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discussed above, respondent has the burden of proof on this
issue.
We note that the parties to the condemnation proceeding
reached an agreement on September 20, 1989, whereby petitioners
would receive $104,000 for the DeSellum property condemned by the
State. The $61,604 at issue herein represents the excess of the
$104,000 awarded to petitioners over the $42,396 previously
deposited by the State with the circuit court ($28,400 on June 5,
1980 and $13,996 on January 5, 1988).6
Petitioners initially contend that, under Maryland law,
prejudgment interest awarded in a condemnation is not interest,
but is part of the "just compensation" to which petitioners were
entitled under Maryland law. Respondent does not challenge
petitioners' claim that the interest was part of the just
compensation to which petitioners were entitled under Maryland
law. See King v. State, 467 A.2d 1032, 1035 (Md. 1983).
Instead, respondent argues that State law does not control the
income tax consequences of the receipt of interest, and that
interest received as part of the condemnation award is properly
taxable as ordinary income, not as gain from the sale of
property. We agree with respondent, as it is well settled that
interest paid to compensate the property owner for delay in
payment of a condemnation award is taxable as ordinary income to
the recipient even though it is considered part of just
6 The interest income conceded by petitioners ($1,333.35)
represents the postjudgment interest accrued on the $61,604.
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