Five-Minute Tax Briefing No Involuntary Conversion for Court-ordered Sale: A husband and wife, who entered into a contract to sell real property, changed their minds and decided against selling it. After being sued by the prospective buyer and ordered by the court to go through with the sale, the couple reluctantly sold the property. On their tax return, they failed to report the gain on the sale, claiming they were eligible for involuntary conversion relief under IRC Sec. 1033 because the gain was against their will. To be eligible for Section 1033 gain deferral, the property must be compulsorily or involuntarily converted, and the proceeds from the conversion must be reinvested in similar replacement property (or related in service) within two years of the tax year in which the gain on conversion was realized. However, there was no indication that the sale was motivated by condemnation, threat of condemnation, theft, or seizure. A District Court held that the sale did not qualify as an involuntary conversion because IRC Sec. 1033 applies if the taxpayer loses possession of the property due to a situation out of his or her control—not when its done voluntarily, albeit reluctantly. Furthermore, the couple didnt timely reinvest the sales proceeds in similar real estate.
Posted on: Fri, 11 Jul 2014 12:26:09 +0000
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