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Section 10338 provides, under certain prescribed
circumstances, for relief from taxpayer’s gains realized from
involuntary conversion of property. The relief provided for
under section 1033 is deferral of the gain from involuntary
conversion, so long as the proceeds are used to acquire qualified
replacement property.
The purpose of section 1033 was described, as follows:
The purpose of the statute is to relieve the taxpayer
of unanticipated tax liability arising from involuntary
* * * [conversion] of his property, by freeing him from
such liability to the extent that he re-establishes his
8 Sec. 1033 provides, in pertinent part, as follows:
(a) SEC. 1033(a). General Rule.–-If property (as a result
of its destruction in whole or in part, theft, seizure, or
requisition or condemnation or threat or imminence thereof) is
compulsorily or involuntarily converted–-
* * * * * * *
(2) Conversion into money.--Into money or into property
not similar or related in service or use to the converted
property, the gain (if any) shall be recognized except to
the extent hereinafter provided in this paragraph:
(A) Nonrecognition of gain.–-If the taxpayer
during the period specified in subparagraph (B), for
the purpose of replacing the property so converted,
purchases other property similar or related in service
or use to the property so converted, or purchases stock
in the acquisition of control of a corporation owning
such other property, at the election of the taxpayer
the gain shall be recognized only to the extent that
the amount realized upon such conversion (regardless of
whether such amount is received in one or more taxable
years) exceeds the cost of such other property or such
stock. Such election shall be made at such time and in
such manner as the Secretary may by regulations
prescribe. * * *
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Last modified: May 25, 2011