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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.
OPINION
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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