance from

the Five estate tracts.    Next, Dr. Haney excluded the Irwin tract

of land in Pickens County because of differences in slope and

soil mix.    Both respondent and petitioner agree with Dr.

Haney’s exclusion of the Hurst tract and the Irwin tract.     The

remaining five tracts of timberland (five leased tracts) are

subject to long-term timber leases for the growing and harvesting

of timber.

     The five estate tracts are comparable to the five leased

tracts in the following general respects.   See appendixes 1-5.
                                 - 11 -


First, the soil in the three-county black belt soil area of

Alabama along the Mississippi border where the five estate tracts

and the five leased tracts are located is a transition mix

between sandy clay and post oak black belt soil.    Second, none of

the timber on the five estate tracts depletes the soil

significantly or in a different manner from the timber on the

five leased tracts.    Third, the conservation techniques employed

are similar.   The conservation techniques are generally the same

on all managed timberland.    Leased property is clear cut and

replanted instead of select cut which is true in almost every

lease comparison.    Fourth, all of the properties are subject to

periodic flooding.     Fifth, all of the land is relatively flat.

Sixth, all of the properties have a hardwood/pine mix.    Seventh,

each of the properties is unified as a separate property but is

segmented by logging roads that allow movement.    Eighth, only two

of the properties have any improvements, the Lanford A and the

Woodward tracts.    Those improvements are valued at approximately

$2,707 and $5,610,2 respectively, according to the Butler &

Gardiner appraisal.3    An adjustment can be made for those


     2
      The insignificance of these improvements is demonstrated by
the fact that the $5,610 represents the aggregate value of five
separate structures.
     3
      Butler & Gardiner, Inc. (Butler & Gardiner), along with
Caldwell Realty prepared appraisals of the farmland and
timberland for the Estate of Carolyn Rogers. Butler & Gardiner
prepared both an original and a supplemental report. The parties
                                                   (continued...)
                                  - 12 -

comparatively small improvements.4     Ninth, all of the properties

in these three counties have access to secondary roads and

similar access to markets.

     Several of the tracts of the leased timberland also had

small camp houses on them like those on the Lanford A and the

Woodward tracts.     For example, a summer camp house was located on

the Allen timberland (the Barnes Rogers, et al. March Lease) when

that lease was executed.     The presence of a camp house made no

difference in the rental rate and, according to the lessee, no

adjustment was made to the rents because of this cabin, which is

similar to the camp houses on the Lanford A and the Woodward

tracts.

     Dr. Haney concluded that a comparison of the five estate

tracts to all five leased tracts would be the most reliable.     He

noted that the timber on one of the five estate tracts was

virtually identical to the timber on one of the five leased

tracts.      Second, he noted that the timber quality and capability



     3
     (...continued)
agree that these reports are accepted as if the author had
testified to their contents.

     Butler & Gardiner provides forest management services and
appraisals. Both Gary Butler and John Caldwell are Certified
General Real Estate Appraisers.
         4
      Dr. Haney separated the improvements on the Lanford A and
Woodward tracts from the valuation of the land and concluded they
should be added to whatever value might be determined under the
rent capitalization approach.
                                - 13 -

of the five leased tracts were somewhat superior to the timber

quality on the five estate tracts.    Because of this difference,

he concluded that a downward adjustment of no more than 10

percent was warranted.

     Except for the timber volumes, timber quality, and timber

quantity on these lands, respondent does not question that the

lands included in the leases for the five leased tracts are

physically comparable to the timberlands elected for special use

valuation by petitioner.   The foregoing includes timberland only

and specifically does not include standing timber and

pastureland.

     Respondent has submitted an original and two rebuttal

reports from his expert, Richard Maloy.    The parties agree that

these reports are accepted as if the author had testified to

their contents.    Maloy & Co., Inc., provides real estate

appraisals.    Richard Maloy graduated from the University of

Alabama with a B.S. in marketing in 1973 and obtained his J.D.

from the Birmingham School of Law in 1979.    He is a Licensed Real

Estate Broker and a State Certified General Real Estate Appraiser

in the State of Alabama.

     Mr. Maloy contends that "Comparable leases must have been

negotiated under recent (5-year period of analysis) dates to

ensure comparability of economic conditions."    Mr. Maloy further

states the following:    "Lease comparability under section
                               - 14 -

2032A(e)(7) would require recent leases, foreseeable within the

5-year average.   This is relatively easy in row crop valuation,

but generally eliminates the use of this section in timber land

valuation."

     Timber leases are made between the land owner as lessor and

a lessee who desires timber or timber products.    The lessees are

typically timber companies or paper companies that use wood

products in their basic business.   Among other rights, timber

leases give the lessee the right to enter the property and

harvest timber for a specific period of time.    Because of the

long growth cycle of timber, timber leases are generally long-

term leases.   Leases of 30 to 60 years are not uncommon.   A

typical 60-year timber lease would generally allow the lessee to

grow and cut the timber two to three times during the term of the

lease.

     The typical timber lease in effect in western Alabama

between 1987 and 1991 was entered into in the 1950's, 1960's, and

early 1970's and was a long-term timber lease.    In the typical

situation, the lessor sold the existing timber by separate

transaction to a buyer (generally, the buyer was the same as the

lessee but was not required to be the same) and then rented the

land by timber lease.   Rent paid by the lessee was calculated on

a dollar per acre per year basis.   Some of the timber leases had

rent escalation clauses which increased the rent per acre per
                               - 15 -

year in relation to some external standard, such as the Wholesale

Price Index (now called the Producer Price Index).    The leases

submitted by petitioner are representative of such typical lease

transactions.

     The record contains a letter from Gulf States Paper Corp.

(Gulf States), which identifies timberland rental rates for the

years 1988 through 1992 on several long-term timber leases Gulf

States initiated during the late 1960's.    These rates range from

$9.31 per acre per year to $10.83 per acre per year for

properties located in Sumter County, Alabama, ranging from 420

acres to 2,526 acres.

     The record contains a letter from James M. Vardaman & Co.,

Inc. (Vardaman), forest management specialists for timberland

owners, stating that it did not have any knowledge of timber

companies providing long-term leases between the years 1987

through 1991 in Sumter County, Alabama.    The letter further

states that the long-term leasing programs that Vardaman is

familiar with originated before 1987.   The record also contains a

letter from Richard G. Cross of Pruitt, Pruitt & Watkins,

Attorneys at Law, indicating that Mr. Cross had reviewed the

indexes of the Probate Office of Sumter County for long-term

timber leases from 1987 to 1991, but none were noted.    His search

included Gulf States, International Paper, McMillian, and

Hammermill.   In addition, Mr. Cross checked with two other
                               - 16 -

individuals who worked in the Probate Office, and they were

unaware of such leases during this period.

     On the date of execution of the leases for the five leased

tracts, the standing timber had been sold by the lessors.    The

leases did not give any right to the lessee to cut any timber

standing on the leased property on the date of execution of the

lease.   The leases did give the lessee the right to cut timber

grown on the leased property during the term of the lease.

     The March 1968 lease for the Barnes Rogers, et al. tract

contained the following provision:

                     USE OF THE PREMISES

          2. During the term of this Lease, Gulf States
     shall have all rights to grow, cut and to remove
     timber from the Premises (in addition to the timber
     separately conveyed by a timber purchase agreement
     between the parties hereto as of this date), and
     shall have the full and complete possession, use,
     control and enjoyment of the premises, and all
     possessory rights with respect thereto, including
     agricultural rights, excepting only those rights
     hereinafter specifically reserved to LESSORS.

          Without limiting the generality of the foregoing,
     Gulf States shall have the right to protect, cultivate,
     spray, thin deaden and otherwise manage all timber and
     timber products on the Premises, and to cut, harvest,
     mill and process all timber and timber products (including
     saw timber, pulpwood, fuel wood, stumps, tops, turpentine
     and naval stores), which are now growing or shall come into
     existence during the term of this Lease (in addition to the
     timber separately conveyed by a timber purchase agreement
     between the parties hereto as of this date), or to contract
     with others for such acts to be done, and to use, sell or
     otherwise dispose of such timber and timber products
     for its benefit in such manner as it may elect.
                                        - 17 -

  Each of the leases for the five leased tracts contains a similar

  provision regarding use of the premises.

        The March 1968 lease for the Barnes Rogers, et al. tract

  contained the following rent escalation clause in its “Rent”

  provision:

             Gulf States will pay to LESSORS an annual rental
        beginning at the rate of $3.00 per acre; provided,
        however, that during the term of the lease and any
        renewal thereof, that the annual rental per acre
        shall be increased or decreased by the same percentage
        as the annual average of the Wholesale Price Index for
        All Commodities, published by the United States
        Department of Labor, Bureau of Labor Statistics,
        shall increase or decrease over or under the average
        for the calendar year 1966, but the rental rate shall
        not be adjusted more than once annually and only for
        increments of increase or decrease of 5% or more of
        the 1966 average with respect to the first adjustment
        or from the average which made necessary the previous
        increase or decrease of rental rate with respect to
        any subsequent adjustment.

  Each of the leases for the five leased tracts contains a similar

  rent escalation clause in its Rent provision.

        With respect to the five leased tracts that petitioner

  asserted were comparable to decedent’s lands which are specially

  valued, the annual gross rentals for the 5 calendar years

  preceding decedent's death are as follows:

                             1987       1988         1989         1990         1991

Barnes Rogers et al.       $15,503.76 $15,503.76   $15,503.76   $15,503.76   $16,386.35
March Lease
1665.28 acres

Barnes Rogers, et al.       8,014.05   8,014.05     8,014.05     8,014.05     8,470.27
Timberland - April Lease
860.8 acres
                                      - 18 -

Richardson Timberland      2,505.60    2,505.60     2,505.60     2,505.60     2,648.36
Sept. Lease
261 acres

Clarence L. Rogers         4,630.83    4,630.83     4,630.83     4,630.83     4,890.00
Timberland - Sept. Lease
489 acres

Clarence Rogers            4,305.00    4,305.00     4,305.00     4,305.00     4,548.60
Timberland - Sept. Lease
420 acres


The average annual gross cash rental from the five leased tracts

for the 5 years preceding decedent's death was $9.6964 per acre.

      With respect to the five leased tracts that petitioner

asserted were comparable to decedent’s lands which are specially

valued, the State and local real estate taxes paid for the 5

calendar years preceding decedent's death are as follows:

                        1987          1988         1989        1990          1991

Allen Timberland     $1,552.04   $1,552.04        $2,284.76   $2,284.76     $2,181.76
March Lease
1665.28 acres

Clarence L. Rogers      802.27        802.27      1,181.02     1,181.02     1,181.02
Timberland
April Lease
860.8 acres

Richardson Timberland   264.58        264.65        264.65      264.68        265.34
Sept. Lease
261 acres

Clarence L. Rogers      455.75        455.75        670.91      670.91        670.91
Timberland
Sept. Lease
489 acres

Barnes Rogers           391.44        391.44        576.24      576.24        576.24
Timberland
Sept. Lease
420 acres
                              - 19 -

The average annual State and local real estate taxes paid on the

five leased tracts for the 5 years preceding decedent’s death

were $1.1592 per acre.

     The average annual effective interest rate for all new

Federal Land Bank loans for the 5 years preceding decedent's

death was 10.21 percent.

                            Discussion

I.   Overview of Section 2032A–-Special Use Valuation

     Generally, a decedent's gross estate includes the fair

market value of the decedent's interest in all property in which

the decedent owned an interest at the time of death.    See secs.

2031, 2033; sec. 20.2031-1(b), Estate Tax Regs.   However, in the

case of certain real property used by the decedent or a member of

the decedent's family for farming or in a closely held business,

section 2032A allows the decedent's personal representative to

elect to value the real property on the basis of its value as a

farm or in a closely held business, rather than the fair market

value of the property determined on the basis of its "highest and

best use".   Sec. 20.2032A-3(a), Estate Tax Regs.; see sec.

2032A(a)(1), (e)(7) and (8); see also Stovall v. Commissioner,

101 T.C. 140, 146 (1993); Estate of Thompson v. Commissioner,

T.C. Memo. 1998-325.

     Section 2032A was added to the Code by the Tax Reform Act of

1976, Pub. L. 94-455, sec. 2003, 90 Stat. 1520, 1856.   The
                              - 20 -

purpose of the special use valuation provision is to reduce the

estate tax burden, thereby alleviating liquidity problems faced

by the surviving family of a person who died owning real property

used as a farm or in a closely held business.   See H. Rept. 94-

1380, at 21-22 (1976), 1976-3 C.B. (Vol. 3) 735, 755-756; see

also S. Rept. 94-938 (Part 2), at 15 (1976), 1976-3 C.B. (Vol.3)

643, 657.   Congress sought to allow the family to continue

operating the farm or other business, rather than force the sale

of the land to pay estate taxes.   See Estate of Mapes v.

Commissioner, 99 T.C. 511, 516-517 (1992); Estate of Thompson v.

Commissioner, T.C. Memo. 1998-325.; H. Rept. 94-1380, supra at

21-22, 1976-3 C.B. (Vol. 3) at 755-756; S. Rept. 94-938 (Part 2),

supra at 15, 1976-3 C.B. (Vol. 3) at 657.

      Additionally, the benefit afforded by section 2032A is not

open ended; the maximum aggregate reduction in value allowable by

the statute for qualified real property with respect to any

decedent is $750,000.   See sec. 2032A(a)(2).

     Farms may be specially valued under section 2032A by using

one of two methods, the formula method under section 2032A(e)(7)

or the five-factor method under section 2032A(e)(8).
                            - 21 -

A.   Section 2032A(e)(7)5--The Formula Method

5
     SEC. 2032A(e). Definitions; Special Rules.–-For
purposes of this section-–

          *   *     *   *    *   *   *

     (7) Method of valuing farms.--

          (A) In general.-–Except as provided in
     subparagraph (B), the value of a farm for farming
     purposes shall be determined by dividing–-

               (i) the excess of the average annual gross
          cash rental for comparable land used for farming
          purposes and located in the locality of such farm
          over the average annual State and local real
          estate taxes for such comparable land, by

               (ii) the average annual effective interest
          rate for all new Federal Land Bank loans.

For purposes of the preceding sentence, each average annual
computation shall be made on the basis of the 5 most recent
calendar years ending before the date of the decedent’s
death.

          (B) Value based on net share rental in certain
     cases.--

               (i) In general.-–If there is no comparable
          land from which the average annual gross cash
          rental may be determined but there is comparable
          land from which the average net share rental may
          be determined, subparagraph (A)(i) shall be
          applied by substituting "average annual net share
          rental" for "average annual gross cash rental".

               (ii) Net share rental.-–For purposes of this
          paragraph, the term "net share rental" means the
          excess of–-

                       (I) the value of the produce received by
                  the lessor of the land on which such produce
                  is grown, over

                                                 (continued...)
                                - 22 -

     The first of these methods is the formula method under

section 2032A(e)(7).    This method is based upon the

capitalization of rents of comparable properties.    The method is

based on a strict formula (objective factors), and the formula is

set forth in the statute and the regulations.

     Under the formula method, the special use value is

determined by reference to the cash rents of comparable

properties.   The special use value of the property is determined

mathematically by taking the excess of:

     (1)   The average annual gross cash rental for comparable

land used for farming purposes and located in the locality of

such farm, over

     (2)   the average annual State and local real estate taxes

for such comparable property.




     5
      (...continued)
                            (II) the cash operating expenses of
                       growing such produce which, under the lease,
                       are paid by the lessor.

                (C) Exception.-–The formula provided by
           subparagraph (A) shall not be used–-

                       (i) where it is established that there is no
                  comparable land from which the average annual
                  gross cash rental may be determined and that there
                  is no comparable land from which the average net
                  share rental may be determined, or

                       (ii) where the executor elects to have the
                  value of the farm for farming purposes determined
                  under paragraph (8).
                               - 23 -

     This average rent amount is then divided by a capitalization

factor based on the average annual effective interest rate for

all new Federal Land Bank loans.   The average annual computation

is performed on the basis of the 5 most recent calendar years

ending before the date of the decedent's death.     See sec.

2032A(e)(7)(A); sec. 20.2032A-4(a), Estate Tax Regs.

     The annual gross cash rental is the amount of cash rental of

actual tracts of comparable farmland in the same locality, not

reduced by any expenses or liabilities associated with the farm.

See sec. 20.2032A-4(b)(1), Estate Tax Regs.     The executor is

required to identify actual comparable property and the cash

rentals from the comparable property for all of a decedent's

property that is specially valued.      See Estate of Strickland v.

Commissioner, 92 T.C. 16, 24 (1989).      The regulations require

that the executor be able to substantiate the valuation with

supporting documentation, including identification of comparable

property and cash rentals from that property.     See sec. 20.2032A-

4(b)(2)(i), Estate Tax Regs.

     Section 2032A(e)(7) provides that the value of a farm for

farming purposes shall be determined by the formula method of

valuation unless:   (1) It is established that there is no

comparable land from which the average annual gross cash rental

or average net share rental can be determined; or (2) the

executor elects to have the value of the farm determined under
                                   - 24 -

the five factor method of section 2032A(e)(8).          See sec.

2032A(e)(7)(C).

     B. Section 2032A(e)(8)6--The Five Factor Method

     The second valuation method is set forth under section

2032A(e)(8).   This method is based upon the application of five



     6
           SEC. 2032A(e). Definitions; Special Rules.–For
     purposes of this section–

                       *   *   *     *      *   *   *

               (8) Method of valuing closely held business
          interests, etc.-–In any case to which paragraph (7)(A)
          does not apply, the following factors shall apply in
          determining the value of any qualified real property:

                       (A) The capitalization of income which the
                  property can be expected to yield for farming or
                  closely held business purposes over a reasonable
                  period of time under prudent management using
                  traditional cropping patterns for the area, taking
                  into account soil capacity, terrain configuration,
                  and similar factors,

                       (B) The capitalization of the fair rental
                  value of the land for farmland or closely held
                  business purposes,

                       (C) Assessed land values in a State which
                  provides a differential or use value assessment
                  law for farmland or closely held business,

                       (D) Comparable sales of other farm or closely
                  held business land in the same geographical area
                  far enough removed from a metropolitan or resort
                  area so that nonagricultural use is not a
                  significant factor in the sales price, and

                       (E) Any other factor which fairly values the
                  farm or closely held business value of the
                  property.
                                 - 25 -

valuation factors.      The five factors set forth in section

2032A(e)(8) are:   (1)    The capitalization of income which the

property can be expected to yield for farming purposes; (2) the

capitalization of the fair rental value of the land for farmland;

(3) the assessed land value for ad valorem real estate tax

purposes; (4) the sale price of comparable parcels of farmland in

the geographic area; and (5) any other factor which fairly values

the farmland.

      Valuation under the five factor method of section

2032A(e)(8) is required under certain circumstances.      If rents

for comparable property are not available, then petitioner must

use section 2032A(e)(8) to value the property.      See sec.

20.2032A-4(a), Estate Tax Regs.

II.   Comparable Land

      Petitioner asserts that the five estate tracts and the five

leased tracts are "comparable land".      Respondent contends that

the five estate tracts and the five leased tracts are physically

comparable as to land only and that the five estate tracts and

the five leased tracts are not comparable in any manner in regard

to timber volumes, timber quality, and timber quantity, and to

rental values.

      In order to use section 2032A(e)(7), the estate must

identify "comparable land".      The Oxford English Dictionary

(1993), the Merriam-Webster’s Collegiate Dictionary (10th ed.
                               - 26 -

1998), and the American Heritage College Dictionary (3d ed. 1993)

define the word "comparable" as "able to be compared (with);

worthy of comparison; fit to be compared (to)," "capable of or

suitable for comparison," or "admitting of comparison with

another or others."

     Section 20.2032A-4(d), Estate Tax Regs., defining

"comparable real property," states that "Comparable real property

must be situated in the same locality as the specially valued

property."   In the case before us, location was the first

consideration in determining the five leased tracts, as Dr. Haney

excluded one of the two other potential comparables based on

slightly greater distance.   The five estate tracts and the five

leased tracts are all located in the black belt soil area of

western Alabama along the Mississippi border.   Indeed, four out

of the five leased tracts are located in the same county as all

five estate tracts, and the fifth comparable is in the adjacent

Pickens County on the north.

     Section 20.2032A-4(d), Estate Tax Regs., sets forth the

following factors as among those to be considered in determining

comparability:

          (1) Similarity of soil as determined by any objective
     means, including an official soil survey reflected in a soil
     productivity index;

          (2) Whether the crops grown are such as would deplete
     the soil in a similar manner;
                              - 27 -

          (3) The types of soil conservation techniques that
     have been practiced on the two properties;

          (4) Whether the two properties are subject to
     flooding;

          (5)   The slope of the land;

          (6) In the case of livestock operations, the carrying
     capacity of the land;

          (7) Where the land is timbered, whether the timber is
     comparable to that on the subject property;

          (8) Whether the property as a whole is unified or
     whether it is segmented, and where segmented, the
     availability of the means necessary for movement among the
     different segments;

          (9) The number, types, and conditions of all buildings
     and other fixed improvements located on the properties and
     their location as it affects efficient management and use of
     property and value per se; and

          (10) Availability of, and type of, transportation
     facilities in terms of costs and of proximity of the
     properties to local markets.

Furthermore, the determination of properties which are comparable

is a factual one and must be based on numerous factors, no one of

which is determinative.   See id.

       The five estate tracts and the five leased tracts share

all nine features applicable to timberland.   See appendixes 1-5.

First, the soil in the three-county black belt soil area of

Alabama along the Mississippi border where all five estate tracts

and the five leased tracts are located is a transition mix

between sandy clay and post oak black belt soil.   Second, none of

the timber on the five estate tracts depletes the soil
                                - 28 -

significantly or in a different manner from the timber on the

five leased tracts.    Third, the conservation techniques employed

are similar.   The conservation techniques are generally the same

on all managed timberland.    Leased property is clear cut and

replanted instead of select cut which is true in almost every

lease comparison.    Fourth, all of the properties are subject to

periodic flooding.    Fifth, all of the land is relatively flat.

Sixth, all of the properties have a hardwood/pine mix.    Seventh,

each of the properties is unified as a separate property but is

segmented by logging roads that allow movement.    Eighth, only two

of the properties have any improvements, the Lanford A and the

Woodward tracts.    Those improvements are valued at approximately

$2,707 and $5,610, respectively, according to the Butler &

Gardiner appraisal.    Ninth, all of the properties in these three

counties have access to secondary roads and similar access to

markets.

     As a general principle in valuing timberlands or any other

type of real estate, no two properties are identical.    Properties

can be compared, however, when they have enough characteristics

in common.   Such properties may be similar but not identical as

to those characteristics, and only rarely will any two properties

be similar as to all factors.    Special use valuation under the

rent capitalization method necessarily requires comparison of

unleased property with leased property.    The reason is that
                               - 29 -

property leased for a cash rental generally does not qualify for

special use valuation, and this method requires a determination

of the average rent on similar property that is leased.

     Some differences invariably exist between any two timber

properties, and Dr. Haney addressed such modest differences in

his reports.    First, he noted that the timber on one of the five

estate tracts was virtually identical to the timber on one of the

five leased tracts.    He concluded, however, that a comparison to

all five leased tracts would be more reliable.    Second, he noted

that the timber quality and capability of the five leased tracts

were somewhat superior to the timber quality on the five estate

tracts.    On the basis of this difference, he concluded that a

downward adjustment of no more than 10 percent was warranted.

     Such an adjustment is inappropriate as it does not comply

with Congress' purpose in providing a simple, objective "Method

of valuing farms" in section 2032A(e)(7), which is embodied in

section 20.2032A-4(b)(2)(iii), Estate Tax Regs., and which

prohibits the use of appraisals because they are not true

measures of the actual cash rental value of comparable property

in the same locality as the specially valued property.

      Here, the five estate tracts and the five leased tracts are

tracts of land of the same general size in the same locale, used

for the same agricultural purpose, with the same soil and same

slope.    On the basis of normal timberland valuation principles
                               - 30 -

and the factors noted above, the five leased tracts (four of

which are located in Sumter County, Alabama) are highly

comparable to each of the five estate tracts--all of which are

located in Sumter County.    Thus, we find and determine that the

five estate tracts and the five leased tracts are highly

comparable.

     In Estate of Thompson v. Commissioner, T.C. Memo. 1998-325,

we concluded that the taxpayer had failed to identify comparable

real properties and cash rentals within the meaning of section

2032A(e)(7), where the expert’s adjusted net lease income per

acre figures were more akin to an appraisal, which is expressly

prohibited by section 20.2032A-4(b)(2)(iii), Estate Tax Regs.,

rather than an accurate calculation of actual cash rents.

     In Estate of Thompson we concluded that the expert’s report

was completely unreliable as to whether any of eight    properties

were indeed comparable to the subject property for the following

reasons.   First, the alleged comparable properties ranged in size

from 44 acres to 34,365 acres, compared to the subject property

of 2,929 acres.    In addition, the expert made no adjustments due

to differences in location, land quality, or timber

type/maturity.    Moreover, no description of the properties was

contained in the expert’s report.

     In decedent’s estate here, five out of seven tracts share

nine out of the nine applicable features set forth in section
                              - 31 -

20.2032-4(d), Estate Tax Regs.   For decedent’s estate, the range

in size of comparables is much tighter:   comparables of 261 to

1,665.28 acres (for subject properties ranging from 65-1670

acres).   Furthermore, Dr. Haney excluded potential comparables

because of differences in location, land quality, and timber

type/maturity.   Dr. Haney excluded the potential comparable in

Fayette County because of location; he excluded a Pickens County

tract with somewhat different slope and soil.   Further, Dr. Haney

proposed a 10-percent reduction to four of the subject

properties, because of the superior quality of timber on the five

leased tracts.   As noted previously, however, such a reduction is

inappropriate as appraisals are not true measures of the actual

cash rental value of comparable property.   Moreover, petitioner

provided detailed descriptions of the subject properties and the

leased properties in the original estate tax return; more

detailed descriptions of the leased properties are provided in

the leases and Dr. Haney's reports.

      The eight leases in Estate of Thompson were entered into

over a 27-year period, some with no rent escalation clause.      For

those leases with no rent escalation clause, the expert claimed

to have applied the "Producer Price Index" (PPI) in an effort to

calculate the market rental value of those properties for the 5-

year period preceding decedent’s death.   Petitioner requested

that we take judicial notice of Report 807, Escalation and
                              - 32 -

Producer Price Indexes:   A Guide for Contracting Parties issued

by the U.S. Department of Labor, Bureau of Labor Statistics in

September 1991 for the purpose of establishing that the PPI can

be applied to contract rents to calculate accurately fair market

rents for future years in the absence of escalation clauses, as

the expert claimed to have done.   We determined in Estate of

Thompson that:

     Report 807 does not support the proposition that market
     rents for the relevant period can be accurately calculated
     from contract rents entered into several decades beforehand
     via the application of the PPI for purposes of section
     2032A(e)(7)(A) for those leases which do not themselves
     contain rent escalation clauses. Rather, Report 807
     provides guidance to contracting parties with respect to the
     use of price adjustment clauses at the time the contract is
     entered into. * * *

     In Estate of Thompson the average gross cash rental for the

5 years preceding the decedent’s death was determined by the

expert on the basis of his "personal knowledge * * * what I

thought would be the indicated market rent for what I knew about

the whole business, and that’s it."    Furthermore, the expert

testified that he validated his estimate of the cash rental rate

for the timberland by reference to the prevailing rate for

cropland during the relevant period, of which there was no

evidence.

     In decedent’s estate here, the special use valuation of the

five estate tracts is based exclusively on actual cash rents from

the five leased tracts for the 5 years preceding decedent’s
                               - 33 -

death.    All five leases for the five leased tracts contain rent

escalation clauses; as escalated, the leases constituted the

prevailing rents during the statutory period on that type of

land.    Both the actual rents and State and local property taxes

were explained and are fully substantiated with original source

data.    There is no adjustment to rents because petitioner used

only actual current rents during the statutory period.

     Respondent also asserts that the five estate tracts and the

five leased tracts are not comparable in any manner in regard to

the rental values.    Respondent contends that the regulations

require that "generally accepted real property valuation rules"

be applied to determine comparability of the property.     Sec.

20.2032A-4(d), Estate Tax Regs.    Respondent asserts that the

maximum period allowed under real estate valuation rules is 5

years prior to the valuation date.      On brief, respondent states

this argument as follows:

     Leases that establish the applicable rents are leases that
     would have been negotiated and entered into during the
     five-year period. Leases that were negotiated more than
     five years prior to the date of death do not accurately
     reflect the economic conditions at the date of death and
     the current rental values of comparable lands.

     Comparability must be based on numerous factors, no one of

which is determinative.    See sec. 20.2032A-4(d), Estate Tax Regs.

All factors generally considered in real estate valuation are to

be considered in determining comparability under section 2032A.
                               - 34 -

See id.   However, respondent seeks to exclude the comparable land

on the basis of one factor and one factor only (the age of the

leases--which is not even one of the factors enumerated in the

regulations).

     Neither the statute nor the regulations support respondent’s

position in that respect.   In this case, the parties stipulated

that the typical timber lease in effect in western Alabama

between 1987 and 1991 was entered into in the 1950's, 1960's, and

early 1970's and was a long-term timber lease.   Respondent’s

argument would exclude every lease executed before August 19,

1987, which would effectively operate to prevent estates in

Alabama from using section 2032A(e)(7) to value timberland since

the typical timber lease in effect in western Alabama between

1987 and 1991 was entered into in the 1950's, 1960's, and early

1970's.

     Respondent has submitted an original and two rebuttal

reports from his expert, Richard Maloy.   Mr. Maloy contends that,

"Comparable leases must have been negotiated under recent (5-year

period of analysis) dates to ensure comparability of economic

conditions."    Mr. Maloy is simply parroting respondent's primary

legal argument that would inject an arbitrary requirement for

application of section 2032A(e)(7)--that is, as a matter of law

no lease can be considered unless it was executed within 5 years

of the date of death.   We have stated before, in Alumax v.
                              - 35 -

Commissioner, 109 T.C. 133, 171 (1997):   "We shall disregard any

opinion of an expert that constitutes nothing more than that

expert's legal opinion or conclusion about a particular matter."

     Mr. Maloy further states the following:   "Lease

comparability under section 2032A(e)(7) would require recent

leases, foreseeable within the 5-year average.   This is

relatively easy in row crop valuation, but generally eliminates

the use of this section in timber land valuation."

     Two consecutive paragraphs establish that the protection

afforded farms by section 2032A was intended to apply to

timberland.   Section 2032A(e)(7) sets forth the "Method of

valuing farms."   Section 2032A(e)(4) and (5) leaves no doubt that

timber operations are included under section 2032A(e)(7) and (8).

Furthermore, factor (7) under section 20.2032A-4(d), Estate Tax

Regs., obviously contemplates that rented timberland may be

comparable property.

     As stipulated, the leases represented the typical timber

leases in effect in western Alabama during the 5-year statutory

period.   Moreover, the inflation-adjusted rents paid under these

leases constituted the prevailing rents in effect during the

statutory period.   All of the leases on the five leased tracts

have escalation clauses.   Moreover, in contrast to the fatal

"judgment call" as to the annual rents in Estate of Thompson v.
                              - 36 -

Commissioner, T.C. Memo. 1998-325, the parties have stipulated

the precise, actual annual gross rents for the statutory period.

     Consequently, with their escalation clauses, the stipulated

rents constitute the prevailing rents actually paid on comparable

land in western Alabama under the typical/standard lease in

effect during the statutory period.    Once the unleased and the

leased land are determined to be comparable (as we have found),

section 2032A(e)(7) permits petitioner to use for valuation

purposes the average annual gross cash rents for the 5 calendar

years preceding decedent's death.

III. Standing Timber

     Petitioner asserts that the rent capitalization method of

valuing farms incorporates the timber on the five estate tracts

because (i) the right to cut timber is embedded in the standard

timber leases from which that value is drawn, and (ii) the estate

made a proper "qualified woodland" election pursuant to section

2032A(e)(13).   Respondent contends that the rent capitalization

value includes only the value of the bare land and does not

include the timber growing on decedent’s lands.

     Congress adopted section 2032A(e)(13) as part of the

Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec. 421(h), 95

Stat. 172, 311-312, which provides:

     (13) Special rules for woodlands.--
                                - 37 -

          (A) In general.--In the case of any qualified woodland
     with respect to which the executor elects to have this
     subparagraph apply, trees growing on such woodland shall not
     be treated as a crop.

          (B) Qualified woodland.--The term "qualified woodland"
     means any real property which–-

                (i) is used in timber operations, and

               (ii) is an identifiable area of land such as an
          acre or other area for which records are normally
          maintained in conducting timber operations.

          (C)   Timber operations.--The term "timber operations"
     means--

               (i) the planting, cultivating, caring for, or
          cutting of trees, or

               (ii) the preparation (other than milling) of trees
          for market.

          (D) Election.--An election under subparagraph (A)
     shall be made on the return of the tax imposed by section
     2001. Such election shall be made in such manner as the
     Secretary shall by regulations prescribe. Such an election,
     once made, shall be irrevocable.

     The report of the Senate Finance Committee accompanying the

1981 enactment of section 2032A(e)(13) specifically states that

an election under section 2032A(e)(13) results in the standing

timber’s being thereafter specially valued as "part of the

qualified real property on which the timber is located, rather

than valuing it as other growing crops."    S. Rept. 97-144, at 135

(1981), 1981-2 C.B. 412, 465.    The Senate Finance Committee

report explains how this provision interacts with the rent

capitalization method:
                              - 38 -

          Special Rule for Standing Timber.--The bill provides
     that the executor can elect to treat standing timber as an
     interest in real property and specially value the timber as
     part of the qualified real property on which the timber is
     located, rather than valuing it as other growing crops.
     Standing timber is to be specially valued by reference to
     similar timber located on comparable land where both the
     land and timber are rented for timber growing purposes under
     a cash or share rental lease. If no comparable timber and
     land are so rented in the locality of the decedent's
     property, the timber and land are to be specially valued
     using the multiple factor method. [Id. at 135-136, 1981-2
     C.B. at 465; fn. refs. omitted.]

In sum, the timber is already included in the section 2032A(e)(7)

rent capitalization value drawn from timber leases that include

the right to cut timber.

     The Senate Finance Committee report recognizes that, in the

absence of timber leases, the section 2032A(e)(8) multiple factor

method would apply.   Congress adopted the statutory timber

election with the intent that it would apply to the standard

timber lease "on comparable land where both the land and timber

are rented for timber growing purposes under a cash or share

rental lease."   That result is further confirmed by the

distinction drawn by the Senate Finance Committee report that

"Leases for purposes other than for growing timber to which the

comparable land is subject are to be ignored in determining the

value of qualified timber property in its current use."     Id. at

135 n.10, 1981-2 C.B. at 465 n.10.     The purpose of a timber lease

is to capture the value of the timber.    As demonstrated by the

lease language, the 1987-91 rent from which the rent
                               - 39 -

capitalization value is derived constituted the consideration for

the right to grow and cut timber.    The rent capitalization value

captures the value of that timber just as Congress contemplated

in the section 2032A(e)(13) qualified woodland election.

     The standard timber leases on the five leased tracts include

the "timber * * * rented for timber growing purposes", as

demonstrated by the following two stipulated facts.   First, the

rent paid under the leases applicable to the five leased tracts

includes the consideration paid for the right to grow and cut the

timber grown on the leased property during the term of the lease.

Second, the estate timely elected and qualified for a "qualified

woodland" election on section 2032A property that the estate

seeks to value by reference to these timber leases.   The value of

the timberland is, therefore, included in the rent capitalization

value of those tracts.

     Respondent also contends that the "segmenting" language of

section 20.2032A-4(d), Estate Tax Regs., requires that the timber

be separately valued.    Respondent cites section 20.2032A-4(d),

Estate Tax Regs., which provides:

     It will, therefore, frequently be necessary to value farm
     property in segments where there are different uses or land
     characteristics included in the specially valued farm. * * *
     In cases involving multiple areas or land characteristics,
     actual comparable property for each segment must be used,
     and the rentals and taxes from all such properties combined
     (using generally accepted real property valuation rules) for
     use in the valuation formula given in this section.
                              - 40 -

Respondent asserts that because of the different land uses and

characteristics of decedent's lands, section 20.2032A-4(d),

Estate Tax Regs., requires that the timberland, standing timber,

and pastureland all be separately valued.   Respondent further

asserts that because the leases of "comparable land" that

petitioner presented and relies upon are leases of only bare

timberland which do not include the rental value of land

containing standing timber or pasture, the leases are totally

irrelevant to the valuation of standing timber or pastureland

under section 2032A(e)(7).

     In adopting and explaining the "qualified woodland" election

in section 2032A(e)(13), Congress explicitly provided that the

value of the timber would not be "segmented" and separately

valued as a crop:   Congress explained that the timber would be

included in the rent capitalization value of the land where the

underlying lease incorporated the right to grow and cut timber.

     In short, the estate's timber is already incorporated into

the rent capitalization value because the base rent already

includes the right to cut the timber.   Notably, the parties have

stipulated that the standard timber leases covering the five

leased tracts are precisely the type contemplated by the

"qualified woodland" election.   Each of them is a lease that

covers the harvesting of timber grown during the term of the

lease.   We reject respondent’s argument that the conspicuously
                                - 41 -

labeled "qualified woodland" election does not apply to timber

valued by reference to the standard woodlands lease.    We conclude

that the rent on the comparable land incorporates the value of

the timber standing in 1992 because it pays for the right to

harvest all timber grown during the term of the lease.

Consequently, we hold that petitioner can value the timberland

and standing timber under the provisions of section 2032A(e)(7).

IV.   Pastureland

      Petitioner asserts that the formula method under section

2032A(e)(7) should also be applied to the portion of the estate’s

timberland which was in cleared pasture and suitable for a new

stand of timber.     Respondent contends that the pastureland must

be valued using the five factor method of section 2032A(e)(8).

      The parties stipulated that the Woodward parcel, which was

in pasture (and therefore suitable for a new stand of timber),

constitutes "qualified woodland".    Consequently, we find that

petitioner has provided comparable real property from which to

value the Woodward tract, which was in pasture.

      The following three parcels of pastureland did not

constitute "qualified woodland":

             Tract               Valuation Elected

           Lanford A             150 acres - pasture
           Lanford B             125 acres - pasture
           Patterson              65 acres - pasture
                              - 42 -

Petitioner has failed to provide sufficient information from

which to make a valuation of pastureland that does not constitute

"qualified woodland" under the formula method.   Section 20.2032A-

4(a) and (b)(2), Estate Tax Regs., requires that, if the estate

desires valuation under section 2032A(e)(7), the executor must

provide to the Internal Revenue Service leases of actual

comparable property and the cash rental from the property.

Although the record does contain a copy of a lease on clear land

in Sumter County, petitioner has not satisfied us that this is

comparable pastureland.   Consequently, petitioner failed to

satisfy the requirement to provide comparable leases and

establish rental values of comparable pasturelands in order to

specially value decedent's pastureland under section 2032A(e)(7).

Consequently, there is no justification or basis for a section

2032A(e)(7) valuation of the pastureland located on the Lanford

A, Lanford B, and Patterson tracts.

     Since the Woodward parcel of pastureland constitutes

"qualified woodland", we hold that it may also be valued under

the provisions of section 2032A(e)(7).   Furthermore, we hold that

the three parcels of pastureland that did not constitute

"qualified woodland", located on the Lanford A, Lanford B, and

Patterson tracts, must be valued under the provisions of section

2032A(e)(8).
                              - 43 -

V.   Conclusion

     We find and conclude that the leases provided by petitioner

are leases of comparable land for the 5 most recent calendar

years ending before the date of decedent’s death.   Consequently,

we hold that petitioner can value the timberland and standing

timber under the provisions of section 2032A(e)(7).   Since the

Woodward parcel of pastureland constitutes "qualified woodland",

we hold that it may also be valued under the provisions of

section 2032A(e)(7).

     As a result, the rent capitalization value is the excess of

(i) the average annual gross cash rents from the comparable five

leased tracts for the prior 5 years ($9.6964) over (ii) the

average annual State and local real estate taxes for the same

period ($1.1592), divided by (iii) the average annual interest

rate on Federal Land Bank loans for the same period (10.21

percent).   The result is a per-acre rent capitalization value of

$83.6161.

     Furthermore, the improvements located on the Lanford A and

Woodward tracts are valued at approximately $2,707 and $5,610,

respectively, according to the Butler & Gardiner appraisal.    We

hold that these amounts should be added to the value of the land.

     In addition, we find and conclude that petitioner failed to

satisfy the requirement to provide comparable leases and

establish rental values of comparable pasturelands in order to
                             - 44 -

specially value decedent’s pastureland that did not constitute

"qualified woodland" under the provisions of section 2032A(e)(7).

As a result, we hold that the three parcels of pastureland that

did not constitute "qualified woodland", located on the Lanford

A, Lanford B, and Patterson tracts, must be valued under the

provisions of section 2032A(e)(8).    Consequently, the value of

the pastureland for purposes of section 2032A(e)(8) is $350 per

acre (less a 15-percent discount for pastureland in the Lanford A

and Lanford B tracts).

     We have considered all other arguments advanced by the

parties, and to the extent they are not addressed herein, we find

them to be neither relevant nor persuasive.

     To reflect the foregoing,

                                          Decision will be entered

                                     under Rule 155.
                                                         - 45 -

                                                                   Appendix 1

                                                             SUBJECT PROPERTY #1- “EGYPT TRACT”
   FACTORS:       Similarity        Soil    Types of Soil    Flooding   Slope of      Timber       Unified or     Conditions   Availability, type
                    of Soil     Depletion    Conservation                 Land                      Segmented        of All     of transportation
                                 by Crops     Techniques                                                           Buildings        facilities;
                                   Grown                                                                           and other       proximity to
                                                                                                                      fixed           markets
                                                                                                                 improvement
                                                                                                                        s

SUBJECT #1 -     Sandy Clay    insignific   select cut      periodic    flat       hardwood -     unified w/     None          Access to
Egypt            - post oak    ant                                                 pine mix       logging                      secondary roads
                 black belt                                                                       roads                        and reasonable
                 transition                                                                                                    access to markets

LEASED TRACTS:

1) Allen         Sandy Clay    insignific   clear cut and   periodic    flat       hardwood -     unified w/     No            Access to
(March Lease)    - post oak    ant          replant                                pine mix       logging        significant   secondary roads
                 black belt                                                                       roads          structure     and reasonable
                 transition                                                                                      (camp         access to markets
                                                                                                                 house)

2) Clarence L.   Sandy Clay    insignific   clear cut and   periodic    flat       hardwood -     unified w/     None          Access to
     Rogers      - post oak    ant          replant                                pine mix       logging                      secondary roads
(April Lease)    black belt                                                                       roads                        and reasonable
                 transition                                                                                                    access to markets

3) Richardson    Sandy Clay    insignific   clear cut and   periodic    flat       hardwood -     unified w/     None          Access to
(September       - post oak    ant          replant                                pine mix       logging                      secondary roads
Lease)           black belt                                                                       roads                        and reasonable
                 transition                                                                                                    access to markets

4) C.L. Rogers   Sandy Clay    insignific   clear cut and   periodic    flat       hardwood -     unified w/     None          Access to
(September       - post oak    ant          replant                                pine mix       logging                      secondary roads
Lease)           black belt                                                                       roads                        and reasonable
                 transition                                                                                                    access to markets

5) B. Rogers      Sandy Clay    insignific   clear cut and   periodic   flat       hardwood -     unified w/     None          Access to
(September        - post oak    ant          replant                               pine mix       logging                      secondary roads
Lease)            black belt                                                                      roads                        and reasonable
                  transition                                                                                                   access to markets
     1) Allen Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, Clarence Long Rogers, a widow, Janie R. Allen, a widow,
     Elizabeth R. Sledge, a widow, and C. M. A. Rogers III, Ellen Rogers Worsham and Jane Rogers Guthries, Trustees under the Last Will and
     Testament of C. M.A. Rogers, deceased.
     2) Clarence L. Rogers (April Lease) Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, and Clarence Long Rogers, a widow.
     3) Richardson Tract refers to Robert Richardson and Kathleen Richardson, his wife and Sandra Moore and Paul D. Moore, her husband.
     4) Clarence Long Rogers (September Lease) lease refers to Clarence Long Rogers, a widow.
     5) Barnes A. Rogers (September Lease) lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers.
                                                     - 46 -


                                                                  Appendix 2
                                                         SUBJECT PROPERTY #2 - “LANFORD A PLACE”
  FACTORS:       Similarity        Soil     Types of Soil    Flooding    Slope of       Timber      Unified     Conditions of      Availability,
                   of Soil     Depletion     Conservation                  Land                        or       All Buildings          type of
                                by Crops      Techniques                                           Segmented   and other fixed    transportation
                                  Grown                                                                          improvements        facilities;
                                                                                                                                    proximity to
                                                                                                                                       markets

SUBJECT #2 -    Sandy Clay -   insignific   select cut       periodic    flat       hardwood -     unified     No significant    Access to
Lanford A       post oak       ant                                                  pine mix       w/          structure (camp   secondary roads
Place           black belt                                                                         logging     house)            and reasonable
                transition                                                                         roads                         access to
                                                                                                                                 markets

LEASED
TRACTS:

1) Allen        Sandy Clay -   insignific   clear cut and    periodic    flat       hardwood -     unified     No significant    Access to
(March Lease)   post oak       ant          replant                                 pine mix       w/          structure (camp   secondary roads
                black belt                                                                         logging     house)            and reasonable
                transition                                                                         roads                         access to
                                                                                                                                 markets

2) Clarence     Sandy Clay -   insignific   clear cut and    periodic    flat       hardwood -     unified     None              Access to
L.              post oak       ant          replant                                 pine mix       w/                            secondary roads
     Rogers     black belt                                                                         logging                       and reasonable
(April Lease)   transition                                                                         roads                         access to
                                                                                                                                 markets

3) Richardson   Sandy Clay -   insignific   clear cut and    periodic    flat       hardwood -     unified     None              Access to
(September      post oak       ant          replant                                 pine mix       w/                            secondary roads
Lease)          black belt                                                                         logging                       and reasonable
                transition                                                                         roads                         access to
                                                                                                                                 markets

4) C.L.         Sandy Clay -   insignific   clear cut and    periodic    flat       hardwood -     unified     None              Access to
Rogers          post oak       ant          replant                                 pine mix       w/                            secondary roads
(September      black belt                                                                         logging                       and reasonable
Lease)          transition                                                                         roads                         access to
                                                                                                                                 markets

5) B. Rogers    Sandy Clay -   insignific   clear cut and    periodic    flat       hardwood -     unified     None            Access to
(September      post oak       ant          replant                                 pine mix       w/                          secondary roads
Lease)          black belt                                                                         logging                     and reasonable
                transition                                                                         roads                       access to
                                                                                                                               markets
   1) Allen Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, Clarence Long Rogers, a widow, Janie R. Allen, a widow,
   Elizabeth R. Sledge, a widow, and C. M. A. Rogers III, Ellen Rogers Worsham and Jane Rogers Guthries, Trustees under the Last Will and
   Testament of C. M.A. Rogers, deceased.
   2) Clarence L. Rogers (April Lease) Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, and Clarence Long Rogers, a widow.
   3) Richardson Tract refers to Robert Richardson and Kathleen Richardson, his wife and Sandra Moore and Paul D. Moore, her husband.
   4) Clarence Long Rogers (September Lease) lease refers to Clarence Long Rogers, a widow.
   5) Barnes A. Rogers (September Lease) lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers.
                                                  - 47 -

                                                             Appendix 3
                                                   SUBJECT PROPERTY #3 - “LANFORD B PLACE”
  FACTORS:     Similarity        Soil      Types of Soil   Floodin   Slope of      Timber       Unified or     Conditions       Availability,
                 of Soil     Depletion      Conservation      g        Land                     Segmented         of All            type of
                              by Crops       Techniques                                                         Buildings      transportation
                                Grown                                                                           and other         facilities;
                                                                                                                   fixed         proximity to
                                                                                                              improvements          markets

 SUBJECT #3    Sandy Clay   insignifica   select cut       periodi   flat       hardwood -     unified w/     None           Access to
 - Lanford B   - post oak   nt                             c                    pine mix       logging                       secondary roads
               black belt                                                                      roads                         and reasonable
               transition                                                                                                    access to markets

 LEASED
 TRACTS:

 1) Allen      Sandy Clay   insignifica   clear cut and    periodi   flat       hardwood -     unified w/     No             Access to
 (March        - post oak   nt            replant          c                    pine mix       logging        significant    secondary roads
 Lease)        black belt                                                                      roads          structure      and reasonable
               transition                                                                                     (camp house)   access to markets

 2)Clarence    Sandy Clay   insignifica   clear cut and    periodi   flat       hardwood -     unified w/     None           Access to
 L. Rogers     - post oak   nt            replant          c                    pine mix       logging                       secondary roads
 (April        black belt                                                                      roads                         and reasonable
 Lease)        transition                                                                                                    access to markets

 3)Richardso   Sandy Clay   insignifica   clear cut and    periodi   flat       hardwood -     unified w/     None           Access to
 n             - post oak   nt            replant          c                    pine mix       logging                       secondary roads
 (September    black belt                                                                      roads                         and reasonable
 Lease)        transition                                                                                                    access to markets

 4)C.L.        Sandy Clay   insignifica   clear cut and    periodi   flat       hardwood -     unified w/     None           Access to
 Rogers        - post oak   nt            replant          c                    pine mix       logging                       secondary roads
 (September    black belt                                                                      roads                         and reasonable
 Lease)        transition                                                                                                    access to markets

 5)B. Rogers   Sandy Clay   insignifica    clear cut and    periodi   flat       hardwood -     unified w/     None           Access to
 (September    - post oak   nt             replant          c                    pine mix       logging                       secondary roads
 Lease)        black belt                                                                       roads                         and reasonable
               transition                                                                                                     access to markets
1) Allen Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, Clarence Long Rogers, a widow, Janie R. Allen, a widow,
Elizabeth R. Sledge, a widow, and C. M. A.    Rogers III, Ellen Rogers Worsham and Jane Rogers Guthries, Trustees under the Last Will and
Testament of C. M.A. Rogers, deceased.
2) Clarence L. Rogers (April Lease) Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, and Clarence Long Rogers, a widow.
3) Richard Tract refers to Robert Richardson and Kathleen Richardson, his wife and Sandra Moore and Paul D. Moore, her husband.
4) Clarence Long Rogers (September Lease) refers to Clarence Long Rogers, a widow.
5) Barnes A. Rogers (September Lease) lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers.
                                                      - 48 -

                                                                    Appendix 4
                                                          SUBJECT PROPERTY #4 - “WOODWARD PLACE”
   FACTORS:       Similarity        Soil     Types of Soil    Flooding   Slope of       Timber     Unified or     Conditions      Availability,
                    of Soil     Depletion     Conservation                 Land                    Segmented         of All           type of
                                 by Crops      Techniques                                                          Buildings     transportation
                                   Grown                                                                           and other        facilities;
                                                                                                                      fixed        proximity to
                                                                                                                 improvements         markets

SUBJECT #3 -     Sandy Clay    insignifica   select cut       periodic   flat       hardwood -     unified w/    No             Access to
Woodward         - post oak    nt                                                   pine mix       logging       significant    secondary roads
                 black belt                                                                        roads         structure      and reasonable
                 transition                                                                                      (camp house)   access to markets

LEASED TRACTS:

1) Allen         Sandy Clay    insignifica   clear cut and    periodic   flat       hardwood -     unified w/    No             Access to
(March Lease)    - post oak    nt            replant                                pine mix       logging       significant    secondary roads
                 black belt                                                                        roads         structure      and reasonable
                 transition                                                                                      (camp house)   access to markets

2) Clarence L.   Sandy Clay    insignifica   clear cut and    periodic   flat       hardwood -     unified w/    None           Access to
    Rogers       - post oak    nt            replant                                pine mix       logging                      secondary roads
(April Lease)    black belt                                                                        roads                        and reasonable
                 transition                                                                                                     access to markets

3) Richardson    Sandy Clay    insignifica   clear cut and    periodic   flat       hardwood -     unified w/    None           Access to
(September       - post oak    nt            replant                                pine mix       logging                      secondary roads
Lease)           black belt                                                                        roads                        and reasonable
                 transition                                                                                                     access to markets

4) C.L. Rogers   Sandy Clay    insignifica   clear cut and    periodic   flat       hardwood -     unified w/    None           Access to
(September       - post oak    nt            replant                                pine mix       logging                      secondary roads
Lease)           black belt                                                                        roads                        and reasonable
                 transition                                                                                                     access to markets

5) B. Rogers     Sandy Clay    insignifica   clear cut and    periodic   flat       hardwood -     unified w/    None           Access to
(September       - post oak    nt            replant                                pine mix       logging                      secondary roads
Lease)           black belt                                                                        roads                        and reasonable
                 transition                                                                                                     access to markets

     1) Allen Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, Clarence Long Rogers, a widow, Janie R. Allen, a widow,
     Elizabeth R. Sledge, a widow, and C. M. A. Rogers III, Ellen        Rogers Worsham and Jane Rogers Guthries, Trustees under the Last Will and
     Testament of C. M.A. Rogers, deceased.
     2) Clarence L. Rogers (April Lease) Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, and Clarence Long Rogers, a widow.
     3) Richardson Tract lease refers to Robert Richardson and Kathleen Richardson, his wife and Sandra Moore and Paul D. Moore, her husband.
     4) Clarence Long Rogers (September Lease) lease refers to Clarence Long Rogers, a widow.
     5) Barnes A. Rogers (September Lease) lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers.
                                                      - 49 -

                                                                     Appendix 5
                                                          SUBJECT PROPERTY #5 - “PATTERSON PLACE”
   FACTORS:       Similarity        Soil     Types of Soil     Flooding     Slope        Timber     Unified or   Conditions of      Availability,
                    of Soil     Depletion     Conservation                    of                     Segmented   All Buildings          type of
                                 by Crops      Techniques                    Land                                   and other      transportation
                                   Grown                                                                              fixed           facilities;
                                                                                                                  improvements       proximity to
                                                                                                                                        markets

SUBJECT #5 -     Sandy Clay    insignifica   select cut       periodic     flat     hardwood -      unified w/   None             Access to
Patterson        - post oak    nt                                                   pine mix        logging                       secondary roads
                 black belt                                                                         roads                         and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

LEASED TRACTS:

1)Allen          Sandy Clay    insignifica   clear cut and    periodic     flat     hardwood -      unified w/   No significant   Access to
(March Lease)    - post oak    nt            replant                                pine mix        logging      structure        secondary roads
                 black belt                                                                         roads        (camp house)     and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

2) Clarence L.   Sandy Clay    insignifica   clear cut and    periodic     flat     hardwood -      unified w/   None             Access to
     Rogers      - post oak    nt            replant                                pine mix        logging                       secondary roads
(April Lease)    black belt                                                                         roads                         and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

3) Richardson    Sandy Clay    insignifica   clear cut and    periodic     flat     hardwood -      unified w/   None             Access to
(September       - post oak    nt            replant                                pine mix        logging                       secondary roads
Lease)           black belt                                                                         roads                         and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

4) C.L. Rogers   Sandy Clay    insignifica   clear cut and    periodic     flat     hardwood -      unified w/   None             Access to
(September       - post oak    nt            replant                                pine mix        logging                       secondary roads
Lease)           black belt                                                                         roads                         and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

5) B. Rogers     Sandy Clay    insignifica   clear cut and    periodic     flat     hardwood -      unified w/   None             Access to
(September       - post oak    nt            replant                                pine mix        logging                       secondary roads
Lease)           black belt                                                                         roads                         and reasonable
                 transition                                                                                                       access to
                                                                                                                                  markets

     1) Allen Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, Clarence Long Rogers, a widow, Janie R. Allen, a widow,
     Elizabeth R. Sledge, a widow, and C. M. A. Rogers III, Ellen Rogers Worsham and Jane Rogers Guthries, Trustees under the Last Will and
     Testament of C. M.A. Rogers, deceased.
     2) Clarence L. Rogers (April Lease) Tract lease refers to Barnes A. Rogers and his wife, Carrie J. Rogers, and Clarence Long Rogers, a widow.
     3) Richardson Tract lease refers to Robert Richardson and Kathleen Richardson, his wife and Sandra Moore and Paul D. Moore, her husband.
     4) Clarence Long Rogers (September Lease) lease refers to Clarence Long Rogers, a widow.
     5) Barnes A. Rogers (September Lease) lease refers to Barnes A. Rogers and his wife, Carrie
