Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-70

1957-1 C.B. 260

Sec. 1033

IRS Headnote

Where in the taxable year 1954, under threat or imminence of condemnation, a corporation sold property to a city and concurrently leased the property for the period prior to its use by the city for the purpose for which acquired, such sale qualifies as an involuntary conversion.

Full Text

Rev. Rul. 57-70

Advice has been requested whether the sale of property by a corporation to a city, where the corporation enters into a five-year lease for the use of the property, qualifies as an involuntary conversion under section 1033 of the Internal Revenue Code of 1954.

A corporation was notified by the city in which it was located that its property would be taken for use in connection with the expansion of an airport. Before commencement of condemnation proceedings, it sold such property to the city in the taxable year 1954. Concurrently, the corporation entered into a five-year lease with the city with an option on the part of the city to cancel after three years from the date of the lease, should the property be required for the purpose acquired. The lease is noncancellable on the part of the corporation and payments under the lease must continue until its expiration; otherwise the balance of the payments will become due and payable in full upon vacating the lease.

Where an authority which has power to condemn property has notified an owner that his property will be taken and the property is sold to such authority through negotiation, such sale is considered to be transacted under threat or imminence of condemnation as contemplated by section 1033 of the Code. The fact that the city purchased the property before it was actually needed is irrelevant in determining whether an involuntary conversion has taken place.

Accordingly, it is held that the lease back to the corporation of the property which it sold to the city, under threat or imminence of requisition or condemnation, will not disqualify such sale as an involuntary conversion under section 1033 of the Code.