McCaffrey v. Comm'r of Internal Revenue

• Decision Date: 11 December 1958
• Docket Number: Docket No. 63992.
• Citation: 31 T.C. 505
• Parties: THOMAS McCAFFREY, JR., AND LILLIAN S. McCAFFREY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

31 T.C. 505

THOMAS McCAFFREY, JR., AND LILLIAN S. McCAFFREY, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 63992.

Tax Court of the United States.

Filed December 11, 1958.

Robert G. MacAlister, Esq., for the petitioners.

David L. Ketter, Esq., for the respondent.

Petitioner's real property, which was situated in a downtown industrial section of Pittsburgh, Pennsylvania, and which at the time of acquisition as well as during the petitioner's ownership was leased for, and was used for, parking purposes, was ‘involuntarily converted’ into cash through condemnation proceedings. The petitioner used the proceeds of the conversion to purchase stock in an acquisition of control of a corporation which owned real property situated in the industrial section of New Castle, Pennsylvania, and which the corporation leased to the Federal Civil Defense Administration for use for warehouse purposes. Held, that there was not sufficient similarity or relation in service or use of the corporation's property to the petitioner's converted property to entitle petitioner to the nonrecognition of gain provisions of section 112(f), I.R.C. 1939.

WITHEY, Judge:

The respondent determined a deficiency of $11,082.10 in the income tax of the petitioners for 1953. The only issue presented for decision is whether the petitioners are entitled to the nonrecognition of gain exemption provided for in section 112(f) of the Internal Revenue Code of 1939, with respect to a transaction wherein real property used for a parking lot was taken by condemnation proceedings by the Commonwealth of Pennsylvania and the proceeds received by petitioner Thomas McCaffrey, Jr., from the condemnation proceedings were used by him to purchase stock in the acquisition of control of a corporation which, for the purpose of leasing for use as a warehouse, purchased vacant improved real property which it leased for warehouse purposes.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found accordingly.

The petitioners are husband and wife, with Royal York Apartments, Pittsburgh, Pennsylvania, as their mailing address. The petitioners filed their joint individual Federal income tax return for 1953 with the district director in Pittsburgh, Pennsylvania.

Since only petitioner Thomas McCaffrey, Jr., was involved in the transaction under consideration herein, the term petitioner sometimes hereinafter will be used to refer to him. Since 1923 the petitioner has been engaged in the business of an industrial realtor and appraiser.

In 1947, and at a cost of $15,000, the petitioner acquired an interest as one of two coowners in certain real property located at 556-562 Second Avenue in the First Ward of Pittsburgh, Pennsylvania, and sometimes hereinafter referred to as the Pittsburgh property.

In 1923 and for an undisclosed period thereafter prior to 1947 the Pittsburgh property was used as a coal yard under a lease arrangement with the owner of an adjacent property. The neighboring properties were industrial in nature. The Pittsburgh property in 1923 was rectangular in shape with dimensions of 80 feet by 180 feet fronting on Second Avenue, was served by a railroad siding of the Pennsylvania Railroad, and had no buildings on it.

When the petitioner acquired his interest in the property in 1947, the dimensions of the property were the same as stated above. The property had been filled, graded, and black topped. Other than the grade that accommodated the leveling, the property was level with the street. The railroad siding still served the property. The property also was served by the usual utilities— water, gas, electricity, and telephone. There was on the property a small frame building which was adaptable for use only in the operation of a parking lot. Even though there had been some changes in ownership since 1923, the neighboring properties continued to remain substantially industrial in nature.

At the time the petitioner acquired his interest in the Pittsburgh property in 1947, Buford B. Epstein owned a property adjacent to and approximately of the same area as the Pittsburgh property. At that time Epstein, using his own property and the Pittsburgh property on which he held a lease, was engaged in the business of conducting a parking lot operation thereon. Throughout the entire period the petitioner owned an interest in the Pittsburgh property the property was leased to Epstein who continued to use it and his own property in the conduct of his parking lot operation. The leases from the petitioner and his coowner to Epstein ran for a period of 1 year, provided that the property should be used only for parking purposes, and contained a ‘sales clause’ under which the owners in the event of the sale of the property could cancel the lease effective as of the first day of any month by giving Epstein 30 days' previous notice.

In 1952 the Commonwealth of Pennsylvania condemned the Pittsburgh property and in 1953 paid in condemnation to the petitioner for his interest therein the sum of $57,477.27. The excess of the condemnation proceeds over the cost to the petitioner for his interest in the property was $42,477.27.

After the petitioner received notice of the condemnation of the Pittsburgh property he investigated the possibility of obtaining within the downtown limits of Pittsburgh an industrial property of similar size but was unable to find any ‘to accommodate my (his) desires.’ The petitioner then made an investigation in other cities and other counties. He found available in the city of New Castle, Pennsylvania, which is in western Pennsylvania and about 50 miles distant from Pittsburgh, a 9 1/3-acre tract of industrially zoned real estate situated on Industrial Street in New Castle, then owned by American Can Company and sometimes hereinafter referred to as the New Castle property. On the tract was a building¹ 2 stories in height of brick and wood construction with concrete and wood floors, equipped with elevators, sprinkler system, and heating system, and of overall dimensions of 694 feet by 80 feet. Also on the tract were an engine room, garages, and lumber shed. The New Castle property was situated in an industrial neighborhood, was served by two Baltimore & Ohio Railroad sidings, and had all necessary utilities available. An undisclosed portion of the tract was surfaced with black top and cinder and was used for parking purposes by executives, employees, and customers of a corporation conducting business on an adjacent tract. Another portion of the New Castle property had cinder surfacing for use in parking incidental to loading shipments by rail. American Can Company had been offering the...