Oak Woods Cemetery Ass'n v. Commissioner

THE OAK WOODS CEMETERY ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Oak Woods Cemetery Ass'n v. Commissioner Docket Nos. 77321, 80932. United States Board of Tax Appeals 38 B.T.A. 121; 1938 BTA LEXIS 909; July 20, 1938, Promulgated *909 1. The basis of the land is deductible from the amount realized in determining the gain or loss from the sale of burial space in a cemetery. 2. In determining that basis, footage prices, at which comparable space was selling in such cemeteries at the basic date, are material but not conclusive evidence of the fair market value of the remaining space. 3. Such basis is determined here upon that and on other evidence in the record. Mount Hope Cemetery Association,37 B.T.A. 671, followed. Paul E. Shorb, Esq., and John A. Stolp, C.P.A., for the petitioner. W. R. Lansford, Esq., and E. L. Weber, Esq., for the respondent. LEECH *121 These consolidated proceedings are for the redetermination of deficiencies in income tax of $6,045.11 and $5,187.68 for the fiscal years ended February 28, 1931, and February 29, 1932, respectively. The only matters in controversy are (1) the petitioner's basis for determining gain or loss on some of its cemetery land from which burial space was sold during the taxable years, and (2) whether petitioner is entitled to an allowance for interior wastage applicable to the space sold*910 in each of the years. The proceedings were submitted upon a stipulation of facts as well as documentary and oral evidence. FINDINGS OF FACT. The petitioner is an Illinois corporation, with its principal office at 1035 East 67th Street, Chicago, and has a capital stock of $500,000, consisting of 5,000 shares of a par value of $100 each. It was created in 1853, by an act of the General Assembly, to acquire land in Cook County for a cemetery and to sell and convey space suitable for the burial of the dead. All of the property of the association is exempt from taxation. Its charter is perpetual, which has several advantages. Only two other cemeteries in Chicago and Cook County have such charters. In 1867, by amendment to the act creating the petitioner, its board of directors was vested with authority to make rules and regulations for the maintenance of peace and good order about the cemetery and with power to police its grounds. In 1853, the petitioner acquired a tract of land consisting of about 180 acres in southeast Chicago. This land is bounded on the north by 67th Street, on the east by Woodlawn Avenue and the tracks of the Illinois Central Railroad, on the south*911 by 71st Street, and on the *122 west by Cottage Grove Avenue. Two large parks, Washington Park and Jackson Park, are nearby and the City Hall is about eight miles away. On March 1, 1913, there were no factories near the cemetery, but it was near high class residential districts. On that date, the surrounding community was entirely built up and was thickly populated. Nearby was the "Gold Coast" on Michigan Avenue, where the wealthiest families live, which began to decline about that time. It has since become a negro section. There was no vacant land around the cemetery and a similar tract could not have been acquired in the neighborhood. On March 1, 1913, the transportation facilities to the cemetery were excellent. Such facilities consisted of the Illinois Central Railroad, which operated funeral cars directly to the cemetery, street car lines, and elevated and other railroads. The land when acquired by petitioner was low and marshy. During the period between the time of its acquisition and 1866, when the first interment was made, petitioner was preparing it for cemetery uses. The physical condition of the land was about the same on March 1, 1913, as it is now. *912 All of the sections had been laid out and contained sewers, drains, and water systems. None of the sections were unusually low or undesirable. The ground had been graded to make it rolling. All of the roads through the cemetery had been constructed and hard-surfaced. The cemetery had a number of mounds, artificial lakes, oak trees, and shrubbery. With the exception of a few sections it had been completely landscaped. No grading or leveling was required. It was well kept and, on the basic date and since, was an outstanding cemetery on the south side of Chicago. On March 1, 1913, some portions of petitioner's cemetery had been fully subdivided, others had been partly subdivided, and, as to others, subdivision had not been started. All sections, however, were equally accessible and there was no substantial difference between the unsubdivided portions of the cemetery and the subdivided portions. The chief expense required to subdivide the former would have been surveying and the entire cost would not have exceeded 1 cent per square foot. The petitioner had a substantial clientele on March 1, 1913, and many prominent people were buried in its cemetery. By that date mausoleums, *913 monuments, tombstones, and other markers, having the value of about $3,000,000, had been erected in the cemetery. The cemetery served Woodlawn, Hyde Park, South Chicago and other districts farther removed. It was nonsectarian and was not restricted as to nationality or color. At that time it had the reputation as to condition, operation, and clientele of being one of the best cemeteries in that part of the country. On March 1, 1913, there were only 12 other cemeteries within the city limits of Chicago, all of these being located in the north side of *123 Chicago and several miles away from petitioner's cemetery. The majority of them were sectarian - Jewish, Catholic, Lutheran, etc. Petitioner's was the only cemetery on the south side within the city limits. No additional lands were dedicated to cemetery purposes in the city of Chicago on the south side or near petitioner's cemetery subsequent to March 1, 1913. On the basic date Graceland and Rose Hill, located on the north side of Chicago and about 16 miles away, were its principal competitors in the city limits. Mt. Hope Cemetery and Mt. Greenwood Cemetery, located outside the city limits on the south side and about*914 15 miles from the Loop, were the principal competitors from the outside. On March 1, 1913, there were 39 cemeteries in the Chicago area, with approximately 121,000,000 square feet of unsold burial space. From 1914 to 1929, 19 new cemeteries started with a total of 69,000,000 square feet. All cemeteries located in the Chicago area were more or less in competition with the petitioner. Petitioner's cemetery, as of 1853, contained 7,731,434.40 square feet. Of that area, 1,285,742.22 square feet were used for administration and ornamentation purposes on March 1, 1913. Interior wastage, that is space used for paths, roads and other nonsalable purposes, down to that date amounted to 722,506.47 square feet, leaving a net salable area of 5,723,185.71 square feet. Of the salable area, 3,269,268.93 square feet had been sold prior to March 1, 1913, leaving a net salable area unsold on that date of 2,453,916.78 square feet. The petitioner never indulged in high pressure campaigns in the sale of its burial space. No attempt was made to sell all the unsold area within a definite period of time, since past experience at March 1, 1913, and the location of the land, led petitioner to believe*915 that prices would be higher in the future. Sales on March 1, 1913, and prior thereto were made by its vice president, superintendent, or bookkeeper to such persons as would come to the office and inquire about lots. It employed no lot salesmen and paid no commissions either to officers, office employees, or undertakers. It therefore had no selling cost per square foot to salesmen, as such. Petitioner's policy from time to time, and on March 1, 1913, was to increase prices gradually as the population in the vicinity increased and as the available cemetery land in Chicago decreased. The increase in the average square foot selling price of land from 1865 to 1913, inclusive, and from 1913 to 1932, inclusive, was equivalent to an interest rate of approximately 4 1/2 percent on the sales price in 1865, compounded annually. On March 1, 1913, petitioner was engaged in selling burial space by lots, by select graves, and by graves. It was also selling perpetual care separately from the lots and graves. As a general rule, space *124 sold by single graves was not sold for as much as that sold by lots and select single graves. The selling prices were practically the same for burial*916 space and border lots in a section and those in an interior lot on a lake. Petitioner's cemetery is divided into 74 sections and subsection, of which 49 were open for sale prior to 1913. During the years 1931 and 1932, sales were made in 51 sections and subsections. Prior to March 1, 1913, sales had been made in all but 11 of those 51 sections. On March 1, 1913, petitioner had for sale subdivided sections and subsections with a total remaining net salable area of 816,355.80 square feet; partly subdivided sections and subsections with a remaining area of 45,221 square feet, less wastage of 4,371.65 square feet, or a net salable area of 40,850.76 square feet; unsubdivided sections and subsections with an area of 1,898,121 square feet, less wastage of 301,410.78 square feet, or a net salable area of 1,596,710.22 square feet. Because of the constant change in the trend with respect to cemetery property, petitioner could not have determined with exactness on March 1, 1913, what unsubdivided sections would be devoted to single graves and what would be devoted to lots. Due to numerous sales of single graves prior to March 1, 1913, the petitioner's officers were very cautious on*917 that date about opening sections for single graves. All sections and subsections from which sales had been made prior to that date were devoted to the sale of space by lots and select single graves except subsections F 1-6, O 1-5, P 1 and 2, and R 1 and 2, which were devoted to the sale of space for single graves. Of the net salable area on March 1, 1913, 131,086.81 square feet or about 5 1/2 percent of that area was located in subsections devoted to the sale of space by single graves. The remaining square footage was located in sections or subsections which were devoted entirely to the sale of space by lots and select single graves and to unsubdivided sections on that date. Subsequent to March 1, 1913, some small sections were subdivided and used for single graves, but the total area devoted to single graves, both before and after March 1, 1913, was only about 14 percent of the total net salable area on March 1, 1913. Only one interment per grave was permitted in petitioner's cemetery. In 1933 there occurred, in petitioner's cemetery, 1,251 interments; in 1934, 1,294 interments; in 1935, 1,358 interments; in 1936, 1,289 interments; in 1937, 1,514 interments. From 29 interments*918 in the year 1866 the number per year increased to 3,925 in 1892, after which year it began to decline, gradually reaching 1,737 in 1913, 1,209 in 1931, and 1,198 in 1932. By March 1, 1913, the total interments approximated 88,000 and by the end of 1932 numbered 118,603. The population of Chicago, the number of deaths, and the percentage *125 of deaths per 1,000 population were as follows in the years indicated: Year Population Number of deaths Percentage [1866] 200,418 6,524 3.255 [1913] 2,354,528 35,298 1.499 [1932] 3,523,400 34,362 .975 Sales of burial space at wholesale were made by petitioner at intervals from 1866 to 1904. It sold to the Federal Government for a Confederate mound, 18,340 square feet at 10 cents a square foot in 1866 and 50,724 square feet at 13.34 cents per square foot in 1867. Several thousands of Confederate soldiers are buried in this area, which is maintained at Government expense. In 1867 it sold the city of Chicago 27,000 square feet at 9 cents per square foot. From 1872 to 1904 it made sales to Jewish societies of areas ranging from 5,370.80 square feet to 43,561.21 square feet and at prices from 6.88 cents*919 per square foot in 1872 to 89.34 cents per square foot in 1904. From 1865 through 1913, or a period of 49 years, petitioner sold 3,269,268.93 square feet of its original net salable burial space of 5,723,185.71, or an annual average of 66,719.77 square feet. From an average square foot selling price of 17 cents in 1865 the price increased steadily to $1.3942 in 1913, or an average annual increase for the period of 2.5 cents per square foot. Sales of square footage exclusive of wastage, the 5-year average thereof, the average square foot selling price, exclusive of perpetual care, and the 5-year average thereof for the years 1909 through 1932, were as follows: Fiscal year ended February 28 Net area sold (exclusive of wastage) Five-year average Net sales price Price per sq. ft. Five-year average Sq. ft. Sq. ft. [1909] 50,388.59 $66,404.50 $1.3178 [1910] 46,028.46 61,119.75 1.3279 [1911] 43,934.08 44,964.29 61,371.25 1.3969 $1.3662 [1912] 43,835.91 61,611.90 1.4055 [1913] 40,634.43 56,650.70 1.3942 [1914] 41,720.57 58,848.60 1.4105 [1915] 35,179.93 49,850.60 1.4170 [1916] 38,023.80 38,875.23 55,742.50 1.4660 1.4331 [1917] 41,308.42 57,988.38 1.4038 [1918] 38,143.44 56,128.00 1.4715 [1919] 50,332.09 74,979.40 1.4896 [1920] 34,457.55 61,771.00 1.7927 [1921] 49,997.26 44,951.65 78,924.00 1.5786 1.6698 [1922] 45,770.54 79,304.67 1.7327 [1923] 44,200.81 80,337.11 1.8175 [1924] 35,098.91 72,058.79 2.0530 [1925] 36,453.40 72,586.94 1.9912 [1926] 39,692.98 34,677.28 81,828.90 2.0615 2.2538 [1927] 33,810.66 88,832.95 2.6273 [1928] 28,330.44 75,471.39 2.6639 [1929] 38,034.68 99,188.95 2.6078 [1930] 30,612.01 75,117.04 2.4538 [1931] 24,106.28 66,623.62 2.7637 2.5990 [1932] 20,929.15 54,535.30 2.6057 *920 *126 During the years 1913, 1931, and 1932, sales were made from the following sections and subsections at the average price per square foot as indicated: Section or subsection [1932] L $1.2451 $10.7605 $3.6265 O 1.2668 4.0000 1.6550 P 1.1704 2.3537 2.1994 A 1.5653 1.7089 B .9249 3.4498 G 1.7017 3.0109 1.1560 D 1 1.5619 4.4223 3.6469 E 1-4 1.5116 4.1979 3.9947 E 5 4.9556 4.9556 F 1 2 1.2814 1.9084 4.1111 F 2-6 1.4942 2.3769 1.6301 F 7 2 1.7500 3.3016 F 8 1.400 F 9 $3.4983 $3.2576 H $1.6706 6.7151 5.7895 J 1.4171 2.1597 2.7341 K 1.4492 2.7333 M 1 2.6670 2.7377 R 1, 2, 3, 5 1.3514 1.7576 2.2141 R4 1.7338 1.8333 R6 1.5194 R8 2.0020 2.1405 S 2.1963 2.1952 V 1.2975 3.3476 2.5791 Y 2.4712 2.4429 I 1 7.3096 1.3866 While the average net selling price per square foot of space in section I was $7.3096 for 1912 and $4.71 for the period 1909 through 1913, only a comparatively small amount of space was actually being disposed of from this section. Gross*921 sales from the section for the 5-year period amounted to 5,771.25 square feet; however, net sales amounted to only 2,952.06 square feet. Petitioner was making gross sales of space in this section at an average price per square foot of $1.4563 in 1909, $1.7893 in 1910, $1.5019 in 1911, $1.5414 in 1912, and $1.40 in 1913, or at an average price of $1.6415 for the period 1909 through 1913. In 1915, the first year after 1913 when it sold or contracted to sell space in the section, the average price was $1.9290 a square foot. The gross sales for this year were 242.61 square feet; however, the net sales were only 42.61 square feet, thus resulting in a price of $8.6365 for the space actually sold. The following sections and subsections from which no sales were made during 1931 and 1932, but from which no sales were made during 1909-1913, inclusive, were, on March 1, 1913, comparable to the indicated sections or subsections from which sales were being made in 1913 or had been made prior thereto: E 5 Comparable to I 1 F 1 Comparable to R 1 F 7-9 Comparable to F 2 M 1 Comparable to I 1 R 4, 6, 8 Comparable to I 1 S and Y Comparable to E 2 In September 1912, *922 the National Construction Co. made a proposal to petitioner to pay it $2 a square foot with respect to 50,000 square feet of land in section T, which had not been opened for sale on that date and had not been opened for sale in 1933. The terms of payment were to be cash $25,000 and $25,000 at the end of 6, 12, and 18 months, respectively, with interest on the deferred payments at 5 percent per annum. The National, Construction Co. proposed *127 to build a large community mausoleum on the land in which crypts would be sold to the public and the petitioner would share in the profits therefrom. Petitioner rejected the offer mainly for the reason it was not able immediately to take steps to maintain perpetually in a first class condition a building of that size. Petitioner also considered that the maintenance of the building might prove burdensome. Other considerations in rejecting the offer were that petitioner did not wish to go into business with someone else in the cemetery and that it did not care to sell the particular land at $2 per square foot. Upon full payment of the purchase price of burial space, petitioner gave purchasers a deed which provided that petitioner*923 does "grant, bargain, sell and convey" the lot to the purchaser and his heirs to have and to hold "as a place of interment to the said [purchaser] and legal heirs forever", subject to the provisions of the acts, past and prospective, of the General Assembly of the State of Illinois relating to petitioner and subject to the present and subsequent rules and regulations of petitioner. The petitioner covenanted with purchasers that the entire tract of land should be appropriated to cemetery purposes and no other, and that no part of the tract should ever be encumbered. On March 1, 1913, with the exception of burial space in one section, the designation of which is not disclosed, perpetual care was not included in the selling price but was sold separately. In most instances where space in large lots was sold prior to the time petitioner began to sell perpetual care, the owners subsequently bought perpetual care. The cemetery was cared for through petitioner's greenhouse department. While petitioner looked after the upkeep of the cemetery, including that of lots, paths, trees, fences, etc., a charge was made for these services against space in lots not under perpetual care contracts. *924 Sections devoted to single graves and not under such contracts received less care than sections devoted to large lots under perpetual care since the care given to the former was a direct expense to petitioner. *128 The balance sheet with respect to petitioner's permanent care reserve and perpetual care fund at February 28, 1913, was as follows: Assets Properties: Waiting room and chapel $33,823.32 Crematory, equity in 11,468.25 Office extension, and furnishings 6,082.69 Auburn Park - 2 houses and land 9,104.19 Nursery land 5,250.00 Bond investments 104,918.65 Loans 3,100.00 Cash 5,134.75 Total 178,881.85 Liabilities Permanent care reserve $56,424.48 Perpetual care 60,301.63 Perpetual care section and subsections B 4, D 2, E 2-4, H, I 1, K 2, L 5, O 3, P 1, V 33,535.00 Perpetual care, select graves 460.00 Cremation certificates sold 90.00 Surplus 28,070.74 Total 178,881.85 For the year March 1, 1912, to February 28, 1913, the income from the permanent care reserve and perpetual care fund amounted to $6,281.68 and the expenses charged against such income amounted to $3,743.12, leaving unexpended income of $2,538.56. *925 On March 1, 1913, the buildings located on the cemetery grounds consisted of general office, waiting room, chapel and crematory, greenhouses, receiving vault, rest rooms, etc. The petitioner's improvement account, as shown by its books, amounted to $524,683.89 in 1881. Subsequent additions thereto to the basic date, amounted to $314,050.06, of which $227,214.94 represented roads, water system, sewers, and soil, $46,016.17 was for boundary improvements, including gates, fences, and sidewalks, and $40,818.95 was for building improvements consisting of office, greenhouses, vault, and service buildings. In addition to selling space by lots and graves, petitioner operated a greenhouse department and crematory, made interments, and built the foundations for markers. Petitioner's balance sheet as of February 28, 1913, as shown by its books, was as follows: Assets Land and improvements $838,733.95 Office furniture and fixtures 1,288.30 Tools and equipment 8,290.92 Permanent care reserve fund 56,424.48 Crematory building and equipment, equity in 7,621.17 Accounts receivable 15,926.49 Cash 15,321.28 Total 943,596.59 Liabilities and capital Capital stock $500,000.00 Permanent care, section and subsections V, E 4, E 2, B 4, D 2, L 5 4,650.50 Vaultage deposits and advance payments 936.00 Surplus 438,010.09 Total 943,596.59 *926 NOTE. - Of the surplus of $438,010.09 there had been set aside as a permanent care fund $56,424.48. No deduction had been made in the item of land and improvements for the sale of burial space. The petitioner's profit and loss account for the year ending February 28, 1913, as shown by its books was as follows: Credits Sales, burial lots, less lots returned $33,497.20 Sales, select lots, less lots returned 9,895.00 Sales, single graves, less graves returned 13,203.50 Vaultage 2,160.00 Crematory, net earnings 2,713.34 Interment fees 5,909.55 Foundation charges 2,123.33 Greenhouse, net profit 25,864.15 Burial vaults sold 2,400.70 Concrete markers, less cost of manufacture 278.64 Interest 856.55 $98,901.96 Debits Labor 16,336.12 General expense 5,151.02 Salaries, officers and assistants 10,610.26 Salaries, superintendent and assistants 4,760.00 Stable expense 691.10 Repairs 3,273.25 Advertising 99.17 Uniforms 290.00 Insurance 271.68 Depreciation: Tools and equipment $921.21 Office furniture and fixtures 310.14 1,231.35 42,713.95 Profit for twelve months ended February 28, 1913 1 56,188.01 *927 *928 *129 The amount that was deducted for burial space sold in determining the profit of $56,188 for the year, is not disclosed. The profit and loss closing entries of petitioner from 1881 to 1913, inclusive, show an average net income of $58,056.94 a year; that such income was never less than $40,000 a year after 1887; that after reaching a high of $85,074.15 in 1892, net income began a gradual *130 decline and for each of the years 1909 through 1913 was below the average for the period 1881 through 1913; that cash dividends were paid consistently from 1884 to 1913, inclusive; that dividends amounted to $30,000 in 1890, $40,000 in three other subsequent years, and, in the remaining subsequent years, ranged from $45,000 to $55,000. The following is a statement, for the years 1913 through 1932, of petitioner's gross income from the sale of burial space (sales price less basis for space sold), gross income from other sources, expenses of all operations, total gross income, and net income reported as disclosed by its income tax returns for the respective years: Gross income from the sale of burial space Gross income from all other sources Total gross income Expenses of all operations Net income [1913] Not shown Not shown $72,442.07 $42,324.97 $30,117.10 [1914] Not in evidence [1915] Not in evidence [1916] Not shown Not shown 86,083.62 82,572.42 3,711.20 [1917] Not shown Not shown 149,633.91 139,929.84 9,704.04 [1918] $8,351.98 $94,478.16 102,830.14 95,280.87 7,549.27 [1919] 7,594.55 112,032.34 119,626.89 101,135.35 18,491.54 [1920] 2,669.08 117,376.20 120,045.28 121,851.39 1 1,806.11 [1921] 1 16,683.91 145,896.25 129,212.34 148,433.33 1 19,220.99 [1922] 1 4,395.75 153,672.06 149,276.31 162,686.99 1 13,410.68 [1923] 1 24,693.78 167,084.18 142,390.40 158,324.98 1 15,934.58 [1924] 1 9,851.71 242,374.88 232,523.17 186,274.03 46,249.14 [1925] 1 12,123.02 189,272.13 179,149.11 197,276.98 1 20,127.87 [1926] 1 8,232.14 205,041.31 196,809.17 212,222.12 1 15,412.95 [1927] 9,252.05 214,348.79 223,600.84 215,849.50 7,751.34 [1928] 17,402.23 225,658.33 243,060.56 227,615.70 15,444.86 [1929] 19,879.88 229,911.01 249,790.89 220,875.76 28,915.13 [1930] 13,294.61 94,965.02 108,259.63 88,736.92 19,522.71 [1931] 17,215.76 121,361.63 138,577.39 109,926.02 28,651.37 [1932] 10,839.95 120,179.54 131,019.49 135,004.02 1 3,984.53 *929 The cost or value basis used by petitioner in computing profit from the sale of burial space prior to 1917 is not disclosed. For 1917, values of $1.50, $1.60 and $2 per square foot, depending on the section or subsection from which sales were made, were used. For all subsequent years values of $1.50, $1.60, $2 and $3 were used. About 1925 petitioner acquired at a cost of 26 cents, or less, per square foot, a small area consisting of a narrow strip of land between its cemetery and an alley. Sales of small amounts of burial space were made from this area in 1925 and subsequent years. The income from such sales computed on a basis of the cost of the land to petitioner, as to which no issue is raised in this proceeding and consisting of negligible amounts, is reflected in the schedule set out above. As shown by its income tax returns and/or its capital stock tax returns, petitioner made distributions in the from of dvidends of $45,000 a year from 1914 through 1918, $50,000 from 1919 through 1929, except in 1923 when $60,000 was paid. Payments during 1930, 1931, and 1932 were $55,000, $60,000, and $30,000, respectively. Total *131 payments from March 1, 1913, to*930 February 28, 1932, amounted to $930,000. In its capital stock tax returns for the years 1916 through 1926, the petitioner declared its capital stock at values ranging from a high of $968,032.36 in its 1918 return to a low of $361,404.56 in its 1921 return. The fair value of its land used for capital stock tax purposes was reported at amounts ranging from a low of $66,314.33 in its 1919 return, to a high of $388,878.45 in its 1923 return. In 1931 and 1932 petitioner sold, from land owned by it on March 1, 1913, 23,633.78 square feet and 20,657.35 square feet of burial space, respectively, and in its income tax returns for those years computed gain therefrom by using a fair market value on March 1, 1913, of $1.50 per square foot for sales from sections L, O, and P; $1.60 per square foot for sales from sections A, B, and G; and $2 per square foot for sales from the remaining sections and subsections with the exception of section I for which a value of $3 per square foot was used. These values were identical with those determined and used by respondent in his determination of deficiencies in petitioner's tax liability for the years 1919 through 1922. Such values were accepted*931 by petitioner for those years but in proceeding, Docket No. 7956, reported at 6 B.T.A. 1003, it challenged his determination for the years on other matters. The values determined by respondent for those years and used by the petitioner in the years involved in the instant proceedings were based primarily on an appraisal of petitioner's cemetery land as of March 1, 1913, made about 1920 by E. J. Howell and W. N. Rudd, cemetery men of Chicago. Howell and Rudd made no allowance in their appraisal for interior wastage but valued the land as a unit. The total fair market values used by petitioner in its returns for 1931 and 1932 were computed in the following manner: [1931] Net sales Wastage Total Value 3/1/13 Amount Square feet Square feet Square feet Square feet 1,022.50 1,022.50 $1.50 $1,533.75 714.50 714.50 1.60 1,143.20 21,693.78 1,287.20 22,980.98 2.00 45,961.96 203.00 203.00 3.00 609.00 23,633.78 1,287.20 24,920.98 49,247.91 [1932] 1,181.80 1,181.80 $1.50 $1,772.70 135.00 135.00 1.60 216.00 19,102.55 1,339.18 20,441.73 2.00 40,883.46 238.00 238.00 3.00 714.00 20,657.35 1,339.18 21,996,53 43,586.16 *932 *132 Respondent determined that petitioner's land had a fair market value of 23 cents per square foot on March 1, 1913. Determining that petitioner sold 21,896.78 square feet in 1931 and 19,340.55 square feet in 1932, he computed the fair market value on March 1, 1913, of the area sold to be $5,036.26 for 1931 and $4,448.83 for 1932 and asserted deficiencies accordingly. The fair market value on March 1, 1913, and the basis for gain or loss of the area sold in 1931 was $9,926.19 and of the area sold in 1932, $8,676.09. OPINION. LEECH: In its returns for 1931 and 1932, petitioner, using values of $1.50, $1.60, $2 and $3, depending on the section or subsection from which sold, reduced the amounts received from the sale of burial spaces by $49,247.91 and $43,586.16, respectively, as representing the fair market value on March 1, 1913, of space sold in the two taxable years. The respondent, in determining the deficiencies, allowed much smaller reductions, $5,036.26 for 1931 and $4,448.83 for 1932, computing them on the basis of 23 cents per square foot and on smaller amounts of footage than were actually sold by the petitioner and used by it in its returns. He made*933 no allowance for interior wastage. We have found as a fact that the proper amounts to be used as bases in reducing the amount realized in the taxable years are $9,926.19 for 1931 and $8,676.09 for 1932. The respondent has cited a number of cases which hold that a cemetery company does not dispose of the fee simple title to its land and the purchaser of a lot does not acquire a fee simple title but merely a license or easement to use the land for burial purposes. However, it is apparent that the purchaser of a cemetery lot does acquire a property right in the lot which the law recognizes, which can pass to his heirs or representatives at his death, and which may be enjoyed as long as the ground continues to be used as a cemetery. People ex rel. Paxton v. Bloomington Cemetery Association,353 Ill. 534; 187 N.E. 455; Brown v. Hill,284 Ill. 286; McWhirter v. Newell,200 Ill. 583; Mount Hope Cemetery Association v. New Mount Hope Cemetery Association,246 Ill. 416; *934 Community Mausoleum Co.,33 B.T.A. 19. The respondent agrees that the amount which the petitioner received during the taxable years may be reduced by a basis in order to determine the portion of it that represents taxable income, even though the fee was not sold. Cf. International Cigar Machinery co.,36 B.T.A. 124; William Robert Farmer,1 B.T.A. 711. Neither party has presented any argument showing that the basis should be different from that part of the fair market value on March 1, 1913, of the unsold land itself, which is allocable to the lots or burial rights sold in the taxable years. *133 Section 113 of the Revenue Acts of 1928 and 1932, which are controlling here, provides that the basis for gain or loss from the sale or other disposition of property acquired prior to March 1, 1913, shall be the cost of such property or its fair market value as of March 1, 1913, whichever is greater. The purpose of the provision was to permit a taxpayer to recover his capital investment tax free. Cf. *935 United States v. Ludey,274 U.S. 295. During 1931 and 1932, the petitioner sold burial space in its cemetery, which space was a part of the land owned and held by it for such use on March 1, 1913. The only property involved in these profitable transactions which had any basis for gain or loss was the land. Mount Hope Cemetery Association,37 B.T.A. 671. The petitioner's basis for gain or loss upon the disposition of that remaining burial space in its cemetery was the cost of the land, including improvements, or the fair market value on March 1, 1913, whichever was greater. No contention having been made by either party that the cost on the basic date was in excess of the fair market value and the proceedings having been presented on the theory that it was not, we conclude that the fair market value on March 1, 1913, was greater than cost. Consequently, the basis which petitioner is entitled to deduct before any excess realized from the disposition of burial space is taxed, is the fair market value of the land on March 1, 1913. The total basis which the petitioner was entitled to recover from the disposition of its burial space after March 1, 1913, was*936 the same amount, irrespective of whether the entire area was sold in one transaction or whether sold in separate parcels over a long period of years. After the entire area is sold the total of the bases for space sold in the various years should be identical with the value of the unsold area on the basic date. Therefore, the aggregate of the bases for all of the separate burial space can not exceed the fair market value on March 1, 1913, of the unsold area on that date, considered as a whole. Cf. Helvering v. Twin Bell Oil Syndicate,293 U.S. 312; James Couzens,11 B.T.A. 1040, 1161. It is thus immaterial whether the basis applicable to space sold in 1931 and 1932 be determined directly or whether the value of the entire unsold area on the basic date be determined first and an allocation then made to the space sold in these years. Cf. Trustees of New York & Brooklyn Bridge v. Clark,137 N.Y. 95; 32 N.E. 1054. In determining value the inquiry should be as broad as possible, with consideration being given to all pertinent, available information. The record before us contains opinion testimony of values by*937 witnesses for both petitioner and respondent. It also contains a stipulation of facts, together with documentary evidence. After giving full consideration to all of this evidence, it is our duty to determine a *134 basis. If such evidence indicates that the values given by petitioner's witnesses are too high and those given by respondent's witnesses are too low, it is incumbent on us to determine an intermediate value which the evidence supports. Uncasville Manufacturing Co. v. Commissioner, 55 Fed.(2d) 893; Safe Deposit & Trust Co. of Baltimore, Executor,35 B.T.A. 259. Although absolute certainty is impossible, we must make as close an approximation as possible. Cohan v. Commissioner, 39 Fed.(2d) 540; Doric Apartment Co.,32 B.T.A. 1187; affd., 94 Fed.(2d) 895. The petitioner contends that the fair market value of its unsold cemetery lands on March 1, 1913, was at least $2 per square foot. The alternative argument is made that the values of $1.50, $1.60, $2, and $3 per square foot, depending upon the sections or subsections involved, used in its returns for the years in controversy, *938 were correct. Although in determining the deficiencies, respondent used a value of 23 cents per square foot on the basic date, he now asks us to find that such value was not in excess of 30 cents per square foot. In support of the principal and alternative values for which petitioner contends, it relies on sales of burial space on or about the basic date, the offer of the National Construction Co. in 1912, the opinion testimony of its president and two other cemetery men, and the appraisal made by Howell and Rudd about 1920. Actual sales of similar property, occurring on or about the basic date, are substantial evidence of value, here. Elmhurst Cemetery Co. v. Commissioner,300 U.S. 37; Fairmount Cemetery Association v. Helvering, 92 Fed.(2d) 496; West View Cemetery Association v. Commissioner, 95 Fed.(2d) 714. We do not, however, understand the Elmhurst case to require that the value in all cases is the amount for which other comparable burial space was selling on the basic date. Mount Hope Cemetery Association, supra. If the court in the Fairmount Cemetery Association or West View Cemetery Association*939 cases interpreted the Elmhurst case differently, we respectfully disagree. The court in the Fairmount case specifically recognized that "it is reasonable and fair to give consideration to the time element - the period of holding before a market can be had." The time element is applicable to the whole and not to the lots involved in any particular year, since there can not be a change in the basis from year to year. Reinecke v. Spalding,280 U.S. 227. In this connection it is to be observed that in no year prior to 1913 had the average selling price of burial spaces per square foot approximated the values for which petitioner contends; that in 1913 the average selling price was only $1.3942 per square foot; that it was not until 1920 that it reached $1.50, and not until 1924 that it reached $2. Petitioner's president, Farwell, an experienced Chicago cemetery man and familiar with the land and selling prices on the basic date, *135 was of the opinion that the unsold burial space had a fair market value of $2 per square foot on that date. In forming that opinion he made no allowance for the period of time it would have to be held before being*940 sold for burial space. His opinion was that no such allowance was warranted because of the increase in value. He admitted that the cost of selling the land at $2 a square foot on the basic date would have been "considerable" but failed to state what he thought such cost would have been. He mentioned no basis upon which it could be estimated. He further stated that his opinion was, to a great extent, based on a desire to find an easier method of computing allowances for value than by using different values for different parts of the land, and the further premise that he did not know what the future of the property would be. Another witness for petitioner, Johnson, who was president of another cemetery in the Chicago area and familiar with petitioner's property on March 1, 1913, valued the burial space at $1.60 to $1.70 a square foot on the basic date. His opinion was based on what he considered was the established fair retail selling price of the ground. Another witness for petitioner, Schrade, who is on the board of directors of another cemetery in the Chicago area and was familiar with petitioner's unsold lands at March 1, 1913, was of the opinion that the value was $1.75 a*941 square foot. He thought that such amount was the average selling price per square foot received by petitioner for space sold about the basic date. Having that in mind and his own judgment of the fair value of the land, he reached the opinion expressed. He gave no consideration to selling cost or future operating costs of the cemetery. The record is not clear as to how Howell and Rudd arrived at the values used in their appraisal. It shows, however, that consideration was given to retail selling prices of burial space, but what weight was accorded them is not disclosed. The testimony of petitioner's president indicates that the value to which he testified is subject to a considerable reduction, if for no other reason, because it does not reflect the cost that would have been required to have sold the land on the basic date. The opinions of petitioner's witnesses Johnson and Schrade were based on what they considered to be retail selling prices. Often sales of comparable property on or about the basic date are regarded as the best evidence of the value of the property in dispute. However, there are many situations where that is not true. Among these are cases involving a*942 large number of units which produce no income until sold and which, due to a limited demand therefor, could not, reasonably, have been expected on the basic date to be entirely disposed of until the expiration of a considerable period during which time the risks of business had to be assumed. The reason the current retail price is not determinative in valuing the whole number of units in such situations is that such a *136 rule would confuse the total amount of gross sales, ultimately expected, with the fair market value on the basic date. Bennett Gravel Co.,10 B.T.A. 513; Alfred A. Wheeler,11 B.T.A. 579; Gould Paper Co.,26 B.T.A. 560, 576; H. D. Shelden,25 B.T.A. 5; Cape Henry Syndicate,30 B.T.A. 794; Mount Hope Cemetery Association, supra. On March 1, 1913, the petitioner had a large amount of land which it was holding for sale as burial space. There was not only a limited demand for this space but there was a large available supply of it in the Chicago area. Any reasonable person on March 1, 1913, would have foreseen that, in all probability, all of the space could not be disposed*943 of until the lapse of a long period of years. Considering the space sold during the entire period from 1865 to the basic date, about 35 years more would have been required within which to dispose of all of petitioner's salable land. On the basis of sales during the five-year period immediately preceding 1913, about 55 years in addition would have been required. The unsold portions would not carry themselves and petitioner would get no return on its investment until the land was sold. Expenditures of various kinds would be required and some expense would be incurred in making sales. Fair market value is the price at which any property would change hands between a willing buyer and a willing seller where neither is under any compulsion. Each of the parties would consider the various factors involved, including the current retail selling price of burial space, the demand for and available supply of space in the area, the probable delay in disposing of all the property and receiving the purchase price therefor; the risk to be assumed, and selling and other expenses involved prior to a disposition of the property. They would probably consider the return obtainable from the use*944 of a like amount of money in a different kind of investment which entailed no greater risk. A willing purchaser would demand some prospect of profits to compensate him for the use of his money, his time, and his efforts, as well as for assuming the risk involved. Values based on retail selling prices do not give proper consideration to the matters involved in a realization of such prices. Cf. Stern v. Paper,183 Fed. 228. On the basic date, petitioner had 2,453,916.78 square feet of salable burial space, exclusive of applicable interior wastage. Applying the highest values stated by its witnesses, $2, and the lowest, $1.60, to the salable footage, results in aggregate values of $4,907,833.56 and $3,926,268.85. The record discloses an annual return on petitioner's perpetual care fund investments of between 5 and 6 percent. However, dropping to 4 percent as a return on safe investments, an investor's annual income on the foregoing amounts would have been $196,313.34 and $157,050.75, respectively. Cf. Simpson v. United States,252 U.S. 547. In no year was petitioner's annual net income *137 from all sources even comparable to the*945 lower of those amounts. Its income of $85,074.15 for 1892, the highest annual return shown by the record, exceeded, only slightly, one-half of the lower of such amounts and its average annual net income of $58,056.94 for the period 1881 through 1913 was less than one-half. Its income of $50,247.48 for 1912 and income of $53,236.17 for 1913 were each only about one-third of the lower amount. And, for most of the years following 1913 when petitioner's income from the sale of burial space was reported after deducting March 1, 1913, values thereof somewhat comparable to the values petitioner's witnesses state here, the annual net income was decidedly lower. If it be assumed that the net income reported in petitioner's returns for the period following the basic date through 1932 was understated and that all dividends, totaling $930,000, paid during that period were entirely from earnings and represented its income for the period, then the average annual income was only $48,947.37, which is even more unfavorable than the results of operations prior to March 1, 1913. 2 While past and prospective earnings afford but one test of value, they show here quite conclusively that the values*946 expressed by petitioner's witnesses were grossly excessive. In our opinion the evidence as a whole shows that such values were greatly in excess of that contemplated by the term fair market value. What has been*947 said above is applicable to petitioner's alternative contention respecting values of $1.50 to $3 per square foot for burial space, dependent on the section from which sold, as used by it in its returns. In support of its contention for a valuation of $2 per square foot petitioner relies on the offer of the National Construction Co. made in September 1912, for 50,000 square feet of land in one of the unsubdivided sections. The evidence clearly establishes that this was not an outright offer to buy at a stated price, but was a proposal to enter into business with petitioner with respect to the erection of a large mausoleum and the sale of burial space therein. It was an undertaking into which petitioner considered it was not prepared to enter because of the risk involved. The proposal therefore does not support the contention. *138 In this connection it is to be observed that if petitioner's cemetery land had the values on the basic date for which it now contends and if, as on petitioner's theory, such land was thereafter increasing in value, petitioner should reconcile these very substantial values with the relatively small values that it placed upon the land in its*948 capital stock tax returns year after year. No such reconciliation is attempted and, we think, none can be made. The respondent submitted the testimony of two witnesses respecting value, neither of whom was familiar with petitioner's property on the basic date. One witness, Thomas, who had been on the property a number of times shortly before the hearing, was of the opinion that petitioner's entire properties, as a unit, including its cemetery land, had a fair market value on the basic date of $987,500. He expressed no opinion as to the separate value of the land or the separate value of the other assets, nor did he furnish any basis for making an allocation of $987,500 between the land and the other properties. Since we are not called upon to determine the value of petitioner's other properties, in addition to the land, his opinion furnishes little assistance. Respondent's other witness, Lockwood, a Bureau engineer, expressed an opinion that the fair market value on the basic date was 30 cents per square foot. He had been on the property once. He had never been engaged in the cemetery business, had never bought or sold any cemetery lands, and knew of no sales of comparable*949 properties around the basic date. The method used by him in reaching his opinion was to examine the data pertaining to petitioner's sales expenses, earnings, and other related matters. From them he estimated what the future profits over an estimated period of years would be and, by the application of certain discount factors, reduced such future profits to their present worth as of the basic date. Often earnings are of much assistance in determining value and formulae or discount methods may be helpful where the evidence indicates that they are applicable and show the proper factors to be used. From the showing made by the witness we are not prepared to say that the value to which he testified can be approved as the fair market value of the property on the basic date. Considering all the evidence before us, we have concluded that the petitioner is entitled to the allowances for value of burial space on March 1, 1913, as set out in our findings of fact, which are limited to the value of that space sold in the taxable years. We realize that others might fix other amounts and that plausible objection to our determinations might be made. However, that would be true with any determination*950 that might be made. The stipulation submitted by the parties shows that there is included in the unsubdivided land on the basic date, certain footage *139 which would constitute interior wastage and would therefore be nonsalable. In view of the fact that such footage was recognized by the parties as nonsalable, we have so recognized it in our determination of value which is made on the basis of the amount of net salable footage on the basic date as stipulated by the parties. Petitioner, who raised the issue as to an additional allowance for wastage, states on brief that it makes no contention for such an allowance where a valuation is made on the basis of net salable land. The issue therefore is decided adversely to petitioner. This opinion supersedes a memorandum opinion herein, entered May 2, 1938. Reviewed by the Board. Decision will be entered under Rule 50. Tyson dissents. Footnotes 1. Average selling price in 1912. ↩ 2. Average selling price in 1914. ↩ 1. The date contained in petitioner's 1916 return is not sufficiently definite from which to determine the amount of gross income reported therein from the sale of burial space. There is reported in income an item designated: "Burial lots. Increased price 11. Lots at $50. $550.00." Included in the deductions taken is an item designated: "Material $13,646.81." To what extent, if any, an amount is included therein as the basis for space sold is not disclosed. If the $550 was the only amount reported by petitioner from the sale of burial space, its gross income from all other sources for the year, as reported, was $85,533.62. The amount of the gross income reported for 1917 from the sale of burial space is not determinable from petitioner's return. Only the basis for the burial space sold in that year, $49,805.86, is shown separately. The sales price is not segregated. Nor can the amount of the gross income reported from all other sources be determined with exactness. The total gross income of $149,633.91 shown above as total gross income for 1917 is composed of "Gross sales and other income from operations $136,534.59"; "income from rentals, royalties, etc. $300.00"; "Income from interest $12,399.32"; "Income from all other sources $400.00." The amount of $139,929.84, shown above for 1917 as expenses of all operations, includes $49,805.86 representing the basis deducted by petitioner for space sold. ↩ 1. Loss. ↩ 2. The respondent contends that petitioner's earnings from other sources than the sale of burial space should not be considered as having any effect on the value of the land on the basic date. Since the income from other sources involved the use of assets other than the land, the value of which is here being determined, there is merit in the contention. Gatliff Coal Co.,8 B.T.A. 726; affd., 36 Fed.(2d) 545; Eli J. Taylor,9 B.T.A. 442. However, It is impossible from the evidence to make even an approximate segregation of the two classes of earnings prior to the basic date. Since it is our opinion that a willing buyer and a willing seller on the basic date would have given consideration to earnings from other sources prior to that time and their effect on the disputed land values, we have considered them in reaching our conclusion here of such value on March 1, 1913. See Mount Hope Cemetery Association, supra.↩