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HIGHTOWER v. UNITED STATES
PER CURIAM:
This case presents the single legal issue of whether or not the taxpayers are entitled to a deductible loss for federal income tax purposes under § 165 of the Internal Revenue Code for the demolition of three buildings owned by them in 1964. The buildings were demolished by a tenant of the taxpayers under a 99-year lease, which permitted the tenant to destroy the buildings, but did not require their destruction. The lease did not require replacement of the buildings or any other compensation to the taxpayers for the destroyed buildings, the rent being the same before and after destruction.
The lease provided as follows:
"The lessee, at the time of the commencement of the term hereof, shall have the right to demolish any and all structures or improvements presently located on the herein demised premises, which demolition shall be accomplished at the sole cost of the lessee, the lessee shall not be obligated to pay the lessors any sum or other considerations other than the payment of rent as hereinabove specified in, to, or concerning the demolition of said improvements."
This is the first time this question has been presented to this Circuit. In 1964 the Ninth Circuit decided the issue in favor of the taxpayer. Feldman v. Wood, 335 F.2d 264 (9th Cir. 1964). Recently the Seventh Circuit decided the issue in favor of the government. Landerman v. Commissioner of Internal Revenue, 454 F.2d 338 (7th Cir. 1971). More recently the Eighth Circuit in a split decision has followed Landerman and decided the issue in favor of the government in Foltz v. United States, 458 F.2d 600 (8th Cir. 1972). We affirm District Judge William A. McRae's reliance on the Feldman case for the reasons stated in his opinion and in the Feldman opinion itself. Hightower v. United States, 346 F. Supp. 707 (M.D. Fla. 1971).
We consider the rationale in the Feld-man case and the dissent in the Foltz case to be more persuasive than the difficult reasoning in the Landerman case. The regulations are clear and not inconsistent with the Code. The taxpayers were entitled to rely on them.
Section 165 of the Internal Revenue Code of 1954 and U.S. Treasury Reg., § 1.165-3(b)(1) and (2):
This decision is not inconsistent with our holding in Holder v. United States, 444 F.2d 1297 (5th Cir. 1971). There we held that the taxpayer was not entitled to a loss because the lease required the tenant to replace the demolished building with other buildings meeting certain specifications and value. Thus "they were compensated for their loss by the lessee's contractual duty to construct other improvements to be delivered to taxpayers at the termination of the lease." (p. 1300). There is no such contractual duty under the Hightower lease.
Affirmed.
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