D. G. Smalley and Nell R. Smalley - Page 1

                                   116 T.C. No. 29                                    

                               UNITED STATES TAX COURT                                

                  D. G. SMALLEY AND NELL R. SMALLEY, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 2767-98.                     Filed June 14, 2001.           

                    In 1994, H entered into a deferred exchange                       
               whereby he relinquished 2-year timber cutting rights on                
               his land and in return received in 1995 fee simple                     
               interests in three parcels of real estate.  The                        
               transferee’s obligation to transfer replacement                        
               property to H was secured by cash held in a qualified                  
               escrow account as defined in sec. 1.1031(k)-1(g)(3),                   
               Income Tax Regs.                                                       
                    Held:  At the beginning of the exchange period, H                 
               had a bona fide intent to enter into a deferred                        
               exchange of like-kind property within the meaning of                   
               sec. 1.1031(k)-1(j)(2)(iv), Income Tax Regs.  Under                    
               sec. 1.1031(k)-1(g)(3) and (j)(2), Income Tax Regs., H                 
               was not in actual or constructive receipt of property                  
               in 1994, and under the installment sale rules of sec.                  
               453, I.R.C., Ps are not required to recognize income                   
               from the deferred exchange in 1994.                                    

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