DocketNumber: Docket No. 29800-82.
Citation Numbers: 49 T.C.M. 1352, 1985 Tax Ct. Memo LEXIS 427, 1985 T.C. Memo. 205
Filed Date: 4/29/1985
Status: Non-Precedential
Modified Date: 11/20/2020
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN,
FINDINGS OF FACT
Petitioners are husband and wife and resided in Los Angeles, California, at the time they filed their petition herein. They filed a joint Federal income tax return for 1978.
Prior*428 to August 1978, petitioners owned and held for investment purposes a parcel of real property located in Los Angeles, California (the Los Angeles property). In or about early August 1978, petitioners agreed to sell the Los Angeles property to Bobby and Helen Wyche (the Wyches). Petitioners and the Wyches opened an escrow, dated August 9, 1978, with Southwest Escrow Corp. (Southwest). The escrow provided for closing on or before October 9, 1978, and for a total consideration from the Wyches of $100,000, $80,000 of which would be provided by a new loan on the Los Angeles property. At the closing of the escrow, the $100,000 purchase price, less certain fees and other charges payable in connection with the transaction, was payable for the account of petitioners. The escrow directed Southwest to pay any existing loans on the Los Angeles property. The escrow contained no reference to any other real property transaction involving petitioners.
On August 25, 1978, petitioners entered into a contract with Steve and Theresa Leonardo (the Leonardos), under which petitioners agreed to purchase from the Leonardos a parcel of real property located in Ukiah, California (the Ukiah property). *429 The contract provided for closing within 45 days and for a total consideration from petitioners of $89,500, $59,500 of which would be provided by a loan on the property. The contract did not refer to the transaction in which petitioners agreed to sell the Los Angeles property to the Wyches.
Petitioners intended to consummate simultaneously the sale of the Los Angeles property and the purchase of the Ukiah property.The Wyches were not able to obtain financing by the date set for closing the Los Angeles property transaction, however, and the Leonardos insisted upon closing the Ukiah property transaction on time.
On October 17, 1978, petitioners and the Leonardos closed the Ukiah property transaction. Petitioners received a deed to the Ukiah property dated October 4, 1978, which was recorded on October 17, 1978. The closing documents contained no reference to the Los Angeles property transaction.
To provide the cash necessary for closing the Ukiah property transaction, petitioners obtained a loan of $30,823.42 from Laire Federal Credit Union (Laire). As security for the loan, petitioners agreed to instruct Southwest to remit $31,000 to Laire upon the closing of the Southwest*430 escrow. By letter dated October 17, 1978, petitioners conveyed this instruction to Southwest.
Petitioners and the Wyches closed the Los Angeles property transaction on December 17, 1978. The Wyches received a deed to the Los Angeles property dated August 9, 1978, which was recorded on December 19, 1978. Consistent with petitioners' prior instructions, Southwest paid $31,000 to Laire upon closing. Of the remaining cash payable for the benefit of petitioners, approximately $47,000 was used to pay off outstanding loans on the property and approximately $20,000 was paid to petitioners. 2
On their Federal income tax return for 1978, petitioners computed and disclosed a gain of $41,441 from the sale of the Los Angeles property, but took the position that the gain resulted from a nontaxable exchange. Respondent determined that the purchase*431 of the Ukiah property and the sale of the Los Angeles property did not qualify as a nontaxable exchange under
OPINION
The courts have long recognized that a transaction may constitute an exchange even though "the person who owns the property sought by the taxpayer is not the same person*432 who wants to acquire the taxpayer's property."
An actual exchange is nevertheless essential for nonrecognition under
Petitioners argue that we should treat the purchase of the Ukiah property and the sale of the Los Angeles property as an integrated transaction in which petitioners in effect exchanged the Los Angeles property for the Ukiah property.
In making this determination, the steps taken to accomplish the end result must be considered as well as the result*434 itself. The substance of the transaction, rather than its form, must govern the tax consequences. See
Thus the integration of separate transactions is proper where the transactions are mutually interdependent.
Co-petitioner Ester L. Anderson (Mrs. Anderson) testified that petitioners intended to close the two transactions simultaneously. The intention of the parties is indeed important in determining whether an integrated plan existed and thus whether a series of transactions constituted an exchange or a sale and reinvestment of the proceeds. See
Mrs. Anderson's testimony, however, is wholly consistent with an intention to close simultaneously separate purchase and sale transactions. In light of the unambiguous documents providing for the sale of the Los Angeles property and the independent purchase of the Ukiah property, we are unable to treat her testimony as adequately establishing an intention on petitioners' part to exchange the two properties. "[A]lthough a taxpayer's own documents are not conclusive, they normally override any conflicting subjective considerations advanced by the taxpayer."
Moreover, the requirement of an integrated plan of exchange demands more than the mere unilateral intent of petitioners. Petitioners presented no evidence of the intent, or even the knowledge, of the Wyches or the Leonardos regarding a plan of exchange. Cf.
In any event, *437 mere intent to effect an exchange is insufficient to bring the transactions within the parameters of
We recognize that, had the parties structured the transactions differently, petitioners could have obtained the benefits of
The "exchange" requirement*438 poses an analytical problem because it runs headlong into the familiar tax law maxim that the substance of a transaction controls over form. In a sense, the substance of a transaction in which the taxpayer sells property and immediately reinvests the proceeds in like-kind property is not much different from the substance of a transaction in which two parcels are exchanged without cash.
Our opinion herein is consistent with recent decisions on similar facts. In
1. Unless otherwise indicated, all statutory references are to the Internal Revenue Code of 1954, as amended and in effect during the year in issue.↩
2. On December 1, 1978, petitioners instructed Southwest to transfer the net proceeds of the escrow into a different escrow. Approximately $20,000 was so transferred at closing. Petitioners stipulated at trial that, even if we conclude that the transaction herein involved a nontaxable exchange, the $20,000 constituted "boot" to petitioners.↩
Bell Lines, Inc. v. United States , 480 F.2d 710 ( 1973 )
Coastal Terminals, Inc. v. United States , 320 F.2d 333 ( 1963 )
Emsy H. Swaim and Annie Swaim, Cross v. United States of ... , 651 F.2d 1066 ( 1981 )
redwing-carriers-inc-and-rockana-carriers-inc-by-redwing-carriers , 399 F.2d 652 ( 1968 )
Franklin B. Biggs v. Commissioner of Internal Revenue , 632 F.2d 1171 ( 1980 )
WD Haden Co. v. Commissioner of Internal Revenue , 165 F.2d 588 ( 1948 )
T. J. Starker v. United States , 602 F.2d 1341 ( 1979 )
James Alderson, Surviving Husband and Estate of Clarissa E. ... , 317 F.2d 790 ( 1963 )
Century Electric Co. v. Commissioner of Internal Revenue , 192 F.2d 155 ( 1951 )
Commissioner v. Court Holding Co. , 65 S. Ct. 707 ( 1945 )
John M. Rogers and John M. Rogers, of the Estate of Gladys ... , 377 F.2d 534 ( 1967 )
Gregory v. Helvering , 55 S. Ct. 266 ( 1935 )
June Pinson Carlton and Charles T. Carlton, as ... , 385 F.2d 238 ( 1967 )