Harry G. Masser v. Commissioner
30 T.C. 741 (Tax Ct. 1958)

  • Masser owned two pieces of property right next to each other. He used one for an office building to run his trucking business, and the other as a place to park his trucks. The parking lot was involuntarily converted when the city bought the land (via eminent domain) to build a housing development.
    • Masser did not have the option of not selling the parking lot.
  • Without a parking lot, Masser's office building wasn't useful to his trucking business, so he sold it off also and used the money from both sales to build a new facility/parking lot elsewhere.
  • When he filed his taxes, Masser treated the gain he made on both sales as non-recognizable based on the tax code (then 26 U.S.C. 112(f)(1), now (26 U.S.C. 1033). The IRS disagreed.
    • The IRS argued that Masser was only forced to sell the parking lot, not the office building, so gain on the building did not meet the exemption of 112(f)(1), which only exempts involuntary sales.
    • Masser argued that it was economically unfeasible to keep the building without the parking lot. Therefore he had no choice but to sell it.
  • The Tax Court found for Masser.
    • The Tax Court found that the two pieces of property were used as a single economic unit.
    • The Court found that when one piece of a single economic unit is involuntarily sold, and that sale renders the continuation of business on the remaining piece impractical, and if both pieces are sold and the proceeds reinvested in a similar property, then the entire transaction is considered an involuntary conversion and meets the requirements of 112(f)(1).