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Earl’s death, petitioner decided to offer the condominium for
rent and in fact rented it for a period of time. On July 20,
2001, petitioner sold the condominium for $345,000. The parties
agree that petitioner’s basis in the condominium was $253,576 and
petitioner’s gain on the sale was $111,715.
The proceeds of the sale of the condominium were deposited
with First American Exchange Corporation (FAEC), as petitioner
intended to purchase other property in a like-kind exchange
pursuant to section 1031. In a letter dated October 30, 2001,
petitioner requested, through her attorney, a return of the funds
held by FAEC. The letter stated among other things:
Although it is outside the normal business practice of
First American Exchange Corporation of California to
release these funds and the release may be prohibited
pursuant to Paragraph 8.2 of the above mentioned
agreement as well as disallowed pursuant to section
1.1031(k)-1(g)(6) of the IRC, Exchangor has determined
that it is impossible for qualified intermediary to
acquire any of the identified Replacement Properties
because they have been sold to other parties and are no
longer for sale and therefore has made the above demand
for the release of the funds. First American Exchange
Corporation of California is hereby held harmless from
and against any and all tax liabilities, which may or
may not be incurred by the Exchange or due to this
release or any other matters relating to the Tax
Deferred Exchange transaction and the property or
properties contained therein.
In a letter dated November 7, 2001, FAEC advised that the funds
were wired to petitioner’s account on October 31, 2001. FAEC
also forwarded with the letter a copy of a Form 1099 to
petitioner. Petitioner did not purchase other property in
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