DocketNumber: Docket No. 23048-93.
Citation Numbers: 71 T.C.M. 2566, 1996 Tax Ct. Memo LEXIS 156, 1996 T.C. Memo. 150
Judges: WELLS
Filed Date: 3/25/1996
Status: Non-Precedential
Modified Date: 4/17/2021
1996 Tax Ct. Memo LEXIS 156">*156 Decision will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
WELLS,
FINDINGS OF FACT
At the time the petition in the instant case was filed, petitioner resided in Lewiston, Maine.
During 1988, petitioner and his ex-wife, Phyllis St. Laurent, owned, as tenants in common, an apartment complex known as RPDS Estates (RPDS) located in Auburn, Maine. Petitioner decided to sell RPDS and acquire other real property in which Ms. St. Laurent would not have an interest. Petitioner intended to dispose of his interest in RPDS by exchanging it for other property in a manner that would entitle1996 Tax Ct. Memo LEXIS 156">*157 him to nonrecognition treatment of the gain realized pursuant to
On May 9, 1988, petitioner and Ms. St. Laurent agreed to sell RPDS to Richard and Barbara Labbe for $ 1,900,000. The purchase and sale agreement (sale agreement) signed by them provided that "It is agreed between the parties that Purchasers shall assist Seller in consummating a
After the sale agreement was signed, petitioner began looking for property to replace his interest in RPDS, but he had not selected replacement property by the time the sale of RPDS closed. The closing was delayed pending regulatory approval of the sale and performance of certain work on RPDS. The closing took place November 4, 1988, and on that date petitioner and Ms. St. Laurent transfered RPDS to the Labbes for $ 1,880,000. As part of the closing, the sale agreement was amended (amendment) to provide procedures by which an exchange of properties would be effected. The amendment provided in pertinent part: In lieu of the terms of sale described above in this Agreement, the Sellers may, at their exclusive1996 Tax Ct. Memo LEXIS 156">*158 option, designate one or more properties (the "Exchange Property") to be acquired by Buyer and exchanged with the Sellers for the Property to be transferred hereunder in a manner intended to qualify as a tax free exchange of properties under * * * * (B) A delayed like kind exchange, whereby the purchase price shall be paid by Buyer to Coastal Savings Bank of Portland, Maine (the "Escrow Agent"), as escrow holder, for a term of one hundred eighty (180) days after settlement (the "Exchange Period") and the deed conveyed to Buyer and the settlement otherwise consummated as elsewhere herein provided. The entire purchase price shall be held by the Escrow Agent in an interest-bearing account. Within forty-five (45) days of the settlement (the "Designation Period"), the Sellers may designate in writing the Exchange Property to be acquired by Buyer with the escrowed money, the costs of which are to be paid from the escrowed money. If the Sellers fail to1996 Tax Ct. Memo LEXIS 156">*160 designate an Exchange Property within the Designation Period, then upon the expiration of the Designation Period, the Escrow Agent shall pay to the Sellers the escrowed money and all interest accrued thereon. If the Sellers designate the Exchange Property during the Designation Period, but the Exchange Property is not transferred to the Sellers before the end of the Exchange Period, then upon termination of the Exchange Period, the Escrow Agent shall pay to the Sellers the escrowed money and all interest accrued thereon. The Sellers shall have no right to receive the escrowed money or interest accrued thereon prior to the earlier of (i) settlement on the Exchange Property, (ii) termination of the Designation Period without the Sellers having designated the Exchange Property, or (iii) termination of the Exchange Period. All funds remaining in the escrow upon termination of the Exchange Period or after settlement on the Exchange shall, after paying the Exchange Price, be paid to the Sellers. (C) Any other arrangement mutually satisfactory to the Sellers and Buyer whereby the Exchange Property is conveyed to the Sellers and the Property is conveyed to Buyer.
Two checks in the1996 Tax Ct. Memo LEXIS 156">*161 amount of $ 390,500.30, made payable to the order of Coastal Savings Bank-Escrow Agent (escrow agent), were received by petitioner and Ms. St. Laurent at the closing. Petitioner delivered his check to the escrow agent on November 4, 1988, and it was deposited in an escrow account that was opened for the benefit of petitioner on November 14, 1988. A bank officer assisted petitioner in establishing the escrow account, and thereafter, the officer's function was as a signatory on the account. The officer was not an agent of petitioner.
Petitioner continued to search for suitable exchange properties subsequent to the closing on RPDS, viewing 40 to 50 properties. The Labbes did not search for the properties, and petitioner did not discuss with them the properties he was considering. Petitioner was advised to furnish a list of replacement properties to the escrow agent because it was required under the law governing like-kind exchanges. Pursuant to that advice, petitioner sent a letter dated December 16, 1988, to the escrow agent in which he listed 20 properties that were identified pursuant to
Petitioner subsequently negotiated for the purchase of Hillview, and, on January 30, 1989, petitioner signed an agreement to buy Hillview. The Labbes were not parties to the agreement. The agreed purchase price was $ 500,000, consisting of $ 390,000 to be paid from the escrow account and a $ 110,000 seller-financed mortgage. By letter dated March 20, 1989, petitioner requested the escrow agent to release the funds in the escrow account to the law firm handling the closing for Hillview. On March 22, 1989, petitioner closed on Hillview. The Labbes did not participate in, nor were they present at, the closing.
Petitioner and Ms. St. Laurent timely filed a joint Federal income tax return for 1988 on April 15, 1989. They did not request an extension of time to file such return.
On May 17, 1989, petitioner closed on the Sheffield lot.
OPINION
Section 1001 generally requires recognition of the entire amount of gain or loss on the sale or exchange of property. 1996 Tax Ct. Memo LEXIS 156">*163 (3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property.--For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if-- (A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (B) such property is received after the earlier of-- (i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished1996 Tax Ct. Memo LEXIS 156">*164 in the exchange, or (ii) the due date (determined with regard to extension) for the transferor's return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.
Although the transactions in issue are deferred like-kind exchanges the tax consequences of which are governed by
Although considerable1996 Tax Ct. Memo LEXIS 156">*166 latitude has been allowed by the courts with respect to the structure of like-kind exchanges, that latitude is not open ended.
In the instant case, respondent makes two principal arguments that the RPDS/Hillview exchange transaction fails to qualify for tax-deferred treatment pursuant to
As to respondent's first contention, the amendment to the sale agreement makes clear that the manner in which the exchange transaction was to be effected was almost exclusively within petitioner's control. We view the Labbes' undertakings in the amendment with respect to the acquisition of property to be exchanged for petitioner's interest in RPDS as merely accommodations to petitioner to ensure that the Labbes would perform whatever acts that might be deemed necessary to cause an exchange to qualify for like-kind exchange treatment pursuant to
Respondent concedes that it was not necessary for the Labbes to take title to Hillview in order for the exchange of petitioner's interest in RPDS for such property to meet the requirements of
We next consider respondent's argument concerning the provisions of The conferees note that the designation requirement in the conference agreement may be met by designating the property to be received in the contract between the parties.
After the year in issue, the Commissioner issued regulations providing that, in general, a taxpayer may identify either (1) a maximum of three properties as replacement properties, or (2) any number of properties provided the fair market value of the designated properties does not exceed 200 percent of the fair market value of all properties relinquished by the taxpayer in the exchange.
Petitioner argues1996 Tax Ct. Memo LEXIS 156">*171 that
As the regulations are not before us, the issue presented in the instant case is one of statutory interpretation. In construing
The statute is silent and does not contain either a restriction on the number of replacement properties that may be identified or a requirement that the replacement property be determined by contingencies beyond the control of the parties to the exchange. Consequently, we may look to the legislative history in order to decide whether Congress intended that an identification of replacement properties conform to the requirements urged by respondent in order to be effective. We, however, do not find the conference report to be conclusive as to the number1996 Tax Ct. Memo LEXIS 156">*173 of replacement properties that a taxpayer may identify. The conference report merely states: "It is anticipated that the designation requirement will be satisfied if the contract between the parties specifies a
Nonetheless, we do believe that Congress intended that taxpayers identify only a finite number of replacement properties. 3 To construe the statute otherwise, i.e., as allowing an unlimited number of replacement properties to be identified, would make the identification requirement meaningless. The fact that Congress included an identification requirement suggests that an identification of an unlimited number of properties could result in none being identified.
1996 Tax Ct. Memo LEXIS 156">*175 In the instant case, however, we need not, and do not, decide the outer limit of how many replacement properties the statute permits taxpayers to identify. Petitioner's effort to comply with the statute by identifying 20 specific properties to be received in the exchange appears to have been made in good faith and does not cause an absurd result, given the fact that the statute is silent as to the permissible number and the legislative history is an unreliable indicator of the proper limitation. 41996 Tax Ct. Memo LEXIS 156">*176 Petitioner sought advice and, because the regulations were not published, even in proposed form, at the time the identification was made, 5 neither petitioner nor his adviser was on notice that the Commissioner would take the position that the number of replacement properties that could be identified pursuant to the statute generally would be limited to three. Consequently, a trap for unwary taxpayers was set. 6
We also do not accept respondent's contention that petitioner's identification of replacement properties did not satisfy
1996 Tax Ct. Memo LEXIS 156">*178 Consequently, we conclude that petitioner made a valid identification of replacement properties within the statutorily prescribed period and that Hillview constitutes property of a like kind received in exchange for petitioner's interest in RPDS pursuant to
Petitioner's exchange of his interest in RPDS for the Sheffield lot, however, does not qualify as a like-kind exchange pursuant to the provisions of
In sum, we hold that petitioner 1996 Tax Ct. Memo LEXIS 156">*180 must recognize gain realized upon the disposition of his interest in RPDS only with respect to the exchange of his interest in RPDS for the Sheffield lot.
To reflect concessions and the foregoing,
1. Because the Commissioner's regulations are not applicable to the transactions in issue, we express no opinion concerning the regulations' validity. We note, however, where a statute is silent or ambiguous with respect to an issue that is the subject of a regulation, a reviewing court need only decide whether the regulation is based on a permissible construction of the statute.
2. Of course, even where the statutory language appears to be clear, we are not precluded from consulting legislative history.
3. We note the following dictionary definitions of the word "limited": "Confined within limits, restricted in extent, number, or duration", Webster's Third New International Dictionary (1993); "Restricted; bounded; prescribed. Confined within positive bounds; restricted in duration, extent, or scope", Black's Law Dictionary (6th ed. 1990); "confined or restricted within certain limits", Webster's II New Riverside University Dictionary (1984). Petitioner's identification of replacement properties was "limited" within the everyday, ordinary meaning of the term. Cf.
4. This is not to say, however, that the requirements of
5. We note that the proposed regulations setting forth the Commissioner's construction of the statute and legislative history were not published until May 16, 1990, after the transactions in issue occurred.
6. The difficulty taxpayers faced in interpreting the legislative history has been noted by at least one commentator. Wasserman, "Mr. Mogul's Perpetual Search for Tax Deferral: Techniques and Questions Involving
7. Indeed, other than objecting to respondent's proposed ultimate finding of fact that the transaction involving the Sheffield lot was not a qualified exchange under
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Griswold v. United States , 59 F.3d 1571 ( 1995 )
T. J. Starker v. United States , 602 F.2d 1341 ( 1979 )
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United States v. Ron Pair Enterprises, Inc. , 109 S. Ct. 1026 ( 1989 )
Chevron U. S. A. Inc. v. Natural Resources Defense Council, ... , 104 S. Ct. 2778 ( 1984 )
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