Cullers v. Commissioner of Internal Revenue

• Decision Date: 18 October 1956
• Docket Number: 15502.,No. 15501,15501
• Citation: 237 F.2d 611
• Parties: Frances M. CULLERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. C. H. CULLERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

237 F.2d 611 (1956)

Frances M. CULLERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

C. H. CULLERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 15501, 15502.

United States Court of Appeals Eighth Circuit.

October 18, 1956.

Jess W. Van Ert, Kansas City, Mo. (John E. Park, Albert F. Hillix, and Gage, Hillix, Moore & Park, Kansas City, Mo., on the brief), for petitioners.

Kenneth E. Levin, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., and Robert N. Anderson and Hilbert P. Zarky, Attys., Dept. of Justice, Washington, D. C., on the brief), for respondent.

Before WOODROUGH, VOGEL and VAN OOSTERHOUT, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

C. H. Cullers and Frances M. Cullers, husband and wife, hereinafter called taxpayers, have petitioned this court to review separate decisions of the Tax Court determining deficiencies in gift tax due from them for the year 1950. This court has jurisdiction. § 7482, Internal Revenue Code of 1954, 26 U.S.C.A.

Taxpayer C. H. Cullers, in 1950, by gift conveyed to his sons a 1500 acre farm near Trenton, Missouri, the gift also including some personal property. The taxpayers consented to have the gift considered as made half by each of them as permitted by section 1000(f) (1) of the Internal Revenue Code of 1939, 26 U.S.C.A. Gift tax returns were filed valuing the gift real estate at $26 per acre, and the tax due as disclosed by the returns was paid. The Commissioner made a gift tax deficiency determination, finding the fair market value of the gift land to be $47.50 per acre. The Tax Court determined the fair market value to be $36 per acre. The principal question that confronts us upon review is whether the decisions of the Tax Court placing a value of $36 per acre upon the gift land are clearly erroneous.

The value of the subject matter of a gift at the date of the gift shall be considered the amount of the gift. § 1005, Internal Revenue Code of 1939. Section 86.19, Treasury Regulations 108, provides in part as follows:

"* * * The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. * * *"

We now look to the evidence to determine whether the valuation placed upon the gift real estate by the Tax Court is supported by substantial evidence.

Before making the gift here involved, the taxpayers sought the advice of their attorney. The attorney suggested that an independent appraisal of the gift property be made. Taxpayers authorized the attorney to arrange for such an appraisal. Three qualified appraisers — Miller, a federal farm loan secretary, who dealt extensively with federal farm loans; Escheinheimer, an agricultural college graduate, a farm manager, farm owner and operator; and Helmendollar, a farm owner, businessman, and land trader — were selected by the attorney to make the appraisal. None of the appraisers were business associates or close personal friends of the taxpayers. All lived in the locality of the gift farm and were familiar with the farm and local economic conditions. The qualifications of the appraisers are not seriously challenged. After thoroughly inspecting the farm, Helmendollar and Escheinheimer appraised the land at $39,000, or approximately $26 per acre, the figure used by the taxpayers in their gift tax returns. Miller's appraisal was $1,000 less. Affidavits of each appraiser are attached to the gift tax returns. Other witnesses produced by taxpayers at the trial spoke highly of the qualifications of the appraisers, and all placed the value of the gift land at $26 per acre or less. With reference to testimony offered by the taxpayers the Tax Court states:

"* * * In support of their valuation, petitioners offered the appraisals made at the time of the gift by the three persons selected by Dr. Cullers¹, and also the testimony, given at the hearing or by deposition, of various persons who were businessmen or farm operators in the area where Dr. Cullers\' farm was located, and who were generally familiar with farm values in the area. The opinions of the witnesses either corroborated those of the appraisers, that the farm land had a fair market value of $26 an acre, or were to the effect that the appraisers\' estimates were too high. * * *"

The Tax Court in its opinion further states:

"On the basis of all of the evidence, we do not think that petitioners have proven the per acre value of $26 they contend for. Yet the testimony of their witnesses has shown that respondent\'s valuation is too high. Considering the description of the farm and its condition as testified to by petitioners\' witnesses, the appraisers\' and witnesses\' opinions as to value, the possibility that existed in 1950 of an assessment against a part of the farm acreage to meet the cost of building a bridge in the drainage district (which would undoubtedly have entered into the amount a buyer would have been willing to pay), and the price bid for the farm adjoining Dr. Cullers\', and all other relevant facts of record we have found the fair market value in 1950 of the farm land given by petitioners to their sons to be $36 an acre."

What evidence is there before us to support the $36 per acre value fixed by the Tax Court? Since the Tax Court has found the taxpayers' evidence has overcome the presumption of correctness of the Commissioner's deficiency determination, the Commissioner can place no reliance upon his deficiency determination. The presumption of correctness is a rebuttable presumption and will support a finding in favor of the Commissioner only in the absence of any substantial evidence to the contrary. When the presumption has been overcome by evidence the presumption vanishes. Wiget v. Becker, 8 Cir., 84 F.2d 706; A & A Tool & Supply Co. v. Commissioner, 10 Cir., 182 F.2d 300; Mertens Law of Federal Income Taxation, Vol. 9, § 50.71.

The only evidence introduced by the Commissioner was some evidence as to the assessed value of the real estate for local tax purposes. The Tax Court attached no importance to this evidence, stating that no correlation between tax value and market value was shown. The court states, "The testimony offered by respondent's witnesses, on the other hand, was of no help in supporting respondent's determinations of value."

The only evidence before us that could in any way tend to support a finding of valuation in excess of $26 an acre is the cross-examination of Overton. This cross-examination is not in the record, but appears in the supplemental record incorporated in the Commissioner's brief. Taxpayers have filed a motion to correct the record and eliminate from the record and the Commissioner's brief all references to Overton's cross-examination. Overton was the owner of a farm adjoining the gift land. His deposition was authorized and taken before trial at the instance of the taxpayers. Taxpayers rested without offering the deposition. The Commissioner attempted to offer Overton's deposition. Counsel for taxpayers objected to the offer unless the Commissioner made Overton the Commissioner's witness. This the Commissioner agreed to do. Taxpayers then objected to the admission of Overton's cross-examination.² We have serious doubt whether Overton's cross-examination is part of the record in these cases. It would appear from the colloquy between counsel, set out in footnote 2, that the court permitted the Commissioner to introduce in evidence Overton's direct examination only. It is noted that Overton was a witness and that no showing, so far as the record discloses, was made by the Commissioner that he had met any of the requirements of Rule 26 (d) (3), Fed.Rules Civ.Proc. 28 U.S.C.A., pertaining to the admission of depositions of witnesses, nor is there any finding by the court that the Commissioner had met any such requirements. Absent a showing entitling the Commissioner to introduce the deposition, there appears to be considerable merit to taxpayers' contention that the admission of the deposition is limited to the direct examination of Overton. This is the extent to which the taxpayers agreed to the reception of the deposition. The court clearly limited the offer of the deposition to direct examination, and the Commissioner agreed to this limitation.

In any event, we have carefully examined Overton's testimony as a whole, including the direct examination and the cross-examination, and it is our opinion that Overton's testimony does not afford substantial evidence to support the court's valuation finding. The Overton testimony appearing in the cross-examination, which is relied upon by the Tax Court, is a bare statement that Overton was offered $49 per acre for his adjoining farm in 1950. Overton testified and the Tax Court concedes that Overton's farm, when he acquired it in 1938, was a substantially better farm than the gift farm. It is likewise undisputed that between 1938 and 1950 Overton expended $30 per acre improving his farm, which improvements without doubt greatly increased the difference in value between the Overton farm and the gift farm. There was also a potential liability for a drainage district assessment against taxpayers' farm for some $15,000, because of a $150,000 suit pending against the drainage district for liability for restoring a bridge. The Tax Court conceded that this litigation had a bearing on the value of the gift land.

It would appear that because of the marked difference in the land here involved and the Overton land, the vast difference in the state of the improvements on the two farms, and the drainage district potential liability upon the gift farm, the purported offer of $49 an acre Overton received for his farm in 1950 would, under the record...