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October 23, 1964

Herbert G. KNOELL and Dorothy K. James, Executors of the Estate of Amelia Knoell, deceased, Plaintiffs,
The UNITED STATES of America, Defendant

The opinion of the court was delivered by: WILLSON

This action for the recovery of an alleged overpayment of federal estate taxes arising out of the payment under protest of deficiency in federal estate taxes assessed by the Internal Revenue Service came on for trial non-jury. Plaintiffs are the executors of the estate of Amelia Knoell, who died testate on August 12, 1960, a resident of Penn Hills Township, Allegheny County, Pennsylvania. A federal estate tax return was filed with the District Director of Internal Revenue, Pittsburgh, Pennsylvania, on November 9, 1961. Included in the assets of the decedent's estate was a parcel of realty of approximately 4.538 acres situate on the northeast corner of Verona Road and Frankstown Road in the Borough of Penn Hills, Allegheny County, Pennsylvania. Plaintiffs elected to return all property as of its value at the date of death, and the property in dispute was valued by the executors and returned for estate tax purposes at $ 42,300.00. The tax on the estate as determined by the executors in the sum of $ 1,999.63 was paid.

On audit the valuation of the property was increased to $ 130,000.00. A deficiency in the sum of $ 18,952.29 plus interest of $ 1,379.62 for a total of $ 20,331.91 was assessed on February 1, 1963, by the Director. On February 11, 1963, the plaintiffs under protest paid the additional estate tax assessed as a result of this appraisal increase. A claim for refund was filed on May 22, 1963, and a statutory notice of disallowance was sent by certified mail on December 6, 1963. In the complaint the plaintiffs as executors demand judgment against the Government in the sum of $ 20,331.91, being the amount of federal tax overpaid with interest thereon from February 11, 1963, together with costs of suit.

 The complaint also alleges that the adjusted value of certain stock was increased by the Director of Internal Revenue. However, the parties have entered into a stipulation that the shares of Wellington Fund should be valued at $ 14.09 per share, and that Dividend Shares, Inc., should be valued at $ 2.98 per share as of the date of death. This leaves only the value of the Penn Hills property at the time of death, August 12, 1960, in dispute.

 As of the date of Amelia Knoell's death, the property was zoned partially for residential use and partially for commercial use. The entire frontage along Frankstown Road was zoned for commercial use. The frontage along Verona Road was zoned for commercial use for a depth of about 200 feet from the center line of the old road. The remainder of the frontage along Verona Road, about 570 feet, was zoned for residential use. The frontage along Frankstown Road, which was zoned for commercial use, was elevated above the rest of the land. On October 16, 1962, taxpayer sold approximately 3.55 acres of the property to the Verona Road Corporation for $ 100,000.00. On May 15, 1963, the remainder of the property was sold to the Sun Oil Corporation for $ 40,000.00.

 The statute and regulations involved in the instant controversy are part of the Internal Revenue Code of 1954, as follows:


 '(a) General. -- The value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States.'

 (26 U.S.C.1958 ed., § 2031.)

 Treasury Regulations on Estate Tax (1954 Code):

 'SEC. 20.2031-1 Definition of gross estate; valuation of property.

 '(b) Valuation of property in general. (In part). The value of every item of property includible in a decedent's gross estate under sections 2031 through 2044 is its fair market value at the time of the decedent's death. * * * The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts * * *.' (26 C.F.R., Sec. 20.2031-1).

 Plaintiffs in establishing the fair market value of the property at the time of the decedent's death, that is, on August 12, 1960, offered the testimony of Herbert G. Knoell, one of the executors, and two real estate brokers of the Pittsburgh area. One, Leonard P. Kane, testified for the taxpayer and gave his opinion that the property had a value of $ 42,300.00 as of the date of Mrs. Knoell's death. This, of course, is the same value as was included in the return. Undoubtedly as the record will show, Mr. Kane is a real estate broker of vast experience in the City of Pittsburgh, Allegheny County, Pennsylvania, in this district. He is fully qualified and has testified in this Court on many occasions.

 The contention of the Government with respect to his testimony is that Mr. Kane gave no consideration whatsoever to the possibility of the property being entirely zoned for commercial use. Also, Government counsel says that the witness considered that the frontage along Frankstown Road is not suitable for commercial development even though it was zoned for commercial use because of the fact that the frontage was elevated above the rest of the lot. According to the Government, Mr. Kane's opinion as to commercial use was restricted to the property along Verona Road.

 Plaintiffs then called a real estate broker, Mr. N. Theodore Flocos, who maintains his office in Penn Hills Township and near the property in question. He had a somewhat different viewpoint as to the commercial possibilities of that part of the property along Frankstown Road. He gave the property a fair market value of $ 51,200.00 as of the date of Mrs. Knoell's death. The Government's contention with respect to his testimony was that although he felt that the highest and best use of the property was as ...

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