value of $48.50 in lieu of cash or debentures in that amount, when the stock was trading at a lower price on the New York Stock Exchange. This makes it very evident that Old Oliver equated the assigned value of the stock with cash and believed the shares were worth that amount. Finally, on October 28, 1960, Old Oliver's board of directors passed the following resolution acknowledging that the terms of the sale were in accordance with the agreement:

RESOLVED that the directors of the Company deem the sale of assets to The White Motor Company, in accordance with the Agreement dated October 3, 1960, between the Company and The White Motor Company, upon the terms and conditions and for the consideration stated in said Agreement, to be expedient and for the best interests of the Company. [Emphasis supplied.]

In some situations where stock is exchanged for property pursuant to an arm's-length agreement the courts have appraised the stock by equating its value with the value of the property exchanged therefor. Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184, 189 (Ct. Cl. 1954); Bar L Ranch, Inc. v. Phinney, 426 F. 2d 995, 1000 (C.A. 5, 1970); Moore-McCormack Lines, Inc., 44 T.C. 745, 757 (1965); Amerex Holding Corporation, 37 B.T.A. 1169, 1191 (1938), affd. 117 F. 2d 1009 (C.A. 2, 1941), certiorari denied 314 U.S. 620 (1941). An appraisal of the assets received by White Farm supports the valuation assigned the White stock in the agreement.

The assets acquired by White Motor consisted almost entirely of fixed assets (land, building, machinery, etc.) and inventory. The fixed assets were purchased at generally 80 percent of their book value. Mailman testified that the book value of these assets was low "because some of these buildings are old and well depreciated." In June 1960, Kriser, an experienced appraiser and auctioneer of industrial property, prepared a liquidating appraisal of a portion of the fixed assets subsequently acquired by White Motor under the agreement for approximately $9 million (80 percent of book value). In his report he concluded that assets could be liquidated for $7,750,000. At trial he testified that the fair market value of these assets at that time was over $1011⁄2 million.

Old Oliver's inventory was acquired by White Motor under the agreement for approximately $181⁄2 million (80 percent of its book value). The inventory had a low book value because Old Oliver computed its inventory on the LIFO method of accounting. On October 31, 1960, the inventory sold to White Motor had a book value of $23,777,820, but a replacement value of $31,745,068. Thus, White Motor purchased the inventory at a discount of over $12 million from current manufacturing costs.

It is evident that the fair market value of the assets acquired by White Motor was at least equal to the purchase price set forth in the

agreement and, accordingly, by equating its value to the value of the White stock, strongly supports the value assigned the shares.

In our determination we have rejected the argument of Hess and respondent that the best evidence of the fair market value of the White stock is its mean trading price on the New York Stock Exchange on the closing date, October 31, 1960. It is true that stock market quotations have been held to be the best evidence of value of a traded stock in a number of cases. W. T. Grant Co. v. Duggan, 94 F. 2d 859 (C.A. 2, 1938); Hazeltine Corporation v. Commissioner, 89 F. 2d 513, 518 (C.A. 3, 1937), reversing on another issue 32 B.T.A. 110 (1935); Black Hills Power & Light Co., 14 T.C. 1425 (1950); Estate of Caroline McCulloch Spencer, 5 T.C. 904 (1945); Augustus E. Staley, 41 B.T.A. 752 (1940); Estate of Leonard B. McKitterick, 42 B.T.A. 130 (1940). However, we note that in none of these cases cited by Hess and respondent was there an arm's-length agreement between the parties valuing the stock transferred in the transaction. Further, stock exchange quotations are not the best evidence of value in all cases. Ray Copper Co. v. United States, 268 U.S. 373 (1925); Heiner v. Crosby, 24 F. 2d 191 (C.A. 3, 1928); Moore-McCormack Lines, Inc., 44 T.C. 745, 759 (1965); Stollberg Hardware Co., 46 B.T.A. 788, 795 (1942); cf. Bar L Ranch, Inc. v. Phinney, 426 F. 2d 995 (C.A. 5, 1970). As the Third Circuit stated in Heiner v. Crosby, supra:

Sales made at a particular time and place may be significant, but the price paid is not necessarily decisive of fair market price or value. The fact of sales, in itself and without regard to the circumstances under which the sales were made, does not conclusively establish either statutory fair market price or value. Sales made under peculiar and unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may neither signify a fair market price or value, nor serve as the basis on which to determine the amount of gain derived from the sale. *** [24 F. 2d at 193.]

In Moore-McCormack Lines, Inc. (Mooremac), supra, and its companion case, Seas Shipping Co., Inc., T.C. Memo. 1965-240, this Court refused to apply the trading price of Mooremac shares on the New York Stock Exchange in determining the fair market value of a block of that stock stating:

sales in 100-share lots under ordinary circumstances on a stock exchange may not serve as a reliable yardstick or measure of value in the very extraordinary circumstance of the issuance of 300,000 shares representing over 13 percent of the outstanding stock of a corporation and almost twice as many shares as were traded in the entire year of issuance. See Maytag v. Commissioner, 187 F. 2d 962 (C.A. 10, 1951), affirming a Memorandum Opinion of this Court; accord, Safe

See Matate of W. E. Telling, a Memorandum Opinion of this Court dated June 28, 1944, where the Court held that negotiations for the sale of stock at a price in excess of the stock's trading price on the Cleveland Exchange controlled the fair market value of the stock for estate tax purposes.

Deposit & Trust Co. of Baltimore, 35 B.T.A. 259 (1937), affd. 95 F. 2d 806, 812 (C.A. 4, 1938); James Couzens, 11 B.T.A. 1040, 1161 (1928). [44 T.C. at 759.] For similar reasons, we have declined to value the White stock on the basis of its trading price. The 655,000 block of White stock was far in excess of the 444,000 shares traded on the New York Stock Exchange during all of 1960. Only 3,300 shares of White shares were traded on the date of sale, October 31, 1960. The trading price on that date of about $36 was the lowest price at which that stock traded in 1960 and 1961. With the exception of the last 4 months in 1960, the stock traded near or above $48.50 per share, the value assigned in the agreement, during those 2 years. In view of these circumstances, we believe that the value assigned the White stock in the agreement and negotiated by the parties at arm's length constitutes a much more reliable measure of the value of those shares.

We have also rejected the appraisals of the White stock by the expert witnesses of Hess and respondent. Their appraisals were essentially a determination of what a block of 655,000 shares of White stock would have sold for on the date of sale, October 31, 1960. Their valuations were made on the basis of simulated secondary distributions, in which the October 31, 1960, New York Stock Exchange trading price was discounted to account for the large number of shares in the block. We are of the opinion that a valuation based on a reasonable period of time rather than 1 day would have been more meaningful. Richardson v. Commissioner, 151 F. 2d 102 (C.A. 2, 1945), affirming a Memorandum Opinion of this Court, certiorari denied 326 U.S. 796 (1946); cf. Estate of Gordon A. Stouffer, 30 T.C. 1244, 1250 (1958). As the Second Circuit stated in Richardson (151 F.2d at 103):

in cases in which evidence as to actual sale prices is the dominant or even the exclusive factor relied upon in making a valuation, nothing in the law or common sense requires the trier to attempt to ascertain what the property in question would have fetched at a sale through a sales effort begun and ended on the critical date. Surely the fair market value of, say, a residence is not measured by the price which the owner could have obtained for it on the very day upon which he first decided to sell. Rather, the measure there, as in the case here, is what "a skillful broker could within a reasonable period have realized." [Emphasis supplied.]

We also question the applicability of a simulated secondary distribution to the instant transaction. Under the terms of the agreement, Old Oliver would have been unable to dispose of the stock on the date of sale, but rather would attempt to distribute the shares to its shareholders at a future date. We therefore find little analogy between the situation in which a large block of shares is made available for purchase by undetermined investors, with its resultant depressing effect on the market price, and the situation in the instant case in which one

willing buyer purchases the entire block of shares in a single nego

tiated transaction.

Because of concessions,

Decisions will be entered under Rule 50.

GORDON J. HARMSTON AND ALICE C. HARMSTON, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 8374-71. Filed November 14, 1973.

T, as buyer, entered into two contracts for the purchase of two orange groves. The groves were newly planted, and required 4 years of maintenance and care in order to become mature or established. The contract price was $4,500 an acre, payable at the rate of $1,125 per acre per year over a 4-year period. During the 4-year period the seller remained in possession and assumed full responsibility in the contracts to provide maintenance and care. The seller also retained legal title, paid the real estate taxes, and in general retained most of the burdens and benefits of ownership. Held, the payments made by T under the contracts represented his nondeductible cost of the established groves, no part of which may properly be allocated to deductible expenses for maintenance and care of the groves. William P. Irwin and George F. Belyea, for the petitioners. Joyce E. Britt and James Booher, for the respondent.

The Commissioner determined deficiencies in petitioners' income tax in the amounts of $11,530.44, $23,501, and $16,040 for the calendar years 1967, 1968, and 1969, respectively. Petitioner acquired two orange groves, paying $4,500 per acre in respect of each of them over a period of approximately 4 years each. The principal question is whether portions of such amounts may be allocated to services for "management and care" of the groves performed by the seller and thus treated as deductible from gross income under section 162, I.R.C. 1954, and section 1.162-12 (a), Income Tax Regs., or whether the entire amounts paid by petitioner (at $4,500 per acre) represent simply his nondeductible capital investment in the groves. If the foregoing question should be decided in petitioner's favor, a further question presented is whether the particular allocation claimed by him was incorrect, thus requiring a different allocation of the amounts involved.

FINDINGS OF FACT

The parties have filed a stipulation of facts which, together with accompanying exhibits, is incorporated herein by this reference.

Gordon J. and Alice C. Harmston are husband and wife. They filed joint Federal income tax returns with the district director of internal revenue at San Francisco, Calif., for 1967, and with the Internal

Revenue Service Center for the western region, at Ogden, Utah, for 1968 and 1969. At the time their petition herein was filed they resided in Fresno, Calif.

Gordon J. Harmston (petitioner) is a physician specializing in radiology. He has been practicing medicine in Fresno, Calif., since sometime prior to 1967. During the period 1961 through 1965 Dr. Harmston purchased various "farm" properties. These purchases are reflected in the following table:

The 3 acres in Fresno and the 60 acres in Clovis, Calif., were owned by Dr. Harmston alone; the other properties were owned by him in conjunction with others. In addition, Dr. Harmston was a partner in a 28,000-acre cattle ranch located in Mendocino County, Calif. Some alfalfa was raised on this property, and it had a hunting lodge which was sometimes used as a dude ranch. On their Federal income tax returns for 1967, 1968, and 1969 petitioners reported income and claimed deductions for real estate taxes paid with respect to certain of these properties 2 in various amounts, as is indicated in the following table:

Sometime in 1964 or 1965 petitioner became interested in citrus "farming." After some preliminary discussions in May 1967, with William P. Irwin, president of Jon-Win Farms (Jon-Win), a Cali

1 This property is "leased out" by Dr. Harmston.

'It is not clear from the record whether certain other amounts claimed as deductions for real estate taxes paid in 1967, 1968, and 1969 might relate in whole or in part to the 3 acres in Fresno or the 70 acres in Clovis, Calif.

A grazing fee of $112 and a real estate tax of $164 were reported in petitioners' 1968 return and described as relating to "Sierra High" which was not otherwise identified and may conceivably have been intended to refer to the Auberry Property.

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