Philadelphia Park Amusement Co. v. United States
(The Strawberry Bridge Case)
126 F.Supp. 184 (Ct. Cl. 1954)
PPAC had a franchise to
operate a railway into an amusement park. They built a bridge over a
river for their streetcars to use.
The bridge cost $381k to
Years later, when the
franchise was about to expire, PPAC gave the deed for the bridge to the
city in exchange for a ten-year extension of the franchise.
By this time, the bridge was
in need of repairs, and PPAC didn't really want to pay to fix it, so they
gave it to the city instead.
Seven years later (with three
years left on the franchise agreement), PPAC abandoned the railway.
When it came time to pay
taxes, both PPAC and the IRS differed on the basis of the ten-year extension.
The basis is the initial value that the taxpayer had.
The basis is important because depreciation deductions
based on the cost of the franchise extension and loss upon abandonment
can only be calculated if you know the initial value (aka the basis) of the franchise.
PPAC argued that there was
no way to determine the market value of the ten-year extension, so the
proper basis would be the initial
value of the bridge ($381k).
If you assume that the
franchise was now worthless, that would mean that PPAC could claim a
loss of $381k -$0 = $381k.
The IRS argued that the
bridge was worthless because it was in bad repair. Alternately, PPAC
didn't 'exchange' the bridge for the ten-year extension, therefore the
value of the bridge it irrelevant in determining the value of the
That would mean that PPAC
could claim a loss of $0 - $0 = $0.
The Appellate Court remanded.
The Appellate Court found
that the basis of the ten-year
franchise was its value on the day it was obtained by PPAC.
The Court found that by
definition, the value of the ten-year franchise is the fair market value
of the ten-year franchise.
It is not the value of the thing it was exchanged for
The Court remanded to
determine the value of the ten-year franchise on the day it was acquired
The Court noted that in
rare cases, the value of the property received cannot be ascertained.
If so, the value of the property given can be used as a good estimate.
Since generally people
exchange things of equal value.
Sometimes this case is called
the "Strawberry Bridge Case" because that was the name of the