Miami Valley Broadcasting Corporation, Appellant, v. Commissioner of Internal Revenue, Appellee, 661 F.2d 582 (6th Cir. 1981)

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US Court of Appeals for the Sixth Circuit - 661 F.2d 582 (6th Cir. 1981) Oct. 14, 1981

Bernard J. Long, Jr., Leslie J. Wiesenfelder, John H. Pomeroy, Dow, Lohnes & Albertson, Washington, D. C., for appellant.

M. Carr Ferguson and Gilbert Andrews, Michael L. Paup, Richard W. Perkins, Michael J. Roach, Tax Division, U.S. Dept. of Justice, Appellate Division, Washington, D. C., N. Jerold Cohen, Chief Counsel, Internal Revenue Service, Washington, D. C., for appellee.

Before LIVELY and MERRITT, Circuit Judges, and CECIL, Senior Circuit Judge.


Upon review and consideration of this second appeal from a decision of the Tax Court, 39 T.C.M. (CCH) 760 (1979), after a previous opinion reversing and remanding the case, 594 F.2d 556 (6th Cir. 1979), we again reverse and remand the case to the Tax Court with instructions that the Tax Court conclude the matter by determining the value of the leasehold interest in question using a discount rate of 11%.

We judicially notice that the prevailing interest rate at the time the present value of the leasehold interest in question is to be determined for tax purposes (1964) was approximately 6%. To this figure we add an additional 5% to reflect the hazards of the investment described by the Tax Court. The total discount rate to be used is therefore 11%.

The difference in the actual rent to be paid and the fair market rental is $957,667. The Tax Court used a discount rate of 17%, but that rate is in error because it does not take into account the fact that the prevailing rate of interest in 1964 was approximately 6%. The Tax Court does not itemize and quantify its discount figures with precision, but it appears that it used an interest rate figure of approximately 121/2% plus 5% for investment hazards. The record and the Tax Court's reasoning will not support a total discount rate above 11%. Logic and fairness require that we begin the discount rate computation with a figure representing the approximate interest rate in 1964. That figure is approximately 6%. There is nothing in the record or the Tax Court's reasoning that would justify adding more than 5% as a further discount for the elements of investment risk.

Accordingly, the case is remanded to the Tax Court with instructions to determine that present value of the 14 year leasehold interest in question by using a discount rate of 11%.