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Respondent determined that gain realized on the condemnation
of the DeSellum property did not qualify for nonrecognition under
section 1033 because qualified replacement property was not
purchased within the statutory replacement period. Petitioners
assert that the Bath Co. property was qualified replacement
property that was purchased within the statutory replacement
period.
Respondent concedes that petitioners' DeSellum property was
real property held for productive use in a trade or business;
accordingly, the 3-year replacement period applies to
petitioners. Sec. 1033(g)(4). To resolve the issue of whether
qualified replacement property was timely acquired, we must
determine when the 3-year replacement period began and ended.
Pursuant to section 1033(a)(2)(B), the 3-year replacement
period begins "with the date of the disposition of the converted
property, or the earliest date of the threat or imminence of
requisition or condemnation of the converted property, whichever
is the earlier". Section 1033(a)(2)(E) defines "disposition of
the converted property" to mean, inter alia, the "condemnation of
the converted property * * *." Whether there has been a
condemnation for Federal tax law purposes depends on the
substantive rights arising under State law. Dear Publication &
Radio, Inc. v. Commissioner, 31 T.C. 1168, 1174 (1959), affd. 274
F.2d 656 (3d Cir. 1960); see Morgan v. Commissioner, 309 U.S. 78,
81 (1940).
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