MEMORANDUM OPINION

HAMBLEN, JUDGE: Respondent determined a deficiency of $ 305,997 in the Federal estate tax of the Estate of Carolyn J. Rogers (decedent). After concessions by the parties, ¹ the issue remaining for decision is the valuation of decedent's qualified and elected real property under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A. There are two questions for determination:

2000 Tax Ct. Memo LEXIS 166">*167 (1) Whether petitioner can value the real property under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) or must value the property under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8), which requires a determination of whether the leases submitted by petitioner, entered into in 1968 and 1969, are leases of comparable land for the 5 most recent calendar years ending before the date of decedent's death.

(2) If petitioner can value one or more tracts of the property under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), which of the following valuation procedures applies:

(A) Can petitioner value all of the tracts as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) property, including timberland, standing timber, and pastureland, using the leases submitted by petitioner; or

(B) can petitioner value the timberland and standing timber as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) property, but not the pastureland, using the leases submitted by petitioner; or

(C) can petitioner value only the timberland as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) property, and not the standing timber and pastureland, using the leases submitted by petitioner? The second question requires a determination of whether the leases submitted by petitioner established a rental value: (1) For timberland, standing timber, and pastureland, (2) for2000 Tax Ct. Memo LEXIS 166">*168 timberland and standing timber only, or (3) for timberland only.

The parties have stipulated the following values for the preceding issues (values include both elected property specially valued under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A and nonelected property at fair market value):

   (1) If the Court finds that petitioner must use section

2032A(e)(8), the parties agree that the values of decedent's real

estate are as follows:

        Egypt        $ 112,350

        Lanford A       709,488

        Lanford B       194,952

        Morgan         148,000

        Woodward        67,640

        Patterson       195,581

                 _________

                 1,428,011

  (2)(A) If the Court finds that petitioner may use section

2032A(e)(7) to value all of the tracts elected as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A

property, including the timberland, standing timber and

pastureland, with reference to the leases submitted by

petitioner, the parties agree that the values of decedent's2000 Tax Ct. Memo LEXIS 166">*169 real

estate are as follows:

        Egypt         $ 17,977

        Lanford A        295,055

        Lanford B        186,071

        Morgan         148,000

        Woodward         17,317

        Patterson        164,294

                   _______

                   828,714

   (B) If the Court finds that petitioner may use section

2032A(e)(7) to value the timberland and standing timber elected

as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) property, but not the pastureland, with

reference to the leases submitted by petitioner, the parties

agree that the values of decedent's real estate are as follows:

        Egypt         $ 17,977

        Lanford A        312,495

        Landford B       195,045

        Morgan         148,000

        Woodward         43,955

        Patterson        181,609

2000 Tax Ct. Memo LEXIS 166">*170                    _______

                   899,081

   (C) If the Court finds that petitioner may use section

2032A(e)(7) to value the timberland elected as 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A

property, but not the standing timber and pastureland, with

reference to the leases submitted by petitioner, the parties

agree that the valuations of decedent's real estate are as

follows:

        Egypt         $ 104,797

        Lanford A        662,264

        Lanford B        195,045

        Morgan         148,000

        Woodward         77,305

        Patterson        181,609

                  _________

                  1,369,020

   (3) In the event that the pastureland does not qualify for

26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) valuation, the value of the pastureland for

purposes of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) is $ 350 per acre (less a 15-

percent discount for pasture in the Lanford A and Lanford B

tracts).

2000 Tax Ct. Memo LEXIS 166">*171 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.

BACKGROUND

This case was submitted fully stipulated without trial pursuant to Rule 122. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference and are found accordingly.

Decedent died on August 19, 1992, at the age of 83. Petitioner filed a Federal estate tax return on November 17, 1993. At the date of her death, decedent was a resident of Gainesville, Alabama, which is located in Sumter County. She had resided in Gainesville for 67 years.

Decedent left a Last Will and Testament dated February 18, 1983. Decedent's son, John A. Rogers III, was nominated in decedent's will to be the executor of her estate and was appointed executor by the Probate Court of Sumter County in Letters Testamentary dated August 26, 1992.

Decedent was the widow of Barnes A. Rogers, who died on December 26, 1981, a resident of Gainesville, Alabama. They were married for 48 years. Mr. Rogers left a last Will and Testament dated April 27, 1981. Mr. Rogers' will2000 Tax Ct. Memo LEXIS 166">*172 designated that certain farmland and timberland be held in trust for the benefit of decedent (the marital trust). Mr. Rogers' will also provided that decedent would have a general testamentary power of appointment over the corpus of the marital trust. Decedent exercised that power of appointment by appointing all of the property in the marital trust to her only son, John A. Rogers III. The property in the marital trust was properly includable in decedent's gross estate for Federal estate tax purposes.

Petitioner properly elected to value five tracts of the real estate included on the Federal estate tax return under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A. These five tracts of specially valued estate property are collectively referred to as the five estate tracts. The five estate tracts, located in Sumter County, Alabama, are as follows:

     Tract         Valuation Elected

     _____         _________________

     Egypt       215 acres - land and timber

     Lanford A     90 acres - land and timber

             435 acres - land (no timber election)

     2000 Tax Ct. Memo LEXIS 166">*173         190 acres - land (no timber election)

             805 acres - land and timber

             150 acres - pasture

     Lanford B     125 acres - pasture

     Woodward      40 acres - land and timber

             100 acres - pasture

     Patterson     65 acres - pasture

On the estate tax return, petitioner timely elected and qualified for a "qualified woodland" election pursuant to 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13) for the following properties:

     Tract       "Qualified Woodland" Election

     _____       ____________________________

     Egypt        215 acres   - land and timber

     Lanford A      90 acres   - land and timber

              805 acres   - land and timber

     Woodward       40 acres   - land and timber

              100 acres   - pasture

On the estate tax return, petitioner elected to value the land under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8). Respondent valued the property2000 Tax Ct. Memo LEXIS 166">*174 at a higher value under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) and ultimately issued a notice of deficiency determining the value of the property at the higher value. Petitioner now seeks to value the property under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). Petitioner may change the valuation method and value the property under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) if it establishes the annual gross cash rental of comparable land for the 5 calendar years ending before the date of decedent's death within the meaning of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7).

In order to satisfy the comparable land requirement under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), on August 31, 1998, petitioner identified seven tracts of land which it asserted were comparable to decedent's lands which are specially valued. In addition, the record contains a copy of a lease on clear land in Sumter County. Petitioner engaged Dr. Harry L. Haney to determine the comparability of the seven tracts of land with the five estate tracts of specially valued land. The record contains detailed descriptions of the seven tracts of land that petitioner asserts are comparable to the five estate tracts in the leases and in Dr. Haney's reports.

Dr. Haney provided both an original and a supplemental report. The parties agree2000 Tax Ct. Memo LEXIS 166">*175 that these reports are accepted as if the author had testified to their contents. Dr. Haney based his opinion on his experience as a forest economist, professor of forest management-economics at the Virginia Polytechnic Institute and State University in Blacksburg, Virginia, and owner of Alabama timberland. Dr. Haney has lectured, taught, and written extensively on the subjects of forestry and is a Registered Forester in the State of Alabama. His graduate degrees include a master's in forestry economics from Yale University and a doctorate in forestry economics from Yale University. He is frequently asked to advise those in the timber industry in Alabama and across the South in making timber decisions and has been asked to testify as an expert witness in courts and advise governmental agencies, including the U.S. Department of Justice, Tax Division.

Dr. Haney is a native of Choctaw County, Alabama, where he worked in a family timber business. During and after his forestry studies at Auburn University, Dr. Haney worked for several lumber companies in Alabama and Mississippi, where his responsibilities included timber procurement, logging, and evaluation of timberland for purchase in2000 Tax Ct. Memo LEXIS 166">*176 several counties including Sumter County and Pickens County, Alabama. In 1965, he accepted a forest management job with St. Regis Paper Co. (now Champion International) where approximately 92 percent of the land he managed was under long-term leases.

Petitioner gave respondent copies of timber leases relating to the seven tracts of land which it asserted were comparable to the five estate tracts. The tracts and the timber leases relating to each of the tracts are as follows:

             Date of

   Tract         Lease       Acres   County

   _____         _____       _____   ______

Barnes Rogers, et al.   Mar. 1968     2,432   Sumter

Barnes Rogers, et al.   Apr. 1968     1,056   Sumter

Richardson         Sept. 1968      261   Pickens

Clarence Rogers      Sept. 1969      559   Sumter

Clarence Rogers      Sept. 1969      489   Sumter

Irwin           Sept. 1968      80   Pickens

Hurst           Dec. 1969      642   Fayette

The 2,432 acres owned by Barnes2000 Tax Ct. Memo LEXIS 166">*177 Rogers, et al., were owned by Barnes Rogers, decedent, Clarence Rogers, Janie Rogers Allen, Elizabeth Rogers Sledge, and the C.M.A. Rogers estate. The 1,056 acres owned by Barnes Rogers, et al., were owned by Barnes Rogers, decedent, and Clarence Rogers.

Sumter County, Alabama, is located in western Alabama along the Mississippi/Alabama line. It is bordered on the north by Pickens County, Alabama. In turn, Pickens County is bordered on the north by Fayette County, Alabama.

In analyzing the comparability of the seven leased tracts and the Five estate tracts, Dr. Haney first excluded the Hurst tract in Fayette County, Alabama, because of the distance from the Five estate tracts. Next, Dr. Haney excluded the Irwin tract of land in Pickens County because of differences in slope and soil mix. Both respondent and petitioner agree with Dr. Haney's exclusion of the Hurst tract and the Irwin tract. The remaining five tracts of timberland (five leased tracts) are subject to long-term timber leases for the growing and harvesting of timber.

The five estate tracts are comparable to the five leased tracts in the following general respects. See appendixes 1-5. First, the soil in the three-county2000 Tax Ct. Memo LEXIS 166">*178 black belt soil area of Alabama along the Mississippi border where the five estate tracts and the five leased tracts are located is a transition mix between sandy clay and post oak black belt soil. Second, none of the timber on the five estate tracts depletes the soil significantly or in a different manner from the timber on the five leased tracts. Third, the conservation techniques employed are similar. The conservation techniques are generally the same on all managed timberland. Leased property is clear cut and replanted instead of select cut which is true in almost every lease comparison. Fourth, all of the properties are subject to periodic flooding. Fifth, all of the land is relatively flat. Sixth, all of the properties have a hardwood/pine mix. Seventh, each of the properties is unified as a separate property but is segmented by logging roads that allow movement. Eighth, only two of the properties have any improvements, the Lanford A and the Woodward tracts. Those improvements are valued at approximately $ 2,707 and $ 5,610, ² respectively, according to the Butler & Gardiner appraisal. ³ An adjustment can be made for those comparatively small improvements. ⁴ Ninth, all2000 Tax Ct. Memo LEXIS 166">*179 of the properties in these three counties have access to secondary roads and similar access to markets.

Several of the tracts of the leased timberland also had small camp2000 Tax Ct. Memo LEXIS 166">*180 houses on them like those on the Lanford A and the Woodward tracts. For example, a summer camp house was located on the Allen timberland (the Barnes Rogers, et al. March Lease) when that lease was executed. The presence of a camp house made no difference in the rental rate and, according to the lessee, no adjustment was made to the rents because of this cabin, which is similar to the camp houses on the Lanford A and the Woodward tracts.

Dr. Haney concluded that a comparison of the five estate tracts to all five leased tracts would be the most reliable. He noted that the timber on one of the five estate tracts was virtually identical to the timber on one of the five leased tracts. Second, he noted that the timber quality and capability of the five leased tracts were somewhat superior to the timber quality on the five estate tracts. Because of this difference, he concluded that a downward adjustment of no more than 10 percent was warranted.

Except for the timber volumes, timber quality, and timber quantity on these lands, respondent does not question that the lands included in the leases for the five leased tracts are physically comparable to the timberlands elected for special use2000 Tax Ct. Memo LEXIS 166">*181 valuation by petitioner. The foregoing includes timberland only and specifically does not include standing timber and pastureland.

Respondent has submitted an original and two rebuttal reports from his expert, Richard Maloy. The parties agree that these reports are accepted as if the author had testified to their contents. Maloy & Co., Inc., provides real estate appraisals. Richard Maloy graduated from the University of Alabama with a B.S. in marketing in 1973 and obtained his J.D. from the Birmingham School of Law in 1979. He is a Licensed Real Estate Broker and a State Certified General Real Estate Appraiser in the State of Alabama.

Mr. Maloy contends that "Comparable leases must have been negotiated under recent (5-year period of analysis) dates to ensure comparability of economic conditions." Mr. Maloy further states the following: "Lease comparability under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) would require recent leases, foreseeable within the 5-year average. This is relatively easy in row crop valuation, but generally eliminates the use of this section in timber land valuation."

Timber leases are made between the land owner as lessor and a lessee who desires timber or timber products. The2000 Tax Ct. Memo LEXIS 166">*182 lessees are typically timber companies or paper companies that use wood products in their basic business. Among other rights, timber leases give the lessee the right to enter the property and harvest timber for a specific period of time. Because of the long growth cycle of timber, timber leases are generally long- term leases. Leases of 30 to 60 years are not uncommon. A typical 60-year timber lease would generally allow the lessee to grow and cut the timber two to three times during the term of the lease.

The typical timber lease in effect in western Alabama between 1987 and 1991 was entered into in the 1950's, 1960's, and early 1970's and was a long-term timber lease. In the typical situation, the lessor sold the existing timber by separate transaction to a buyer (generally, the buyer was the same as the lessee but was not required to be the same) and then rented the land by timber lease. Rent paid by the lessee was calculated on a dollar per acre per year basis. Some of the timber leases had rent escalation clauses which increased the rent per acre per year in relation to some external standard, such as the Wholesale Price Index (now called the Producer Price Index). The leases2000 Tax Ct. Memo LEXIS 166">*183 submitted by petitioner are representative of such typical lease transactions.

The record contains a letter from Gulf States Paper Corp. (Gulf States), which identifies timberland rental rates for the years 1988 through 1992 on several long-term timber leases Gulf States initiated during the late 1960's. These rates range from $ 9.31 per acre per year to $ 10.83 per acre per year for properties located in Sumter County, Alabama, ranging from 420 acres to 2,526 acres.

The record contains a letter from James M. Vardaman & Co., Inc. (Vardaman), forest management specialists for timberland owners, stating that it did not have any knowledge of timber companies providing long-term leases between the years 1987 through 1991 in Sumter County, Alabama. The letter further states that the long-term leasing programs that Vardaman is familiar with originated before 1987. The record also contains a letter from Richard G. Cross of Pruitt, Pruitt & Watkins, Attorneys at Law, indicating that Mr. Cross had reviewed the indexes of the Probate Office of Sumter County for long-term timber leases from 1987 to 1991, but none were noted. His search included Gulf States, International Paper, McMillian, and2000 Tax Ct. Memo LEXIS 166">*184 Hammermill. In addition, Mr. Cross checked with two other individuals who worked in the Probate Office, and they were unaware of such leases during this period.

On the date of execution of the leases for the five leased tracts, the standing timber had been sold by the lessors. The leases did not give any right to the lessee to cut any timber standing on the leased property on the date of execution of the lease. The leases did give the lessee the right to cut timber grown on the leased property during the term of the lease.

The March 1968 lease for the Barnes Rogers, et al. tract contained the following provision:

             USE OF THE PREMISES

     2.  During the term of this Lease, Gulf States

   shall have all rights to grow, cut and to remove

   timber from the Premises (in addition to the timber

   separately conveyed by a timber purchase agreement

   between the parties hereto as of this date), and

   shall have the full and complete possession, use,

   control and enjoyment of the premises, and all

   possessory rights with respect thereto, including

   agricultural rights, excepting only2000 Tax Ct. Memo LEXIS 166">*185 those rights

   hereinafter specifically reserved to LESSORS.

     Without limiting the generality of the foregoing,

   Gulf States shall have the right to protect, cultivate,

   spray, thin deaden and otherwise manage all timber and

   timber products on the Premises, and to cut, harvest,

   mill and process all timber and timber products (including

   saw timber, pulpwood, fuel wood, stumps, tops, turpentine

   and naval stores), which are now growing or shall come into

   existence during the term of this Lease (in addition to the

   timber separately conveyed by a timber purchase agreement

   between the parties hereto as of this date), or to contract

   with others for such acts to be done, and to use, sell or

   otherwise dispose of such timber and timber products

   for its benefit in such manner as it may elect.

Each of the leases for the five leased tracts contains a similar provision regarding use of the premises.

The March 1968 lease for the Barnes Rogers, et al. tract contained the following rent escalation clause in its "Rent" provision:

      Gulf States will pay to LESSORS2000 Tax Ct. Memo LEXIS 166">*186 an annual rental

    beginning at the rate of $ 3.00 per acre; provided,

    however, that during the term of the lease and any

    renewal thereof, that the annual rental per acre

    shall be increased or decreased by the same percentage

    as the annual average of the Wholesale Price Index for

    All Commodities, published by the United States

    Department of Labor, Bureau of Labor Statistics,

    shall increase or decrease over or under the average

    for the calendar year 1966, but the rental rate shall

    not be adjusted more than once annually and only for

    increments of increase or decrease of 5% or more of

    the 1966 average with respect to the first adjustment

    or from the average which made necessary the previous

    increase or decrease of rental rate with respect to

    any subsequent adjustment.

Each of the leases for the five leased tracts contains a similar rent escalation clause in its Rent provision.

With respect to the five leased tracts that petitioner asserted were comparable to decedent's lands which are specially valued, the annual gross rentals2000 Tax Ct. Memo LEXIS 166">*187 for the 5 calendar years preceding decedent's death are as follows:

        1987    1988     1989     1990     1991

        ____    ____     ____     ____     ____

Barnes Rogers

et al.    $ 15,503.76 $ 15,503.76 $ 15,503.76 $ 15,503.76 $ 16,386.35

March Lease

1665.28 acres

Barnes Rogers,

et al.      8,014.05   8,014.05   8,014.05   8,014.05   8,470.27

Timberland

- April

Lease 860.8

acres

Richardson

Timberland    2,505.60   2,505.60   2,505.60   2,505.60   2,648.36

Sept. Lease

261 acres

Clarence L.

Rogers     4,630.83   4,630.83   4,630.83   4,630.83   4,890.00

Timberland

- Sept. Lease

489 acres

Clarence

Rogers      4,305.00   4,305.00   4,305.00   4,305.00   4,548.60

Timberland

- Sept. Lease

420 acres

The average annual gross cash rental from the five leased tracts for the 5 years preceding decedent's death was $ 9.6964 per acre.

With respect to the five leased tracts that petitioner asserted were comparable to decedent's lands which are specially valued, the State and local real estate taxes paid2000 Tax Ct. Memo LEXIS 166">*188 for the 5 calendar years preceding decedent's death are as follows:

        1987     1988     1989     1990     1991

        ____     ____     ____     ____     ____

Allen

Timberland  $ 1,552.04 $ 1,552.04 $ 2,284.76 $ 2,284.76 $ 2,181.76

March Lease

1665.28

acres

Clarence L.

Rogers      802.27    802.27   1,181.02   1,181.02   1,181.02

Timberland

April Lease

860.8 acres

Richardson

Timberland    264.58    264.65    264.65    264.68    265.34

Sept. Lease

261 acres

Clarence L.

Rogers      455.75    455.75    670.91    670.91    670.91

Timberland

Sept. Lease

489 acres

Barnes Rogers   391.44    391.44    576.24    576.24    576.24

Timberland

Sept. Lease

420 acres

The average annual State and local real estate taxes paid on the five leased tracts for the 5 years preceding decedent's death were $ 1.1592 per acre.

The average annual effective interest rate for all new Federal Land Bank loans for the 5 years preceding decedent's death was 10.21 percent.

DISCUSSION

I. OVERVIEW OF 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">SECTION 2032A -- SPECIAL2000 Tax Ct. Memo LEXIS 166">*189 USE VALUATION

Generally, a decedent's gross estate includes the fair market value of the decedent's interest in all property in which the decedent owned an interest at the time of death. See 26 U.S.C. 2031" type="statute">26 U.S.C. 2031">secs. 2031, 26 U.S.C. 2033" type="statute">26 U.S.C. 2033">2033; 26 C.F.R. 20.2031-1" type="regulation">26 C.F.R. 20.2031-1 (b)">sec. 20.2031-1(b), Estate Tax Regs. However, in the case of certain real property used by the decedent or a member of the decedent's family for farming or in a closely held business, 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A allows the decedent's personal representative to elect to value the real property on the basis of its value as a farm or in a closely held business, rather than the fair market value of the property determined on the basis of its "highest and best use". Sec. 20.2032A- 3(a), Estate Tax Regs.; see 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (a)(1)">sec. 2032A(a)(1), 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">(e)(7) and 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (8)">(8); see also Stovall v. Commissioner, 101 T.C. 140, 146 (1993); Estate of Thompson v. Commissioner, T.C. Memo 1998-325.

26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">Section 2032A was added to the Code by the Tax Reform Act of 1976, Pub. L. 94-455, sec. 2003, 90 Stat. 1520, 1856. The purpose of the special use valuation provision is to reduce the estate tax burden, thereby alleviating liquidity problems faced by the surviving family of a person who died owning real property used2000 Tax Ct. Memo LEXIS 166">*190 as a farm or in a closely held business. See H. Rept. 94- 1380, at 21-22 (1976), 1976-3 C.B. (Vol. 3) 735, 755-756; see also S. Rept. 94-938 (Part 2), at 15 (1976), 1976-3 C.B. (Vol.3) 643, 657. Congress sought to allow the family to continue operating the farm or other business, rather than force the sale of the land to pay estate taxes. See Estate of Mapes v. Commissioner, 99 T.C. 511, 516-517 (1992); Estate of Thompson v. Commissioner, T.C. Memo 1998-325; H. Rept. 94-1380, supra at 21-22, 1976-3 C.B. (Vol. 3) at 755-756; S. Rept. 94-938 (Part 2), supra at 15, 1976-3 C.B. (Vol. 3) at 657.

Additionally, the benefit afforded by 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A is not open ended; the maximum aggregate reduction in value allowable by the statute for qualified real property with respect to any decedent is $ 750,000. See 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (a)(2)">sec. 2032A(a)(2).

Farms may be specially valued under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A by using one of two methods, the formula method under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) or the five-factor method under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8).

The first of these methods is the formula method under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). This method2000 Tax Ct. Memo LEXIS 166">*191 is based upon the capitalization of rents of comparable properties. The method is based on a strict formula (objective factors), and the formula is set forth in the statute and the regulations.

2000 Tax Ct. Memo LEXIS 166">*192

Under the formula method, the special use value is determined by reference to the cash rents of comparable properties. The special use value of the property is determined mathematically by taking the excess of:

(1) The average annual gross cash rental for comparable land used for farming purposes and located in the locality of such farm, over

(2) the average annual State and local real estate taxes for such comparable property.

This average rent amount is then divided by a capitalization factor based on the average annual effective interest rate for all new Federal Land Bank loans. The average annual computation is performed on the basis of the 5 most recent calendar years ending before the date of the decedent's death. See 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)(A)">sec. 2032A(e)(7)(A); 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (a)">sec. 20.2032A-4(a), Estate Tax Regs.

The annual gross cash rental is the amount of cash rental of actual tracts of comparable farmland in the same locality, not reduced by any expenses or liabilities associated with the farm. See 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (b)(1)">sec. 20.2032A-4(b)(1), Estate Tax Regs. The executor is required to identify actual comparable property and the cash rentals from the comparable property for all of a decedent's property that is specially valued.2000 Tax Ct. Memo LEXIS 166">*193 See Estate of Strickland v. Commissioner, 92 T.C. 16, 24 (1989). The regulations require that the executor be able to substantiate the valuation with supporting documentation, including identification of comparable property and cash rentals from that property. See sec. 20.2032A- 4(b)(2)(i), Estate Tax Regs.

26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">Section 2032A(e)(7) provides that the value of a farm for farming purposes shall be determined by the formula method of valuation unless: (1) It is established that there is no comparable land from which the average annual gross cash rental or average net share rental can be determined; or (2) the executor elects to have the value of the farm determined under the five factor method of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8). See 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)(C)">sec. 2032A(e)(7)(C).

The second valuation method is set forth under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8). This method is based upon the application of five valuation factors. The five factors set forth in 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) are: (1) The capitalization of income which the property can be expected to yield for farming purposes; (2) the capitalization of the fair rental value of the land for farmland; (3) the assessed land value2000 Tax Ct. Memo LEXIS 166">*194 for ad valorem real estate tax purposes; (4) the sale price of comparable parcels of farmland in the geographic area; and (5) any other factor which fairly values the farmland.

2000 Tax Ct. Memo LEXIS 166">*195

Valuation under the five factor method of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) is required under certain circumstances. If rents for comparable property are not available, then petitioner must use 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) to value the property. See 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (a)">sec. 20.2032A-4(a), Estate Tax Regs.

Petitioner asserts that the five estate tracts and the five leased tracts are "comparable land". Respondent contends that the five estate tracts and the five leased tracts are physically comparable as to land only and that the five estate tracts and the five leased tracts are not comparable in any manner in regard to timber volumes, timber quality, and timber quantity, and to rental values.

In order to use 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), the estate must identify "comparable land". The Oxford English Dictionary (1993), the Merriam-Webster's Collegiate Dictionary (10th ed. 1998), and the American Heritage College Dictionary (3d ed. 1993) define the word "comparable" as "able to be compared (with); worthy of comparison; fit to be compared (to)," "capable of or suitable for comparison," or "admitting of comparison with another or others."

26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">Section 20.2032A-4(d), Estate Tax Regs., defining "comparable real property,2000 Tax Ct. Memo LEXIS 166">*196 " states that "Comparable real property must be situated in the same locality as the specially valued property." In the case before us, location was the first consideration in determining the five leased tracts, as Dr. Haney excluded one of the two other potential comparables based on slightly greater distance. The five estate tracts and the five leased tracts are all located in the black belt soil area of western Alabama along the Mississippi border. Indeed, four out of the five leased tracts are located in the same county as all five estate tracts, and the fifth comparable is in the adjacent Pickens County on the north.

26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">Section 20.2032A-4(d), Estate Tax Regs., sets forth the following factors as among those to be considered in determining comparability:

     (1) Similarity of soil as determined by any objective

   means, including an official soil survey reflected in a soil

   productivity index;

     (2) Whether the crops grown are such as would deplete

   the soil in a similar manner;

     (3) The types of soil conservation techniques that

   have been practiced on the two properties;

     (4) Whether2000 Tax Ct. Memo LEXIS 166">*197 the two properties are subject to

   flooding;

     (5) The slope of the land;

     (6) In the case of livestock operations, the carrying

   capacity of the land;

     (7) Where the land is timbered, whether the timber is

   comparable to that on the subject property;

     (8) Whether the property as a whole is unified or

   whether it is segmented, and where segmented, the

   availability of the means necessary for movement among the

   different segments;

     (9) The number, types, and conditions of all buildings

   and other fixed improvements located on the properties and

   their location as it affects efficient management and use of

   property and value per se; and

     (10) Availability of, and type of, transportation

   facilities in terms of costs and of proximity of the

   properties to local markets.

Furthermore, the determination of properties which are comparable is a factual one and must be based on numerous factors, no one of which is determinative. See id.

The five estate tracts and the five leased tracts share all nine2000 Tax Ct. Memo LEXIS 166">*198 features applicable to timberland. See appendixes 1-5. First, the soil in the three-county black belt soil area of Alabama along the Mississippi border where all five estate tracts and the five leased tracts are located is a transition mix between sandy clay and post oak black belt soil. Second, none of the timber on the five estate tracts depletes the soil significantly or in a different manner from the timber on the five leased tracts. Third, the conservation techniques employed are similar. The conservation techniques are generally the same on all managed timberland. Leased property is clear cut and replanted instead of select cut which is true in almost every lease comparison. Fourth, all of the properties are subject to periodic flooding. Fifth, all of the land is relatively flat. Sixth, all of the properties have a hardwood/pine mix. Seventh, each of the properties is unified as a separate property but is segmented by logging roads that allow movement. Eighth, only two of the properties have any improvements, the Lanford A and the Woodward tracts. Those improvements are valued at approximately $ 2,707 and $ 5,610, respectively, according to the Butler & Gardiner appraisal. Ninth, 2000 Tax Ct. Memo LEXIS 166">*199 all of the properties in these three counties have access to secondary roads and similar access to markets.

As a general principle in valuing timberlands or any other type of real estate, no two properties are identical. Properties can be compared, however, when they have enough characteristics in common. Such properties may be similar but not identical as to those characteristics, and only rarely will any two properties be similar as to all factors. Special use valuation under the rent capitalization method necessarily requires comparison of unleased property with leased property. The reason is that property leased for a cash rental generally does not qualify for special use valuation, and this method requires a determination of the average rent on similar property that is leased.

Some differences invariably exist between any two timber properties, and Dr. Haney addressed such modest differences in his reports. First, he noted that the timber on one of the five estate tracts was virtually identical to the timber on one of the five leased tracts. He concluded, however, that a comparison to all five leased tracts would be more reliable. Second, he noted that the timber quality and2000 Tax Ct. Memo LEXIS 166">*200 capability of the five leased tracts were somewhat superior to the timber quality on the five estate tracts. On the basis of this difference, he concluded that a downward adjustment of no more than 10 percent was warranted.

Such an adjustment is inappropriate as it does not comply with Congress' purpose in providing a simple, objective "Method of valuing farms" in 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), which is embodied in 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (b)(2)(iii)">section 20.2032A-4(b)(2)(iii), Estate Tax Regs., and which prohibits the use of appraisals because they are not true measures of the actual cash rental value of comparable property in the same locality as the specially valued property.

Here, the five estate tracts and the five leased tracts are tracts of land of the same general size in the same locale, used for the same agricultural purpose, with the same soil and same slope. On the basis of normal timberland valuation principles and the factors noted above, the five leased tracts (four of which are located in Sumter County, Alabama) are highly comparable to each of the five estate tracts -- all of which are located in Sumter County. Thus, we find and determine that the five estate tracts and the five leased tracts are highly comparable.

2000 Tax Ct. Memo LEXIS 166">*201 In Estate of Thompson v. Commissioner, T.C. Memo 1998-325, we concluded that the taxpayer had failed to identify comparable real properties and cash rentals within the meaning of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), where the expert's adjusted net lease income per acre figures were more akin to an appraisal, which is expressly prohibited by 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (b)(2)(iii)">section 20.2032A-4(b)(2)(iii), Estate Tax Regs., rather than an accurate calculation of actual cash rents.

In Estate of Thompson we concluded that the expert's report was completely unreliable as to whether any of eight properties were indeed comparable to the subject property for the following reasons. First, the alleged comparable properties ranged in size from 44 acres to 34,365 acres, compared to the subject property of 2,929 acres. In addition, the expert made no adjustments due to differences in location, land quality, or timber type/maturity. Moreover, no description of the properties was contained in the expert's report.

In decedent's estate here, five out of seven tracts share nine out of the nine applicable features set forth in section 20.2032-4(d), Estate Tax Regs. For decedent's estate, the range in size of comparables is much tighter: 2000 Tax Ct. Memo LEXIS 166">*202 comparables of 261 to 1,665.28 acres (for subject properties ranging from 65-1670 acres). Furthermore, Dr. Haney excluded potential comparables because of differences in location, land quality, and timber type/maturity. Dr. Haney excluded the potential comparable in Fayette County because of location; he excluded a Pickens County tract with somewhat different slope and soil. Further, Dr. Haney proposed a 10-percent reduction to four of the subject properties, because of the superior quality of timber on the five leased tracts. As noted previously, however, such a reduction is inappropriate as appraisals are not true measures of the actual cash rental value of comparable property. Moreover, petitioner provided detailed descriptions of the subject properties and the leased properties in the original estate tax return; more detailed descriptions of the leased properties are provided in the leases and Dr. Haney's reports.

The eight leases in Estate of Thompson were entered into over a 27-year period, some with no rent escalation clause. For those leases with no rent escalation clause, the expert claimed to have applied the "Producer Price Index" (PPI) in an effort to calculate the market2000 Tax Ct. Memo LEXIS 166">*203 rental value of those properties for the 5- year period preceding decedent's death. Petitioner requested that we take judicial notice of Report 807, Escalation and Producer Price Indexes: A Guide for Contracting Parties issued by the U.S. Department of Labor, Bureau of Labor Statistics in September 1991 for the purpose of establishing that the PPI can be applied to contract rents to calculate accurately fair market rents for future years in the absence of escalation clauses, as the expert claimed to have done. We determined in Estate of Thompson that:

   Report 807 does not support the proposition that market

   rents for the relevant period can be accurately calculated

   from contract rents entered into several decades beforehand

   via the application of the PPI for purposes of section

   2032A(e)(7)(A) for those leases which do not themselves

   contain rent escalation clauses.  Rather, Report 807

   provides guidance to contracting parties with respect to the

   use of price adjustment clauses at the time the contract is

   entered into. * * *

In Estate of Thompson the average gross cash rental for the 5 years preceding the decedent's2000 Tax Ct. Memo LEXIS 166">*204 death was determined by the expert on the basis of his "personal knowledge * * * what I thought would be the indicated market rent for what I knew about the whole business, and that's it." Furthermore, the expert testified that he validated his estimate of the cash rental rate for the timberland by reference to the prevailing rate for cropland during the relevant period, of which there was no evidence.

In decedent's estate here, the special use valuation of the five estate tracts is based exclusively on actual cash rents from the five leased tracts for the 5 years preceding decedent's death. All five leases for the five leased tracts contain rent escalation clauses; as escalated, the leases constituted the prevailing rents during the statutory period on that type of land. Both the actual rents and State and local property taxes were explained and are fully substantiated with original source data. There is no adjustment to rents because petitioner used only actual current rents during the statutory period.

Respondent also asserts that the five estate tracts and the five leased tracts are not comparable in any manner in regard to the rental values. Respondent contends that the regulations2000 Tax Ct. Memo LEXIS 166">*205 require that "generally accepted real property valuation rules" be applied to determine comparability of the property. 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">Sec. 20.2032A-4(d), Estate Tax Regs. Respondent asserts that the maximum period allowed under real estate valuation rules is 5 years prior to the valuation date. On brief, respondent states this argument as follows:

   Leases that establish the applicable rents are leases that

   would have been negotiated and entered into during the

   five-year period. Leases that were negotiated more than

   five years prior to the date of death do not accurately

   reflect the economic conditions at the date of death and

   the current rental values of comparable lands.

   Comparability must be based on numerous factors, no one of

which is determinative. See 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">sec. 20.2032A-4(d), Estate Tax Regs. All factors generally considered in real estate valuation are to be considered in determining comparability under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A. See id. However, respondent seeks to exclude the comparable land on the basis of one factor and one factor only (the age of the leases -- which is not even one of the factors enumerated in the regulations).

Neither the statute2000 Tax Ct. Memo LEXIS 166">*206 nor the regulations support respondent's position in that respect. In this case, the parties stipulated that the typical timber lease in effect in western Alabama between 1987 and 1991 was entered into in the 1950's, 1960's, and early 1970's and was a long-term timber lease. Respondent's argument would exclude every lease executed before August 19, 1987, which would effectively operate to prevent estates in Alabama from using 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) to value timberland since the typical timber lease in effect in western Alabama between 1987 and 1991 was entered into in the 1950's, 1960's, and early 1970's.

Respondent has submitted an original and two rebuttal reports from his expert, Richard Maloy. Mr. Maloy contends that, "Comparable leases must have been negotiated under recent (5-year period of analysis) dates to ensure comparability of economic conditions." Mr. Maloy is simply parroting respondent's primary legal argument that would inject an arbitrary requirement for application of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) -- that is, as a matter of law no lease can be considered unless it was executed within 5 years of the date of death. We have stated before, in Alumax v. Commissioner, 109 T.C. 133, 171 (1997):2000 Tax Ct. Memo LEXIS 166">*207 "We shall disregard any opinion of an expert that constitutes nothing more than that expert's legal opinion or conclusion about a particular matter."

Mr. Maloy further states the following: "Lease comparability under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) would require recent leases, foreseeable within the 5-year average. This is relatively easy in row crop valuation, but generally eliminates the use of this section in timber land valuation."

Two consecutive paragraphs establish that the protection afforded farms by 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A was intended to apply to timberland. 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">Section 2032A(e)(7) sets forth the "Method of valuing farms." 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(4)">Section 2032A(e)(4) and 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (5)">(5) leaves no doubt that timber operations are included under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) and 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (8)">(8). Furthermore, factor (7) under 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">section 20.2032A-4(d), Estate Tax Regs., obviously contemplates that rented timberland may be comparable property.

As stipulated, the leases represented the typical timber leases in effect in western Alabama during the 5-year statutory period. Moreover, the inflation-adjusted rents paid under these leases constituted the prevailing rents in effect during the statutory period. All of the leases on the five leased tracts have escalation2000 Tax Ct. Memo LEXIS 166">*208 clauses. Moreover, in contrast to the fatal "judgment call" as to the annual rents in Estate of Thompson v. Commissioner, T.C. Memo 1998-325, the parties have stipulated the precise, actual annual gross rents for the statutory period.

Consequently, with their escalation clauses, the stipulated rents constitute the prevailing rents actually paid on comparable land in western Alabama under the typical/standard lease in effect during the statutory period. Once the unleased and the leased land are determined to be comparable (as we have found), 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) permits petitioner to use for valuation purposes the average annual gross cash rents for the 5 calendar years preceding decedent's death.

Petitioner asserts that the rent capitalization method of valuing farms incorporates the timber on the five estate tracts because (i) the right to cut timber is embedded in the standard timber leases from which that value is drawn, and (ii) the estate made a proper "qualified woodland" election pursuant to 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13). Respondent contends that the rent capitalization value includes only the value of the bare land and does not include the timber2000 Tax Ct. Memo LEXIS 166">*209 growing on decedent's lands.

Congress adopted 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13) as part of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec. 421(h), 95 Stat. 172, 311-312, which provides:

   (13) Special rules for woodlands. --

     (A) In general. -- In the case of any qualified woodland

   with respect to which the executor elects to have this

   subparagraph apply, trees growing on such woodland shall not

   be treated as a crop.

     (B)  Qualified woodland. -- The term "qualified woodland"

   means any real property which --

        (i) is used in timber operations, and

        (ii) is an identifiable area of land such as an

     acre or other area for which records are normally

     maintained in conducting timber operations.

     (C)  Timber operations. -- The term "timber operations"

   means --

        (i) the planting, cultivating, caring for, or

     cutting of trees, or

        (ii) the preparation (other than milling) of trees

     for market.

     (D)  Election.2000 Tax Ct. Memo LEXIS 166">*210 -- An election under subparagraph (A)

   shall be made on the return of the tax imposed by section

   2001.  Such election shall be made in such manner as the

   Secretary shall by regulations prescribe.  Such an election,

   once made, shall be irrevocable.

The report of the Senate Finance Committee accompanying the 1981 enactment of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13) specifically states that an election under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13) results in the standing timber's being thereafter specially valued as "part of the qualified real property on which the timber is located, rather than valuing it as other growing crops." S. Rept. 97-144, at 135 (1981), 1981-2 C.B. 412, 465. The Senate Finance Committee report explains how this provision interacts with the rent capitalization method:

     Special Rule for Standing Timber. -- The bill provides

   that the executor can elect to treat standing timber as an

   interest in real property and specially value the timber as

   part of the qualified real property on which the timber is

   located, rather than valuing it as other growing crops.

   Standing timber is to be specially valued2000 Tax Ct. Memo LEXIS 166">*211 by reference to

   similar timber located on comparable land where both the

   land and timber are rented for timber growing purposes under

   a cash or share rental lease.  If no comparable timber and

   land are so rented in the locality of the decedent's

   property, the timber and land are to be specially valued

   using the multiple factor method. [Id. at 135-136, 1981-2

   C.B. at 465; fn. refs. omitted.]

In sum, the timber is already included in the 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) rent capitalization value drawn from timber leases that include the right to cut timber.

The Senate Finance Committee report recognizes that, in the absence of timber leases, the 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) multiple factor method would apply. Congress adopted the statutory timber election with the intent that it would apply to the standard timber lease "on comparable land where both the land and timber are rented for timber growing purposes under a cash or share rental lease." That result is further confirmed by the distinction drawn by the Senate Finance Committee report that "Leases for purposes other than for growing timber to which the comparable land is subject are to be ignored2000 Tax Ct. Memo LEXIS 166">*212 in determining the value of qualified timber property in its current use." Id. at 135 n.10, 1981-2 C.B. at 465 n.10. The purpose of a timber lease is to capture the value of the timber. As demonstrated by the lease language, the 1987-91 rent from which the rent capitalization value is derived constituted the consideration for the right to grow and cut timber. The rent capitalization value captures the value of that timber just as Congress contemplated in the 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13) qualified woodland election.

The standard timber leases on the five leased tracts include the "timber * * * rented for timber growing purposes", as demonstrated by the following two stipulated facts. First, the rent paid under the leases applicable to the five leased tracts includes the consideration paid for the right to grow and cut the timber grown on the leased property during the term of the lease. Second, the estate timely elected and qualified for a "qualified woodland" election on 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A">section 2032A property that the estate seeks to value by reference to these timber leases. The value of the timberland is, therefore, included in the rent capitalization value of those tracts.

Respondent also contends that2000 Tax Ct. Memo LEXIS 166">*213 the "segmenting" language of 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">section 20.2032A-4(d), Estate Tax Regs., requires that the timber be separately valued. Respondent cites 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">section 20.2032A-4(d), Estate Tax Regs., which provides:

   It will, therefore, frequently be necessary to value farm

   property in segments where there are different uses or land

   characteristics included in the specially valued farm. * * *

   In cases involving multiple areas or land characteristics,

   actual comparable property for each segment must be used,

   and the rentals and taxes from all such properties combined

   (using generally accepted real property valuation rules) for

   use in the valuation formula given in this section.

Respondent asserts that because of the different land uses and characteristics of decedent's lands, 26 C.F.R. 20.2032A-4" type="regulation">26 C.F.R. 20.2032A-4 (d)">section 20.2032A-4(d), Estate Tax Regs., requires that the timberland, standing timber, and pastureland all be separately valued. Respondent further asserts that because the leases of "comparable land" that petitioner presented and relies upon are leases of only bare timberland which do not include the rental value of land containing standing timber or pasture, the leases2000 Tax Ct. Memo LEXIS 166">*214 are totally irrelevant to the valuation of standing timber or pastureland under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7).

In adopting and explaining the "qualified woodland" election in 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(13)">section 2032A(e)(13), Congress explicitly provided that the value of the timber would not be "segmented" and separately valued as a crop: Congress explained that the timber would be included in the rent capitalization value of the land where the underlying lease incorporated the right to grow and cut timber.

In short, the estate's timber is already incorporated into the rent capitalization value because the base rent already includes the right to cut the timber. Notably, the parties have stipulated that the standard timber leases covering the five leased tracts are precisely the type contemplated by the "qualified woodland" election. Each of them is a lease that covers the harvesting of timber grown during the term of the lease. We reject respondent's argument that the conspicuously labeled "qualified woodland" election does not apply to timber valued by reference to the standard woodlands lease. We conclude that the rent on the comparable land incorporates the value of the timber standing in 1992 because it pays for2000 Tax Ct. Memo LEXIS 166">*215 the right to harvest all timber grown during the term of the lease. Consequently, we hold that petitioner can value the timberland and standing timber under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7).

Petitioner asserts that the formula method under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) should also be applied to the portion of the estate's timberland which was in cleared pasture and suitable for a new stand of timber. Respondent contends that the pastureland must be valued using the five factor method of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8).

The parties stipulated that the Woodward parcel, which was in pasture (and therefore suitable for a new stand of timber), constitutes "qualified woodland". Consequently, we find that petitioner has provided comparable real property from which to value the Woodward tract, which was in pasture.

The following three parcels of pastureland did not constitute "qualified woodland":

      Tract        Valuation Elected

      _____        _________________

     Lanford A       150 acres - pasture

     Lanford B       125 acres - pasture

     Patterson     2000 Tax Ct. Memo LEXIS 166">*216   65 acres - pasture

Petitioner has failed to provide sufficient information from which to make a valuation of pastureland that does not constitute "qualified woodland" under the formula method. Section 20.2032A- 4(a) and (b)(2), Estate Tax Regs., requires that, if the estate desires valuation under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7), the executor must provide to the Internal Revenue Service leases of actual comparable property and the cash rental from the property. Although the record does contain a copy of a lease on clear land in Sumter County, petitioner has not satisfied us that this is comparable pastureland. Consequently, petitioner failed to satisfy the requirement to provide comparable leases and establish rental values of comparable pasturelands in order to specially value decedent's pastureland under 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). Consequently, there is no justification or basis for a 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7) valuation of the pastureland located on the Lanford A, Lanford B, and Patterson tracts.

Since the Woodward parcel of pastureland constitutes "qualified woodland", we hold that it may also be valued under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). Furthermore, we hold that the three parcels of pastureland2000 Tax Ct. Memo LEXIS 166">*217 that did not constitute "qualified woodland", located on the Lanford A, Lanford B, and Patterson tracts, must be valued under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8).

We find and conclude that the leases provided by petitioner are leases of comparable land for the 5 most recent calendar years ending before the date of decedent's death. Consequently, we hold that petitioner can value the timberland and standing timber under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). Since the Woodward parcel of pastureland constitutes "qualified woodland", we hold that it may also be valued under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7).

As a result, the rent capitalization value is the excess of (i) the average annual gross cash rents from the comparable five leased tracts for the prior 5 years ($ 9.6964) over (ii) the average annual State and local real estate taxes for the same period ($ 1.1592), divided by (iii) the average annual interest rate on Federal Land Bank loans for the same period (10.21 percent). The result is a per-acre rent capitalization value of $ 83.6161.

Furthermore, the improvements located on the Lanford A and Woodward tracts are valued at approximately $ 2,707 and $ 5,610, 2000 Tax Ct. Memo LEXIS 166">*218 respectively, according to the Butler & Gardiner appraisal. We hold that these amounts should be added to the value of the land.

In addition, we find and conclude that petitioner failed to satisfy the requirement to provide comparable leases and establish rental values of comparable pasturelands in order to specially value decedent's pastureland that did not constitute "qualified woodland" under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(7)">section 2032A(e)(7). As a result, we hold that the three parcels of pastureland that did not constitute "qualified woodland", located on the Lanford A, Lanford B, and Patterson tracts, must be valued under the provisions of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8). Consequently, the value of the pastureland for purposes of 26 U.S.C. 2032A" type="statute">26 U.S.C. 2032A (e)(8)">section 2032A(e)(8) is $ 350 per acre (less a 15-percent discount for pastureland in the Lanford A and Lanford B tracts).

We have considered all other arguments advanced by the parties, and to the extent they are not addressed herein, we find them to be neither relevant nor persuasive.

To reflect the foregoing,

Decision will be entered under Rule 155.

[Editor's Note: Appendixes 1 - 5 are not suitable for on-line presentation. The full text of Doc 2000-10910 (492000 Tax Ct. Memo LEXIS 166">*219 original pages) is available through Tax Analysts' Access Service.]