Pancake v. C.I.R., 011751 FEDTAX, 24061

Docket Nº:24061.
Opinion Judge:Leech, Judge:
Attorney:L. E. Woods, Jr., Esq., for the petitioner. John O. Durkan, Esq., for the respondent.
Case Date:January 17, 1951
Court:United States Tax Court

10 T.C.M. (CCH) 46 (1951)

PAUL C. PANCAKE, Petitioner.



No. 24061.

United States Tax Court

January 17, 1951

Fair market value of property purchased by stockholder from corporation held not in excess of purchase price.-

The fair market value as of September 1, 1945 of the real and personal property purchased by petitioner from Pancake Realty Co., in which he was the principal stockholder, was not in excess of the sum of $54,508.08, which petitioner paid therefor.

L. E. Woods, Jr., Esq., for the petitioner.

John O. Durkan, Esq., for the respondent.


Leech, Judge:

This proceeding involves a deficiency in income tax for the calendar year 1945 in the amount of $9,896.08. The respondent has moved to file an amended answer requesting an increased deficiency in the amount of $40,588.77.

The primary issue is the fair market value on September 1, 1945 of the real and personal property located at 915-917 Fifth Avenue, Huntington, West Virginia, purchased by petitioner from Pancake Realty Co.

The case was submitted on a stipulation, oral testimony and exhibits. The facts as stipulated are found accordingly.


Petitioner is an individual residing at Huntington, West Virginia. His individual income tax return for the year 1945 was filed with the collector of internal revenue for the district of West Virginia.

Petitioner is the president and general manager of Pancake Realty Co., a West Virginia corporation, and owns 92 per cent of its capital stock. The corporation is engaged in the real estate, insurance and mortgage loan business in the City of Huntington, West Virginia.

In 1940 Pancake Realty Co. purchased from the Connecticut General Life Insurance Co. the premises located at 915 Fifth Avenue in the City of Huntington, for the sum of $45,000. The premises consist of a lot fronting 45 feet on the south side of Fifth Avenue and extending back to a depth of 200 feet. The dimensions of the building are 45 * 90 feet. It is a three-story, brick, frame, and stucco structure. It has no basement. The first floor consists of one large room with several small utility rooms in the rear. The second and third floors are divided into 12 small efficiency apartments, individually heated with gas stoves. All the apartments are rented furnished. The first floor is occupied by Pancake Realty Co., and the rear portion of the lot is used as a parking lot for the employees of that company.

The property in question is located in a block where there is little commercial activity. The principal types of property in the vicinity, as of September 1, 1945, consisted of churches, public buildings such as the public library, post office, city hall, and buildings occupied by the Veterans Administration, a building occupied by the Huntington Publishing Co., another building occupied by a printing company, a garage, a parking lot and a hotel. The best commercial district of the City of Huntington is on Third Avenue, rated as a 100 per cent location, with the next best location on Fourth Avenue. Fifth Avenue, where the premises in question are located, is rated as a 25 to 30 per cent location.

After Pancake Realty Co. acquired the property in 1940, certain alterations were made converting the first floor for that company's use. Removable partitions were constructed to divide the space into small semi-private offices. These partitions were about eight feet high, the bottom four feet being of solid wood and the top four feet of glass. Counters were constructed and other alterations were made. These changes would be useless except to an occupant engaged in a similar type of business.

As of September 1, 1945 there was very little demand in Huntington, West Virginia, for properties of the type in question. The rents for apartments were frozen under...

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