- 9 -
petitioners’ willingness to give up any claim for such in return
for settlement close to the amount of actual damages. At that
time, actual damages were estimated at $236,000,3 and the amount
to be paid to petitioners, including the $102,000 paid pursuant
to the earlier arbitration and the proposed $130,000 settlement,
was $232,000. Allstate’s counsel corroborated that testimony by
stating that the money was paid to settle the claim for the cost
to repair the property and that no amount was paid to settle any
punitive damage claim. For this reason, we find that Allstate
paid petitioners with the intent to compensate them, under their
homeowners’ policy, for actual damages incurred in the
involuntary conversion of their property.
The second prong of nonrecognition of gain under section
1033 is that the money must be spent to replace the converted
property with similar property. Sec. 1033(a)(2)(A). The funds
may also be used to restore a converted property “so that it
could be used in the same manner as it was used prior to the
* * * [involuntary conversion].” Rev. Rul. 67-254, 1967-2 C.B.
269, 270 (approving of the use of conversion compensation to
rearrange existing facilities and build a new building on the
remaining property after conversion); see also Rentz v.
3 The actual cost of repairs was more than the $269,467.20
petitioners eventually received in connection with this loss.
Respondent never questioned petitioners’ treatment of the
additional $37,000 payment from the Lane litigation.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011