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Fairfield Plaza v. Commissioner

39 T.C. 706 (1963)

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Fairfield Plaza v. Commissioner

United States Tax Court

39 T.C. 706 (1963)

Facts

In 1955, Fairfield Plaza (plaintiff) purchased a 10-acre parcel of real estate in Huntington, West Virginia, for $110,941.12 with a plan to develop the property into a shopping center. Fairfield Plaza initially planned to build a store on the eastern 30 percent of the property (the eastern tract), which faced 17th Street, and lease it to Big Bear Stores Co. (Big Bear). However, there was trouble with financing, and in 1957 Fairfield Plaza instead sold the eastern tract to Big Bear for $100,000, half of which was placed in escrow pending Fairfield Plaza’s completion of certain improvements. Of the escrow funds, Fairfield Plaza ultimately spent $40,146.32 for paving and lighting on the retained center tract rather than the eastern tract. In 1958, Fairfield Plaza sold the western 30 percent of the land (the western tract), which faced 16th Street, to Paisley and associates for $150,000. The commissioner of internal revenue (defendant) valued the eastern tract and western tract approximately equally in determining their cost bases and found a deficiency in Fairfield Plaza’s income taxes in 1957 and 1958 as a result. At trial in the tax court, there was testimony that the western tract had a greater fair market value than the eastern tract due to its frontage on 16th Street, a main thoroughfare.

Rule of Law

Issue

Holding and Reasoning (Bruce, J.)

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