Aldridge v. Comm'r of Internal Revenue
| Decision Date | 24 December 1968 |
| Docket Number | Docket No. 6447-66. |
| Citation | 51 T.C. 475 |
| Parties | HARRY D. ALDRIDGE AND VIRGIL ALDRIDGE, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James E. Banahan, for the petitioners.
Frederick W. Krieg, for the respondent.
Property of petitioners was condemned in 1963 and the condemnor deposited the amount of the initial award, as determined by a Kentucky county court, with the clerk of the court. Petitioners appealed the award amount and did not obtain the deposit until the litigation was settled in 1965, at which time payment to them was made. Kentucky law specified that withdrawal of the deposit would not prejudice petitioners' appeal but that they would be required to pay interest to the condemnor on any amount withdrawn in excess of the amount finally determined on appeal. Held, petitioners constructively received the amount deposited in 1963.
Respondent determined a deficiency of $1,879.86 in petitioners' income taxes for the taxable year ending December 31, 1963. In light of certain concessions by petitioners, the only remaining issue is whether petitioners constructively received $13,600 in 1963.
Some of the facts have been stipulated and are found accordingly.
Petitioners, husband and wife, had their legal residence in Nicholasville, Ky., at the time they filed the petition herein. They filed a joint income tax return on the cash basis for the calendar year 1963 with the district director of internal revenue in Louisville, Ky.
During 1963, the Department of Highways of the Commonwealth of Kentucky (hereinafter sometimes referred to as the condemnor) sought to acquire unimproved land owned by petitioners for a highway. In November 1963, condemnation proceedings were begun in the Fayette County Court, Lexington, Ky. (hereinafter referred to as the County Court). Petitioners' cost basis in the parcel involved (hereinafter referred to as the condemned land) was $2,814.38.
The County Court appointed appraisers, who reported to the court that the condemned land had a value of $13,600, that the damages to the adjacent land owned by petitioners were $16,350, and that a temporary easement needed by the condemnor had a value of $50.1 On November 26, 1963, the condemnor deposited the total amount, $30,000, with the clerk of the County Court.
Petitioners filed an answer in the condemnation action, challenging the necessity of the condemnation and the condemnor's authority therefor. On December 16, 1963, the County Court handed down a judgment which held that the condemnation was proper under section 177.081 of the Kentucky Revised Statutes, that the report of the commissioners (appraisers) conformed to the provisions of kentucky law, that the condemnor could take possession of the land upon the payment of costs of the action and of the $30,000 award to petitioners or the clerk of the court, and that petitioners should vacate the land and deliver possession to the condemnor upon payment of the $30,000 award. The prior deposit of $30,000 made by the condemnor constituted compliance with the payment provisions specified in the judgment.
By virtue of the provisions of section 177.087 of the Kentucky Revised Statutes, both the condemnor and petitioners had 30 days, from and after December 16, 1963, in which to file an appeal from the judgment of the County Court.
On January 10, 1964, petitioners filed an appeal, limited solely to the amount of the award, with the Fayette Circuit Court. After a series of negotiations, the condemnor agreed in November 1965 to a total payment of $35,000. An agreed order of settlement was obtained from the Fayette Circuit Court, which directed the clerk of the County Court to pay over the $30,000 deposit to the petitioners, the condemnor to pay over another $5,000, and the petitioners to execute and deliver a deed to the property to the condemnor.
At no time prior to this order of settlement had the petitioners ever attempted to withdraw the $30,000 deposited with the clerk of the County Court. Petitioner Harry D. Aldridge felt that to withdraw the deposit while the appeal was pending would jeopardize his chance of obtaining more than $30,000. In December 1965, petitioners were paid the $30,000 deposit under the settlement order. In the same month, they executed a deed to the condemned property and delivered it to the condemnor. In January 1966, the condemnor paid them the final $5,000.
Petitioners were not allowed to use the condemned land after the judgment of December 16, 1963, but the condemnor did not take actual possession until 1966.
In May 1965, petitioners replaced the condemned land. Respondent has conceded that the property thus purchased was ‘similar or related in service or use’ to the condemned property.
Petitioners' 1963 Federal income tax return did not include in gross income any amount attributable to the condemnation of the property and in no way reported the condemnation. Petitioners' 1965 Federal income tax return reported the condemnation and recited an election ‘to postpone recognition of any gain since a new farm was acquired in 1965 to replace existing farm.’
On July 14, 1966, petitioners requested that the district director of internal revenue grant them a retroactive extension of the period during which property could be replaced under section 1033, I.R.C. 1954. On August 9, 1966, this request was denied.
OPINIONIt is conceded that petitioners have, with one exception, complied with the provisions of section 10332 regarding the nonrecognition of gain from the involuntary conversion of property. The exception relates to the question whether the replacement of the condemned property in May 1965 was accomplished wit in ‘one year after the close of the first taxable year in which any part of the gain upon the conversion is realized.’ Sec. 1033(a)(3)(B)(i). 3 If petitioners realized gain in 1963, they are taxable thereon in 1963, since the replacement did not occur within the prescribed period.
Petitioners' land was the subject of condemnation proceedings. On December 16, 1963, a County Court in Kentucky handed down its judgment that the land was the proper subject of condemnation and that petitioners should receive $30,000 compensation therefor. The condemnor (the Department of Highways of the Commonwealth of Kentucky) was authorized to take possession of the land upon the payment of the $30,000 either to petitioners or to the clerk of the court. It had deposited that sum with said clerk on November 26, 1963, and this deposit complied with the payment provisions of the judgment. Both parties had 30 days from the entry of judgment to file an appeal and, on January 10, 1964, petitioners did appeal. Subsequent negotiations resulted in a settlement of the condemnation proceedings in November 1965 at an increased amount of $35,000. At no time prior to the settlement did petitioners attempt to withdraw the $30,000. From and after December 16, 1963, petitioners were not allowed to use the land, but the condemnor did not take actual possession until 1966. Petitioners withdrew the $30,000 deposit in December 1965 and executed a deed of the land at about the same time. The remaining $5,000 was paid to them in January 1966.
The condemnation was carried out under sections 177.081 through 177.089 of the Kentucky Revised Statutes Annotated, the pertinent provisions of which are as follows:4
177.087 Time for filing and proceedings upon appeals to the circuit court and Court of Appeals.
(4) The payment by the condemnor of the amount of compensation awarded and the taking possession of the lands and material condemned shall not prejudice its right to appeal from the judgment of any court, nor shall the acceptance by the owner of the amount of the compensation awarded prejudice his right to appeal from the judgment of any court.
(5) If the condemnor takes possession of the land and material condemned and the amount of compensation is therefore increased upon an appeal, the condemnor shall pay interest to the owner at the rate of six percent per annum upon the amount of such increase from the date the condemnor took possession of the land and material. If the condemnor takes possession of the land and material condemned and the amount of compensation is thereafter decreased upon an appeal, the condemnor shall be entitled to a personal judgment against the owner for the amount of the decrease plus interest at the rate of six percent per annum from the date the owner accepted the amount of compensation the condemnor paid into Court or to the owner. If the owner at all times refuses to accept the payment tendered by the condemnor, no interest shall be allowed in the judgment against the owner for the amount of the decrease.
177.088 Payment of compensation into court.
All money paid into Court or paid or transferred to the Clerk of a Court under the provisions of KRS 177.081 to 177.089 shall be received by the Clerk of the Court and held subject to the order of the Court, for which the Clerk and his sureties on his official bond shall be responsible to the persons entitled thereto.
Against the foregoing background, petitioners argue that, as cash basis taxpayers, their right to the funds on deposit with the clerk of the County Court was subject to substantial limitation or restriction so that the funds were not constructively received by them in 1963. Respondent contends that petitioners could have drawn the entire $30,0005 in December 1963 so that they should be held constructively to have received that amount in that year. 6 We have concluded that respondent's position should be sustained.
Petitioners made a two-pronged argument against a holding of constructive receipt in 1963. The first prong is that if they had withdrawn the deposit, they might have been required, upon an appeal, to repay all or a portion of the same with interest by virtue of section 177.087(5) of the Kentucky...
To continue reading
Request your trial
-
Casalina Corp. v. Comm'r of Internal Revenue
...not sufficiently clear to indicate whether Casalina realized income at the time the deposits were placed with the court. Cf. Harry D. Aldridge, 51 T.C. 475 (1968); Covered Wagon, Inc. v. Commissioner, 369 F.2d 629 (C.A. 8, 1966), affirming, but remanding for computations, a Memorandum Opini......
-
Kent Homes, Inc. v. Comm'r of Internal Revenue
...actually made, and the differences between the positions of accrual and cash basis taxpayers in this type of situation. See Harry D. Aldridge, 51 T.C. 475, 482 (1968). Reviewed by the Court. Decision will be entered for the respondent in docket No. 4456-68. Appropriate decisions in accordan......
-
Rutland v. Commissioner
...substantial interest in order to take that amount. The situation in the Steck case is sharply in contrast to that in Harry D. Aldridge Dec. 29,281, 51 T.C. 475 (1968), in which we held that a taxpayer constructively received an amount set aside for him in a condemnation proceeding since pos......
-
MARCO S. MARINELLO ASSOCIATES, INC. v. Commissioner
...would have had to pay interest on any amount of the pro tanto award that it would have been required to refund. Harry D. Aldridge Dec. 29,281, 51 T.C. 475, 479 (1968). Associates next contends that, if gain was recognized by virtue of the 1965 payments, it is entitled to defer recognition o......
-
Tax Tips
...gain was realized). 18. See, e.g. Casalina Corp., 60 T.C. 694 (1973), aff'd per cur. 511 F.2d 1162 (4th Cir. 1975); Henry D. Aldridge, 51 T.C. 475 (1968). 19. Treas. Reg. § 1.1033(a)-2(c)(3); Rev. Rul. 60-69, 1960-1 C.B. 294. 20. Dettmers v. Comm., 430 F.2d 1019 (6th Cir. 1970); Rev. Rul. 5......