Taxation – Federal Income Tax – Involuntary Conversion Treatment Afforded Sale of Remaining Property After Partial Condemnation

Petitioner owned two parcels of real estate across the street from each other which were used as one “economic unit” for purposes of a trucking terminal. One parcel was improved with a terminal building from which trucks would pick up and deliver their shipments, while the other was used as a parking lot for trucks not in use. Petitioner was forced to sell the parking lot under threat of condemnation. Since it was economically unfeasible to operate his business without a nearby parking lot, petitioner subsequently sold the terminal facilities and reinvested the proceeds from the sales of both properties in new terminal facilities. In his 1951 tax return petitioner treated the gain from the sale of the terminal facilities, as well as from the sale of the parking lot, as non-recognized gain under section 112(f) of the 1939 Code, which provides for non-recognition of gain from involuntarily converted property. The Commissioner assessed a deficiency on the ground that the sale of the terminal facilities was a regular sale of business property which was not threatened with involuntary conversion. It was stipulated that the petitioner would not have sold the terminal facilities if the parking lot had not been involuntarily converted. In a Tax Court proceeding, held, for petitioner. When two practically adjacent pieces of property are used together as one economic unit and the sale of one piece under threat of condemnation renders the continuation of business on the remaining piece impractical, if the remaining piece is sold and the proceeds of both sales reinvested in similar property, the entire transaction is to be considered as an “involuntary conversion” of one economic unit within the meaning of section 112(f). Harry G. Masser, 30 T.C. 741 (1958).