Estate of James W. Boyle - Page 11




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          related in service or use to the converted property, section                
          1033(a)(2)(A)) within the period provided in section                        
          1033(a)(2)(B), gain is recognized, if the taxpayer so elects,               
          only to the extent the amount realized from the involuntary                 
          conversion of the converted property exceeds the cost of the                
          qualified replacement property.8  Sec. 1033(a)(2)(A).  The basis            
          of the replacement property acquired as a result of an                      
          involuntary conversion of the property into money is its cost,              
          decreased by the amount of gain not recognized upon conversion.             
          Sec. 1033(b).                                                               
               An example used in section 1.1033(b)-1(b), Income Tax Regs.,           
          to illustrate the operation of section 1033(a)(2)(A) and (b) is             
          consistent with our analysis:                                               
               Example.  A taxpayer realizes $22,000 from the                         
               involuntary conversion of his barn in 1955; the                        
               adjusted basis of the barn to him was $10,000, and he                  
               spent in the same year $20,000 for a new barn which                    
               resulted in the nonrecognition of $10,000 of the                       
               $12,000 gain on the conversion.  The basis of the new                  
               barn to the taxpayer would be $10,000–-the cost of the                 

               8When an involuntary conversion results in the realization             
          of gain, the details of the involuntary conversion, including               
          those relating to the replacement of the converted property, must           
          be reported in the return for the taxable year in which any of              
          the gain is realized.  An election to defer the recognition of              
          gain from the conversion under sec. 1033(a)(2) and sec.                     
          1.1033(a)-2(c)(1), Income Tax Regs., is made by including such              
          gain in gross income, but only to the extent required by sec.               
          1033, on the taxpayer’s Federal income tax return for the first             
          year the taxpayer is required to recognize the gain.  Sec.                  
          1.1033(a)-2(c)(2), Income Tax Regs.  If sec. 1033 does not                  
          require a taxpayer to recognize any of the gain, the election is            
          made simply by not including the gain in gross income.                      





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