2
for the years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
After the settlement of other issues in the case, it remains
for the Court to decide:
(1) Whether the transfer of a certain property by petitioner
husband in 1988, followed by the receipt by him of certain other
properties in 1989, constituted a tax-free exchange of like-kind
properties within the meaning of section 1031 for the year 1988;
and
(2) whether, if such transfer and receipt of properties does
not qualify for tax-free exchange treatment under section 1031,
but is rather a sale and exchange of properties on which gain or
loss is to be recognized, such transactions constitute sales that
are reportable on the installment method under section 453.
Petitioners, husband and wife, filed joint income tax
returns for the years 1988 and 1989, and at the time of filing
their petition herein were residents of California.
In 1981, petitioner husband purchased a business property
located in Santa Rosa, California (Tesconi property), which was
operated as a trade or business property producing rental income,
and on which petitioners reported income and losses in their
joint income tax returns. On December 22, 1988, petitioner
husband entered into an "agreement of exchange of real property"
with Bill and Linda Wilson, Robert and Nina Klotz, and Gary and
Kendra Falconer, under which petitioner husband as "exchanger"
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