*121 Decision will be entered for the respondent.
Held: That the money which petitioner received in 1956 from the City of Cincinnati, Ohio, in settlement for the condemnation of an office building and ground upon which it was located and which the petitioner held for rental purposes, was not invested in other property "similar or related in service or use" where petitioner invested the money in the shares of stock in an Ohio corporation which acquired a hotel building in the city of New York. Petitioner is not entitled to the non-recognition-of-gain provisions of section 1033, I.R.C. 1954.
*569 The Commissioner has determined a deficiency in petitioner's*122 income tax for the fiscal year ended November 30, 1956, of $ 19,057.09. The deficiency is due to two adjustments made to the income reported on petitioner's return, as follows:
| (a) Gain realized on involuntarily converted property | $ 75,628.37 |
| (b) Lease cancellation expense | 500.00 |
Adjustment (a) is explained in the deficiency notice as follows:
(a) It is held that you are not entitled to nonrecognition of gain realized on involuntarily converted property as provided in Section 1033 of the Internal Revenue Code (1954) since that which was acquired was not similar or related in service or use to the property converted.
Petitioner does not assign error as to adjustment (b). It does contest by appropriate assignments of error the Commissioner's adjustment (a).
FINDINGS OF FACT.
Some of the facts are stipulated and are found as stipulated and are incorporated herein by this reference.
*570 Petitioner is a corporation organized and existing under the laws of the State of Ohio, with its office in Cincinnati. It filed its income tax return for the taxable year ended November 30, 1956, with the district director of internal revenue, Cincinnati.
It is stipulated that --
The*123 petitioner was formed for the purpose of purchasing and otherwise acquiring, holding, owning, mortgaging, pledging, selling, transferring, and in any manner disposing of, and transacting in and with real property, and goods, wares, merchandise, and other personal property of any and every class and description; the acting, as agent or representative of individuals, firms, or corporations, and as such to manage, develop and extend business interests of such principals; to carry on any other lawful business and to do anything and everything necessary, suitable, or convenient or proper for the accomplishment of any of the purposes of the attainment of any or all of the objects hereinbefore enumerated or incident to the powers herein named and to have all the rights, powers, and privilege now or hereafter conferred by the laws of the State of Ohio upon corporations organized under the General Corporation Law of Ohio.
Petitioner is primarily a realty company whose business activities include purchasing and owning investment real estate held by the petitioner for the production of income to the petitioner.
On or about June 10, 1946, petitioner acquired, by purchase, land with a building*124 thereon known as the United Bank Building located at the southeast corner of Third and Walnut Streets, Cincinnati, and owned the land and building until its sale to the City of Cincinnati on or about January 16, 1956, which sale was made and completed under the threat of exercise of the power of eminent domain by the City of Cincinnati. The United Bank Building was a six-story building of masonry construction and was used by petitioner to produce rental income from various tenants. Immediately prior to the sale of the United Bank Building by petitioner space was rented in the building to individuals or business concerns for the following commercial purposes:
Night club, restaurant, and bar.
Air-conditioning products.
Boat supply sales.
Artists' studios.
Coffee mill sales agent.
Optical supply house.
Theatrical supplies.
Commercial artist.
Offices.
Music studio.
Mercantile agent.
Editorial office, magazine.
Textile supply.
Wholesale sportswear.
Advertising agency.
Sculptor's studio.
Advertising department (sign shop).
Law office storage.
Photoengraver.
Lens grinder.
Surgical instrument repair.
Elevator company offices.
In some instances tenants used, and were permitted to use, *125 offices and studios occupied by them as sleeping rooms.
*571 The amount received by petitioner from the sale of the United Bank Building was $ 159,182.93. At the time of the sale the property had an adjusted basis of $ 76,554.56. The expenses of the sale amounted to $ 7,000. The gain accruing to petitioner from the sale of the United Bank Building was in the amount of $ 75,628.37.
On or about January 20, 1956, petitioner invested all the proceeds received from the sale of the United Bank Building, plus additional sums, in the purchase, for $ 250,000, of 80 percent of the voting stock and 80 percent of the outstanding stock of all classes of the Times Square Hotel of New York, Inc., an Ohio corporation. The Times Square Hotel of New York, Inc., was incorporated in the State of Ohio on November 2, 1955. Its purpose was, as stated in the stipulation of facts filed by the parties:
to purchase, lease or in any manner to own, hold, improve and develop for any and all purposes, and to sell, convey, lease, mortgage, or in any manner dispose of, or deal with lands, and real property, and any estate of interest therein; to contract, acquire by purchase, lease, or otherwise own, *126 operate, manage, supervise and conduct and to sell, lease mortgage, or otherwise dispose of hotels, apartments, apartment houses, inns, lodging houses, garages and buildings, structures, and properties of all kinds.
To engage in, conduct and carry on in any and all branches thereof, the business, or business of hotel keepers, innkeepers, and garage operators; and to own, operate, manage, supervise and contract to grant concessions, rights, or license to others to operate, manage or otherwise dispose of, or deal with restaurants, cafes, bars, all kinds of business stores and offices, broadcasting stations, place of amusements and entertainment of all kinds.
To carry on any lawful business and to do any and everything necessary, suitable, convenient or proper for the accomplishment of any of the purposes hereinbefore enumerated, or incidental to the powers herein named or for the enhancement of the value of the property of the corporation or which shall at any time appear conducive thereto or expedient.
At the time of petitioner's purchase of 80 percent of the voting stock and 80 percent of all outstanding classes of stock of the Times Square Hotel of New York, Inc., the only asset of*127 the Times Square Hotel of New York, Inc., was a contract to purchase the Hotel Times Square located at 255 West 43d Street, New York City. The Hotel Times Square building is a corner building of brick, concrete, and steel construction, 15 stories in height, plus a partial 16th floor.
For the period January 1, 1958, to December 31, 1958, which the parties agree is a representative year, guest and meeting room revenue amounted to $ 987,970.71 and commercial space revenue amounted to $ 42,579.49. Bar and restaurant revenue figures were not available to the parties for this year.
The following is a list of the tenants who rented commercial space in the Hotel Times Square during the period January 6, 1956, through *572 December 31, 1960, and whose rental payments comprise the commercial space revenue of the Times Square Hotel of New York, Inc.:
Barbershop.
Dentist office.
Jewelry stand.
Merchandise exporters office.
Newsstand.
Letter Carriers Association office.
Public stenographer's office.
Theater ticket office.
Valet.
Luncheonette.
Luggage shop.
Signal Electrician Association.
Printers Union.
Private school.
The United Bank Building primarily had *128 two employees, an elevator girl and fireman or so-called janitor who also relieved the elevator girl. The janitor had part-time relief.
In most instances the tenants of the United Bank Building supplied their own furniture and fixtures in the conduct of their business activities in the space rented from the United Bank Building.
There were no transients who used the United Bank Building.
The Hotel Times Square has about 815 guestrooms. It operates a restaurant and bar, and also rents space to a restaurant. The staff at the Hotel Times Square consists of from 130 to 140 employees who operate the hotel and provide the usual service for the guests. The Hotel Times Square has an operating manager whose duties are to supervise the employees, handle transient trade, and purchase food and liquor.
The president and treasurer of the Times Square Hotel of New York, Inc., who holds the same offices in the petitioner, takes care of all purchases, advertising, and the general supervision and planning of the hotel operations.
OPINION.
We have but one issue in this proceeding to decide. That issue is whether the sale of the property owned by petitioner in Cincinnati known as the United Bank *129 Building and the reinvestment of the proceeds thereof in the purchase of 80 percent of the capital stock of the Times Square Hotel of New York, Inc., which, after its incorporation, acquired and operated the Hotel Times Square in New York City, constituted an involuntary conversion within the meaning of section 1033(a)(1) and (3)(A), 1954 Code. 1
*130 *573 There is no dispute between the parties as to the amount of gain which petitioner received from the sale of its property in Cincinnati as the result of condemnation proceedings. Likewise, there is no dispute that petitioner invested the entire amount of the net proceeds of the sale in the stock of a corporation which was organized for the purpose of acquiring a hotel property in New York City. The fact that the property sold was located in Cincinnati and the property acquired was located in New York City, we think, makes no difference. Respondent does not contend that it does. What respondent does contend is that petitioner's United Bank Building, which it owned in Cincinnati prior to its sale as a result of the condemnation proceedings, was not the same type of property as the Hotel Times Square in New York City, therefore, the proceeds of the sale of the United Bank Building were not converted into property "similar or related in service or use to the property so converted" as the applicable statute says it must be if the taxpayer is entitled to have the gain nonrecognized for tax purposes.
The fact that the net proceeds of the sale of the United Bank Building were*131 invested in the stock of another corporation instead of being used directly in the purchase of a building makes no difference under the applicable statute, if the new corporation acquired a building which was "similar or related in service or use to the property so converted." Thus, the question we have here to decide is whether the Hotel Times Square building in New York City is "similar or related in service or use" to the United Bank Building in Cincinnati.
It is petitioner's contention that the Hotel Times Square building is "similar or related in service or use" to the United Bank Building within the meaning of the applicable statute. Petitioner's contention in this respect is largely based on the fact that both buildings were owned and held for the same purpose, viz, to yield rental income; therefore, says the petitioner the transactions come within the applicable statute. In making this contention petitioner relies heavily on the decision of the Court of Appeals for the Fourth Circuit which reversed the Tax Court in Steuart Brothers, Inc. v. Commissioner, 261 F. 2d 580. Our Court, in other cases which we have had since then, has declined*132 to follow the holding of the Fourth Circuit in Steuart Brothers, Inc. v. Commissioner, supra.In the recent case, *574 Liant Record, Inc., 36 T.C. 224">36 T.C. 224, we discussed the Fourth Circuit's decision in the Steuart case rather fully and after such discussion we said:
We have again carefully considered this basic question and, with due respect for the opinion of the Court of Appeals for the Fourth Circuit, we believe the proper view is that taken by the Court of Appeals for the Third Circuit in the McCaffrey case, which accords with the view previously taken by us.
Then we went on to say:
In view of the foregoing we hold that the respondent did not err in recognizing the gain derived upon the disposition of the property at 1819 Broadway.
In Liant Records, Inc., supra, the taxpayers owned an office building in New York City, title to which was taken by the City of New York under condemnation proceedings. The proceeds were used by the taxpayers to buy three apartment buildings in New York City. We held that the apartment buildings were not "property similar or related in service*133 or use to the property so converted" within the meaning of section 1033 of the 1954 Code, and that the taxpayers there were not entitled to the nonrecognition provisions of the statute.
Here, the petitioner owned an office building in Cincinnati and when it was sold as the result of condemnation proceedings it invested the proceeds in a hotel building in the city of New York. As we have already stated, the fact that the two buildings were located in different cities makes no difference nor does it make any difference that the petitioner invested the money in another corporation, acquiring the building in question, if the building so acquired is "similar or related in service or use to the property so converted." But we do not think it can be said that a building used primarily as a hotel is "property similar or related in service or use to the property so converted" in the instant case. And we do not think this situation is changed even though there were in the Hotel Times Square building various storerooms, meeting rooms, and living rooms that are rented to daily, weekly, and monthly tenants. Notwithstanding these facts, the Hotel Times Square building was used primarily as a *134 hotel building, whereas the United Bank Building in Cincinnati was used primarily as an office building.
In the Liant Record, Inc., case, we pointed out as follows:
The properties purchased in replacement thereof consisted of three residential apartment buildings containing a total of 175 apartments, only 11 of which were used by tenants for commercial purposes, although in one of them there were a restaurant, a stationery store, a tailor shop, and a supermarket and one had a valet shop in the basement. * * *
Notwithstanding the foregoing facts, we held that the apartment buildings still remained apartment buildings and that these apartment buildings were not "similar or related in service or use to the property so converted" which, in that case, was an office building.
*575 We hold in the instant case that notwithstanding there are several tenants which similarly correspond to those which were present in the apartment buildings in the Liant Record case, it still remained primarily a hotel building used and operated for that purpose mainly, and was not "similar or related in service or use to the property so converted," viz, the United Bank Building in Cincinnati. *135 On this issue we sustain the respondent.
Decision will be entered for the respondent.
Footnotes
1. SEC. 1033. INVOLUNTARY CONVERSIONS.
(a) General Rule. -- If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted --
(1) Conversion into similar property. -- Into property similar or related in service or use to the property so converted, no gain shall be recognized.
* * * *
(3) Conversion into money where disposition occurred after 1950. -- Into money or into property not similar or related in service or use to the converted property, and the disposition of the converted property (as defined in paragraph (2)) occurred after December 31, 1950, the gain (if any) shall be recognized except to the extent hereinafter provided in this paragraph:
(A) Nonrecognition of gain. -- If the taxpayer during the period specified in subparagraph (B), for the purpose of replacing the property so converted, purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (regardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. Such election shall be made at such time and in such manner as the Secretary or his delegate may by regulations prescribe. * * *↩