Commissioner v. Crichton
122 F.2d 181 (5th Cir. 1941)
Crichton and her three kids
co-owned some property in the city (with a hotel) and some property in the
country (that might have oil under it). The made a deal where the
children would give Crichton their interest in the city property and
Crichton would give them her mineral rights to the country property.
The interest in the city
property that the children gave up was worth about $15k, which the
mineral rights Crichton gave up had a cost basis of zero.
When she filed her taxes,
Crichton treated the exchange as one of property for property and
therefore non-taxable. The IRS disagreed.
Crichton argued that the tax
code (then 26 U.S.C. §112(b)(1),
now 26 U.S.C. §1031(a))
had a nonrecognition exemption for exchanges of property
The IRS argued that §112(b)(1) is only applicable for exchanges that are of
"like kind." Here a city property with a hotel on it was
exchanged for the mineral rights to an undeveloped piece of land in the
country. That's not "like kind."
The Tax Court found for
Crichton. The IRS appealed.
The Appellate Court affirmed.
The Appellate Court found
that §112(b)(1) was not intended
to draw any distinction between parcels of real property however
dissimilar they may be in location, in attributes, and in capacities for
As this case shows, in
general, the "like kind" requirement of the nonrecognition
exemption is interpreted very broadly.