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notice of deficiency dated July 13, 1995,5 determined that the
exchange did not qualify as a nontaxable exchange under section
1031(a).
Prior to the taxable year 1985, the accounting firm of
Sauer, Dudley, McKenzie and Bovee prepared petitioner's financial
statements and tax returns. After taxable year 1985, the
accounting firm of Eadie and Payne prepared petitioner's
financial statements and tax returns.
From the time petitioner purchased the Beaumont Property
until the time petitioner disposed of the property in 1989,
petitioner classified the Exchange Property under work-in-
progress accounts.
On its return for 1989, petitioner reported its business
activity as "RE SUBDIV & DEVELOP" and described the product or
service as "OPERATOR-DEVELOP."
OPINION
Generally a taxpayer must recognize the entire amount of
gain or loss on the sale or exchange of property. Sec. 1001(c).
Section 1031(a)(1) provides an exception to the general rule and
allows a taxpayer to defer gain or loss from exchanges of
5 Petitioner signed Form 872, Consent to Extend Time to
Assess Tax, extending the time for assessment for the period
ended March 31, 1990, until December 31, 1995.
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