                         T.C. Memo. 2009-290



                       UNITED STATES TAX COURT



         CONSOLIDATED INVESTORS GROUP, STEVEN G. LUCA,
               TAX MATTERS PARTNER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23703-06.              Filed December 16, 2009.



     Richard D. Panza and Robert P. Ellis, for petitioner.

     John M. Tkacik, Jr., for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Consolidated Investors Group (the

partnership) claimed a $641,000 charitable contribution deduction

on its 2003 Form 1065, U.S. Return of Partnership Income,

resulting from an alleged bargain sale.   Respondent disallowed

the charitable contribution deduction because the partnership
                               - 2 -

allegedly failed to substantiate its entitlement to a charitable

contribution deduction, and the alleged bargain sale did not

satisfy the statutory requirements.    In the alternative

respondent asserts that if the partnership is entitled to a

charitable contribution deduction related to the bargain sale,

the partnership’s apportionment of the adjusted basis of the

property between the sale portion and the contribution portion

must be adjusted.   We conclude the partnership made a bargain

sale of the property for the amount it reported.    We also

conclude that an adjustment should be made to the allocation of

the adjusted basis between the sale portion and the charitable

contribution portion of the property.

The Partnership

     The partnership is an Ohio general partnership located in

Lorain County, Ohio.   It consists of approximately 20 partners

and holds land for future development or investment purposes.

Most of the partnership’s investors are from Lorain County.

Steven Luca is the tax matters partner for the partnership.1

     In 1979 the partnership purchased approximately 250 acres of

property consisting of two adjacent parcels along State Route 58

in Lorain County for investment purposes.    Approximately 850 feet




     1
        Mr. Luca negotiated on behalf of the partnership with the
Ohio Turnpike Commission before the partnership hired an
attorney.
                                 - 3 -

of the larger parcel of the property directly abutted State Route

58.

      At the time the partnership purchased it, the property was

zoned residential/agricultural.     In 1980 the partnership

petitioned for a change in the zoning, to commercial.     The lots

on both sides of the property were already zoned commercial.

Forty acres of the property (including some which abutted State

Route 58) were rezoned commercial in July 2001.

Ohio Turnpike Commission

      The Ohio Turnpike, a 241-mile-long highway traversing the

northern part of the State of Ohio, is a toll road that was

constructed in 1953.     Originally the Ohio Turnpike had 17

interchanges;2 it currently has 31 interchanges.    At the time of

trial Joseph Disantis was the right-of-way coordinator for the

Ohio Turnpike Commission (OTC), a position he had held since

1986.     In that capacity he bought property for the construction

of interchanges along the Ohio Turnpike.

      The OTC began studying the possibility of building an

interchange at State Route 58 in the late seventies and early

eighties.    Among the purposes for constructing an interchange

are, first, to encourage economic development in the area of the




      2
        The interchange gives vehicles an opportunity to enter or
exit the turnpike.
                                 - 4 -

interchange, and second, to generate toll revenues (through

ingress onto and egress from the turnpike).

      On March 8, 1993, the OTC adopted Resolution No. 11-1993

titled “Resolution Approving the Location, Design and Acquisition

of Right-of-Way for an Interchange with State Route 58 and the

Ohio Turnpike in the Vicinity of Milepost 140.2 in Lorain County,

Ohio” (State Route 58 resolution).       The State Route 58 resolution

approved the location, design, and acquisition of a right-of-way

for an interchange at State Route 58 (State Route 58

interchange).    Once the OTC adopted the State Route 58

resolution, it began the design phase of the project.      For

various reasons (sewer building, presence of wetlands, and a

scenic railway corridor), the State Route 58 interchange was

postponed until 2001.

I.   Correspondence Between the Partnership and the OTC in
     Respect of Acquiring the Property

      The first written correspondence with the partnership about

the State Route 58 interchange was a letter from the OTC dated

April 9, 2001.    That letter stated the OTC intended to acquire a

right-of-way and purchase real estate (property) from the

partnership, and it would pay the partnership $93,800 as fair

compensation for the property.    The letter did not specify what

property was to be acquired and offered compensation as follows:
                                - 5 -

     Parcel                                    $93,000
     Temporary construction easements              800
     Improvements                                N/A
     Damage                                      N/A

There was no compensation provided for damage which might result

to the residue of the partnership’s property as a result of the

taking.   In 1999 the OTC had offered the partnership

approximately $200,000 for this property; however, the offer was

never put in writing.   The offer in the April 9, 2001, letter was

based on a February 2001 appraisal commissioned by the OTC.    In

July 2001 approximately 40 acres of the partnership’s property

were rezoned commercial.

     Between 2001 and 2003 representatives of the partnership and

the OTC communicated in person and through telephone calls and

letters about the possibility of the OTC’s acquiring the

partnership’s property.    Mr. Luca was the representative of the

partnership and Mr. Disantis was the representative of the OTC in

these discussions until an action was filed in court.    The

communications involved determining the property on which the OTC

sought a right-of-way and filing an action to appropriate the

property.   Both Mr. Luca and Mr. Disantis testified as witnesses.

     A.   Determining the Location of the Right-of-Way

     After a July 5, 2001, telephone call the OTC sent the

partnership a description of the property sought by the OTC for

the right-of-way for the State Route 58 interchange.     In a July
                               - 6 -

9, 2001, letter the OTC stated it needed 13.1873 acres of the

partnership’s parcels (the property).

     The partnership responded in a letter dated July 25, 2001.

In that letter the partnership complained about the delay in

receiving a response from the OTC and about the information the

OTC had given local media, and it stated the partnership was

embarrassed by the $93,800 offer because it was substantially

less than the OTC had offered the partnership in 1999.    This

letter from the partnership also contained the following

statement:   “Since 1990 our organization has been a strong

advocate of the OTC and its activities.   Currently we continue to

support your activities with caution.”

     After a written reminder dated August 17, 2001, by the

partnership that it still had not received a response to its July

25, 2001, letter, the OTC responded on August 24, 2001.    The OTC

did not adjust its offer to reflect the rezoning of 40 acres of

the partnership’s property.   The OTC asked how the partnership

could be embarrassed by the offer when the partnership did not

have an appraisal as to the fair market value of the property.

The OTC refused to meet with the partnership until the




     3
        We assume this number was subsequently adjusted because
all appraisals refer to a taking of approximately 12.4 acres.
This disparity and/or subsequent change is without consequence to
the outcome.
                               - 7 -

partnership had provided the OTC with a written appraiser’s

opinion of the fair market value of the property.

     On August 28, 2001, the partnership requested the OTC to

provide a copy of its appraisal of the fair market value of the

property.   The partnership also stated that it would be pleased

to obtain a current appraisal of the property once the OTC had

made a final decision as to whether the construction of the State

Route 58 interchange was going to proceed.   The letter stated:

“In conclusion, our organization consists of various gentlemen of

the community that continue to support the activities of the

OTC.”

     On September 5, 2001, the OTC requested the partnership to

either accept or reject its offer of $93,800 within 30 days.

This figure was not adjusted to reflect the July 2001 change in

zoning of 40 acres of the partnership’s property.   On September

14, 2001, the partnership said it could not make a decision and

asked for specific additional information.   The partnership

reminded the OTC that it had not received a response as of

September 28, 2001.   The OTC replied on October 5, 2001, but did

not provide the specific additional information requested.

     The partnership again asked for the following:   Specific

additional information about the project, the assistance of the

OTC in conveying the property, the parcel numbers and acreage to

be purchased by the OTC, the placement of stakes currently in the
                                  - 8 -

property, the documents sent by the OTC to all of the

partnership’s partners except the tax matters partner, a copy of

the OTC appraisal, all working drawings, legal descriptions and

surveys of the referenced property, property maps, acreage

required to preserve the railroad, water line easements, the

acquisition costs to the OTC of the railroad and a bridge over

State Route 58, and any information the OTC considered

appropriate to assist the partnership in its analysis.

     B.   Attempts To Negotiate

     Eventually, the OTC provided the partnership with the

information it had requested to complete its appraisal report.

The partnership contacted the OTC on April 24, 2002, and reported

it was ready to proceed in discussions related to the project and

the value of the property.   In response the OTC requested a

counteroffer and supporting documentation.

     The partnership responded that it would be reluctant to

present a counteroffer, and it wanted to continue negotiations in

person.   The letter stated the partnership’s intention to

complete the transaction within a 30-day period in a fair and

orderly manner for the benefit of all parties concerned and that

it was prepared to proceed in good-faith negotiations.

     During a telephone call on July 17, 2002, the partnership

informed the OTC that its appraisal report on the property

suggested a fair market value of approximately $2,900,000
                               - 9 -

(including damages).   The partnership informed the OTC that it

would consider all reasonable offers and would consider a

contribution/sale of the property to the OTC.   In written

correspondence dated July 17, 2002, the partnership reminded the

OTC that it desired to meet and negotiate with the OTC.    The

partnership wrote that it would consider a contribution/sale of

the defined property to the OTC and stated:   “Since approximately

1990, our organization has been a strong advocate of the OTC and

its activities.”   The partnership was willing to accept a minimal

amount in cash, as long as the partnership was receiving fair

market value for the property in the form of cash and

contribution.   The partnership wanted to push the project along

because it felt the interchange would benefit Lorain County.

     In a July 19, 2002, letter the OTC treated this as an

initial demand and reminded the partnership of its February 2001

appraisal report determining that the property was worth $93,800.

The OTC did not present a different figure for the partnership to

consider.

     The partnership responded in a letter dated July 22, 2002,

that the $2,900,000 appraisal report determination was not a

demand, and it would be unable to provide the OTC with a demand

for the property until it was able to meet with the OTC.     The

partnership reminded the OTC that it would consider all

reasonable offers and that it would consider a contribution/sale
                               - 10 -

of the defined property to the OTC.     The letter ended with the

following:   “Kindly correct your records.    NO DEMANDS HAVE BEEN

MADE!!!!!”

     In a July 24, 2002, letter after the partnership had been

unsuccessful in getting a meeting with the OTC, the partnership

informed the OTC that it planned to go forward with the

development and/or sale of the property.

     On August 13 and 26, 2002, the partnership met with staff

members of the OTC, including OTC General Counsel Thomas Amato.

The partnership presented the results of its appraisal report and

an amount for the sale of the property that was less than the

appraisal report’s fair market value of $2,900,000.     There was no

dollar amount presented for the partnership’s consideration other

than the OTC’s initial offer of $93,800.

     In September 2002 the OTC had the partnership’s property

appraised at $600,000.   The partnership was unaware of this

appraisal until July 2003.

     After negotiations failed, the partnership contacted the OTC

on January 14, 2003, to withdraw its offer to sell the property

for less than $2,900,000.    The partnership expressed frustration

with the costly and time-consuming process and the OTC’s

followthrough.   The partnership further suggested that if the OTC

wanted to acquire its property, it initiate such action as

necessary to acquire it through appropriation.
                                 - 11 -

     C.   Appropriation Action

     On March 17, 2003, the OTC passed a “Resolution Declaring

the Necessity of Appropriating Property and Directing the

Proceedings to Effect Such Appropriation be Begun and

Prosecuted”.   The resolution stated the OTC had negotiated for a

reasonable time for the purchase but was unable to enter into an

agreement, the OTC had complied with the relevant provisions of

the Ohio Revised Code, and the property was necessary for the

construction of an interchange.     Before the OTC may bring an

appropriation action, it is required to enter into good-faith

negotiations with the property owner and offer to pay the

property owner fair market value.

     The OTC filed a “Complaint For Appropriation For Public Road

Project, Quick Take Eminent Domain” on March 28, 2003, in the

Court of Common Pleas in Lorain County, Ohio.     The OTC requested

a jury.   The OTC deposited $93,800 with the Court and identified

this amount as the fair market value of the property, although

the OTC had obtained an appraisal report which determined the

fair market value of the partnership’s property was $600,000.     As

of March 28, 2003, the OTC had not offered the partnership any

amount other than $93,800.

     On June 11, 2003, the partnership’s counsel wrote to the OTC

and posed three questions pertaining to the involvement of the

Ohio Department of Transportation, the type of the interchange,
                                - 12 -

and the construction of the ramp.    The information was needed for

purposes of completing the partnership’s second appraisal report.

     On July 21, 2003, the partnership’s counsel wrote to the

outside counsel of the OTC regarding the documents produced and

forwarded to the partnership.    The partnership had received an

updated version of the OTC’s appraisal report, and the updated

appraisal report determined the fair market value of the property

to be $600,000 instead of $93,800.       The OTC’s certificate of

appraisal, which stated the fair market value of the property to

be $93,800, was dated February 24, 2001.       Unbeknownst to the

partnership, the OTC’s appraisal report had been updated on

September 9, 2002 (approximately 7 months before the OTC filed

its quick take action on March 28, 2003).       The partnership

alleged the OTC had used a statutorily obsolete appraisal report

in violation of Ohio State law.    The partnership further alleged

the OTC had violated Ohio State law because of its knowledge that

an application for rezoning was pending when it relied on the

initial appraisal report (February 24, 2001), and the rezoning

that occurred in July 2001 constituted a substantial change

requiring a new appraisal report.    Finally, the partnership

alleged the OTC had committed fraud upon the court by depositing

only $93,800 as the determined fair market value when the OTC had

an appraisal report estimating the fair market value of the

property to be $600,000.
                              - 13 -

     On July 22, 2003, the OTC agreed to pay the partnership an

additional $511,000 within the week.   The OTC claimed it had made

a “clerical” error and that was why it had not deposited the

correct amount.   Before filing the appropriation action (March

28, 2003), the OTC had not offered to pay the partnership the

updated fair market value of $600,000 for the property.

     The partnership and the OTC entered into a settlement

agreement on December 17, 2003.   The OTC agreed to pay the

partnership $350,000 in addition to the $600,000 already offered

for the property.   In addition, the settlement agreement

acknowledged and recognized that the partnership would file a

Form 8283, Noncash Charitable Contributions, with its 2003 return

to indicate that the partnership had made a charitable

contribution to the OTC as a result of the settlement of the

litigation.   The OTC agreed that it would execute part IV of

section B of Form 8283 entitled “Donee Acknowledgment”.

     The partnership filed a Form 8283 with its Form 1065 for

2003.   The partnership listed $1,591,000 as the fair market value

of the appraised land as of December 17, 2003.   The partnership’s

appraiser, Richard Masters, signed Part III, Declaration of the

Appraiser, and the OTC signed Part IV, Donee Acknowledgment, of

section B.
                                - 14 -

II.   Fair Market Value:    Appraisals of the Property Transferred

      The partnership’s larger parcel of property, which directly

abuts State Route 58, is approximately 150 acres and located in

Amherst Township, Ohio.     Approximately 48.5 acres are zoned

commercial (since rezoning in July 2001), and the remaining 101.5

acres are zoned agricultural/residential.4

      The OTC taking had three components:    (1) Actual taking of

approximately 12.4 acres of property, (2) restriction of access

to State Route 58 from the property along approximately .470 acre

by construction of a fence,5 and (3) temporary easements on

approximately .303 acre during construction of the interchange.

      Four appraisal reports on the partnership’s property were

received into evidence, and three6 were admitted as expert

reports.   The following table lists the basic differences among

the three expert reports:


      4
        The total number of acres owned by the partnership zoned
commercial and zoned residential varied in each appraisal. We
state the respective acres used by each appraiser for purposes of
explaining the determined fair market value. We accept the
allocation of acreage from Richard Masters’ appraisal.
      5
        Approximately 846 feet of the partnership’s property was
accessible to and from State Route 58. Since the OTC taking,
approximately 506 feet of the partnership’s property is
accessible to and from State Route 58. This resulted in a loss
of 340 feet of exposure and access to State Route 58.
      6
        Appraisal reports by Richard Masters, Jay Arthur Berk
III, and Richard Racek were admitted as expert reports. The
appraisal report by Wesley Baker was admitted as evidence for
background purposes only.
                               - 15 -

                    Masters               Berk                Racek

Date                7/2/03               3/4/02              12/17/03

Commissioned     The partnership     The partnership        Respondent
  by

Fair market       $1,591,000            $2,875,726          $953,671
  value of
  taking

Fair market           77,000               155,000            75,000
  value per     (without frontage)
  acre of            197,000
  commercial    (with frontage)
  property

Fair market           21,300                22,000            17,500
  value per
  acre of
  residential
  property

Trees                 13,678                 --                --

Damage               905,000            1,674,550            309,399

Temporary              3,800                 2,225             1,771
  damage

All three experts appraised the property subject to the OTC

taking by using the sales comparison approach.       This utilization

approach recognizes the similarities and dissimilarities between

the subject property and similar real property recently sold and

makes appropriate adjustments relative to the subject property in

estimating its indicated value.    Each appraiser used the sale

price per acre as the unit of comparison.
                               - 16 -

     A.   Masters’ Appraisal

     Richard D. Masters has been designated an MAI-SRA-ASA by the

Appraisal Institute.    He issued an appraisal report for the

partnership on July 21, 2003, based on a July 2, 2003,

inspection.    He determined the fair market value of the OTC

taking to be $1,591,000 as of July 2, 2003.    He signed the

partnership’s Form 8283.

     Mr. Masters determined the highest and best use of the

partnership’s property was commercial and residential

development.    The highest and best commercial development would

be to create commercial lots facing State Route 58, build a

service road with at least two lanes, and develop the remaining

commercial property.    The highest and best use of the residential

property would be residential development.

     Mr. Masters valued the partnership’s property in three parts

because of its large size and to account for zoning differences.

First, Mr. Masters valued the partnership’s commercial property

with frontage on (abutting) State Route 58 because it would bring

in the highest dollar from a buyer or buyers.    Then he valued the

remaining commercial property.    Lastly, he valued all of the

residential property as a whole.

          1.   Commercial Property With State Route 58 Frontage

     Mr. Masters determined the partnership had approximately

9.7077 acres of commercial property with State Route 58 frontage.
                                - 17 -

He used four properties from recent sales as comparable

properties.   Two of the comparable properties were on State Route

58, and the other two were on main thoroughfares.       In weighing

the properties as comparables, he considered the time that had

passed since the sales, financing terms, size, location, land

size, easements, topography, utilities, zoning, and composite.

The range of price per acre that the comparable properties sold

for was $135,747 to $241,379.    After he made adjustments for

location, land size, and composite, the range of the sale prices

per acre was $156,109 to $217,241.       The comparable property on

State Route 58 in Amherst Township (the partnership’s property is

in Amherst Township) sold for $195,652 per acre in July 2001, and

Mr. Masters placed the most weight on this property because of

its proximity to the partnership’s property.       Mr. Masters

determined the partnership’s commercial property with State Route

58 frontage was worth $197,000 per acre.

     No commercial property with State Route 58 frontage was

permanently taken from the partnership.       However, as a result of

the OTC’s taking access to State Route 58, some of the commercial

property became restricted.    A local zoning ordinance requires

commercial lots to have 175 feet of frontage.       The OTC taking

reduced the frontage along State Route 58 from 846 feet to 506

feet by construction of a fence between the partnership’s

property and State Route 58.    Accordingly, the OTC taking reduced
                               - 18 -

the maximum number of commercial lots with State Route 58

frontage from four to two.7

     Mr. Masters determined that two commercial lots with

sufficient frontage would occupy 4.8 acres and be worth $197,000

per acre.    Accordingly, the 4.90778 acres that had been worth

$197,000 per acre before the OTC taking were no longer worth that

amount because there was no access to State Route 58, and/or

there was insufficient frontage for a commercial lot in Amherst

Township.    Mr. Masters determined these 4.9077 acres were

properly valued with the remaining commercial property without

State Route 58 frontage after the OTC taking.

     Additionally, Mr. Masters determined a temporary easement on

0.071 acre of the partnership’s commercial property with State

Route 58 frontage had a value of $2,7979 and included this amount

in valuing the OTC taking.10




     7
        Frontage of 846 feet would produce four potential
commercial lots with 175 feet of frontage each (846 divided by
175 equals 4.8). Frontage of 506 feet would produce only two
commercial lots (506 divided by 175 equals 2.9).
     8
          9.7077 acres less 4.8 acres.
     9
        0.071 acre times $197,000 per acre times 10 percent times
2 years equals $2,797.
     10
        The temporary damage to commercial property with State
Route 58 frontage ($2,797) plus temporary damage to residential
property ($988) equals $3,785, which Mr. Masters rounded to
$3,800.
                               - 19 -

          2.   Commercial Property Without State Route 58 Frontage

     Mr. Masters determined the partnership had 38.3941

commercial acres without State Route 58 frontage before the OTC

taking.   Mr. Masters used five sales of comparable properties

which ranged in price per acre from $43,711 to $223,521.      In

weighing the properties as comparable to the partnership’s

property, he considered and made adjustments for the time that

had passed since each sale, financing terms, size, location, land

size, easements, topography, utilities, zoning, and composite.

The adjusted range of prices per acre for the comparable

properties was between $48,191 and $90,034, the median price was

$77,100, and the mean was $73,100.      Mr. Masters established a

pre-taking value of $77,000 per acre for the partnership’s

commercial property without frontage.      Mr. Masters determined

that before the taking the partnership’s commercial property

without frontage was worth $2,956,000.11

     Mr. Masters determined approximately 7.3139 acres of the

partnership’s commercial property without State Route 58 frontage

was taken in the OTC taking.   Mr. Masters valued the loss of this

commercial property at $563,000 using his determined value of

$77,000 per acre.

     Mr. Masters then determined a post-taking value of $67,400

per acre for commercial property without frontage, using a new



     11
          38.3941 acres times $77,000 equals $2,956,346.
                                - 20 -

set of sales of comparable properties.    Mr. Masters believed

determining a post-taking value per acre of the partnership’s

commercial property without frontage was appropriate because he

concluded a major problem with access to commercial land would

occur after the OTC taking.    He concluded that a possible

solution would be the construction of a two-or-more-lane

access/service drive to the remaining site area providing

commercial access for future development.

     Mr. Masters determined the partnership’s remaining 36.377312

commercial acres without State Route 58 access were worth

$2,452,000.13

          3.    Residential Property

     Mr. Masters determined the partnership had approximately

103.4970 residential acres before the taking.    Mr. Masters used

five sales of comparable properties in which the sale prices per

acre ranged from $23,422 to $36,709.     In weighing the comparable

properties, he considered the time that had passed since each

sale, financing terms, size, location, land size, easements,



     12
        Before the taking, the partnership had 38.3941 acres.
The OTC took 7.3139 acres from the partnership, and then Mr.
Masters reclassified 4.9077 acres of commercial property with
frontage to commercial property without frontage. 38.3941 minus
7.3139 plus 4.9077 equals 35.9879. (The discrepancy between
36.3773 and 35.9879 acres appears to be the result of rounding,
and this discrepancy has no effect as to the outcome of the
case.)
     13
        36.3773 acres times $67,400 per acre equals $2,451,830.
Mr. Masters rounded this to the nearest thousand.
                               - 21 -

topography, utilities, zoning, and composite.   As adjusted by Mr.

Masters to reflect the location, land size, and composite, the

adjusted sale prices per acre ranged from $18,254 to $29,367, the

median price was $26,250 per acre, and the mean price was $25,182

per acre.   Mr. Masters placed greater weight on properties closer

and more similar in size to the partnership’s property.     Mr.

Masters determined a value of $21,300 per acre for the

residential land, and the partnership’s residential property was

worth $2,204,00014 before the OTC taking.

     Mr. Masters determined the OTC took approximately 5.0796

residential acres, and this land was worth $108,000.15     Mr.

Masters’ post-taking value per residential acre was the same as

his pre-taking value per residential acre.   Accordingly, Mr.

Masters determined the value of the partnership’s remaining

98.417416 acres of residential property to be $2,097,000 after

the taking.17




     14
        103.4970 times $21,300 is $2,204,486, rounded down to
$2,204,000.
     15
          5.0796 acres time $21,300 equals $108,195.
     16
        103.4970 residential acres before the taking less 5.0796
acres taken equals 98.4174 acres.
     17
          98.4174 acres times $21,300 equals $2,096,291.
                                - 22 -

     In addition Mr. Masters determined the temporary easement on

0.232 acre of residential property for 2 years was worth $988.18

Further, Mr. Masters valued the trees on property taken by the

OTC to be worth $13,768, using a count of the number of trees,

the type, and the average diameter.

          4.    Taking and Damages

     On the basis of his calculations, Mr. Masters determined the

pre-taking value of the partnership’s property to be

$7,086,000.19    He determined the post-taking value of the

partnership’s property to be $5,495,000.20    Accordingly, the

$1,591,000 difference was composed of a total taking of

$686,00021 and damages of $905,000.22




     18
        0.232 acre times $21,300 per acre times 10 percent times
2 years equals $988.
     19
        Rounded sum of: 9.7077 commercial acres with frontage
times $197,000; 38.3941 commercial acres without frontage times
$77,000; 103.4970 residential acres times $21,300 plus $13,000
trees.
     20
        Rounded sum of: 4.8 commercial acres with frontage
times $197,000; 36.3773 commercial acres without frontage times
$67,400; 98.4174 residential acres times $21,300.
     21
        Rounded sum of: 7.3139 commercial acres without
frontage times $77,000; 5.0796 residential acres times $21,300;
trees worth $13,768; temporary 2-year easement on 0.071
commercial acre with frontage worth $2,797; temporary 2-year
easement on 0.232 residential acre worth $988.
     22
          $1,591,000 less $686,000.
                              - 23 -

     B.   Berk Appraisal

     Jay Arthur Berk III holds a senior residential appraiser

designation and is certified by the State of Ohio as a general

appraiser.   He issued an appraisal report for the partnership on

April 18, 2002, that was based on March 4 and April 16, 2002,

inspections.   His appraisal report determined the value of the

OTC taking to be $2,875,726 on March 4, 2002.

     Mr. Berk determined the general area of the partnership’s

property is in the direct path of commercial outgrowth from

Amherst, Ohio, and the completion of a sewer project together

with good access to employment centers makes the partnership’s

property prime for development.   He determined the highest and

best use of the property would be to split commercial lots from

the State Route 58 frontage and to develop the residential land

in phases.

     Mr. Berk valued the partnership’s property in two parts,

commercial and residential, to account for the different zoning.

He used the sales comparison approach and determined two possible

values for the OTC taking.   One value reflected the position that

all of the partnership’s property would be affected by the

taking; the other value reflected the position that not all of

the partnership’s property would be affected by the taking.   Mr.

Berk did not express a view on which value was more persuasive;

rather, he stated that the arguments for the one value were as
                               - 24 -

reasonable as those for the other.      Mr. Berk did not explain his

methodology in determining which acres would be affected by the

taking.

     Mr. Berk’s determined acreage differed slightly from those

of the other appraisals.   He determined the partnership’s

property was 152.15 acres before the OTC taking (46.93 acres of

commercial property and 105.22 acres of residential property).

Mr. Berk determined the net taking was 12.414 acres (6.93 acres

of commercial property and 5.53 acres of residential property).23

After the taking, the partnership was left with 40 acres of

commercial property and 99.69 acres of residential property.

          1.   Commercial Property

     Mr. Berk used two sales of comparable properties to

determine the per-acre value of the partnership’s 46.93 acres of

commercial property.   Those properties were sold for $149,176 per

acre and $222,340 per acre.   In weighing the comparable

properties, he considered the conditions of each sale (i.e.,

arm’s length), the time that had passed since the sale, the

location, and the demolition costs.     Mr. Berk made adjustments to

sale prices of the comparable properties to take into account

differences in demolition costs and location, and he calculated

adjusted prices per acre of $151,600 and $156,800.      On the basis

of these two sales and the current market activity in the area of


     23
          6.93 plus 5.53 equals 12.46 and not 12.414.
                               - 25 -

the partnership’s property, Mr. Berk determined the partnership’s

commercial property was worth $155,000 per acre and calculated a

total value of $7,274,000.24

     To determine the value of the OTC taking, Mr. Berk first

determined the price per acre the partnership’s affected

commercial property would be worth after the OTC taking of 6.93

commercial acres.   Mr. Berk used three comparable properties

which sold for $43,711 per acre, $19,820 per acre, and $69,952

per acre.   After he made adjustments to the sale prices to

account for location and sewer, the adjusted prices per acre were

$43,500, $27,000, and $49,000.   In determining the value of the

partnership’s affected commercial property, Mr. Berk noted that

the first comparable property (prices per acre of $43,711

unadjusted and $43,500 adjusted) had many of the same

characteristics as the partnership’s commercial property.

Accordingly, Mr. Berk determined the partnership’s affected

commercial property was worth $43,000 per acre.

     Instead of placing a single value on the partnership’s

commercial property after the OTC taking, Mr. Berk determined two

potential values.   The first value was based on the conclusion

that all of the partnership’s commercial property was affected by

the OTC taking, and, accordingly, the 40 commercial acres




     24
          46.93 acres times $155,000 equals $7,274,000.
                               - 26 -

remaining were worth $1,720,00025 after the OTC taking.    The

second value was based on the conclusion that only a portion of

the partnership’s commercial property was affected by the OTC

taking.   Accordingly, only the affected portion of the

partnership’s commercial property was valued at the reduced price

per acre, and the remaining unaffected commercial property was

valued at the higher (pre-OTC taking) price per acre.     Citing an

unidentified drawing as authority, Mr. Berk determined 12.95

commercial acres were affected and this left 27.05 commercial

acres not affected by the OTC taking.    Accordingly, Mr. Berk

determined that after the OTC taking the partnership’s commercial

property under the second scenario was worth $4,749,500.26

     In the first scenario, the value of the commercial property

taken is $5,554,000,27 and in the second scenario the value of

the commercial property taken is $2,524,500.28

           2.   Residential Property

     Mr. Berk used three sales of comparable properties to

determine the per-acre value of the partnership’s 105.22 acres of

residential property.    The comparable properties were sold for



     25
          40 acres times $43,000 equals $1,720,000.
     26
        12.95 acres times $43,000 plus 27.05 acres times
$155,000.
     27
          $7,274,000 less $1,720,000 equals $5,554,000.
     28
          $7,274,000 less $4,749,500 equals $2,524,500.
                               - 27 -

$36,584 per acre, $21,719 per acre, and $20,927 per acre.     In

weighing the comparable properties, Mr. Berk considered the

conditions of each sale (i.e., arm’s length), the time that had

passed since the sale, the location, the demolition costs, and

the site development.   Mr. Berk made adjustments to the sale

prices of the properties to take into account demolition costs

and development costs associated with sales of the comparable

properties and calculated adjusted prices per acre of $22,125,

$21,900, and $21,400.   On the basis of these sales, Mr. Berk

determined the partnership’s residential property was worth

$22,000 per acre and calculated its total value to be

$2,314,000.29

     To determine the value of the OTC taking, Mr. Berk

determined the price per acre the partnership’s affected

residential property would be worth after the taking of 5.53

residential acres.   Mr. Berk used one sale of a comparable

property abutting a State route for $12,088 per acre.     He did not

make any adjustments to the sale price.   Mr. Berk determined that

the partnership’s affected residential property was worth $12,100

per acre.

     Again, instead of placing a single value on the

partnership’s residential property after the OTC taking, Mr. Berk

determined two potential values.   The first value was based on


     29
          105.22 acres times $22,000 equals $2,314,000.
                                 - 28 -

the conclusion that all of the partnership’s residential property

was affected by the OTC taking, and, accordingly, the 99.69 acres

remaining were worth $1,205,00030 on the basis of the affected

value per acre of $12,100.      The second value was based on the

conclusion that only a portion of the partnership’s residential

property was valued at the reduced price per acre, and the

remaining unaffected residential property was valued at the

higher price per acre.      Again citing an unidentified drawing as

authority, Mr. Berk determined 22.65 residential acres were

affected and this left 77.04 residential acres not affected by

the OTC taking.   Accordingly, Mr. Berk determined the value of

the partnership’s residential property after the OTC taking under

the second scenario was $1,969,000.

     In the first scenario, the value of residential property

taken is $1,109,000,31 and in the second scenario, the value of

residential property taken is $345,000.32

     C.   Racek Appraisal

     Richard G. Racek has received the M.A.I. designation from

the Appraisal Institute.      He issued an appraisal report on




     30
        99.69 acres times $12,100 equals $1,206,249. Mr. Berk
appears to have rounded this number down to $1,205,000.
     31
          $2,314,000 less $1,205,000 equals $1,109,000.
     32
          $2,314,000 less $1,969,000 equals $345,000.
                                - 29 -

December 17, 2003, and determined the fair market value of the

OTC taking was $953,671.

     Mr. Racek concluded the highest and best use of the

partnership’s commercial property is development for commercial

or retail purposes.    He concluded the highest and best use of the

partnership’s residential property is development for residential

or agricultural use until there is sufficient demand for a

residential subdivision.     We refer to the property as

residential.

     Mr. Racek used the sales comparison method to separately

determine the fair market values of the partnership’s commercial

and residential property.     Mr. Racek determined before the OTC

taking the partnership’s property was 147.72 acres (48.5 acres

zoned commercial and 99.22 acres zoned residential).       He

determined that the partnership lost 12.4 acres of property in

the OTC taking (7.4 commercial acres and 5 residential acres).

         1.     Commercial Property

     Mr. Racek used four sales of comparable properties to

determine a price per acre for the partnership’s commercial

property.     The range in prices per acre for the sales of

comparable properties was from $44,405 to $99,202.     Mr. Racek did

not list the factors he considered in conducting his sales

comparison analysis of the properties and made undisclosed plus

and minus adjustments to the sale prices of the comparable
                                 - 30 -

properties to reflect location, time, inflation, land size

difference, and commercial exposure.      After making these

adjustments, he determined the partnership’s commercial property

was worth $75,000 per acre, and the 48.5 acres the partnership

owned were worth $3,637,500.33    Using this value per acre, he

determined the partnership lost $555,00034 of commercial

property.

     Mr. Racek determined the OTC taking would not have a

meaningful effect on the commercial property still owned by the

partnership after the OTC taking.     Particularly since the

commercial property was then vacant, he determined there would be

no meaningful effect on the commercial residue.     However, to

value the commercial property remaining after the OTC taking, Mr.

Racek determined a post-taking value per commercial acre of

$67,500.    The post-taking value reflects a discount of 10

percent, a subjective number Mr. Racek determined on the basis of

his experience.    Accordingly, he determined the value of the

partnership’s remaining 41.1 commercial acres after the OTC

taking was $2,774,250.35




     33
           $75,000 times 48.5 equals $3,637,500.
     34
           $75,000 times 7.4 equals $555,000.
     35
           $67,500 times 41.1 equals $2,774,250.
                                 - 31 -

          2.     Residential Property

     Mr. Racek used four sales of comparable properties to

determine a price per acre for the partnership’s residential

property.      The range in prices per acre for the sales of

comparable properties was from $15,863 to $25,510.       Mr. Racek did

not list the factors he considered in conducting his sales

comparison analysis and made undisclosed plus and minus

adjustments to the sale prices of the comparable properties to

reflect land size difference and time since sale.       After making

these adjustments, he determined the partnership’s residential

property was worth $17,500 per acre, and the 99.22 acres the

partnership owned were worth $1,736,350.36      Using this value per

acre, he determined the value of residential property the

partnership lost in the OTC taking was $87,500.37

     Mr. Racek determined the OTC taking would not have a

meaningful effect on the residential land still owned by the

partnership after the OTC taking.       He determined the post-taking

value per acre of the residential property did not differ from

the pre-taking value per acre.     Accordingly, he determined the




     36
          $17,500 times 99.22 equals $1,736,350.
     37
          $17,500 times 5 equals $87,500.
                                 - 32 -

value of the partnership’s remaining 94.22 residential acres was

$1,648,850.38

            3.   Damage

       According to Mr. Racek, the difference between the value of

the partnership’s property before the taking, $5,375,000, and

after the taking, $4,423,100, is $951,900.     Of this amount,

$642,50039 resulted from the value of the property actually taken

as determined by Mr. Racek.     After subtracting $1 for “Value of

P.R.O.”, Mr. Racek determined the permanent damage to the residue

of the partnership’s property resulting from the OTC taking to be

$309,399.40

       Additionally, Mr. Racek determined the temporary damage to

the residue to be $1,771.     For 24 months, .071 commercial acre

and .232 residential acre would be taken for construction by the

OTC.    He determined the value of this taking by multiplying the

acreage taken times the post-taking value per acre times 20

percent and placed a value of $959 on the temporary commercial

taking and $812 on the temporary residential taking.

       After adding the value of property taken ($642,500), P.R.O.

($1), permanent damage to the residue ($309,399), and temporary



       38
            $17,500 times 94.22 equals $1,648,850.
       39
        ($75,000 times 7.4 commercial acres) plus ($17,500 times
5 residential acres) equals $642,500.
       40
            $951,900 less $642,500 less $1 equals $309,399.
                               - 33 -

damage ($1,771), Mr. Racek determined the value of the OTC taking

was $953,671.

       D.   Baker Appraisal

       Wesley Baker performed an appraisal of the property on the

basis of inspections occurring on October 16, 2000, February 24,

2001, September 3, 2002, and September 29, 2003.   He appraised

the taken property at $771,000.

       Neither side puts any special emphasis on this report, and

neither do we.

III.    The Partnership’s Apportionment of the Property’s Adjusted
        Basis

       On its Form 8283 the partnership identified $246,647.62 as

its adjusted basis in the property transferred to the OTC.

Accordingly, the partnership reported a capital gain of

$703,35241 on its 2003 Form 1065.

       Respondent asserts that the partnership must apportion the

adjusted basis of the property pro rata between the sale/transfer

portion and the charitable contribution portion.   As a result of

this pro rata apportionment, respondent asserts that the

partnership must report an additional capital gain of $99,372

(for total capital gain of $802,724 from the transaction)42


       41
        Amount received, $950,000, less adjusted basis,
$246,647.62.
       42
        Amount received of $950,000 less $147,275 (alleged
adjusted basis allocated pro rata to the sale/transfer portion,
                                                   (continued...)
                              - 34 -

resulting from a decrease of the adjusted basis attributable to

the sale/transfer portion of the transfer.43

                              OPINION

     The partnership has not claimed that it satisfied the

requirements of section 7491(a)44 to shift the burden of proof to

respondent with regard to any factual issue.

     Deductions are a matter of legislative grace, and the

taxpayer has the burden of showing entitlement to any deduction

claimed.   New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).

     Section 170(a) generally allows a taxpayer a deduction for

any charitable contribution, as defined in section 170(c), made

during the taxable year.   Section 170(c) defines the term

“charitable contribution” as “a contribution or gift” to or for




     42
      (...continued)
based on the partnership’s claimed adjusted basis of $246,627.62
times $950,000 over $1,591,000).
     43
        The pro rata amount allocated to the charitable
contribution portion of the transfer is $99,372. It was
calculated by multiplying the ratio of the charitable
contribution, $641,000, to the fair market value, $1,591,000,
times the total adjusted basis of the property, $246,647.62.
     44
        Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedures.
                               - 35 -

the use of certain specified organizations.    Respondent does not

dispute that the OTC was a qualified recipient pursuant to

section 170(c).

     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)(1), Income Tax Regs.

     A charitable contribution is deductible only if verified

under regulations prescribed by the Secretary, sec. 170(a)(1),

including certain substantiation requirements provided in section

1.170A-13(c)(2), Income Tax Regs.

     A taxpayer may not deduct a payment, such as the transfer of

property herein, as a charitable contribution if the taxpayer

receives a substantial benefit in return.     United States v. Am.

Bar Endowment, 477 U.S. 105, 116-117 (1986); Ottawa Silica Co. v.

United States, 699 F.2d 1124, 1131 (Fed. Cir. 1983); Singer Co.

v. United States, 196 Ct. Cl. 90, 449 F.2d 413, 420, 422 (1971);

S. Rept. 1622, 83d Cong., 2d Sess. 196 (1954).    If the size of a

taxpayer’s payment to a charity is clearly out of proportion to

the benefit received, the taxpayer may claim a charitable

contribution deduction equal to the difference between the

payment and the market value of the benefit received in return,

on the theory that the payment has the “dual character” of a

purchase and a contribution.   United States v. Am. Bar Endowment,
                               - 36 -

supra at 117.    To be deductible a charitable contribution must be

a gift; i.e., a transfer of property without adequate

consideration.    Sec. 170(c); United States v. Am. Bar Endowment,

supra at 118; Sklar v. Commissioner, T.C. Memo. 2000-118, affd.

282 F.3d 610, 612 (9th Cir. 2002).      Thus, a portion of a payment

is deductible as a charitable contribution under section 170 if

the following two conditions are met:     “First, the payment is

deductible only if and to the extent it exceeds the market value

of the benefit received.    Second, the excess payment must be

‘made with the intention of making a gift.’”      United States v.

Am. Bar Endowment, supra at 117-118 (quoting Rev. Rul. 67-246,

1967-2 C.B. 104, 105); Sklar v. Commissioner, supra at 621.

     Respondent asserts the partnership received an amount equal

to the fair market value of the taking, lacked the requisite

donative intent when it transferred the land to the OTC, and

failed to satisfy the substantiation requirements of section

1.170A-13(c)(2), Income Tax Regs.    Alternatively, respondent

asserts, if the fair market value of the taking exceeded the

money received, then the partnership failed to make the requisite

pro rata apportionment of adjusted basis to the sale portion of

the transaction.    We conclude the fair market value of the

property transferred to the OTC exceeded the amount the

partnership received, the partnership did have donative intent

when it transferred the property to the OTC, the partnership
                              - 37 -

substantially complied with the substantiation requirements of

section 1.170A-13(c)(2), Income Tax Regs., and the partnership is

required to make a pro rata apportionment of its adjusted basis.

I.   Value of the Property Transferred

      The partnership bears the burden of proving that the fair

market value of the transferred property exceeds the value

determined by respondent.   See 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).

      The parties rely on expert testimony to value the

partnership’s land taken by the OTC.     We evaluate expert opinion

in the light of all the evidence in the record and may accept or

reject the expert testimony, in whole or in part, according to

our own judgment.   See Helvering v. Natl. Grocery Co., 304 U.S.

282, 295 (1938); Estate of Mellinger v. Commissioner, 112 T.C.

26, 39 (1999).   “The persuasiveness of an expert’s opinion

depends largely upon the disclosed facts on which it is based.”

Estate of Davis v. Commissioner, 110 T.C. 530, 538 (1998).     We

may be selective in our use of any part of an expert’s opinion.

See id.

      Fair market value is 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
                                - 38 -

reasonable knowledge of the relevant facts.       Sec. 1.170A-1(c)(2),

Income Tax Regs.    The fair market value of property reflects the

highest and best use of the property on the relevant valuation

date.    Stanley Works v. Commissioner, 87 T.C. 389, 400 (1986).

Any realistically available special use of property due to its

adaptability to a particular business is an element that must be

considered in determining the fair market value thereof.

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

Works v. Commissioner, supra.     The fair market value of property

is not affected by whether the owner actually has put the

property to its highest and best use.    The realistic, objective

potential uses for property control the valuation thereof.

Stanley Works v. Commissioner, supra.

        The partnership presented testimony of two expert witnesses,

Richard D. Masters and Jay Arthur Berk III.       Respondent presented

testimony of one expert witness, Richard G. Racek.      The

significant differences between the partnership’s experts and

respondent’s expert can be found in the following factors:      (1)

The appraisal of property zoned for commercial use, (2) the

appraisal of property zoned for residential use, and (3) the

damage calculations.     See table supra p. 15.    We will attempt to

reconcile these differences in reaching our determination as to

the fair market value of the property.
                                 - 39 -

     A.   Appraisal of the Property

          1.     Application of the Sales Comparison Approach

     Each appraisal report used the comparable sales method to

determine a fair market value per acre of the partnership’s

property.      The comparable sales method 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).

     Mr. Masters determined two prices per acre for the

partnership’s commercial property:        Commercial property with

frontage along State Route 58 and commercial property without

frontage along State Route 58.      Mr. Berk and Mr. Racek did not

separately value the commercial property with and without State

Route 58 frontage; rather, each determined a value per acre of

the commercial property as a whole.

     Respondent asserts that by separately valuing the commercial

acres with State Route 58 frontage Mr. Masters has improperly

determined the fair market value using the subdivision

development method.      The subdivision development method

determines the value of undeveloped land by treating the land as

if it were subdivided, developed, and sold.         Glick v.

Commissioner, T.C. Memo. 1997-65.      From the proceeds of the sale

development costs are then subtracted.        Id.   Finally, the
                              - 40 -

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.

     Respondent’s assertion is based on a misunderstanding of the

subdivision development method.   Although Mr. Masters does refer

to the loss of commercial lots with State Route 58 frontage, this

is not a subdivision.   Rather, because of minimum frontage

restrictions on commercial lots, in order to accurately value the

OTC taking it was reasonable for Mr. Masters to determine the

number of commercial lots with State Route 58 frontage before and

after the taking.   Mr. Masters’ valuation is not based on the

assumption that the lots have been developed and sold; rather,

the value per acre is simply a reflection of the location of the

property.   It is not necessary for Mr. Masters to subtract any

development costs from his determined value of the commercial

property with State Route 58 frontage because he did not include

development in his determination.

     By separately valuing the commercial property with State

Route 58 frontage and without State Route 58 frontage, Mr.

Masters has more accurately applied the sales comparison method

to the partnership’s commercial property.   Respondent’s own

expert stated that commercial acres bordering a freeway are worth
                                - 41 -

more than the commercial acres not bordering a freeway.

Accordingly, it was proper to separately value the commercial

property with State Route 58 frontage and the commercial property

without State Route 58 frontage and use a separate set of sales

of comparable properties to determine the fair market values.

         2.     Price Per Acre for Commercial Zoned Property
                With State Route 58 Frontage

     We are satisfied with the comparable properties Mr. Masters

used to determine a price per acre for the partnership’s

commercial property with State Route 58 frontage.     In particular,

we find the sale of property on State Route 58 in Amherst

Township for $195,652 per acre in July 2001 especially relevant

to valuing the partnership’s commercial property with State Route

58 frontage.     Mr. Masters did not make any adjustments to the

sale price per acre of this comparable property and gave it

greater weight in determining the value of the partnership’s

commercial property with State Route 58 frontage to be $197,000

per acre.     We agree with Mr. Masters that the partnership’s

commercial property with State Route 58 frontage was worth

$197,000 per acre.

     We also agree with Mr. Masters’ reclassification of

approximately 4.9077 acres of the partnership’s commercial

property.     Although no actual acreage of commercial property with

State Route 58 frontage was taken, access to State Route 58 from

part of the property became restricted because of the building of
                               - 42 -

a fence, and some of the partnership’s property lost the

attribute, which justified a separate valuation.    Using local

minimum frontage requirements, Mr. Masters concluded the fence

reduced the number of potential commercial lots from four to two,

and he reclassified 4.9077 acres as commercial property without

State Route 58 frontage.    This was proper and values the

commercial development opportunity that was foreclosed as a

result of the OTC taking.

         3.   Price Per Acre for Residual Commercial Zoned
              Property (Pre-Taking)

     Mr. Masters determined a pre-taking value of $77,000 per

commercial acre without State Route 58 frontage (residual

commercial property), Mr. Berk determined a pre-taking value of

$155,000 per commercial acre, and Mr. Racek determined a pre-

taking value of $75,000 per acre.    We place greater weight on the

sales comparison analysis conducted by Mr. Masters.

     Mr. Masters’ analysis is more thorough.    He considered more

factors which could potentially warrant an adjustment to the sale

price of a comparable property, he included more sales of

comparable properties in his analysis, and he explained and

disclosed the adjustments he made to the sale prices of

properties and the weight he awarded to particular sales.    He

used five sales of comparable properties in his analysis and

considered 10 factors for adjustment.    Although Mr. Berk

explained his adjustments to the comparable properties’ sale
                                - 43 -

prices and disclosed the amounts of those adjustments, he used

sales of only two properties in his comparables analysis.       Mr.

Racek used nearly as many sales of comparable properties (four)

as Mr. Masters, but he did not explain the adjustments he made to

the sale prices or even disclose the amounts of the adjustments.

Mr. Racek simply stated a plus or minus adjustment was necessary

to a particular sale without stating the amount.

     Further, we place greater weight on Mr. Masters’ analysis

because the sales of comparable properties on which he relied

were specifically tailored to valuing the residual commercial

property.     Both comparable properties used by Mr. Berk were along

State routes, and he determined a much higher price per acre.         It

appears that he did so because he did not separately value the

portion of the partnership’s commercial property with State Route

58 frontage.    Accordingly, we accept Mr. Masters’ determination

that the partnership’s residual commercial property was worth

$77,000 per acre.

         4.     Price Per Acre for Residential Zoned Property
                (Pre-Taking)

     Mr. Masters determined a pre-taking value of $21,300 per

residential acre, Mr. Berk determined a pre-taking value of

$22,000 per residential acre, and Mr. Racek determined a pre-

taking and post-taking value of $17,500 per residential acre.         We

note that the determined values are much closer in value to one

another than are the commercial values determined by these
                                - 44 -

experts.    We place greater weight on the comparables analysis

conducted by Mr. Masters.

     For reasons similar to those mentioned above, we find Mr.

Masters’ analysis to be the most thorough because he considered

the most factors which could potentially warrant an adjustment to

the sale price of a comparable property, he included the most

sales of comparable properties in his analysis, and he explained

and disclosed the adjustments he made to the sale prices of

comparable properties and the weight awarded to particular sales.

Although Mr. Berk included more sales of comparable properties in

his commercial analysis (three) than in his residential value

analysis, he did not consider as many factors as Mr. Masters did

in making adjustments to the sale prices.     Mr. Racek included

four sales of comparable properties in his residential value

analysis but disclosed only the factors which called for him to

make adjustments to the sale prices of the properties and did not

disclose the amounts of the plus and minus adjustments he made.

We accept Mr. Masters’ determination that the partnership’s

residential property was worth $21,300 per acre.

           5.   Commercial Post-Taking Value Per Acre

     Each appraiser determined that the value of the

partnership’s remaining commercial property decreased after the

OTC taking.     Mr. Masters determined the per-acre value fell from

$77,000 to $67,400, Mr. Berk determined the per-acre value fell
                              - 45 -

from $155,000 to $43,000 (affected), and Mr. Racek determined the

per-acre value fell from $75,000 to $67,500.    Mr. Masters and Mr.

Berk used a sales comparison analysis to determine the post-

taking price per acre, and Mr. Racek did not.   Instead, Mr. Racek

reduced the pre-taking value per commercial acre by 10 percent.

For the reasons stated above, we find Mr. Masters’ sales

comparison analysis to be more comprehensive in factors and

number of sales considered than Mr. Berk’s sales comparison.

Accordingly, we accept Mr. Masters’ post-taking value per

commercial acre of $67,400.

          6.   Residential Post-Taking Value Per Acre

     Mr. Masters determined that the per-acre value of the

partnership’s residential property did not decrease after the OTC

taking, on the basis of his sales comparison analysis of five

sales of comparable properties.   Mr. Berk determined that the

value of the partnership’s remaining residential property

decreased after the OTC taking.   He concluded the partnership’s

remaining residential property fell in per-acre value from

$22,000 to $12,100 after the OTC taking.   Mr. Berk determined on

the basis of a comparison to the sale of one comparable property.

Mr. Racek determined there was no change in per-acre value

because the residential acreage is unaffected by the taking.     For

the reasons stated above, we find Mr. Masters’ sales comparison

to be more comprehensive in factors and number of sales
                                - 46 -

considered than Mr. Berk’s sales comparison.     Accordingly, we

accept Mr. Masters’ post-taking value per residential acre of

$21,300.

           7.    Damages

     Mr. Masters determined that as a result of the OTC taking

the partnership suffered damages of $905,000.     He determined this

by first calculating the difference between his estimated values

of the partnership’s property before and after the OTC taking,

then, subtracting from the difference his estimated value of the

land taken.     To determine the value of the land taken, he

multiplied his estimated per-acre price by the number of acres

taken for each respective type of property, i.e., commercial and

residential.

     Mr. Berk determined damages of $1,674,550.     He determined

this in a calculation similar to Mr. Masters’:     first, by

calculating the difference between his estimated values of the

partnership’s property before and after the OTC taking, and then

subtracting from the difference his estimated value of the land

taken.

     Mr. Racek determined damages of $309,399.     He determined

this in a calculation similar to Mr. Masters’:     first, by

calculating the difference between his estimated values of the

partnership’s property before and after the OTC taking, and then
                              - 47 -

subtracting from the difference his estimated value of the land

taken.

     Using the values of the partnership’s land as determined by

Mr. Masters, we determine that the partnership suffered

approximately $934,408 in damages as a result of the taking.    The

amount of damage the partnership suffered is from the

reclassification of 4.9077 acres of commercial property and loss

in value of the commercial property without frontage.

     After the taking, approximately 4.9077 acres of commercial

property with frontage were reclassified to commercial property

without frontage, and this resulted in a $120,000 decrease in

value per acre for these acres.   We find this reclassification

was appropriate and resulted in approximately $588,924 of damage.

     Additionally, after the taking, the value of the

partnership’s commercial property without frontage decreased

$9,600 per acre.   The partnership started with 38.3941 acres of

commercial property without frontage, the OTC took 7.3139 acres,

and 4.9077 acres were added as a result of their reclassification

as commercial property without frontage; the partnership was left

with 35.9879 acres of commercial property without frontage after

the taking.   Accordingly, the decrease in value of these 35.9879

acres resulted in damages of $345,484.   The sum of these two

sources of damages is $934,408, and we determine the partnership

suffered damage as a result of the taking in that amount.
                                 - 48 -

            8.    Reconciliation of Amounts

      We accept Mr. Masters’ determinations of the per-acre fair

market values of the partnership’s property before and after the

taking.    The OTC took 7.3139 acres of commercial property without

frontage worth $77,000 per acre, 5.0796 acres of residential

property worth $21,300 per acre, and timber and temporary

easements worth $17,553.     The value of the taken acres, timber,

and easements is approximately $688,918.      When added to the

damage of $934,408, we determine the value of the property taken

by the OTC to be $1,623,326; the value taken exceeded the

$950,000 of compensation paid to the partnership by $673,326.45

II.   Charitable Intent of the Partnership

      As used in section 170(a), the term “charitable

contribution” is synonymous with the word “gift”.      DeJong v.

Commissioner, 36 T.C. 896, 899 (1961), affd. 309 F.2d 373 (9th

Cir. 1962).      A gift is generally defined as a voluntary transfer

of property by the owner to another without consideration.         Id.

A gift is the expression of a detached and disinterested

generosity.      Commissioner v. LoBue, 351 U.S. 243, 246 (1956).    It

is motivated by affection, respect, admiration, charity, or like

impulses.    Robertson v. United States, 343 U.S. 711, 714 (1952).




      45
        We note this amount is higher than the amount the
partnership claimed for a charitable contribution deduction.
                              - 49 -

It is not compelled by the constraining force of any moral or

legal duty.   Bogardus v. Commissioner, 302 U.S. 34, 41 (1937).

     We heard three witnesses testify as to the charitable intent

of the partnership in negotiating the transfer of the property to

the OTC.   Steven Luca testified on behalf of the partnership, and

Joseph DiSantis and Noel Tsevodos testified on behalf of

respondent.   At the time of trial, Ms. Tsevodos was the general

counsel of the OTC.

     As a trier of fact it is our duty to listen to the

testimony, observe the demeanor of the witnesses, weigh the

evidence, and determine what we believe.    See Christensen v.

Commissioner, 786 F.2d 1382, 1383-1384 (9th Cir. 1986), affg. in

part and remanding on another issue T.C. Memo. 1984-197; Nell v.

Commissioner, T.C. Memo. 1986-246.     At trial we had the

opportunity to evaluate Mr. Luca’s, Mr. DiSantis’, and Ms.

Tsevodos’ veracity and to observe their demeanor.     We found Mr.

Luca to be a credible witness.   His testimony was straightforward

and consistent with other evidence.    Mr. Luca credibly testified

that it was the intention of the partnership to make a part gift

and part sale, and the reason the partnership suggested an

appropriation action was to ensure that the full fair market

value of the property was recognized in the combination of the

gift and sale.   We have given great weight to his testimony in
                              - 50 -

determining that the partnership transferred the property with

donative intent.

     We did not find Mr. DiSantis and Ms. Tsevdos to be credible

witnesses.   Mr. DiSantis was evasive in his responses.   Ms.

Tsevdos was argumentative in her responses.   Neither was able to

credibly explain why the OTC did not offer to pay the partnership

fair market value for the property when it was required to do so

to engage in good faith negotiations.   Further, neither was able

to credibly explain why the OTC did not deposit the fair market

value of the property as required by State law.   We give little

weight to their testimony that the partnership lacked donative

intent in transferring the property.

     The testimony of Mr. Luca and the partnership’s

correspondence in negotiating the transfer of the property to the

OTC persuades us that the partnership made a gift to the OTC.

The written correspondence between the partnership and the OTC

demonstrates the partnership’s commitment to supporting the OTC

in its pursuits as a government entity and illustrates a pattern

of offering a portion of the property as a gift to the OTC.     On

July 17, 2002, the partnership informed the OTC orally and in

writing that the partnership was interested in a part-gift part-

sale transfer of the property to the OTC.   Again, on July 22,

2002, the partnership reminded the OTC about its offer to

transfer the property in a part-gift part-sale transaction, and
                               - 51 -

on July 25 and August 28, 2001, the partnership reminded the OTC

that it supported the OTC’s activities.

     Although respondent asserts the filing of the quick take

action negates donative intent on the part of the partnership,

the circumstances of the partnership’s negotiations with the OTC

do not support respondent’s assertion.     We find the OTC failed to

negotiate in good faith when it did not offer to pay the

partnership full fair market value.     We find the partnership

suggested the OTC file a quick take action as a last attempt to

prompt good-faith negotiations on the part of the OTC and to have

the full fair market value of the property recognized in a part-

gift part-sale transaction.    This intention, i.e., to have the

full fair market value recognized by the OTC, does not negate the

donative intent of the partnership because the partnership always

intended a part-gift part-sale transaction.

     The OTC failed to acknowledge the fair market value of the

property to the partnership and prompted years of protracted

negotiations not conducted in good faith by the OTC.     After the

OTC had orally offered to pay the partnership $200,000 for the

property in 1999, in 2001 the OTC sent the partnership an offer

of $93,800 for the property.    After part of the property was

rezoned commercial, the OTC did not disclose the new appraisal or

increase the amount it was offering to pay the partnership.

After the OTC received an appraisal report valuing the property
                               - 52 -

at $600,000, the OTC did not increase the amount it was offering

to pay the partnership.   The OTC never offered to pay the

partnership an amount different from $93,800 until the

partnership was forced to hire counsel and the partnership’s

counsel discovered the appraisal report, which determined the

property to be worth $600,000, and brought it to the attention of

the Court of Common Pleas in Lorain County.

     The correspondence between the partnership and the OTC

illustrates the frustration the partnership experienced in

attempting to negotiate the terms for transferring the property

to the OTC.    The partnership made clear that it wanted to make a

gift to the OTC of some portion of the land.    An acknowledgment

by the OTC of a higher fair market value would not necessarily

have resulted in the OTC’s being forced to pay the partnership

more because some part of the property would be tendered as a

gift.   However, the OTC would not acknowledge the property had a

fair market value other than $93,800 throughout negotiations and

in spite of rezoning and an appraisal report which reported

otherwise.    Mr. Luca’s testimony set forth the frustrating

pattern of unfair negotiations by the OTC.    We find the

partnership suggested the OTC file an appropriation action merely

to have a neutral party determine the fair market value of the

property.    The partnership intended to donate a portion of the
                               - 53 -

property to the OTC throughout the appropriation proceedings and

did donate a portion of the property to the OTC.

       Furthermore, the settlement agreement entered into by the

OTC and the partnership includes a provision which recognizes

that the partnership made a donation of a portion of the property

to the OTC.    The language is indicative of the partnership’s

donative intent and a gift.    It is consistent with the

partnership’s pattern of correspondence expressing its intention

to donate part of the property to the OTC.     Accordingly, we find

the partnership made a gift of $641,000 worth of property to the

OTC in a part-gift part-sale transfer.

III.    Substantiation Requirements

       Section 1.170A-13(c)(2), Income Tax Regs., requires

additional substantiation for charitable contributions of

property worth more than $5,000.      Specifically, section 1.170A-

13(c)(2)(i), Income Tax Regs., requires a donor to:     (1) Obtain a

“qualified appraisal” for the property contributed; (2) attach a

fully completed appraisal summary to the tax return on which the

deduction for the contribution is first claimed by the donor, and

(3) maintain records containing the information required by

paragraph (b)(2)(ii) of this section (relating to content of

records).

       Section 1.170A-13(c)(3)(i)(A), Income Tax Regs., requires a

“qualified appraisal” to be made not earlier than 60 days before
                              - 54 -

the date of contribution of the appraised property nor later than

the due date of the return on which a deduction is first claimed

under section 170.   As relevant here, section 1.170A-

13(c)(3)(ii), Income Tax Regs., requires a “qualified appraisal”

to include the date of contribution to the donee, a statement

that the appraisal was prepared for income tax purposes, and the

fair market value of the appraised property on the date of the

contribution, among other information.     Sec. 1.170A-13(c)(3)(C),

(G), (I), Income Tax Regs.   Respondent asserts the partnership

has failed to substantiate its claimed charitable contribution

deduction with a “qualified appraisal” because the appraisals it

submitted are untimely and lacking required information.

     We have previously allowed deductions for charitable

contributions where taxpayers have substantially complied with

the substantiation requirements of section 1.170A-13(c)(2) and

(3), Income Tax Regs.   See Bond v. Commissioner, 100 T.C. 32

(1993); Simmons v. Commissioner, T.C. Memo. 2009-208.     In Bond

this Court considered whether certain requirements of the above-

referenced regulations were mandatory or directory and whether

the taxpayer had substantially complied so as to be entitled to a

charitable contribution deduction.     In reaching the conclusion

that the requirements were directory, the Court expressed the

following rationale:

     Under the above test we must examine section 170 to
     determine whether the requirements of the regulations are
                              - 55 -

     mandatory or directory with respect to its statutory
     purpose. At the outset, it is apparent that the essence of
     section 170 is to allow certain taxpayers a charitable
     deduction for contributions made to certain organizations.
     It is equally apparent that the reporting requirements of
     section 1.170A-13, Income Tax Regs., are helpful to
     respondent in the processing and auditing of returns on
     which charitable deductions are claimed. However, the
     reporting requirements do not relate to the substance or the
     essence of whether or not a charitable contribution was
     actually made. We conclude, therefore, that the reporting
     requirements are directory and not mandatory. See Taylor v.
     Commissioner, * * * [67 T.C. 1071,] 1078-1079 [(1977)].
     [Bond v. Commissioner, supra at 41.]

Bond involved the contribution of two blimps to a qualified

charity.   The parties agreed upon the value, the fact that the

appraiser was qualified, and all other regulatory requirements

except whether the taxpayers’ failure to obtain and attach to

their return a separate written appraisal containing the

information specified in the regulations would result in the

disallowance of a charitable contribution deduction.    The Court

noted that substantially all of the information specified in the

regulations had been provided, except the qualifications of the

appraiser, on the Form 8283 attached to the return.    The Court

concluded that the taxpayers in Bond had substantially complied

with the regulations and that disallowance of the deduction under

those circumstances would be too harsh a sanction.

     Subsequently, in Hewitt v. Commissioner, 109 T.C. 258

(1997), affd. without published opinion 166 F.3d 332 (4th Cir.

1998), the Court again considered these regulations in a

situation where taxpayers donated to a charitable organization
                              - 56 -

their shares of stock of a corporation that was not publicly

traded.   They claimed deductions in amounts that the parties

agreed represented the fair market value of the stock.     However,

the taxpayers did not obtain appraisals before filing their

returns for the years at issue.   The values reported or

deductions claimed were not based upon qualified appraisals;

instead, they were based upon average per-share prices of the

stock traded in arm’s-length transactions at approximately the

same time as the gifts.   Even though the values were undisputed,

the Court found that the taxpayers had not complied with section

170 and section 1.170A-13, Income Tax Regs., and that they were

not entitled to deduct any amount in excess of the amount allowed

by the Commissioner, which was their basis.

     In Hewitt the Commissioner disallowed the value of the stock

in excess of basis because of the lack of qualified appraisals.

The Commissioner agreed that the taxpayers made charitable

contributions, that the donee was charitable, and that the

claimed values represented fair market values of the

contributions.   However, unlike the taxpayers in Bond, the

taxpayers in Hewitt did not provide information on the Form 8283

that satisfied most of the requirements of the regulation.    In

holding that the taxpayers were not entitled to a deduction in

excess of their basis (for the full fair market value), the Court

provided the following rationale:
                                - 57 -

     Petitioners herein furnished practically none of the
     information required by either the statute or the
     regulations. Given the statutory language and the thrust of
     the concerns about the need of respondent to be provided
     with appropriate information in order to alert respondent to
     potential overvaluations, * * * petitioners simply do not
     fall within the permissible boundaries of Bond v.
     Commissioner, supra, where an appraisal summary, which was
     completed by a qualified appraiser, contained most of the
     required information and could therefore be treated as a
     written appraisal, was attached to the return. Cf.
     D’Arcangelo v. Commissioner, T.C. Memo. 1994-572 (respondent
     prevailed where no qualified appraisal was obtained).
     [Hewitt v. Commissioner, supra at 264.]

     Taken together, Bond and Hewitt “provide a standard by which

we can consider whether petitioners provided sufficient

information to permit respondent to evaluate their reported

contributions, as intended by Congress.”    Smith v. Commissioner,

T.C. Memo. 2007-368.

     Respondent asserts the partnership’s July 21, 2001,

appraisal report from Mr. Masters is untimely (obtained more than

60 days before the December 17, 2003, date of contribution) and

lacking some of the information required by the regulations (the

date the partnership contributed the property to the OTC, a

statement that the appraisal was prepared for income tax

purposes, and the fair market value of the appraised property as

of the date of contribution).    Respondent asserts the partnership

is not entitled to a charitable contribution deduction because of

these substantiation flaws and that it has not substantially

complied with the regulations.    We conclude the partnership has

substantially complied with the regulations and is entitled to a
                                - 58 -

$641,000 charitable contribution deduction for the property

transferred to the OTC.

     Similar to the taxpayer in Bond, the partnership timely

provided respondent with nearly all of the information required

in the regulations.   Respondent was provided with the date of the

contribution and the fair market value of the property on the

date of contribution on the partnership’s completed Form 8283.

The appraisal did lack a statement that it was prepared

specifically for income tax purposes; however, we find this

omission to be insubstantial.    See also Simmons v. Commissioner,

supra (finding substantial compliance with section 170 income tax

regulations) (“Although the appraisals did not contain an

explicit statement that they were prepared for income tax

purposes, the appraisals did contain statements that the owner of

the parcels petitioner was contemplating donating conservation

easements to L’Enfant.”).

     It is clear that the partnership did obtain an appraisal

report before filing its tax return and claimed a charitable

contribution deduction based on the fair market value in the

appraisal report.   Cf. Bond v. Commissioner, 100 T.C. at 42

(“Therefore, this is not a case where petitioners failed to

obtain a timely appraisal of the donated property and thereby

failed to establish its value for claiming a contribution

deduction on their return.”); Smith v. Commissioner, supra (where
                              - 59 -

an appraisal report submitted by the taxpayers was completed

after the due date for filing the taxpayers’ 2000 returns).

Accordingly, we conclude the premature nature, by approximately 3

months, of the partnership’s appraisal report was insubstantial.

      The information provided to respondent was sufficient to

permit respondent to evaluate the partnership’s reported

contribution and monitor and address concerns about overvaluation

and other aspects of the reported charitable contribution.

Accordingly, the partnership has substantially complied with the

regulations.

IV.   Apportionment of the Property’s Adjusted Basis

      Section 1011(b) provides:   “If a deduction is allowable

under section 170 (relating to charitable contributions) by

reason of a sale, then the adjusted basis for determining the

gain from such sale shall be that portion of the adjusted basis

which bears the same ratio to the adjusted basis as the amount

realized bears to the fair market value of the property.”

      The partnership subtracted the full adjusted basis

($246,648) of the property from the amount received ($950,000)

and reported a $703,352 gain from the bargain sale.    Because

section 170 applies to this transaction, section 1011(b) does not

allow the partnership to subtract the full adjusted basis of the

property.   Instead, the partnership may deduct only the amount of

the adjusted basis proportional to the amount realized in the
                              - 60 -

part sale over the fair market value of the entire property.

Accordingly, the partnership may subtract only an adjusted basis

of $147,27646 from the amount realized ($950,000), and the

partnership must recognize an additional gain of $99,372.47

V.   Conclusion

      We have found the partnership had donative intent when it

transferred the property to the OTC, and it substantially

complied with the substantiation requirements of section 1.170A-

13, Income Tax Regs.   The partnership is entitled to a $641,000

charitable contribution deduction, the amount it claimed.     We

also find that the partnership must make a pro rata apportionment

of the adjusted basis of the property to the sale portion of the

transaction.

      To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.




      46
        Amount realized on sale portion of bargain sale
($950,000) over total fair market value of property ($1,591,000)
times total adjusted basis of $246,648.
      47
        New gain (amount realized, $950,000, less proportionate
adjusted basis, $147,276) less old gain ($703,352).
