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also SLR's Tax Matters Partner (TMP). Three other individuals
hold limited partnership interests in SLR totaling 49.5 percent.
SLR was formed under an original partnership agreement dated
April 22, 1974, under Texas law. SLR sold 28.49 acres of
undeveloped real estate (the Property) for $1,560,000 in 1990.
Of this amount, $450,000 was reserved in connection with a like-
kind exchange under section 1031(a). Respondent concedes that
the capital gain on the sale in the amount of $874,992, of which
gain $342,762 was deferred under the provisions of section
1031(a), was properly reported.
The Property was designated, or classified for ad valorem
tax purposes, as 1-d-1 open-space land under Texas law during all
of 1985 and continuing through the date of transfer on October 1,
1990. For ad valorem tax purposes, 1-d-1 land is assessed at a
much reduced value as compared with its nonagricultural use
market value.
Section 23.55 of the Tex. Tax Code (West 1992) imposes an
additional tax on 1-d-1 land if and when the use of that property
changes. This additional tax is known colloquially as a
"rollback tax". The rollback tax is an additional tax imposed by
law as of the date the cessation or change of use occurs. It has
its own delinquency date, and it does not exist until the event
that triggers the rollback occurs.
A property owner can trigger the rollback by ending
agricultural operations or by diverting the property to a non-
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