Robert J. and Anne L. Wilson - Page 13

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               The Internal Revenue Code generally takes gains and losses             
          into account only when they are realized by a sale or exchange.             
          Sec. 1001(a), (c); sec. 1.1001-1(a), Income Tax Regs.  When a               
          taxpayer receives money or other property as consideration for              
          the condemnation of his property, there has been an "exchange"              
          for income tax purposes.  See sec. 1033(a); Kieselbach v.                   
          Commissioner, 317 U.S. 399, 402 (1943); Tiefenbrunn v.                      
          Commissioner, 74 T.C. 1566, 1570 (1980).                                    
               Gain from the exchange of property is the excess of the                
          amount realized from the exchange over the property's adjusted              
          basis, while loss is the excess of the adjusted basis over the              
          amount realized.  Sec. 1001(a).  The "amount realized" in an                
          exchange is the sum of any money received plus the fair market              
          value of any property (other than money) received.  Sec. 1001(b).           
          Amounts received as interest are not part of the "amount                    
          realized" from the exchange of property.  Kieselbach v.                     
          Commissioner, supra at 403; Tiefenbrunn v. Commissioner, supra at           
          1572.  The "adjusted basis" of property exchanged is the                    
          property's unadjusted basis (e.g., section 1012 cost basis)                 
          adjusted as provided in section 1016 (e.g., reduced for                     
          depreciation allowable).  Sec. 1011(a).                                     
               Generally, gain or loss realized on an exchange of property            
          must be recognized.  Sec. 1001(c).  An important exception to               
          this general rule is provided by section 1033, which allows gain            
          realized from certain involuntary conversions to be deferred.               

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