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conversion results when property is condemned by the government.
Sec. 1033(a). The aforementioned exception to the general rule
that gain is recognized casts doubt on whether or when a taxpayer
would have to recognize gain as a result of an involuntary
conversion.9
A section 1033 election was available to the estate on the
applicable valuation date. The estate presented no evidence that
on or near the valuation date either corporation considered
recognizing the built-in capital gain and foregoing the election
under section 1033. Additionally, ESI and ISC manifested their
intent to find replacement properties by filing the section 1033
elections with each corporation's 1994 Federal income tax
returns. The principal shareholder, and now sole shareholder,
Newton covenanted to find replacement property when he acquired
the shares of the other shareholders. Given these facts, no
reduction in value should be allowed for the corporations' built-
in capital gains, and we therefore uphold respondent's
determination on this issue.
9 We also note that a corporation's recognition of built-in
capital gains is far from certain, even in the absence of special
nonrecognition provisions such as sec. 1033. A corporation's NOL
carrybacks and carryovers can limit or extinguish any potential
recognition of built-in capital gain for up to 19 years. See
sec. 172. For example, in 1994, ESI could have offset its
$701,162 capital gain by the $33,547 NOL carryover (if the gain
had been recognized).
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