competent evidence the Tax Board will recognize the full value of leaseholds, even when the Commissioner does not.

In Roth Hotel Co.'s Appeal [1 B. T. A. 1111 (A)] the taxpayer claimed a value of $200,000 for a leasehold. The Commissioner disallowed it. The Board overruled the Commissioner and said:

DECISION. The Commissioner offered no evidence and all of the facts are uncontroverted. The depositions of numerous witnesses, all reputable citizens of St. Paul and qualified by experience and knowledge, were taken, and all placed on said lease at the time of the exchange a valuation of $200,000 which value we believe to be correct. In some instances these witnesses went into detail as to their reasons for such valuation, and such detail indicated their valuation to be based on sound business judgment. The taxpayer having acquired the lease of the value of $200,000 in exchange for stock, it is entitled to include it in its invested capital at such value.

In Jewelers Building Co.'s Appeal [2 B. T. A. 540 (A)] the Commissioner also disallowed all value for a lease. The Board overruled the Commissioner and based the value upon the probable net rentals after 1913, although in 1913 the property was operated at a loss.

In Riggs' Appeal [2 B. T. A. 668 (A)] the taxpayer claimed that the value of a leasehold on March 1, 1913, was $178,500 and that the value should be prorated over 13 10/12 years. The Commissioner allowed a value of $50,000 and allowed a deduction of 10 per cent per annum. The Board overruled the Commissioner and allowed the taxpayer's contention.

A U. S. District Court has allowed a deduction for depreciation. (under the 1918 law) of appreciation in March 1, 1913 value. [Henrici Co. v. Reinecke, 3 F. (2d) 34.] The court said:

DECISION. In the same sense a lease, which had a definite market value on March 1, 1913, the date prescribed in the Income Tax Law for fixing value of property theretofore acquired, is not less a proper subject for deduction for exhaustion occasioned wholly by the flight of time. It is "property"; intangible, it is true, but property none the less. The lease was not of such duration, and its conditions were not such as to make the lessees its practical owners, but absolutely expiring within a comparatively brief period of time. Plaintiff's capital or property value was and is necessarily exhausted from year to year, until at the end of the term it will inevitably wholly disappear. That the leasehold was used in the trade or business is very evident. . . . Unless the plaintiff shall have had the right of deduction from year to year of this, its capital so exhausted in the business, it will not only have consumed in its business this capital sum, but will have been obliged to pay an income tax upon it-a result which I believe the law did not intend and does not require. If plaintiff had owned the property, it would still have it from year to

year, and there would be no exhaustion. If on March 1, 1913, plaintiff had paid the conceded then market value of $370,000 for this lease, the specific provisions of Treasury Decision 3414 would permit him to charge. this as additional rent, allocated proportionately for the term of the lease. If in some other manner plaintiff had at that time secured the right to use the premises rent free for the same term, the right would have been worth very much more, and this value would be a capital asset of plaintiff. Its gross income would not be reducible by rent, because it paid none; but should it not be reduced by the annual exhaustion or disappearance of the capital value of the leasehold through the maturing of the right of free occupancy?

Just as surely as time passes, the admitted $370,000 market value of this lease on March 1, 1913, will be wholly exhausted on April 30, 1928.

In Meinhard's Appeal (3 B. T. A. 612) the taxpayer claimed a value of a leasehold on January 8, 1917, to be $480,000. The Commissioner allowed nothing. The Board allowed $270,000. The evidence was clear that the gross rentals were rising but the Board pointed out that no evidence could be submitted that expenses would not rise, and that interest rates were rising. If that fact were a major factor in arriving at values in 1917 a lower trend in other years should correspondingly affect the value.

In Northern Hotel Co.'s Appeal (3 B. T. A. 1099) the taxpayer valued a leasehold at $812,500. The Commissioner allowed nothing. The Board allowed $400,000.

In Newman Co.'s Appeal (4 B. T. A. 390) the taxpayer claimed that the value of a lease was $350,000; the Commissioner allowed nothing; the Board allowed $140,000.

In Capital City Co.'s Appeal (4 B. T. A. 933) the Commissioner valued a leasehold on the basis of expected earnings over the life of the lease, discounted to present worth by the application of the Hoskold formula using rates of 10 per cent and 4 per cent. The Board overruled the Commissioner and found a greater value from the evidence submitted.

Valuation of real estate, including buildings.-In Cook's Appeal (2 B. T. A. 126) the estate valued three buildings at $156,940, the Commissioner (who in estates endeavors to secure high valuations) fixed the value at $210,000, the Board of Assessors at $153,300, and witness for the taxpayer at $157,800. The Board accepted the last valuation.

In Dillon's Appeal (3 B. T. A. 1139) (an estate tax case) the taxpayer valued property at $110,000 and presented the depositions of six real estate men. The Commissioner fixed a value of $125,000

but presented no evidence. The Commissioner was overruled. The taxpayer valued another property at $610,000 and supported the valuation by the same experts. The Commissioner fixed a value of $675,000 and produced a witness who testified that the property was worth $1,000,000. The Commissioner was overruled.

In Thompson's Appeal [2 B. T. A. 661 (A)] taxpayer claimed March 1, 1913 value of real estate of $182,000. The book value was $160,000. The Commissioner allowed $160,000. The taxpayer amended its petition and claimed $240,000. The City of Santa Monica in July, 1913, fixed values in condemnation proceedings equal to $240,000 for the property. One competent witness testified that he had offered in 1913, $200,000 for the property, which was refused and that the fair value was $240,000. Another competent witness. testified that the property was worth $220,000. The Board weighed the "conflicting" evidence and decided that the value was $210,000. The opinion does not explain why more weight was not given to the values fixed in the condemnation proceedings.

In many cases the so-called appraisals of the Commissioner are the results of inquiries of revenue agents who adopted the off-hand opinions or guesses of undisclosed persons. In Firestone's Appeal [2 B. T. A. 309 (A)], the agent ascertained the assessed valuation. of real estate and assumed that it was 75 per cent of real value. Depositions of real estate experts were introduced and were relied upon by the Board in overruling the Commissioner.

In American Express Co.'s Appeal (2 B. T. A. 498) the taxpayer sold property in 1920. A revenue agent based its value at March 1, 1913, on local tax records in Chicago. The taxpayer offered in evidence well-supported appraisals by experts. The Board overruled the Commissioner, adopted the valuation of the taxpayer's witnesses and said:

DECISION. In a situation like the one here under consideration the market value of a piece or parcel of property must be determined on the basis of the opinions and estimates of men qualified by knowledge and experience to testify concerning such value. The record in this appeal detailing the testimony of experienced realtors who have long been engaged in buying, selling, and dealing in lands and buildings in the City of Chicago and in the immediate neighborhood of the taxpayer's property, and who are personally familiar with the particular property in question, and whose business it has been for years to study values of the present and the past, convinces us that the estimate of values placed upon taxpayer's property by the valuation committee of the Chicago Real Estate Board is indicative of, and for the purposes of this appeal must be taken to establish, the true fair market value of the taxpayer's property as of March 1, 1913.

"BACK-TO-STUM PAGE"-REALIZATION

METHOD. This

method,

which is particularly applicable to timber-lands and other natural resources, starts with the finished product, and, by eliminating from the selling price, labor, manufacturing expenses (including depreciation of plant) and freight, arrives at the net proceeds per thousand feet of standing timber. By discounting this amount to the valuation date, the element of profit is excluded and the balance represents the depletable value of the timber. This is a method accepted by the engineers of the Treasury and is often valuable as corroborative of values arrived at by other methods.

Complementary to the method is a determination of whether a reasonable return can be shown on the investment, adjusting both costs and investment to reflect the claimed values.

Valuation of patents.-The valuation of patents as of March 1, 1913, is fully discussed in Chapter 22.

The 1926 law is the first to provide in positive terms for reporting the income from sales of property on the installment plan only as and when collected.1

LAW. Section 212. (d) Under regulations prescribed by the Commissioner with the approval of the Secretary, a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price. . . .

The foregoing applies primarily to sales of personal property by dealers. For sales of personal property by others than dealers where the sale is over $1,000, and for sales of real estate regardless of amount, the following new provision is found.

1

[Former Procedure] See Income Tax Procedure, 1926, page 903; 1920, pages 309-314.