William T. Shipes, Jr. and Kathy D. Shipes - Page 5

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          related in service or use to the converted property.  Sec.                  
          1033(a)(2)(A).  Under section 1033(a)(2)(A), gain will be                   
          recognized only to the extent that the amount realized from the             
          conversion exceeds the cost of the replacement property.  Among             
          other things, an involuntary conversion results when property is            
          condemned by the government.  Sec. 1033(a).                                 
               In general, the replacement period under section 1033 begins           
          on the date of the disposition of the converted property, or if             
          earlier, on the date when requisition or condemnation is                    
          threatened, and ends 2 years after the close of the first taxable           
          year during which any part of the gain from the conversion is               
          realized.  Sec. 1033(a)(2)(B).  The ending date of the                      
          replacement period may be extended if the taxpayer timely files             
          an application with the Commissioner.  Section 1033(a)(2)(B)(ii).           
               The principal issue in this case is whether section 1033               
          permits the use of multiple replacement periods in connection               
          with a single condemnation of property by the government.  The              
          parties agree that any replacement period involved in this case             
          began in October 1985.  Petitioners argue, however, that this               
          case requires the use of two replacement periods because                    
          conversion proceeds were received on two different dates.                   
          Specifically, petitioners maintain that the first replacement               
          period ended on December 31, 1988, and pertained to the portion             
          of the conversion proceeds that Mr. Shipes received on July 28,             
          1986.  The second replacement period, according to petitioners,             

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