Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 12

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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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