Clifton Inv. Co. v. Commissioner
312 F.2d 719 (6th Cir. 1963)

  • Clifton was a real estate investment corporation. They owned an office building in Cincinnati and leased it to a bank. The city bought the building using eminent domain.
  • Clifton took the money from the sale and bought 80% of the stock in a holding company that owned nothing but the right to purchase a hotel in New York.
    • The corporation went on to buy the hotel.
  • When they filed their taxes, Clifton treated the gain they made on the sale of the Cincinnati hotel as non-recognizable based 26 U.S.C. 1033.
    • The IRS argued that 1033 is only applicable if the taxpayer buys property of like-kind to what they were forced to sell. In this case, Clifton sold an office building and bought a hotel. Those are two different things, so the 1033 exemption doesn't apply.
    • Clifton argued that they were in the business of collecting rent, and that rent from an office building was the same as rent from a hotel, the new property was "similar or related in service or use" to the building they had been forced to sell, so the 1033 exemption does apply.
  • The Tax Court found for the IRS. Clifton appealed.
  • The Appellate Court affirmed.
    • The Appellate Court found that renting out an office building to a company was not the same as running a hotel.
    • The Court found that 1033 was designed to allow a taxpayer to continue their previous business. Clifton was now in an entirely new business, so 1033 does not apply.