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 build.
  • 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 franchise.
      • 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 bridge).
    • The Court remanded to determine the value of the ten-year franchise on the day it was acquired by PPAC.
      • 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 bridge.