                                                                            F I L E D
                                                                      United States Court of Appeals
                                                                              Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                              APR 1 2002
                            FOR THE TENTH CIRCUIT
                                                                        PATRICK FISHER
                                                                                  Clerk

    J. CLARK BUNDREN;
    MARY R. BUNDREN,

                Petitioners - Appellants,
                                                           No. 01-9002
    v.                                                 (T.C. No. 14171-98)

    COMMISSIONER OF INTERNAL
    REVENUE SERVICE,

                Respondent - Appellee.


                            ORDER AND JUDGMENT              *




Before HENRY , ANDERSON , and LUCERO , Circuit Judges.




         Petitioners J. Clark and Mary R. Bundren, husband and wife, seek review

of the decision of the Tax Court upholding the Commissioner’s determination of

income tax deficiencies for tax years 1995 and 1996.    1
                                                            The deficiencies arose

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
1
     After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
                                                                       (continued...)
from two deductions claimed by petitioners, the amounts of which the

Commissioner determined were overstated. The first was a deduction for

depreciation on a piece of rental property that petitioners took in 1995, and the

second was a deduction for the loss petitioners realized on the sale of that

property in 1996.

       We review the decision of the Tax Court “in the same manner and to the

same extent as decisions of the district courts in civil actions tried without a

jury.” 26 U.S.C. § 7482(a)(1). Accordingly, we review factual questions for

clear error and legal questions de novo.   Schelble v. Comm’r , 130 F.3d 1388, 1391

(10th Cir. 1997). Deductions are a matter of legislative grace, and the taxpayer

bears the burden of proving the entitlement to any deduction claimed.

INDOPCO, Inc. v. Comm’r , 503 U.S. 79, 84 (1992). At the heart of the parties’

dispute is the Commissioner’s determination that petitioners’ adjusted basis in the

rental property immediately after they acquired it was substantially less than

petitioners claimed. Petitioners have the burden of proving the Commissioner’s

determination is incorrect.   Schelble , 130 F.3d at 1391 .

       The rental property at issue is located on 116th East Avenue in Tulsa.

Petitioners acquired the property in December 1994 by exchanging other rental



1
 (...continued)
ordered submitted without oral argument.

                                           -2-
property they owned at 84th Street for the property at 116th East Avenue. This

transaction qualified as a like-kind exchange under 26 U.S.C. § 1031. As such,

petitioners’ adjusted basis in the 116th East Avenue property immediately after

they acquired it was equal to their carryover basis in the 84th Street property

immediately before the exchange, minus any “boot” (money) they received in the

exchange, and adjusted for any gain or loss recognized on the exchange.           Id.

§ 1031(d). The parties stipulated that there was no gain or loss on the exchange,

and they do not dispute the Tax Court’s determination that petitioners received

$67,000 of boot in the exchange. Therefore, the only issue before us is the

amount of petitioners’ carryover basis in the 84th Street property immediately

before the exchange.

       The parties agreed that petitioners’ carryover basis in the 84th Street

property was the same as their basis in the 84th Street property in June 1994,

when they converted the property from use as their principal residence to use as

rental property. Petitioners’ adjusted basis in the 84th Street property at the time

they converted it to rental property would have been the property’s fair market

value, if that were less than the cost basis.         See 26 C.F.R. § 1.165-9(b)(2). The

parties agreed that the fair market value at the time of conversion was less than

the cost basis. Therefore, petitioner’s carryover basis in the 84th Street property

was its fair market value in June of 1994.


                                                -3-
       Fair market value is generally defined as the price at which property would

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

to buy or to sell and both having reasonable knowledge of relevant facts.    See id.

§ 20.2031-1(b); Rhodes v. Amoco Oil Co. , 143 F.3d 1369, 1373 n.4 (10th Cir.

1998). The Commissioner determined that the fair market value of the 84th Street

property was $134,500, which was the price at which petitioners listed it for sale

in September 1994 and the price at which they exchanged it in December 1994.

Additionally, the Commissioner reasoned, this value was consistent with the facts

that the property had an appraised value of $150,500 in October 1992 and that the

residential real estate market in Tulsa was in a serious decline.   2



       Petitioners argued that the Commissioner’s determination of fair market

value was incorrect, because it failed to take into account petitioners’ pressure to

sell the 84th Street property due to its unsuitability as rental property and their

own cash crunch. Petitioners’ accountant testified that he calculated the tax

deductions based on a fair market value for the 84th Street property in excess of

$200,000. Petitioners, however, presented no evidence to support a fair market

value of $200,000 or more. “The burden was on petitioners not only to show that

the Commissioner’s determination was wrong, but also to produce evidence from


2
      As evidence of this decline, petitioners purchased the 84th Street property
in 1982 for $183,000 and had put almost $50,000 of improvements into it by
October 1992, yet it appraised for only $150,500 at that time.

                                             -4-
which another and proper determination could be made.”        Bennett v. Comm’r ,

139 F.2d 961, 966 (8th Cir. 1944);   see also Wiles v. United States   , 312 F.2d 574,

577 (10th Cir. 1962).

      The Tax Court concluded that petitioners failed to meet their burden of

establishing that the Commissioner’s determination was erroneous. The Tax

Court, therefore, adopted the Commissioner’s determination of fair market value

and, consequently, the Commissioner’s determination of adjusted basis. Our

review of the record reveals no error in the Tax Court’s decision.

      Accordingly, the decision of the Tax Court is AFFIRMED.



                                                      Entered for the Court



                                                      Stephen H. Anderson
                                                      Circuit Judge




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