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A surprise realization: the taxation of condemnation proceeds.

When faced with a property condemnation, an owner is generally most concerned about securing just compensation from the condemning authority for the loss of the property. This is also true when the owner negotiates the possible sale of property to the condemning authority under the threat of eminent domain. The owner's attention is drawn to developing theories and collecting information, with the help of lawyers and appraisers, all to persuade the condemning authority of the fair amount of compensation. The owner's goal is tangible: the receipt of a check representing the condemnation proceeds.

One issue often not considered by a property owner is how the proceeds from a judgment or settlement may be taxed. As peculiar as it might seem, the government can first take your property and then tax the gain realized from the receipt of just compensation. Thus, in addition to preparing strategies for negotiations and litigation to obtain just compensation, a property owner may be prudent to think about what happens to the award or settlement after receiving payment. Depending on the circumstances of the owner, hiring a good tax planner early in the condemnation process may be as important as hiring a good litigator and appraiser.

This article provides a general overview of how federal tax law treats a gain realized from a condemnation proceeding or settlement reached under threat of condemnation. We must emphasize that this article only provides a general overview; analyzing the tax consequences of condemnations can be complex, highly case sensitive, and involve considerations beyond the scope of this article. Nevertheless, many basic issues are discussed here, including how gains are taxed, how a property owner can defer recognition of a condemnation gain, and the tax treatment of special items such as interest, severance damages, statutory relocation assistance, and temporary takings.

If one important point emerges from the din of IRS regulations, revenue rulings, and tax court decisions, it is the importance of effective drafting of settlements in condemnation proceedings and prelitigation sales negotiated under the threat of condemnation. Because the compensation for condemned property, severance damages, interest, and relocation assistance can have different tax consequences, it is important to delineate how much of the overall payment is allocable to each.

Condemnation Gains Are Taxable

One way of looking at condemnation is as a forced sale of property. Title is unilaterally transferred from the owner to the condemning authority. The courts set the price (i.e., just compensation) for this compulsory transaction according to established legal principles. As a result, the owner ends up receiving a sum of money for the property, but the timing and amount of compensation are often both unplanned and financially unfavorable-especially from a tax perspective.

As a general proposition, a condemnation gain is subject to taxation in the year it is received unless some other tax code provision provides otherwise. Under the Internal Revenue Code (Code), an amount received by an owner as just compensation for the condemnation of property in excess of the "adjusted basis" of the property is taxable income. Under [section] 1001 of the Code, the gain from the "sale or other disposition of property" must be recognized as taxable income. (1) The "disposition of property" under [section] 1001 includes gains realized from the condemnation of property. (2) Thus, the taxable "gain" from a condemnation of property is the amount realized (i.e., the sum of money received plus the fair market value of any property received) less the adjusted basis of the property (i.e., generally its cost to the owner at the time of acquisition, adjusted for depreciation and other items). (3)

Property Owners May Delay Recognition of a Condemnation Gain

The Code contains an important exception to the general rule requiring recognition of gains from the disposition of property; this exception has particular relevance to property condemnations. Under [section] 1033 of the Code, a taxpayer may defer paying tax on gains realized from certain types of "involuntary conversions." (4) The specific involuntary conversions covered by [section] 1033 include the compulsory or involuntary disposition of property "as a result of its ... condemnation or threat or imminence thereof." (5)

If the property owner reinvests the gain realized from the condemnation (within the time required in [section] 1033) by purchasing other property "similar or related in service or use to the [condemned] property," then the gain does not need to be recognized, provided that it is fully absorbed by the purchase price of the qualified replacement property.(6) As one court has noted, "[t]he purpose of [[section] 1033] is to relieve the property owner of unanticipated tax liability arising from involuntary condemnation of his property, by freeing him from such liability to the extent that he re-establishes his prior commitment of capital within the period provided by the statute." (7) As the Internal Revenue Service (IRS) Office of General Counsel has explained, "[t]he purpose of [section] 1033 was to allow taxpayers who have lost property under certain circumstances outside their control to invest the proceeds therefrom, undiminished by tax on the gain, in qualified replacement property, thus restoring themselves in so far as possible, to their position prior to the involuntary conversion." (8)

Section 1033 does not allow the property owner to avoid paying taxes on a condemnation award altogether. Instead, [section] 1033 merely allows the owner to delay paying such taxes until a later date. This function is accomplished by a mandatory adjustment in the basis of the replacement property to reflect the amount of the gain from the condemnation. Section 1033(b)(2) provides that a taxpayer's basis for replacement property "shall be the cost of such property decreased in the amount of the gain [from the condemnation] not so recognized." (9) Because the basis of the replacement property is the touchstone for determining the taxable gain from its sale or disposition at some point in the future, lowering the basis to reflect the gain from the condemnation ensures that this amount will be subject to tax in the future.

Overview of General Requirements for Electing Nonrecognition Under [section] 1033

To benefit from the tax-delaying effect of [section] 1033, an owner must make a timely election of nonrecognition treatment of the gain and make a timely purchase of qualified replacement property. A property owner may "elect" to defer the recognition of a gain under [section] 1033 simply by not reporting the gain on the tax return. (10) However, IRS regulations advise taxpayers to report all of the details in connection with an involuntary conversion of property with a gain, including information relating to the replacement of the condemned property, "in the return for the taxable year or years in which any of such gain is realized." (11) The information provided should establish the owner's entitlement to nonrecognition under [section] 1033, including a description of the replacement property showing that it was "similar or related in service or use" to the condemned property, the date it was acquired, and the cost to the owner.

In order to successfully secure nonrecognition treatment under [section] 1033, the property owner must purchase qualified replacement property within two years "after the close of the first taxable year in which any part of the gain upon the conversion is realized," (12) unless the condemned property was "real property ... held for productive use in trade or business or for investment," in which case the replacement period is extended to three years. (13) If the property owner elects not to recognize the gain from a condemnation but fails to purchase qualified replacement property within the specified time period, the IRS may seek to recover a "deficiency" for the amount of taxes that should have been paid in the year that the gain was realized, plus interest and penalties. (14)

In order to shield a gain from recognition for income tax purposes (1) the replacement property must be "similar or related in service or use to the property so converted" within the meaning of [section] 1033(a)(2), (15) or (2) if the condemned property was held for productive use in trade or business or for investment, the replacement property must be "of a like kind to be held either for productive use in trade or business or for investment" within the meaning of [section] 1033(g)(1). The issue of what constitutes qualified replacement property under [section] 1033 is not always clear and could be the subject of a lengthy article all its own. However, in general the Tax Court has held that to qualify as "similar or related in service or use" under [section] 1033(a)(2) the appropriate test is one of "functional use." The functional use test requires the taxpayer to show "a reasonable degree of continuity in the nature of the assets as well as in the general character of the [taxpayer's use]." (16) Whether property that is held for productive use in trade or business or for investment is of a "like kind" under [section] 1033(g) depends upon the "nature" or "character" of the property and not its grade or quality. (17)

Example of the Operation of [section] 1033

In order to understand how [section] 1033 operates to defer the taxation of a gain realized from an award of just compensation, it is useful to work through a simple example. Assume that an entity called "XYZ, LLC" owned a shopping center in a blighted area that is condemned in its entirety by a redevelopment authority. XYZ's adjusted basis in the property at the time of the taking is $1 million. Following a trial, XYZ is awarded $10 million ,in just compensation (exclusive of interest or any relocation assistance). Under [section] 1001 of the Code, XYZ has a gain of $9 million from this disposition of the shopping center, for which it must pay taxes. Depending on other factors, the tax liability for this condemnation gain could be several million dollars.

XYZ elects nonrecognition treatment of the $9 million gain under [section] 1033(a)(2) by purchasing a replacement shopping center, which costs $15 million. Because XYZ completes this transaction within two years of the just compensation award, it need not pay taxes on the $9 million gain realized from the taking of its shopping center. However, XYZ's basis in the replacement shopping center is reduced from $15 million to $6 million (to reflect the nonrecognition of the $9 million condemnation gain) pursuant to [section] 1033(b). Thus, [section] 1033 allows XYZ to defer paying taxes on its $9 million gain from the condemnation until it sells or otherwise disposes of the replacement shopping center in the future.

Other Possible Tax Consequences of Condemnation

There are other possible tax consequences of eminent domain that are beyond the scope of this article. It is possible that the award of just compensation is less than the owner's adjusted basis in the property, in which case it produces a loss. A property owner may not defer the recognition of a loss under [section] 1033. In addition, if the condemned property was a capital asset or business property held for more than one year, the owner's decision to elect nonrecognition of a condemnation gain maybe affected by [section] 1231 of the Code, which sets forth special rules regarding the tax treatment of gains and losses from involuntarily converted business property and capital assets held for more than one year. (18) The myriad of scenarios that exist and the financial consequences of each provides good reason for an owner to consult a tax professional when deciding how to manage the tax consequences of condemnation.

Special Issues Related to Application of [section] 1033 to Condemnation

There are several aspects of the application of [section] 1033 to the condemnation environment that are unique. These issues include (1) the applicability of [section] 1033 to gains realized from a sale of property or settlement made under the threat of condemnation, (2) the running of the time period under [section] 1033 for purchasing qualified replacement property if the condemning authority utilizes a "quick take" procedure or if the property owner initiates an inverse condemnation proceeding, (3) the applicability of [section] 1033 to interest paid on an award of just compensation and payments received under the Uniform Relocation Assistance and Real Property Acquisition Policies Act, (4) the applicability of [section] 1033 to severance damages, and (5) the applicability of [section] 1033 to leasehold condemnations. Each of these issues will be addressed in the following discussion.

Sales or Settlements Made Under the Threat of Condemnation

Frequently, condemning authorities acquire property through negotiations after informing the owner of the intent to take or through settlements that occur after the start of condemnation proceedings but before trial. Section 1033 allows an owner to elect to defer recognizing a gain on property acquired under either scenario. This means that, when condemnation is expected to produce a taxable gain, there is no tax disadvantage to the owner for settling the matter rather than litigating through trial.

Section 1033(a) expressly applies to property that is compulsorily or involuntarily converted under the threat or imminence of condemnation. (19) The Tax Court has set forth the tests a taxpayer must meet to qualify for nonrecognition of a gain realized from a sale or settlement made under the threat of condemnation. According to the Tax Court, a "threat of condemnation" under [section] 1033 exists if"(1) the body threatening condemnation possesses the power of eminent domain, (2) the property owner is told by an official of the threatening body that condemnation will be sought unless the owner negotiates a sale or exchange of the property, and (3) the information conveyed to the owner gives the owner reasonable grounds to believe that the threat was authorized and likely to be carried out unless a sale or exchange is arranged." (20)

The existence of a threat of condemnation is "judged from the seller's perspective taking into account all facts known at the time of the sale."(21) A threat of condemnation will be found if the property owner might reasonably believe from the representations of the condemning authority's agents and from surrounding circumstances that condemnation was likely to occur if the owner did not sell. A threat will not be found "where it should have appeared to the owner that the chance of condemnation was remote." (22)

For example, in one case the Tax Court considered a disposition and development agreement between the owner of a car dealership and a redevelopment authority. Under the agreement, the owner agreed to sell its current location to the redevelopment authority and move to a new auto mall after the redevelopment authority had threatened to condemn the dealership's property. The Tax Court held that the agreement was made in response to an imminent condemnation and that the owner could defer the gain realized from this disposition under [section] 1033. (23) In addition, the IRS has ruled that the sale of property to a local government following the enactment of an ordinance authorizing the taking of the property was a sale made under threat of condemnation for purposes of [section] 1033. (24)

Establishing that a sale of property was made under threat of condemnation is a potential hurdle to the right to elect nonrecognition under [section] 1033. Consequently, a property owner may want to ensure that the condemning authority's right to take and intent to take have been appropriately documented in writing. In addition, the owner may want to insist that any settlement or sales agreement include language setting forth the parties' mutual understanding that agreement was reached only as an alternative to condemnation.

Start of the Time Period for Obtaining Qualified Replacement Property

As discussed above, a property owner who wants to elect nonrecognition treatment of a gain caused by a condemnation must purchase a replacement property within a specified two-year or three-year period. (25) Given the nature of locating certain kinds of real property, negotiating its sale, and finalizing the transaction, the replacement process may take a fair amount of time. Thus, it is important for property owners to understand when the statutory time period for obtaining replacement property starts to run. The answer depends on the manner in which the condemning authority obtains title to the condemned property.

The start of the two-year or three-year period for obtaining qualified replacement property starts in the year "in which any part of the gain upon the conversion is realized." (26) Condemning authorities frequently initiate a taking through a statutory "quick take" procedure, pursuant to which they simultaneously file a condemnation petition and deposit into the registry of the court the estimated amount of just compensation due to the owner. (27) The owner is generally allowed to withdraw this amount, subject to an obligation to pay back any excess if the just c0mpensati0n is less than the deposited amount. (28) The litigation of the condemnation proceeding may take a year or more. Despite the fact that the amount of the owner's just compensation has not yet been finalized, the Tax Court has held that the time period for purchasing replacement property starts to run when the owner withdraws the deposit from the registry of the court. (29) The Tax Court has reasoned that under the "claim of right doctrine," the condemnation deposit is "realized to the taxpayer in the year received even though at the time of receipt conditions exist which require the tax payer to return all or part of such sums." (30)

Conversely, if a condemning authority through its actions takes property without initiating formal proceedings, an owner may assert a right to just compensation by bringing an action for "inverse condemnation." (31) Because the government has allegedly interfered with the owner's property without filing a formal condemnation petition, there is no condemnation deposit for the owner to withdraw. Instead, the government has no obligation to pay any just compensation unless and until a judgment is entered against the government following trial. Th us, in an inverse condemnation proceeding, the owner usually does not receive any gain from the condemnation property until after trial, and the statutory time period for obtaining replacement property likewise does not begin to run until after trial. (32) However, if the government does pay some compensation for damage caused to property even though it did not initiate condemnation proceedings and denies takings liability, the owner's receipt of the compensation prior to filing a complaint for inverse condemnation nevertheless triggers the running of the statutory replacement period. (33)

Applicability of [section] 1033 to Interest and Payments Under URARPA

It is not uncommon for just compensation to include payments for interest and possibly for assistance provided by the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URARPA). Section 1033 does not apply to either of these types of payments. Thus, the portion of money received in a condemnation proceeding or settlement for interest is taxable as ordinary income and cannot be deferred. However, under a special provision in URARPA, payments received under the act are exempt from federal income tax. The special treatment of these items of income may justify special drafting considerations in any agreement or final judgment.

Under the Fifth Amendment, an owner is entitled to both the fair market value of the property taken and interest on that amount when payment is delayed. (34) However, interest received on an award of just compensation is not subject to nonrecognition under [section] 1033. (35) Instead, the interest is treated as ordinary income and must be reported in the year in which it is received. (36) The Tax Court has reasoned that [section] 1033 "does not afford nonrecognition of all gains" related to the involuntary conversion of property. (37) Instead, [section] 1033 only applies to "gain derived from the property itself" and not interest, which is "compensation for the delay in payment of the sale price." (38) In the event of a pre-trial settlement in which the parties did not allocate a portion of the settlement amount as interest, the courts may "inquire into the true make-up of the final settlement" and "apportion that settlement in conformity with the realities of the bargaining between the parties." (39)

Under URARPA, certain displaced persons may be entitled to statutory payments for moving and related expenses, for replacement housing for homeowners, and for replacement housing for tenants and certain others. (40) Congress included in URARPA a provision expressly exempting payments received under the act from federal income taxation. (41) Thus, "payments expressly authorized by [URARPA] and in excess of the just compensation paid for taken property are exempted from taxation." (42)

If the IRS challenges a property owner's election of nonrecognition treatment of a condemnation gain under [section] 1033, the parties may end up in a factual dispute about how much of the condemnation payment was allocable to interest and payments under URARPA. The IRS has an incentive to argue that more of the payment received from the condemning authority was for interest than compensation for property. The owner will have an incentive to demonstrate exactly how much of the amount received was under URARPA, which is exempt from taxation. To avoid such uncertainty, it may be wise for the property owner to insist on an itemized breakdown of any condemnation payment, including interest and URARPA payments, whether the payment results from an agreement with the condemning authority or a judgment entered by a court.

Applicability of [section] 1033 to Severance Damages

When the condemning authority takes only part of a tract of property, the owner is entitled to just compensation for any reduction in value to the remainder of the tract attributable to the partial taking. (43) The diminution in the value of the remainder caused by a partial taking is known as "severance damages."

Severance damages pose an interesting problem under [section] 1033 because they technically do not represent the involuntary conversion of property into "similar property" or "money," which is the type of gain to which [section] 1033 expressly applies. Severance damages are not paid to compensate an owner for the loss of a property interest, they are paid to reimburse the owner for a decrease in the value of property that the owner still retains. Nevertheless, severance damages can constitute a significant involuntarily realized gain caused by a condemnation.

The IRS, the Tax Court, and the federal courts have interpreted [section] 1033 in such a way that an owner can achieve complete nonrecognition of severance damages, albeit with a twist. The nonrecognition of severance damage is accomplished in two parts. First, the cost basis of the remaining portion of the condemned tract is reduced by the amount of severance damages. (44) As the IRS has explained:
 [Severance damages] do not constitute an 'amount
 realized' from the sale of the condemned property for
 purposes of calculating gain or loss on the sale or exchange
 thereof. Rather they reduce the basis of the
 damaged portion, and any excess of the severance
 damages over the basis is taxable gain. (45)

The amount of severance damages that exceeds the adjusted basis of the remainder (and are therefore treated as a taxable gain) may be deferred under [section] 1033 by the purchase of qualified replacement property. (46)

Revenue Ruling 83-49 provides an example of how a property owner might avoid recognition of a gain attributable to severance damages. (47) In this ruling, the property owner had owned agricultural land and buildings with an adjusted basis of $220,000. (48) A portion of the owner's tract was condemned for a state highway project, and the property owner received just compensation of $175,000 for the property actually taken and $135,000 for the diminution in the value of the remainder of the tract. The owner subsequently purchased qualified replacement property for $350,000.

The IRS considered the issue of whether the property owner could defer the recognition of gain realized from the award of $135,000 for severance damages. First, the IRS determined how much of the severance damages constituted a taxable gain. Based on the portion of the tract that remained, the IRS allocated $80,000 of the tract's adjusted basis to the remainder. As such, after reducing the adjusted basis of the remainder by the amount of severance damages ($135,000-$80,000), the taxpayer was left with excess severance damages of $55,000, which the IRS determined was the taxable gain attributable to severance damages. The IRS then concluded that, because the taxpayer had made a timely election under [section] 1033 and had purchased qualified replacement property, the taxpayer had successfully triggered nonrecognition treatment of the gain realized from severance damages.

As with other components of the payment received from a condemning authority, a property owner may want to insist on language in the settlement agreement or judgment that clearly spells out which portion of the payment is for severance damages. Given that the gain realized from severance damages can be offset by the basis in the remaining property (which is not possible for the gain received for the condemned property), this issue may potentially be the subject of dispute with the IRS. In order to avoid the uncertainty of litigation in which a court must ascertain the parties' intent from an unclear record, the property owner may want to insist that the amount of severance damages be itemized in any agreement or judgment.

Applicability of [section] 1033 to Temporary Takings

Another unique application of [section] 1033 to the condemnation arena involves takings of real property for a limited period of time, such as a leasehold condemnation of office space or a temporary construction easement. Despite a conflicted history, it appears that payments received for temporary takings are subject to nonrecognition under [section] 1033, provided the owner purchases qualified replacement property within the specified time period.

The measure of just compensation for a temporarily taking is the "fair rental value of the property for the period of the taking." (49) Fair market rent is "the rental price in cash, or its equivalent, that the leasehold would have brought at the time of the taking, if then offered for rent in the open market." (50)

In 1953, the IRS issued Revenue Ruling 38, which opined that just compensation received by a taxpayer for a temporary taking of a warehouse was not subject to nonrecognition under [section] 1033 because a leasehold condemnation was not an involuntary disposition of property. (51) The IRS stated that just compensation for a leasehold taking is rental remuneration for use pursuant to a leasehold interest in the property and should thus be taxed as ordinary rental income. (52)

The IRS has issued a number of rulings that indicate it may have backed away somewhat from this interpretation of [section] 1033 in the context of temporary takings. In 1974, the IRS's Office of General Counsel recommended that Revenue Ruling 38 be modified "to reflect a position that the lease granted to the United States Government is property for purposes of section 1033." (53) In 1992, the IRS issued a private letter ruling holding that the recognition of a gain from a temporary taking of construction easements could be deferred under [section] 1033 by the timely purchase of a qualified replacement property. (54) In 1983, the IRS issued a revenue ruling holding that a tenant whose lease was taken by the government could avoid recognition of the condemnation proceeds by purchasing replacement property under [section] 1033. (55) However, the IRS has yet to expressly overrule Revenue Ruling 38 by addressing the nonrecognition under [section] 1033 of a condemnation gain realized by the fee owner of an office building or warehouse as a result of a temporary taking.


An awareness of the tax treatment of condemnation awards can be crucial to managing an owner's net return from the involuntary conversion of property through eminent domain. As demonstrated above, there are many potentially complex issues and considerations, including whether an owner is better off recognizing a condemnation gain in the year it is received or electing to defer recognition through the purchase of qualified replacement property. Depending on the owner's situation, seeking advice from a tax professional may be essential to making the best decisions regarding negotiations or litigation strategy. Moreover, the differing tax treatment of the various components of the amount ultimately paid by a condemning authority may justify drafting the agreement or judgment with these tax issues in mind.

(1.) 26 U.S.C. [section] 1001.

(2.) Likins-Foster Honolulu Corp. v. Commissioner of Internal Revenue, 417 F.2d 285, 289 (10th Cir. 1969); Feinberg v. Commissioner of Internal Revenue, 377 F.2d 21, 27 (8th Cir. 1967); Wilson v. Commissioner of Internal Revenue, 72 T.C.M. (CCH) 628, 1996 WL 525288 (September 17, 1996).

(3.) 26 U.S.C. [section] 1001(a) (general rule); 26 U.S.C. [section] 1011 (describing adjusted basis).

(4.) 26 U.S.C. [section] 1033(a).

(5.) Ibid.

(6.) 26 U.S.C. [section] 1033(a)(2); see also, 26 U.S.C. [section] 1033(g) (addressing how a taxpayer may defer recognition of a gain realized from an involuntary conversion of "real property held for productive use in trade or business or for investment").

(7.) Filippini v. United States, 318 R2d 841, 844 (9th Cir. 1963).

(8.) Internal Revenue Service, General Counsel Memorandum No. 39182, 1984 WL 264962 (October 6, 1982).

(9.) 26 U.S.C. [section] 1033 (b)(2); this section also provides that if the taxpayer buys more than one piece of replacement property, "the basis determined shall be allocated to the purchased properties in proportion to their respective costs."

(10.) 26 C.F.R. [section] 1.1033(a)-2(c)(2).

(11.) Ibid.

(12.) 26 U.S.C. [section] 1033(a)(2)(B)(i). The IRS regulations provide that a taxpayer may receive an extension of time to elect nonrecognition treatment under [section] 1033 if it is shown "to the satisfaction of the [IRS] district director" that the taxpayer had reasonable cause for not having filed the application within the required time period and "reasonable cause for not being able to replace the converted property within the required period of time." 26 C.F.R. [section] 1.1033(a)-2(c)(3).

(13.) 26 U.S.C. [section] 1033(g)(4).

(14.) 26 C.F.R. [section] 1.1033(a)-2(c)(5); Bruce N. Edwards, et al., 568-3d BNA Tax Management: Involuntary Conversions, A-39 (Bureau of National Affairs, Inc.: Tax Management Portfolio, 1999).

(15.) Under [section] 1033(a)(2), a taxpayer may also qualify for nonrecognition of a condemnation gain by purchasing "stock in the acquisition of control of a corporation" that owns property similar or related in service or use to the property that was condemned. Because of space constraints, we are limiting our focus to the purchase of qualified replacement property rather than the purchase of a controlling interest in corporations that own qualified replacement property, which entails a host of unique issues.

(16.) Maloof v. Commissioner of Internal Revenue, 65 T.C. 263, 269-70 (1976).

(17.) 26 C.F.R [section] 1.1033(g)-1 (a) (stating that whether replacement property is of like kind is determined by the principles set forth in 26 C.F.R. [section] 1.1031 (a)-1).

(18.) Edwards, et al., A-3 to A-4.

(19.) 26 U.S.C. [section] 1033(a).

(20.) Johnson v. Commissioner of Internal Revenue, 76 T.C.M. (CCH) 1035, 1998 WL 892267 (1998) (citing cases).

(21.) Tecumseh Corrugated Box Co. v. Commissioner of Internal Revenue, 94 T.C. 360, 376-77 (1990).

(22.) Johnson v. Commissioner of Internal Revenue, (citing Ranier Cos. v. Commissioner of Internal Revenue, 61 T.C. 68, 76 (1973), rev'd and remanded on other grounds, 538 F.2d 338 (9th Cir. 1975)).

(23.) Johnson v. Commissioner of Internal Revenue.

(24.) Rev. Rul. 89-2, 1989-1 C.B. 259 (1989).

(25.) 26 U.S.C. [section] 1033(a)(2)(B)(i), 1033(g)(4).

(26.) 26 U.S.C. [section] 1033(a)(2)(8)(i).

(27.) See for example, 40 U.S.C. [section] 258a (stating that "[u]pon the filing said declaration of taking and of the deposit in the court, to the use of the persons entitled thereto, of the amount of the estimated compensation stated in said declaration, title to the said lands in fee simple absolute, or such less estate or interest therein as is specified in said declaration, shall vest in the United States of America, and said lands shall be deemed to be condemned and taken for the use of the United States, and the right to just compensation for the same shall vest in the persons entitled thereto").

(28.) See for example, 40 U.S.C. [section] 258a (stating that "[u]pon the application of the parties in interest, the court may order that the money deposited in the court, or any part thereof, be paid forthwith for or on account of the just compensation to be awarded in said proceeding. If the compensation finally awarded in respect of said lands, or any parcel thereof, shall exceed the amount of the money so received by any person entitled, the court shall enter judgment against the United States for the amount of the deficiency"); Fed. R. Civ. R 71A(j) (stating that "[i]f the compensation finally awarded to any [owner] is less than the amount which has been paid to that [owner], the court shall enter judgment against that [owner] and in favor of the [government] for the overpayment").

(29.) Wilson v. Commissioner of Internal Revenue, 72 T.C.M. (CCH) 628, 1996 WL 525288 (September 17, 1996) (citing cases).

(30.) Ibid.

(31.) See, United States v. Clarke, 445 U.S. 253, 257 (1980) (stating that inverse condemnation is "a shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted").

(32.) Edwards, et al., A-8.

(33.) In re Mahon, Case No. 96-03845-6JI, 1998 WL 953984, 98-2 U.S.T.C. [paragraph] 50,864 (M.D. Fla. 1998).

(34.) Seaboard Air Line Ry. Co. v. United States, 261 U.S. 299, 300 (1923).

(35.) Vezey v. United States, D.C. No. CV-96-00055-HRH, 1999 WL 685961 (9th Cir. 1999).

(36.) Ibid., (citing Kieselbach v. Commissioner of Internal Revenue, 317 U.S. 399, 403 (1943)); Estate of Walter v. Commissioner of Internal Revenue, 30 T.C.M. (CCH) 1051, 1971 WL 2313 (September 27, 1971).

(37.) Tiefenbrunn v. Commissioner of Internal Revenue, 74 T.C. 1566, 1572 (1980).

(38.) ibid.

(39.) Estate of Walter v. Commissioner of Internal Revenue; see also, Vezey v. United States.

(40.) 42 U.S.C. [subsection] 4622 to 4624.

(41.) 42 U.S.C. [section] 4636.

(42.) Nielsen v. Commissioner of Internal Revenue, 110 T.C. 159 (2000).

(43.) United States v. Dickinson, 331 U.S. 745, 750-51 (citing Bauman v. Ross, 167 U.S. 548 (1897)).

(44.) Internal Revenue Service, General Counsel Memorandum No. 38968, 1983 WL 197818 (April 29, 1983); see also, E.R. Hitchcock Co. v. United States, 514 F.2d 484 (2d Cir. 1975); Vaira v. Commissioner of Internal Revenue, 444 F.2d 770, 774 & n.6 (3d Cir. 1971); Rev. Rul. 68-37, 1968-1 C.B. 359 (1968).

(45.) Internal Revenue Service, General Counsel Memorandum No. 38968.

(46.) McKitrick v. United States, 373 F. Supp. 471, 473 (S.D. Ohio 1974); Conran v. United States, 322 F. Supp. 1055, 1057-58 (E.D. Mo. 1971); Rev. Rul. 83-49, 1983-1 C.8.191, 1983 WL 189965 (March 21, 1983).

(47.) Rev. Rul. 83-49.

(48.) In the revenue ruling, the IRS abbreviated all sums of money as "$220x dollars," "$1 75x dollars," and so forth. For the sake of clarity, these figures have been converted into the nearest hundred thousand dollars.

(49.) Yuba Nat'l. Resources, Inc. v. United States, 904 Ir. 2d 1577, 1581 (Fed. Cir. 1990), (citing Kimball Laundry Co. v. United States 338 U.S. 1, 7 (1949)); see also, United States v. General Motors Corp., 323 U.S. 373, 382 (1945).

(50.) United States v. 1735 North Lynn Street, Situated in Rosslyn, Arlington County, Va., 676 F. Supp. 693, 706 (E.D. Va. 1987).

(51.) Rev. Rul. 38, 1953-1 C.B. 16(1953).

(52.) Ibid.

(53.) Internal Revenue Service, General Counsel Memorandum No. 39182, 1984 WL 264962 (October 6, 1984) (discussing General Counsel Memorandum No. 35767 (April 4, 1974)).

(54.) Internal Revenue Service, Priv. Ltr. Rul. 9248025 (August 31, 1992).

(55.) Rev. Rul. 83-70, 1983-1 C.B. 189, 1983 WL 190105 (April 25, 1983).

David S. Black, JD, is an attorney at Holland & Knight LLP. He works in the firm's northern Virginia office and practices in litigation involving land use, eminent domain, commercial, and government contract disputes. He is a graduate of Georgetown University Law Center. Contact: Holland & Knight LLP, 1600 Tysons Boulevard, Suite 700, McLean, VA, 22102; T 703-720-8680; F 703-720-8610; E-mail:

Charles A. Neff, JD, is an attorney at Holland & Knight LLR, He works in the firm's northern Virginia office and practices in transactions and disputes regarding land use, zoning, and corporations. He is a graduate of the University of Virginia. Contact: Holland & Knight LLP, 1600 Tysons Boulevard, Suite 700, McLean, VA, 22102; T 703-720-8025; F 703-720-8610; E-mail:
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Title Annotation:law and the appraiser
Author:Black, David S.; Neff, Charles A.
Publication:Appraisal Journal
Geographic Code:1USA
Date:Jul 1, 2003
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