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property in satisfaction of an obligation resulting from the sale
of the same property prior to improvements is entitled to
nonrecognition treatment under section 1038.” Id. at 546.
To aid in determining the applicability of section 1038 to
the facts in Conners, we used four factors enumerated in the
legislative history, indicating
that Congress felt it was inappropriate to measure gain
upon repossession of the property by reference to the
fair market value at the time of the repossession
because (1) the taxpayer was actually in no better
position than he was before he made the sale; (2)
valuation at the time of repossession was difficult;
(3) to tax the initial seller on gain at the time of
repossession was to tax him on gain not yet realized;
and (4) because the taxpayer had not received a
monetary return with respect to the property, funds to
pay the taxes may be unavailable. [Id. at 544-545
(citing S. Rept. 1361, 88th Cong., 2d Sess. (1964),
1964-2 C.B. 828, 831).]
Petitioners argue that the 225-235 Boston Avenue property
was so changed by reason of the partnership’s failure to complete
the conversion to the self-storage facility that section 1038
should not apply to the entire property, but only to the front
property, the former furniture store and the land on which it
stands. Petitioners argue that section 1038 should not apply to
the rear property because the buyer so irreparably damaged the
parking structure that petitioners “cannot be taxed as though the
building still existed and could therefore be said to have been
recovered as well.” Petitioners argue alternatively that, even
if section 1038 does apply to the entire property, petitioner is
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