                        T.C. Memo. 1997-65



                      UNITED STATES TAX COURT



                  ALLEN M. GLICK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15886-94.                    Filed February 4, 1997.


     Burton Chandler and James D. Masterman, for petitioner.

     Barry J. Laterman, for respondent.


              MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:   Respondent determined deficiencies in

petitioner's Federal income tax, additions to tax, and a penalty

as follows:
                                        - 2 -

                                             Additions to Tax
Year    Deficiency      Sec. 6653(a)(1)(A)    Sec. 6653(a)(1)(B)    Sec. 6659

1987       $738,211          $38,002            50 percent of the    $214,997
                                                 interest due on
                                                 $2,629


                                                Addition to Tax
                 Year      Deficiency           Sec. 6653(a)(1)

                 1988         $122                   $639


                                          Accuracy-Related Penalty
                 Year      Deficiency          Sec. 6662(a)

                 1989       $80,314                 $17,750


       The issues for decision are:          (1) Whether petitioner is

entitled to a charitable contribution deduction under section

170(a)1 in the amount of $6 million for land he transferred to the

Commonwealth of Massachusetts (the Commonwealth) in 1986; (2)

whether petitioner is liable for additions to tax under section

6653(a) for the taxable years 1987 and 1988; (3) whether

petitioner is liable for an addition to tax under section 6659

for the taxable year 1987; and (4) whether petitioner is liable

for an accuracy-related penalty under section 6662(a) for the

taxable year 1989.2


       1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
       2
      In the notice of deficiency, respondent also determined
that petitioner is liable for additional interest in 1987 under
                                                   (continued...)
                                 - 3 -

                        FINDINGS OF FACT


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

The first and second stipulations of facts are incorporated

herein by this reference.

     Petitioner resided in Framingham, Massachusetts, when he

filed his petition in this case.    In 1981, petitioner purchased

approximately 380 acres of real property (Eastleigh Farm) located

primarily in Framingham, Massachusetts, with portions also in

Marlborough and Southborough, Massachusetts.

     In late 1983 or early 1984, Barry Walker and Kenneth

Dallamora approached petitioner about the possibility of

purchasing a portion of Eastleigh Farm for their company,

Eastleigh Development Corp. (Eastleigh Development).   On January

23, 1984, petitioner conveyed approximately 48.26 acres of

Eastleigh Farm to Eastleigh Development.   On September 28, 1984,

petitioner also conveyed approximately 29.653 acres of Eastleigh

Farm to Eastleigh Development.    Eastleigh Development subdivided

the parcels and built and sold homes on this property.

     On March 22, 1984, in connection with the transfer of the

two small parcels, petitioner and Eastleigh Development entered

into an agreement whereby Eastleigh Development was to install a

sewer pipeline (the Eastleigh Sewer Line) from its nearby

     2
      (...continued)
sec. 6621(c) for a substantial underpayment attributable to a
tax-motivated transaction.
                               - 4 -

development to a location directly in front of Eastleigh Farm.

The Eastleigh Sewer Line is an 8-inch gravity trunk line which is

part of the sewer system for the town of Framingham.    The

Eastleigh Sewer Line connects to the Angelica pumping station,

which was also built by Eastleigh Development during the

development of the two smaller parcels.

     Eastleigh Development extended the Eastleigh Sewer Line to

Edmands Road in contemplation of a future purchase and

development of the remaining Eastleigh Farm.   In 1985, Eastleigh

Development made an initial offer to purchase all petitioner's

remaining property (approximately 270 acres) for $10 million plus

20 percent of the profit from the development of that property.

Eastleigh Development had an agreement with Framingham Trust Co.

to finance the purchase and development of this deal.    Petitioner

declined this initial offer.

     In the fall of 1985, the Commonwealth approached petitioner

concerning a possible acquisition by the Commonwealth of

approximately 159.48 acres of Eastleigh Farm (the Property).

With the exception of underground natural gas lines, this portion

of Eastleigh Farm was unimproved rolling terrain with a

combination of woodlands, open fields, wetlands, and a pond.

Gilbert Bliss, director of the Division of Forests and Parks in

the Commonwealth's Department of Environmental Management,

informed petitioner that the Commonwealth was concerned about
                               - 5 -

losing land to developers and that it had a program underway to

enlarge the State park system.3

     In 1986, Eastleigh Development offered to purchase the same

parcel of Eastleigh Farm being considered by the Commonwealth

(the Property in issue).   Although this second offer by Eastleigh

Development was for less land than its first offer, the terms of

the offer were identical to the previous offer:   $10 million plus

20 percent of the profit from the development of the property.

Petitioner declined Eastleigh Development's second offer as well.

     On May 27, 1986, petitioner granted the Commonwealth an

option to buy the Property.   Petitioner hired Ronald B.

Handverger of Handverger & Associates of Framingham,

Massachusetts, to appraise the Property.   On September 30, 1986,

Mr. Handverger appraised the Property at $12.5 million.

     On October 29, 1986, petitioner conveyed the Property to the

Commonwealth.   The consideration set forth in the deed for the

Property was $6 million.   In addition, the Commonwealth granted

petitioner a Special Use Permit allowing him to harvest hay on a

22.5-acre portion of the Property for 5 years.

     On his 1986 Federal income tax return, petitioner valued the

Property at $12 million, reporting a long-term capital gain of

$5,986,499 on the sale portion of the transfer and a charitable

contribution of $6 million reflecting the bargain portion of the

     3
      The Commonwealth desired to purchase the Property and add
it to the adjacent Callahan State Park.
                                - 6 -

transfer.   Petitioner claimed a charitable deduction with respect

to the bargain sale of the Property on his 1986 income tax

return, with a carryover of the remaining amount on his 1987,

1988, and 1989 income tax returns.      Respondent disallowed the

entire charitable deduction claimed on petitioner's 1986 income

tax return and subsequent carryover years.


                                OPINION


     The primary issue for decision is the fair market value of

the transferred property for purposes of determining the proper

amount of petitioner's charitable contribution deductions.

Petitioner bears the burden of proving that the fair market value

of the transferred property exceeds the value determined by

respondent in her notice of deficiency.      Rule 142(a); Welch v.

Helvering, 290 U.S. 111 (1933); Estate of Gilford v.

Commissioner, 88 T.C. 38, 50-51 (1987); McGuire v. Commissioner,

44 T.C. 801, 806-807 (1965).

     Section 170 allows an individual to deduct charitable

contributions, subject to certain percentage limitations, with a

carryover of any excess contributions.      See sec. 170(b), (d).    If

a charitable contribution is made in property other than money,

the amount of the taxpayer's contribution is the fair market

value of the property at the time of the contribution.      Sec.

1.170A-1(c), Income Tax Regs.    A taxpayer who makes a bargain

sale to charity of long-term capital gain property is typically
                                 - 7 -

entitled to a charitable contribution deduction equal to the

difference between the fair market value of the property and the

amount realized from the sale.    Sec. 170(a)(1); Stark v.

Commissioner, 86 T.C. 243, 255-256 (1986); Knott v. Commissioner,

67 T.C. 681 (1977); Waller v. Commissioner, 39 T.C. 665, 677

(1963).   Section 1.170A-1(c)(2), Income Tax Regs., defines fair

market value as "the price at which the property would change

hands between a willing buyer and a willing seller, neither being

under any compulsion to buy or sell and both having a reasonable

knowledge of relevant facts."

     The parties have stipulated that charitable contributions to

the Commonwealth qualify for a charitable contribution deduction

pursuant to section 170(c)(1).    Respondent further concedes that

petitioner intended to make a gift to the Commonwealth of any

excess value of the Property over the selling price.   However, it

is respondent's position that $6 million, together with the

Special Use Permit, properly reflects the fair market value of

the Property, and therefore, petitioner is not entitled to the

charitable deductions claimed.

     The fair market value of donated property as of a given date

is a question of fact to be determined from the entire record.

Symington v. Commissioner, 87 T.C. 892, 896 (1986); Zmuda v.

Commissioner, 79 T.C. 714, 726 (1982), affd. 731 F.2d 1417 (9th

Cir. 1984).   Fair market value reflects the highest and best use

of the property on the date of valuation.    Stanley Works v.
                                - 8 -

Commissioner, 87 T.C. 389, 400 (1986).    The highest and best use

of property is the realistic, objective potential use to which

the property can be put.    The determination of fair market value

is not dependent upon whether the property is actually being put

to its highest and best use.    Here, the parties agree that the

highest and best use for the Property is as an exclusive

residential subdivision.


Petitioner's Experts


     In this case, the parties have relied extensively on the

testimony of expert witnesses to support their respective views

on the fair market value.   Petitioner has submitted the reports

of three appraisers:   (1) Ronald B. Handverger, (2) Martin C.

Segel, and (3) Kenneth G. Dallamora.    Each of these experts

stated that the fair market value of the Property was in excess

of $12 million in October 1986.

     Mr. Handverger has been actively engaged in the real estate

profession for over 20 years.    He is a certified general real

estate appraiser in the Commonwealth and the owner of Handverger

& Associates, which is an appraisal consulting firm in the town

of Framingham.   Mr. Handverger prepared the original appraisal

report on the Property, which petitioner used in determining the

value of the Property for his 1986 Federal income tax return.

Mr. Handverger also prepared a revised report prior to trial.
                               - 9 -

     At the outset, we note that respondent raised the issue of

Mr. Handverger's censure by the Society of Real Estate Appraisers

(the Society) in 1986 for violation of several sections of the

Standards of Professional Practice and Conduct of that

organization.4   The specific circumstances of Mr. Handverger's

censure are not evident.   Mr. Handverger is still a licensed

appraiser and a member of the Society of Real Estate Appraisers.

Therefore, we will recognize him as an expert witness.     Mr.

Handverger valued the Property at $12.5 million as of September

30, 1986.5

     Mr. Segel is also a certified general real estate appraiser

in the Commonwealth of Massachusetts.   He has been in the

appraisal business since 1959 and has experience appraising

property requiring the approval of a subdivision plan,

construction of roads, and unusual site conditions.   In his

report, Mr. Segel stated that the Property's fair market value

immediately prior to October 15, 1986,6 was $12,225,000.

     4
      In particular, sec. 5.0000 of the Society's Standards of
Professional Practice and Conduct requires that each member
"Render properly developed, unbiased and objective value
opinions, and render properly developed, unbiased and objective
analyses."
     5
      Mr. Handverger's original appraisal report, dated Sept. 30,
1986, as well as his updated report, dated Sept. 19, 1995, both
state that the Property had a fair market value of $12.5 million
as of Sept. 30, 1986.
     6
      Mr. Segel testified that he valued the Property on Oct. 15,
1986, because petitioner signed the deed on this date, and he
                                                   (continued...)
                             - 10 -

     Mr. Dallamora is a registered appraiser in the Commonwealth.

His experience in real estate sales, and in particular, real

estate development in this particular location, is superior to

that of all other experts in this case.   Mr. Dallamora is the

president of both Dallamora Realtors, Inc., and Dallamora

Brothers Construction, a residential land development and

construction company in Framingham, Massachusetts.   Mr.

Dallamora's construction company was responsible for obtaining

approval, developing sites, and constructing over 500 single-

family homes and condominium units throughout Massachusetts.     Mr.

Dallamora stated that the Property had a fair market value of

$12.5 million in 1986.

     Each of petitioner's experts relied upon a subdivision plan

drafted by Joseph R. Sullivan of MacCarthy & Sullivan

Engineering, in Framingham, Massachusetts.   Mr. Sullivan is an

engineer and a registered professional surveyor who has prepared

subdivision plans for approximately 400-500 residential

subdivisions, many in the town of Framingham.   Mr. Sullivan

prepared an initial subdivision plan for the Property at the

request of Eastleigh Development.   This initial plan, paid for by

Eastleigh Development in contemplation of a future purchase of




     6
      (...continued)
assumed this was the date of transfer. However, the parties have
stipulated that the Property was transferred on Oct. 29, 1986.
                               - 11 -

the Property, contained 110 lots.7      Mr. Sullivan subsequently

revised his initial plan and testified that the Property could be

subdivided into 114 house lots.    All petitioner's experts relied

on this final version of the subdivision plan.


Respondent's Experts


     Respondent presented the valuation opinion of Jonathan H.

Avery, a certified general real estate appraiser in the

Commonwealth.    Mr. Avery submitted a report dated September 22,

1995, which valued the Property at $7.5 million as of October 29,

1986.    On October 23, 1995, Mr. Avery updated his report to

reflect changes made to the subdivision plan that he originally

relied upon.    As a result of these changes, Mr. Avery increased

his estimate of the Property's fair market value from $7.5

million to $8.3 million.

     Warren F. Flint, Jr., prepared both subdivision plans that

Mr. Avery relied upon.    Mr. Flint is the president and owner of

Matlock Associates, a land planning and design firm in Lincoln

Center, Massachusetts.    Although Mr. Flint has had some formal

training in drafting subdivision plans and is also a registered

landscape architect in the Commonwealth, he is not qualified to

approve plans in the town of Framingham and has never submitted a

subdivision plan to the Framingham Planning Board.

     7
      Mr. Handverger's first valuation report was based on the
initial subdivision plan prepared by Mr. Sullivan.
                              - 12 -

     In addition to the subdivision plans, Mr. Flint prepared a

detailed report analyzing the development potential of the

Property.   Mr. Flint's report includes an extensive soil analysis

of the Property, as well as a summary of discussions with

Framingham town officials and consultants regarding the

development of the Property's sewer system.   Mr. Flint's revised

subdivision plan shows that the Property could be subdivided into

107 house lots.8

     Before turning to an analysis of the divergent expert

opinions, we note that, as the trier of fact, the Court must

weigh the evidence presented by the experts in light of their

demonstrated qualifications in addition to all other credible

evidence.   Estate of Christ v. Commissioner, 480 F.2d 171, 174

(9th Cir. 1973), affg. 54 T.C. 493 (1970).    However, we are not

bound by the opinion of any expert witness when that opinion is

contrary to our judgment.   Estate of Kreis v. Commissioner, 227

F.2d 753, 755 (6th Cir. 1955), affg. T.C. Memo. 1954-139; Chiu v.

Commissioner, 84 T.C. 722, 734 (1985).   Rather, we may accept or

reject expert testimony as we find appropriate in our best

judgment.   Helvering v. National Grocery Co., 304 U.S. 282, 294-

295 (1938); Seagate Tech., Inc. & Consol. Subs. v. Commissioner,

102 T.C. 149, 186 (1994).   Moreover, even if we accept the

general methodology of an expert witness, we may reject that

     8
      Mr. Flint's original subdivision plan contained only 96
house lots.
                               - 13 -

expert's ultimate conclusion if unsupported by the record.

Owensby & Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1331

(5th Cir. 1987), affg. T.C. Memo. 1985-267.


Valuation Methodology


     The parties presented two alternative methods of valuing the

Property:    (1) The comparable sales method (CSM); and (2) the

subdivision development method (SDM).    The CSM involves gathering

information on sales of property similar to the subject property,

then making adjustments for various differences between the

"comparables" and the property being appraised.    Estate of

Spruill v. Commissioner, 88 T.C. 1197, 1229 n.24 (1987).

     The SDM determines the value of undeveloped land by treating

the land as if it were subdivided, developed, and sold.    From the

proceeds of sale, development costs are then subtracted.

Finally, the expected net proceeds are discounted over the

estimated period required for market absorption of the developed

lots in order to determine the amount a developer would pay for

the undeveloped property; i.e., the property's fair market value.

Branch v. Commissioner, T.C. Memo. 1987-321.

     In his report, Mr. Avery used both methods to value the

Property, relying primarily on the SDM.    Although he used the CSM

for support, Mr. Avery admitted that "none of the parcels

analyzed had the locational or physical attributes of the subject

property."    As a result of these differences, Mr. Avery made
                              - 14 -

significant adjustments to each of the parcels used as

comparables.   The SDM was also the principal method applied by

petitioner's experts.   Based on the lack of true comparable sales

in the area, and both parties' primary reliance on the SDM, we

too rely primarily on the SDM in determining the value of the

Property.


Fair Market Value Under the Subdivision Development Method


     Although all the experts used the SDM in determining the

fair market value of the Property, each used slightly different

factors and values in his analysis.    Of the four experts, Mr.

Avery presented the most comprehensive SDM in terms of the number

of pertinent factors considered.   Therefore, we find his

methodology appropriate as a general framework for our

determination of the value of the Property.

     Many of the factors that make up the subdivision development

analysis are determined by the individual expert's knowledge,

experience, and judgment.   As a result, many of the values

assigned to these factors differ from expert to expert.9      The

     9
      However, the value differences among the expert reports for
inflation rate, discount rate, and most of the development
expenses are slight. Based on all the evidence presented, we
determine the following values for these factors: (1) Inflation
rate equals 12 percent per year; (2) discount rate equals 11
percent per year; (3) marketing expenses equal 5 percent of total
sales; (4) real estate taxes equal $500 per lot; (5) legal
expenses/closing costs equal $700 per lot; (6) engineering costs
equal $1,500 per lot; and (7) developer's overhead and profit
                                                   (continued...)
                              - 15 -

significant differences between petitioner's experts and

respondent's experts can be found in the following four factors:

(1) The number of lots into which the property could have been

divided; (2) the selling price of the developed lots; (3) the

time required to sell the developed lots; and (4) the development

expenses relating to sewage improvement and road construction.

We will attempt to reconcile these differences in the experts'

subdivision development analyses in reaching our determination as

to the fair market value of the Property.   In addition, we will

determine what, if any, value should be allocated to the Special

Use Permit.

     We begin our determination by recognizing local conditions

that would affect the real estate market at the time of the

transfer.   Both parties agree that 1985 and 1986 were extremely

prosperous times in the eastern Massachusetts real estate market

as prices for homes and lots reached record highs.   Developers in

the area aggressively sought land on which to create residential

subdivisions.   Moreover, during this time, there was full

employment, interest rates were low, and substantial amounts of

money were available for real estate loans.   Although the real

estate surge did not continue at this volatile pace, it is

important to reflect the conditions existing at the time in a

proper valuation of the Property, e.g., aggressive lot pricing, a

     9
      (...continued)
equals 15 percent.
                               - 16 -

healthy annual appreciation rate, and an aggressive sellout or

absorption of the project.


Number of Lots


     The first value difference that must be reconciled is the

determination of the number of lots into which the Property could

have been developed.   While both Mr. Flint and Mr. Sullivan were

qualified as expert witnesses, we find that Mr. Sullivan's local

experience and hands-on knowledge with respect to the development

of property more persuasive.   Therefore, we give greater weight

to Mr. Sullivan's subdivision plan, which obtains the maximum

benefit of the available land.   However, Mr. Sullivan's plan

employs an access road over a portion of land retained by

petitioner.   Without an easement for this road, several of the

lots would be inaccessible.    The record indicates that petitioner

did not deed such access in his conveyance of the Property to the

Commonwealth.10   Petitioner testified that he would have

transferred such an easement if he had been requested to do so.

Nevertheless, respondent argues that if the Property is appraised

assuming access could be acquired, then there should be a




     10
      Although petitioner did not grant the Commonwealth an
easement for automobile traffic as required in Mr. Sullivan's
plan, he did grant an easement over a different portion of his
remaining property to access the Property for pedestrian and
bicycle traffic.
                                - 17 -

deduction from the value of the Property for the cost of such an

acquisition.11

     Rather than delve into a separate valuation of a

hypothetical access easement upon which no evidence was

presented, we will value the Property based on what was actually

transferred.     Mr. Sullivan testified that although the layout of

the subdivision would have to be adjusted if access was not

available, the total number of lots on his plan would not

necessarily change.    After examining the Sullivan plan, we find

that by extending an existing road (as drawn on the plan) and

connecting it to the opposite end of the road requiring the

access easement, the need for access over petitioner's remaining

property would be eliminated.    This change will allow access to

the lots in this section of the Property and result in a loss of,

at most, two lots on the Sullivan plan.    Therefore, we find that

the Property could be subdivided into at least 112 house lots.


Price Per Lot


     The experts in this case each employed a different method in

estimating the price that each of these subdivided lots would

sell for.   Mr. Avery divided the Property into five different

categories based on location and other amenities, such as view.

Utilizing comparable sales data for lots sold in the area, and

     11
      Respondent made no effort to value such an access
easement.
                               - 18 -

adjusting for differences between the lots on the Property and

those of the comparables, Mr. Avery assigned a value to each of

his lot categories.12   Petitioner's experts, however, did not

categorize the Property in the same manner.    Mr. Segel and Mr.

Handverger both used an average price for all of the lots,

estimating that the lots would sell for $200,000 on the average.

Their estimates are based on comparable sales data, which

utilized lot sales from various subdivisions in Framingham,

Southborough, and Marlborough and relied primarily on sales data

from Framingham.   Mr. Dallamora, on the other hand, categorized

the lots based upon their location.     Relying on his real estate

sales experience in the area, Mr. Dallamora estimated that the

sale price of lots in Framingham and Southborough would be

$175,000, and the price of lots in Marlborough would be $150,000.

     Respondent contends that petitioner's use of an average

price per lot does not account for the differing attributes of

the various lots and, thus, Mr. Avery's categorization method

yields a more accurate estimate of value.    However, due to the

large number of lots, even Mr. Avery's five categories could not


     12
      These are the lot categories and prices Mr. Avery
estimated for the Property:

          Standard Marlborough (17)             $150,000
          Standard Framingham (60)               165,000
          Marlborough pond (9)                   165,000
          Framingham pond (15)                   181,500
          Framingham oversize lots (6)           250,000
                                 - 19 -

possibly reflect the various attributes of each of the 112 lots.

Therefore, for purposes of this valuation, we determine that the

use of an average estimate for the price per lot is appropriate.

Further, we do not assume that every lot would sell for this

average price, but rather that the lots would sell for a range of

prices and the use of an average selling price within that range

is appropriate for valuing the Property as a whole.

     Using Mr. Avery's lot price estimates, the average selling

price of a developed lot on the Property would be $169,696.13      Mr.

Dallamora's estimates produced an average lot price of $168,859

for the entire Property.14     Messrs. Segel and Handverger both

estimated that the average price per lot would be $200,000.

Based on the comparable sales data submitted for individual lots,


     13
          Calculation of Mr. Avery's average lot sale price:

             Standard Marlborough    (17)x $150,000 = $2,550,000
             Standard Framingham     (60)x 165,000 = 9,900,000
             Marlborough pond         (9)x 165,000 = 1,485,000
             Framingham pond         (15)x 181,500 = 2,722,500
             Framingham oversize lots (6)x 250,000 = 1,500,000

                                      107            $18,157,500

                  $18,157,500 ÷ 107 = $169,696.26
     14
          Calculation of Mr. Dallamora's average lot sale price:

             Framingham               (84)x $175,000 = $14,700,000
             Marlborough              (28)x 150,000 =    4,200,000
             Southborough             ( 2)x 175,000 =      350,000

                                      114              $19,250,000

                  $19,250,000 ÷ 114 = $168,859.65
                                - 20 -

the expert reports, and Mr. Dallamora's extensive experience in

real estate sales, we conclude that the individual developed lots

would sell for an average price of $170,000.


Time Required To Sell the Lots


     The length of time required to sell all the lots on the

Property is a factor of both market conditions and the amount of

time required to receive the necessary approval of the

development permits from the various municipalities.   Both

petitioner and respondent estimated that this approval process

for the development of the Property would take 6 months to 1

year.   However, the parties disagree as to when this period of

time would begin to run.   Mr. Handverger testified that the

approval period would have begun during the purchase and sale

agreement phase, which was prior to the final purchase date.

Petitioner's experts reason that a typical buyer for a parcel of

land, such as the Property here, would conduct the approval

process during this time, or, in the alternative, the buyer would

enter into an agreement, whereby the purchase of the Property

would be subject to the required approval process.   Respondent's

expert Mr. Avery, on the other hand, used a 1-year period in his

valuation, which began on the actual transfer date of the

Property to the Commonwealth.

     The application of any valuation method involves the use of

certain hypotheticals.   In the SDM, the property is developed
                              - 21 -

into a hypothetical residential subdivision in order to determine

what an informed buyer would pay for the parcel of land.     It is

thus reasonable to consider what a hypothetical buyer would have

done under these circumstances.   In the present case, the

Commonwealth entered into an "Option to Buy" agreement with

petitioner for the Property on May 27, 1986, approximately 5

months before the closing date.   Therefore, we will assume that a

hypothetical buyer would have begun the approval process on this

date, leaving an approval period of, at most, 7 months following

the transfer date.

     The evidence further demonstrates that the Property would be

developed and sold in phases over a period of years.   A

hypothetical buyer would not have to build all the roads and

obtain all the permits for the entire subdivision before selling

the first lot.   Rather, the buyer could develop and sell the lots

in stages, obtaining approval for portions of the development at

appropriate times and then selling the approved lots to builders,

thereby eliminating any delay for the approval process.    We do

not deem it necessary, therefore, to factor any additional time

for the approval of the necessary permits into our determination.

     The other element of the selling period involves the length

of time it takes for the developed lots to be absorbed by the

existing market.   Mr. Handverger estimated that the absorption

rate for this Property would be anywhere from 3-5 years.     Messrs.

Segel and Dallamora estimated that 2 years would be sufficient to
                               - 22 -

sell the developed property given the desirability of the area

and the market conditions existing at that time.    Furthermore,

Mr. Dallamora believed that it would be relatively easy to sell

the lots in bulk to home builders, rather than to individual home

buyers.   Mr. Avery, however, believed that the market in the area

was shallow for high-priced homes at the time of transfer and,

thus, estimated a 5-year absorption period.

      In light of all the evidence presented, we consider Mr.

Avery's appraisal unduly pessimistic with respect to the

absorption period.   Given the booming real estate market and the

premium location of the Property, and assuming bulk sales of the

lots to builders, we find a 3-year absorption period more

realistic.


Development Costs


     A. Sewer Improvements


     The parties differ significantly over the estimated expense

of the sewer system necessary for the development of the

Property.    The experts all agreed that the lots in Marlborough

would be serviced by septic systems on the individual lots, while

the Framingham and Southborough lots would be tied into the

Framingham sewer system.    Exactly how this would be accomplished

is the subject of dispute.
                             - 23 -

     Petitioner contends that the lots in Framingham and

Southborough could be connected to the Framingham sewer system

via the 8-inch sewer line installed by Eastleigh Development near

the Property line at Edmands Road.    In order to handle the

additional sewage, Mr. Dallamora anticipated that the only

expense would involve the upgrading of the Angelica pumping

station at a cost of approximately $30,000 to $40,000.    These are

the sole considerations, with respect to sewer improvements,

found in petitioner's valuation of the Property.15

     However, Mr. Flint stated that, based on information

obtained from Benjamin B. Bugbee of Haley and Ward, Inc., sewer

consultants to the town of Framingham, and Robert Angelo,

Framingham's sewer superintendent, there was not sufficient

capacity in October 1986 to tie the subdivision into the

Framingham sewer system at the Edmands Road location, and

significant improvements would have had to be made.    These

improvements would have involved the installation of a pump/lift

station on the subdivision in order to move waste materials from

the subdivision into the system.   Furthermore, a forced main

sewer line would have had to be extended 10,200 feet eastward

from the location of the Property.    The total cost for the




     15
      In valuing the Property, petitioner's experts all assumed
that the Property could be connected to the Framingham sewer
system at the Edmands Road location.
                               - 24 -

construction of both these sewer system improvements would be

$820,000.

     In light of the conflicting evidence presented regarding

this factor, we conclude that a prudent investor would consider

the uncertainty of this expense and include the potential cost of

extending and upgrading the sewer system into any valuation of

the Property.    Therefore, we determine that $820,000 must be

allocated to the construction of the sewer system for the

Property.


     B. Road Costs


     Mr. Dallamora presented the most persuasive evidence on road

costs.    In his valuation, Mr. Dallamora contacted two local

contractors, James E. Hanscom16 and Paul J. Fantoni,17 and

requested bids on the anticipated road construction costs.

Messrs. Hanscom and Fantoni have extensive experience in the

construction of roadways in the area.    Based upon the bids

received from these contractors, Mr. Dallamora estimated that the




     16
      Mr. Hanscom was the director of Public Works for the town
of Framingham from 1980 to 1990 and has over 30 years of roadway
and site construction experience.
     17
      Mr. Fantoni was the owner of Fantoni Co., a construction
company specializing in the construction of underground utilities
and bridge building for over 25 years. Mr. Fantoni holds a
bachelor of science degree in civil engineering.
                                 - 25 -

cost to build the roads in the subdivision would total

$2,123,788.18

     Mr. Dallamora's road construction expense also included

$150,000 for the removal of ledge, an expense item separately

stated in Mr. Avery's report.19     Relying upon Mr. Flint's analysis

of the composition of the soil on the Property, Mr. Avery

estimated that a separate expense of $370,000 should have been

allocated for the removal of ledge.20     We find Mr. Avery's

estimate concerning this additional construction cost persuasive;

thus, Mr. Dallamora's estimate for ledge removal must be

increased to reflect this expense properly.        Based upon all the

evidence presented, we conclude that the cost to build the roads

on the Property, including the cost of removing ledge, would

total $2,350,000.21


     18
      Mr. Handverger estimated that road construction would cost
$2,200,000. Similarly, Mr. Segel estimated that the expense
would total $2,140,000.
     19
      Mr. Avery stated that "Ledge is the 'enemy' of a site
developer as it adds to development cost and makes road and
building placement more challenging."
     20
      Mr. Avery's road construction estimate without the ledge
removal expense was $2,569,842.
     21
          We calculate the road cost as follows:

             Mr. Dallamora's estimate ($2,123,788), plus an
             additional amount for ledge removal ($370,000 - 150,000
             = 220,000) = 2,343,788 or $2,350,000.

     We further determine that this amount would be incurred in
two phases, 80 percent in the first phase and the remaining 20
                                                   (continued...)
                               - 26 -


Special Use Permit


     In conjunction with the transfer of the Property, petitioner

received a Special Use Permit from the Commonwealth that allowed

him to continue to grow and harvest hay on a 22.5-acre portion of

the Property.   As a result, respondent contends that the fair

market value of the Property should be diminished by the value of

the Special Use Permit in order to reflect accurately the value

of what was transferred.   Rather than present evidence that would

demonstrate the value of the Special Use Permit, respondent

appears to argue that the value of the Special Use Permit is the

difference between the value of the Property and the cash

received from the Commonwealth.   For instance, even though

respondent's own expert increased his valuation of the Property

from $7.5 million to $8.3 million, respondent still does not

concede that petitioner is entitled to any charitable deduction.

     The evidence presented by petitioner, however, suggests that

the Special Use Permit had little or no value.   Indeed,

petitioner testified that it cost him more to grow and harvest

the hay on this land than the hay was actually worth.   In

addition, the Commonwealth had the power to terminate the Special

Use Permit at any time and for any reason.   We find that the



     21
      (...continued)
percent in the second phase.
                              - 27 -

Special Use Permit will have no effect on the valuation of the

Property.

     Based upon an analysis of all the valuation evidence

introduced through both testimony and documentation, and giving

due consideration to the credibility of the witnesses at trial,

we determine that the fair market value of the Property at the

time of the contribution was $10,970,000.22


            Additions to Tax, Penalties, and Interest


Sections 6653(a) and 6662 Additions and Penalty for Negligence or
Intentional Disregard of Rules and Regulations


     Respondent also determined that petitioner was liable for

additions to tax and a penalty for negligence or intentional

disregard of rules or regulations (1) under section 6653(a),

equal to 5 percent of the respective underpayments for 1987 and

1988, and (2) under section 6662, equal to 20 percent of a

portion of the underpayment for 1989.   Respondent determined that

the 20-percent addition under section 6662 should apply with

respect to the entire underpayment for 1989.   Respondent further

determined that petitioner was liable for an addition to tax


     22
      Our determination is also supported by the previous offer
made by Eastleigh Development to purchase the Property for $10
million plus 20 percent of the profit from the development of the
Property.

     See the appendix for calculation of our valuation
determination.
                              - 28 -

under section 6653(a)(1)(B) for 1987.    Under section

6653(a)(1)(B), an addition to tax (equal to 50 percent of the

interest payable under section 6601) is imposed with respect to

the portion of the underpayment attributable to negligence.

Respondent determined that the entire 1987 underpayment resulting

from petitioner's improper deduction was attributable to

negligence on petitioner's part.

     Negligence has been defined as the failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances.   Neely v. Commissioner, 85 T.C. 934, 947 (1985).

Respondent's determinations are presumed correct, and petitioner

bears the burden of proving otherwise.    Rule 142(a); Luman v.

Commissioner, 79 T.C. 846, 860-861 (1982).    However, reasonable

reliance upon expert opinion, asserted in good faith, can shield

a taxpayer from section 6653(a) additions.    United States v.

Boyle, 469 U.S. 241, 250 (1985); Collins v. Commissioner, 857

F.2d 1383, 1386 (9th Cir. 1988), affg. T.C. Memo. 1987-217.

     We find that petitioner reasonably relied upon the expert

opinion of Mr. Handverger when claiming the charitable deduction

in issue, and, therefore, he is not liable for additions or an

accuracy-related penalty.   Mr. Handverger was and remains a

licensed real estate appraiser in the Commonwealth.      His

valuation report on the Property is detailed and complete.     In

addition, petitioner previously received a bona fide offer to

purchase the Property for $10 million plus 20 percent of the
                              - 29 -

development profits.   This offer is reasonably close to Mr.

Handverger's appraisal of the Property and the figure used by

petitioner on his 1986 income tax return.

Section 6659 Valuation Overstatement Addition to Tax


     Respondent also determined that petitioner was liable for a

section 6659 addition to tax for a valuation overstatement.     A

valuation overstatement exists if the value of any property or

the adjusted basis of any property claimed on a return exceeds

150 percent of the amount determined to be the correct amount.

Sec. 6659(c).   With respect to charitable deduction property, the

amount of the addition to tax is equal to 30 percent of the

underpayment.   Sec. 6659(f)(1).   On his return, petitioner

claimed that the fair market value of the property was $12

million.   We have determined that the property's fair market

value was actually $10,970,000.    Therefore, petitioner did not

overstate the fair market value of the property by 150 percent

($10,970,000 x 150% = $16,455,000), and he is not liable for the

overvaluation addition to tax.


Increased Interest


     Respondent also determined that petitioner was liable for

additional interest pursuant to section 6621(c).    Section 6621(c)

provides for an interest rate of 120 percent of the adjusted rate

established under section 6621(b) if there is a "substantial
                             - 30 -

underpayment" (an underpayment in excess of $1,000) in a taxable

year "attributable to 1 or more tax motivated transactions".

Respondent argues that petitioner's deduction was a tax-motivated

transaction because it involved a valuation overstatement within

the meaning of section 6659(c).   Sec. 6621(c)(3)(A)(i).   Because

we do not find any valuation overstatement within the meaning of

section 6659(c), the increased interest under section 6621(c)

does not apply.

                                         Decision will be entered

                                    under Rule 155.
                                                               - 31 -

                                                             APPENDIX

                                                  Est i m a t e d
                                                 Retail Price                     Period 1        Period 2                  Period 3                   Totals

INCOME
  Number of lots sold                                             $170,000.00                38              37                               37                   112
  Gross proceeds from lot sales           A p p r e c i a t i o n r a t e =12 %   $6,460,000.00   $7,044,800.00             $ 7 , 8 9 0 , 176.00      $ 2 1,394,976.00




EXPENSES
 Cost to complete roads                                     2,350,000.00           1,880,000.00      470,000.00                                         2,350,000.00
 Sewer lift/pump station cost                                 820,000.00             820,000.00                                                           820,000.00
 Real estate taxes (per lot)                                      500.00              56,000.00       37,000.00                  18,500.00                 111,500.00
 Legal expenses/closing costs (per lot)                           700.00              26,600.00       25,900.00                  25,900.00                 78,400.00
 Engineering (per lot)                                          1,500.00              57,000.00       55,500.00                  55,500.00                168,000.00
 Marketing                                                         5.00%             323,000.00      352,240.00                 394,508.80              1,069,748.80

 Total expenses                                                                    3,162,600.00      940,640.00                 494,408.80              4,597,648.80

Development proceeds                                                               3,297,400.00    6,104,160.00              7,395,767.20              16,797,327.20
Developer's overhead and profit                                      15.00%          969,000.00    1,056,720.00              1,183,526.40               3,209,246.40
Net development proceeds                                                           2,328,400.00    5,047,440.00              6 , 2 12 , 2 4 0 . 8 0    13,588,080.80

Present worth of net proceeds                                        11.00%        2,328,400.00    4 , 0 9 6 , 6 13 . 3 5    4,542,334.56              10,967,347.91

Rounded total                                            $10,970,000.00




Note: In Period 1 no adjustments are made for appreciation or
discount value; these two factors nearly cancel each other out,
and it is difficult to determine precisely when in this period
sales would occur or income would be received.
