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petitioners should have reported a long-term capital gain from
the sale of Sunshine Liquor. Petitioners agree that, in form, a
separate sale and purchase occurred. They contend, however,
that, in substance and when considered together, the transactions
resulted in a section 1031 like-kind exchange. Petitioners'
failure to include the capital gain as income is justified if
section 1031 is applicable.
Section 1001(c) generally requires that the entire amount of
gain or loss on the sale or exchange of property shall be
recognized. Section 1031(a)(1), however, provides for the
nonrecognition of such gain or loss when "property held for
productive use in a trade or business or for investment * * * is
exchanged solely for property of like kind which is to be held
either for productive use in a trade or business or for
investment."
The parties disagree on whether petitioner "exchanged"
Sunshine Liquor for Bayshore Liquor.2 Petitioners bear the
burden of establishing that respondent's determination is
erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
Essentially, section 1031 assumes that new property received
in an exchange is "'substantially a continuation of the old
2 For reasons that will become clear, we find it unnecessary
to address whether Bayshore Liquor and Sunshine Liquor were
property of like kind within the meaning of sec. 1031.
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