The following are the facts of the case of Commissioner of internal revenue, petitioner vs. Kate j, Crinchton.The defendant and her children had a tract of land that has a developed side o and undeveloped part. They all owned the land in undivided interests. The fact that one of the lands was improved and the other one not developed lead to a difference in the exchange interests. Her children transferred to her their undivided interests in the developed part of the land and she made a counter offer of transferring to them 3/12 interest of the country land. The transfer-included oil, gas and any other mineral produced above or below the land. Kate the respondent, made a gain of $15357.77 on the ½ interest conveyed to her. The interest she transferred to her children had a cost basis of zero.
The issue was the respondent treated her transfer of property as one of like kind and therefore non-taxable under section 112-B-1 revenue act of 1936. IRS on the other hand was of the opinion that there was a capital gain of $15357.77 and the respondent leading to a deficient of $628.66 in her calculation for tax revenue. They upheld this decision in accordance with section .7 of the revenue act of 1936.the tax respondent appealed to the board of tax and Board .2 held that the exchange was in kind and it determined a new deficiency of $86.46.the commissioner decided that the board had made a wrong decision.
The appeals court was to decide whether the exchange was non- taxable. The court considered the following issues before making its decision. The statute of the revenue act was not very clear if interpreted alone and it would cause some difficulties. Therefore, the most favorable statute to consider was the Treasury regulations 94.3 that are clearer. Under this statute, the case of Helvering co. Vs Reynolds Tobacco Company was decided and from that day, the statue has been interpreted for many cases .the revenue act was very general to be used in deciding the case.
The court conclusion was that the boards’ ruling was upheld and its reasoning and explanations are as discussed below.
I agree with the court's ruling of upholding that the property was personal and therefore there was no taxable gain from it. This is because one family owned the land in the developed part of town and undeveloped part. There was no dealer involved in the transfer; therefore, the gain remained in the family. The transfer was not commercial in nature and the family realized the gains. It was just a swap of interests from the children to their mother.
