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Estate of William A. Frieders v. Commissioner of Internal Revenue Service

decided: August 30, 1982.


Appeal from the United States Tax Court.

Pell, Circuit Judge, Floyd R. Gibson,*fn* Senior Circuit Judge, and Eschbach, Circuit Judge.

Author: Gibson

GIBSON, Senior Circuit Judge.

This is an appeal of a decision of the Tax Court as to the valuation of real estate for estate tax purposes. I.R.C. ยงยง 2001-2209 (1970). The estate raises two issues on appeal. The first is that the finding as to the value of the property was clearly erroneous because nearby properties which the Tax Court considered in determining the value were not comparable, and other evidence considered by the court was incompetent. The estate's other argument is that the Tax Court abused its discretion in refusing to consider evidence the estate presented to the court after that court had issued its decision.

I. Facts

William Frieders died on May 14, 1973, leaving an estate which included a ninety-two acre family farm. His estate valued the farm at $2,000 per acre. The Commissioner assessed a value of over $5,000 per acre. The estate brought this action in Tax Court, seeking a redetermination. At the trial, the Commissioner took the position that the estate was worth $5,000 per acre.

The following facts were adduced at trial. The Frieders farm is located in DuPage County, Illinois, about thirty miles west of Chicago. The farm is between the city of Aurora, located two and a half miles to the southwest, and the city of Naperville, six miles to the east. There was one road leading to the Frieders farm. The farm has gas, electricity, and telephone service, but did not have sewer and water service. There was discussion of construction of a freeway to be located very near the Frieders farm, but the plans have been virtually abandoned. A shopping center was proposed for a location two miles from the Frieders farm. That shopping center was completed and has over 100 stores. There was investment activity in the area at the time of Frieders' death, including activity by the Crown family of Chicago. The Crowns, acting through trusts, bought properties near the Frieders farm and made offers on others. Shortly after Frieders' death, the Crowns were willing to buy the Frieders farm and two properties owned by other persons for an average of $6,000 per acre as part of an assemblage. The other property owners wanted more than $6,000 and the sale was not consummated.

The Government presented one expert witness, Donald Neuses, who relied primarily on the selling prices of six properties near the Frieders farm. Five of the six properties were bought by the Crowns as part of an assemblage, and the price per acre of the five properties ranged from $5,693 to $7,653. The other property sold for $5,090 per acre. Neuses testified that the Frieders farm was in the middle of a development corridor.

The estate presented three witnesses. The essence of the testimony of two of them was that the activity by the Crowns inflated the prices and made the properties relied on by Neuses not comparable. Another witness testified that the value of farmland throughout Illinois increased by 341 percent between 1973 and 1979.

The Government also attempted to show value by introducing assessment records which placed on the Frieders farm a fair market value for real estate tax purposes of $4,986 per acre for 1972.

The Tax Court found that the fair market value of the Frieders farm was $5,000 per acre. The court relied principally on the testimony and report of the Government's witness, Donald Neuses. The court agreed with Neuses that the highest and best use of the Frieders farm was a speculative, that is, an investment use.

The court filed its Memorandum Findings of Fact and Opinion on May 27, 1980. On December 20, 1980, the Frieders farm was sold for $5,000 per acre. The Tax Court decision was not entered until July 23, 1981, because of the time it took to compute the deficiency pursuant to Tax Ct. R. 155. On October 13, 1981, almost three months after the Tax Court decision was rendered, the estate submitted a motion to vacate or revise the decision based on the evidence of the actual sale price of the Frieders farm. Under Tax Ct. R. 162, such a motion must be filed within thirty days after the decision has been entered, unless the court shall otherwise permit. The court denied leave to file the motion.

II. Analysis

A. The Finding as ...

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