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OCCC award) on February 18, 1991, as additional compensation for
the destruction of his nursery stock. Of this amount, $81,100.28
was interest and $10,757.73 was reimbursement of legal fees paid.
Petitioners included the portion of the OCCC award that
constituted interest and reimbursement of legal fees on their
1991 Federal income tax return, but they did not report the
remaining $105,654.07 (the additional conversion proceeds).
Instead, petitioners attached a statement to their 1991 return
which purports to make an election under section 1033 to defer
recognition of the gain realized on the receipt of the additional
conversion proceeds.
On January 28, 1993, petitioners purchased real estate for
$110,000 from Mr. Shipes' mother.
Respondent determined that the additional conversion
proceeds do not qualify for nonrecognition under section 1033. A
notice of deficiency was issued on June 23, 1995.
OPINION
As a general rule, gain realized from the sale or other
disposition of property must be recognized. Sec. 1001(c).
Section 1033 provides an exception to this general rule and
allows for nonrecognition of gain realized from certain
involuntary conversions of property if an appropriate election is
made and, during a specified replacement period and for purposes
of replacing the converted property, a taxpayer desiring to defer
recognition of such gain purchases other property similar or
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