The reinvigorated U.S. oil and gas industry and the growing need to transport oil, gas, and liquid hydrocarbons has caused a boom in pipeline construction. 1 Constructing pipelines requires that property be acquired for rights of way and valve and compressor surface sites. Property may be acquired through eminent domain (condemnation) proceedings, by sale under threat of condemnation, or by negotiated sale where the power of eminent domain does not exist. Conveying easements and surface sites to install pipelines and related facilities can trigger various federal income tax consequences, which makes coordination between legal counsel and the tax planner essential to achieve the best tax outcomes.
This article examines income tax issues that commonly arise in connection with the conveyance of easements and surface sites and identifies planning opportunities. Although it focuses on pipeline condemnation proceedings, many of the issues and planning suggestions also apply to the conveyance of surface rights and easements for oil and gas exploration and production activities.
When a property owner grants a pipeline company rights to use property or a company obtains those rights through condemnation, determining the tax effects requires a careful analysis of the terms of the transaction. The transaction alternately can be treated for tax purposes as a sale of land, a sale of an easement, or a lease of or license to use land. In addition, a typical transaction may include payments to the property owner for damages to easement land or to land retained by the property owner, which are treated differently for tax purposes.
Multiple opportunities to defer gain exist. Allocation of the proceeds from the transaction between payments for the easement and payments for damages is critical to lessen tax. Where the property owner can substantiate severance damages, opportunities to offset basis against the retained property exist. The property owner also can offset payments for damages to real property resulting in the ordinary course of easement construction against basis. In addition, a voluntary conveyance of an easement may qualify for elective deferral of gain under Sec. 1031, and a conveyance made as a result of condemnation proceedings may qualify for elective deferral of gain under Sec. 1033.
The power of eminent domain is the right of the federal or state government to acquire private property for public use, subject to the payment of compensation. Condemnation is treated as a sale for tax purposes. 2 Developers of pipelines that will carry oil or gas as common carriers are often delegated the authority to condemn property.
The Texas statute 3 is representative of state eminent domain procedures and is consistent with the Uniform Law Commissioners’ Model Eminent Domain Code. 4 Texas provides an accelerated procedure for condemnation. Once negotiations have occurred and a monetary offer has been extended, the condemnor may commence an action in which the commissioners make an administrative determination of the value of the property taken, the benefits to the landowner, and the reduction, if any, in the value of the landowner’s remaining property. Diminution in value of the remaining property is called “severance” damage. Upon depositing funds in the amount of the damages, the condemnor may take possession of the property. While the landowner may further litigate the value of the property taken, possession of the property and preliminary damages are adjudicated in the administrative proceeding.
In some states, withdrawing deposited funds acts as an election of remedies and waiver of further recourse. If withdrawal does not act as an election and waiver, subsequent litigation or appeals can result in the property owner’s receiving compensation over a period of years. An unfettered right of withdrawal raises issues of constructive receipt and timing of gain recognition.
The owner is entitled to the fair market value (FMV) of the property taken. In appropriate circumstances, severance damages for the portion of the property not taken, compensation for personal property and fixtures, compensation for temporary space needed for construction, damage to growing crops, relocation expenses, and interest on these amounts may be recovered. Legal procedures may require only a finding of a lump sum of damages, leaving open the constituent elements of recovery or settlement.
Defining the Nature of the Interest Conveyed
Pipeline rights of way usually take the form of perpetual easements. An easement is a real property interest that is subject to sale. A conveyance of a perpetual easement where the grantor retains no significant beneficial rights is considered a sale of the underlying tract of land. 5 Property owners commonly retain beneficial rights to use the subservient property, provided they do not interfere with the use of the easement. The retention of those rights connotes the sale of an easement rather than of the underlying tract.
Transactions that are labeled as a sale of an easement are often intentionally or unintentionally structured as a lease of or license to use the land in question. This negates sale treatment, resulting in the recognition of ordinary income and precluding basis offset, losses, capital gains, and gain deferral under Sec. 1033.
Recognition of Gain or Loss on Sale Transaction
Recognition of gain or loss varies depending on whether the transaction is considered a sale of the underlying land or merely a sale of an easement with the grantor retaining rights to the land. If the property owner granting the easement retains no beneficial rights, the property owner recognizes gain or loss. If the grantor retains significant beneficial rights, the property owner applies proceeds against basis in the tract and recognizes gain to the extent the proceeds exceed basis. Loss is not recognized. 6 Whether or not the property owner retains beneficial rights, gain may be eligible for Sec. 1033 deferral. 7
The property owner must allocate basis to the easement tract to determine the amount of gain or loss realized. Allocation of basis does not require proration based on acreage, but, instead, must be equitably apportioned. 8 If the easement tract fronts a street or highway, it may be appropriate to allocate a greater portion of the basis per acre. 9 Allocation is generally based on FMV, and occasionally on assessed value, at the time of purchase. 10
The nature of the asset (or assets) conveyed must be ascertained. Land may be a capital asset held for investment or personal use, Sec. 1231 property (which is property used in a trade or business, including property subject to involuntary conversion), or stock in trade. Improvements may be property subject to Sec. 1250 depreciation recapture and gain. If the property is Sec. 1231 property with improvements, Sec. 1250 ordinary income recapture and gain must be determined before Sec. 1231 gain or loss is calculated. Sec. 1231 gains and losses are subjected to the “hotchpot” process (i.e., put into a pool and netted) and treated as either capital gains or ordinary losses. Property that is condemned or conveyed under threat of condemnation is treated as Sec. 1231 property if it is property used in a trade or business, or a capital asset held for more than one year in connection with a trade or business or a transaction entered into for profit. In the case of an involuntary conversion, growing crops are treated as Sec. 1231 property rather than as stock in trade.
Opportunities to Offset Proceeds Against Basis of Entire Property
As noted above, the property owner generally is allowed only to offset the proceeds from the sale of an easement against the basis in the easement tract. In limited circumstances, the proceeds of an easement conveyance may be applied to reduce aggregate basis in both the property retained and the easement tract. 11 In Inaja Land Co., which involved a perpetual easement to the city of Los Angeles to flood all of the grantor’s property, the court permitted the payments received to offset all of the properties’ basis, but only because apportionment of basis was impossible. 12 Absent unusual facts, offset will rarely be available for a pipeline easement.
Two federal district court cases that apply the same reasoning as Inaja are noteworthy for the confusion they can foster. In Bledsoe, a highway easement bisected the owner’s property. The owner retained the right to move cattle across the road and paid taxes on the property. The district court held the easements were not “sales” and permitted the taxpayer to reduce his basis in the entire property. 13 Conway involved a right of way across a farm sold to a coal company. The owner retained rights of ingress and egress and a reversion of the right of way upon abandonment. Citing Bledsoe, Conway permitted offset of basis. 14
The Tax Court does not follow Conway and Bledsoe. 15 Although a treatise describes these cases as illustrating a “planning” technique, 16 they are of questionable authoritative weight. Generally, the property owner must apportion basis between the easement tract and any property retained and offset the proceeds from the sale against the basis in the easement tract, unless the property owner can demonstrate that no allocation of basis is possible.
Allocating proceeds to severance damages offers an alternative mechanism to offset basis in the property retained by the landowner. As an illustration, an easement that bisects a tract of land may diminish the value of the remainder of the property from its highest and best use as a subdivision by changing the optimal layout or size of lots, reducing the value of the lots, or increasing engineering, utility, and infrastructure costs. 17 For liability reasons, pipeline operators are reluctant to admit that an easement has damaged the remaining property. A sound confidentiality agreement to allay the operator’s concerns should be proposed to induce the operator into agreeing to compensate the property owner for these damages.
If the severance damages do not exceed the basis in the remainder tract, the property owner does not need to reinvest them in the property. If they exceed the basis in the remainder property, gain is recognized. 18 Gain may be deferred under Sec. 1033 if the property owner uses the severance damages to restore the affected property or timely invests them in other property qualifying for deferral. 19 Sec. 1033 does not require the property owner to first expend the severance damages on the affected tract. In circumstances where the prior use of the property is significantly frustrated, sale of the remainder tract and use of the sale proceeds, plus the severance damages, to acquire other property may qualify for deferral under Sec. 1033. 20
Leases and Licenses
Transactions characterized as leases or licenses give rise to rental income, with no offset of basis. In the event a right of use is not an easement, the proceeds will constitute ordinary income, taxable at a maximum rate of 39.6% and potentially subject to the 3.8% net investment income tax for individual taxpayers. Surface rights granted for oil and gas exploration are frequently deemed to be leases.
Retaining certain reversionary rights can frustrate sale treatment. A reversion right causes the easement to revert to the original owner upon the occurrence or nonoccurrence of an event, condition, or fact. To avoid reversionary clauses from causing easements not to be treated as sales, they should be contingent. For example, an easement may provide that it reverts if it is no longer used for the purpose granted. A contingent reversion in the event the easement is not used or is abandoned does not defeat easement status. 21
A reversionary event that necessarily or probably will occur, such as the passage of a term of years, is fatal to easement status. Easements for pipelines, surface sites, and roads that are for a definite term of years are considered leases. 22 An easement will also be treated as a lease when the term of the easement is for as long as oil and gas is produced in paying quantities. 23
An easement may include default provisions that trigger reversion, such as failure to maintain insurance coverage, filing for bankruptcy, assignments for the benefit of creditors, and unauthorized assignments. These provisions are contingent and should not destroy easement status.
Provisions calling for periodic payments bear indicia of a lease, particularly if failure to remit these payments is an event of default that results in forfeiture of the easement. If the parties negotiate periodic payments, an easement conveyance should be structured as an installment sale, in which case the installment sales rules of Sec. 453 may apply.
It is prudent to conform to local property law governing the creation of easements. The parties should use appropriate language granting the easement that implies the conveyance of an interest in real property as opposed to a leasehold interest. 24
Payments for Temporary Workspace
Construction operations usually require a temporary easement that exceeds the width of the permanent easement, to provide space for access, equipment, and material storage, or for boring sites. Designating such space as a temporary easement and allocating payments to its use will trigger rental income. A potential alternative is to negotiate a perpetual easement that includes the temporary space and reduces the allotted space after a period of time. Rev. Rul. 73-161 may lend support for applying the proceeds of an easement that is reduced after construction to reduce basis allocated to the permanent easement tract. 25 Another alternative is to develop facts that support characterizing these payments as compensation for damages to the affected land.
Pipeline easements typically include a release for damages that will be caused by construction, as well as a covenant to compensate or restore future damage arising from activities unrelated to construction. The pipeline operator will seek expansive release language that covers loss of rents and damage to the surface, fences, water impoundments, vegetation, and crops. There is precedent for offsetting basis by payments received for damages actually inflicted on real property. 26 The problem is that easement releases are generally for future damages.
In some instances, the IRS characterizes payments for future damages as rental income. There is no bright-line answer to whether allocations of current payments to future damages are income or return of capital. Given the potential for abuse, the IRS and the courts closely scrutinize the payments.
In Gilbertz, the Tenth Circuit construed payments for future damages as rentals, where a statute limited the landowner’s right to recover to instances of unreasonable or negligent use, and there was no evidence of actual damages caused by such conduct. 27 In Rev. Rul. 73-161, the release covered multiple elements, but the only damage “incurred” at the time damages were paid was “anticipated” loss of rents. Consequently, the IRS ruled that all of the release payments should be allocated to rent. 28 The Tax Court may be willing to assume that surface damage will occur. In Estate of Reinke, it took judicial notice that strip mining was necessarily injurious to property, although the taxpayer failed to meet its burden to provide a measure of damages. 29
Good drafting requires distinguishing between upfront payments for damages normally or necessarily associated with the construction process, and covenants to compensate for more contingent types of damage, such as pollution. The grantee will probably require some consideration be allocated to the release for surface damages. Whether the Tax Court and IRS will assume that pipeline construction necessarily results in damage is an open question, but the position is reasonable. The property owner should document evidence of expected construction damages. An example would be documentation of the cost of reseeding grass and vegetation and releveling the surface. The formula for determining damages could be defined before construction, but with payment delayed until after construction is completed.
Some eminent domain statutes require payments for the expense of relocating fixtures and personalty. The payments are often calculated as the lesser of the property’s value or the cost of relocating the property. Relocation payments are treated as part of the proceeds of condemnation eligible for Sec. 1033 deferral. 30 To the extent they are allocable to Sec. 1245 or 1250 assets, they may give rise to recapture income.
Allocation of Proceeds
As a general matter, property owners should allocate as much proceeds as they can substantiate to severance damages. Doing so achieves deferral by reducing gain on the easement tract and permitting offset of basis against the remainder. To permit reduction of basis, the easement agreement should allocate proceeds to damages that are the necessary result of construction.
The IRS position is that a condemnation award must segregate severance damages and other components, or else a presumption exists that the award was only for the property taken. Under a line of Tax Court decisions, a lump-sum award was presumptively only for the condemned property and could not be recharacterized “after the fact.” 31 This approach has been qualified. Where a lump-sum settlement or award is clearly in excess of a reasonable valuation of the property taken, the court may scrutinize negotiations to distill its component parts. 32 In Conran, the Tax Court examined the record of the condemnation proceedings, and even the worksheets and notes of commissioners. 33
The property owner should preserve evidence supporting the allocation of proceeds. Substantial flexibility will exist where the parties negotiate the terms of the conveyance. Where a lump-sum condemnation award is made, post-trial negotiation and allocation may occur before the judgment becomes final or while a proceeding is on appeal.
Combinations of Loss Recognition and Deferral
Practitioners should be alert to opportunities for potential permutations of loss recognition and deferral of gain that may exist where the condemnation involves contiguous tracts that the property owner acquired at different times or where there are separate condemnation proceedings. In some circumstances it may be possible to selectively recognize gain or loss on certain tracts and defer gain on others. 34
Expenses Incurred in Litigation and Negotiation
The property owner will expend legal, appraisal, engineering, and expert witness fees during condemnation proceedings and negotiations. These expenditures are capital and must be added to the basis of the easement. They consequently reduce gain (or increase loss) on the sale of an easement. To the extent they are expended to substantiate and recover severance damages, they are capitalized as part of the basis of the retained property. If the compensation is considered rent, the expenses should be deductible under Sec. 212 (expenses for the production of income) subject to the limitations on miscellaneous itemized deductions under Sec. 67(a) if the taxpayer is an individual.
A taxpayer’s attempt to allocate legal fees to the recovery of interest and deduct those fees under Sec. 212 was rejected. The court found that the legal fees were entirely for services provided in the condemnation proceedings and were not for the collection of interest. 36
Bargained-For Improvements to Property
Landowners may negotiate with the entity acquiring the easement for improvements on the property to be made as a part of the consideration for the easement. The pipeline operator may require a road to a surface site, and the property owner may seek an improved road in a configuration that will also benefit it. Or the property owner may negotiate for fencing and gates that facilitate its use of the remaining property. While no direct guidance is available on whether improvements of this type should be considered additional purchase consideration for the easement, the situation is analogous to when a lessee makes improvements to leased real property. In such a case, if the improvement to the property is intended to be a substitute for rent, the value of the improvement is considered rental income to the lessor under Regs. Sec. 1.61-8(c). In determining the intent of the lessee and lessor, courts will look at whether the improvement in question is solely of benefit to the lessee or if the improvement benefits both the lessee and the lessor.
Eminent domain statutes normally provide for the payment of prejudgment interest as a matter of right. The interest portion of a condemnation award is ordinary income, 38 and it does not qualify as gain from “conversion of property” that may be reinvested under Sec. 1033. Although the issue of the treatment of interest normally arises when there has been a judgment ordering payment of interest, the Tax Court has imputed an interest component in a negotiated settlement where the statute required the payment of prejudgment interest and the facts indicated that part of the payment was intended to be interest. 39 Interestingly, the Third Circuit, in DeNaples, determined that interest a state paid under an installment agreement that was part of a negotiated settlement of a condemnation dispute was excludable from taxable income under Sec. 103. 40
Condemnation of Property With Residence
The condemnation of a residence for a pipeline right of way is uncommon. In the rare event where it occurs, Sec. 121 (exclusion of gain on personal residence) and Sec. 1033 are coordinated. The amount realized is decreased by the gain excludable under Sec. 121(d)(5)(B), which permits the taxpayer to exclude the Sec. 121 gain without the necessity to reinvest under Sec. 1033.
Deferral Under Sec. 1033
Sec. 1033 allows elective nonrecognition of gain realized upon condemnation and sales made under threat of condemnation. The property owner must timely reinvest the proceeds in qualifying property. An exploration of what constitutes a threat of condemnation is beyond the scope of this article, but a recent Texas case relating to pipeline easements is noteworthy. 41 The operator of a carbon dioxide pipeline secured easements under threat of condemnation. A landowner litigated the issue, and it was determined that the operator was not a common carrier at the time of the acquisition. It may be difficult to discern when a pipeline operator actually has the power of eminent domain. Any easement granted under a threat of condemnation should contain a representation of common carrier status by the pipeline operator.
The property owner makes the Sec. 1033 election by omitting gain that is realized in the appropriate year, with disclosure. Omitting gain without disclosure is a “deemed” election. Partnership elections are made at the partnership level. 42 The details about the condemnation should be disclosed in the tax return for any years in which gain is realized. Information regarding replacement of the property must be disclosed in years when replacement property is acquired. The property owner uses Form 4797, Sales of Business Property, to report involuntary conversion of property used in a trade or business, or capital assets held for business or profit. Form 8949, Sales and Other Dispositions of Capital Assets, is used to report gain from capital assets not held for business or profit. If the property owner makes an election but does not timely replace the property or replaces it at a lower cost than anticipated, the property owner must amend prior year’s returns to include the gain.
The replacement period runs from the close of the first tax year in which the property owner realizes any part of the gain. If the election has been made, the IRS has three years from the date it is notified of replacement or failure to replace in which to assess a deficiency. In substance, the election keeps the statute of limitation for assessment open.
Ascertaining the first year in which gain is realized is critical. The replacement period begins on the earlier of the date of disposition or the date condemnation is threatened, and ends either two or three years (if real property held for productive use in trade or business or for investment is condemned) after the close of the first tax year in which any part of the gain is realized. As noted, some states permit the condemnor to take possession of the property upon depositing funds in the amount of the taking while litigation continues. Under the constructive receipt and “claim of right” doctrines, funds that are available without substantial restrictions on their use are income. The practitioner must be alert to such potential realization events, particularly where the property owner receives proceeds over a period of years. 43 Care must be taken that the reinvestment purchase is, from a legal standpoint, final within the period. 44
The assumption or payment of a mortgage that exceeds basis may give rise to realized gain. In the context of property held by a partnership, Rev. Rul. 81-242 is a cautionary tale. The partnership elected to defer gain on the condemnation of partnership property, but the proceeds were used to pay off mortgage debt, resulting in a deemed distribution of cash in excess of the partners’ outside basis and the partners’ recognition of gain. 45 The partnership could have avoided this result by distributing the property to the partners as co-tenants before the condemnation. 46
Upon request, the IRS may extend the replacement period. The property owner should request the extension during the replacement period. For good cause, the IRS may grant an extension of the replacement period if requested a reasonable time after the time period expires. Multiple replacement periods are not allowed, even where proceeds are received years apart. 47
Qualifying property is that which is “similar or related in service or use.” 48 This test examines the relationship of the taxpayer to the investment. 49 If real property (but not inventory) held for productive use in a trade or business or for investment is condemned, the more lenient “like kind” test under Sec. 1031 is applied. 50 Severance damages that the property owner uses to restore the retained property or timely reinvests may qualify for Sec. 1033 deferral. If there is a substantial relationship between the condemned property and the remaining portion such that use of the remainder is impractical, proceeds of the sale of the remaining portion may qualify under Sec. 1033.
Basis is allocated to the replacement assets purchased. If the cost of the qualifying assets exceeds the amount realized, the basis in the assets is their cost less any gain not recognized. If the cost of the assets is less than the amount realized, the property owner recognizes gain to the extent of the excess of the amount realized over cost, and basis in the new assets is their cost less any gain not recognized. 51 Basis must be allocated between land and improvements, even if the award represented only land. 52 Sec. 1223 governs the holding period for the acquired assets, and the holding period of the condemned property is tacked on in a proportionate basis to the property acquired. 53
In some instances, Sec. 1033 will
not defer recognition of recapture
income under Sec. 1245 and Sec.
1250. Treasury regulations require
allocation of the amount realized
between the classes of property
condemned. Depending on whether
sufficient Sec. 1245 and Sec. 1250
property is acquired with the
proceeds, recapture may be triggered under Sec. 1245(b)(4) or 1250(d)(4).
Compensation for the condemnation is generally determined by valuing the property taken at its highest and best use, using comparable sales of acreage, adjusted for the amount of acreage taken. The highest and best use of real property is typically not use as an easement, and easements are often relatively narrow (30 to 50 feet wide). Where the purchaser of an easement does not possess the power of eminent domain, it is common for the purchase price to be negotiated based on the length of the easement. Normally, evidence of sales of easements is not admissible in condemnation proceedings. The opportunity to introduce evidence of comparable sales of easements offers an opportunity to recover increased damages.
A technique designed to maximize the valuation of easements in condemnation proceedings and to influence the location of easements is the creation of “corridors” of land dedicated to the grant of pipeline easements. The establishment of corridors may permit the use of evidence of comparable sales of easements based on the length of the easement, particularly those made to purchasers who do not have the power of eminent domain. 54 Although the prevalence of such pipeline corridors is difficult to ascertain, the author has experienced success in using them and is anecdotally aware of their use by other practitioners and taxpayers. A corridor should define by legal description the property affected by it and grant to an entity the exclusive executive power to grant easements within the corridor. The entity should be a passthrough entity such as a limited liability company or limited partnership.
While federal income tax law concerning easement corridors is not developed, some planning issues can be identified. First, for the property interest conveyed by the corridor entity to constitute an easement, the interest conveyed to the entity should constitute an interest in real property rather than an executive right to grant easements. Second, there should be an allocation of basis to the corridor entity. Third, the entity should be structured and managed in such a way that it is not deemed to be engaged in the “trade or business” of selling easements, which could result in dealer status, the easements’ constituting stock in trade, and the recognition of ordinary income.
While the easement grantor is not responsible to report the transaction, it is prudent to discuss with the grantee proper reporting of the transaction proceeds. The party acquiring the easement is responsible for reporting the real estate transaction on Form 1099-S. 55 Where damages or rents are paid, they are reported on Form 1099-MISC. 56
It is recommended that legal counsel and the tax planner coordinate their efforts from the inception of any negotiations to transfer an easement, to ensure the deal takes advantage of any possible tax deferral strategies. Deferral is particularly desirable where property will be held until death and a step-up in basis obtained. Deferral of gain is usually maximized where evidence of severance damages exists and can be documented and proceeds can be allocated to those damages. Allocation of proceeds to construction damages and the use of contracting easements may also permit offset of basis and reduce recognition of ordinary income. Where appropriate, a property owner should consider Sec. 1033 deferral.
1 In the Gulf Coast area of Texas alone, the TransCanada Keystone, Magellan Longhorn, Sunoco Logistics Permian Express I and II, Enterprise and Enbridge Seaway, Shell Houma to Houston, and Occidental and Magellan Bridgetex pipelines are either under construction or have recently been completed.
2 Hawaiian Gas Prods., 126 F.2d 4 (9th Cir. 1942).
3 Texas Property Code, Ch. 21.
4 Uniform Law Commissioners’ Model Eminent Domain Code (1974).
5 Rev. Rul. 72-255, 1972-1 C.B. 221; Fasken, 71 T.C. 650 (1979).
6 Rev. Rul. 70-510, 1970-2 C.B. 159; IRS Publication 225, Farmer’s Tax Guide; Wickersham, T.C. Memo. 2011-178. Where beneficial rights have been retained, there has not been a sale of the whole property. See Black, 38 T.C. 673 (1962).
7 Rev. Rul. 72-433, 1972-2 C.B. 145; Rev. Rul. 72-549, 1972-2 C.B. 472.
8 Rev. Rul. 72-255, 1972-1 C.B. 221; Fasken, 71 T.C. 650 (1979).
9 Vaira, 52 T.C. 986 (1969); Regs. Sec. 1.61-6(a).
10 Medlin, T.C. Memo. 2003-224.
11 Inaja Land Co., 9 T.C. 727 (1947).
13 Bledsoe, No. 67-C-9 (N.D. Okla. 6/29/67).
14 Conway, No. 7377-G (W.D. Ky. 2/26/73).
15 Fasken, 71 T.C. 650 (1979).
16 Robinson, Federal Income Taxation of Real Estate, ¶17.03 (WG&L 6th ed. 2007).
17 For example, in Foster, 80 T.C. 34 (1983), aff’d and vacated, 756 F.2d 1430 (9th Cir. 1985), the IRS had originally agreed that an easement for installation of high-voltage lines affected the value of the remainder of the property, although it objected when the taxpayer tried to treat a second payment the same way it had treated the first.
18 Rev. Rul. 68-37, 1968-1 C.B. 359.
19 Rev. Rul. 83-49, 1983-1 C.B. 191; Rev. Rul. 69-240, 1969-1 C.B. 199; and Rev. Rul. 72-433, 1972-2 C.B. 145.
20 Rev. Rul. 59-361, 1959-2 CB 183; Rev. Rul. 83-49, 1983-1 C.B. 191.
21 Gilbertz, 808 F.2d 1374 (10th Cir. 1987).
22 Id.; Nay, 19 T.C. 114 (1952).
23 Vest, 481 F.2d 238 (5th Cir. 1973); Estate of Reinke, T.C. Memo. 1993-197; Wineberg, T.C. Memo. 1961-336.
24 Gilbertz, 808 F.2d 1374 (10th Cir. 1987).
25 Rev. Rul. 73-161, 1973-1 C.B. 366.
26 Gilbertz, 808 F.2d 1374 (10th Cir. 1987); FSA 200228005 (3/29/02).
27 Gilbertz, 808 F.2d 1374 (10th Cir. 1987).
28 Rev. Rul. 73-161, 1973-1 C.B. 366.
29 Estate of Reinke, T.C. Memo. 1993-197.
30 Rev. Rul. 58-396, 1958-2 C.B. 403; Graphic Press, Inc., 523 F.2d 585 (9th Cir. 1975).
31 See Asjes, 74 T.C. 1005 (1980); Rev. Rul. 59-173, 1959-1 C.B. 201.
32 Vaira, 52 T.C. 986 (1969); Graphic Press, 523 F.2d 585 (9th Cir. 1975).
33 Conran, 322 F. Supp. 1055 (E.D. Mo. 1971).
34 Orders, No. 4194 (S.D.S.C. 4/25/64).
35 Baylin, 30 Fed. Cl. 248 (1993).
36 Casalina Corp., 60 T.C. 694 (1973).
37 Regs. Sec. 1.61-8(c) (whether a tenant’s improvements constitute rent depends on the intent of the parties and may be shown by the terms of the agreement or by surrounding circumstances); see also Hopkins Partners, T.C. Memo. 2009-107; Cunningham, 28 T.C. 670 (1957), aff’d, 258 F.2d 231 (9th Cir. 1958).
38 Tiefenbrunn, 74 T.C. 1566 (1980).
39 Wilson, T.C. Memo. 1997-118.
40 DeNaples, 674 F.3d 172 (3d Cir. 2011). The court found that because the condemnation award and associated interest were paid as part of a negotiated settlement rather than by operation of law under the state’s condemnation statutes, the debt qualified as an obligation of the state for purposes of Sec. 103.
41 Texas Rice Land Partners, Ltd. v. Denbury Green-Pipeline Texas, LLC, 363 S.W.3d 192 (Tex. 2012). See also Rev. Rul. 74-8, 1974-1 C.B. 200 (sale was made under threat of condemnation where utility did not possess but could acquire power of eminent domain).
42 Demerjian, 457 F.2d 1 (3d Cir. 1971).
43 See Rentz, T.C. Memo. 1977-13; Marinello Assoc. Inc., 535 F.2d 147 (1st Cir. 1976).
44 Ft. Hamilton Manor, 445 F.2d 879 (2d Cir. 1971).
45 Rev. Rul. 81-242, 1981-2 C.B. 147.
46 IRS Letter Ruling 8527090 (4/15/85).
47 Shipes, T.C. Memo. 1997-304.
48 Sec. 1033(a).
49 Davis, 589 F.2d 446 (1974); Rev. Rul. 71-41, 1971-1 C.B. 223.
50 Sec. 1033(g); Regs. Sec. 1.1031(a)-(1)(b).
51 Sec. 1033(b)(2).
52 Rev. Rul. 79-402, 1979-2 C.B. 297.
53 Rev. Rul. 81-285, 1981-C.B. 173.
54 See Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623 (Tex. 2002); Bauer v. Lavaca-Navidad River Authority, 704 S.W.2d 107 (Tex. App. 1985).
55 Instructions to 2014 Form 1099-S, Proceeds From Real Estate Transactions.
56 Instructions to 2014 Form 1099-MISC, Miscellaneous Income.
Keith Kebodeaux is a lecturer in the Department of Accounting at Texas State University in San Marcos, Texas. For more information about this article, contact Mr. Kebodeaux at firstname.lastname@example.org.