43 T.C. 736 (1965), 3422-62, Johnson v. C. I. R.
| Citation | 43 T.C. 736 |
| Opinion Judge | DAWSON, Judge: |
| Party Name | HARVEY J. JOHNSON AND HELENE C. JOHNSON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Attorney | John H. Bustamante, for the petitioners. John P. Graham, for the respondent. |
| Judge Panel | DRENNEN, J., dissenting: I respectfully dissent. RAUM, TRAIN, and HOYT, JJ., agree with this dissent. |
| Case Date | March 09, 1965 |
| Court | U.S. Tax Court |
Page 736
Petitioner, who rented farm property which was taken in condemnation proceedings by a railroad for use as a marshalling yard, reinvested the proceeds she received in a fee interest in land subject to a long-term lease to an oil company which operated a gasoline service station on the property. Held, that since both the converted and replacement properties were held by petitioner for investment purposes, the replacement property was ‘ similar or related in service or use to the property so converted,‘ within the provisions of section 1033(a)(3)(A), I.R.C. 1954, and that the petitioner is entitled to nonrecognition of gain upon the disposition of the converted property. S.E. Ponticos, Inc. v. Commissioner, 338 F.2d 477 (C.A. 6, 1964), followed.
Respondent determined a deficiency in the income taxes of petitioners for the calendar year 1957 in the amount of $19,122.32.
The only issue presented is whether the petitioner, Helene C. Johnson, reinvested the proceeds she received from farm property, which was taken by the Cleveland & Pittsburgh Railroad Co. pursuant to condemnation proceedings, in other property ‘ similar or related in service or use’ to the converted property within the meaning of section 1033(a)(3)(A) of the Internal Revenue Code of 1954.
Page 737
FINDINGS OF FACT
Some of the facts are stipulated and are so found.
Harvey J. Johnson and Helene C. Johnson (herein sometimes called petitioners) are husband and wife. They filed their joint Federal income tax return for the taxable year 1957 with the district director of internal revenue, Cleveland, Ohio. On June 11, 1959, they filed an amended joint Federal income tax return for 1957 with the same district director.
On October 23, 1946, Harvey J. Johnson purchased by land contract a tract of rural farmland containing 55.57[1] acres in Summit County, Ohio. The property adjoined for slightly over one-half mile the right-of-way of the Cleveland & Pittsburgh Railroad Co. Located on the property was a three-room cottage with attached clubhouse, a barn with stables, a toolshed, and a five-car garage.
Title to the 55.57 acres was obtained by Harvey J. Johnson by deed dated September 2, 1952. In 1956, Harvey conveyed this property by deed to his wife, Helene C. Johnson (herein called petitioner). This conveyance was a gift without monetary consideration.
Harvey J. Johnson purchased the farm property for investment purposes, realizing that because of industrial expansion in that area the property would probably increase in value. The property was located approximately halfway between Cleveland and Akron, just west of Route 8 which is the main highway connecting Cleveland and Akron. A racetrack was located not too far from the property as well as industrial plants of the Ford Motor Co., the Chrysler Corp., and General Motors.
The 55.57-acre tract was commonly known as Johnson's Farm. From 1946 until sometime in 1954, petitioners leased the property to the Breezy Air Riding Club, a nonprofit Ohio corporation, which used the premises as its headquarters and as a place for its members to ride horses and carry on their social activities. The Club had a liquor license. There was a written lease in 1946 which was extended orally on a month-to-month basis after 1947. The agreed rental was to be $400 per month with the lessee exclusively operating the premises. However, contrary to the terms of the lease, the riding club paid only such amounts as it could afford to pay. Petitioners made the necessary repairs and paid the taxes, insurance, and utilities. Harvey J. Johnson was one of the founders of the club and served as its president for the first 2 years. Petitioners occasionally visited the property, although they never occupied the premises.
During the 1956 petitioners made arrangements with several horse owners at the nearby racetrack to keep their horses in the barn at the
Page 738
farm for livery or stable fees. The gross income from the farm property in 1956 was $1,995, as compared with $2,321.65 in 1954.
In 1954 there were newspaper reports that the Cleveland & Pittsburgh Railroad Co. might need a marshalling yard in the general area. In 1955 and 1956 negotiations were conducted by the railroad with a view toward purchasing petitioner's property. The railroad...
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Sec. 1033 can allow for flexible tax-free reinvestments.
...a "reasonably similar continuation of the petitioner's prior commitment of capital and not a departure from it." Harvey J. Johnson, 43 T.C. 736,741 (1965). While it is not necessary to acquire property which duplicates exactly that which was converted (Loco Realty Co. v. Commissioner, 306 F......