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that Congress intended relief from involuntary conversions only
to the extent of the “proceeds of such conversion”, and expected
taxpayers to acquire replacement property within a reasonable
time. Obviously, relief was intended only where the conversion
was involuntary. Although Congress was concerned about the
timeliness and “good faith” of efforts in seeking replacement
property, there was no explanation or particular focus upon the
use of damaged assets in the taxpayer’s business.
Where the complete destruction or loss of property has
occurred, there has been only a limited amount of litigation
about whether a taxpayer should be allowed to defer the attendant
gain.9 Where the destruction or loss to property is partial,
however, additional questions have arisen.
In C.G. Willis, Inc. v. Commissioner, 41 T.C. 468 (1964),
affd. 342 F.2d 996 (3d Cir. 1965), the taxpayer’s ship was
damaged in a 1957 collision, and the insurance company paid
$100,000 to the taxpayer. The insurance payment was
approximately $9,000 less than the taxpayer’s basis in the ship,
and, accordingly, no gain was realized for 1957. In 1958,
however, the taxpayer sold the damaged, but unrepaired, ship for
an amount which exceeded the remaining basis by approximately
$86,000. Under those circumstances, it was held that the 1958
9 More often, the controversies focus upon which property
had been converted and/or the definition of “replacement
property.”
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