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the next steps in the condemnation protocol made the chance of
condemnation less remote.
The facts are that representatives of the LRA and members of
the LCC threatened Mr. Johnson with condemnation of the 23d
Street property, and they meant it. We conclude that members of
the LCC and the LRA genuinely threatened Mr. Johnson with
condemnation of the 23d Street property.
3. Reasonable Belief of the Threat
The taxpayer must believe that the threat is likely to be
carried out if a voluntary sale is not arranged.
Respondent believes the dealings between Lancaster and Mr.
Johnson were a structured transaction. This belief is based, in
part, on a letter Mr. Johnson wrote to Steven West, the former
city manager of Lancaster, dated June 22, 1990. In this letter,
Mr. Johnson explained the factors motivating him to negotiate a
deal with Lancaster. Among the many factors listed in the letter
were (1) Lancaster's ability to perform a friendly condemnation,
and (2) section 1031 treatment for the exchange of the 23d Street
property. In the letter, Mr. Johnson stated that this "virtually
eliminates" his potential tax liability.
From this letter and respondent's initial contacts with
petitioners and Lancaster city officials, respondent was
convinced that something sinister was afoot. Respondent casts
Lancaster as powerless, compliant to Mr. Johnson's demands, and
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