Robert J. and Anne L. Wilson - Page 20

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          discussed above, respondent has the burden of proof on this                 
               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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