Koch v. Comm'r of Internal Revenue

Decision Date23 October 1978
Docket NumberDocket No. 9648-76.
Citation71 T.C. 54
PartiesCARL E. KOCH AND PAULA KOCH; FREDERICK W. KOCH AND ROBIN E. KOCH, A. K. A., ROBIN E. PRUITT; WILLIAM A. BOMBERGER AND CAROLYN L. BOMBERGER; AND JOHN J. KOCH, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

In 1973 and 1974, petitioners exchanged unencumbered parcels of real estate which they owned in fee simple for parcels of real estate which were subject to 99-year condominium leases. Held, the properties so exchanged are properties of a like kind within the meaning of sec. 1031(a), I.R.C. 1954, and no gain is recognized on the exchanges. Michael D. Annis and Michel G. Emmanuel, for the petitioners.

Robert J. Shilliday, Jr., and William D. Brackett, for the respondent.

FEATHERSTON, Judge:

In this case,1 respondent determined deficiencies in petitioners' Federal income tax for the years 1972, 1973, and 1974, as follows:

+--------------------------------------------------------------+
                ¦Petitioners                ¦1972      ¦1973       ¦1974       ¦
                +---------------------------+----------+-----------+-----------¦
                ¦Carl E. Koch and Paula Koch¦$24,601.09¦$248,222.50¦$417,808.50¦
                +--------------------------------------------------------------+
                
Frederick W. Koch and Robin E
                Koch (a.k.a. Robin E. Pruitt)  0 147,067.02 0
                
William A. Bomberger and
                Carolyn L. Bomberger     0 134,980.98 0
                John J. Koch             0 137,849.71 0
                

Other issues having been settled, the issues which remain for decision are as follows:

(1) Whether petitioners' exchanges in 1973 and 1974 of fee interests in real estate for fee interests in real property subject to 99-year condominium leases are like kind exchanges within the meaning of section 1031(a).2

(2) In the alternative, if gain is recognized under section 1001(c), what is the fair market value of the properties received by petitioners in the contested exchanges during 1973 and 1974?

FINDINGS OF FACT

At the time the petition was filed, Carl E. Koch and Paula Koch, husband and wife, were legal residents of Fort Lauderdale, Fla. They filed their joint Federal income tax returns for 1972, 1973, and 1974, with the Office of the Internal Revenue Service, Chamblee, Ga.

At the time the petition was filed, Frederick W. Koch was a legal resident of Victoria, Australia. At the time of filing the petition, Robin E. Koch (a. k. a. Robin E. Pruitt) was a legal resident of Eureka Springs, Ark. The joint Federal income tax return filed by Frederick W. Koch and Robin E. Koch for 1973 was filed with the Office of the Internal Revenue Service, Austin, Tex.

At the time the petition was filed, William A. Bomberger and Carolyn L. Bomberger, husband and wife, were legal residents of Bloomfield Hills, Mich. They filed their joint Federal income tax return for 1973 with the Office of the Internal Revenue Service, Cincinnatti, Ohio.

At the time the petition was filed, John J. Koch was a legal resident of San Marcos, Tex. He filed his individual Federal income tax return for 1973 with the Office of the Internal Revenue Service, Austin Tex.

All of the above-named petitioners (hereinafter referred to collectively as petitioners) employed the cash receipts and disbursements method of accounting in reporting their income for the years in issue.

In 1973, the following petitioners each held a 20-percent interest in the Glen Oaks Golf Club partnership (sometimes hereinafter the partnership): Carl E. Koch, Paula Koch, John J. Koch, Frederick W. Koch, and Carolyn Bomberger. Prior to the transaction hereinafter described, the partnership was engaged in the business of operating an 18-hole golf course and a 2,777-square-foot clubhouse. The primary asset owned by the partnership was 29.7 acres of real estate improved with the golf club and located in Clearwater, Fla.

On February 14, 1973, the partners in the Glen Oaks Golf Club partnership (hereinafter the partners or Koch) and Imperial Land Corp. (hereinafter Imperial) entered into an agreement (hereinafter the 1973 agreement) whereby the partners agreed to convey the Glen Oaks Golf Club property, described in the 1973 agreement as “Parcel A,” to Imperial in exchange for a conveyance by Imperial to the partners of certain property, designated and described in the 1973 agreement as “Parcel B.”

Paragraph 1 of the 1973 agreement provided as follows:

KOCH agrees to convey Parcel A to IMPERIAL in exchange for a conveyance by IMPERIAL of the fee title in and to Parcel B (including the reversionary interests in all improvements) and the lessor's interest under the long-term leases covering the tracts which compose Parcel B.

Paragraph 2 of the 1973 agreement provided as follows:

IMPERIAL agrees that all ground rentals from said Parcel B shall be paid to KOCH beginning June 1, 1973. Ground rent for all apartment units which remain unsold as of June 1, 1973 shall be paid by IMPERIAL to KOCH until sold to individual purchasers, at which time any liability for further ground rent payment to IMPERIAL for that unit shall cease. Subject to the other terms and conditions herein, the exchange of deeds shall be consummated on June 1, 1973 and all taxes and rentals shall be prorated as of that date. In the event that at the closing date IMPERIAL has not completed its application for rezoning, then the closing may be postponed to an additional sixty (60) days to enable IMPERIAL to complete the application for rezoning. However, if the closing date is extended for this reason, all proration of rentals and taxes will still be made as of June 1, 1973.

Paragraph 5 of the 1973 agreement provided as follows:

Prior to the closing date the parties hereto agree:

(a) KOCH shall execute a warranty deed to IMPERIAL covering Parcel A, and shall deposit the deed with its attorney for inspection and approval by IMPERIAL'S attorney.

(b) IMPERIAL shall execute a warranty deed covering Parcel B to KOCH and shall deposit the deed with its attorney for inspection and approval by KOCH's attorney.

(c) Upon approval of the respective deeds, the attorneys shall exchange the deeds for recording.

(d) The deeds shall convey title free and clear of all liens and encumbrances except the leases on Parcel B, easements and restrictions of record, and taxes for the year 1973.

Paragraph 7 of the 1973 agreement provided as follows:

In order to facilitate the subordination of the fee title where required, KOCH agrees to give a power of attorney to a resident of either Pinellas County or Hillsborough County empowering such attorney-in-fact to execute subordination agreements whereby the fee title to an individual condominium is subordinated to any mortgage placed on such condominium by unit.

Parcel B was made up of 5 subparcels, each developed as condominium parcels under the Florida Condominium Act and each subject to certain 99-year leases as follows:

+-----------------------------------------------------------------------------+
                ¦             ¦           ¦           ¦Yearly    ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦             ¦           ¦Yearly     ¦amount    ¦Next date     ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Name of      ¦Date of    ¦amount of  ¦of rent   ¦on which      ¦Date of      ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦condominium  ¦long-term  ¦original   ¦prior to  ¦rent may      ¦termination  ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦subparcel    ¦lease      ¦rent       ¦exchange  ¦be increased  ¦of lease     ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Imperial Park¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Cooperative  ¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Apartments I ¦6/1/67     ¦$6,708     ¦$7,888    ¦6/1/72        ¦5/30/2066    ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Imperial Park¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Cooperative  ¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Apartments II¦7/1/69     ¦7,200      ¦7,200     ¦7/1/74        ¦6/30/2068    ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Imperial Park¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Condomimium  ¦12/24/70   ¦12,222     ¦12,222    ¦12/24/75      ¦12/23/2069   ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Mission Hills¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Condominium  ¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Villas       ¦11/1/71    ¦74,029     ¦74,029    ¦11/1/76       ¦10/31/2070   ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Chateau      ¦           ¦           ¦          ¦              ¦             ¦
                ¦Belleair     ¦           ¦           ¦          ¦              ¦             ¦
                +-------------+-----------+-----------+----------+--------------+-------------¦
                ¦Condominium  ¦4/1/72     ¦39,500     ¦39,500    ¦4/1/77        ¦3/31/2071    ¦
                +-----------------------------------------------------------------------------+
                

Imperial Park Condominium, Imperial Park Cooperative Apartments I, and Imperial Park...

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