T.C. Memo. 1998-107
UNITED STATES TAX COURT
DAVID A. AND MARILYN P. KNIGHT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16522-96. Filed March 16, 1998.
David A. and Marilyn P. Knight, pro sese.
John J. Lancaster, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
JACOBS, Judge: Respondent determined a $27,412 deficiency in
petitioners' 1993 Federal income tax. The sole issue for decision
is whether petitioners may defer recognition of gain realized on
the sale of two residential rental properties pursuant to section
1031(a).
Unless otherwise indicated, all section references are to the
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Internal Revenue Code in effect for the taxable year in issue.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The
stipulations of facts and the attached exhibits are incorporated
herein by this reference. Petitioners resided in Franklin,
Tennessee, at the time they filed their petition and amended
petition. At all relevant times, petitioners were realtors.
Before the year under consideration, petitioners resided in
Milwaukee, Wisconsin. There, they owned two residential rental
properties: 3460 North 99th Street (99th Street property) and 7643
West Center Street (West Center Street property). Petitioners had
purchased the 99th Street property for $126,000 in July 1991 and
the West Center Street property for $118,500 in 1986.
In 1993, petitioners moved to Franklin, Tennessee. They
decided to dispose of these two residential rental properties by
exchanging them for like-kind property pursuant to section 1031.
Accordingly, petitioners entered into two accommodation agreements
with Heritage Title Services, Inc. (accommodation agreements),
pursuant to which they agreed to sell the two residential rental
properties and purchase other qualifying like-kind property in
Tennessee as part of a tax-free exchange. The accommodation
agreements required petitioners to identify replacement properties
within 45 days after the date of the closing on the two rental
properties and to receive the qualifying like-kind property within
180 days after the date of the closing on the two rental
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properties.
On February 17, 1993, petitioners sold their 99th Street
property for $135,000. On February 19, 1993, they sold the West
Center Street property for $136,000.
On April 2, 1993, petitioners identified the following three
potential replacement properties: (1) A 100- by 300-foot parcel in
Franklin, Tennessee; (2) 2902 Campbellsville Pike, Columbia,
Tennessee (Campbellsville Pike property); and (3) 2711 Murfreesboro
Road, Antioch, Tennessee (Murfreesboro Road property).
Petitioners immediately began negotiations to acquire the 100-
by 300-foot parcel in Franklin, Tennessee, but these negotiations
ended without an agreement. Then, petitioners attempted to acquire
the Campbellsville Pike property. An agreement to purchase that
property was reached, but on August 16, 1993, the sellers of the
property canceled the sale.
On December 23, 1993, petitioners purchased the Murfreesboro
Road property for $321,750. The acquisition of the property was
more than 180 days from the respective dates the 99th Street and
West Center Street properties were sold.
Federal Income Tax Returns
On Forms 8824, Like-Kind Exchanges, attached to their 1993
Federal income tax and amended returns, petitioners elected to
defer the gain realized on the sale of their two residential rental
properties.
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Notice of Deficiency
In the notice of deficiency, respondent determined that
petitioners' like-kind exchange of properties in Wisconsin for
property in Tennessee did not qualify as a section 1031 nontaxable
exchange because the statutory time requirement for completion of
the exchange was not met. Accordingly, respondent determined that
petitioners had ordinary income of $16,266 and capital gain of
$82,288 for 1993 arising from this exchange.
OPINION
Petitioners contend that although they attempted to adhere to
the section 1031 requirements, an event beyond their control (i.e.,
the seller of one of the replacement properties--Campbellsville
Pike property--canceled the sale 1 day prior to the date set for
closing) prevented them from receiving the replacement property
within the prescribed 180-day period for receiving like-kind
property. Respondent argues that because petitioners received the
replacement property beyond the prescribed 180-day period,
petitioners' exchange does not qualify for the like-kind treatment;
and, as a consequence, petitioners must recognize as income the
gain attributable to the sale of the 99th Street and West Center
Street properties.
Section 1001 generally requires recognition of the entire
amount of gain or loss on the sale or exchange of property.
Section 1031(a)(1), however, provides for the nonrecognition of
such gain or loss on "the exchange of property held for productive
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use in a trade or business or for investment if such property is
exchanged solely for property of like kind which is to be held
either for productive use in a trade or business or for
investment." For transfers after July 18, 1984, section
1031(a)(3), enacted as part of the Deficit Reduction Act of 1984,
Pub. L. 98-369, sec. 77(a), 98 Stat. 494, 595, governs deferred
like-kind exchanges.
Section 1031(a)(3)(A) requires deferred replacement property
to be identified within 45 days after the date the taxpayer
transfers the property relinquished in the exchange. The parties
agree that petitioners satisfy this requirement.
Section 1031(a)(3)(B) provides that the property received by
the taxpayer (the exchanged property) will not qualify for tax-free
treatment if the exchanged property is received after the earlier
of 180 days from the date the taxpayer transfers the property
relinquished in the exchange or "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". Petitioners admit that the transfer
of the replacement property (Murfreesboro Road property) to
petitioners occurred more than 180 days after they transferred
their interest in the two residential rental properties. Hence, it
is obvious that petitioners failed to satisfy the 180 day
requirement of section 1031(a)(3)(B)(i). See St. Laurent v.
Commissioner, T.C. Memo. 1996-150. (We note that section
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1031(a)(3)(B)(ii) does not apply herein because the due date for
petitioners' 1993 Federal income tax return was April 15, 1994,
which is later than the 180 day requirement.) Thus, the
Murfreesboro Road property is property which is not like-kind.
Petitioners assert they should not have to recognize gain on
the exchange because they made a good faith attempt to adhere to
the statute. In essence, petitioners request that the Court ignore
the plain language of the statute and essentially rewrite it to
achieve what would be an equitable result. See Hildebrand v.
Commissioner, 683 F.2d 57, 58-59 (3d Cir. 1982), affg. T.C. Memo.
1980-532. Although we are sympathetic to petitioners' plight, we
do not have jurisdiction to do as petitioners request. Regrettably
for petitioners, this Court is not a court of equity and does not
possess general equitable powers. Stovall v. Commissioner, 101
T.C. 140, 149-150 (1993) (citing Commissioner v. McCoy, 484 U.S. 3
(1987)); Woods v. Commissioner, 92 T.C. 776, 787 (1989). The
Internal Revenue Code, not general equitable principles, is the
mainspring of this Court's jurisdiction. Commissioner v. Gooch
Milling & Elevator Co., 320 U.S. 418, 422 (1943).
Petitioners claim that Internal Revenue Service (IRS) should
take a more "citizen-friendly" position than respondent asserts
herein. Petitioners philosophize that if circumstances beyond
their control prevent them from purchasing replacement property
within the 180-day period, then the time for acquiring replacement
property pursuant to section 1031 should be the same as the time
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for acquiring replacement property where there is an involuntary
conversion; and thus, the 180-day period should be extended to 2
years. Petitioners read IRS Publication 544, Sales and Other
Dispositions of Assets, to support their philosophy. Although we
do not read IRS Publication 544 in the way petitioners do,
nonetheless, it is well settled that authoritative tax law is
contained in statutes, regulations, and judicial decisions and not
in informal publications. See Zimmerman v. Commissioner, 71 T.C.
367, 371 (1978), affd. without published opinion 614 F.2d 1294 (2d
Cir. 1979); Green v. Commissioner, 59 T.C. 456, 458 (1972).
Internal Revenue Service publications, like the one upon which
petitioners relied, are merely guides published by the IRS to aid
taxpayers. See Dixon v. United States, 381 U.S. 68, 73 (1965).
Petitioners do not dispute respondent's computations as to the
amount of gain realized from the disposition of the two rental
properties in Wisconsin. Accordingly, respondent's computations
are sustained.
To reflect the foregoing,
Decision will be entered
for respondent.