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of an involuntary conversion in Grant Oil Tool Co. v. United
States, 180 Ct. Cl. 620, 381 F.2d 389, 395 (1967), which provides
that an involuntary conversion of property occurs for purposes of
the section 1231(a) gain and loss characterization rules when
property is "[rendered] * * * useless for the purpose[s] for
which it was intended" regardless of whether the property is in
fact physically destroyed.
Petitioner argues that an involuntary conversion occurred
upon the issuance of the 1989 Manual and the execution of the MOA
for purposes of section 165 because Lakewood could no longer use
the Elbow Lake property for residential development as it had
intended. Respondent does not dispute that under the 1989 Manual
the amount of protected wetlands on the Elbow Lake property
increased or that the 1989 Manual and MOA made it more difficult
to obtain a section 404 permit. Respondent argues that the
advent of the 1989 Manual and MOA are not identifiable events
that establish a closed and completed transaction for loss
recognition purposes under section 165.
Respondent presents a series of independent arguments
against Lakewood's claimed loss deduction for the decrease in
value alleged in this case. Respondent's principal position is
that the agricultural zoning of the Elbow Lake property prevented
Lakewood's intended residential use of the property.
Accordingly, respondent maintains that Lakewood would not have
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