Larry L. Beeler and Cynthia J. Beeler - Page 12

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            the permits and an operating business.  Otherwise it would have                             
            been required to apply to Pasco County and follow the rigorous                              
            procedure to obtain permits for itself.                                                     
            F.    Petitioners' Income Tax Returns                                                       
                  Petitioners filed a joint income tax return for 1991.  They                           
            reported on Form 4797, Sale of Business Property, that they                                 
            exchanged for $1.2 million sand mine property that they bought in                           
            1984.  They attached a statement to the return which was                                    
            entitled, "Exchange of Sand Mine for Like Business Real Estate."                            
            In their statement they reported that they took depletion                                   
            deductions from 1984 to 1991 totaling $712,317.14.                                          
            A.    Contentions of the Parties and Background                                             
                  A taxpayer may defer recognition of gain or loss from                                 
            qualifying exchanges of like-kind property.  Sec. 1031(a)(1).  A                            
            like-kind exchange occurs if property held for productive use in                            
            a trade or business or for investment is exchanged solely for                               
            property of like kind that is to be held either for productive                              
            use in a trade or business or for investment.  Sec. 1031(a)(1).                             
            A taxpayer recognizes gain in a like-kind exchange under section                            
            1031 to the extent of the fair market value of any nonqualifying                            
            property exchanged.  Sec. 1031(b).                                                          
                  Petitioners contend that the only property they exchanged                             
            was the 76.5 acres, and that they may defer recognition of the                              

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