Liant Record, Inc. v. Commissioner

303 F.2d 326 (2nd Cir. 1962)

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Nature of the Case

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Facts

Liant (P) and Norman Einstein owned a 25-story office building in Manhattan. The City of New York instituted condemnation proceedings against Ps' office building. Each of the taxpayers received payments is settlement for the condemned property during 1954 and 1955 which substantially exceeded their respective tax bases in the property. Between July 12, 1955, and November 1, 1956, Ps acquired three pieces of real estate, each containing an apartment building. P's contribution to the total purchase prices of the three parcels exceeded his share of the proceeds from the condemnation.

Ps held the properties for rental income and did not occupy any of the properties. P, contending that their gain on the involuntary conversion was nontaxable under §1033 did not report any income from the disposition of the condemned office building. The IRS (D) took the view that the three apartment buildings were not 'similar or related in service or use' to the condemned office building, and that therefore the taxpayers should have reported an aggregate capital gain on their 1955 income tax returns of $427,012.61. The Tax Court upheld the deficiency on the ground that the actual physical end use of the original property by the lessees as offices differed from the end use of the replacement properties by the lessees as apartments. Ps appealed.