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 for 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 profitable use.
  • As this case shows, in general, the "like kind" requirement of the nonrecognition exemption is interpreted very broadly.